10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended August 31, 2012

o   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:  000-54328

EFL OVERSEAS, INC.

(Exact name of registrant as specified in its charter)

Nevada	26-3062721
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

333 North Sam Houston Parkway East, Suite 410, Houston, Texas, 77060

(Address of Issuer's Principal Executive Offices, Zip Code)

Issuer’s telephone number, including area code:  (281) 260-1034

Securities registered under section 12(g) of the Exchange Act: Common Stock, ($0.001 Par Value)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act Yes ¨ No þ

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,  and will not be contained,  to the best of Registrant's  knowledge,  in definitive proxy or information  statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer   (Do not check if a smaller reporting company)	o	Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange).  Yes ¨ No þ

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the registrant’s common stock on February 29, 2012, as quoted on the OTCQB Markets, was approximately $22,138,100.

As of November 29, 2012, the Registrant had 19,009,205 outstanding shares of common stock.

PART I

Cautionary Statement Concerning Forward-Looking Statements

This report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management and information currently available to management. The use of words such as "believes," "expects," "anticipates," "intends," "plans," "estimates," "should," "likely" or similar expressions, indicates a forward-looking statement.

Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future results may differ materially from those expressed in the forward-looking statements. Many of the factors that will determine these results are beyond our ability to control or predict. Do not place undue reliance on any forward-looking statement. They speak only to the date made. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to:

● our ability to effectively judge and finalize acquisition opportunities and integrate acquired assets;

● the impact of economic recessions and changes in consumer and business consumption habits;

● the impact of environmental or regulatory changes on the content or timing of our exploration,  development, or operating plans;

● our ability to finance our business plan;

● our ability to deal effectively with competition and manage our growth, and

● the success or commercial viability of our exploration and drilling plans.

We operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statement. All forward-looking statements included in this filing are based on information available to us on the date of the filing. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this filing.

ITEM 1.  BUSINESS.

Background

EFL Overseas, Inc. is a development stage company incorporated in the State of Nevada on July 22, 2008. We are engaged in the acquisition, exploration and development of oil and gas properties in the United States and Canada.

During the period from July 18, 2012 through October 17, 2012, we acquired working interests totaling 53.65% (including a 100% working interest in one gas well) in the Kotaneelee Gas Project located on 30,542 gross acres in the Yukon Territory in Canada. We believe the Kotaneelee Gas Project has significant conventional and shale gas potential and is supported by an environment of growing investment in gas processing and export in the Pacific Northwest.

During March 2011, we initiated oil and gas operations by entry into a Farmout and Participation Agreement (the “Eagleford Agreement”) with Dyami Energy LLC and Eagleford Energy Inc. The Eagleford Agreement provided for our acquisition of a net working interest, ranging from 21.25% to 42.5%, in a 2,629 acre oil and gas lease known as the Matthews Lease, insofar as that lease covers from the surface to the base of the San Miguel formation (the “San Miguel Lease”). The San Miguel Lease is located in Zavala County, Texas, and has no current production or proven reserves.

2

Prior to March 2011, we were relatively inactive. We were originally organized to recruit amateur instructors to teach English in Japan and Brazil. We were unable, however, to identify a sufficient number of instructors to fulfill our business plan.

On April 28, 2010, shareholders owning a majority of our outstanding shares approved a 20 for 1 forward split of our common stock. The stock split was based on market conditions and upon a determination by our Board of Directors that the stock split was in our best interests and in the best interests of our shareholders. The amendment to our Articles of Incorporation pertaining to the forward stock split was filed with the Nevada Secretary of State on May 3, 2010. The forward stock split became effective on the OTC Bulletin Board on June 30, 2010.Prior to the forward stock split, we had 330,000 shares of common stock outstanding.  Subsequent to the forward stock split we had 6,600,000 outstanding shares of common stock.

On April 20, 2010, a former officer and director sold 4,835,000 shares of common stock (on a pre-forward split basis) to us for $100. The shares were cancelled following their purchase.

The Kotaneelee Gas Project (“KGP”) – Yukon Territory, Canada

Working Interest Acquisitions

The Devon Assets

On July 18, 2012, we completed an acquisition of Devon Canada’s (“Devon”) entire right and interest (generally a working interest of 22.989%, with a working interest of 69.337% in one gas well) in the Kotaneelee Gas Project (“KGP”). The KGP covers 30,542 gross acres in the Yukon Territory in Canada, and includes; a gas dehydration plant (capacity: 70 million cubic feet per day (“MMCFD”)), one water disposal well (capacity: 6,000 barrels per day), one gas well temporarily shut-in for maintenance, and two suspended gas wells, flarestack, storage tanks, airstrip, roads, gathering systems, geological data, equipment, and other transportation and camp infrastructure.

As consideration for Devon’s working interest in the KGP, (the “Devon Assets”), we paid approximately $23,298,000. The consideration was comprised of $290,000 in cash, 7,250,000 shares of our restricted common stock valued at $15,950,000, and the absorption of $7,058,000 in asset retirement obligations. Our previous estimate of the fair value of the common stock paid to acquire the Devon Assets has been modified to reflect the market price of our stock at the purchase date. We allocated the consideration paid to the assets acquired based upon their fair value at the date of purchase, as follows:

Asset Description	Fair Value of Asset Acquired
Proven Properties
Intangibles	$	6,780,000
Plant and equipment		6,484,000
Gathering systems		1,788,000
Vehicles		4,527
Leasehold costs		581,379
		15,637,906
Unproven Leasehold Costs		6,465,622
		22,103,528
Goodwill		1,194,365
Total Assets Acquired - KGP	$	23,297,893

3

The Nahanni Assets

On October 17, 2012, we closed a Share Purchase Agreement (the “Purchase Agreement”) with Nahanni Energy Inc., 1700665 Alberta Ltd., Apex Energy (2000), Inc. and Canada Southern Petroleum #1 L.P. (jointly “Nahanni”) for the acquisition of its entire right and interest (generally a working interest of 30.664%) in the KGP (the “Nahanni Assets”).

As consideration for the Nahanni Assets, we paid Nahanni CAD$400,000 (USD$398,550) in cash, and CAD$4,100,000 (USD$4,190,610) in shares of one of our subsidiaries, which are exchangeable for 1,614,767 shares of our restricted common stock. The cash portion of Nahanni’s consideration was offset by CAD$270,000 (USD$265,950) paid in connection with the acquisition of the Devon Assets in settlement of certain Nahanni indebtedness. The number of shares issued by our subsidiary was calculated by dividing $4,190,610 by the volume weighted average trading price of our stock for the ten (10) trading days prior to closing the Purchase Agreement.  Both the cash paid and stock issued for the Nahanni Assets are subject to certain holdbacks for Asset related liabilities or breach of representations and warranties. In addition, we indemnified Nahanni against its portion of the abandonment, reclamation and environmental liabilities associated with the Assets. Early estimates of those liabilities range from USD$9,000,000 to USD$10,000,000.

Our allocation of the consideration paid for the Nahanni Assets is awaiting the results of our fair market valuation study.

Future Exploration and Development

Our exploration plan for the KGP involves the exploitation of both conventional and unconventional (shale) gas resources. Phase One of that plan includes the acquisition of new seismic data, the recompletion of two existing wells, and the drilling, completion and equipping of one new well. Phase One efforts will focus on previously identified or tested conventional gas zones. During Phase One we intend to target lower cost exploration with the potential to create positive cash flows and long term sustainability for the KGP. Early estimates indicate the cost of Phase One exploration may range from $22,000,000 to $23,000,000. If we pursue the completion of one well in an unconventional zone, our Phase One costs could increase by $9,000,000 to $10,000,000.

Phase Two and Phase Three of our exploration plan anticipates the drilling, completion, and tie-in of eights wells divided almost evenly between conventional and unconventional targets. Early estimates indicate the total cost of Phase Two and Three exploration may range from $145,000,000 to $150,000,000.

The San Miguel Lease - Zavala County, Texas

The Eagleford Agreement provided for our acquisition of a net working interest, ranging from 21.25% to 42.5%, in a 2,629 acre oil and gas lease known as the Matthews Lease, insofar as that lease covers from the surface to the base of the San Miguel formation. The San Miguel Lease is located in Zavala County, Texas, and has no current production or proven reserves.

Under the Eagleford Agreement, to earn our initial 21.25% working interest (net revenue interest 15.94%), we were obligated to drill and complete a vertical test well (the “Test Well”) in the San Miguel shale formation. We were also obligated to perform an injection operation on the Test Well. If the Test Well was prospective for production in commercial quantities, we were required to equip the Test Well and place it on production. If we determine that the Test Well is not prospective for production in commercial quantities, we are responsible for the abandonment of the Test Well.

During April and May 2011, we drilled and completed the Test Well, performed injection operations and earned our initial interest in the San Miguel Lease. The Test Well was drilled into the San Miguel heavy oil zone to a depth of 3,168 feet. The well encountered oil and was completed as a San Miguel producer. After completion, it was determined that the oil was subject to significant viscosity changes related to temperature reductions from formation to recovery at surface. The Test Well was stimulated with nitrified hydrochloric acid and placed on production. To date, however, oil viscosity has prohibited economic operation. Although we continue to investigate various methods to improve production from the Test Well, we cannot estimate what cost, if any, will be associated with future production efforts on the San Miguel Lease. We have no current plans to spend the funds necessary to earn an additional interest in the San Miguel Lease. In the event we are unable to substantially improve production, we intend to abandon the Test Well, or actively pursue the sale of our interest in the San Miguel Lease.

4

As a result of the application of a full cost pool "ceiling test", we determined that the book value of the San Miguel Lease was impaired to the extent of its carrying value. Accordingly, during the year ended August 31, 2011 and the three months ended November 30, 2011, we recognized losses on the impairment of oil and gas assets of $835,659 and $44,335, respectively. The carrying value of oil and gas properties was likewise reduced to reflect the impairment of the San Miguel Lease. We have made no additional expenditures on the San Miguel Lease since November 30, 2011.

Competition

The petroleum and natural gas industry is highly competitive. Numerous independent oil and gas companies, oil and gas syndicates and major oil and gas companies actively seek out and bid for oil and gas properties as well as for the services of third party providers, such as drilling companies, upon which we rely. From time to time, seismic vendors, drilling contractors, rigs and supplies may be in short supply. Their availability may be controlled by other larger explorers in the area. Native title holders or certain of our competitors may control pipeline capacity, roads, bridges and other infrastructure we require to access or fully exploit our properties. Our reliance upon their resources may create a competitive disadvantage for us. A substantial number of our competitors have longer operating histories and substantially greater financial and personnel resources than we do, and have demonstrated the ability to operate through industry cycles.

Some of our competitors not only explore for, produce and market petroleum and natural gas, but also carry out refining operations and market the resultant products on a worldwide basis which may provide them with additional sources of capital. Larger and better capitalized competitors may be in a position to outbid us for particular prospect rights. These competitors may also be better able to withstand sustained periods of unsuccessful drilling. Larger competitors may be able to absorb the burden of any changes in laws and regulations more easily than we can, which would adversely affect our competitive position.

Petroleum and natural gas producers also compete with other suppliers of energy and fuel to industrial, commercial and individual customers. Competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the governments and/or their agencies and other factors which are out of our control including, international political conditions, terrorism, overall levels of supply and demand for oil and gas, and the markets for synthetic fuels and alternative energy sources.

Regulation

The exploration, production and sale of oil and gas are extensively regulated by governmental authorities. Applicable legislation is under constant review for amendment or expansion. These efforts frequently result in an increase in the regulatory burden on companies in our industry and consequently an increase in the cost of doing business and decrease in profitability. Numerous governmental departments and agencies are authorized to, and have, issued rules and regulations imposing additional burdens on the oil and gas industry that often are costly to comply with and carry substantial penalties for non-compliance. Production operations are affected by changing tax and other laws relating to the petroleum industry, constantly changing administrative regulations and possible delays, interruptions or termination by government authorities.

Oil and gas mineral rights may be held by individuals, corporations or governments having jurisdiction over the area in which such mineral rights are located. As a general rule, parties holding such mineral rights grant licenses or leases to third parties to facilitate the exploration and development of these mineral rights. The terms of the leases and licenses are generally established to require timely development. Notwithstanding the ownership of mineral rights, the government of the jurisdiction in which mineral rights are located generally retains authority over the drilling and operation of oil and gas wells.

5

Environmental considerations

Our operations are also subject to a variety of constantly changing laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Failure to comply with environmental laws and regulations can result in the imposition of substantial fines and penalties as well as potential orders suspending or terminating our rights to operate. Some environmental laws to which we are subject provide for strict liability for pollution damage, rendering a company liable for environmental damage without regard to negligence or fault on the part of such company. In addition, we may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances, such as oil and gas related products or for other reasons.

Some environmental protection laws and regulations may expose us to liability arising out of the conduct of operations or conditions caused by others, or for acts which were in compliance with all applicable laws at the time the acts were performed. Changes in environmental laws and regulations, or claims for damages to persons, property, natural resources or the environment, could result in substantial costs and liabilities to us. These laws and regulations may substantially increase the cost of exploring, developing, producing or processing oil and gas and may prevent or delay the commencement or continuation of a given project and thus generally could have a material adverse effect upon our capital expenditures, earnings, or competitive position. We believe that we are in substantial compliance with current applicable environmental laws and regulations. Nevertheless, changes in existing environmental laws and regulations or in the interpretations thereof could have a significant impact on us and the oil and gas industry in general.

Risks

Our failure to obtain capital may significantly restrict our proposed operations.

We received an audit report from our independent registered public accounting firm containing an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.  We have not generated significant revenues and has never been profitable. We need additional capital to fund operating losses, acquire assets and to explore for oil and gas. We do not know what the terms by which we may obtain any future capital, but any future sale of our equity securities would dilute the ownership of existing stockholders and could be at prices substantially below the market price of our common stock. We may not be able to obtain the capital we need.

Our pursuit of natural resource properties may fail and/or exploration activities may not be commercially successful, which could lead us to abandon our plans to develop properties.

Our long-term success depends on our ability to establish commercially recoverable quantities of resources on our properties that can then be developed into commercially viable operations. Resource exploration is highly speculative in nature, involves many risks and is frequently non-productive. These risks include unusual or unexpected geologic formations, and the inability to obtain suitable or adequate machinery, equipment or labor. The success of exploration is determined in part by the following factors:

a)	The identification of potential resources;
b)	availability of government-granted exploration permits and well licenses;
c)	the quality of management and geological and technical expertise; and
d)	the capital available for exploration.

Substantial expenditures are required to establish proven and probable resource reserves. Whether a resource will be commercially viable depends on a number of factors outside our control, which include, without limitation, the particular attributes of the resource formation, and proximity to infrastructure; prices, which fluctuate widely; and government regulations, including, without limitation, regulations relating to prices, taxes, development, production,  stimulation and fracking, royalties, land tenure, land use, importing and exporting of resources and environmental protection. We may invest significant capital and resources in exploration activities and abandon such investments if we are unable to identify commercially exploitable reserves. Our inability to acquire or the decision to abandon a project may reduce the trading price of our common stock and impair our ability to raise future financing. We cannot provide any assurance to our shareholders that we will identify or acquire any resources in sufficient quantities on any properties to justify commercial operations. Further, we will not be able to recover the funds that we spend on exploration if we are not able to establish commercially recoverable quantities of resources on any property we may acquire.

6

Oil and gas exploration is not an exact science, and involves a high degree of risk.

Our primary exploration risk lies in the drilling of dry holes or drilling and completing wells which, though productive, do not produce gas and/or oil in sufficient amounts to return the amounts expended and produce a profit. Hazards, such as unusual or unexpected formation pressures, downhole fires, blowouts, loss of circulation of drilling fluids and other conditions are involved in drilling and completing oil and gas wells and, if such hazards are encountered, completion of any well may be substantially delayed or prevented. In addition, adverse weather conditions can hinder or delay operations, as can shortages of equipment and materials or unavailability of drilling, completion, and/or work-over rigs. Even though a well is completed and is found to be productive, water and/or other substances may be encountered in the well, which may impair or prevent production or marketing of oil or gas from the well. Exploratory drilling involves substantially greater economic risks than development drilling because the percentage of wells completed as producing wells is usually less than in development drilling. Exploratory drilling itself can be of varying degrees of risk and can generally be divided into higher risk attempts to discover a reservoir in a completely unproven area or relatively lower risk efforts in areas not too distant from existing reservoirs. While exploration adjacent to or near existing reservoirs may be more likely to result in the discovery of oil and gas than in completely unproven areas, exploratory efforts are nevertheless high risk activities.

Although the completion of oil and gas wells is, to a certain extent, less risky than drilling for oil and gas, the process of completing an oil or gas well is nevertheless associated with considerable risk. In addition, even if a well is completed as a producer, the well for a variety of reasons may not produce sufficient oil or gas in order to repay our investment in the well.

There are numerous uncertainties inherent in estimating crude oil and natural gas reserves and their estimated values. The reserves we report in our filings with the SEC are estimates and such estimates may prove to be inaccurate because of these uncertainties. Reservoir engineering is a subjective and inexact process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner. Estimates of economically recoverable crude oil and natural gas reserves depend upon a number of variable factors, such as historical production from the area compared with production from other producing areas and assumptions concerning effects of regulations by governmental agencies, future crude oil and natural gas prices, future operating costs, severance and excise taxes, development costs and work-over and remedial costs. Some or all of these assumptions may in fact vary considerably from actual results. For these reasons, estimates of the economically recoverable quantities of crude oil and natural gas attributable to any particular group of properties, classifications of such reserves based on risk of recovery, and estimates of the future net cash flows prepared by different engineers or by the same engineers but at different times may vary substantially. Accordingly, reserve estimates may be subject to downward or upward adjustment. Actual production, revenue and expenditures with respect to our reserves will likely vary from estimates, and such variances may be material.

Substantial sales or other issuances of our Common Stock, or the perception that such sales might occur, could depress the market price of our Common Stock.

We cannot predict whether future issuances of our Common Stock or resales in the open market will decrease the market price of our Common Stock. The impact of any such issuances or resales of our Common Stock on our market price may be increased as a result of the fact that our Common Stock is thinly, or infrequently, traded. The exercise of any options or the vesting of any restricted stock that we may grant to directors, executive officers and other employees in the future, the issuance of Common Stock in connection with acquisitions and other issuances of our Common Stock could have an adverse effect on the market price of our Common Stock. In addition, future issuances of our Common Stock may be dilutive to existing shareholders. Any sales or other issuances of substantial amounts of our Common Stock in the public market, or the perception that such sales might occur, could lower the market price of our Common Stock.

7

Penny Stock Regulations may impose certain restrictions on marketability of the Company’s securities.

The trading of our Common Stock is subject to rules pertaining to “penny stocks.” The Securities and Exchange Commission (“SEC”) has adopted regulations which generally define a “penny stock” to be any equity security that has a market price (as defined) of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. As a result, our Common Stock is subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established clients and “accredited investors.” For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market. The broker-dealer must also disclose the commission payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealers presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell shares of the Company’s Common Stock and may affect the ability of investors to sell such shares of Common Stock in the secondary market and the price at which such investors can sell any of such shares.

Investors should be aware that, according to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include:

●   control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;

●   manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;

●   “boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;

●   excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and

●   the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investors losses

IN ADDITION TO THE RISK FACTORS SET FORTH ABOVE, WE ARE SUBJECT TO NUMEROUS OTHER RISKS SPECIFIC TO OUR PARTICULAR BUSINESS AS WELL AS GENERAL BUSINESS RISK. INVESTORS ARE URGED TO CONSIDER ALL OF THE RISKS INHERENT IN OUR SECURITIES PRIOR TO PURCHASING OR MAKING AN INVESTMENT DECISION.

Other

We currently have no full-time employees. We use consultants and contractors to provide us with, among other things, executive management,accounting services, field operating support and technical engineering.

Other than engineering, geochemical, geophysical and exploration programs capitalized in connection with our oil and gas concessions, we have devoted no substantial efforts to research and development within the last two fiscal years.

ITEM 2.  PROPERTIES.

Oil and Gas Properties

Our crude oil and gas properties consist essentially of working interests owned by us in various oil and gas wells, plant, equipment and related leases located in the Yukon Territory in Canada. Recapped below is a brief synopsis of our core area of operation, as at August 31, 2012. Lease and well data is presented as at November 29, 2012, and includes the impact of acquisition of the Nahanni Assets on October 17, 2012.

8

Capital Expenditures, Including Acquisitions and Costs Incurred

Capitalized acquisition, exploration and development costs incurred on the KGP during the fiscal year ended August 31, 2012 are summarized as follows:

KGP – Proved Properties:
Balance, August 31, 2011	$	––
Acquisition costs		15,637,906
Expenditures on oil and gas properties		––
Depletion and depreciation		(405,082	)
Oil and gas property impairment		––
Balance, August 31, 2012	$	15,232,824

KGP – Unproven Properties:
Balance, August 31, 2011	$	––
Acquisition costs		6,465,622
Expenditures on oil and gas properties		––
Depletion and depreciation		––
Oil and gas property impairment		––
Balance, August 31, 2012	$	6,465,622

Revenue and direct costs incurred on the KGP from the date of acquisition through August 31, 2012 are summarized as follows:

	From Acquisition (July 18, 2012) to August 31, 2012
Crude oil and natural gas production revenues	$	257,599
Operating cost:
Depreciation, depletion and amortization
Recurring		(400,744	)
Additional		––
Lease operating expenses		(255,143	)
Royalties		(6,309	)
Results of operations	$	(404,597	)
Barrels of oil equivalent (6:1) produced		18,571
Recurring DD&A per barrel of oil equivalent (6:1)	$	21.58

9

The costs incurred on the San Miguel Lease during the fiscal years ended August 31, 2012 and 2011 are summarized as follows:

Balance, August 31, 2010	$	––
Expenditures on oil and gas properties		724,500
Accrued expenditures on oil and gas properties		31,159
Asset retirement obligations		80,000
Oil and gas property impairment		(835,659	)
Balance, August 31, 2011		––
Expenditures on oil and gas properties		11,200
Accrued expenditures on oil and gas properties		33,135
Asset retirement obligations		––
Oil and gas property impairment		(44,335	)
Balance, August 31, 2012	$	––

Drilling Statistics

During the years ended August 31, 2012 and 2011, we drilled or participated in the drilling of the following wells.  We did not drill any development wells during the years ended August 31, 2012 or 2011.

	Year Ended August 31, 2012		Year Ended August 31, 2011
	Gross	Net	Gross		Net
Exploratory Wells:	––	––		––		––
Productive:
Oil	––	––		––		––
Gas	––	––		––		––
Non-productive:	––	––		1		.215
Total Wells:	––	––		1		.215

As of November 29, 2012 we were not drilling or completing any wells.

Productive Oil and gas Wells

At August 31, 2012, we had an interest in one gross productive natural gas well (0.7 net well) in the KGP. This well was shut in for maintenance in September 2012 and remains shut in as of November 29, 2012.

10

Production, Pricing and Lease Operating Cost Data

The following table describes, for the years ended August 31, 2012 and 2011, crude oil and natural gas production, average lease operating expenses per mcf (including severance and other taxes and transportation costs) and our average sales prices. All of this information relates to our working interest in the KGP:

			Average		Average
	Natural Gas		Lease Operating		Sales
	Production		Expense		Price
	(mcf)		(per mcf)		(per mcf)
Year ended:
August 31, 2012		111,425	$	2.43	$	2.30
August 31, 2011		––	$	––	$	––

Delivery Commitments

As of August 31, 2012, we had no delivery commitments.

Well and Lease Data

Gross and Net Undeveloped and Developed Acreage

The following table shows, by state/territory, our producing wells, developed acreage, and undeveloped acreage, excluding service (injection and disposal) wells as of November 29, 2012:

Productive Wells

Developed Acreage

Undeveloped Acreage

State/Territory

Gross

Net

Gross

Net

Gross

Net

Yukon

1

1.0

806

806

29,736

15,894

Texas

––

––

40

8.6

––

––

(1) Undeveloped acreage includes leasehold interests on which wells have not been drilled, or completed, to the point that would permit the production of commercial quantities of natural gas and oil, regardless of whether the leasehold interest is classified as containing proved undeveloped reserves.

11

The following table shows, as of November 29, 2012, the status of our gross acreage:

State/Territory	Held by Production		Not Held by Production
Yukon		2,419		28,123
Texas		40		––

Acres that are Held by Production remain in force so long as oil or gas is produced from the well on the particular lease. Leased acres, which are not Held by Production, often require annual rental payments to maintain the lease until the first to occur of the following: the expiration of the lease or the time oil or gas is produced from one or more wells drilled on the leased acreage. At the time oil or gas is produced from wells drilled on the leased acreage, the lease is considered to be Held by Production.

The following table shows the years our leases, which are not Held by Production, will expire, unless a productive oil or gas well is drilled on the lease.

Leased Acres (Gross)	Expiration of Lease
28,123	2020

Estimated Proved Reserves and Future Net Cash Flows

In January 2009, the SEC issued Release No. 33-8995, “Modernization of Oil and Gas Reporting” (Release 33-8995), amending oil and gas reporting requirements under Rule 4-10 of Regulation S-X and Industry Guide 2 in Regulation S-K and bringing full-cost accounting rules into alignment with the revised disclosure requirements. The new rules include changes to the pricing used to estimate reserves, the option to disclose probable and possible reserves, revised definitions for proved reserves, additional disclosures with respect to undeveloped reserves, and other new or revised definitions and disclosures. In January 2010, the Financial Accounting Standards Board (FASB) amended Accounting Standards Codification (ASC) Topic 932, “Extractive Industries — Oil and Gas” to align the guidance with the changes made by the SEC. The Company adopted Release 33-8995 and the amendments to ASC Topic 932 (collectively, the Modernization Rules) effective January 1, 2010.

Proved oil and gas reserves are the estimated quantities of natural gas, crude oil, condensate and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Reserve estimates are considered proved if economical productivity is supported by either actual production or conclusive formation tests. Estimated reserves that can be produced economically through application of improved recovery techniques are included in the “proved” classification when successful testing by a pilot project or the operation of an active, improved recovery program in the reservoir provides support for the engineering analysis on which the project or program is based. Estimated proved developed oil and gas reserves can be expected to be recovered through existing wells with existing equipment and operating methods.

Proved undeveloped (PUD) reserves include those reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Undeveloped reserves may be classified as proved reserves on undrilled acreage directly offsetting development areas that are reasonably certain of production when drilled, or where reliable technology provides reasonable certainty of economic producibility. Undrilled locations may be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless specific circumstances justify a longer time period.

As of August 31, 2012, the Company had total estimated proved reserves of 5,363,400 mcf of natural gas, of which 2,067,900 mcf of natural gas were proved producing reserves and the balance were PUD reserves. Combined, these total estimated proved reserves are equivalent to 893,900 barrels of oil equivalent.

The Company emphasizes that its reported reserves are estimates which, by their nature, are subject to revision. The estimates are made using available geological and reservoir data, as well as production performance data.

AJM Deloitte prepared the estimates of our proved reserves, future productions and income attributable to our leasehold interests for the year ended August 31, 2012.  AJM Deloitte is independent petroleum engineering firm that has been providing petroleum consulting services worldwide for over 20 years.  The estimates of proved reserves, future production and income attributable to certain leasehold and royalty interests are based on technical analysis conducted by teams of geoscientists and engineers employed at AJM Deloitte.  AJM Deloitte prepared our reserve estimate based upon a review of property interests being appraised, historical production, lease operating expenses and price differentials for our wells.  Additionally, authorizations for expenditure, geological and geophysical data, and other engineering data that complies with SEC guidelines are among that which we provide to AJM Deloitte engineers for consideration in estimating our underground accumulations of crude oil and natural gas.

The report of AJM Deloitte dated September 28, 2012, which contains further discussions of the reserve estimates and evaluations prepared by AJM Deloitte as well as the qualifications of AJM Deloitte’s technical personnel responsible for overseeing such estimates and evaluations, is attached as Exhibit 99.2 to this report.

Keith McDonald, our President and Chief Executive Officer, oversaw the preparation of the reserve estimates by AJM Deloitte to ensure accuracy and completeness of the data prior to and after submission.  Mr. McDonald has over twenty-five years of experience in oil and gas exploration and development.

12

Our proved reserves include only those amounts which we reasonably expect to recover in the future from known oil and gas reservoirs under existing economic and operating conditions, at current prices and costs, under existing regulatory practices and with existing technology.  Accordingly, any changes in prices, operating and development costs, regulations, technology or other factors could significantly increase or decrease estimates of proved reserves.

Estimates of volumes of proved reserves at year end are presented in barrels (Bbls) for oil and for, natural gas, in thousands of cubic feet (Mcf) at the official temperature and pressure bases of the areas in which the gas reserves are located.

The proved reserves attributable to producing wells and/or reservoirs were estimated by performance methods.  These performance methods include decline curve analysis, which utilized extrapolations of historical production and pressure data available through August 31, 2012, in those cases where this data was considered to be definitive.  The data used in this analysis was obtained from public data sources and were considered sufficient for calculating producing reserves.

The proved non-producing and undeveloped reserves were estimated by the analogy method.  The analogy method uses pertinent well data obtained from public data sources that were available through August 2012.

The estimates of our present value of estimated future net revenues from such reserves is based upon the standardized measure of discounted future net cash flows relating to proved oil and gas reserves in accordance with the provisions of Accounting Standards Codification Topic 932, Extractive Activities – Oil and Gas.  The standardized measure of discounted future net cash flows is determined by using estimated quantities of proved reserves and the periods in which they are expected to be developed and produced based on period-end economic conditions.  The estimated future production is based upon benchmark prices that reflect the unweighted arithmetic average of the first-day-of-the-month price for oil and gas during the year ended August 31, 2012.  The resulting estimated future cash inflows are then reduced by estimated future costs to develop and produce reserves based on period-end cost levels.  No deduction has been made for depletion, depreciation or for indirect costs, such as general corporate overhead.  Present values were computed by discounting future net revenues by 10% per year.

We have represented to AJM Deloitte, our independent engineers that we have provided all relevant operating data and documents, and in turn, we review the reserve reports provided by the independent engineers to ensure completeness and accuracy. Management cautions that there are many inherent uncertainties in estimating proved reserve quantities and related revenues and expenses, and in projecting future production rates and the timing and amount of development expenditures. Accordingly, these estimates will change, as future information becomes available.

The Company’s estimates of proved reserves, proved developed reserves and proved undeveloped reserves as of August 31, 2012 and 2011, changes in estimated proved reserves during the last two years, and estimates of future net cash flows from proved reserves are contained in Note 11 — Supplementary Oil and Gas Information in the Notes to Consolidated Financial Statements included in this Form 10-K. Estimated future net cash flows as of August 31, 2012, were calculated using a discount rate of 10 percent per annum, end of period costs, and an un-weighted arithmetic average of commodity prices in effect on the first day of each month in 2012, and held flat for the life of the production, in accordance with the SEC guidelines.

	Summary of Oil and Gas Reserves as of August 31, 2012 Based on Average Fiscal-Year Prices
	Oil		Natural Gas				Percent of Total
	(Bbls)		(Mcf)		MBOE		Proved		PV-10 (1)
Proved
Developed		-		2,067,900		344,650	39	%	(133,359	)
Undeveloped		-		3,295,500		549,250	61	%	(1,946,541	)
Total Proved		-		5,363,400		893,900	100	%	(2,079,900	)
Future Income taxes									-
10% discount									-
Future income taxes discounted at 10%									-
Standardized measure of future discounted net cash flows									(2,079,900	)

(1)   We refer to PV-10 as the present value of estimated future net revenues of estimated proved reserves as calculated using a discount rate of 10%. This amount includes projected revenues, estimated production costs and estimated future development costs. PV-10 is not a financial measure prescribed under generally accepted accounting principles (GAAP); therefore, the table reconciles this amount to the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure. Management believes that the non-GAAP financial measure of PV-10 is relevant and useful for evaluating the relative monetary significance of oil and natural gas properties. PV-10 is used internally when assessing the potential return on investment related to oil and natural gas properties and in evaluating acquisition opportunities. We believe the use of this pre-tax measure is valuable because there are unique factors that can impact an individual company when estimating the amount of future income taxes to be paid. Management believes that the presentation of PV-10 provides useful information to investors because it is widely used by professional analysts and sophisticated investors in evaluating oil and natural gas companies. PV-10 is not a measure of financial or operating performance under GAAP, nor is it intended to represent the current market value of our estimated oil and natural gas reserves. PV-10 should not be considered in isolation or as a substitute for the standardized measure of discounted future net cash flows as defined under GAAP. Average prices used in determining future net revenues were $2.14 per Mcf of gas. 

Other

Our offices are located at 333 North Sam Houston Parkway East, Suite 410, Houston, Texas 77060. Our offices are provided at will, and at no cost, by Holloman Corporation, our largest shareholder.

Please also see Item 1 of this report for additional information regarding our oil and gas properties.

ITEM 3.  LEGAL PROCEEDINGS.

None.

ITEM 4.  MINE SAFETY DISCLOSURES.

None

13

PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

In August 2010 our common stock began trading on the OTC Bulletin Board under the symbol “EFLO”.  There was no established trading market for our common stock prior to that date. The following chart shows the high and low bid prices as quoted on the OTC Bulletin Board or OTCQB Markets for each quarter during the fiscal years ended August 31, 2012 and 2011. Such prices represent quotations between dealers, without dealer markup, markdown or commissions, and may not represent actual transactions.

Quarter	High		Low
4th Quarter  – Fiscal 2012	$	3.00	$	1.72
3rd Quarter – Fiscal 2012	$	3.00	$	1.65
2nd Quarter – Fiscal 2012	$	3.50	$	1.50
1st Quarter – Fiscal 2012	$	3.50	$	2.50
4th Quarter – Fiscal 2011	$	4.30	$	2.60
3rd Quarter – Fiscal 2011	$	4.30	$	2.01
2nd Quarter – Fiscal 2011	$	3.17	$	2.08
1st Quarter – Fiscal 2011	$	2.09	$	2.00

There is currently only a limited market for our common stock. A limited market is characterized by a relatively limited number of shares in the public float, relatively low trading volume and the small number of brokerage firms acting as market makers. The market for low priced securities is generally less liquid and more volatile than securities traded on national stock markets. Fluctuations in market prices are not uncommon. No assurance can be given that the market for our common stock will continue or that the stock price will be maintained.

As of November 29, 2012, we had 19,009,205 outstanding shares of common stock and approximately 55 certificated shareholders of record.

On June 30, 2010, a 20 for 1 forward stock split, approved by our shareholders on April 28, 2010, became effective.

Holders of our common stock are entitled to receive dividends as may be declared by our Board of Directors. Our Board of Directors is not restricted from paying any dividends but is not obligated to declare a dividend. We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future. We plan to retain earnings to finance the expansion of our operations.

During the period from October 20, 2012 through October 31, 2012, we sold 530,666 shares of our common stock to eight (8) accredited investors at a price of $1.20 per share. Gross proceeds from this private placement totaled $636,800. We paid $22,288 in finder’s fees in connection with the sale of these shares. 

We relied upon the exemption provided by Section 4(2) of the Securities Act of 1933 with respect to these sales. The purchasers were sophisticated investors who were provided full information regarding our business and operations. There was no general solicitation in connection with the offer or sale of these shares. The certificates representing the shares will bear a restricted legend providing that they cannot be sold unless pursuant to an effective registration statement or an exemption from registration.

During the year ended August 31, 2012 we did not purchase any shares of our common stock from third parties in a private transaction or the open market. During the year ended August 31, 2012 none of our officers or directors, nor any of our principal shareholders, purchased any shares of our common stock on our behalf from third parties in a private transaction or as a result of purchases in the open market.

14

ITEM 6.  SELECTED FINANCIAL DATA.

Not applicable.

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

General

We are a development stage company incorporated in the State of Nevada on July 22, 2008. We are engaged in the acquisition, exploration and development of oil and gas properties in the United States and Canada.

During the period from July 18, 2012 through October 17, 2012, we acquired working interests totaling 53.65% (including a 100% working interest in one gas well) in the Kotaneelee Gas Project (“KGP”) located on 30,542 gross acres in the Yukon Territory in Canada. We believe the KGP has significant conventional and shale gas potential and is supported by an environment of growing investment in gas processing and export in the Pacific Northwest.

Our acquisition of an initial working interest of 22.989% (including a 69.337% working interest in one gas well) in the KGP was completed on July 18, 2012, with an effective date of July 1, 2012. Since that date, we have been responsible for the operations of the KGP and have recognized our portion of its related revenues and costs.

During March 2011, we initiated oil and gas operations by entry into a the Eagleford Agreement which provided for our acquisition of a net working interest, ranging from 21.25% to 42.5%, in a 2,629 acre oil and gas lease known as the Matthews Lease, insofar as that lease covers from the surface to the base of the San Miguel formation (the “San Miguel Lease”). The San Miguel Lease is located in Zavala County, Texas, and has no current production or proven reserves.

Prior to our initial working interest acquisition in the KGP, we had generated no revenues and had no proven reserves. We have acquired reserves in connection with our acquisition of the KGP and have begun to generate revenue. See Item 2 of this report for a more detailed discussion of the KGP.

Financial Condition and Results of Operations

KGP

For the period from July 1, 2012 (the effective date of our initial KGP working interest acquisition) to August 31, 2012, we have recognized revenues from gas sales of $251,290 (net of royalties of $6,309). All of our revenues related to production from our L-38 well which was temporarily shut-in for plant maintenance during September 2012. In total, we sold 111,425 mcf of natural gas during this period at an average sales price of $2.31 per mcf.

For July and August 2012, our lease operating expenses totaled $255,143. Our operating expenses for the two month period were higher than average as they contained deferred maintenance costs relating to on-site road maintenance. Recurring depreciation, depletion and amortization expense totaled $400,744 during the same period.

See Items 1 and 2 of this report for a more detailed discussion of the KGP.

15

The San Miguel Lease

Under the Eagleford Agreement, to earn our initial 21.25% working interest (net revenue interest 15.94%), we were obligated to drill and complete a vertical Test Well in the San Miguel shale formation. We were also obligated to perform an injection operation on the Test Well. If the Test Well was prospective for production in commercial quantities, we were required to equip the Test Well and place it on production. If we determine that the Test Well is not prospective for production in commercial quantities, we are responsible for the abandonment of the Test Well.

During April and May 2011, we drilled and completed the Test Well, performed injection operations and earned our initial interest in the San Miguel Lease. The Test Well was drilled into the San Miguel heavy oil zone to a depth of 3,168 feet. The well encountered oil and was completed as a San Miguel producer. After completion, it was determined that the oil was subject to significant viscosity changes related to temperature reductions from formation to recovery at surface. The Test Well was stimulated with nitrified hydrochloric acid and placed on production. To date, however, oil viscosity has prohibited economic operation. Although we continue to investigate various methods to improve production from the Test Well, we cannot estimate what cost, if any, will be associated with future production efforts on the San Miguel Lease. We have no current plans to spend the funds necessary to earn an additional interest in the San Miguel Lease. In the event we are unable to substantially improve production, we intend to abandon the Test Well, or actively pursue the sale of our interest in the San Miguel Lease.

As a result of the application of a full cost pool "ceiling test", we determined that the book value of the San Miguel Lease was impaired to the extent of its carrying value. Accordingly, during the years ended August 31, 2012 and 2011, we recognized losses on the impairment of oil and gas assets of $44,335 and $835,659, respectively. The carrying value of oil and gas properties was likewise reduced to reflect the impairment of the Lease. We have made no additional expenditures on the San Miguel Lease since November 30, 2011.

Other

Our loss from operations increased by $1,660,000 (101%) from $1,547,000 to $3,207,000 for the year ended August 31, 2012. In largest part, this increased loss was the result of amounts recognized during fiscal 2012 as stock-based fees and compensation paid to our officers and directors, and net operating losses incurred in connection with the KGP.

During the year ended August 31, 2012, we increased our Board of Directors from four (4) to six (6) members and added two (2) new officers. We began to expand both the number and experience of our executive team during the year ended August 31, 2011. We had not, however fully addressed compensation relating to these individuals. We believe the services of this executive team are necessary to support our current and future financing and operating efforts.

During the year ended August 31, 2011, we had approximately $174,000 in management and director’s fees and no stock based compensation expense. During fiscal 2012 we paid or accrued cash-based management and director’s fees of $146,000. The remaining $1,641,000 in management and director’s fees and stock-based compensation consisted of; $621,000 (300,000 shares) issued in connection with our 2012 Stock Bonus Plan, $247,000 recognized in fair value of options granted under the 2012 Stock Option Plan, $210,000 (109,660 shares) in fees payable to our Chief Executive Officer, and $563,000 (236,505 shares) payable as finder’s fees to in connection with our acquisition of the KGP.

Consulting, travel and legal expense incurred during the years ended August 31, 2012 and 2011, in connection with our pursuit of the acquisition of the KGP totaled approximately $566,000 and $355,000, respectively. The expenses incurred during the year ended August 31, 2012 include $288,900 in finder’s fees incurred in connection with the acquisition of the KGP which are payable to a consultant in shares of our common stock (118,235 shares).

During the year ended August 31, 2011, we raised $1,709,401 through debt and equity financings and invested approximately $1,191,000 in the exploration of the San Miguel Lease and our pursuit of the acquisition of the KGP. Our residual general and administrative expense for the year ended August 31, 2011 (approximately $356,000) resulted from an expansion of our executive team and professional resources, and the enhancement of our accounting and administrative infrastructure.

We expect our expenses will continue to increase as we expand operations. We are actively seeking additional capital to fund those expenditures.  

16

Liquidity and Capital Resources

The oil and gas industry is cyclical in nature and tends to reflect general economic conditions. The pattern of historic price fluctuations in oil and gas has resulted in additional uncertainty in capital markets. Our access to capital, as well as that of our partners and contractors, has been limited due to tightened credit markets. These limitations may inhibit the size and timing of formation of exploration ventures.

We plan to generate profits by drilling productive oil or gas wells or improving the production of existing wells. We will, however, need to raise the funds we require through the sale of our securities, from loans from third parties or by joint venturing operations with third parties which will pay a portion of the costs required to explore for oil and gas in the area covered by our leases. Any wells which we may drill may not produce oil or gas in commercial quantities. We plan to report losses from our operations until such time, if ever, we begin to generate significant revenue from oil and gas sales.

To secure our indemnity of the environmental liabilities associated with the Devon Assets, we provided Devon a corporate guarantee (the “Guarantee”) in the amount of CAD$10,000,000 (USD$10,050,000) and delivered a letter of credit in the amount of CAD$4,380,000 (USD$4,410,000) to Devon (the “Devon LOC”). We also agreed to deliver a letter of credit in the amount of CAD$625,000 (USD$629,000) to the government of the Yukon Territory as soon as practicable (the “Yukon LOC”). The amounts of the Devon LOC and Yukon LOC reduce the amount of the Guarantee on a dollar-for-dollar basis. We intend to actively develop and explore the KGP lands which will defer potential abandonment and reclamation liabilities into the longer term.

The Guarantee was provided to Devon by our largest shareholder, Holloman Corporation, in exchange for 3,250,000 shares of our restricted common stock. Likewise, the Devon LOC was provided to Devon by Pacific LNG Operations Ltd. (“PLNG”). PLNG is also committed to provide the Yukon LOC to the government of the Yukon Territory. In exchange for the Devon LOC and Yukon LOC we issued PLNG 4,000,000 shares of our restricted common stock. Our directors, James Ebeling and Eric Prim are officers of Holloman Corporation, and Henry Aldorf, the Chairman of our Board of Directors, is a director of PLNG.

In addition to providing the Yukon LOC, we committed to certain post closing undertakings which include, but are not limited to; the completion of assignments of service, transportation and handling agreements, and the registration of all conveyances and transfers.

We anticipate that our acquisition of the KGP will generate significant capital requirements.  During the twelve month period ending November 30, 2013, early estimates indicate that investment in the KGP, including operating costs, the acquisition of additional working interests, and Phase One exploration costs may range from $38,000,000 to $40,000,000. We are attempting to raise the capital needed to implement our business plan.

Other than the obligations associated with the acquisition and exploration of our oil and gas leases disclosed elsewhere in this report, we have no material future contractual obligations as of August 31, 2012.

During the period from June 26, 2012 through October 31, 2012, we sold 4,055,667 shares of our common stock to twelve (12) accredited investors at a price of $1.20 per share. Gross proceeds from these private placements totaled $4,866,800. We paid $149,338 in finder’s fees in connection with the sale of these shares. 

During December 2011, we retired $70,000 in non-interest bearing notes payable to an unrelated party. In exchange for the notes, we issued 23,334 investment units to the noteholder. The investment units were priced at $3.00 each and consisted of one share of our common stock, and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of our common stock at a price of $4.50 per share until November 5, 2013.

During May 2011, we sold 120,000 investment units. The investment units were priced at $3.00 each and consisted of one share of our common stock and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of our common stock at a price of $4.50 per share until April 15, 2013. Proceeds from the private placement totaled $360,000, all of which were paid in cash. We paid $2,400 in finder’s fees in connection with the sale of the units. Our Chief Executive Officer acquired 50,000 investment units in this private placement.

17

During April 2011, we sold 390,000 investment units at a price of $3.00 per unit. Each unit consisted of one share of our common stock and one warrant. Each warrant entitles the holder to purchase one share of our common stock at a price of $4.50 per share until April 1, 2013. Proceeds from the private placement totaled $1,170,000, all of which was paid in cash. We paid $46,800 in finder's fees in connection with the sale of the units.

During December 2010, we sold 86,870 investment units at a price of $2.30 per unit. Each unit consisted of one share of our common stock and one warrant. Each warrant entitles the holder to purchase one share of our common stock at a price of $3.50 per share until December 29, 2012. Proceeds from the private placement totaled $191,100 (net of $8,700 in fees) of which $166,100 was paid in cash and $25,000 was a repayment of a loan.

In connection with the San Miguel Farmout Agreement, we obtained $400,000 in temporary financing from our largest shareholder. This financing was subject to a non-interest bearing demand note payable. The entire $400,000 note balance was repaid from proceeds of a private placement of investment units during April 2011.

We believe our plan of operations, exclusive of costs associated with the KGP or other acquired assets, will require from $1,000,000 to $1,500,000 in financing over the twelve-month period ending November 2013.

If we are unable to raise the financing we need, our business plan may fail and our stockholders could lose their investment. There can be no assurance that we will be successful in raising the capital we require, or that if the capital is offered, it will be subject to terms we consider acceptable. Investors should be aware that even if we are able to raise the funds we require, there can be no assurance that we will succeed in our acquisition, exploration or production plans and we may never be profitable.

As of November 29, 2012 we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, results of operations, liquidity or capital resources.

Critical Accounting Policies and Estimates

Measurement Uncertainty

The preparation of consolidated financial statements in conformity with US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We regularly evaluate estimates and assumptions. We base our estimates and assumptions on current facts, historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to our consolidated financial statements relate to carrying values of oil and gas properties, the estimate of proved oil and gas reserves and related present value estimates of future net cash flows, asset retirement obligations, the valuation of goodwill, determination of fair values of stock-based transactions, deferred income tax rates, and environmental risks and exposures.

Petroleum and Natural Gas Properties

We utilize the full cost method to account for our investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs relating to unproved properties, geological expenditures, tangible and intangible development costs including direct internal costs are capitalized to the full cost pool. When we commence production from established proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves. Costs of unproved properties are not amortized until the proved reserves associated with the projects can be determined or until impairment occurs. If an assessment of such properties indicates that properties are impaired, the amount of impairment is added to the capitalized cost base to be amortized.

18

Depletion, depreciation and amortization (DD&A) of oil and gas properties is calculated quarterly, using the Units of Production Method (UOP). The UOP calculation, in simplest terms, matches the percentage of estimated proved reserves produced each quarter with the costs of those reserves. The result is to recognize expense at the same pace that the reservoirs are actually depleting. The amortization base in the UOP calculation includes the sum of proved property costs net of accumulated DD&A, estimated future development costs (future costs to access and develop reserves) and asset retirement costs which are not already included in oil and gas property, less related salvage value.

The capitalized costs included in the full cost pool are subject to a "ceiling test" (based on the average of the first-day-of-the-month prices during the twelve-month period prior to August 31, 2012 pursuant to the SEC’s “Modernization of Oil and Gas Reporting” rule), which limits such costs to the aggregate of the (i) estimated present value, using a ten percent discount rate, of the future net revenues from proved reserves, based on current economic and operating conditions, (ii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized, (iii) the cost of properties not being amortized, less (iv) income tax effects related to differences between the book and tax basis of the cost of properties not being amortized and the cost or estimated fair value of unproved properties included in the costs being amortized. If net capitalized costs exceed this limit, the excess is charged to expense in the current period. At August 31, 2011, all of our oil and gas interests were impaired and expensed.

Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations.

Oil and Gas Acquisitions

We account for all property acquisitions that include working interests in proved leasehold, both operated and non-operated, that would generate more than an immaterial balance of goodwill as business combinations. We do not apply acquisition accounting to the purchase of oil and gas properties entirely comprised of unproved leasehold. In accordance with this guidance, we have recognized the fair value of all the assets acquired and liabilities assumed in connection with our KGP working interest acquisition from Devon effective July 18, 2012.

On an ongoing basis, we conduct assessments of net assets acquired to determine if acquisition accounting is appropriate.  When we determine a "business" has been acquired under the requirements of ASC Topic 805, we record assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisitions are expensed as incurred.  We use relevant market assumptions to determine fair value and allocate purchase price, such as future commodity pricing for purchased hydrocarbons, market multiples for similar transactions and replacement value for certain equipment.  Many of the assumptions are unobservable.

Asset Retirement Obligations

We record asset retirement obligations based on guidance set forth in ASC Topic 410, as a liability in the period in which we incur  an obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The estimated balance of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate. This liability is capitalized as part of the cost of the related asset and amortized over its useful life.

Fair Value Measurements

Our valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of these techniques requires significant judgment and is primarily dependent upon the characteristics of the asset or liability, the principal (or most advantageous) market in which participants would transact for the asset or liability and the quality and availability of inputs. Inputs to valuation techniques are classified as either observable or unobservable within the following hierarchy:

19

● Level 1 — quoted prices in active markets for identical assets or liabilities.

● Level 2 — inputs other than quoted prices that are observable for an asset or liability. These include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

● Level 3 — unobservable inputs that reflect our own expectations about the assumptions that market participants would use in measuring the fair value of an asset or liability.

We consider all highly liquid instruments with an original maturity of three months or less at the time of issuance to be cash equivalents.  Cash and cash equivalents totaled $2,206,347 and $487,017 at August 31, 2012 and 2011, respectively. We are exposed to a concentration of credit risk with respect to our cash deposits. We place cash deposits with highly rated financial institutions in the United States and Canada. At times, cash balances held in financial institutions may be in excess of insured limits. We believe the financial institutions are financially strong and the risk of loss is minimal. We have not experienced any losses with respect to the related risks and do not believe our exposure to such risks is more than normal.

The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, other receivables, accounts payable, accrued liabilities and demand notes payable approximates their carrying value due to their short-term nature.

Revenue Recognition

We recognize natural gas revenue under the sales method of accounting for our interests in producing wells as natural gas is produced and sold from those wells. We recognize revenue upon transfer of ownership of the product to the customer which occurs when (i) the product is physically received by the customer, (ii) an invoice is generated which evidences an arrangement between the customer and us, (iii) a fixed sales price has been included in such invoice and (iv) collection from such customer is reasonably assured. Gas sales are reported net of applicable production taxes.

Stock-Based Compensation

We record compensation expense in the financial statements for stock-based payments using the fair value method. The fair value of stock options granted to directors and employees is determined using the Black-Scholes option valuation model at the time of grant. Fair value for common shares issued for goods or services rendered by non-employees are measured based on the fair value of the goods and services received. Stock-based compensation is expensed as earned with a corresponding increase to share capital.

20

Foreign Currency Gains and Losses

Our functional and reporting currency is the United States dollar. The functional currency of our Canadian subsidiary is the Canadian dollar. Financial statements of our Canadian subsidiary are translated to United States dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income as a component of stockholders’ equity. Transaction gains and losses are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. As of August 31, 2012, we have not entered into derivative instruments to offset the impact of foreign currency fluctuations.

Income Taxes

We follow the asset and liability method of accounting for future income taxes. Under this method, future income tax assets and liabilities are recorded based on temporary differences between the carrying amount of balance sheet items and their corresponding tax bases. In addition, the future benefits of income tax assets, including unused tax losses, are recognized, subject to a valuation allowance, to the extent that it is more likely than not that such future benefits will ultimately be realized. Future income tax assets and liabilities are measured using enacted tax rates and laws expected to apply when the tax liabilities or assets are to be either settled or realized.

Earnings per share

We present both basic and diluted earnings (loss) per share (EPS) on the face of the statements of operations. Basic EPS is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including convertible debt, stock options, and warrants, using the treasury stock method. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. Diluted EPS amounts are equal to those of Basic EPS for each period since we are in a net loss position.

See Note 2 to our consolidated financial statements for a discussion of recent accounting pronouncements.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Attached.

21

ITEM  9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING  AND FINANCIAL DISCLOSURE.

On September 26, 2011, we dismissed De Joya Griffith & Company, LLC as our independent registered public accounting firm and engaged Weaver and Tidwell, L.L.P. as our independent registered public accounting firm. See our Form 8-K filed with U.S. Securities and Exchange Commission on September 29, 2011.

.

ITEM 9A.  CONTROLS AND PROCEDURES.

An evaluation was carried out under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report on Form 10-K.  Disclosure controls and procedures are procedures designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Form 10-K, is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and is communicated to our management, including our Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.  Based on that evaluation, our management concluded that, as of August 31, 2012, our disclosure controls and procedures were effective.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as required by Sarbanes-Oxley (SOX) Section 404.A. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States and includes those policies and procedures that:

  (1)  Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets;

  (2)  Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors; and

  (3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Based on that evaluation, management concluded that our internal control over financial reporting was effective as of August 31, 2012.

ITEM 9B.  OTHER INFORMATION.

See Item 5 of this report for information concerning recent sales of unregistered securities.

22

PART III

ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Name	Age	Position
Henry Aldorf	65	Chairman of the Board of Directors
Keith Macdonald	56	Chief Executive Officer and Secretary
Robert Wesolek	56	Chief Financial and Accounting Officer and Director
James Hutton	52	President and Director
Eric Prim	54	Director
James Ebeling	60	Director

Our Directors are elected for a one-year term and hold office until the next annual meeting of our shareholders or until their resignation or removal by a vote of our shareholders. Officers are appointed by the Board of Directors and serve at the discretion of the Board. There is no family relationship between or among any of our Directors or Officers.

23

Henry Aldorf

Mr. Aldorf joined our Board of Directors as Chairman on June 18, 2012. He has 37 years experience in the petroleum and chemicals industry. Since February 2010, Mr. Aldorf has served as President of Pacific LNG Operations Ltd. and Liquid Niugini Gas Limited. Pacific LNG Operations Ltd. is a substantial indirect interest holder in the Elk and Antelope gas discoveries in Papua New Guinea, and 47.5% LNG partner in Liquid Niugini Gas Limited with InterOil Corporation (NYSE-IOC). From August 2001 to January 2010, Mr. Aldorf held a variety of senior executive positions with Marathon Oil including; President of Marathon International and Vice-President of Global Upstream of Marathon Oil (2008-2010), Senior Vice President International Business Development – Marathon Oil International (2006-2008), Senior Vice-President West Africa, Middle East and Asia Business Development (2005-2006), and Senior Vice-President West Africa Business Development (2004-2005). In the latter position Mr. Aldorf was responsible for Marathon's EG LNG project in Equatorial Guinea and was the first Managing Director of EG LNG Co. Before joining Marathon in 2001, Mr. Aldorf worked for Unocal in a variety of positions of increasing responsibility, in both the chemical and business development organization of that company. His international experience includes Europe, United States, Canada, Russian Federation, Brazil, the Asia Pacific Region, Japan, Korea and China. He graduated from the University of Leiden in the Netherlands, with a Bachelor of Science degree in Chemistry and Biochemistry. He also gained a Master of Science degree in Chemical Engineering from Technical University in Delft in the Netherlands, and holds a master of Business Administration from the INSEAD graduate business school, Fountainebleau, France.

Keith Macdonald

Keith Macdonald was appointed as our Chairman, President, Chief Executive officer and Secretary on March 10, 2011. On June 18, 2012, he resigned from his role as Chairman in favor of Mr. Aldorf. Mr. Macdonald has been President of Bamako Investment Management Ltd., a private holding and financial advisory company since 1994. He is currently Chairman and director of Drakkar Energy Ltd., a private in situ oil sands company. In addition, Mr. Macdonald currently serves on the board of Bellatrix Exploration Ltd. (TSX), Rocky Mountain Dealerships Inc. (TSX), Madalena Ventures Inc. (TSVX), Surge Energy Inc. (TSVX), Mountainview Energy Ltd. (TSVX), Holloman Energy Corporation (OTCQB), WCSB Oil & Gas Royalty Income Funds and Orange Directional Services Inc.. Most recently, he was a director of Profound Energy Inc. (TSX), Cordy Oilfield Services Inc.(TSVX), Stratabound Minerals Inc.(TSVX) and Breaker Energy Ltd (TSX) , and prior thereto a director of several public and private oil and gas companies. Mr. Macdonald was founder, President and Director of New Cache Petroleums from 1987 until it’s amalgamation in 1994 and thereafter Chief Financial Officer and Director until its sale in 1999. He is a past Chairman and director of the Small Explorers and Producers of Canada.

24

Robert Wesolek

Robert Wesolek, was appointed as a director on June 16, 2011 and was elected as our Chief Financial Officer on August 7, 2012. He has provided us financial consulting services since October, 2010. He has been the Chief Financial Officer of Holloman Energy Corporation since August 4, 2009, and has acted as an executive consultant providing financial, regulatory and system design services to emerging corporations since 2006.  Prior to 2006 Mr. Wesolek; served as Chief Financial Officer and director of House of Brussels Chocolates Inc. (2004-2006), President and Chief Executive Officer of The Navigates Corporation (1998-2004), Chief Financial Officer of Sharp Technology Inc. (1998-2001), President of the Desktop Software Division of Citadel Security Software (1996-1998), and Chief Operating Officer of Kent Marsh Ltd., Inc. (1988-1996). During the period from 1980 to 1988, Mr. Wesolek was a Senior Practice Manager in the Audit Division of Arthur Andersen LLP.

James Hutton

Mr. Hutton was elected our President and was appointed as a director on June 18, 2012.  He has spent his career in the financial services industry and for the past 25 years has specialized in structured finance and resource company finance. He has served as President and Chief Executive Officer of Hutton Capital Corporation, a company engaged in investment banking since September 1996.  In April 1998, Mr. Hutton also founded, and was President and Chief Executive Officer of the Canada Dominion Resources Group of companies, one of the largest flow-through share funds in Canada. The Canada Dominion Resources Group focused their investments on mining and energy issuers actively exploring for resources in Canada. The Canada Dominion Resources Group was acquired from Mr. Hutton by the Dundee/Dynamic Mutual fund organization in December of 2006. In addition, Mr. Hutton was the President and Chief Operating Officer of the CMP Resource Group from 2003 to 2005. He also serves as director of Tasman Metals Ltd. (AMEX/TSXV-TSM), SantaCruz Silver Mining Inc. (TXSV-SCZ), Batero Gold Corp. (TSXV-BAT) and Caymus Resources Inc. (TSXV-CJX).

James Ebeling

James Ebeling was appointed as a director on June 22, 2011. He has been the Chief Financial Officer of Holloman Corporation since November 2007. Holloman Corporation’s operations extend to three continents and include plant and pipeline construction, oil and gas exploration, and international heavy-equipment leasing. During the period from 2001 to 2007, Mr. Ebeling was Vice President of SUEZ Energy North America, Inc. In that capacity, he provided project management and development services on a variety of multi-billion dollar energy related projects. Prior to 2001, Mr. Ebeling served as; Vice President of Hawkins Oil and Gas (1996-2001), Vice President of Transworld Oil Company (1989-1996), Vice President of Anchor Coupling (1984-1989), and Vice President of the Charter Company (1981-1984).

Eric Prim

Eric Prim, was appointed as a director on March 17, 2011. He is the President of Pilot Energy Solutions, and has been Vice President of its affiliate, Holloman Corporation since 1997. He has served as a director of Holloman Energy Corporation (OTCBB) since 2007 and also became that company’s Chief Operating Officer in 2009. Prior to his association with Holloman, Mr. Prim held senior technical management positions with Hunt Energy (1982-1987) and Rexene Corporation (1987-1997). Mr. Prim holds a B.S. in Chemical Engineering from The University of Texas (1982) and an M.B.A. from Amber University (1987). Mr. Prim is a registered Professional Engineer in Texas and holds eight issued or pending U.S. Patents, all pertaining to energy technology.

25

We believe our directors benefit us as a result of their expertise in the following areas:

Name	Area of Expertise
Henry Aldorf	Oil and gas
Keith Macdonald	Oil and gas
Robert Wesolek	Oil and gas, and accounting
James Hutton	Oil and gas, and corporate finance
Eric Prim	Oil and gas
James Ebeling	Oil and gas, and corporate finance

Mr. Ebling, Mr. Aldorf and Mr. Prim are independent directors, as that term is defined in Section 803 of the listing standards of the NYSE AMEX. Mr. Ebeling, Mr. Aldorf, and Mr. Prim comprise our Audit Committee. Mr. Ebeling   and Mr. Aldorf are our Audit Committee financial experts as that term is defined in Item 407 of Regulation S-K of the Securities and Exchange Commission. Mr. Ebeling and Mr. Aldorf are qualified to act in that capacity by virtue of their extensive experience as senior executive and financial officers in enterprises similar, or more mature than ours. In those capacities, both Mr. Ebeling and Mr. Aldorf have been responsible for the review and analysis of financial statements including the application and assessment of accounting principles, and the implementation and assessment of internal controls.

The board regularly makes inquiries regarding the existence of conflicts of interest and indications of fraudulent behavior.  On July 16, 2011, our Board of Directors adopted a code of ethics that applies to our principal executive and financial officers. A copy of our Code of Ethics is included as Exhibit 14.1 to this report.

Our operations to date have been limited. As a result, we have not formed a separate nominating committee to our Board of Directors. Instead, our entire Board of Directors acts in the capacity of that committee.

Compensation Committee Interlocks and Insider Participation

On June 23, 2012 our Board of Directors created a separate Compensation Committee authorized to determine or make recommendations to the Board of Directors concerning officer and director compensation. Mr. Prim and Mr. Ebeling comprise our Compensation Committee.

During the year ended August 31, 2012, our Chief Executive Officer, Keith Macdonald was a director of Holloman Energy Corporation. Two of our directors, Eric Prim and Robert Wesolek are executive officers of Holloman Energy Corporation.

Except for the foregoing, during the year ended August 31, 2012 none of our officers served as a compensation committee member or director of another entity, one of which entity’s officers served as one of our directors.

Compliance with Section 16A of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our directors and executive officers and persons who beneficially own more than 10% of our common stock (referred to herein as the “reporting persons”) file with the Securities and Exchange Commission various reports as to their ownership of and activities relating to our common stock. Such reporting persons are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely upon a review of copies of Section 16(a) reports and representations received by us from reporting persons, and without conducting any independent investigation of our own, we believe all Forms 3, 4 and 5 were timely filed with the Securities and Exchange Commission by such reporting persons, with the exception of; Holloman Corporation (a greater than 10% shareholder) and its wholly-owned subsidiary which filed a Form 4 for one transaction, two days after its due date; Pacific LNG Operations Ltd. (a greater than 10% shareholder) which filed a Form 3 after its due date; Eric Prim, James Ebeling, and Robert Wesolek (all current directors) each of whom filed a Form 4 covering one transaction, one day after its due date; Henry Aldorf (a current director) who filed a Form 3 and a Form 4 covering one transaction after its due date;  James Hutton (a current officer and director) who filed a Form 3 and two Form 4s covering three transactions after their due dates, and Keith Macdonald (a current officer and director) who filed three Form 4s covering three transactions after their due dates.

26

ITEM 11.  EXECUTIVE COMPENSATION.

The following table shows the compensation paid or earned by our executive officers and other reportable person(s) during the two years ended August 31, 2012 and 2011:

Summary Compensation Table

Name and Principal		Salary		Bonus		Stock Awards		Option Awards		All Other Compensation		Total
Position	Year	($)		($)		($)		($)		($)		($)
Keith Macdonald (1) &(4)
Chief Executive Officer	2012		––		––		594,899		188,650		35,000		818,549
	2011		––		––		113,548		––		––		113,548
Robert Wesolek(2 )& (4)
Chief Financial Officer	2012		23,925		––		384,984		188,650		131,975		729,534
	2011		––		––		––		––		108,675		108,675
James Hutton(3)
President	2012		––		––		103,500		188,650		28,161		320,311
	2011		––		––		––		––		––		––

(1)

Mr. Macdonald provides services under the terms of Consulting Services Agreement with Bamako Investment Management Ltd. (“Bamako”), an entity over which he exercises control.  This agreement was made effective March 11, 2011 for a twelve month term and may be cancelled by either party, with or without cause, following 30 days notice. We have continued the contract with Mr. Macdonald on a month-to-month basis since the completion of its initial term on March 11, 2012. Under this agreement, Bamako is compensated $20,000 per month for up to 50% of Mr. Macdonald’s time as our Chief Executive Officer, or in such roles as may be approved, from time to time, by our Board of Directors. Compensation is payable in equal parts cash and shares of our restricted common stock. Compensation payable in stock is convertible at the closing price of the stock on the last trading-day of the applicable monthly earning period. In an effort to conserve cash, Mr. Macdonald elected to accept stock for all but $30,000 of this compensation during fiscal 2012 and 2011. For the year ended August 31, 2012, we paid Bamako $210,000 in stock at a weighted average conversion price of $1.73 per share (121,660 shares). For the year ended August 31, 2011, $113,548 in compensation was paid to Bamako in stock at a weighted average conversion price of $1.84 per share (61,673 shares). In addition, Bamako was granted 50,000 shares of stock (fair value $103,500) and stock options providing for the purchase of 200,000 shares of stock (fair value $188,650) under our 2012 Stock Bonus and Options Plans (Plan details are provided below). Mr. Macdonald also received $5,000 in other compensation for his services as director during 2012. Bamako also received $281,399 in finder’s compensation, payable in 118,235 shares of stock at $2.38 per share, in connection with our acquisition of the KGP (see footnote 5 to this table). This commission is accrued but unpaid as of November 29, 2012.

(2)

During fiscal 2012 and 2011, we paid Mr. Wesolek financial consulting fees totaling $126,975 and $108,675, respectively. He also received $5,000 in other compensation for his services as director during 2012. In addition, Mr. Wesolek was granted 50,000 shares of stock (fair value $103,500) and stock options providing for the purchase of 200,000 shares of stock (fair value $188,650) under our 2012 Stock Bonus and Options Plans (Plan details are provided below). Mr. Wesolek also received $281,484 in finder’s compensation, payable in 118,270 shares of stock at $2.38 per share, in connection with our acquisition of the KGP (see footnote 5 to this table). This commission is accrued but unpaid as of November 29, 2012.

27

(3) Mr. Hutton provides services as our President under the terms of an informal agreement with Hutton Capital Corporation (“Hutton Capital”), an entity over which he exercises control.  Under that agreement, we pay Hutton Capital $10,000 per month. For the year ended August 31, 2012, we paid Hutton Capital $28,161. In addition, Hutton Capital was granted 50,000 shares of stock (fair value $103,500) and stock options providing for the purchase of 200,000 shares of stock (fair value $188,650) under our 2012 Stock Bonus and Options Plans (Plan details are provided below). Mr. Hutton also received $5,000 in other compensation for his services as director during 2012.

(4) Effective January 20, 2011, Bamako, Mr. Wesolek, and Open Bay Holdings Ltd. (the “Finders”) entered into an agreement with us providing for the payment of finder’s compensation ranging from 5% (on transaction values greater than $1,000,000) to 10% (on transactions values up to $300,000) on transactions introduced to us by or through the Finders for a period of two years (the “Finder’s Fee Agreement”). Under the Finder’s Fee Agreement, compensation is divided between the Finders. The Finders have elected to receive payment in stock. The shares into which finder’s compensation will be converted are calculated using the average closing price of our common stock for the last ten trading days preceding the closing date of the transaction to which the compensation relates. The Finder’s Fee Agreement specifically recognizes that the KGP has been presented to us by the Finder’s. For the year ended August 31, 2012 we accrued a total of $844,283 payable in 354,741 shares of stock at $2.38 per share, in connection with our acquisition of Devon’s working interest in the KGP. This finder’s compensation is accrued but unpaid as of November 29, 2012.

Stock-Based Compensation and Stock Option Grants

On August 27, 2012, we established a Non-Qualified Stock Option Plan and a Stock Bonus Plan (the “Plans”). The Non-Qualified Stock Option Plan (the “Option Plan”) authorizes the issuance of up to 2,000,000 shares of our common stock. The Stock Bonus Plan provides for the issuance of up to 350,000 common shares (“Bonus Shares”). Under the Plans, shares may only be issued to employees, directors, officers, consultants and advisors, provided qualifying services are rendered.

The Compensation Committee to our Board of Directors has full and final authority in its discretion, subject to the provisions of the Plans, and subject to the approval of its Board of Directors, to determine the individuals to whom, and the time or times at which shares or options shall be granted and the number of such shares or options; to construe and interpret the Plans; to determine the terms and provisions of the respective option agreements, which need not be identical, including, but without limitation, terms covering the payment of the option price; and to make all other determinations and take all other actions deemed necessary or advisable for the proper administration of the Plans.  All such actions and determinations shall be conclusively binding for all purposes and upon all persons.

We may at any time, and from time to time, amend, terminate, or suspend one or more of the Plans in any manner we deem appropriate, provided that any amendment, termination or suspension may not adversely affect rights or obligations with respect to options or shares previously granted.

The following table shows the options held by our officers and directors as of August 31, 2012. The options in the table were all granted pursuant to our Non-Qualified Stock Option Plan.

28

Outstanding Equity Awards at August 31, 2012

	Number of securities underlying unexercised options
Name	(#) Exercisable		(#) Unexercisable		Option Exercise Price		Option Expiration Date
Henry Aldorf
Stock Option A		50,000		––	$	2.15	August 27, 2014
Stock Option B		––		50,000	$	2.30	August 27, 2014
Stock Option C		––		50,000	$	2.50	August 27, 2017
Stock Option D		––		50,000	$	2.65	August 27, 2017
Keith Macdonald
Stock Option A		50,000		––	$	2.15	August 27, 2014
Stock Option B		––		50,000	$	2.30	August 27, 2014
Stock Option C		––		50,000	$	2.50	August 27, 2017
Stock Option D		––		50,000	$	2.65	August 27, 2017
Robert Wesolek
Stock Option A		50,000		––	$	2.15	August 27, 2014
Stock Option B		––		50,000	$	2.30	August 27, 2014
Stock Option C		––		50,000	$	2.50	August 27, 2017
Stock Option D		––		50,000	$	2.65	August 27, 2017
James Hutton
Stock Option A		50,000		––	$	2.15	August 27, 2014
Stock Option B		––		50,000	$	2.30	August 27, 2014
Stock Option C		––		50,000	$	2.50	August 27, 2017
Stock Option D		––		50,000	$	2.65	August 27, 2017
Eric Prim
Stock Option A		37,500		––	$	2.15	August 27, 2014
Stock Option B		––		37,500	$	2.30	August 27, 2014
Stock Option C		––		37,500	$	2.50	August 27, 2017
Stock Option D		––		37,500	$	2.65	August 27, 2017
James Ebeling
Stock Option A		37,500		––	$	2.15	August 27, 2014
Stock Option B		––		37,500	$	2.30	August 27, 2014
Stock Option C		––		37,500	$	2.50	August 27, 2017
Stock Option D		––		37,500	$	2.65	August 27, 2017

The following table shows the weighted average exercise price of the outstanding options granted pursuant to our Non-Qualified Stock Option Plan as of August 31, 2012. Our Non-Qualified Stock Option Plan has not been approved by our shareholders.

29

	Number of securities to be issued upon exercise of outstanding options,  warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Plan Category	(a)		(b)		(c)
Non-Qualified Stock Option Plan		1,200,000	$	0.94		800,000
Total		1,200,000	$	0.94		800,000

——————— 

On August 27, 2012, we issued shares of our common stock to the following persons pursuant to our Stock Bonus Plan:

Name	Shares
Henry Aldorf		50,000
Keith Macdonald		50,000
Robert Wesolek		50,000
James Hutton		50,000
Eric Prim		50,000
James Ebeling		50,000

At August 31, 2012, 800,000 options and 50,000 shares of our common stock, respectively, remain available for distribution under our Option Plan and Stock Bonus Plan.

We have never offered any annuity, pension or retirement benefits for our officers, directors or employees.

Director’s Compensation

Our Directors are reimbursed for reasonable out-of-pocket expenses in connection with attendance at Board of Director and committee meetings. During 2011, no compensation was paid to our directors.

Director Compensation Table (1)

Name and Principal		Fees earned or Paid In Cash		Stock Awards		Option Awards		All Other Compensation		Total
Position	Year	($)		($) (2)		($) (3)		($)		($)
Henry Aldorf	2012		6,750		103,500		188,650		––		298,900
	2011		––		––		––		––		––
Eric Prim	2012		6,500		103,500		141,488		––		251,488
	2011		––		––		––		––		––
James Ebeling	2012		6,500		103,500		141,488		––		251,488
	2011		––		––		––		––		––

(1)	This table excludes compensation paid to directors Keith Macdonald, Robert Wesolek and James Hutton who are also our officers. Compensation information relating to these directors is included in the Summary Compensation Table above.
(2)	Each director was granted 50,000 shares of stock (fair value $103,500) under our 2012 Stock Bonus Plan (Plan details are provided above).
(3)	Mr. Aldorf was granted stock options providing for the purchase of 200,000 shares of stock (fair value $188,650) under our 2012 Stock Options Plan. Mr. Prim and Mr. Ebeling were each granted stock options providing for the purchase of 150,000 shares of stock (fair value $141,488) under our 2012 Stock Options Plan (Plan details are provided above).

30

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table lists, as of November 29, 2012, the shareholdings of (i) each person owning beneficially 5% or more of our common stock (ii) each officer and director, and (iii) all officers and directors as a group.  Unless otherwise indicated, each owner has sole voting and investment powers over their shares of common stock.

Name and address of beneficial owner	Number of  Shares(5)			Percentage of Common Stock
Henry Aldorf	100,000		(1)		0.52	%
Chairman of the Board of Directors 111 Somerset, Unit #06-05
Singapore 238164
Keith Macdonald		682,335	(2)		3.57	%
Chief Executive Officer, Secretary and Director
203 Heritage Place
Calgary, AB, Canada T3Z 3P3
Robert Wesolek		430,000			2.26	%
Chief Financial Officer and Director
3 Farther Point
Houston, TX 77024
James Hutton		800,000	(3)		4.20	%
President and Director
1750 – 999 West Hastings Street
Vancouver, BC, Canada  V6C 2W2
Eric Prim		219,500	(4)		1.15	%
Director
4901 Polo Parkway
Midland, Texas 79705
James Ebeling		217,500	(4)		1.14	%
Director
333 N. Sam Houston Parkway East, Suite 600
Houston, TX 77060
All Officers and Directors as a group (6 persons)		2,399,335			12.44	%
Holloman Value Holdings, LLC		4,541,740	(4)		23.88	%
333 North Sam Houston Parkway East
Suite 600 Houston, Texas 77060
Pacific LNG Operations Ltd.		4,000,000	(1)		21.04	%
7 Temasek Boulevard
#28-01 Suntek Tower One
Singapore 038987

(1) Includes 50,000 shares owned directly by Mr. Aldorf, and those stock options detailed in (5) below. Mr. Aldorf also shares investment control over 4,000,000 shares held by Pacific LNG Operations Ltd.

(2) Includes: (a) 57,000 shares owned directly by Mr. Macdonald, (b) 305,335 shares held of record by Bamako Investment Management and 150,000 shares held of record by Country Rock Resources, Ltd., companies controlled by Mr. Macdonald, (c) 20,000 shares, over which Mr. Macdonald has investment control, which are held of record by a third person, (d) 50,000 shares held of record by Mr. Macdonald's wife, and those stock options detailed in (5) below.

(3) Includes 750,000 shares held of record by Hutton Capital Corporation, a company over which James Hutton exercises investment control, and those stock options detailed in (5) below.

(4) Comprised of 4,530,870 shares held of record by Holloman Value Holdings, LLC, a company over which Eric Prim and Jim Ebeling share investment control and those stock options detailed in (5) below.  

(5) Includes the following shares which may be acquired on the exercise of options or warrants listed below.

31

Name	Shares Issuable Upon Exercise of Warrants		Exercise Price		Date First Exercisable	Expiration Date
Henry Aldorf		50,000	$	2.15	08/27/2012	08/27/2014
Keith Macdonald*		35,000	$	4.50	05/18/2011	04/15/2013
Keith Macdonald		15,000	$	4.50	05/18/2011	04/15/2013
Keith Macdonald*		50,000	$	2.15	08/27/2012	08/27/2014
James Hutton*		50,000	$	2.15	08/27/2012	08/27/2014
James Ebeling		37,500	$	2.15	08/27/2012	08/27/2014
Eric Prim		37,500	$	2.15	08/27/2012	08/27/2014
Robert Wesolek		50,000	$	2.15	08/27/2012	08/27/2014
Holloman Value
Holdings, LLC		10,870	$	3.50	12/28/2010	12/28/2012

———————

*      Warrants are held of record by an entity controlled by the named person.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

As detailed more fully in our financial statements and Items 1, 7 and 11 of this report, from time to time, we have had non-interest bearing advances from certain of our directors and shareholders; and non-employee related contract compensation and commission arrangements with our directors and officers. During the year ended August 31, 2011 those advances and arrangements included a temporary loan from our largest shareholder Holloman Value Holdings, LLC in the amount of $400,000 (April 2011) provided to us in connection with the San Miguel Farmout and Participation Agreement. The loan did not bear interest and was repaid by us during May 2011.

As more fully explained in Item 7 of this report, two of our largest shareholders, over which certain of our directors share control, have provided a corporate guarantee or letters of credit in connection with our acquisition of the Devon Assets.

32

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.

On September 26, 2011, we dismissed De Joya Griffith & Company, LLC (“DeJoya Griffith”) as our independent registered public accounting firm and engaged Weaver and Tidwell, L.L.P. (“Weaver”) as our independent registered public accounting firm.

The following table sets forth the aggregate fees paid or accrued for professional services rendered by DeJoya Griffith and Weaver for the audit of our annual financial statements for the years ended August 31, 2012 and 2011, and the aggregate fees paid or accrued for audit-related services and all other services rendered by DeJoya Griffith and Weaver for those years.

	Year Ended August 31,
	2012		2011
DeJoya Griffith
Audit-related fees	$	2,500		$	8,500
Tax fees		––			––
Total DeJoya Griffith		2,500			8,500
Weaver
Audit-related fees		71,350			––
Tax fees		6,500			––
Other		––			2,185
Total Weaver		77,850			2,185
Total	$	80,350		$	10,685

The category of “Audit-related fees” includes fees for our annual audit, quarterly reviews and services rendered in connection with regulatory filings with the SEC. “Tax fees” include fees incurred in the review and preparation of our annual income tax filings.

The Audit Committee of our Board of Directors pre-approves the scope and estimated costs of all services rendered by our Principal Accountants. We concluded that the service provided by DeJoya Griffith and Weaver was compatible with the maintenance of each firms’ independence in the conduct of its auditing functions.

33

PART IV

ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)   Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firms	F-1
Consolidated Balance Sheets		F-2
Consolidated Statements of Operations		F-3
Consolidated Statement of Stockholders' Equity (Deficit)		F-4
Consolidated Statements of Cash Flows		F-5
Notes to the Consolidated Financial Statements		F-6

(b) Exhibits

3.1.1	Articles of Incorporation(1)
3.1.2	Amendment to Articles of Incorporation(2)
3.2	Bylaws(3)
10.1	Agreement of Purchase and Sale between Devon Canada and EFL Overseas, Inc.
10.2	Share Purchase Agreement between Nahanni Energy et.al and EFL Overseas, Inc.
10.3	Kotaneelee Closing Agreement between Devon Canada and EFL Overseas, Inc.
14.1	Code of Ethics for Principal Executive and Senior Financial Officers
21.1	As of August 31, 2012, we had one wholly owned subsidiary; EFLO Energy Yukon Ltd., a Canadian Corporation
31.1	Rule 13a-14(a) Certifications
31.2	Rule 13a-14(a) Certifications
32	Section 1350 Certifications
99.1	EFL Overseas Inc. – Audit Committee Charter
99.2	Reserves Estimation - AJM Deloitte

101.INS	- XBRL Instance Document
101.SCH	- XBRL Taxonomy Extension Schema Document
101.CAL	- XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	- XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	- XBRL Taxonomy Extension Label Linkbase Document
101.PRE	- XBRL Taxonomy Extension Presentation Linkbase Document

__________________________

(1)	Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 dated November 12, 2008.
(2)	Incorporated by reference to Exhibit 3.1 to the Company’s 8-K report dated April 28, 2010.
(3)	Incorporated by reference to Exhibit 3.2 to the Company’s 8-K report dated April 28, 2010.

34

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	EFL OVERSEAS, INC.
Date: November 29, 2012	By:	/s/ Keith Macdonald
		Keith Macdonald, President and Principal Executive Officer

In accordance with the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Date
/s/ Keith Macdonald	November 29, 2012
Keith Macdonald, Principal Executive Officer and Director
/s/ Robert Wesolek	November 29, 2012
Herbert Schmidt, Principal Financial and Accounting Officer and Director
/s/ Henry Aldof	November 29, 2012
Henry Aldorf, Chairman and Director
/s/ James Hutton	November 29, 2012
James Hutton, President and Director
/s/ James Ebeling	November 29, 2012
James Ebeling, Director
/s/ Eric Prim	November 29, 2012
Eric Prim, Director

35

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

of EFL Overseas, Inc.

(An Exploration Stage Company)

We have audited the accompanying consolidated balance sheets of EFL Overseas, Inc. (an Exploration Stage Company) (the Company) as of August 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and for the period from inception (July 22, 2008) to August 31, 2012. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EFL Overseas, Inc. (an Exploration Stage Company) as of August 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for the years then ended, and for period from inception (July 22, 2008) to August 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that EFL Overseas, Inc. will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, EFL Overseas, Inc. has not generated significant operating revenues since inception, has incurred losses in developing its business, and further losses are anticipated. EFL Overseas, Inc. requires additional funds to meet its obligations and the costs of its operations. These factors raise substantial doubt about EFL Overseas, Inc.’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

WEAVER AND TIDWELL, L.L.P.

Houston, Texas

November 29, 2012

AN INDEPENDENT	WEAVER AND TIDWELL LLP	HOUSTON
MEMBER OF BAKER TILLY	CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS	24 GREENWAY PLAZA, SUITE 1800, HOUSTON, TX 77046
INTERNATIONAL	WWW.WEAVERLLP.COM	P: (713) 850 8787	F: (713) 850 1673

F-1

EFL OVERSEAS, INC.

(An Exploration Stage Company)

CONSOLIDATED BALANCE SHEETS

	August 31,			August 31,
	2012			2011
ASSETS
CURRENT ASSETS
Cash	$	2,206,347		$	487,017
Accounts receivable
Accrued gas sales		178,225			-
Joint interest owners and other		122,745			-
Prepaids		204,892			21,875
Other		17,919			3,436
Total current assets		2,730,128			512,328
OIL AND GAS PROPERTIES, full cost method
Proved properties, net of accumulated depletion and depreciation of $405,082		15,232,824			-
Unproven properties		6,465,622			-
		21,698,446			-
OTHER ASSETS - Goodwill		1,194,365			-
Total assets	$	25,622,939		$	512,328
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	1,483,041		$	299,701
Notes payable		-			72,500
Asset retirement obligation - current		80,000			80,000
Total current liabilities		1,563,041			452,201
ASSET RETIREMENT OBLIGATION - Long term		7,057,716			-
Total Liabilities		8,620,757			452,201
STOCKHOLDERS' EQUITY
Capital Stock
Authorized:
75,000,000 common shares, par value $0.001 per share
Issued and outstanding:
17,478,539 and 7,196,870 common shares at August 31, 2012  and
August 31, 2011, respectively		17,479			7,197
Additional paid-in capital		21,830,083			1,683,890
Accumulated other comprehensive loss		(7,299	)		-
Deficit accumulated during the exploration stage		(4,838,081	)		(1,630,960	)
Total stockholders' equity		17,002,182			60,127
Total liabilities and stockholders' equity	$	25,622,939		$	512,328

The accompanying notes are an integral part of these consolidated financial statements.

F-2

EFL OVERSEAS, INC.

(An Exploration  Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

							Cumulative results
	Year Ended August 31,						from July 22, 2008 (Inception) to
	2012			2011			August 31, 2012
REVENUE
Gas sales, net	$	251,290		$	-		$	251,290
EXPENSES
Lease operating expenses		255,143			-			255,143
Management and director's fees		997,836			173,548			1,196,384
Stock-based compensation expense		789,277			-			789,277
Consulting fees		530,127			331,851			876,978
Professional fees		217,487			121,996			380,244
Office, travel and general		223,462			84,134			316,607
Depletion, depreciation and amortization		400,744			-			400,744
Oil and gas property impairment		44,335			835,659			879,994
Total Expenses		3,458,411			1,547,188			5,095,371
OPERATING LOSS		(3,207,121	)		(1,547,188	)		(4,844,081	)
OTHER INCOME (EXPENSE)
Gain on forgiveness of accounts payable		-			-			6,000
LOSS	$	(3,207,121	)	$	(1,547,188	)	$	(4,838,081	)
Foreign currency translation		(7,299	)		-			(7,299	)
COMPREHENSIVE LOSS	$	(3,214,420	)	$	(1,547,188	)	$	(4,845,380	)
BASIC AND DILUTED NET LOSS PER COMMON SHARE	$	(0.38	)	$	(0.23	)
WEIGHTED AVERAGE NUMBER OF BASIC
AND DILUTED COMMON SHARES OUTSTANDING		8,467,594			6,855,836

The accompanying notes are an integral part of these consolidated financial statements.

F-3

EFL OVERSEAS, INC.

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

							Cumulative results
	Year Ended August 31,						from July 22, 2008 (Inception) to
	2012			2011			August 31, 2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(3,207,121	)	$	(1,547,188	)	$	(4,838,081	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock-based compensation  and fee payments		2,035,808			-			2,035,808
Unrealized foreign exchange losses		(7,299	)		-			(7,299	)
Gain on forgiveness of accounts payable		-			-			(6,000	)
Depletion, depreciation and amortization		405,084			-			405,084
Oil and gas property impairment		44,335			835,659			879,994
Changes in working capital items -
Accounts receivable		(300,970	)		-			(300,970	)
Prepaids and other		(197,500	)		(25,311	)		(222,811	)
Accounts payable and accrued liabilities		305,039			234,198			579,580
Net cash used in operating activities		(922,624	)		(502,642	)		(1,474,695	)
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures on oil and gas properties		(11,200	)		(724,500	)		(735,700	)
Acquisition of oil and gas interests		(289,295	)		-			(289,295	)
Cash used by investing activities		(300,495	)		(724,500	)		(1,024,995	)
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock and warrants sold for cash, net of fees		2,944,949			1,646,901			4,601,800
Common stock redeemed for cash		-			-			(100	)
Proceeds from notes payable		-			534,500			554,500
Repayments of notes payable		(2,500	)		(482,000	)		(484,500	)
Loans from related parties		-			10,000			34,337
Net cash provided by financing activities		2,942,449			1,709,401			4,706,037
INCREASE IN CASH		1,719,330			482,259			2,206,347
CASH, BEGINNING OF PERIOD		487,017			4,758			-
CASH, END OF PERIOD	$	2,206,347		$	487,017		$	2,206,347
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest	$	-		$	-		$	-
Cash paid for income taxes	$	-		$	-		$	-
Forgiveness of debt	$	-		$	-		$	9,337
NON-CASH INVESTING ACTIVITIES:
Accrued expenditures on oil and gas properties	$	33,135		$	31,159		$	64,294
Asset retirement obligation incurred	$	-		$	80,000		$	80,000
Asset retirement obligation acquired in Devon acquisition	$	7,057,716		$	-		$	7,057,716
NON-CASH FINANCING ACTIVITIES
Common stock issued as repayment of note payable	$	70,000		$	25,000		$	95,000
Common stock issued for services	$	1,788,831		$	-		$	1,788,831
Common stock issued for Devon assets	$	15,950,000		$	-		$	15,950,000

The accompanying notes are an integral part of these consolidated financial statements.

F-4

EFL OVERSEAS, INC.

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

From July 22, 2008 (Inception) to August 31, 2012

													Deficit
										Accumulated			Accumulated
	Common Shares						Additional			Other			During			Total
	Number						Paid-In			Comprehensive			Exploration			Stockholders'
	of Shares			Amount			Capital			loss			Stage			Equity (Deficit)
Balance,  July 22, 2008		-		$	-		$	-		$	-		$	-		$	-
Common Stock issued for cash at $0.0001
per share - July 2008		100,000,000			100,000			(95,000	)		-			-			5,000
Comprehensive loss		-			-			-			-			(5,145	)		(5,145	)
Balance, August 31, 2008		100,000,000			100,000			(95,000	)		-			(5,145	)		(145	)
Common Stock issued for cash at $0.0015
per share - February 2009		3,300,000			3,300			1,650			-			-			4,950
Net loss		-			-			-			-			(14,777	)		(14,777	)
Balance, August 31, 2009		103,300,000			103,300			(93,350	)		-			(19,922	)		(9,972	)
Forgiveness of debt by former director		-			-			9,337			-			-			9,337
Common Stock redeemed and cancelled at
$0.001 per share - April 2010		(96,700,000	)		(96,700	)		96,600			-			-			(100	)
Comprehensive loss		-			-			-			-			(63,850	)		(63,850	)
Balance, August 31, 2010		6,600,000			6,600			12,587			-			(83,772	)		(64,585	)
Investment units issued for cash at $2.30
per unit - December 2010 (net of fees)		86,870			87			191,013			-			-			191,100
Investment units issued for cash at $3.00		390,000			390			1,122,810			-			-			1,123,200
per unit - April 2011 (net of fees)
Investment units issued for cash at $3.00		120,000			120			357,480			-			-			357,600
per unit - May 2011 (net of fees)
Comprehensive loss														(1,547,188	)		(1,547,188	)
Balance, August 31, 2011		7,196,870			7,197			1,683,890			-			(1,630,960	)		60,127
Conversion of indebtedness to investment units		23,334			23			69,977			-			-			70,000
Issued for services		483,334			484			944,065			-			-			944,549
Stock-based compensation granted		-			-			246,976			-			-			246,976
Issued for cash at $1.20 per unit (net of fees)		2,525,001			2,525			2,942,425			-			-			2,944,950
Issued in connection with Devon asset acquisition		7,250,000			7,250			15,942,750			-			-			15,950,000
Comprehensive loss
Loss		-			-			-			-			(3,207,121	)		(3,207,121	)
Foreign currency translation		-			-			-			(7,299	)		-			(7,299	)
Total Comprehensive Loss																	(3,214,420	)
Balance, August 31, 2012		17,478,539		$	17,479		$	21,830,083		$	(7,299	)	$	(4,838,081	)	$	17,002,182

The accompanying notes are an integral part of these consolidated financial statements.

F-5

EFL OVERSEAS, INC.

(An Exploration Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.  NATURE AND CONTINUANCE OF OPERATIONS

EFL Overseas, Inc. (the “Company”), was incorporated in the State of Nevada on July 22, 2008, and prior to March 2011, was relatively inactive. During March 2011, the Company initiated operations focused on oil and gas exploration and development in the United States and Canada. On July 18, 2012, the Company’s wholly owned subsidiary, EFLO Energy Yukon Ltd., completed an acquisition of Devon Canada’s entire right and interest (generally a working interest of 22.989%, with a working interest of 69.337% in one gas well) in the Kotaneelee Gas Project (Note 4).

The Company’s Consolidated financial statements are prepared on a going concern basis in accordance with generally accepted accounting principles in the United States (“US GAAP”) which contemplates the realization of assets and discharge of liabilities and commitments in the normal course of business. The Company is in the exploration stage. It has not generated operating revenues, and has accumulated losses of $4,838,081 since inception. The Company has funded its operations through the issuance of capital stock and debt. Management plans to raise additional funds through third-party equity or debt financings and the joint venturing of its exploration efforts with third parties. There is no certainty that further funding will be available as needed. These factors raise substantial doubt about the ability of the Company to continue operating as a going concern. The Company’s ability to continue its operations as a going concern, realize the carrying value of its assets, and discharge its liabilities in the normal course of business is dependent upon its ability to raise capital sufficient to fund its commitments and ongoing losses, and ultimately generate profitable operations.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary EFLO Energy Yukon Ltd., after elimination of intercompany balances and transactions. The Company’s interest in oil and gas exploration and production ventures and partnerships are proportionately consolidated. These consolidated financial statements and related notes are presented in accordance with US GAAP, and are expressed in United States dollars. The Company is an exploration stage company as defined by “Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 915, Development Stage Entities.”

Use of Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to these consolidated financial statements relate to carrying values of oil and gas properties, the estimate of proved oil and gas reserves and related present value estimates of future net cash flows there from, asset retirement obligations, the valuation of goodwill, determination of fair values of stock-based transactions, deferred income tax rates, and environmental risks and exposures.

F-6

Allowance for Doubtful Accounts

The Company routinely assesses the recoverability of all material receivables to determine their collectability. All of the Company's receivables are from joint venture partners and large gas marketers. The Company is exposed to a concentration of credit risk with respect to its accounts receivable. The Company believes its financial partners are financially strong and the risk of loss is minimal. Generally, the Company's natural gas receivables are collected within three months. The Company accrues a reserve on a receivable when, based on the judgment of management, it is probable that a receivable will not be collected and the amount of any reserve may be reasonably estimated. As of August 31, 2012 and 2011, the Company had no amount recorded as an allowance for doubtful accounts.

Oil and Gas Properties

The Company utilizes the full cost method to account for its investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs relating to unproved properties, geological expenditures, tangible and intangible development costs including direct internal costs are capitalized to the full cost pool. Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations.

Depletion, depreciation and amortization (DD&A) of oil and gas properties is calculated quarterly, using the Units of Production Method (UOP). The UOP calculation, in simplest terms, matches the percentage of estimated proved reserves produced each quarter with the costs of those reserves. The result is to recognize expense at the same pace that the reservoirs are actually depleting. The amortization base in the UOP calculation includes the sum of proved property costs net of accumulated DD&A, estimated future development costs (future costs to access and develop reserves) and asset retirement costs which are not already included in oil and gas property, less related salvage value. Costs of unproved properties are not amortized until the proved reserves associated with the projects can be determined or until impairment occurs. If an assessment of such properties indicates that properties are impaired, the amount of impairment is added to the capitalized cost base to be amortized.

The capitalized costs included in the full cost pool are subject to a "ceiling test" (based on the average of the first-day-of-the-month prices during the twelve-month period prior to August 31, 2012 pursuant to the SEC’s “Modernization of Oil and Gas Reporting” rule), which limits such costs to the aggregate of the (i) estimated present value, using a ten percent discount rate, of the future net revenues from proved reserves, based on current economic and operating conditions, (ii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized, (iii) the cost of properties not being amortized, less (iv) income tax effects related to differences between the book and tax basis of the cost of properties not being amortized. If net capitalized costs exceed this limit, the excess is charged to expense in the current period. At August 31, 2011, all of the Company’s oil and gas properties were impaired and expensed to the extent of their carrying value. At August 31, 2012, the Company recorded no write-downs of the carrying value of its proved oil and gas properties.

Oil and Gas Acquisitions

The Company accounts for the acquisition of oil and gas properties under the requirements of Financial Accounting Standards Board (FASB) ASC Topic 805, Business Combinations (ASC Topic 805), issued in December 2007, with additional guidance issued in April 2009.  ASC Topic 805 requires an acquiring entity to recognize all assets acquired and liabilities assumed at fair value under the acquisition method of accounting, provided they qualify for acquisition accounting under the standard.  The Company accounts for all property acquisitions that include working interests in proved leasehold, both operated and non-operated, that would generate more than an immaterial balance of goodwill as business combinations.  The Company does not apply acquisition accounting to the purchase of oil and gas properties entirely comprised of unproved leasehold, which is in compliance with ASC Topic 805. In accordance with this guidance the Company has recognized the fair value of all the assets acquired and liabilities assumed in connection with its Kotaneelee Gas Project working interest acquisition from Devon effective July 18, 2012.

The Company adopted ASC Topic 805 effective December 23, 2009.  Accordingly, the Company, on an ongoing basis, conducts assessments of net assets acquired to determine if acquisition accounting is appropriate.  As appropriate, the Company properly records assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisitions are expensed as incurred.  The Company uses relevant market assumptions to determine fair value and allocate purchase price, such as future commodity pricing for purchased hydrocarbons, market multiples for similar transactions and replacement value for certain equipment.  Many of the assumptions are unobservable.

F-7

Asset Retirement Obligations

The Company records asset retirement obligations based on the guidance set forth in ASC Topic 410, as a liability in the period in which it incurs an obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The estimated balance of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate. This liability is capitalized as part of the cost of the related asset and amortized over its useful life.

Long-Lived Assets

The carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.

Environmental

Oil and gas activities are subject to extensive federal, state and provincial environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites.

Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a non-capital nature are recorded when an environmental assessment and/or remediation is probable, and the costs can be reasonably estimated.

Revenue Recognition

The Company recognizes natural gas revenue under the sales method of accounting for its interests in producing wells as natural gas is produced and sold from those wells. Natural gas sold by the Company is not significantly different from the Company’s share of production. The Company recognizes revenue upon transfer of ownership of the product to the customer which occurs when (i) the product is physically received by the customer, (ii) an invoice is generated which evidences an arrangement between the customer and the Company, (iii) a fixed sales price has been included in such invoice and (iv) collection from such customer is reasonably assured. Gas sales are reported net of applicable production taxes.

Stock-Based Compensation

The Company records compensation expense in the consolidated financial statements for stock-based payments using the fair value method. The fair value of stock options granted to directors and employees is determined using the Black-Scholes option valuation model at the time of grant. Fair value for common shares issued for goods or services rendered by non-employees are measured based on the fair value of the goods and services received. Stock-based compensation is expensed with a corresponding increase to share capital.

Income Taxes

Income taxes are determined using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the 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 deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes that date of enactment. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.

F-8

The Company accounts for uncertainty in income taxes by applying a two-step method. First, it evaluates whether a tax position has met a more likely than not recognition threshold, and second, it measures that tax position to determine the amount of benefit, if any, to be recognized in the financial statements. The application of this method did not have a material effect on the Company's consolidated financial statements.

Foreign Currency Gains and Losses

The Company’s functional and reporting currency is the United States dollar. The functional currency of our Canadian subsidiary is the Canadian dollar. Financial statements of our Canadian subsidiary are translated to United States dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income as a component of stockholders’ equity. Transaction gains and losses are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. As of August 31, 2012, the Company has not entered into derivative instruments to offset the impact of foreign currency fluctuations.

Earnings Per Share

The Company presents both basic and diluted earnings per share (“EPS”) on the face of the consolidated statements of operations. Basic EPS is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including convertible debt, stock options, and warrants, using the treasury stock method. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. Diluted EPS amounts are equal to those of Basic EPS for each period since the Company is in a net loss position.

As of August 31, 2012 and 2011, the Company had 1,820,204 and 596,870 shares of its common stock available through the exercise of non-dilutive stock warrants, respectively (Note 8).

Recent Accounting Pronouncements

The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements to have a material impact on its financial position, results of operations or cash flows.

3.  FAIR VALUE MEASUREMENTS

The Company  estimates the fair values of financial and non-financial assets and liabilities under ASC Topic 820 “Fair Value Measurements and Disclosures” (“ASC Topic 820”). ASC Topic 820 provides a framework for consistent measurement of fair value for those assets and liabilities already measured at fair value under other accounting pronouncements. Certain specific fair value measurements, such as those related to share-based compensation, are not included in the scope of ASC Topic 820. Primarily, ASC Topic 820 is applicable to assets and liabilities related to financial instruments, to some long-term investments and liabilities, to initial valuations of assets and liabilities acquired in a business combination, and to long-lived assets written down to fair value when they are impaired. It does not apply to oil and natural gas properties accounted for under the full cost method, which are subject to impairment based on SEC rules. ASC Topic 820 applies to assets and liabilities carried at fair value on the consolidated balance sheet, as well as to supplemental fair value information about financial instruments not carried at fair value.

Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of these techniques requires significant judgment and is primarily dependent upon the characteristics of the asset or liability, the principal (or most advantageous) market in which participants would transact for the asset or liability and the quality and availability of inputs. Inputs to valuation techniques are classified as either observable or unobservable within the following hierarchy:

F-9

● Level 1 — quoted prices in active markets for identical assets or liabilities.

● Level 2 — inputs other than quoted prices that are observable for an asset or liability. These include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

● Level 3 — unobservable inputs that reflect the Company’s own expectations about the assumptions that market participants would use in measuring the fair value of an asset or liability.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters.  Where observable prices or inputs are not available, valuation models are applied.  These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instrument’s complexity.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Acquired oil and gas properties are reported at fair value on a nonrecurring basis in the Company’s balance sheet.  See Note 2, Oil and Gas Acquisitions for further discussion of the methods and assumptions used to estimate fair values.

Cash, Cash Equivalents and the Fair Value of Financial Instruments

The Company considers all highly liquid instruments with an original maturity of three months or less at the time of issuance to be cash equivalents.  Cash and cash equivalents totaled $2,206,347 and $487,017 at August 31, 2012 and 2011, respectively. The Company is exposed to a concentration of credit risk with respect to its cash deposits. The Company places cash deposits with highly rated financial institutions in the United States and Canada. At times, cash balances held in financial institutions may be in excess of insured limits. The Company believes the financial institutions are financially strong and the risk of loss is minimal. The Company has not experienced any losses with respect to the related risks and does not believe its exposure to such risks is more than normal.

The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, other receivables, accounts payable, accrued liabilities and demand notes payable approximates their carrying value due to their short-term nature.

4.  OIL AND GAS PROPERTIES

Oil and Gas Acquisition – Kotaneelee Gas Project

On July 18, 2012, the Company completed an acquisition of Devon Canada’s (“Devon”) entire right and interest (generally a working interest of 22.989%, with a working interest of 69.337% in one producing gas well) in the Kotaneelee Gas Project (“KGP”). The KGP covers 30,542 gross acres in the Yukon Territory in Canada, and included; a gas dehydration plant (capacity: 70 million cubic feet per day (“MMCFD”)), one gas well producing approximately 3.5 MMCFD, one water disposal well (capacity: 6,000 barrels per day), and two suspended gas wells. The KGP has a fully developed gas gathering, sales and delivery infrastructure, airstrip, roads, flarestack, storage tanks, barge dock and permanent camp facilities.

As consideration for Devon’s working interest in the KGP, (the “Devon Assets”), the Company paid approximately $23,298,000. The consideration was comprised of $290,000 in cash, 7,250,000 shares of the Company’s restricted common stock valued at $15,950,000, and the absorption of $7,058,000 in asset retirement obligations. The Company allocated the consideration paid to the assets acquired based upon their fair value at the date of purchase, as follows:

Asset Description	Fair Value of Asset Acquired
Proven Properties
Intangibles	$	6,780,000
Plant and equipment		6,484,000
Gathering systems		1,788,000
Vehicles		4,527
Leasehold costs		581,379
		15,637,906
Unproven Leasehold Costs		6,465,622
		22,103,529
Goodwill		1,194,365
Total Assets Acquired - KGP	$	23,297,894

F-10

Capitalized acquisition, exploration and development costs incurred on the KGP during the fiscal year ended August 31, 2012 are summarized as follows:

KGP – Proven Properties
Balance, August 31, 2011	$	––
Acquisition costs		15,637,906
Expenditures on oil and gas properties		––
Depletion and depreciation		(405,082	)
Oil and gas property impairment		––
Balance, August 31, 2012	$	15,232,824

KGP – Unproven Properties
Balance, August 31, 2011	$	––
Acquisition costs		6,465,622
Expenditures on oil and gas properties		––
Depletion and depreciation		––
Oil and gas property impairment		––
Balance, August 31, 2012	$	6,465,622

Revenue and direct costs incurred on the KGP from the date of acquisition through August 31, 2012 are summarized as follows:

	From Acquisition (July 18, 2012) to August 31, 2012
Crude oil and natural gas production revenues	$	257,599
Operating cost:
Depreciation, depletion and amortization
Recurring		(400,744	)
Additional		––
Lease operating expenses		(255,143	)
Royalties		(6,309	)
Results of operations	$	(404,597	)
Barrels of oil equivalent (6:1) produced		18,571
Recurring DD&A per barrel of oil equivalent (6:1)	$	21.58

San Miguel Oil Project

On March 31, 2011, the Company initiated oil and gas operations by entry into a Farmout and Participation Agreement which provided for its acquisition of a net working interest ranging from 21.25% to 42.5%, in a 2,629 acre oil and gas lease known as the Matthews Lease, insofar as that lease covers from the surface to the base of the San Miguel formation (the “San Miguel Lease”). The San Miguel Lease is located in Zavala County, Texas, is unproven and has no current production.

During April and May 2011, the Company drilled and completed a test well on the San Miguel Lease (the “Test Well”), performed injection operations and earned its initial interest in the Matthews Lease. The Test Well was drilled into the San Miguel heavy oil zone to a depth of 3,168 feet. The well encountered oil and was completed as a San Miguel producer. After completion, it was determined that the oil was subject to significant viscosity changes related to temperature reductions from formation to recovery at surface. The Test Well was stimulated with nitrified hydrochloric acid and placed on production. To date, however, oil viscosity has prohibited economic operation. As a result of the application of a full cost pool "ceiling test", the Company determined that the book value of the San Miguel Lease was impaired to the extent of its carrying value. Accordingly, during August 2011 and November 2011, the Company recognized losses on the impairment of oil and gas assets of $835,659 and $44,335, respectively. The carrying value of oil and gas properties was likewise reduced to reflect the impairment of the San Miguel Lease.

F-11

The Company continues to investigate various methods to improve production from the Test Well. In the event the Company is unable to substantially improve production, it intends to abandon the Test Well, or actively pursue the sale of its interest in the Matthews Lease.

The costs incurred on the Mathews Lease during the fiscal years ended August 31, 2012 and 2011 are summarized as follows:

San Miguel Oil Project – Unproven
Balance, August 31, 2010	$	––
Expenditures on oil and gas properties		724,500
Accrued expenditures on oil and gas properties		31,159
Asset retirement obligations		80,000
Oil and gas property impairment		(835,659	)
Balance, August 31, 2011		––
Expenditures on oil and gas properties		11,200
Accrued expenditures on oil and gas properties		33,135
Asset retirement obligations		––
Oil and gas property impairment		(44,335	)
Balance, August 31, 2012	$	––

5.  ASSET RETIREMENT OBLIGATIONS

In connection with its acquisition of the Devon Assets, the Company acquired $7,057,716 in asset retirement obligations relating with its portion of the abandonment, reclamation and environmental liabilities associated with the KGP. The Company also incurred $80,000 in asset retirement obligations related to the future plugging and abandonment of the Test Well on the San Miguel Lease. Under the provisions of “ASC Topic 410, Asset Retirement and Environmental Obligations”, the fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred with a corresponding increase in the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is amortized over the useful life of the related asset.  If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.

At August 31, 2012, the Company’s interest in the San Miguel Lease was impaired and expensed to the extent of its carrying value, which included the full amount of the associated asset retirement obligation. The entire asset retirement obligation relating to the San miguel Lease has been classified as a current liability. The present value of the asset retirement obligation acquired in connection with the KGP is equivalent to its fair value computed as of July 18, 2012.

The Company has no assets that are legally restricted for purposes of settling asset retirement obligations. As part of the Company’s acquisition of the Devon Assets, it provided Devon a corporate guarantee (the “Guarantee”) in the amount of CAD$10,000,000 (USD$9,980,000) and delivered a letter of credit in the amount of CAD$4,380,000 (USD$4,371,000) to Devon (the “Devon LOC”). The Company also agreed to deliver a letter of credit in the amount of CAD$625,000 (USD$624,000) to the government of the Yukon Territory as soon as practicable (the “Yukon LOC”). The amounts of the Devon LOC and Yukon LOC reduce the amount of the Guarantee on a dollar-for-dollar basis. The Company is primarily responsible for payment of all asset retirement obligations. The Guarantee, Devon LOC and Yukon LOC are only available to Devon in the event the Company defaults upon its asset retirement obligations relating to the Devon Assets.

F-12

The following table summarizes the Company’s asset retirement obligation transactions the fiscal years ended August 31, 2012 and 2011:

Asset Retirement Obligations
Balance, August 31, 2010	$	––
Liabilities incurred (acquired)		80,000
Accretion expense		––
Liabilities (settled)		––
Changes in asset retirement obligations		––
Balance, August 31, 2011		80,000
Liabilities incurred (acquired)		7,057,716
Accretion expense		––
Liabilities (settled)		––
Changes in asset retirement obligations		––
Total Balance, August 31, 2012	$	7,137,716
Total Balance, August 31, 2012 - Current	$	80,000
Total Balance, August 31, 2012 – Long Term	$	7,057,716

 6.  NOTES PAYABLE

Non-interest bearing notes, unsecured and payable upon demand to unrelated parties:

	August 31, 2012		August 31, 2011
Notes payable	$	––	$	72,500
	$	––	$	72,500

On December 26, 2011, the Company retired $70,000 in non-interest bearing notes payable to an unrelated party using 23,334 investment units paid to the noteholder (Note 8). The residual balance was paid in cash.

7.   RELATED PARTY TRANSACTIONS

In connection with its acquisition of the Devon Assets, the Company acquired $7,057,716 in asset retirement obligations with its portion of the abandonment, reclamation and environmental liabilities associated with the KGP. To secure its obligation, the Company provided Devon the Guarantee, the Devon LOC, and the Yukon LOC (Note 5). The Guarantee was provided to Devon by the Company’s largest shareholder, Holloman Corporation, in exchange for 3,250,000 shares of its restricted common stock. Likewise, the Devon LOC was provided to Devon by Pacific LNG Operations Ltd. (“PLNG”). PLNG is also committed to provide the Yukon LOC to the government of the Yukon Territory. In exchange for the Devon LOC and Yukon LOC the Company issued PLNG 4,000,000 shares of its restricted common stock. Our directors, James Ebeling and Eric Prim are officers of Holloman Corporation, and Henry Aldorf, the Chairman of the Company’s Board of Directors, is a director of PLNG.

Effective January 20, 2011, a company controlled by the Company’s Chief Executive Officer, its Chief Financial Officer, and an unrelated consultant (the “Finders”) entered into an agreement with the Company providing for the payment of finder’s compensation ranging from 5% (on transaction values greater than $1,000,000) to 10% (on transactions values up to $300,000) on transactions introduced to the Company by or through the Finders for a period of two years (the “Finder’s Fee Agreement”). Under the Finder’s Fee Agreement, compensation is divided equally between the Finders and the Finders may elect whether the finder’s compensation is payable in cash, or shares of the Company’s restricted common stock. If the Finders elect to receive payment in stock, the shares into which finder’s compensation will be converted will be calculated using the average closing price of the Company’s common stock for the ten trading days preceding the closing date of the transaction to which the compensation relates. The Finder’s Fee Agreement specifically recognizes that the KGP has been presented to the Company by the Finder’s. As of August 31, 2012 total finder’s compensation of $844,282 has been accrued under the Finder’s Fee Agreement in connection with the Company’s acquisition of the KGP.

F-13

In connection with the San Miguel Agreement, the Company obtained $400,000 in temporary financing from its largest shareholder. This financing was subject to a non-interest bearing demand note payable. The entire $400,000 note balance was repaid by the Company during May 2011.

During fiscal years 2012 and 2011, management fees totaling $240,000 and $113,548, respectively, were incurred with an entity controlled by the Company’s Chief Executive Officer. Under the terms of a consulting agreement, this compensation is payable in equal parts cash and shares of the Company’s restricted common stock (Note 8). The fees were incurred as compensation for services rendered in the normal course of operations. The amount and form of the compensation was established and approved by the Company’s Board of Directors. Amounts of $20,000 and $113,548 of this compensation remained unpaid as of August 31, 2012 and 2011, respectively.

During fiscal years 2012 and 2011, fees totaling $150,900 and $108,675 were incurred with one of the Company’s directors for services provided as a financial consultant. That director became the Company’s Chief Financial Officer during August 2012.  Fees in the amount of $28,948 and $14,285 were accrued and unpaid as of August 31, 2012 and 2011, respectively. The fees were incurred as compensation for services rendered in the normal course of operations and were paid at the amount established and agreed to by the related parties.

During fiscal year 2012, management fees totaling $23,161 (2011- $0.00) were incurred with an entity controlled by the Company’s President. The amount of compensation was established and approved by the Company’s Board of Directors. A balance of $47,106, which includes all fees incurred and certain reimbursable expenses, remained unpaid as of August 31, 2012.

8.  CAPITAL STOCK AND STOCK-BASED COMPENSATION

Sales of Common Stock and Investment Units

During the period from June 2012, through August 2012, the Company sold 2,525,001 shares of its common stock to nineteen (19) accredited investors at a price of $1.20 per share. Proceeds, net of fees of $85,050 from these private placements, totaled $2,944,950. The sales were made pursuant to the terms of the offering approved by our Board of Directors on May 29, 2012. The Company’s President acquired 500,000 shares in the private placement under these terms.

To secure obligations undertaken in connection with the Company’s acquisition of the Devon Assets, the Company provided Devon the Guarantee, the Devon LOC, and the Yukon LOC (Note 5). The Guarantee was provided to Devon by the Company’s largest shareholder, Holloman Corporation, in exchange for 3,250,000 shares of its restricted common stock with a market value of $2.20 per share. Likewise, the Devon LOC was provided to Devon by Pacific LNG Operations Ltd. (“PLNG”). PLNG is also committed to provide the Yukon LOC to the government of the Yukon Territory. In exchange for the Devon LOC and Yukon LOC the Company issued PLNG 4,000,000 shares of its restricted common stock with a market value of $2.20 per share. The total market value of the  7,250,000 restricted shares provided in connection with acquisition is $15,950,000.

On December 26, 2011, the Company retired $70,000 in non-interest bearing notes payable to an unrelated party. In exchange for the notes, the Company issued 23,334 investment units to the note holder. The investment units were priced at $3.00 each and consisted of one share of the Company’s common stock, and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of the Company’s common stock at a price of $4.50 per share until November 5, 2013.

During May 2011, the Company sold 120,000 investment units. The investment units were priced at $3.00 each and consisted of one share of the Company’s common stock, and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of the Company’s common stock at a price of $4.50 per share until April 15, 2013. Proceeds from the private placement totaled $360,000, all of which was paid in cash. The Company paid $2,400 in finder’s fees in connection with the sale of the units. The Company’s Chief Executive Officer acquired 50,000 investment units in the private placement under these terms.

During March 2011, the Company sold 390,000 investment units. The investment units were priced at $3.00 each and consisted of one share of the Company’s common stock, and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of the Company’s common stock at a price of $4.50 per share until April 1, 2013. Proceeds from the private placement totaled $1,170,000, all of which was paid in cash. The Company paid $46,800 in finder’s fees in connection with the sale of the units.

F-14

During December 2010, the Company sold 86,870 investment units. The investment units were priced at $2.30 each and consisted of one share of the Company’s common stock, and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of the Company’s common stock at a price of $3.50 per share until December 29, 2012. Proceeds from the private placement totaled $199,800 of which $174,800 was paid in cash and $25,000 was issued as repayment of indebtedness to the Company’s largest shareholder. Finder’s fees in the amount of $8,700 were paid in connection with the sale of the units.

Stock-Based Compensation

On August 27, 2012, the Company established a Non-Qualified Stock Option Plan and a Stock Bonus Plan (the “Plans”). The Non-Qualified Stock Option Plan (the “Option Plan”) authorizes the issuance of up to 2,000,000 shares of the Company’s common stock. The Stock Bonus Plan provides for the issuance of up to 350,000 common shares (“Bonus Shares”). Under the Plans, shares may only be issued to employees, directors, officers, consultants and advisors, provided qualifying services are rendered.

The Company has full and final authority in its discretion, subject to the provisions of the Plans, and subject to the approval of its Board of Directors, to determine the individuals to whom, and the time or times at which shares or options shall be granted and the number of such shares or options; to construe and interpret the Plans; to determine the terms and provisions of the respective option agreements, which need not be identical, including, but without limitation, terms covering the payment of the option price; and to make all other determinations and take all other actions deemed necessary or advisable for the proper administration of the Plans.  All such actions and determinations shall be conclusively binding for all purposes and upon all persons.

The Company may at any time, and from time to time, amend, terminate, or suspend one or more of the Plans in any manner they deem appropriate, provided that any amendment, termination or suspension may not adversely affect rights or obligations with respect to options or shares previously granted.

Issuance of Options and Bonus Shares

On August 27, 2012, the Company granted options to officers,directors and consultants under the terms shown below. The options were granted pursuant to the Option Plan.

Number of Shares Issuable Upon Exercise of Option		Exercise Price		Vesting Period	First Date Exercisable	Expiration Date
	300,000	$	2.15	None	8/27/2012	8/27/2014
	300,000	$	2.30	6 Months	2/27/2013	8/27/2014
	300,000	$	2.50	2 Years	8/27/2014	8/27/2017
	300,000	$	2.65	2 Years	8/27/2014	8/27/2017
	1,200,000

In applying the Black-Scholes model, the Company used; expected terms of 2-5 years, historical stock price volatility of 67%, a risk-free rate of 4.5% and annual dividend rate of 0%.

Options	Shares (000)		Weighted-Average Exercise Price		Weighted-Average Remaining Contract Term (yrs)		Aggregate Intrinsic value
Outstanding – September 1, 2011		––		––
Granted		1,200	$	2.40
Exercised		––		––
Forfeited or expired		––		––
Outstanding – August 31, 2012		1,200	$	2.40		3.49	$	0.00
Exercisable – August 31, 2012		300	$	2.15		1.99	$	0.00

The weighted-average grant-date fair value of options granted during fiscal 2012 was $0.94.

F-15

As of August 31, 2012 there was $885,000 of total unrecognized compensation cost related to non-vested share-based compensation under the Option Plan. Of this amount, $554,000 is expected to be recognized during fiscal 2013, and $331,000 during fiscal 2014. A total of $246,976 in non-cash, stock-based compensation has been recognized in the consolidated statement of operations during 2012 in connection with the Option Plan.

On August 27, 2012, the Company issued 300,000 shares of its common stock to officers and directors pursuant to the Stock Bonus Plan. The fair value for shares of common stock given as compensation is the market price of the stock at date of grant. The 300,000 Bonus Shares had a value of $2.07 per share. The Company recognized non-cash management and director’s fees of $621,000 related to the Bonus Shares in the statements of operations.

Other Stock-Based Compensation

During fiscal years 2012 and 2011, management fees totaling $240,000 and $113,548, respectively, were incurred with an entity controlled by the Company’s Chief Executive Officer. At August 31, 2011, all fees incurred under this arrangement remained unpaid. During the year ended August 31, 2012, $323,548 in fees were paid in shares of the Company’s restricted common stock at a weighted average conversion price of $2.018 per share (160,360 shares).

Stock Warrants and Other

At August 31, 2012, warrants for 620,204 shares of the Company’s common stock were issued and outstanding with a weighted-average remaining life and exercise price of 6.98 months and $4.35, respectively. Of these warrants, 23,334 were issued during fiscal 2012, and 596,870 were were issued during fiscal year 2011. No warrants have been exercised or forfeited since inception.

On April 28, 2010, shareholders owning a majority of the Company’s outstanding shares approved a 20 for 1 forward split of its common stock. The forward stock split became effective on June 30, 2010.All references in these financial statements and related notes to number of shares, price per share and weighted average number of shares outstanding prior to this split have been adjusted to reflect the split  on a retroactive basis unless otherwise noted. At no time has the Company issued more common stock than is legally authorized.

9.  INCOME TAXES

The Company is subject to United States federal income taxes at an approximate rate of 35%, and Canadian income taxes at a rate of 30%. The reconciliation of the provision for income taxes at the applicable statutory rate compared to the Company’s income tax expense as reported is as follows:

	Canadian Year Ended August 31, 2012			United States Year Ended August 31, 2012			United States Year Ended August 31, 2011
	$	(469,659	)	$	(2,744,710)	)	$	(1,547,188	)
Statutory tax rates		30	%		35	%		35	%
Expected recovery of income taxes at statutory rates		140,898			960,649			541,516
Valuation Allowance		(140,898	)		(960,649	)		(541,516	)
Provision for income taxes	$	––		$	––		$	––

The significant components of deferred income tax assets at August 31, 2012 and 2011 are as follows:

	Canadian Year Ended August 31, 2012		United States Year Ended August 31, 2012		United States Year Ended August 31, 2011
Deferred income tax assets:
Impairment	$	––	$	307,998	$	292,480
Organization costs		––		76,732		103,418
Accrued salaries		––		––		36,242
US net operating loss carryforwards		––		545,564		––
Canadian net operating loss carryforwards		140,898		––		138,696
Stock Compensation		––		599,273		––

Total deferred income tax assets 140,898 1,529,567 570,836

Less: valuation allowance		(140,898	)		(1,529,567	)		(570,836	)
Deferred income tax assets, net	$	––		$	––		$	––

F-16

At August 31, 2012, the Company had accumulated United States and Canadian non-capital loss carry-forwards of approximately $1,558,755 and $720,949, respectively, that expire in 2032.

The potential future tax benefits of these expenses and losses carried-forward have not been reflected in these consolidated financial statements due to the uncertainty regarding their ultimate realization.

The Company has no uncertainties in income tax positions which, in the opinion of its management, need to be recognized in the consolidated financial statements. The Company’s tax returns for all years since inception remain open to review and examination by tax authorities.

10.  SUBSEQUENT EVENTS

Oil and Gas Acquisition – Kotaneelee Gas Project

On October 17, 2012, the Company completed a Share Purchase Agreement (the “Purchase Agreement”) with Nahanni Energy Inc., 1700665 Alberta Ltd., Apex Energy (2000), Inc. and Canada Southern Petroleum #1 L.P. (jointly “Nahanni”) for the acquisition of its entire right and interest (generally a working interest of 30.664%) in the KGP (the “Nahanni Assets”).

As consideration for the Nahanni Assets, the Company paid Nahanni CAD$400,000 (USD$398,550) in cash, and CAD$4,100,000 (USD$4,190,610) in shares of one of the Companies subsidiaries, which are exchangeable for 1,614,767 shares of the Company’s restricted common stock. The cash portion of Nahanni’s consideration was offset by CAD$270,000 (USD$265,950) paid in connection with the acquisition of the Devon Assets in settlement of certain Nahanni indebtedness. The number of shares issued by the Company’s subsidiary was calculated by dividing $4,190,610 by the volume weighted average trading price of the Company’s stock for the ten (10) trading days prior to closing the Purchase Agreement.  Both the cash paid and stock issued for the Assets are subject to certain holdbacks for Asset related liabilities or breach of representations and warranties.

In addition, the Company indemnified Nahanni against its portion of the abandonment, reclamation and environmental liabilities associated with the Nahanni Assets. Early estimates of those liabilities range from $9,000,000 to $10,000,000.

As a result of the closing of the Nahanni acquisition, the Company now generally owns a 53.67% interest in the KGP, including an 100% interest in one producing well which was temporarily shut-in for maintenance subsequent to August 31, 2012.

Sales of Common Stock

During October 2012, the Company sold 1,530,666 shares of its common stock to ten (10) accredited investors at a price of $1.20 per share. Gross proceeds from these private placements totaled $1,836,800. We paid $64,288 in finder’s fees in connection with the sale of these shares. The sales were made pursuant to the terms of the offering approved by our Board of Directors on May 29, 2012.

11.  SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED)

Estimated Net Quantities of Oil and Natural Gas Reserves

The following estimates of the net proved oil and natural gas reserves of our oil and gas properties, located entirely in Canada, are based on evaluations prepared by AJM Deloitte, (“AJM”) independent petroleum engineers. Reserve volumes and values were determined under the method prescribed by the SEC, which requires the application of the 12-month average price for natural gas and oil calculated as the un-weighted arithmetic average of the first-day-of-the-month price for each month within the 12-month prior period to the end of the reporting period and current costs held constant throughout the projected reserve life. Reserve estimates are inherently imprecise and estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, reserve estimates are expected to change as additional performance data becomes available.

F-17

Estimated quantities of proved domestic oil and gas reserves and changes in quantities of proved developed and undeveloped reserves in barrels (Bbls) and thousands of cubic feet (Mcf) for each of the periods indicated were as follows:

	Natural Gas
		(mcf)
Proved developed reserves
August 31, 2011			––
August 31, 2012			2,067,900
Proved undeveloped reserves
August 31, 2011			––
August 31, 2012			3,295,500
Total proved reserves:
Balance August 31, 2010			––
Extensions, discoveries and other additions			––
Purchases of minerals in-place			––
Revisions of previous estimates			––
Production			––
Sales of properties			––
Balance August 31, 2011			––
Extensions, discoveries and other additions			––
Purchases of minerals in-place			5,474,825
Revisions of previous estimates			––
Production			(111,425	)
Sales of properties			-
Balance August 31, 2012			5,363,400

As of August 31, 2012, on a barrel of equivalent basis, 61% (2011 – NIL) of our estimated reserves, respectively, were classified as proved undeveloped. These reserves relate to zones that are either behind pipe, or that have been completed but not yet produced, or zones that have been produced in the past, but are not now producing because of mechanical reasons. These reserves are considered to be a lower tier of reserves than producing reserves because they are frequently based on volumetric calculations rather than performance data. Future production associated with behind pipe reserves is scheduled to follow depletion of the currently producing zones in the same wellbores. It should be noted that additional capital may have to be spent to access these reserves. The capital and economic impact of production timing are reflected in this Note 11, under “standardized measure of discounted future net cash.”

We did not have any PUD reserves that were not scheduled to be converted into proved developed reserves within the five year requirement at August 31, 2012.

	August 31,
	2012		2011
	($/Mcf)		($/Mcf)
Commodity prices used in determining future cash flows	$	2.14		-

Standardized Measure of Discounted Future Net Cash Flows

A summary of the standardized measure of discounted future net cash flows relating to proved crude oil and natural gas reserves is shown below. Future net cash flows are computed using the average of the first-day-of-the-month commodity prices during the 12-month period ending on August 31, 2012, costs and statutory tax rates (adjusted for tax credits and other items) that relate to our existing proved crude oil and natural gas reserves.

F-18

The standardized measure of discounted future net cash flows related to proved oil and gas reserves as of August 31, 2012 and 2011 are as follows:

	2012			2011
Future cash inflows	$	11,478,000		$	––
Less related future:
Production costs and abandonment costs		(10,198,000	)		––
Development		(3,751,900	)		––
Income tax expense		––			––
Future net cash flows		(2,471,900	)		––
10% annual discount rate for estimated timing of cash flows		392,000			––
Standardized measure of discounted future net cash flows	$	(2,079,900	)	$	––

Changes in Standardized Discounted Future Net Cash Flows

A summary of the changes in the standardized measure of discounted future net cash flows applicable to proved crude oil and natural gas reserves follows:

	2012			2011
Beginning of year	$	––		$	––
Revisions of previous estimates
Changes in prices and costs		––			––
Changes in quantities		19,848			––
Additions to proved reserves resulting from extensions, discoveries and improved recovery, less related costs		––			––
Purchases of reserves in place		1,280,000			––
Sales of reserves in place		––			––
Accretion of discount		––			––
Sales, net of production costs		(19,848	)		––
Net change in income taxes		––			––
Changes in rate of production		––			––
Change in development costs		(3,751,900	)		––
Other, net		392,000			––
Net change		––			––
End of year	$	(2,079,900	)	$	––

F-19

EX-10.1

EXHIBIT 10.1

AGREEMENT OF PURCHASE AND SALE

THIS AGREEMENT made as of the 29th day of June, 2012.

BETWEEN:

DEVON CANADA, a general partnership, having an office in the City of Calgary, in the Province of Alberta (hereinafter referred to as "Vendor")

-and-

EFL OVERSEAS, INC., a body corporate, being a state of Nevada US Corporation (hereinafter referred to as "Purchaser")

WHEREAS Vendor wishes to sell and Purchaser wishes to purchase the interest of Vendor in and to the Assets, subject to and in accordance with the terms and conditions hereof;

NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the Parties have agreed as follows:

 ARTICLE 1

INTERPRETATION

1.1   Definitions

In this Agreement, unless the context otherwise requires:

(a)   "AFEs" means the authorities for expenditure, cash calls, operations notices, amounts budgeted pursuant to the Title Documents and mail ballots, if any, set out in Schedule "D" under the heading "AFEs";

(b)   "Affected Party" has the meaning ascribed to that term in subclause 7.1 (l) hereunder;

(c)   "Assets" means the Petroleum and Natural Gas Rights, the Tangibles, and the Miscellaneous Interests;

(d)   "Audit Period" means the period of time commencing on the date hereof and ending on 5:30 p.m. Calgary Time on the 365th day following the Closing Time;

1

(e)   "Business Day" means a day other than a Saturday, a Sunday or a statutory holiday in Calgary, Alberta;

(f)   "Cash Purchase Price" means the consideration paid by Purchaser set out in clause 2.6;

(g)   "Closing" means the closing of the purchase and sale herein provided for;

(h)   "Closing Place" means the offices of Vendor, or such other place as may be agreed upon in writing by Vendor and Purchaser;

(i)   "Closing Time" means the hour of 10:00 a.m. on the later of:

(i)   July 18, 2012; or

(ii)   such other time and date as may be agreed upon in writing by Vendor and Purchaser;

(j)   "Corporate Pool Price" has the meaning ascribed to that term in subclause 7.1 (a) hereunder;

(k)   "Defaulting Party" has the meaning ascribed to that term in subclause 7.1 (m) hereunder;

(l)   "Effective Date" means the hour of 12:01 a.m., Calgary time, on the 1st day of July, 2012;

(m)   "Employee Schedule" means the schedule described and referred to in clause 12.1 hereunder;

(n)   "Employees" means those employees of Vendor described and referred to in clause 12.1 hereunder;

(o)   "Facilities" means the tangibles or facilities, if any, set out in Schedule "C" under the heading "Facilities";

(p)   "Files" has the meaning ascribed to that term in clause 2.4 hereunder;

(q)   "GST" means the Goods and Services Tax established by the Excise Tax Act (Canada);

(r)   "Lands" means the lands set out and described in Schedule "A" as to the specific lands, substances, geological formations and rights noted thereunder;

(s)   "Leased Substances" means all Petroleum Substances, rights to or in respect of which are granted, reserved or otherwise conferred by or under the Title Documents (but only to the extent that the Title Documents pertain to the Lands);

2

(t)   "Losses" means all losses, death, injuries, damage, expenses, interest, charges, assessments, damages, liabilities, fines, penalties, actions, causes of action, suits, claims and demands, including all reasonable legal and other professional fees and expenses in relation thereto on a full recovery basis, but notwithstanding the foregoing shall not include any income tax liabilities or any liability for indirect or punitive damages including without limitation any consequential losses or loss of profits;

(u)   "Miscellaneous Interests" means, subject to any and all limitations and exclusions provided for in this definition, all property, assets, interests and rights pertaining to the Petroleum and Natural Gas Rights and the Tangibles, or either of them, but only to the extent that such property, assets, interests and rights pertain to the Petroleum and Natural Gas Rights and the Tangibles, or either of them, including without limitation any and all of the following:

(i)   contracts and agreements relating to the Petroleum and Natural Gas Rights and the Tangibles, or either of them, including without limitation the Production and Marketing Contracts, gas purchase contracts, processing agreements, transportation agreements and agreements for the construction, ownership and operation of facilities;

(ii)   rights to enter upon, use or occupy, the surface of any lands which are or may be used to gain access to or otherwise use the Petroleum and Natural Gas Rights and the Tangibles, or either of them, excluding any such rights that pertain only to a well or wells other than the Wells, and excluding any fee simple rights;

(iii)   all records, books, documents, licences, reports and data which relate to the Petroleum and Natural Gas Rights and the Tangibles, or either of them;

(iv)   leases for vehicles used in the conduct of operations on the Assets; and

(v)   the Wells, including the wellbores and any and all casing;

however, the Miscellaneous Interests shall not include agreements, documents or data to the extent that they;

(i)   pertain to seismic, geophysical or geological data, engineering forecasts, evaluations and reserve estimates;

(ii)   pertain to Vendor's proprietary technology or interpretations; or

(iii)   are owned or licensed by Third Parties with restrictions on their delivery or disclosure by the Vendor to any assignee;

(v)   "Novation" has the meaning ascribed to that term in subclause 7.1 (f) hereunder;

(w)   "Party" means a party to this Agreement;

3

(x)   "Permitted Encumbrances" means:

(i)   liens for taxes, assessments and governmental charges which are not due or the validity of which is being diligently contested in good faith by or on behalf of Vendor;

(ii)   undetermined or inchoate liens incurred or created in the ordinary course of business as security in favour of the person who is conducting the development or operation of the property to which such liens relate for Vendor's proportionate share of the costs and expenses of such development or operation which are not due or delinquent;

(iii)   mechanics', builders' and materialmen's liens in respect of services rendered or goods supplied for which payment is not due;

(iv)   easements, rights of way, servitudes and other similar rights in land (including without limitation rights of way and servitudes for highways and other roads, railways, sewers, drains, gas and oil pipelines, gas and water mains, electric light, power, telephone, telegraph and cable television conduits, poles, wires and cables) which do not materially impair the use of the Assets affected thereby;

(v)   the right reserved to or vested in any municipality or government or other public authority by the terms of any lease, licence, franchise, grant or permit or by any statutory provision, to terminate any such lease, licence, franchise, grant or permit or to require annual or other periodic payments as a condition of the continuance thereof;

(vi)   rights of general application reserved to or vested in any governmental authority to levy taxes on the Leased Substances or any of them or the income therefrom, and governmental requirements and limitations of general application as to production rates on the operations of any property;

(vii)   statutory exceptions to title, and the reservations, limitations, provisos and conditions in any original grants from the Crown of any of the mines and minerals within, upon or under the Lands;

(viii)   the terms and conditions of any leases applicable to any of the Tangibles;

(ix)   any security held by any Third Party encumbering Vendor's interest in and to the Assets or any part or portion thereof, in respect of which Vendor delivers a discharge in a form and substance satisfactory to the Purchaser, acting reasonably, to Purchaser at or prior to Closing; and

(x)   all royalty burdens, liens, adverse claims, penalties, reductions in interests and other encumbrances set out in Schedule "A";

(y)   "Petroleum and Natural Gas Rights" means all rights to and in respect of the Leased Substances and the Title Documents (but only to the extent that the Title Documents pertain to the Lands), including without limitation the interests set out and described in Schedule "A";

4

(z)   "Petroleum Substances" means any of crude oil, crude bitumen and products derived therefrom, synthetic crude oil, petroleum, natural gas, natural gas liquids, and any and all other substances related to any of the foregoing, whether liquid, solid or gaseous, and whether hydrocarbons or not, including without limitation sulphur;

(aa)   "Post Closing Financial Obligations" has the meaning ascribed to that term in subclause 7.1 (f) hereunder;

(bb)   "Prime Rate" means an annual rate of interest equal to the annual rate of interest announced from time to time by the main Calgary branch of Royal Bank of Canada as the reference rate then in effect for determining interest rates on Canadian dollar commercial loans in Canada;

(cc)   "Production and Marketing Contracts" means the agreement or agreements, if any, set out in Schedule "B" under the heading "Production and Marketing Contracts";

(dd)   "Purchaser Financing" means that equity or debt offering undertaken by the Purchaser targeting capital formation in the amount considered acceptable by the Purchaser to fund its first year exploration with respect to the Lands;

(ee)   "Regulations" means all statutes, laws, rules, orders, regulations and directions of governmental and other competent authorities in effect from time to time and made by governments or governmental boards or agencies having jurisdiction over the Assets;

(ff)   "ROFRs" means preferential, first purchase or other rights of first refusal;

(gg)   "Specific Conveyances" means all conveyances, assignments, transfers, novations and other documents or instruments that are reasonably required or desirable to convey, assign and transfer the interest of Vendor in and to the Assets to Purchaser and to novate Purchaser in the place and stead of Vendor with respect to the Assets;

(hh)   "Tangibles" means any Facilities, and any and all other tangible depreciable property and assets which are located within, upon or in the vicinity of the Lands and which are used or are intended to be used to produce, process, gather, treat, measure, make marketable or inject the Leased Substances or any of them or in connection with water injection or removal operations that pertain to the Petroleum and Natural Gas Rights, including without limitation any and all gas plants, oil batteries, buildings, production equipment, pipelines, pipeline connections, meters, generators, motors, compressors, treaters, dehydrators, separators, pumps, tanks, boilers and communication equipment;

(ii)   "Third Party" means any individual or entity other than a Party including without limitation any partnership, corporation, trust, unincorporated organization, union, government and any department and agency thereof and any heir, executor, administrator or other legal representative of an individual;

5

(jj)   "this Agreement", "herein", "hereto", "hereof" and similar expressions mean and refer to this Agreement of Purchase and Sale including the Schedules attached hereto;

(kk)   "Title Defect" means, for the purposes of Article 11,

(i)   a defect or deficiency in the beneficial title of the Vendor to any portion or part of the Assets (in this definition referred to as the "Affected Assets"), which on its own deprives the Vendor of the substantial use, benefit and financial revenue from such Affected Assets, having regard to laws respecting limitations of actions, and is sufficiently adverse such that it would, on a commercially reasonable assessment thereof, cause a purchaser acquiring only those Affected Assets, to not purchase the same having regard to the loss of value in and thereto, but notwithstanding anything to the contrary herein, specifically excludes the Permitted Encumbrances;or

(ii)   with respect to an interest in a particular Asset attributed to the Vendor in this Agreement, Vendor’s actual interest being less than that attributed to it or being subject to a mortgage, charge or other encumbrance, other than Permitted Encumbrances, which is not disclosed by this Agreement;

(ll)   "Title Documents" means, collectively, any and all certificates of title, leases, reservations, permits, licences, assignments, trust declarations, operating agreements, royalty agreements, gross overriding royalty agreements, participation agreements, farm-in agreements, sale and purchase agreements, pooling agreements and any other documents and agreements granting, reserving or otherwise conferring rights to (i) explore for, drill for, produce, take, use or market Petroleum Substances, (ii) share in the production of Petroleum Substances, (iii) share in the proceeds from, or measured or calculated by reference to the value or quantity of, Petroleum Substances which are produced, and (iv) rights to acquire any of the rights described in items (i) to (iii) of this definition; but only if the foregoing pertain in whole or in part to Petroleum Substances within, upon or under the Lands; including without limitation those, if any, set out and described in Schedule "A"; and

(mm)   "Wells" means all wells which are, have been or may be used in connection with the Petroleum and Natural Gas Rights, including without limitation producing, shut-in, abandoned, water source, water disposal and water injection wells, and without limiting the generality of the foregoing, includes the well or wells, if any, set out in Schedule "A".

1.2   Headings

The expressions "Article", "section", "subsection", "clause", "subclause", "paragraph" and "Schedule" followed by a number or letter or combination thereof mean and refer to the specified article, section, subsection, clause, subclause, paragraph and schedule of or to this Agreement.

6

1.3   Interpretation Not Affected by Headings

The division of this Agreement into Articles, sections, subsections, clauses, subclauses and paragraphs and the provision of headings for all or any thereof are for convenience and reference only and shall not affect the construction or interpretation of this Agreement.

1.4   Included Words

When the context reasonably permits, words suggesting the singular shall be construed as suggesting the plural and vice versa, and words suggesting gender or gender neutrality shall be construed as suggesting the masculine, feminine and neutral genders.

1.5   Schedules

There are appended to this Agreement the following schedules pertaining to the following matters:

Schedule "A"	- Lands
	- Petroleum and Natural Gas Rights
	- Wells
Schedule "B"	- Production and Marketing Contracts
Schedule "C"	- Facilities and Leased Tangibles
Schedule "D"	- AFEs
Schedule "E"	- General Conveyance
Schedule "F"	- Disclosure Schedule

Such schedules are incorporated herein by reference as though contained in the body hereof.  Wherever any term or condition of such schedules conflicts or is at variance with any term or condition in the body of this Agreement, such term or condition in the body of this Agreement shall prevail.

7

1.6   Knowledge or Awareness

Where in this Agreement a representation, warranty or certificate is made on the basis of knowledge or awareness of a Party hereto, such knowledge or awareness consists only of the actual knowledge or awareness, as the case may be, of the officers and employees of such Party having current responsibility for the Assets, and does not include knowledge and awareness of any other person or persons.

1.7   Damages

All losses, costs, claims, damages, expenses and liabilities in respect of which a Party has a claim pursuant to this Agreement include without limitation reasonable legal fees and disbursements on a solicitor and client basis.

ARTICLE 2

PURCHASE AND SALE AND CLOSING

2.1   Purchase and Sale

Vendor hereby agrees to sell, assign, transfer, convey and set over to Purchaser, and Purchaser hereby agrees to purchase from Vendor, all of the right, title, estate and interest of Vendor (whether absolute or contingent, legal or beneficial) in and to the Assets, subject to and in accordance with the terms of this Agreement.

2.2   Closing

Closing shall take place at the Closing Place at the Closing Time if there has been satisfaction or waiver of the conditions of Closing herein contained.  Subject to all other provisions of this Agreement, possession, risk and beneficial ownership of Vendor's interest in and to the Assets shall be deemed to pass from Vendor to Purchaser at the Closing Time.  Subject to the terms of this Agreement, the Parties shall execute the General Conveyance set out in Schedule "E" at Closing.  If the funds due at Closing are transferred via wire, Closing shall not conclude until Vendor is satisfied that such funds have been deposited into its bank account.

2.3   Specific Conveyances

Vendor shall prepare the Specific Conveyances at its cost, none of which shall confer or impose upon a Party any greater right or obligation than contemplated in this Agreement.  All Specific Conveyances that are prepared a reasonable time prior to the Closing Time shall be executed and delivered by the Parties at Closing.  Forthwith after full execution of all Specific Conveyances, Purchaser, with the co-operation of Vendor, shall circulate and register, as the case may be, all Specific Conveyances that by their nature may be circulated or registered and Purchaser shall be responsible for any registration costs.

8

2.4   Title Documents and Miscellaneous Interests

As soon as practicable after execution hereof, Vendor shall deliver to Purchaser copies of those agreements and documents to which the Assets are subject. The original copies of those contracts, agreements, records, books, documents, licences, reports and data comprising Miscellaneous Interests which are now in the possession of Vendor or to which it gains possession prior to Closing (the "Files") shall be delivered to Purchaser within seven (7) days of Closing.  Notwithstanding the foregoing, if and to the extent such Files also pertain to interests other than the Assets, photocopies or other copies may be provided to Purchaser in lieu of original copies.

2.5   Form of Payment

All payments to be made pursuant to this Agreement, and all amounts referred to in this Agreement shall be in Canadian funds.  All payments to be made pursuant to this Agreement shall be made by certified cheque or bank draft, subject to Canadian banking clearance rules.  In the event that certified cheques or bank drafts are not available due to such clearance restrictions, the Purchaser shall wire to Vendor's bank account the Closing funds using the wire information provided to Purchaser prior to the Closing Time by Vendor.

2.6   Cash Purchase Price

The Cash Purchase Price to be paid by Purchaser to Vendor for Vendor's interest in and to the Assets at Closing shall be Two Hundred and Seventy Thousand ($270,000.00) Dollars Cdn. adjusted for interim adjustments pursuant to Article 7 herein;

2.7   Allocation of Cash Purchase Price

The Parties shall allocate the Cash Purchase Price as follows:

Petroleum and Natural Gas Rights	$	216,000.00
Tangibles	$	53,990.00
Miscellaneous Interests	$	10.00
Total	$	270,000.00

2.8   Taxes

The Cash Purchase Price does not include any GST or other sales tax. In the event that any governmental agency shall levy any sales, value added or use tax or any tax of a similar nature relating to the conveyances described in this Agreement, including the GST, the Purchaser in each case agrees to pay to Vendor at Closing an amount equal to such taxes or levies.  Vendor shall remit such amount to the appropriate taxation authorities in accordance with the Excise Tax Act (Canada) and such other legislation affecting sales taxes (unless it is the Purchaser's responsibility to so make the payment pursuant to the Regulations). After Closing, the Purchaser shall be responsible for any amounts of GST or any sales, value added or use tax and any similar tax, fee or levy relating to the conveyance described in this Agreement, which is in excess of the amounts collected by Vendor at Closing.  Vendor's Goods and Services Tax registration number is 86781 4451 RT0001.  The Purchaser shall provide Vendor with its Goods and Services Tax registration number no later than the date which is ten (10) days prior to the Closing Time.

.

9

ARTICLE 3

CONDITIONS OF CLOSING

3.1   Purchaser's Conditions

The obligation of Purchaser to purchase Vendor's interest in and to the Assets is subject to the following conditions precedent, which are inserted herein and made part hereof for the exclusive benefit of Purchaser and may be waived by Purchaser:

(a)   the representations and warranties of Vendor herein contained shall be true in all material respects when made and as of the Closing Time;

(b)   all obligations of Vendor contained in this Agreement to be performed prior to or at Closing shall have been timely performed in all material respects;

(c)   at or prior to Closing, Vendor shall deliver to Purchaser any releases and registerable discharges (requested by Purchaser a reasonable time prior to the Closing Time) in a form satisfactory to Purchaser, of any adverse liens and encumbrances that are not Permitted Encumbrances and relate to security held by a Third Party against the Assets or any part or portion thereof;

(d)   all approvals, consents, or other restrictions contained in the Title Documents and arising by virtue of the purchase, transfer, sale, or assignment of the Assets shall have been waived, or complied with, by the Parties;

(e)   within 15 days of the date of this Agreement, Purchaser shall be satisfied in its own discretion of the results of Purchaser's due diligence including, but not limited to assessments of site conditions, and review of documents produced in connection with Article 10 hereof;

(f)   there shall be no adverse substantial damage or alteration to the Assets (other than a cessation of production of Petroleum Substances, a decline in the market value of the Assets or future cash flow therefrom, or the quality, quantity or recoverability of the Leased Substances) between the date hereof and the Closing Time, other than that to which Purchaser has provided its consent;

(g)   Purchaser's rights to terminate this Agreement pursuant to Article 11 hereof; and

(h)   the Purchaser Financing shall have closed.

If any one or more of the foregoing conditions precedent has or have not been satisfied, complied with, or waived by Purchaser, at or before the Closing Time, Purchaser may rescind this Agreement by written notice to Vendor.  If Purchaser rescinds this Agreement, Purchaser and Vendor shall be released and discharged from all obligations hereunder except as provided in clauses 3.3 and 13.14.

10

3.2   Vendor's Conditions

The obligation of Vendor to sell its interest in and to the Assets is subject to the following conditions precedent, which are inserted herein and made part hereof for the exclusive benefit of Vendor and may be waived by Vendor:

(a)   the representations and warranties of Purchaser herein contained shall be true in all material respects when made and as of the Closing Time;

(b)   all obligations of Purchaser contained in this Agreement to be performed prior to or at Closing shall have been timely performed in all material respects;

(c)   all amounts to be paid by Purchaser to Vendor at Closing shall have been paid to Vendor in the form stipulated in this Agreement; and

(d)    At Closing, the Purchaser shall deliver to Vendor any additional documents, agreements and other assurances that the Purchaser has covenanted to provide in association with the transaction described herein.

If any one or more of the foregoing conditions precedent has or have not been satisfied, complied with, or waived by Vendor, at or before the Closing Time, Vendor may in addition to any other remedies which it may have available to it, rescind this Agreement by written notice to Purchaser.  If Vendor rescinds this Agreement, Purchaser and Vendor shall be released and discharged from all obligations hereunder except as provided in clauses 3.3 and 13.14.

3.3   Efforts to Fulfil Conditions Precedent

Purchaser and Vendor shall proceed diligently and in good faith and use all reasonable efforts to satisfy and comply with and assist in the satisfaction and compliance with the conditions precedent.  If there is a condition precedent that is to be satisfied or complied with prior to the Closing Time, and if, by the time the condition precedent is to be satisfied or complied with, the Party for whose benefit the condition precedent exists fails to notify the other Party whether or not the condition precedent has been satisfied or complied with, the condition precedent shall be conclusively deemed to have been satisfied or complied with.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

4.1   Representations and Warranties of Vendor

Vendor hereby provides to Purchaser the disclosures set out on Schedule "F" relative to the Assets.  Purchaser acknowledges that it is purchasing Vendor's interest in and to the Assets on an "as is, where is" basis, without representation and warranty and without reliance on any information provided to or on behalf of Purchaser by Vendor or any Third Party, whether verbal or in writing and whether contained herein including in a schedule attached hereto or otherwise, except that Vendor makes only the following representations and warranties to Purchaser, no claim in respect of which shall be made or be enforceable by Purchaser unless written notice of such claim, with reasonable particulars, is given by Purchaser to Vendor within a period of twelve (12) months from the Closing Time:

11

(a)   Vendor is a general partnership and is duly organized, validly existing and is authorized to carry on business in the jurisdiction(s) in which the Assets are located, and the managing partner of Vendor is Devon Canada Corporation, a corporation duly incorporated, validly existing and is authorized to carry on business in the jurisdiction(s) in which the Assets are located.  Vendor now has good right, full power and absolute authority to sell, assign, transfer, convey and set over the interest of Vendor in and to the Assets according to the true intent and meaning of this Agreement;

(b)   the execution, delivery and performance of this Agreement has been duly and validly authorized by any and all requisite corporate, partnership, shareholders' and directors' actions and will not result in any violation of, be in conflict with or constitute a default under any articles, charter, bylaw or other governing document to which Vendor is bound;

(c)   the execution, delivery and performance of this Agreement will not result in any violation of, be in conflict with or constitute a default under any term or provision of any agreement or document to which Vendor is party or by which Vendor is bound, nor under any judgement, decree, order, statute, regulation, rule or license applicable to Vendor;

(d)   this Agreement and any other agreements delivered in connection herewith constitute valid and binding obligations of Vendor enforceable against Vendor in accordance with their terms;

(e)   except for consent required from the Crown in right of the Yukon Territory with regard to the transfer and assignment of all requisite approvals, licenses and permits pertaining to the Assets and the operatorship of the Assets from Vendor to Purchaser, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body exercising jurisdiction over the Assets is required for the due execution, delivery and performance by Vendor of this Agreement, other than authorizations, approvals or exemptions from requirement therefor, previously obtained and currently in force, or those to be received under the Competition Act (Canada), if applicable;

(f)   Vendor has not incurred any obligation or liability, contingent or otherwise, for brokers' or finders' fees in respect of this Agreement or the transaction to be effected by it for which Purchaser shall have any obligation or liability;

(g)   Vendor is not a non-resident within the meaning of section 116 of the Income Tax Act (Canada) and the interest of Vendor in and to the Assets does not constitute all or substantially all the property of Vendor;

(h)   other than Permitted Encumbrances, (i) Vendor has not alienated or encumbered the Assets or any part or portion thereof, (ii) Vendor has not committed any act or omission and is not aware of there having been committed any act or omission by any Third Party whereby the interest of Vendor in and to the Assets or any part or portion thereof may be cancelled or determined, and (iii) the Assets are now free and clear of all liens, royalties, conversion rights and other claims of Third Parties, created by, through or under Vendor and Vendor has no reason to believe that any such claims may be made;

12

(i)   subject to the rents, covenants, conditions and stipulations in the Title Documents and the Permitted Encumbrances, from and after Closing, Purchaser will be entitled to hold and enjoy the interests in the Assets attributed to the Vendor herein for Purchaser's own use and benefit without any interruption of or by Vendor or any Third Party claim by, through or under Vendor;

(j)   no suit, action or other proceeding before any court or governmental agency has been commenced and served against Vendor in respect of or relating to the Assets or, to the best of the knowledge, information and belief of Vendor, has been threatened or commenced against Vendor, in respect of or relating to the Assets;

(k)   all amounts due and payable to Third Parties prior to the date hereof and pertaining to the Assets have been fully paid, including without limitation (i) any and all ad valorem and property taxes, (ii) any and all production, severance and similar taxes, charges and assessments based upon or measured by the ownership or production of the Leased Substances or any of them or the receipt of proceeds therefor, and (iii) all amounts due and payable in connection with Permitted Encumbrances;

(l)   in respect of the Assets, except in connection with the AFEs, at the Effective Date, there are no financial commitments agreed to by Vendor which are over $25,000.00 (Vendor's share), other than usual operating expenses incurred in the normal conduct of operations and budgeted capital and expenditures, or those that may be terminated without penalty after Closing by Purchaser;

(m)   except for the Production and Marketing Contracts, Vendor is not a party to and Vendor's interest in and to the Assets is not otherwise bound or affected by any (i) production sales contracts pertaining to the Leased Substances or any of them that cannot be terminated on notice of 31 days or less (without an early termination penalty or other cost), (ii) gas balancing or similar agreements pertaining to the Leased Substances or any of them, (iii) agreements for the transportation, processing or disposal of the Leased Substances or any of them or substances produced in connection with the Leased Substances or any of them, (iv) agreements for the contract operation by a Third Party of the Assets or any of them, (v) agreements to provide transportation, processing or disposal capacity or service to any Third Party, and (vi) any take or pay or similar obligation related to the Assets;

(n)   no tangible depreciable property and assets which are used, were used or are intended to be used in producing, processing, gathering, treating, measuring, making marketable or injecting the Leased Substances or any of them or in connection with water injection or removal operations that pertain to the Petroleum and Natural Gas Rights, has been removed from its location since the Effective Date;

(o)   none of the interest of Vendor in and to the Assets is subject to any ROFRs created by, through or under Vendor or that become operative by virtue of this Agreement or the transaction to be effected by it;

13

(p)   Vendor has not failed to comply with, perform, observe or satisfy any material term, condition, obligation or liability which has heretofore arisen under the provisions of any of the Title Documents or any other agreements and documents to which the Assets are subject;

(q)   Vendor has not received notice of default and is not, to the knowledge, information and belief of Vendor, in any default under any obligation, agreement, document, order, writ, injunction or decree of any court or of any commission or administrative agency, which might result in impairment or loss of the interest of Vendor in and to the Assets or which might otherwise adversely affect the Assets;

(r)   Other than as described in Schedule "F", Vendor has not received:

(i)   any orders or directives which relate to Environmental Matters and which require any work, repairs, construction or capital expenditures with respect to the Assets, where such orders or directives have not been complied with in all material respects; or

(ii)   any demand or notice issued with respect to the breach of any environmental, health or safety law applicable to the Assets, including without limitation, respecting the use, storage, treatment, transportation or disposition of environmental contaminants, which demand or notice remains outstanding on the date hereof;

(s)   in respect of the Assets that are operated by Vendor, Vendor holds all valid licenses, permits and similar rights and privileges that are required and necessary under applicable law to operate the Assets as presently operated;

(t)   any and all operations of Vendor, and to the knowledge of Vendor, any and all operations by Third Parties, on or in respect of the Assets, have been conducted in accordance with good oil and gas industry practices and in material compliance with all applicable Regulations in effect at the relevant time;

(u)   except as specifically identified in Schedule "A", no obligations have accrued pursuant to the Title Documents that may be satisfied by the drilling of a well, the payment of compensatory royalty or the surrender of some or all of the interests granted, reserved or otherwise conferred pursuant to the Title Documents, other than obligations that have been satisfied (by means other than by the payment of compensatory royalties) or have been permanently waived;

(v)   except as specifically identified in Schedule "A", there are no active area of mutual interest provisions in any of the Title Documents or other agreements or documents to which the Assets are subject;

(w)   except as specifically identified in Schedule "A" and excepting production limits of general application in the oil and gas industry, none of the Wells is subject to production or other penalties imposed by the Title Documents or by any other agreements and documents to which the Assets are subject, or by any Regulations;

14

(x)   current and complete copies of all contracts, agreements, commitments, instruments and other documents identified in any of the Schedules hereto, including the Title Documents, have been made available for inspection by Purchaser; and

(y)   to the best of its knowledge, the Vendor is in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment (including pay equity), wages and hours, and health and safety, and there are no outstanding orders against the Vendor in relation to the foregoing in respect of the operation of the Lands or the Assets.

4.2   Limitation

(a)   Vendor makes no representations or warranties except as expressly set forth in clause 4.1 and, in particular, and without limitation, Vendor hereby expressly negates any representations or warranties by it (except those contained in clause 4.1) whether contained in any information, memorandum or otherwise, whether provided to Purchaser directly or through Vendor's agents, with respect to:

(i)   any data or information supplied by Vendor in connection herewith;

(ii)   the quality, quantity or recoverability of Petroleum Substances within or under the Lands or any lands pooled or unitized therewith;

(iii)   the value of the Assets or the future cash flow therefrom;

(iv)   the quality, condition, fitness or merchantability of any tangible depreciable equipment or property interests which are comprised in the Assets, or the condition of any Miscellaneous Interests; and

(v)   the title of Vendor in and to the Assets.

(b)   Purchaser acknowledges that it has only relied upon the representations and warranties contained in clause 4.1 and not on any representations or warranties outside this Agreement and Vendor shall have no liability, whether under contract, tort, statute or otherwise in respect of any statements, information, representations or warranties made by it or by its employees, agents or representatives, except liability for the representations and warranties contained in clause 4.1, which liability shall be subject to the limitations contained in this Agreement.  Purchaser acknowledges and confirms that except for the representations and warranties in clause 4.1, it has performed its own due diligence and has relied, and will continue to rely, upon its own engineering and due diligence with respect to the state or condition of the Assets and further confirms that it has reviewed all materials, data and other information available for review in any data rooms established for the marketing of the Assets.

15

4.3   Representations and Warranties of Purchaser

Purchaser makes the following representations and warranties to Vendor, no claim in respect of which shall be made or be enforceable by Vendor unless written notice of such claim, with reasonable particulars, is given by Vendor to Purchaser within a period of twelve (12) months from the Closing Time:

(a)   Purchaser is a corporation duly organized, validly existing and, at the Closing Time shall be authorized to carry on business in the jurisdiction(s) in which the Assets are located.  Purchaser now has good right, full power and absolute authority to purchase and acquire the interest of Vendor in and to the Assets according to the true intent and meaning of this Agreement;

(b)   the execution, delivery and performance of this Agreement has been duly and validly authorized by any and all requisite corporate, shareholders' and directors' actions and will not result in any violation of, be in conflict with or constitute a default under any articles, charter, bylaw or other governing document to which Purchaser is bound;

(c)   the execution, delivery and performance of this Agreement will not result in any violation of, be in conflict with or constitute a default under any term or provision of any agreement or document to which Purchaser is party or by which Purchaser is bound, nor under any judgement, decree, order, statute, regulation, rule or license applicable to Purchaser;

(d)   this Agreement and any other agreements delivered in connection herewith constitute valid and binding obligations of Purchaser enforceable against Purchaser in accordance with their terms;

(e)   except for consent required from the Crown in right of the Yukon Territory with regard to the transfer and assignment of all requisite approvals, licenses and permits pertaining to the Assets and the operatorship of the Assets from Vendor to Purchaser, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body exercising jurisdiction over the Assets is required for the due execution, delivery and performance by Purchaser of this Agreement, other than authorizations, approvals or exemptions from requirement therefor, previously obtained and currently in force;

(f)   Purchaser has not incurred any obligation or liability, contingent or otherwise, for brokers' or finders' fees in respect of this Agreement or the transaction to be effected by it for which Vendor shall have any obligation or liability;

(g)   Purchaser is entering into this Agreement and will acquire the Assets for itself and not as agent or representative for any other Third Party; and

(h)   Purchaser shall comply with any of the provisions of the Investment Canada Act, if applicable.

16

ARTICLE 5

INDEMNITIES FOR REPRESENTATIONS AND WARRANTIES

5.1   Vendor's Indemnities for Representations and Warranties

Vendor shall be liable to Purchaser for and shall, in addition, indemnify Purchaser from and against, all Losses suffered, sustained, paid or incurred by Purchaser which would not have been suffered, sustained, paid or incurred had all of the representations and warranties contained in clause 4.1 been accurate and truthful, provided however that nothing in this clause 5.1 shall be construed so as to cause Vendor to be liable to or indemnify Purchaser in connection with any representation or warranty contained in clause 4.1 if and to the extent that Purchaser did not rely upon such representation or warranty.

5.2   Purchaser's Indemnities for Representations and Warranties

Purchaser shall be liable to Vendor for and shall, in addition, indemnify Vendor from and against, all Losses suffered, sustained, paid or incurred by Vendor which would not have been suffered, sustained, paid or incurred had all of the representations and warranties contained in clause 4.3 been accurate and truthful, provided however that nothing in this clause 5.2 shall be construed so as to cause Purchaser to be liable to or indemnify Vendor in connection with any representation or warranty contained in clause 4.3 if and to the extent that Vendor did not rely upon such representation or warranty.

5.3   Time Limitation

No claim under this Article 5 shall be made or be enforceable by a Party unless written notice of such claim, with reasonable particulars, is given by such Party to the Party against whom the claim is made within a period of twelve (12) months from the Closing Time.

ARTICLE 6

PURCHASER'S INDEMNITIES

6.1   General Indemnity

Purchaser shall be liable to Vendor for and shall, in addition, indemnify Vendor from and against, all Losses suffered, sustained, paid or incurred by Vendor which arise out of any matter or thing occurring or arising from and after the Closing Time and which relates to the Assets, provided however that Purchaser shall not be liable to nor be required to indemnify Vendor in respect of any Losses suffered, sustained, paid or incurred by Vendor which arise out of a breach of Vendor's representations and warranties contained in clause 4.1 hereunder.

6.2                   Limitation

Notwithstanding any other provision in this Agreement: (i) neither Party shall be responsible for indirect or punitive damages (including without limitation consequential losses or loss of profits) suffered or incurred by the other Party; and (ii) Purchaser shall not be liable to nor be required to indemnify Vendor in respect of any Losses suffered, sustained, paid or incurred by Vendor in respect of which Vendor is liable to and has indemnified Purchaser pursuant to clause 5.1 and Vendor shall not be liable to nor be required to indemnify Purchaser in respect of any Losses suffered, sustained, paid or incurred by Purchaser in respect of which Purchaser is liable to and has indemnified Vendor pursuant to clause 5.2, in both cases disregarding the time limit set out in clause 5.3.

17

ARTICLE 7

OPERATING ADJUSTMENTS

7.1   Operating Adjustments

(a)   Subject to all other provisions of this Agreement, all benefits and obligations of any kind and nature relating to the operation of the Assets conveyed pursuant to this Agreement, including without limitation maintenance, development, operating and capital costs, government incentives, royalties and other burdens, and proceeds from the sale of production (except in the case of gas that is not dedicated to specific sales contracts or other arrangements, where the adjustment will be based on the weighted average price received by Vendor for such gas produced after the Effective Date from the province in which the gas is sold and referred to by Vendor as Vendor's "Corporate Pool Price"), whether accruing, payable or paid and received or receivable, shall be adjusted between the Parties as of the Effective Date in accordance with generally accepted accounting principles.  Notwithstanding the generality of the foregoing, the following principles shall apply to adjustments made under this article:

(i)   all costs incurred in connection with work performed or goods and services provided in respect of the Assets will be deemed to have accrued as of the date the work was performed or the goods and services were provided, regardless of the time those costs became payable;

(ii)   advances, cash calls and deposits by the Vendor for operations pertaining to the Assets will be adjusted under this Article, or replaced by Purchaser, and, if adjusted, will be transferred to, and be for the benefit of the Purchaser;

(iii)   adjustments in respect of production, if any, shall be made in favour of Vendor in respect of production beyond the wellhead at or before the Effective Date and in favour of Purchaser in respect of all other production;

(iv)   the adjustments shall constitute an increase or decrease, as the case may be, to the Cash Purchase Price and to the amount allocated to the Petroleum and Natural Gas Rights;

(v)   all surface and mineral lease payments and all taxes shall be apportioned on a per diem basis as of the Effective Date;

(vi)   Vendor shall report all net revenue received or accrued between the Effective Date and Closing Date as its own, for income tax purposes.  Adjustments in favour of the Vendor shall be made in an amount equal to the income taxes payable on the Assets' operating income (being field revenue less royalties and operating costs), from the Effective Date until Closing Time at the deemed rate of twenty five (25%) percent of operating income;

(vii)   there will be no adjustments for royalty tax credits or other similar incentives that accrue to a Party because of financial or organizational attributes specific to it, other than gas cost allowances (or similar cost allowances); and

18

(viii)   Vendor has hired Third Party auditors and accountants to prepare a financial audit of the Assets such that Purchaser may be able to comply with any security exchange commission requirements in the United States of America applicable to the closing of the transactions contemplated by this agreement.  The Third Party costs and expenses attributable to such audit conducted by Vendor shall be added to the statement of adjustments set out hereunder for Purchaser's account. Vendor confirms that such adjustment is approximately Twenty Five Thousand ($25,000) Dollars plus any additional work requested by Purchaser after October 1, 2011.

(b)   Vendor shall, no later than the date which is three (3) Business days prior to the Closing Time, provide Purchaser with a written statement of all such adjustments to be made at Closing, and shall cooperate with Purchaser to enable Purchaser to verify the accuracy of such statement.  For the purposes of such interim adjustment, Vendor may use, where necessary, good faith estimates for revenues, expenses and capital items.  No further adjustments or payments shall be made after Closing until the final statement of adjustments is concluded, which shall occur within 180 days of the Closing Time.  The intention of the Parties is that final settlement shall occur by way of the final statement of adjustments, however, it is recognized that adjustments may be made from time to time thereafter, including royalty audits, Crown royalty audits, joint venture audits, plant equalizations, and facility operating agreement 13-month adjustments.  Other than as expressly set out hereunder otherwise, any payments required to be made by one Party to the other as a result of such final adjustment or under the terms of this Agreement, shall be made within thirty (30) Business Days of the receipt of a request for the same and both Parties covenant to make any and all payments within such time period.

(c)   To the extent that a Party believes that an additional adjustment must be made after the final statement of adjustments has been concluded, written notice of the requested adjustment, with reasonable particulars, shall be given to the other Party and the Party receiving such notice shall have the opportunity to review the same.  Subject to a dispute as to the adjustment, the Party required to make a payment pursuant to the adjustment shall make a payment to the other Party within a period of thirty (30) Business Days from the date of receipt of such request.

(d)   The periods for seeking a remedial order contemplated in clause 3(1) of the Limitations Act, RSA 2000, c. L-12, as amended, for any claim (as defined in the said Act) arising in connection with this Agreement, including the adjustments set out in this Article shall, notwithstanding sub-clauses 3(1)(a) and (b) of the said Act, be four (4) years after the claim arose.

(e)   During the Audit Period, both Parties may audit the books, records and accounts of the other respecting the Assets, for the purpose of effecting adjustments pursuant to this Article.  Such audit shall be conducted upon reasonable notice to the Party subject to the audit, at such Party's offices during its normal business hours, and shall be conducted at the sole expense of the Party initiating such audit.  Any claims of discrepancies disclosed by such audit shall be made in writing to the Party being audited within the Audit Period and such Party shall respond in writing to any claims of discrepancies within the Audit Period.  To the extent that the Parties are unable to resolve any outstanding claims of discrepancies disclosed by such audit within the Audit Period, such audit exceptions may, at a Parties sole option, be resolved by arbitration pursuant to the Arbitration Act of Alberta using one arbitrator mutually chosen by the Parties.

19

(f)   In the event of a sale of the Assets, or a portion thereof, after the Closing Time, by Purchaser to a Third Party, the Purchaser shall ensure that the covenants relating to the post Closing adjustment process are fully and completely assigned in writing to such Third Party with the written consent of the Vendor, not to be unreasonably withheld (the "Novation").  The Purchaser shall remain solely liable for the collection of any amounts or the payment obligations of any monies under this Agreement (the "Post Closing Financial Obligations") to Vendor until such time as the Novation has been fully executed as noted above.  In addition, Purchaser shall indemnify Vendor from and against, all Losses suffered, sustained, paid or incurred by Vendor which arise out of the Post Closing Financial Obligations, until the full execution of the Novation as noted above.  Notwithstanding the Novation, Purchaser shall remain solely liable for and shall continue to maintain its obligations and covenants to Vendor hereunder for such time period prior to the effective date of the Novation.

(g)   The collection of overpayments or the payment of underpayments, as the case may be, arising as a consequence of royalty audits, Crown royalty audits, joint venture audits, plant equalizations, and facility operating agreement 13-month adjustments relating to the Assets that:

(i)   pertain to the period prior to the Closing Time and for which audit queries are outstanding at the Closing Time; or

(ii)   that occur within four (4) years after the Closing Time;

shall be the initial responsibility of Purchaser, on its behalf and on behalf of the Vendor.  If Purchaser collects overpayments or is liable to make a payment for an underpayment, and either Vendor is entitled to such overpayment or a portion thereof, or for which underpayment Vendor is liable in whole or in part, Purchaser shall, within thirty (30) days of such collection or liability for payment of such amounts, prepare a written and detailed statement of all such adjustments and deliver such statement to Vendor.  Within thirty (30) Business Days of receipt of such statement, such adjustments shall be settled by payment to or by Vendor and Purchaser, as the case may be.

(h)   Payments of lessor royalties, relating to the production months prior to the Closing Time for which production revenue has been received by Vendor shall be paid by Vendor, either before or after the Closing Time, and will be dealt with by way of the statement of adjustments described herein for those production months between the Effective Date and the Closing Time.

20

(i)   After Closing, the Purchaser shall make commercially reasonable efforts to assist Vendor in collecting any monies under the joint accounts pertaining to the Assets which may be due and owing to Vendor from third parties and joint interest partners with respect to the Assets and operations thereon.

(j)   From the Effective Date until the Closing Time, Vendor, where operator, shall be entitled to retain all overhead recoveries earned pursuant to any Title Document(s), and the adjustments in favour of Vendor under this Article shall include any and all such overhead chargeable and recovered by Vendor for this time period.

(k)   Any amount owing to a Party by the other Party hereunder after Closing and remaining unpaid shall bear interest, compounded and computed monthly at the rate of two (2%) percent above the Prime Rate, from the day that amount was due to be paid until the day it is paid, regardless of whether the Party has given the other Party prior notice of the accrual of interest hereunder.

(l)   After Closing, if Vendor is required or elects to make any payments on Purchaser's behalf, in relation to the Assets and pertaining to the time period after the Effective Date, Vendor shall be entitled to cash call or joint interest bill Purchaser for such amounts, in addition to the mechanism under this Article 7, and Purchaser shall promptly pay Vendor such cash call or joint interest billings within three (3) Business Days of receipt thereof.

(m)   In addition to any rights now or hereafter granted or available to a Party ("Affected Party") in law, equity or otherwise, and not by way of limitation of any such rights, in the event of a failure by a Party (the "Defaulting Party") to pay any amounts due and owing under this Agreement to the Affected Party, any Affected Party shall have the right (and is hereby authorized by the Defaulting Party) at any time and from time to time to set-off and to apply against any indebtedness owing by such Affected Party to the Defaulting Party under any other agreements, joint interest billings, cash calls, advances or otherwise, any and all amounts owing by the Defaulting Party to such Affected Party under this Agreement.

ARTICLE 8

MAINTENANCE OF ASSETS

8.1   Maintenance of Assets

From the date hereof, until the Closing Time, Vendor shall, to the extent that the nature of its interest permits, and subject to the Title Documents and any other agreements and documents to which the Assets are subject:

(a)   maintain the Assets in a proper and prudent manner in material compliance with all applicable Regulations; and

(b)   pay or cause to be paid all costs and expenses relating to the Assets which become due from the date hereof to the Closing Time;

21

however, notwithstanding any other covenant to maintain, produce and operate hereunder, nothing herein shall be deemed to prevent Vendor from ceasing to produce Petroleum Substances to the extent production of Petroleum Substances has become uneconomic in Vendor's sole discretion, acting reasonably.

8.2   Consent of Purchaser

Notwithstanding clause 8.1, Vendor shall not from the date hereof to the Closing Time, without the written consent of Purchaser, which consent shall not be unreasonably withheld by Purchaser and which, if provided, shall be provided in a timely manner:

(a)   make any commitment or propose, initiate or authorize any capital expenditure with respect to the Assets of which Vendor's share is in excess of $25,000.00, except in the case of an emergency, in the case of the Yukon government requiring an expenditure to maintain the Assets, or in respect of amounts which Vendor may be committed to expend or be deemed to authorize for expenditure without its consent;

(b)   surrender or abandon any of the Assets;

(c)   materially amend or wholly terminate any Title Document or any other agreement or document to which the Assets are subject, or enter into any new agreement or commitment relating to the Assets; or

(d)   sell, encumber or otherwise dispose of any of the Assets or any part or portion thereof excepting sales of the Leased Substances or any of them in the normal course of business.

ARTICLE 9

PRE-CLOSING INFORMATION

9.1   Production of Documents

At all reasonable times from the date hereof until the Closing Time, Vendor shall make available to Purchaser and Purchaser's counsel in Vendor's offices in Calgary the following books, accounts, documents, files and information pertaining to the Assets:

(a)   all of the Title Documents and any other agreements and documents to which the Assets are subject;

(b)   evidence available with respect to the payment of all bonuses, rentals and royalties due under the Title Documents;

(c)   facilities maintenance records to the extent available;

(d)   litigation records and status documentation, if any;

(e)   correspondence files;

(f)   lease and contract records;

22

(g)   mortgages, deeds of trust, security agreements, chattel mortgages and other encumbrances affecting the Assets;

(h)   evidence with respect to the payment of all taxes, charges and assessments pertaining to the Assets;

(i)   production records, ownership maps and surveys;

(j)   processing and pipeline agreements, permits, easements, licenses and orders;

(k)   all documents and information relevant to environmental damage or contamination or other environmental problems pertaining to the Assets;

(l)   accounting records, policies of insurance, consulting agreements, field contracts and other agreements relating to the operation of the Assets; and

(m)   any other records, documents or information available and pertaining to the Assets that the Purchaser might reasonably request.

ARTICLE 10

TITLE DEFECTS

10.1   Title Review

Purchaser shall conduct its review of Vendor's title to the Assets with reasonable diligence.  From time to time, as soon as reasonably practicable after determination, and in any event no later than ten (10) Business Days before the Closing Time, Purchaser shall notify Vendor in writing of the Title Defects (which shall exclude Permitted Encumbrances and any matters disclosed in this Agreement).  Such notice shall include a description of each Title Defect and the interests affected thereby, the value allocated by Purchaser, acting reasonably, to the affected interest and the amount, in Purchaser's opinion, acting reasonably, by which the value of each affected interest has been reduced by the Title Defect.  Failure to include all of the foregoing in a written notice or failure to include a Title Defect in a written notice shall be deemed to be a waiver of such Title Defect for the purposes of this Article 10.  Purchaser shall not provide notice of any individual Title Defects that have a value of less than $100,000.00 net to Vendor, and such Title Defects shall not be considered Title Defects hereunder.

10.2   Title Defect Rectification by Vendor

Vendor shall use all commercially reasonable efforts to cure or rectify the Title Defects of which Purchaser gives notice pursuant to clause 10.1.  If any such Title Defects are not cured or removed prior to the Closing Time, Purchaser shall be obligated to proceed with the Closing, subject to any right of termination pursuant to clause 10.3.

23

10.3   Termination on Title Defects

Prior to the Closing Time, Purchaser may terminate this Agreement in its entirety where the cumulative amount by which the value of any Title Defects is, in Purchaser's opinion acting reasonably, more than $2,000,000.00.  In all cases, in order for this right of termination to be operative, Purchaser shall provide to Vendor a written notice of Title Defects, and such notice shall include the nature of the Title Defect a breakdown of the total cumulative value among each of the Assets affected by each of the Title Defects, and the information required in such notice under clause 10.1.  If Vendor agrees, acting reasonably that the value or values, as the case might be, allocated by Purchaser are reasonable, the Parties shall be released of all obligations hereunder except clause 13.14

10.4   Title Disputes

If Vendor disagrees, acting reasonably, with the existence of Title Defects, or the value or values allocated by Purchaser to the Title Defects, Vendor shall have the sole option to terminate this Agreement by written notice to Purchaser, or to delay Closing and refer the matter in dispute to arbitration.  If Vendor elects to delay Closing and refer the matter in dispute to arbitration, the Parties shall forthwith meet in good faith to discuss the issue.  If after such a meeting the issue has not been resolved or if a Party does not forthwith meet to discuss the issue, the issue shall be resolved by a single arbitrator pursuant to the provisions of the Arbitration Act (Alberta).  The decision of the arbitrator shall be final and shall not be subject to review.  All costs of arbitration shall be borne by the Parties equally.  The arbitrator will be asked to render a decision within thirty (30) days of being presented with its instructions as to the arbitration.

ARTICLE 11

WELL AND FACILITY LICENSE TRANSFERS

11.1   Deposit Requirements

Provided Closing has occurred, if, for any reason, the regulatory body having jurisdiction over the licencing and operations in relation to the Assets requires the Purchaser to make a deposit in order to approve the transfer of the licenses, permits or approval  or any of them the Purchaser shall and covenants to immediately make such deposits.

ARTICLE 12

EMPLOYEES

12.1   Offers of Employment

Purchaser shall not make any contact with any employees of Vendor in the field pertaining to the Assets except with the express consent of Vendor or as set out in this Agreement.  Upon execution of this Agreement by Purchaser, Vendor shall under separate cover, provide Purchaser with a list of all field employees associated with the operation of the Assets which Vendor is willing to allow Purchaser to hire (the “Employee Schedule"), along with all pertinent information relative to each employee reasonably required, in order for Purchaser to be able to make an initial assessment whether it wishes to make an offer of employment to any such employee.  In no event shall the Purchaser be entitled to any files or private employee information contained in Vendor's files relative to such employees which, is contrary to applicable privacy legislation.  Purchaser shall provide Vendor with notice of which employees, if any, the Purchaser wishes to make offers of employment to, Vendor and Purchaser agree to cooperate with each other in order for Purchaser to conduct interviews with each such employee.  Purchaser shall offer employment to such employees selected by Purchaser as Purchaser may decide, conditional upon Closing and effective as of the Closing Time, which offer shall include, without limitation, (i) duties and responsibilities (including reporting responsibilities), (ii) the titles and salaries described in the Employee Schedule, and (iii) the overall value of the benefits provided to the employee under the employee plans of the Vendor described in the Employee Schedule.  On or before 4:00 p.m. Calgary time three (3) Business Days prior to the Closing Time, Purchaser shall provide a written list to Vendor showing which of such employees have accepted employment with Purchaser effective as of the Closing Time (the "Employees").

24

12.2   Severance Obligations

Subject to clause 12.5, Vendor shall be responsible for all obligations, costs and expenses (including all legal fees on a solicitor and his own client basis), arising in respect of the termination of employment of any employee who is not offered employment by Purchaser in accordance with clause 12.1 and Vendor shall indemnify and hold harmless Purchaser from any Losses which Purchaser may suffer, sustain, pay or incur in respect of such employees.

12.3   Recognition of Service

Purchaser agrees that it shall recognize the period of service which an Employee has had with Vendor and its predecessors for all purposes of such Employee's employment with Purchaser following Closing including, without limitation, for purposes of determining future vacation, benefit, pension and severance entitlements.

12.4   Obligations to Employees

Vendor shall be responsible for discharging all obligations and liabilities accrued in respect of the Employees up to the close of business on the day immediately preceding the Closing Time including, without limitation, wages, salaries, vacation pay, workers' compensation and premiums for employment insurance, Canada Pension Plan, Alberta Health Care and other health care plans, life insurance, long term disability, self-insured short term disability and accidental death and dismemberment insurance plans and group registered retirement savings plans and subject to clause 12.5, shall indemnify and save harmless Purchaser from all Losses which it may suffer, sustain, pay or incur in respect thereof.  Provided Closing occurs, Purchaser shall, subject to the provisions of clause 12.2, assume all such obligations and liabilities accrued in respect of the Employees (which for the avoidance of doubt excludes all employees not offered employment with Purchaser) from and after the close of business on the day immediately preceding the Closing Time and shall indemnify and save harmless Vendor from all Losses which it may suffer, sustain, pay or incur in respect thereof.

12.5   Additional Provision

If as a consequence of Closing, Vendor terminates the employment of an employee listed on the Employee Schedule and Purchaser hires or provides a consulting arrangement to such person otherwise than in accordance with this Article 12 for a period of six (6) months from the Closing Time, Purchaser shall reimburse Vendor for any and all costs, expenses and Losses previously paid by Vendor to such employee as a result of such termination, that would not otherwise be payable had Purchaser made an offer of employment to such employee pursuant to Article 12, and such payments shall be dealt with as an adjustment in Article 7 hereunder.

25

ARTICLE 13

GENERAL

13.1   Further Assurances

Each Party will, from time to time and at all times after Closing, without further consideration, do such further acts and deliver all such further assurances, deeds and documents as shall be reasonably required in order to fully perform and carry out the terms of this Agreement.

13.2   No Merger

The covenants, representations, warranties and indemnities contained in this Agreement shall be deemed to be restated in any and all assignments, conveyances, transfers and other documents conveying the interests of Vendor in and to the Assets to Purchaser, subject to any and all time and other limitations contained in this Agreement.  There shall not be any merger of any covenant, representation, warranty or indemnity in such assignments, conveyances, transfers and other documents notwithstanding any rule of law, equity or statute to the contrary and such rules are hereby waived.

13.3   Entire Agreement

The provisions contained in any and all documents and agreements collateral hereto, other than any closing agreements which may be signed contemporaneously herewith shall at all times be read subject to the provisions of this Agreement and, in the event of conflict, the provisions of this Agreement shall prevail.  No amendments shall be made to this Agreement unless in writing, executed by the Parties.  This Agreement and any ancillary closing agreement supersedes all other agreements, documents, writings and verbal understandings among the Parties relating to the subject matter hereof and expresses the entire agreement of the Parties with respect to the subject matter hereof with the exception of the Confidentiality Agreement signed between the Parties on October 13, 2010, which shall be effective until Closing.

13.4   Subrogation

The assignment and conveyance to be effected by this Agreement is made with full right of substitution and subrogation of Purchaser in and to all covenants, representations, warranties and indemnities previously given or made by others in respect of the Assets or any part or portion thereof.

13.5   Governing Law

This Agreement shall, in all respects, be subject to, interpreted, construed and enforced in accordance with and under the laws of the Province of Alberta and the laws of Canada applicable therein and shall, in every regard, be treated as a contract made in the Province of Alberta.  The Parties irrevocably attorn and submit to the jurisdiction of the courts of the Province of Alberta and courts of appeal therefrom in respect of all matters arising out of this Agreement.

26

13.6   Assignment and Enurement

(a) Purchaser may assign this Agreement to a direct or indirect wholly-owned subsidiary without the consent of Vendor, provided that in the event of such assignment the assignor shall remain liable for any of the affiliate assignee's obligations under this Agreement, unless otherwise consented to in writing by Vendor, which consent may be unreasonably and arbitrarily withheld.

(b) Subject to clause 13.6(a), this Agreement may not be assigned by a Party without the prior written consent of the other Party, which consent may be unreasonably and arbitrarily withheld. Subject to the foregoing, this Agreement shall be binding upon and shall enure to the benefit of the Parties and their respective administrators, trustees, receivers, successors and permitted assigns.

13.7   Time of Essence

Time shall be of the essence in this Agreement.

13.8   Notices

The addresses for service and the fax numbers of the Parties shall be as follows:

Vendor -	c/o Devon Canada
	2000, 400 - 3rd Avenue S.W.
	Calgary, Alberta
	T2P 4H2
	Attention:	Land Department
	Fax:	(403) 232-7429
Purchaser -	EFL Overseas, Inc.
	333 North Sam Houston Parkway East
	Suite 600
	Houston, Texas 77024
	Attention:	Keith Macdonald or Robert Wesolek
	Fax:	(281) 260-1010

All notices, communications and statements required, permitted or contemplated hereunder shall be in writing, and shall be delivered as follows:

(a)   by personal service on a Party at the address of such Party set out above, in which case the item so served shall be deemed to have been received by that Party when personally served;

(b)   by facsimile transmission to a Party to the fax number of such Party set out above, in which case the item so transmitted shall be deemed to have been received by that Party when transmitted;

27

(c)   except in the event of an actual or threatened postal strike or other labour disruption that may affect mail service, by mailing first class registered post, postage prepaid, to a Party at the address of such Party set out above, in which case the item so mailed shall be deemed to have been received by that Party on the third Business Day following the date of mailing; or

(d)   by package delivery service, signature required, to a Party at the address of such Party set out above, in which case the item shall be deemed to have been received by that Party upon signature receipt.

A Party may from time to time change its address for service or its fax number or both by giving written notice of such change to the other Parties.

13.9   Operatorship

Purchaser acknowledges that Vendor is unable to assign to Purchaser operatorship of the Assets, if any, operated by Vendor and in respect of which Vendor does not have a 100% interest.  Vendor shall, however, use reasonably commercial efforts to assist Purchaser in its attempts to obtain operatorship.

13.10   Invalidity of Provisions

In case any of the provisions of this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

13.11   Waiver

No failure on the part of any Party in exercising any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any right or remedy in law or in equity or by statute or otherwise conferred.  No waiver of any provision of this Agreement, including without limitation, this section, shall be effective otherwise than by an instrument in writing dated subsequent to the date hereof, executed by a duly authorized representative of the Party making such waiver.

13.12   Amendment

This Agreement shall not be varied in its terms or amended by oral agreement or by representations or otherwise other than by an instrument in writing dated subsequent to the date hereof, executed by a duly authorized representative of each Party.

13.13   Agreement not Severable

This Agreement extends to the whole of the Assets and is not severable without Purchaser's express written consent or as otherwise herein provided.

28

13.14   Confidentiality and Public Announcements

Each Party shall keep confidential all information obtained from the other Party in connection with the Assets and shall not release any information concerning this Agreement and the transactions herein provided for, without the prior written consent of the other Party, which consent shall not be unreasonably withheld.  Nothing contained herein shall prevent a Party at any time from furnishing information (i) to any governmental agency or regulatory authority or to the public if required by applicable law, (ii) in connection with obtaining consents,, pursuing financing or operational partners, or complying with preferential, pre-emptive or first purchase rights contained in Title Document(s) and any other agreements and documents to which the Assets are subject, or (iii) if required to procure the consent of Vendor's lenders, however in such instances, the Parties shall advise each other in advance of any such statement or disclosure which they propose or are required to make and shall make all reasonably commercial efforts to prevent the release of any and all parts of the information not required to be disclosed or released.

13.15   Recognition

(a)   If Closing occurs, then, from the Closing Time until the date on which Purchaser becomes recognized in the place of Vendor in respect of the Assets, Vendor shall:

(i)   hold title to such Assets, or any portion thereof, in trust for Purchaser, represent Purchaser and receive and hold all proceeds, benefits and advantages accruing in respect of the Assets for the benefit, use and ownership of Purchaser;

(ii)   on a monthly basis and in any event within thirty (30) days of its receipt thereof, deliver to Purchaser all revenues, proceeds and other benefits attributable to production after the Effective Date received by Vendor in respect of the Assets together with the relevant statements of operations and related documents;

(iii)   in order to permit Purchaser to exercise its rights in accordance with the terms of the relevant Petroleum and Natural Gas Rights and Miscellaneous Interests, Vendor shall promptly deliver to Purchaser all Third Party notices and communications received by Vendor in respect of the Assets;

(iv)   in order to permit Purchaser in respect of the Assets to make all required payments in a timely fashion, promptly deliver to Purchaser all Third Party invoices, cash calls and other billings in respect of such Assets; and

(v)   in a timely manner deliver to Third Parties all notices and communications as Purchaser in respect of the Assets may reasonably request in writing and all monies and other items provided in respect thereof.

(b)   In consideration of Vendor agreeing to the provisions in respect of the Assets in subclause 13.15(a), Purchaser shall be liable to and shall indemnify and save harmless Vendor from and against all Losses which may be brought against or which Vendor may suffer, sustain pay or incur arising from the participation by Vendor in the procedures set out in clause 13.15(a) in respect of the Assets, insofar as such Losses are not a result of the gross negligence or wilful misconduct of Vendor or any of its directors, officers, servants, agents or employees.

29

13.16   Counterpart Execution

This Agreement may be executed in counterpart, no one copy of which need be executed by Vendor and Purchaser.  A valid and binding contract shall arise if and when counterpart execution pages are executed and delivered by Vendor and Purchaser.

IN WITNESS WHEREOF the Parties have executed this Agreement as of the day and year first above written.

DEVON CANADA, by its Managing partner, Devon Canada Corporation		EFL OVERSEAS, INC.
Per:	/s/ Dennis Eisner	Per:	/s/ Keith Macdonald
Per:	Dennis Eisner,	Per:	Keith Macdonald,
	Manager, Land		Chief Executive Officer

30

EX-10.2

EXHIBIT 10.2

SHARE PURCHASE AGREEMENT

Among

EFL OVERSEAS, INC.

- and -

1693730 ALBERTA LTD.

- and -

NAHANNI ENERGY INC.

- and -

1700665 ALBERTA LTD.

- and -

APEX ENERGY (2000), INC.

- and -

CANADA SOUTHERN PETROLEUM #1 L.P.

September 14, 2012

TABLE OF CONTENTS

ARTICLE 1 INTERPRETATION	1
1.1          Definitions	1
1.2          Interpretation	12
1.3          Schedules	13
ARTICLE 2 PURCHASE AND SALE	13
2.1          Agreement of Purchase and Sale	13
2.2          Payment of Purchase Price	13
2.3          Holdback Amounts	14
2.4          Settlement of the Devon Claim	14
2.5          Asset Related Liabilities	14
2.6          Holdbacks and Dispute Resolution	15
2.7          Tax Elections	16
2.8          Transferred Tax Pools	17
ARTICLE 3 CLOSING	17
3.1          Place of Closing	17
3.2          Recognition of Title and Operating Documents	17
ARTICLE 4 COVENANTS OF THE VENDOR PARTIES	18
4.1          Assets to be Maintained in Proper Manner	18
4.2          Restrictions on Conduct of Business	18
4.3          Satisfaction of Conditions	20
4.4          Operations Proposals During Interim Period	20
4.5          Nahanni Shareholders' Meeting	20
4.6          Reorganization	21
ARTICLE 5 COVENANTS OF EFLO AND THE PURCHASER	22
5.1          Satisfaction of Conditions	22
5.2          Vendor Shareholders' Meeting	22
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE VENDOR PARTIES	22
6.1          Representations and Warranties	22
6.2          Survival of Representations and Warranties	28
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF EFLO AND THE PURCHASER	29
7.1          Representations and Warranties	29
7.2          Survival of Representations and Warranties	30
ARTICLE 8 INSPECTION	30
8.1          Vendor Parties to Provide Access	30
8.2          EFLO and the Purchaser to Provide Access	31
ARTICLE 9 CONDITIONS PRECEDENT TO CLOSING AND DELIVERIES	31
9.1          Mutual Conditions Precedent	31
9.2          Conditions Precedent for Benefit of EFLO and the Purchaser	32
9.3          Conditions Precedent for Benefit of the Vendor Parties	33
9.4          Efforts To Fulfill Conditions Precedent	34
9.5          Deliveries of the Vendor Parties	34
9.6          Deliveries of EFLO and the Purchaser	35
ARTICLE 10 CONFIDENTIALITY	36

ii

ARTICLE 11 TAX MATTERS	36
11.1          Tax Indemnities	36
11.2          Tax Returns	37
ARTICLE 12 LIABILITIES AND INDEMNITIES	37
12.1          Vendor Parties' Indemnities	37
12.2          EFLO and Purchaser's Indemnities	37
12.3          Indemnification Procedure – Third Party Claims	37
12.4          Limitations on Liability	37
ARTICLE 13 TERMINATION	38
13.1          Termination	38
ARTICLE 14 INFORMATION, MATERIALS AND CONTINUING REPORTS	38
14.1          Delivery of Records	38
14.2          Access to Information Post-Closing	38
14.3          Retention Period	39
14.4          Historical Information	39
ARTICLE 15 WAIVER	40
15.1          Waiver Must be in Writing	40
ARTICLE 16 ASSIGNMENT	40
16.1          Assignments	40
ARTICLE 17 NOTICE	40
17.1          Service of Notice	40
17.2          Right to Change Address	40
ARTICLE 18 PUBLIC ANNOUNCEMENTS	40
18.1          Public Announcements	40
ARTICLE 19 MISCELLANEOUS PROVISIONS	42
19.1          Further Assurances	42
19.2          Applicable Law and Attornment	42
19.3          Time	42
19.4          Continuing Agreement	42
19.5          Entire Agreement	42
19.6          Enurement	42
19.7          Severability	42
19.8          Counterparts	42

iii

SCHEDULES

Schedule "A" – Land Schedule (Part 1 – Lands and Part 2 – Wells);

Schedule "B" – Major Facilities;

Schedule "C" – Seismic Data;

Schedule "D" – Asset Purchase and Sale Agreement;

Schedule "E" – Bank Accounts;

Schedule "F" – Claims and Default Notices;

Schedule "G" – Transportation, Processing and Sale Agreements;

Schedule "H" – Authorizations for Expenditure;

Schedule "I" – Abandonment and Reclamation and Environmental Matters

Schedule "J" – Form of Vendor's Officer's Certificate;

Schedule "K" – Form of the Purchaser's Officer's Certificate;

Schedule "L" – Disposition Resolution;

Schedule "M" – Terms of the Exchangeable Shares; and

Schedule "N" – Form of Devon Claim Mutual Release

iv

SHARE PURCHASE AGREEMENT

THIS AGREEMENT is dated the 14th day of September, 2012.

AMONG:

EFL OVERSEAS, INC.,acorporation incorporated under the laws of the State of Nevada (hereinafter called "EFLO")

- and -

1693730 ALBERTA LTD., a corporation incorporated under the laws of the Province of Alberta (hereinafter called the "Purchaser")

- and -

NAHANNI ENERGY INC., a corporation incorporated under the laws of the Province of Ontario (hereinafter called "Nahanni")

- and -

ALBERTA LTD., a corporation incorporated under the laws of the Province of Alberta (hereinafter called "SellCo")

- and -

APEX ENERGY (2000), INC., a corporation incorporated under the laws of the Province of Alberta (hereinafter called "Apex")

- and -

CANADA SOUTHERN PETROLEUM #1 L.P., a limited partnership formed under the laws of the Province of Alberta (hereinafter called the "Vendor")

WHEREAS the Parties have agreed that the Vendor will sell the SellCo Shares to the Purchaser and the Purchaser will purchase the SellCo Shares from the Vendor on the terms and conditions set forth herein;

NOW THEREFORE this Agreement witnesses that, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Parties hereto, the Parties covenant and agree with each other as follows:

ARTICLE 1

INTERPRETATION

1.1   Definitions

In this Agreement (including the recitals hereto, this Section and each schedule), the words and phrases set forth below shall have the meanings specified below, namely:

1

(a)   "Abandonment and Reclamation Liabilities" means all past, present and future obligations to abandon the Wells and restore and reclaim the surface sites thereof, to decommission and remove the facilities and equipment comprised in the Tangibles and restore, remediate and reclaim the surface sites thereof and to reclaim and restore the Lands to which the surface rights relate including the lands used to gain access thereto, all in accordance with generally accepted oil and gas industry practices in the jurisdiction where the Assets are located and in compliance with Applicable Law;

(b)   "Affiliate" has the meaning specified in National Instrument 45-106 – Prospectus and Registration Exemptions ("NI 45-106");

(c)   "Agreement" means this agreement including the recitals hereto and each schedule, as may be amended after the date hereof by written agreement between the Parties;

(d)   "Applicable Laws" means, in relation to any Person, property or circumstance:

(i)   statutes (including regulations enacted thereunder);

(ii)   judgments and orders of courts of competent jurisdiction;

(iii)   regulations, orders and directives issued by Government Authorities; and

(iv)   the terms and conditions of all permits, licences, approvals and authorizations;

that are applicable to such Person, property or circumstance;

(e)   "Asset Purchase and Sale Agreement" means the asset purchase and sale agreement substantially in the form attached as Schedule "D";

(f)   "Asset Related Liabilities" has the meaning specified in Section 2.5(a);

(g)   "Assets" means, collectively, the Petroleum and Natural Gas Rights, the Tangibles, the Seismic, and the Miscellaneous Interests;

(h)   "Business Day" means any day other than a Saturday, Sunday or statutory holiday in Calgary, Alberta, or Houston, Texas;

(i)   "Chamonix Debt Conversion and Stock Option Exercise" means the issuance by Nahanni of common shares in the capital of Nahanni to Chamonix Canada Inc. in respect of the following:

(i)   common shares of Nahanni issued at a price of $0.10 per share upon the exercise by Chamonix Canada Inc. of options to acquire such shares; and

(ii)   following the exercise provided for in (i) above, common shares of Nahanni issued at a price of $0.30 per share in settlement of the aggregate outstanding debt of Nahanni to Chamonix Canada Inc.;

(j)   "Claim" means any claim, demand, lawsuit, proceeding, arbitration or governmental investigation, in each case, whether asserted, threatened, pending or existing, but does not include a Tax Claim;

2

(k)   "Closing" means the closing of the sale of the SellCo Shares by the Vendor to the Purchaser and the payment by the Purchaser to the Vendor of the Purchase Price at the Closing Time;

(l)   "Closing Date" means October 3, 2012 or such other date to which the Parties hereto may agree;

(m)   "Closing Time" means 10:00 a.m. (Calgary time) on the Closing Date;

(n)   "Confidentiality" refers to the obligations for confidentiality undertaken by Vendor and Purchaser as set out in Section 10 hereof;

(o)   "Consideration Shares" means the Exchangeable Shares issuable to the Vendor in partial payment of the Purchase Price under Section 2.2;

(p)   "CO&O" means the Kotaneelee Production Facilities Construction, Ownership and Operating Agreement effective as of December 1, 1980 originally among Amoco Canada Petroleum Company Ltd., Canadian Superior Oil Ltd., Columbia Gas Development of Canada Ltd., Amoco Canada Resources Ltd., and Esso Resources Canada Limited;

(q)   "Customary Post-Closing Consents" means consents and approvals from any Government Authority or third party that are customarily obtained after closing in connection with transactions similar in nature to the Transaction including consents and approvals for the transfer of permits, licences, approvals and authorizations for the Wells, Tangibles, Leases and Surface Interests pursuant to the Reorganization;

(r)   "Devon Working Interest Acquisition" means the acquisition by an Affiliate of EFLO of Devon Canada's entire right, interest (generally a working interest of 22.989%, with a working interest of 69.337% in one producing gas well) and operatorship in the Kotaneelee gas field;

(s)   "Devon Claim" means that specific claim filed at the Court of Queen’s Bench of Alberta in favour of Devon Canada (Amended Statement of Claim – Action no. 1201-02113) for amounts payable by the Vendor to Devon Canada in its capacity as operator of the Leases and Tangibles related to the Kotaneelee gas field;

(t)   "Disposition Resolution" means, the special resolution in connection with the Transaction to be considered by the Nahanni Shareholders at the Nahanni Shareholders' Meeting, substantially in the form set out in Schedule "L";

(u)   "Dissent Rights" means rights afforded to the Nahanni Shareholders as provided for in Section 185(1)(e) of the OBCA in connection with the Disposition Resolution;

(v)   "Dollar" or "$" means a Canadian dollar;

(w)   "EFLO Public Record" means:

(i)   the Form 10-K of EFLO for the fiscal year ended August 31, 2011;

(ii)   the quarterly report of EFLO on Form 10-Q for the three and nine months ended May 31, 2012; and

3

(iii)   the current reports of EFLO on Form 8-K filed with the United States Securities and Exchange Commission since August 31, 2011;

(x)   "Encumbrance" means any lien, pledge, mortgage, charge, hypothecation, security interest, assignment by way of security, conditional sale, title retention arrangement, option, right of first refusal, pre-emptive right, easement, servitude, indenture, deed of trust, statutory or deemed trust, right of way, encroachment, licence to third parties, lease to third parties, security agreement, or other encumbrance or restriction or limitation on use of real or personal property, whether fixed or floating, or irregularity or imperfection in title thereto;

(y)   "Environment" means the components of the earth and includes ambient air, land, surface and sub-surface strata, groundwater, surface water, all layers of the atmosphere, all organic and inorganic matter and living organisms, including plants, animals and humans, and the interacting natural systems that include such components;

(z)   "Environmental Laws" means Applicable Laws that relate to environmental, health or safety matters;

(aa)   "Environmental Liabilities" means:

(i)   Claims, Losses and Liabilities resulting from the past, present or future use, storage, holding, handling, transportation, release, spill, emission, leaching, escape or migration of any substance or waste including any substance or waste regulated under Environmental Laws;

(ii)   Claims, Losses and Liabilities in respect of past, present or future pollution or contamination of, or damage or injury to, the Environment;

(iii)   obligations to test, monitor, remediate, protect or clean-up the Environment;

(iv)   Claims, Losses and Liabilities under Environmental Laws; and

(v)   Abandonment and Reclamation Liabilities;

that relate to the Lands or that have arisen or hereafter arise from or in respect of past, present or future Operations, including obligations to compensate Third Parties for losses, damages and injury;

(bb)   "Escrow Period" means the period of time beginning on the Closing Date and ending six months following the Closing Date;

(cc)   "Exchangeable Shares" means non-voting exchangeable shares in the capital of the Purchaser having the terms and conditions substantially as set out in Schedule "M";

(dd)   "GAAP" or "Generally Accepted Accounting Principles" means those generally accepted accounting principles and practices in Canada applicable to private enterprises, as set forth in Part V of the CICA Handbook published by the Canadian Institute of Chartered Accountants or any successor institute;

4

(ee)   "Government Authority" means a federal, provincial, territorial, municipal or other government or government department, agency or authority (including a court of law) having jurisdiction over a Party, the Assets or the Transaction;

(ff)   "Holdback Amount" has the meaning specified in Section 2.3(a);

(gg)   "Holdback Shares" has the meaning specified in Section 2.3(b);

(hh)   "Income Tax Act" means the Income Tax Act, R.S.C. 1985, c.1 (5th Supplement);

(ii)   "Income Taxes" means Taxes payable pursuant to the Income Tax Act and equivalent Canadian provincial legislation;

(jj)   "Indemnified Party" has the meaning specified in Section 12.3;

(kk)   "Indemnifying Party" has the meaning specified in Section 12.3;

(ll)   "JOA" means the agreement dated as of May 28, 1959 originally among Canada Southern Petroleum Ltd., Magellan Petroleum Corporation, Oil Investments, Inc., Home Oil Company Limited, Kern County Land Company, Alminex Limited, United Oils Limited and Signal Oil and Gas Company;

(mm)   "Land Schedule" means the schedule of lands included as Schedule "A";

(nn)   "Lands" means, collectively, the lands set forth and described in the Land Schedule and includes, unless the context otherwise requires, the surface of such Lands and (subject to exceptions noted on the Land Schedule) the Petroleum Substances in all zones and formations within such Lands, together with the right to explore for, recover and own the Petroleum Substances to the extent those rights are granted by the Leases;

(oo)   "Laws" means all national, federal, provincial, state, territorial, regional, municipal or local laws, common law, statutes, regulations, rules, ordinances, codes and by-laws and all legally binding Orders in each case in effect at or prior to the Closing Date;

(pp)   "Leases" means, collectively the leases, licenses, permits and other documents of title (excluding fee simple interests ) that grant rights to Petroleum Substances within, upon or under the Lands and that are described in the Land Schedule and includes, if applicable all renewals and extensions of such documents and all documents issued in substitution therefore but only to the extent such documents of title relate to the Lands;

(qq)   "Losses and Liabilities" means in respect of a Party and in relation to a matter, any and all:

(i)   losses, costs, damages, expenses and charges (including all penalties, assessments and fines) that such Party suffers, sustains, pays or incurs, directly or indirectly, in connection with such matter and includes reasonable costs of legal counsel and other professional advisors and reasonable costs of investigating and defending Claims arising from the matter, regardless of whether such Claims are sustained and includes Taxes payable on any settlement payment or damage award in respect of such matter; and

5

(ii)   liabilities and obligations (whether under common law, in equity, under Applicable Law or otherwise; whether tortious, contractual, vicarious, statutory or otherwise; whether absolute or contingent; and whether based on fault, strict liability or otherwise) that such Person incurs as a result of such matter or in connection therewith;

excluding consequential or indirect losses or loss of profits suffered by such Party, but, including amounts paid or payable by such Party to another Person (other than Related Parties of such Party) in respect of consequential or indirect losses or loss of profits suffered by such Person;

(rr)   "Major Facilities" means the facilities specifically described in Schedule "B", if any;

(ss)   "Miscellaneous Interests" means all right, title, interest and estate of SellCo in and to all property, rights and assets, whether contingent or absolute, legal or beneficial, present or future, vested or not (other than the Petroleum and Natural Gas Rights, the Tangibles and the Seismic), to the extent pertaining to the Petroleum and Natural Gas Rights, the Lands or lands pooled or unitized therewith or the Tangibles and to which SellCo is entitled at the Closing Date including the following property, rights and assets:

(i)   contracts, agreements, books, records and documents to the extent that they relate to the Petroleum and Natural Gas Rights, the Tangibles or items listed in items (iii) or (iv) of this definition or any rights in relation thereto including the Title and Operating Documents and any rights of SellCo in relation thereto;

(ii)   Surface Interests;

(iii)   all production, engineering and other information relating directly to the Petroleum and Natural Gas Rights, the Lands or the Tangibles that SellCo either has in its custody or to which SellCo has access, excluding any such information that is subject to confidentiality restrictions or restrictions on transferability;

(iv)   permits, licences, approvals and other authorizations, crossing privileges or other rights pursuant to which the Wells or the Tangibles are accessed, maintained or operated relating to any Petroleum and Natural Gas Rights or Tangibles, or the use thereof; and

(v)   the Wells;

(tt)   "Nahanni Lock-Up Agreements" means the agreements between EFLO and the Nahanni Lock-Up Shareholders, pursuant to which the Nahanni Lock-Up Shareholders have agreed not to sell or dispose of any of the shares of Nahanni beneficially owned or controlled or subsequently acquired by the Nahanni Lock-Up Shareholders and to vote the shares of Nahanni beneficially owned or controlled or subsequently acquired by the Nahanni Lock-Up Shareholders in favour of the Disposition Resolution and to otherwise support the Transaction and not exercise Dissent Rights;

(uu)   "Nahanni Lock-Up Shareholders" means those Nahanni Shareholders that have entered into Nahanni Lock-Up Agreements with EFLO;

6

(vv)   "Nahanni Information Circular" means the notice of the Nahanni Shareholders' Meeting to be sent to Nahanni Shareholders and the management proxy circular to be prepared in connection with the Nahanni Shareholders' Meeting together with any amendments thereto or supplements thereof, and any other registration statement, information circular or proxy statement which may be prepared in connection with the Nahanni Shareholders' Meeting;

(ww)   "Nahanni Shareholders' Meeting" means such meeting or meetings of the Nahanni Shareholders, including any adjournment thereof, that is to be convened to consider, and if deemed advisable approve, the Disposition Resolution;

(xx)   "Nahanni Shareholders" means the holders of common shares in the capital of Nahanni;

(yy)   "OBCA" means the Business Corporations Act, R.S.O. 1990, c. B.16, as amended, including the regulations promulgated thereunder;

(zz)   "Operations" means any and all operations on or in respect of the Lands or lands pooled or unitized therewith or relating to Petroleum Substances produced therefrom or the Tangibles, including: (i) drilling, completion, testing, recompleting, deepening, plugging back, side tracking, whipstocking, fracing, stimulating, injecting, equipping, operating and abandoning wells; (ii) construction, repair, expansion, decommissioning, maintenance and operation of oilfield facilities and equipment; (iii) producing, gathering, compressing, dehydrating, scrubbing, processing, treating, separating, extracting, collecting, refrigerating, measuring, storing, transporting or shipping Petroleum Substances (including processing, treatment and storage of sulphur and transmission, transportation, treatment and disposition of water); (iv) miscible flood and other enhanced recovery schemes; (v) geological, geophysical and seismic activities; and (vi) abandonment, reclamation, remediation and restoration operations;

(aaa)   "Orders" means orders, judgments, decrees, rulings, directives, notices, directions, injunctions, writs, complaints, penalties or sanctions, issued, made or imposed by any Government Authority;

(bbb)   "OTCQB" means the OTC Bulletin Board;

(ccc)   "Party" means a Person who executes this Agreement;

(ddd)   "Permitted Encumbrances" means any of the following:

(i)   liens for Taxes, assessments and governmental charges that are not due or delinquent or if due, the validity of which are being diligently contested in good faith;

(ii)   easements, rights of way, servitudes or other similar rights in land including: rights of way and servitudes for highways or other roads; railways; sewers; drains; gas and oil pipelines; gas or water mains; or electric light, power, telephone, telegraph or cable television conduits, poles, wires or cables;

7

(iii)   the right reserved to or vested in any Government Authority by the terms of any lease, license, franchise, grant or permit or by any Applicable Law to terminate such lease, license, franchise, grant or permit or to require annual or other periodic payments as a condition of the continuance thereof;

(iv)   the right reserved to or vested in any Government Authority to levy Taxes on Petroleum Substances or the income or revenue attributable thereto;

(v)   rights reserved to or vested in any Government Authority to control or regulate any of the Assets in any manner, including any requirements relating to production rates or Operations;

(vi)   undetermined or inchoate liens incurred or created in the ordinary course of business or a lien created as security in favour of the Person conducting Operations on or in respect of the Assets to which such liens relate for SellCo's proportionate share of the costs and expenses of such Operations that are not due or delinquent or are being diligently contested in good faith;

(vii)   mechanics', builders' or materialmen's liens in respect of services rendered or goods supplied, but only insofar as such liens relate to goods or services for which payment is not due or the validity of which is being diligently contested in good faith;

(viii)   the terms and conditions of the Title and Operating Documents, (including Transportation, Processing and Sale Agreements and contracts for the operation of Wells by contract field operators);

(ix)   penalties that are disclosed in the Land Schedule and that have arisen under operating procedures or similar agreements as a consequence of elections by Nahanni, the Vendor, SellCo or any of their respective Affiliates not to participate in Operations on the Lands to which the penalty applies;

(x)   the reservations, limitations, provisos and conditions in any original grants from the Crown of any of the Lands or any interest therein and statutory exceptions to title;

(xi)   liens granted in the ordinary course of business to a public utility or Government Authority in connection with Operations;

(xii)   the burdens, encumbrances, royalties, adverse claims, (including reductions and conversions) and penalties set forth in the Land Schedule; and

(xiii)   all rights of first refusal, pre-emptive purchase rights and similar rights as disclosed in the Land Schedule;

(eee)   "Person" means any individual, body corporate, partnership (limited or general), trust, trustee, executor or similar official, Government Authority or other entity;

(fff)   "Petroleum and Natural Gas Rights" means all of the right, title, estate and interest (whether absolute or contingent, legal or beneficial, present or future, vested or not, and whether or not an "interest in land") beneficially owned by SellCo at the Closing Time pursuant to the Title and Operating Documents in or to any of the following, by whatever name the same are known:

8

(i)   rights to explore for, drill for, extract, win, produce, take, save or market Petroleum Substances from the Lands or lands pooled or unitized therewith;

(ii)   rights to a share of the production of Petroleum Substances from the Lands or lands pooled or unitized therewith;

(iii)   rights to a share of the proceeds of, or to receive payment calculated by reference to, the quantity or value of the production of Petroleum Substances from the Lands or lands pooled or unitized therewith; and

(iv)   the interests set forth in the Land Schedule in and to and in respect of the Leases and the Lands;

including all interests and rights in or in respect of the Lands known as working interests, leasehold interests, royalty interests, overriding royalty interests, gross overriding royalty interests, production payments, profits interests, net profits interests, revenue interests, net revenue interests or economic interests and including fractional or undivided interests in any of the foregoing;

(ggg)   "Petroleum Substances" means petroleum, natural gas and all related hydrocarbons, including all liquid hydrocarbons and all other mineral substances, whether liquid, solid or gaseous and whether hydrocarbons or not (except coal, but including sulphur and hydrogen sulphide), produced in association with such petroleum, natural gas or related hydrocarbons or found in any water;

(hhh)   "Prior Period Taxes" has the meaning specified in Section 11.1(a);

(iii)   "Proceeding" means any investigative (including police), prosecutorial, disciplinary, regulatory, criminal, quasi-criminal, civil, judicial or arbitral action, suit, inquiry, hearing, investigation, grievance, arbitration or other proceeding conducted or imposed by or before a Government Authority or any other civil or judicial action;

(jjj)   "Purchase Price" has the meaning specified in Section 2.2;

(kkk)   "Purchaser's Securities Requirements" has the meaning specified in Section 14.4(e)(ii);

(lll)   "Purchaser's Losses" means all Claims, Losses and Liabilities incurred or suffered by EFLO, the Purchaser, SellCo and their Related Parties;

(mmm)   "Related Parties" means, in reference to a Party, its Affiliates, successors and assigns and its or its Affiliates' respective directors, officers and employees;

(nnn)   "Reorganization" means the transactions described in the Asset Purchase and Sale Agreement;

(ooo)   "Reorganization Date" means such date on or prior to the Closing Date as may be agreed to by the Purchaser;

(ppp)   "Representatives" means, in reference to a Party, its and its Related Parties, representatives, agents, legal counsel, accountants, consultants and advisors;

9

(qqq)   "Required Approvals" means consents, waivers, approvals, orders and authorizations required by any Government Authority in respect of the Transaction, excluding Customary Post-Closing Consents, the approvals required under the JOA and the CO&O, and any other approvals, consents, waivers, orders and authorizations that, if not obtained, would not reasonably be expected to have a material adverse effect on the Assets or the completion of the Transaction;

(rrr)   "Retention Period" has the meaning specified in Section 14.3(a);

(sss)   "Securities Laws" means the securities legislation (including rules and regulations made or promulgated under the applicable provincial enactments) of each of the Provinces and Territories of Canada, as well as the federal securities laws of the United States;

(ttt)   "Seismic" means one trade copy of the Vendor's one hundred percent (100%) owned two dimensional ("2D") and three dimensional ("3D") proprietary Seismic Data located on and within one kilometre of the Lands, as set forth and described in Schedule "C";

(uuu)   "Seismic Data" means, insofar as it pertains to the Seismic, reproducible copies of all field tapes; all final processed stacked tapes, including migrations; segP1 format survey floppy disk and all basic field data, including shot point maps, observer reports, driller reports, computer printed survey audits, and monitor records; and, in the case of 3D seismic, the 3D surveys, bin disks, and bin maps, each of which is as disclosed in Schedule "C";

(vvv)   "SellCo Information" has the meaning specified in Section 14.4(e)(i);

(www)   "Sellco Shares" means all of the shares in the capital of SellCo;

(xxx)   "Surface Interests" means all right, title, interest and estate of SellCo as at the Closing Time to enter upon, use, occupy and enjoy the surface of the Lands, any lands with which the same have been pooled or unitized and any lands upon which the Wells or the Tangibles are located and any lands used to gain access thereto, in each case, for purposes related to the use or ownership of the Petroleum and Natural Gas Rights or the Tangibles or the Wells or Operations, whether the same are held by right of way, or otherwise;

(yyy)   "Tangibles" means, collectively, all right, title, interest and estate of SellCo as at the Closing Time, whether absolute or contingent, legal or beneficial, present or future, vested or not, in and to:

(i)   the Major Facilities described in Schedule "B";

(ii)   all other equipment, systems, plants and facilities used or useful in producing Petroleum Substances from the Lands or lands pooled or unitized therewith or gathering, compressing, dehydrating, scrubbing, processing, treating, separating, extracting, collecting, refrigerating, measuring, storing, transporting or shipping such Petroleum Substances; and

(iii)   all other tangible property and assets used or intended for use in producing, storing or injecting Petroleum Substances;

10

(zzz)   "Taxation Authority" means the Canada Revenue Agency or any other Government Authority that is entitled to impose Taxes or to administer any tax legislation;

(aaaa)   "Tax Returns" means all returns, reports, declarations, statements, bills, schedules or written information of, or in respect of, Taxes that are required to be filed with, or supplied to, any Taxation Authority;

(bbbb)   "Taxes" means all taxes, however denominated, including any interest, penalties, or other additions thereto that are imposed by a Taxation Authority, and shall for greater certainty include, but not be limited to, federal and provincial income and capital taxes, payroll and employee withholding taxes, employment insurance premiums, Canada pension plan contributions, goods and services tax, sales and use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business license taxes, occupation taxes, real and personal property taxes, stamp taxes, environmental taxes, workers' compensation premiums, and all other amounts of the same or a similar nature to any of the foregoing, whether or not such amounts are described as taxes, but does not include any royalty payable pursuant to or in respect of a Lease;

(cccc)   "Tax Claim" has the meaning specified in Section 11.1(b);

(dddd)   "Tax Indemnity" has the meaning specified in Section 11.1(b);

(eeee)   "Third Party Claim" has the meaning specified in Section 12.3;

(ffff)   "Title and Operating Documents" means all agreements, contracts, instruments and other documents that govern the ownership or use of the Assets or relate to Permitted Encumbrances or Operations, including: (A) the Leases and other agreements and instruments pursuant to which the Petroleum and Natural Gas Rights were issued, granted or created; (B) permits, licenses, approvals and authorizations; (C) operating agreements, unit agreements, pooling agreements, trust declarations, participation agreements, farmin agreements, farmout agreements and royalty agreements; (D) agreements that create or relate to Surface Interests; (E) Transportation, Processing and Sale Contracts; (F) gas gathering and common stream agreements; (G) agreements for the construction, ownership and/or operation of Tangibles; (H) trust declarations and other documents and instruments that evidence SellCo's interests in the Assets as at the Closing Time; and (I) trust declarations pursuant to which SellCo holds interests in the Lands or lands pooled or unitized therewith in trust for other Persons as at the Closing Time;

(gggg)   "Trading Period" means the ten consecutive trading days on which the OTCQB is open for trading immediately preceding the Closing Date;

(hhhh)   "Transaction" means the entering into of this Agreement, the Reorganization and the sale and purchase of the SellCo Shares in accordance with this Agreement;

(iiii)   "Transportation, Processing and Sale Agreements" means the contracts for the processing, compression, treatment, gathering, storage, transportation or sale of Petroleum Substances produced from the Lands or lands pooled or unitized therewith, including but not limited to those specifically described in Schedule "G", if any;

(jjjj)   "Vendor Parties" means Nahanni, the Vendor, Apex and SellCo and "Vendor Party" means any one of them;

11

(kkkk)   "Vendor's Counsel" means McMillan LLP;

(llll)   "Vendor's Knowledge" means the actual knowledge of the Vendor's senior executive officers responsible for the matters in question after due inquiry;

(mmmm)   "Vendor's Losses" means all Claims, Losses and Liabilities incurred or suffered by the Vendor, Nahanni, Apex and their Related Parties;

(nnnn)   "Volume Weighted Average Trading Price" shall be determined by dividing (a) the aggregate dollar trading value of all the common shares in the capital of EFLO sold or traded on the OTCQB during the Trading Period, by (b) the total number of common shares in the capital of EFLO sold or traded on the OTCQB during the Trading Period; and

(oooo)   "Wells" means all producing, suspended, shut in, abandoned (including without limitation all abandoned wells, whether or not reclamation certified or reclamation exempt), water source, disposal, injection or similar wells located on the Lands or any lands pooled or unitized therewith, including those wells listed in the Land Schedule or Part 2 of Schedule "A" hereto.

1.2   Interpretation

Unless otherwise stated or the context otherwise necessarily requires, in this Agreement:

(a)   the headings of Articles and Sections in this Agreement are for convenience of reference only and shall not affect the construction or interpretation of this Agreement;

(b)   whenever the singular or masculine or neuter is used in this Agreement or in the schedules, each shall be interpreted as meaning the plural or feminine or body politic or corporate, and vice versa, as the context requires;

(c)   if there is any conflict or inconsistency between the provisions of this Agreement and those of a schedule attached hereto, the provisions of this Agreement shall prevail to the extent of the conflict;

(d)   all documents executed and delivered pursuant to the provisions of this Agreement are subordinate to the provisions hereof and the provisions hereof shall govern and prevail in the event of a conflict;

(e)   "this Agreement", "herein", "hereby", "hereunder", "hereof" and similar expressions refer to this Agreement as a whole (including Schedules) and not to any particular Article, Section or section on or other provision hereof and  references herein to any agreement or instrument, including this Agreement, shall be a reference to the agreement or instrument as varied, amended, modified, or supplemented or replaced from time to time;

(f)   a reference to an Article, Section or Schedule is a reference to an Article, Section or section in, or a Schedule to, this Agreement and unless otherwise stated or the context so requires, a reference in a Section to a section is a reference to a section of that Section;

(g)   "including" means "including without limitation" and "includes" means "includes without limitation";

12

(h)   any reference to a statute shall include and shall be deemed to be a reference to such statute and to the regulations made pursuant thereto, and all amendments made thereto and in force at the date hereof; and

(i)   if Closing does not occur, each provision of this Agreement that presumes that Closing has occurred shall be construed as having been contingent upon Closing having occurred.

1.3   Schedules

The following schedules (the "Schedules") are attached to, form part of and are incorporated in this Agreement:

(a)   Schedule "A"  –        Land Schedule (Part 1 – Lands and Part 2 – Wells);

(b)   Schedule "B"  –        Major Facilities;

(c)   Schedule "C"  –        Seismic Data;

(d)   Schedule "D"   –        Asset Purchase and Sale Agreement;

(e)   Schedule "E"  –        Bank Accounts;

(f)   Schedule "F"  –        Claims and Default Notices;

(g)   Schedule "G"     –        Transportation, Processing and Sale Agreements;

(h)   Schedule "H"   –        Authorizations for Expenditure;

(i)   Schedule "I"    –        Abandonment and Reclamation and Environmental Matters;

(j)   Schedule "J"     –        Form of Vendor's Officer's Certificate;

(k)   Schedule "K"   –        Form of the Purchaser's Officer's Certificate;

(l)   Schedule "L"   –        Disposition Resolution;

(m)   Schedule "M"   –        Terms of the Exchangeable Shares; and

(n)   Schedule "N"   –        Form of Devon Claim Mutual Release

ARTICLE 2

PURCHASE AND SALE

2.1   Agreement of Purchase and Sale

The Purchaser hereby agrees to purchase the SellCo Shares from the Vendor and the Vendor hereby agrees to sell, and Nahanni hereby agrees to cause the Vendor to sell, the SellCo Shares to the Purchaser on the Closing Date at and for the Purchase Price.

2.2   Payment of Purchase Price

The aggregate purchase price (the "Purchase Price") for the SellCo Shares shall be $4,500,000 and shall be payable by the Purchaser to the Vendor at the Closing Time as follows:

(a)   the issuance by the Purchaser to the Vendor of such number of Exchangeable Shares as is equal to the result (rounded down to the nearest whole number) arrived at by dividing $4,100,000 by the Volume Weighted Average Trading Price (the "Consideration Shares"); and

(b)   the sum of $400,000 (the "Cash Consideration"), subject to Section 2.4.

13

2.3   Holdback Amounts

The Parties agree that at Closing:

(a)   the Cash Consideration, net of the amount provided for in Section 2.4, shall be paid to the Vendor's Counsel, the Vendor's Counsel shall deposit such amount (the "Holdback Amount") in an interest bearing trust account and such amount shall be released as set forth in Section 2.4 and 2.5 hereof.  Any interest earned on the Holdback Amount shall be paid to the applicable party as the case may be per Section 2.4; and

(b)  50% of the Consideration Shares (the "Holdback Shares") shall be considered to be subject to holdback and return to the Purchaser for cancellation for a Representation Breach (as such term is defined in Section 2.5(a)).

2.4   Settlement of the Devon Claim

In connection with the Devon Working Interest Acquisition, EFLO paid Devon Canada $270,000 in settlement of the Devon Claim.  Vendor agrees that upon providing to the Vendor Parties evidence of such payment, satisfactory to Vendor Parties acting reasonably, EFLO shall be entitled to deduct and set off at closing the amount of $270,000 from the Cash Consideration payable to the Vendor pursuant to Section 2.2(b).  EFLO and Vendor further agree to execute such other assignments, waivers or releases as may be required to facilitate the dismissal of the Devon Claim.

2.5   Asset Related Liabilities

(a)   During the Escrow Period, the Holdback Amount may be utilized: (i) to pay any undisclosed currently existing liabilities of Nahanni of which Nahanni is aware or should reasonably be aware (not including operating costs incurred in the ordinary course of business) (the "Nahanni Liabilities") or (ii) to pay, settle or satisfy those expenses or damages which are incurred as a result of any breach of representations, warranties or covenants contained in this Agreement by and of the Vendor Parties or a Related Party of any of the foregoing or any indemnity provided for in the Agreement or in the Asset Purchase and Sale Agreement (each, a "Representation Breach").  Further, during the Escrow Period, the Holdback Shares shall be subject to forfeiture and return to the Purchaser for cancellation in respect of those expenses or damages which are incurred as a result of any Representation Breach, on the basis set out in Section 2.5(c) below.

(b)   During the Escrow Period, Nahanni may make a request for the disbursement of any portion of the Holdback Amount for the purpose of satisfying Nahanni Liabilities by providing to the Purchaser and the Vendor's Counsel a copy of the applicable invoice, together with a request for the disbursement of the applicable portion of the Holdback Amount.  Such amount shall be deducted from the Holdback Amount and delivered by Vendor's Counsel to Nahanni not earlier than three Business Days and not later than fiveBusiness Days after the receipt by Vendor's Counsel of a direction of Nahanni addressed to the Vendor's Counsel and the Purchaser directing the payment of such Nahanni Liabilities, provided that no Holdback Amount shall be disbursed at any time while an unresolved Representation Breach is alleged to have occurred and regardless of whether notice of such Representation Breach is given before or after notice requesting disbursement for the payment of Nahanni Liabilities.  Provided that Vendor's Counsel is entitled to release the Holdback Amount if Purchaser has not delivered evidence of such Representation Breach, which is substantial in the reasonable opinion of the Vendor's Counsel ("Substantive Evidence").

14

(c)   During the Escrow Period, if the Purchaser, acting reasonably, determines that any Representation Breach has occurred, the Purchaser shall notify Nahanni and the Vendor's Counsel of such Representation Breach and may undertake whatever action it considers necessary, acting reasonably, to remedy the damages caused by such Representation Breach, provided it may not admit liability or settle a third party claim without the Vendor's consent, not to be unreasonably withheld.  The verified reasonable costs incurred and paid by the Purchaser, and any verified damages incurred by the Purchaser, in relation to any Representation Breach (but not including any Nahanni Liabilities) (the "Remediation Expenses") shall be deducted from the Holdback Amount and delivered by Vendor's Counsel to the Purchaser not earlier than three Business Days and not later than fiveBusiness Days after the receipt by Vendor's Counsel of a direction of the Purchaser addressed to the Vendor's Counsel and the Vendor directing the payment of such Remediation Expenses, accompanied by Substantive Evidence.  To the extent that the Holdback Amount is insufficient to satisfy the Remediation Expenses, such excess Remediation Expenses shall be quantified and a number of Holdback Shares shall be forfeited and returned to the Purchaser for cancellation equal to the amount of such excess Remediation Expenses divided by the Volume Weighted Average Trading Price immediately prior to the date of notice by the Purchaser to the Vendor.   Prior to the delivery of the aforementioned direction by the Purchaser to Vendor's Counsel, the Purchaser must provide written notice of the amount of the Remediation Expenses to the Vendor and the Vendor's Counsel, and such amount shall be final and binding upon the Parties for all purposes hereof unless the Vendor shall have notified the Purchaser and the Vendor's Counsel in writing within 10 Business Days of receipt of such notice from the Purchaser that the Vendor disputes such amount, which notice shall set forth in reasonable detail the basis of the objection.  For greater certainty, if no such notice is given by the Vendor within such 10 Business Days, the Vendor shall be deemed to have accepted and agreed for all purposes hereunder to the amount of the Remediation Expenses.  If the Parties are unable to agree on the amount of the Remediation Expenses within 10 Business Days of receipt by the Purchaser of a dispute notice from the Vendor, such determination shall be made in accordance with Section 2.6.

(d)   Provided that at such time no liability in respect of an agreed Representation Breach remains outstanding and no unresolved Representation Breach remains in dispute, and in respect of which Substantive Evidence has been delivered to Vendor's Counsel, on the date that is the first Business Day following the date that is 6 months following the Closing Date, the remaining amount of the Holdback Amount shall be paid from the Holdback Amount by the Vendor's Counsel to the Vendor and the Holdback Shares shall cease to be considered subject to Section 2.3(b) above, and Vendor's Counsel shall provide written confirmation of the same to the Purchaser.

(e)   The Vendor agrees to cooperate in dealing with the registrar and transfer agent for the Consideration Shares and any trustee exercising control over such shares to complete the return and/or transfer of any Holdback Shares subject to forfeiture under Section 2.5(c).

2.6   Holdbacks and Dispute Resolution

The Vendor and the Purchaser shall endeavor in good faith to resolve any dispute with respect to the calculation of amounts in accordance with Section 2.5, provided that if the Parties do not reach a mutually acceptable solution pursuant to Section 2.5 within a period of 10 Business Days following the receipt by the Purchaser of a dispute notice from the Vendor, then upon written notice by the Purchaser or the Vendor to the other, the dispute shall be finally settled by arbitration in accordance with the provisions of the Arbitration Act (Alberta), based upon the following:

15

(a)   the arbitration tribunal shall consist of one arbitrator appointed by mutual agreement of the Purchaser and the Vendor, or in the event of failure to agree within 10 Business Days following delivery of the written notice to arbitrate, any Party may apply to a judge of the Court of Queen's Bench of Alberta to appoint an arbitrator qualified by education and training to pass upon the particular matter to be decided;

(b)   the arbitrator shall be instructed that time is of the essence in the arbitration proceeding;

(c)   after written notice is given to the dispute to arbitration, the Purchaser and the Vendor will meet within 10 Business Days of delivery of the notice and will negotiate in good faith to agree upon the rules and procedures for the arbitration, in an effort to expedite the process and otherwise ensure that the process is appropriate given the nature of the dispute and the values at risk, failing which the rules and procedures for the arbitration shall be determined by the arbitrator;

(d)   the arbitration shall take place in Calgary, Alberta;

(e)   the fees and other costs associated with the arbitrator shall be shared equally by the Purchaser and the Vendor and each Party shall be responsible for its own costs;

(f)   the arbitration shall be final and binding on the Parties and not subject to any appeal;

(g)   judgment upon any award may be entered in any court having jurisdiction or application may be made to the court for a judicial recognition of the award or an order of enforcement, as the case may be;

(h)   the disputes referred to arbitration (including without limitation the scope of the agreement to arbitrate, any statute of limitations, conflict of laws rules, tort claims and interest claims) shall be governed by the substantive Laws of the Province of Alberta and the federal Laws of Canada applicable therein; and

(i)   the Parties agree that the arbitration shall be kept confidential and that the existence of the proceeding and any element of it (including any pleadings, briefs or other documents submitted or exchanged, any testimony or other oral submissions and any awards) shall not be disclosed beyond the arbitrator, the Parties, their counsel and any Person necessary to the conduct of the proceeding, except as may lawfully be required in judicial proceedings relating to the arbitration or otherwise.

2.7   Tax Elections

At or after the Closing Date, the Purchaser shall, at the request of the Vendor, execute a joint election in the prescribed form to have section 85 of the Income Tax Act, and any applicable similar provision of provincial law, apply to the issuance of the Exchangeable Shares as partial consideration for the sale of the SellCo Shares to the Purchaser, provided that the Vendor shall be responsible for the preparation and timely filing of such election and the Purchaser shall be obliged only to execute and return to the Vendor, for filing by the Vendor, elections forms that are fully completed in apparent compliance with requirements of the Income Tax Act and that have been delivered by the Vendor to the Purchaser no later than December 31, 2012.  The Purchaser shall have no liability with respect to any election, including any election which is improperly completed, or not completed and filed by the Vendor in a timely manner.

16

2.8   Transferred Tax Pools

(a)   For the purpose of this Agreement, the following terms shall have the meanings as set forth below:

(i)   "Tax Pools" means:

(A)   Canadian oil and gas property expense or cumulative Canadian oil and gas property expense, as the context requires ("COGPE");

(B)   Canadian development expense or cumulative Canadian development expense, as the context requires ("CDE");

(C)   Canadian exploration expense or cumulative Canadian exploration expense, as the context requires ("CEE"); and

(D)   undepreciated capital cost of depreciable property, which shall not be less than zero ("UCC");

as such terms are defined in the Income Tax Act; and

(ii)   "Transferred Tax Pools" means the Tax Pools of SellCo as at the Closing Time, such amounts not to be less than the Tax Pools disclosed in Section 2.8(b).

(b)   At Closing, the Transferred Tax Pools shall not be less than the Tax Pools as set out below:

(i)   COGPE:        $1,632,937

(ii)   CDE:             $Nil

(iii)   CEE:              $Nil

(iv)   UCC:             $530,785

(c)   The Parties acknowledge and agree that the Vendor Parties make no representation or warranty as to the transferability to the Purchaser of the Transferred Tax Pools or the ability of SellCo or any successor to use those pools.

ARTICLE 3

CLOSING

3.1   Place of Closing

Unless otherwise agreed in writing by the Parties, Closing shall take place at the Closing Time at the offices of Bennett Jones LLP at 4500, 855 – 2nd Street S.W., Calgary, Alberta.

3.2   Recognition of Title and Operating Documents

If, following Closing, any one or more of the Vendor Parties is the holder of legal title to any Title and Operating Documents, until such time as SellCo or the Purchaser becomes recognized as the holder of legal title to such Title and Operating Documents, the Vendor Parties shall:

17

(a)   hold legal title to such Title and Operating Documents in trust, for the exclusive benefit of SellCo or its successor in interest;

(b)   do such things as are reasonably required for SellCo or its successor in interest to deal with the Assets to which such Title and Operating Documents relate; and

(c)   cooperate, acting reasonably, with any reasonable request of SellCo so as to allow SellCo to operate such Assets as if it were the holder of legal title to such Title and Operating Documents.

The Purchaser accepts that SellCo, as at the Closing Time, may not hold legal title to any or all Title and Operating Documents prior to the completion of the Transaction.

ARTICLE 4

COVENANTS OF THE VENDOR PARTIES

4.1   Assets to be Maintained in Proper Manner

Until the Closing Date, to the extent that the nature of the Vendor's or SellCo's interests, as applicable, in the Assets permit the Vendor or SellCo, as the case may be, to do so, each of the Vendor Parties shall or shall cause each of the Vendor Parties to:

(a)   conduct the business of the Vendor Parties in material compliance with Applicable Laws and generally accepted oil and gas industry practices in the jurisdiction where the Assets are located;

(b)   cause the Assets to be operated and maintained, in accordance with and subject to the Title and Operating Documents, Applicable Laws and generally accepted oil and gas industry practices in the jurisdiction where the Assets are located;

(c)   pay all costs and expenses relating to the Assets that become due prior to the Closing Date; and

(d)   perform and comply in all material respects with all material covenants and conditions contained in the Title and Operating Documents to be performed and complied with by any one or more of the Vendor Parties prior to Closing.

4.2   Restrictions on Conduct of Business

Between the date hereof and the Closing, without the prior written consent of the Purchaser, which consent shall not be unreasonably withheld or delayed, none of the Vendor Parties shall:

(a)   sell, transfer, assign, farmout, surrender, abandon, forfeit, grant an encumbrance (other than a Permitted Encumbrance) or otherwise dispose of or alienate any of the Assets, other than the transfer of the Assets to SellCo pursuant to the Reorganization;

(b)   other than in the ordinary course of business or as otherwise contemplated herein, amend in any material respect or terminate any material agreement or instrument relating to the Assets or enter into any new material agreement or commitment relating to the Assets;

18

(c)   subject to the provisions of Section 4.3, enter into any obligations or commitments out of the ordinary course of business with respect to the Assets of which the Vendor's or SellCo's, as the case may be, share is estimated in the aggregate to be in excess of $10,000 for any single item or related series of items except as may be reasonably necessary to protect or ensure life and safety or to preserve the Assets or title to the Assets;

(d)   subject to the provisions of Section 4.3, propose or initiate the exercise of any right (including bidding rights at Crown sales) or option relative to or arising as a result of the ownership of the Assets, or propose or initiate any Operations on the Lands which have not been commenced or committed to by the Vendor on the date hereof that is in the aggregate in excess of $10,000 for any single item or related series of items, except that the Vendor or SellCo, as the case may be, may propose or initiate any Operations on the Lands for, and propose or initiate the exercise of any right or option relative to, the preservation of any of the Leases or the Assets;

(e)   enter into any transaction other than the Reorganization and any transactions in the ordinary course of the business of operating the Assets following completion of the Reorganization;

(f)   incur any liability, other than pursuant to the Reorganization and any liabilities incurred in the ordinary course of the business of operating the Assets following completion of the Reorganization;

(g)   make loans or advances, other than loans and advances with respect to the Assets made following completion of the Reorganization in accordance with the terms of operating agreements to which the Vendor is a party or by which it is bound as at the date hereof;

(h)   except for the shares to be issued by Nahanni to Chamonix Canada Inc. pursuant to the Chamonix Debt Conversion and Stock Option Exercise (to which EFLO consents) and  SellCo Shares issued to the Vendor pursuant to the Reorganization, issue, sell or agree to issue or sell any shares, rights, options, warrants or other securities of the Vendor Parties;

(i)   change in any material respect its bookkeeping, record keeping or accounting methods and procedures;

(j)   amend in any material manner or terminate any agreement or instrument relating to the Assets or enter into any new agreement or commitment relating to and having a material effect on the Assets; or

(k)   hire any employees.

Notwithstanding the foregoing, however, the Vendor or SellCo, as the case may be, may assume such obligations or commitments and propose or initiate such Operations or exercise any such right or option without the prior written consent of the Purchaser if the Vendor or SellCo, as the case may be, reasonably determines that such expenditures or actions are necessary for the protection of life, property or the Environment, in which case the Vendor shall, or the Vendor shall cause SellCo to, as the case may be, notify the Purchaser promptly of such intention or actions and the Vendor's or SellCo's, as the case may be, estimate of the costs and expenses associated therewith.  The Purchaser shall not, and shall not be entitled to, propose to the Vendor or SellCo, as the case may be, or propose to others the conduct of any Operations on the Lands or the exercise of any right or option relative to the Assets.

19

4.3   Satisfaction of Conditions

Each of the Vendor Parties shall use its reasonable commercial efforts to satisfy or cause satisfaction of the conditions set forth in Sections 9.1 and 9.2 as soon as reasonably practicable following the entering into of this Agreement to the extent that the satisfaction of the same is within the control or influence of the Vendor Party.

4.4   Operations Proposals During Interim Period

(a)   If, after the date hereof, a Vendor Party receives any notice of Operations (including casing point and abandonment elections and notices relating to the exercise of options to drill wells or conduct exploration or development operations under farmout and similar agreements) from a person other than a Purchaser or its affiliates on the Lands or lands pooled or unitized therewith or the exercise of any right (including rights of first refusal and rights under area of mutual interest provisions) or any option relating to the Assets of which the Vendor Parties' share is estimated to be in the aggregate in excess of $10,000 for any single item or related series of items (each such Operation or exercise of a right or option being referred to as a "Proposal") from a third party then, in a timely manner, the Vendor shall, or the Vendor shall cause SellCo to, as the case may be, give notice, including full particulars of the Proposal, to the Purchaser and, as soon as is practicable, the Vendor shall, or the Vendor shall cause SellCo to, as the case may be, give the Purchaser notice of whether or not the Vendor or SellCo, as the case may be, elects to participate in such Proposal.  The notice to the Purchaser shall contain the length of any period during which the Vendor or SellCo, as the case may be, is required to respond to any notice received by it in accordance with the applicable Title and Operating Document.

(b)   If the Purchaser and the Vendor or SellCo, as the case may be, disagree on the response to the Proposal, a meeting shall be convened immediately to discuss the differences.  If consensus is not reached at that meeting, the Purchaser will have the unilateral right to decide the response, provided Purchaser may not unilaterally commit Vendor or SellCo to an expenditure exceeding $25,000.

4.5   Nahanni Shareholders' Meeting

(a)   Nahanni shall take all necessary action in accordance with applicable Laws, to: (i) duly call, give notice of, convene and hold the Nahanni Shareholders' Meeting as promptly as practicable, and in any event not later thanSeptember 29, 2012, to vote upon the Transaction and any other matters as may be properly brought before the meeting; and (ii) solicit proxies of Nahanni Shareholders in favour of the Transaction.

(b)   Subject to the terms of this Agreement, Nahanni agrees to convene and conduct the Nahanni Shareholders' Meeting in accordance with its constating documents and applicable Laws and agrees not to propose to adjourn or postpone its meeting without the prior consent of EFLO:

(i)   except as required for quorum purposes (in which case the meeting shall be adjourned and not cancelled) or by applicable Law or by a Government Entity; or

(ii)   except for an adjournment for the purpose of attempting to obtain the requisite approval of the Disposition Resolution.

20

(c)   Upon the request of EFLO acting reasonably, Nahanni shall adjourn or postpone its meeting to a date specified by EFLO, provided that such meeting, as so adjourned or postponed, shall occur not later than 20 business days after the date on which such meeting was originally scheduled to occur.

(d)   Nahanni shall advise EFLO (a) as reasonably requested, and on a daily basis on each of the last seven business days prior to the Nahanni Shareholders' Meeting, as to the aggregate tally of the proxies and votes received in respect of such meeting and all matters to be considered at such meeting; and (b) of any written notice of dissent, withdrawal of such notice, and any other notice received pursuant to the exercise of Dissent Rights.

(e)   Nahanni shall promptly provide the Nahanni Information Circular to EFLO, for review by EFLO and its counsel, and shall permit EFLO to participate in the preparation of the Nahanni Information Circular to the extent that information concerning EFLO, its business and the Exchangeable Shares is required to be contained therein and will not mail the Nahanni Information Circular to Nahanni Shareholders until such time as EFLO agrees, acting reasonably.  The Nahanni Information Circular shall contain the unanimous determination of the board of directors of Nahanni that the Transaction is in the best interests of Nahanni and Nahanni Shareholders and the unanimous recommendation of the board of directors of Nahanni that Nahanni Shareholders vote in favour of the special resolution approving the Transaction and the sale of the Assets.

(f)   As of the date the Nahanni Information Circular is first mailed to the Nahanni Shareholders and the date of the Nahanni Shareholders' Meeting, the information contained in the Nahanni Information Circular shall be complete and correct in all material respects, shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are made, not misleading and shall comply in all material respects with all Applicable Laws. Nahanni shall promptly correct any such information contained in the Nahanni Information Circular which shall have become false or misleading at any time prior to the Nahanni Shareholders' Meeting.  Without limiting the generality of the foregoing, Nahanni shall ensure that the Nahanni Information Circular provides Nahanni Shareholders with information in sufficient detail to permit them to form a reasoned judgment concerning the matters to be placed before them at the Nahanni Shareholders' Meeting.

4.6   Reorganization

On or prior to the Closing Date, the Vendor shall, and Nahanni and Apex shall cause the Vendor to, enter into the Asset Purchase and Sale Agreement, providing for the Reorganization and complete such Reorganization on terms satisfactory to EFLO and the Purchaser.  SellCo and the Vendor shall validly and timely file an election under section 167 of the Income Tax Act for GST with respect the acquisition of the Assets.  Any costs and/or expenses of the Reorganization shall be for the account of the Vendor and not for the account of SellCo.

21

ARTICLE 5

COVENANTS OF EFLO AND THE PURCHASER

5.1   Satisfaction of Conditions

Each of EFLO and the Purchaser shall use its reasonable commercial efforts to satisfy or cause satisfaction of the conditions set forth in Sections 9.1 and 9.3 as soon as reasonably practicable following the entering into of this Agreement to the extent that the satisfaction of the same is within the control or influence of EFLO or the Purchaser.

5.2   Vendor Shareholders' Meeting

Each of EFLO and the Purchaser shall use its reasonable commercial efforts to obtain and furnish to Nahanni the information required on its behalf to be included in the Nahanni Information Circular.  As of the date the Nahanni Information Circular is first mailed to the Vendor Shareholders and the date of any Nahanni Shareholders' Meeting, the information provided by EFLO and the Purchaser for use in the preparation of the Nahanni Information Circular shall be complete and correct in all material respects, shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. Each of EFLO and the Purchaser agree to promptly correct any such information provided by it for use in the Nahanni Information Circular which shall have become false or misleading at any time prior to the Nahanni Shareholders' Meeting.

5.3   Share Certificate Legending

(a)   The Vendor Parties acknowledge and agree that the certificates representing the Exchangeable Shares and any EFLO Shares issued upon the exchange thereof shall bear the legends required by Section 13(1) of Multilateral Instrument 51-105 – Issuers Quoted in the U.S. Over-the-Counter Markets ("MI 51-105") as well as a legend reflecting the holdback provided for in Section 2.3 of this Agreement.

(b)   Upon the termination of the Escrow Period, EFLO and the Purchaser agree to remove, at the request of the Vendor Parties, the legend reflecting the holdback provided for in Section 2.3 of this Agreement in respect of any Holdback Shares releasable form such holdback under the terms of this Agreement.

ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF THE VENDOR PARTIES

6.1   Representations and Warranties

The Vendor Parties hereby jointly and severally represent and warrant to the Purchaser and EFLO that:

(a)   Organization and Standing: Each of the Vendor Parties is duly organized and validly existing under the laws of its jurisdiction of incorporation or formation and  is duly qualified under the laws of those jurisdictions in which it is required to be qualified in order to carry on business as presently conducted by it.

(b)   Requisite Authority: Subject to the approval of the Disposition Resolution, each of the Vendor Parties has all requisite power and authority to enter into this Agreement and all other documents to be executed and delivered hereunder and to perform its obligations under this Agreement and all other documents to be executed and delivered hereunder and has authorized and taken all corporate or partnership action necessary to authorize the execution, delivery and performance of this Agreement, all documents to be executed and delivered hereunder and the consummation of the Transaction and, as applicable, the Reorganization, in accordance with this Agreement.

22

(c)   Execution and Enforceability: This Agreement has been duly executed and delivered by each of the Vendor Parties and all other documents to be executed or delivered by any Vendor Party pursuant hereto on the Closing Date or thereafter shall be duly executed and delivered by it and this Agreement does, and such documents will, constitute legal and valid binding obligations of the Vendor Parties, enforceable against the Vendor Parties in accordance with their respective terms.

(d)   No Conflicts or Approvals:  The execution and delivery of this Agreement and all other documents to be executed and delivered hereunder do not and the consummation of the Transaction and the fulfillment of and compliance with the terms and provisions hereof, do not and will not:

(i)   result in the breach of or violate any term or provision of the articles of incorporation, by-laws or partnership agreement or certificate of limited partnership, as applicable, of any of the Vendor Parties;

(ii)   conflict with, result in a breach of, constitute a default under, or prohibit the performance required by, any agreement, instrument, license, permit or authority to which any Vendor Party is a party or by which it is bound or to which any of its properties is subject or result in the creation of any lien, charge or encumbrance upon the Assets under any such agreement, instrument, license, permit or authority;

(iii)   violate any Applicable Laws applicable to any Vendor Party, the Assets or the Transaction; or

(iv)   except for the Required Approvals and any Customary Post-Closing Consents, require the consent of any Government Authority or any other third party.

(e)   Reporting Issuer Status:  None of the Vendor Parties is a reporting issuer or equivalent in any province or territory of Canada or any other jurisdiction outside of Canada.  None of the securities of any Vendor Party are listed or posted for trading on any stock exchange.

(f)   Residency:  None of the Vendor Parties is a non-resident of Canada within the meaning of the Income Tax Act.

(g)   Finder's Fee:  None of the Vendor Parties has incurred any obligation or liability, contingent or otherwise, for brokerage fees, finder's fees, agent's commission or other similar forms of compensation with respect to the Transaction.

(h)   Capital of SellCo:  At the Closing Time the authorized capital of SellCo will consist of an unlimited number of common shares, of which 100 SellCo Shares will be issued and outstanding as fully paid and non-assessable and no other shares in the capital of SellCo will be issued or outstanding.

23

(i)   Title to SellCo Shares: At the Closing Time:

(i)   the Vendor will be the registered and beneficial owner of all of the SellCo Shares;

(ii)   the Vendor will have the power and authority to sell, transfer and convey the SellCo Shares to the Purchaser in accordance herewith; and

(iii)   the SellCo Shares will be free and clear of all Encumbrances and other adverse claims or encumbrances and except for this Agreement, there will not be any contract, option or any other right which may in the future become binding upon the Vendor to sell, transfer, assign, pledge, charge, mortgage or in any other way dispose of or encumber any of the SellCo Shares.

(j)   No Issuance of Shares of SellCo:  Other than this Agreement, there are no contracts, rights, warrants, options, or other rights binding on (whether contingent or vested), or which at any time thereafter may become binding on, the Vendor to: (i) transfer any of the SellCo Shares; (ii) allot or issue any of the unissued shares or other securities of SellCo; or (iii) create any additional class of shares or other securities of SellCo.

(k)   Minute Book of SellCo:  The minute and record books of SellCo have been maintained in accordance with generally accepted business practices and contain complete and true copies of SellCo's articles of incorporation, by-laws and other constating documents (including all amendments thereto) and all resolutions of their shareholders and directors and the registers of shareholders, share transfers and directors therein are complete and accurate.

(l)   Business of SellCo:  SellCo has never conducted any business except for the acquisition of the Assets pursuant to the Reorganization and as the owner of the Assets following completion of the Reorganization and has incurred no liabilities other than with respect to the Assets and with respect to periods following completion of the Reorganization; SellCo has the power and authority to conduct its business and, after completion of the Reorganization, to own the Assets.

(m)   Tax Pools of SellCo:  At the closing time SellCo's Tax Pools will be not less than those set out in Section 2.8.

(n)   Conduct of Business:  Each of the Vendor and SellCo has conducted its business in compliance, in all material respects, with all Applicable Laws of each jurisdiction in which its business is carried on, including Securities Laws and the Vendor does, and SellCo will at the Closing Time, hold and maintain in good standing all licences, permits, approvals and authorizations necessary to permit it to conduct its business or to own, lease or operate its properties and the Assets, except where the failure to obtain any licence, permit, approval or authorization would not be material.

(o)  Undisclosed Liabilities:  Other than liabilities for ongoing operations in the ordinary course of business accrued between the Closing Date (as such term is defined in the Asset Purchase and Sale Agreement) of the transfer of the Assets to SellCo and the Closing Date, SellCo does not have, and at the Closing Time will not have, any liabilities which would be required to be disclosed on a balance sheet of SellCo prepared in accordance with GAAP,except site restoration costs.

24

(p)   Indemnities and Guarantees: SellCo has not, and as at the Closing Time will not have, guaranteed, endorsed, assumed or indemnified, contingently or otherwise, the obligations or indebtedness of any Person other than pursuant to Title and Operating Documents.

(q)   Subsidiaries:  Nahanni is the registered and beneficial owner of all of the issued and outstanding shares in the capital of Apex.  There are 26,602 limited partnership units of the Vendor outstanding, of which Apex is the registered and beneficial owner of one unit and Nahanni is the registered and beneficial owner of 26,601 units.  SellCo does not now, and at the Closing Time will not, have any subsidiaries.

(r)   Investments:  SellCo is not a party to, and as at the Closing Time will not be party to, any agreements of any nature other than agreements with respect to the Reorganization and the Title and Operating Documents.

(s)   Non-Arm's Length Debt:  No Affiliate, director, former director, officer or employee of SellCo or any Person not dealing at "arm's length" (within the meaning of the Income Tax Act) with SellCo will be indebted to SellCo at the Closing Time.

(t)   Employees:  SellCo has never had any employees and will not have any employees at the Closing Time.

(u)   Bank Accounts:  At the Closing Time, SellCo will not have any bank accounts, term deposits or safety deposit boxes except those listed in Schedule "E", if any.

(v)   No Shareholder Agreement:  There does not exist now and there will not exist at the Closing Time any shareholder orother agreement which affects the transferability of the SellCo Shares and neither the Vendor nor SellCo are now or will be at the Closing Time a party to any voting trust agreement, unanimous shareholder agreement, "share pooling agreement", or other contract, agreement, commitment plan, or understanding restricting or otherwise relating to voting or dividend rights with respect to the SellCo Shares.

(w)   Dividends:  No dividends have been declared or paid or are payable in respect of the SellCo Shares.

(x)   Taxes:  At the Closing Time SellCo will have no liability for Taxes, other than Taxes with respect to operation of the Assets following the completion of the Reorganization.

(y)  GST Registrant:  At the Closing Time SellCo will be a registrant for the purposes of the Excise Tax Act (Canada).

(z)   Agreements with Tax Authorities:  SellCo has not entered into any agreement, waiver, extension or other arrangement with any taxation authority respecting Taxes payable by it or Tax Returns required to be filed by it and will not enter into any such agreement, waiver, extension or other arrangement prior to the Closing Time.

(aa)   Discussions with Tax Authorities:  SellCo is not engaged in any discussions or negotiations with any taxation authorities in respect of its Taxes nor is any Person acting on its behalf engaged in any such discussions or negotiations.

(bb)   Tax and Fiscal Years:  SellCo's first fiscal year has not been set.

25

(cc)   Title to the Assets:  Except as disclosed in Schedule "F", the Vendor Parties warrant that, other than Permitted Encumbrances:

(i)   the Assets are free and clear of all Encumbrances created by, through or under the Vendor Parties or, as at the Closing Time, SellCo; and

(ii)   subject to the rents, covenants, conditions and stipulations in the Title and Operating Documents, after Closing, SellCo shall be entitled to hold and enjoy the Assets without any lawful interruption by any Person claiming, by, through or under the Vendor Parties or SellCo.

(dd)  Condition of Assets:  The Assets are in operable working condition and have been maintained in accordance with industry standards (normal wear and tear excepted) except where the failure to do so would not have a material adverse effect.  To the knowledge of the Vendor Parties, no buildings, plants, structures, fixtures, equipment or other property owned or leased by the Vendor, or as at the Closing Time, SellCo, are in need of material repairs except for ordinary routine maintenance and repairs consistent with past practice and that are not material in nature or cost.

(ee)   Licences:  The Vendor, and as at the Closing Time SellCo, has obtained and is in material compliance with all licences, permits, certificates, consents, orders, grants and other authorizations of or from any Government Authority necessary to own and operate the Assets and conduct their businesses as they are now being or are proposed to be conducted, other than such licences, permits, certificates, consents, orders, grants and other authorizations the absence of which, or the non-compliance with which, would not have a material adverse effect on the Assets, the Vendor or, as at the Closing Time, SellCo.

(ff)   Insurance:  Policies of insurance are in force as of the date hereof naming the Vendor as an insured have been disclosed to the Purchaser.  As at the Closing Time, such policies of insurance will have been assigned by the Vendor to SellCo.  All such policies of insurance adequately cover all risks reasonably and prudently foreseeable in the operation and conduct of the business of the Vendor and the business of SellCo following the Reorganization as would be customarily covered by companies operating such businesses.  All such policies shall remain in full force and effect and shall not be cancelled or otherwise terminated as a result of the transactions contemplated by this Agreement.  None of such policies shall be increased or amended or cancelled without the prior written consent of the Purchaser, provided, however, that (i) the Vendor Parties have no downhole insurance on producing or suspended wells; and (ii) Vendor's insurance agents are questioning the accuracy of the facts supplied on the Major Facilities and the validity of the related insurance

(gg)   Reduction in Interest:  Except for the Permitted Encumbrances or as disclosed in the Land Schedule, the Petroleum and Natural Gas Rights are not subject to reduction by virtue of the conversion or other alteration of the interest of, any third party claiming by, through or under any Vendor Party.

(hh)   No Default Notices:  Except as disclosed in Schedule "F", as at the date hereof, none of the Vendor Parties has received or delivered any written notices of violation or alleged violation of any material provisions of any Applicable Law in respect of the Assets.

26

(ii)   Competition Act:  Neither the aggregate value of the assets of SellCo as at the Closing Time and the assets to be acquired, directly or indirectly, by EFLO pursuant to the Devon Working Interest Acquisition nor the gross revenues from sales in or from Canada generated from such assets, all as calculated in accordance with the Competition Act (Canada), exceed the applicable thresholds for notifiable transactions under Part IX of the Competition Act (Canada).

(jj)   Investment Canada Act:  The aggregate value of the assets of SellCo as at the Closing Time and the assets to be acquired, directly or indirectly, by EFLO pursuant to the Devon Working Interest Acquisition, as calculated in accordance with the Investment Canada Act (Canada), is below the limits applicable to investments by WTO investors as determined in accordance with subsection 14.1(2) of the Investment Canada Act (Canada).

(kk)  Compliance with Title and Operating Documents: Except as disclosed in Schedule "F", each of the Vendor Parties has performed, observed and satisfied all of its material duties, liabilities, obligations and covenants required as at the date hereof to be satisfied, performed and observed by it under, and is not in default under or in breach of any material provision of, any Title and Operating Document.

(ll)   No Claims:  Except as set forth in Schedule "F", as at the date hereof  (i) there are no judgments against the Vendor Parties or any consent decrees or injunctions to which the Vendor Parties are subject, (ii) there are no Claims in existence or threatened against the Vendor Parties; and (iii) to the Vendor's Knowledge, there is no basis upon which a material Claim could reasonably be expected to be made against the Vendor Parties in respect of, or relating to, the Assets.

(mm)   No Take or Pay Obligations:  The Assets are not affected by any take or pay or similar obligations.

(nn)   Transportation, Processing and Sale Agreements: Except for the contracts described in Schedule "G" and contracts that may be cancelled without penalty on notice of not more than two calendar months, there are no Transportation, Processing and Sale Agreements to or by which the Vendor, SellCo or any Person acting on either of their behalf is a party or is bound that is applicable to the production of Petroleum Substances from the Lands or lands pooled or unitized therewith, or to which the Lands or lands pooled or unitized therewith have been dedicated.

(oo)   Operating Practices:  All Operations prior to the date hereof in respect of which any Vendor Party was the operator, were conducted in all material respects in accordance with generally accepted oil and gas industry practices in the jurisdiction where the relevant Assets are located and Applicable Laws in effect at the time the Operations were conducted.

(pp)   Payment of Royalties:  The Vendor Parties have paid or caused to be paid all relevant Crown royalties, freehold deposits and rentals and freehold and overriding royalties in respect to the Assets that have become due and payable prior to the date hereof that any of such Vendor Parties is directly obligated to pay.

(qq)   Outstanding AFEs and Mail Ballots:  Except as set forth in Schedule "H" and for matters approved or permitted pursuant to Article 4, there is no authorization for expenditure or similar approval approved by any Person pursuant to which there may be expenditures with respect to the Assets, SellCo's share of which at the Closing Time is reasonably expected to exceed $Nil and there is no outstanding cash call with respect to the Assets, SellCo's share of which at the Closing Time exceeds $Nil.

27

(rr)   Environmental Matters: As at the date hereof and as at the Closing Time none of the Vendor Parties has received any:

(i)   orders or directives under any Environmental Law that require any work, repairs, construction or capital expenditures with respect to the Assets operated by it, where such orders or directives have not been complied with in all material respects; or

(ii)   demands or notices issued under Environmental Laws with respect to the breach of any Environmental Law   applicable to the Assets, including in respect of the use, storage, treatment, transportation, handling or disposition of environmental contaminants, or the protection of the Environment, which demand or notice remains outstanding on the date hereof;

nor, to the knowledge of the Vendor Parties, except as have been disclosed by the Vendor Parties to Purchaser, are there any circumstances that could give rise to any order, directive, demand or notice referred to in (i) and (ii), respectively.

(ss)   Hedging Agreements: None of the Vendor Parties is a party to, or bound by, nor are any Assets inclusive of or subject to, any interest rate swaps, foreign exchange swaps, commodity price hedging contracts and similar derivative contracts.

(tt)   Production Penalties: The Wells are not subject to any production penalty whereby the production proceeds allocable to the Vendor's interest, or SellCo's interest as at the Closing Time, are payable to a third party until an amount calculated in respect of certain costs and expenses paid by such third party are recovered by such third party.

(uu)   Joint Venture Audits: There are no ongoing or proposed joint venture audits under the Title and Operating Documents or otherwise relating to the Assets.

6.2   Survival of Representations and Warranties

The representations and warranties of the Vendor Parties in Section 6.1 shall survive the Closing and not be merged in any conveyances or other documents provided pursuant to this Agreement, provided that no Claim may be made or enforceable by EFLO or the Purchaser pursuant to or based in any way upon any of these representations and warranties or any indemnity in respect thereof unless written notice of such Claim with reasonable particulars shall have been provided by such EFLO or the Purchaser to the Party against whom such Claim is made within 12 months from the Closing Date, provided however, that Claims related to any of the representations and warranties or any indemnity in respect of taxation matters may be made and be enforceable by EFLO or the Purchase provided such written notice of such Claim with reasonable particulars shall have been provided by EFLO or the Purchaser to the Party against whom such Claim is made within 90 days following the expiry of the applicable tax limitation period and provided that Claims related to Section 6.1(rr) may be made within 5 years from the Closing Date.

28

ARTICLE 7

REPRESENTATIONS AND WARRANTIES OF EFLO AND THE PURCHASER

7.1   Representations and Warranties

EFLO and the Purchaser hereby jointly and severally represent and warrant to the Vendor that:

(a)   Organization and Standing:  Each of EFLO, EFLO Yukon and the Purchaser is duly organized and validly existing under the laws of its jurisdiction of incorporation or formation and  is duly qualified under the laws of those jurisdictions in which it is required to be qualified in order to carry on business as presently conducted by it.

(b)   Requisite Authority:  Each of EFLO and the Purchaser has all requisite power and authority to enter into this Agreement and all other documents to be executed and delivered hereunder and to perform its obligations under this Agreement and all other documents to be executed and delivered hereunder and has authorized and taken all corporate action necessary to authorize the execution, delivery and performance of this Agreement and all other documents to be executed and delivered hereunder and the consummation of the Transaction in accordance with this Agreement.

(c)   Execution and Enforceability:  This Agreement has been duly executed and delivered by each of EFLO and the Purchaser and all other documents to be executed or delivered by EFLO, EFLO Yukon and the Purchaser pursuant hereto on the Closing Date or thereafter shall be duly executed and delivered and this Agreement does, and such documents will, constitute legal and valid binding obligations of EFLO and the Purchaser, as applicable, enforceable against them in accordance with their respective terms.

(d)   No Conflict or Approvals:  The execution and delivery of this Agreement and all other documents to be executed and delivered hereunder do not and the, consummation of the Transaction and the fulfillment of and compliance with the terms and provisions hereof do not and will not, at the Closing Date:

(i)   result in the breach of or violate any term or provision of its articles of incorporation or by-laws of EFLO, EFLO Yukon or the Purchaser;

(ii)   conflict with, result in a breach of, constitute a default under, or prohibit the performance required by, any agreement, instrument, license, permit or authority to which EFLO, EFLO Yukon or the Purchaser is a party or by which it is bound or to which any of its properties is subject or result in the creation of any lien, charge or encumbrance upon any of its assets under any such agreement, instrument, license, permit or authority;

(iii)   violate any Applicable Law applicable to EFLO, EFLO Yukon, the Purchaser or their assets; or

(iv)   except for the Required Approvals and any Customary Post-Closing Consents, require the consent of any Government Authority or any other third party.

(e)   Availability of Funds:  The Purchaser has the financial resources in place and available to it to enable it to pay the Purchase Price at the Closing on the Closing Date and all other amounts to be paid by it hereunder in accordance with and on the basis contemplated by this Agreement.

29

(f)   Exchangeable Shares:  At the Closing time, the Exchangeable Shares shall be validly issued as fully paid and non-assessable shares of the issuer thereof.

(g)   Capital:  The authorized capital of EFLO consists of 75,000,000 common shares.  As of the date hereof, there are 17,165,540 common shares of EFLO issued and outstanding  and except as disclosed in the EFLO Public Record, and other than warrants to purchase 596,870 common shares of EFLO at a weighted average strike price of $4.35, common shares issuable pursuant to a finder's fee agreement dated January 20, 2011 among EFLO, Grant Petersen, Robert Wesolek and Bamako Investment Management Ltd., and options to acquire common shares which may be issued pursuant to the EFLO stock option plan, no Person has any rights, contingent or vested, to acquire any common shares of EFLO, options, securities convertible into interests in EFLO or any other rights to acquire any securities of EFLO.

(h)   EFLO Public Record:  The information contained in the EFLO Public Record, taken as a whole, is complete, true and correct in all material respects and does not contain any material misrepresentations (as such term is defined in the Securities Act (Alberta)).

(i)   Compliance with Securities Laws:  EFLO is in material compliance with applicable securities laws in the Provinces of British Columbia and Alberta.

7.2   Survival of Representations and Warranties

The representations and warranties of EFLO and the Purchaser in Section 7.1 shall survive the Closing and not be merged in any conveyances or other documents provided pursuant to this Agreement, provided that no Claim may be made or enforceable by any Vendor Party pursuant to or based in any way upon any of these representations and warranties or any indemnity in respect thereof unless written notice of such Claim with reasonable particulars shall have been provided by such EFLO or the Purchaser to the Party against whom such Claim is made within 12 months after the Closing Date.

ARTICLE 8

INSPECTION

8.1   Vendor Parties to Provide Access

(a)   Subject to all contractual and other restrictions on disclosure, the Vendor Parties shall provide reasonable access during normal business hours for EFLO, the Purchaser and their advisors provided for in Section 8.1(b) to the Vendor Parties' records, books, accounts, documents, files, information, materials and filings regarding the Assets for the purpose of the Purchaser's review of the Assets and the Vendor's and, at the Closing Time, SellCo's, title thereto.  The Vendor Parties shall also make available their auditors, legal counsel and other representatives available to EFLO and the Purchaser if so requested by EFLO or the Purchaser.  The access rights granted to EFLO and the Purchaser herein shall be subject to this Agreement and the terms and conditions prohibiting disclosure of information in existing agreements to which any Vendor Party is a party or by which it is bound.

(b)   EFLO and the Purchaser may employ advisors to assist in its review of the Assets and EFLO and the Purchaser shall be responsible to the Vendor Parties for ensuring that such advisors comply with the restrictions on use and disclosure of information set forth in Sections 8.1(a) and 10 hereof.

30

8.2   EFLO and the Purchaser to Provide Access

(a)   Subject to all contractual and other restrictions on disclosure, EFLO and the Purchaser shall provide reasonable access during normal business hours for the Vendor Parties and their advisors provided for in Section 8.2(b) to EFLO's and the Purchaser's records, books, accounts, documents, files, information, materials and filings regarding its assets for the purpose of the Vendor's review of EFLO and its business.  EFLO and the Purchaser shall also make available their auditors, legal counsel and other representatives available to the Vendor Parties if so requested by any of the Vendor Parties.  The access rights granted to the Vendor Parties herein shall be subject to this Agreement, the Confidentiality Agreement and the terms and conditions prohibiting disclosure of information in existing agreements to which EFLO or the Purchaser is a party or by which it is bound.

(b)   The Vendor Parties may employ advisors to assist in their review of EFLO and the Vendor Parties shall be responsible to EFLO and the Purchaser for ensuring that such advisors comply with the restrictions on use and disclosure of information set forth in Sections 8.2(a) and 10 hereof.

ARTICLE 9

CONDITIONS PRECEDENT TO CLOSING AND DELIVERIES

9.1   Mutual Conditions Precedent

The respective obligations of EFLO and the Purchaser, and the Vendor Parties, to consummate the transactions contemplated hereby are subject to the satisfaction, on or before the Closing Date of the following conditions:

(a)   other than Customary Post-Closing Consents, any and all Required Approvals to permit the Transaction to be completed shall have been obtained or such approval or consent requirement shall have been waived in writing by the applicable Government Authority or other third party or otherwise lapsed;

(b)   the Exchangeable Shares shall have been created; and

(c)   on or prior to the Closing Date, the Disposition Resolution shall have been approved by not less than two-thirds of the votes cast by Nahanni Shareholders present in person or by proxy at the Nahanni Shareholders' Meeting.

The foregoing conditions are for the mutual benefit of EFLO and the Purchase, and the Vendor Parties, and may be waived, in whole or in part, jointly by EFLO, the Purchaser and the Vendor Parties at any time.  If any of the foregoing conditions are not satisfied or waived on or before the Closing Date, then either EFLO and the Purchaser, or the Vendor Parties, may terminate this Agreement by written notice to the other Parties.

31

9.2   Conditions Precedent for Benefit of EFLO and the Purchaser

The obligation of the Purchaser to purchase the SellCo Shares and of EFLO and the Purchaser to otherwise complete the Transaction is subject to the satisfaction of the following conditions precedent for the exclusive benefit of EFLO and the Purchaser, which may be waived in whole or in part at the discretion of EFLO and the Purchaser by written notice to the Vendor Parties at or before Closing:

(a)   the board of directors and officers of Nahanni shall have unanimously approved the Transaction and this Agreement, shall have mailed to the Nahanni Shareholders the Nahanni Information Circular containing the determinations and recommendations provided for in Section 4.5(e);

(b)   the Nahanni Lock-up Shareholders shall be in full compliance with such Nahanni Lock-Up Agreements as at the Closing Date;

(c)   not in excess of the holders of 5% of the issued and outstanding Nahanni Shares shall have exercised Dissent Rights;

(d)   EFLO and the Purchaser shall have received the resignation of the directors and officers of SellCo;

(e)   the representations and warranties of the Vendor Parties set forth in Article 6 shall be true and correct in all material respects as of the date hereof and at and as of the Closing Date, as if made as at the Closing Date;

(f)   in all material respects, the Vendor Parties shall have performed or complied with all of their obligations and covenants in this Agreement to be performed or complied with by the Vendor at or prior to the Closing Date;

(g)   at or prior to the Closing Time, the Reorganization shall have been completed on terms and conditions satisfactory to the Purchaser in its sole discretion;

(h)   between the date of this Agreement and the Closing Date there shall not have occurred any material adverse change to SellCo's business, liabilities, financial condition or prospects or the Assets;

(i)   the SellCo Shares shall be: (i) duly issued as fully paid and non-assessable shares in the capital of SellCo; and (ii) free and clear of all Encumbrances;

(j)  other than liabilities for ongoing operations in the ordinary course of business accrued between the Closing Date (as such term is defined in the Asset Purchase and Sale Agreement) of the transfer of the Assets to SellCo and the Closing Date, as disclosed to the Purchaser, SellCo shall have no liabilities;

(k)   the Vendor Parties shall have executed and delivered the release and waiver of the Devon Claim delivered by the Purchaser in the form attached as Schedule "N";

(l)   at the Closing Time, the only outstanding securities of SellCo shall consist of the SellCo Shares, and there shall not exist, and no Person shall have or enjoy any privilege capable of becoming, and SellCo has not authorized or agreed in the future to grant, issue or enter into: (i) any option, warrant or other right or entitlement (whether present or future, contingent or absolute, pursuant to contract or otherwise) to subscribe for, purchase or otherwise acquire any shares or other securities of SellCo; (ii) any securities convertible into, exchangeable for or otherwise carrying the right or entitlement (whether present or future, contingent or absolute, pursuant to contract or otherwise) to subscribe for, purchase or otherwise acquire any shares or other securities of SellCo; or (iii) any contract providing, conditionally or otherwise, for any obligation on the part of SellCo to issue any shares or other securities of SellCo;

32

(m)   no suit, action or other proceeding shall, at Closing, be pending against the Vendor Parties before any Court or Government Authority seeking to restrain, prohibit, obtain damages or other relief in connection with the consummation of the Transaction that would have a material adverse effect on the value of the SellCo Shares;

(n)   the purchase by the Purchaser of the SellCo Shares shall not be prohibited under applicable Law; and EFLO and the Purchaser shall be satisfied, acting reasonably, that: (i) no Claim or Proceeding shall exist or be pending or threatened against or involving or affecting the Vendor Parties or the Assets, and (ii) no Law or Order shall have been proposed, enacted, made, promulgated, issued, amended, applied or imposed, which in either case individually or in the aggregate has or would have a material adverse effect with respect to SellCo or the Assets, or which seeks to enjoin, restrain or restrict completion of the transactions contemplated hereby (including the purchase by the Purchaser of the SellCo Shares as provided herein) or obtain damages or other relief in connection therewith; and

(o)   the Vendor Parties shall have satisfied the deliveries provided for in Section 9.5.

If any of the said conditions precedent in Sections 9.2(a) to (o) inclusive shall not be complied with or waived by EFLO and the Purchaser, at or before the Closing Date, EFLO and the Purchaser may terminate this Agreement by written notice to the Vendor Parties.

9.3   Conditions Precedent for Benefit of the Vendor Parties

The obligation of the Vendor to sell the SellCo Shares to the Purchaser and the Vendor Parties to otherwise complete the Transaction is subject to satisfaction of the following conditions precedent for the exclusive benefit of the Vendor Parties, which may be waived in whole or in part by the Vendor Parties by written notice to EFLO and the Purchaser at or before Closing:

(a)   the board of directors of the Purchaser shall have unanimously approved the Transaction and this Agreement;

(b)   the representations and warranties of the Purchaser and EFLO set forth in Article 7 shall be true and correct in all material respects as of the date hereof and at and as of the Closing Date, as if made as at the Closing Date;

(c)   in all material respects, the Purchaser and EFLO shall have performed or complied with all of the respective covenants contained in this Agreement to be performed or complied with by the Purchaser or EFLO, respectively, at or prior to the Closing Date;

(d)   between the date of this Agreement and the Closing Date there shall not have occurred any material adverse change to EFLO's business, liabilities, financial condition or prospects;

33

(f)   no suit, action or other proceeding shall, at Closing, be pending against EFLO before any Court or Government Authority seeking to restrain, prohibit, obtain damages or other relief in connection with the consummation of the Transaction that would have a material adverse effect on the value of the Consideration Shares; the Purchaser shall have executed and delivered such releases and waivers as apply to the Devon Claim as required by the Vendor;

(g)   the purchase by the Purchaser of the SellCo Shares shall not be prohibited under applicable Law; and the Vendor Parties shall be satisfied, acting reasonably, that: (i) no Claim or Proceeding shall exist or be pending or threatened against or involving or affecting EFLO, and (ii) no Law or Order shall have been proposed, enacted, made, promulgated, issued, amended, applied or imposed, which in either case individually or in the aggregate has or would have a material adverse effect with respect to EFLO, on a consolidated basis, or which seeks to enjoin, restrain or restrict completion of the transactions contemplated hereby (including the purchase by the Purchaser of the SellCo Shares as provided herein) or obtain damages or other relief in connection therewith;

(h)   EFLO shall have executed and delivered the release and waiver of the Devon Claim previously executed by Devon Canada as provided for in Schedule "N";

(i)   EFLO Yukon shall have executed a release and waiver of the Devon Claim and the amounts claimed thereby; and

(j)   EFLO and the Purchaser, as applicable, shall have satisfied the deliveries provided for in Section 9.6.

If any of the said conditions precedent in Sections 9.3(a) to (j) inclusive shall not be complied with, or waived by the Vendor Parties, at or before the Closing Date, the Vendor Parties may terminate this Agreement by written notice to EFLO and the Purchaser.

9.4   Efforts To Fulfill Conditions Precedent

The Parties will each use, and cause their respective Related Parties to use, reasonable commercial efforts to cause the conditions precedent set forth in Sections 9.1, 9.2 and 9.3, to be fulfilled and satisfied as soon as practicable.  The Parties shall co-operate in seeking Customary Post-Closing Consents after Closing.

9.5   Deliveries of the Vendor Parties

(a)   At Closing, the Vendor Parties shall deliver or cause to be delivered to and in favour of EFLO and the Purchaser, as applicable, the following:

(i)   a certificate of status, for SellCo as issued by the Registrar of Corporations;

(ii)   a certified copy of the organizational or constating documents of SellCo;

(iii)   a certified copy of the resolutions of the directors of Nahanni and SellCo, approving the transactions contemplated hereby and the transfer of the SellCo Shares to the Purchaser;

34

(iv)   a certified copy of the Disposition Resolution duly passed by not less than two-thirds of the votes cast by Nahanni Shareholders present in person or by proxy at the Nahanni Shareholders' Meeting;

(v)   all certificates representing the SellCo Shares duly endorsed for transfer to the Purchaser or accompanied by a written instrument of transfer;

(vi)   all documentation implementing the Reorganization, including but not limited to the Asset Purchase and Sale Agreement;

(vii)   a certificate of officers of the Vendor Parties in the form of Schedule "J";

(viii)   receipt for payment of the Purchase Price;

(ix)   the minute book, corporate seal (if any) and all other corporate records of SellCo;

(x)   resignations of all directors and officers of SellCo and a release from such directors and officers pursuant to which they release all Claims against SellCo; and

(xi)   any and all other documents that are required by this Agreement to be delivered by the Vendor or SellCo to the Purchaser to complete the Transaction.

(b)   All deliveries of the Vendor Partiesshall, except as otherwise stated, be in a form acceptable to each of the Vendor Parties and EFLO and the Purchaser and their respective solicitors, acting reasonably.

9.6   Deliveries of EFLO and the Purchaser

(a)   At Closing, EFLO and the Purchaser, as applicable, shall deliver or cause to be delivered to and in favour of the applicable Vendor Parties, the following:

(i)   certificates of status for EFLO and the Purchaser;

(ii)   a certified copy of the organizational or constating documents of each of EFLO and the Purchaser;

(iii)   a certified copy of the resolutions of the directors of each of EFLO and the Purchaser approving the transactions contemplated hereby;

(iv)   payment of the Holdback Amount by certified cheque or wire transfer to the Vendor's solicitors;

(v)   the Consideration Shares registered in the name of the Vendor;

(vi)   a certificate of officers of EFLO and the Purchaser in the form of Schedule "K";

(vii)   a receipt for the SellCo Shares;

(viii)   the release of the Devon Claim at attached as Schedule "N", executed by EFLO;

35

(ix)   a release of the Devon Claim and the amounts claimed thereby, executed by EFLO Yukon;

(x)   any and all other documents that are required by this Agreement to be delivered and, if applicable, executed, by EFLO and/or the Purchaser to the Vendor Parties pursuant hereto.

(b)   All deliveries of EFLO and the Purchaser shall, except as otherwise stated, be in a form acceptable to each of the Vendor Parties and EFLO and the Purchaser and their respective solicitors, acting reasonably.

ARTICLE 10

CONFIDENTIALITY

Each Party shall keep confidential all information obtained from the other Party and shall not use or release any information concerning this Agreement and the transactions herein provided for, without the prior written consent of the other Party, which consent shall not be unreasonably withheld.  Nothing contained herein shall prevent a Party at any time from furnishing information (i) to any governmental agency or regulatory authority or to the public if required by applicable law, (ii) in connection with obtaining consents, pursuing financing or operational partners, or complying with preferential, pre-emptive or first purchase rights contained in Title and Operating Document(s) and any other agreements and documents to which the transaction contemplated by the Agreement, or (iii) if required to procure the consent of Vendor Parties’ shareholders, however in such instances, the Parties shall advise each other in advance of any such statement or disclosure which they propose or are required to make and shall make all reasonably commercial efforts to prevent the release of any and all parts of the information not required to be disclosed or released.

ARTICLE 11

TAX MATTERS

11.1   Tax Indemnities

(a)   For the purposes of this Article 11, the term "Vendor Parties" shall not include SellCo.  Subject to Section 11.1(c), after Closing the Vendor Parties shall be liable to and jointly and severally indemnify SellCo, EFLO and the Purchaser (which in this Section 11.1 includes SellCo's successors and assigns) in respect of all Taxes payable by SellCo and Vendor in respect of taxation periods ending on or before the Closing Date ("Prior Period Taxes").

(b)   The Purchaser shall give prompt written notice to the Vendor Parties whenever it becomes aware that a claim (a "Tax Claim") has been or may be made by a Taxation Authority for which the Vendor Parties may be liable pursuant to the indemnity provided for in Section 11.1(a) (the "Tax Indemnity").  The Vendor Parties shall have the right at its own expense and employing counsel of its own choice to have full carriage and control of the contestation of any such Tax Claim,  provided that if the Tax Claim does not relate solely to matters to which the Tax Indemnity may apply, the Purchaser shall, at its own expense and employing counsel of its own choice, have full carriage and control of the contestation of the portion of the Tax Claim relating to matters to which the Tax Indemnity does not relate; and further provided that the Purchaser will not agree to and will cause SellCo not to agree to any compromise or settlement of any Tax Claim to which the Tax Indemnity may apply without the consent of the Vendor, which will not be unreasonably withheld.  If the Purchaser does not consent to a settlement of a Tax Claim to which the Tax Indemnity may apply following a request from the Vendor to do so, the obligation of the Vendor Parties to indemnify EFLO, the Purchaser and SellCo for the Tax Claim shall be limited to the amount that the Vendor Parties would have been required to pay to SellCo pursuant hereto in respect of the Tax Claim if the settlement had been accepted and the Vendor Parties shall forthwith transfer carriage of the contestation of the Tax Claim to the Purchaser or its nominee.  The Purchaser and the Vendor Parties shall cooperate with each other in any defence of any such Tax Claims and shall keep each other reasonably informed of the conduct thereof.

(c)   The Tax Indemnity shall apply in respect of Taxes assessed within the period during which Income Taxes may be assessed under Applicable Law on the assumption that no waiver is filed pursuant to subparagraph 152(4)(a)(ii) of the Income Tax Act or similar provisions of provincial income tax legislation unless such waiver is filed with the written consent of the Vendor, which consent may not be unreasonably withheld.  No Tax Claim shall be made against the Vendor Parties in respect of the Tax Indemnity unless written notice of the Tax Claim is given to the Vendor Parties by the Purchaser within sixty (60) days following the end of such period.

36

11.2   Tax Returns

The Purchaser will prepare at its cost and in a timely manner all Tax Returns required to be filed by SellCo for any period ending on or before the Closing Date and the Purchaser shall cause SellCo to file such Tax Returns in a timely manner.

ARTICLE 12

LIABILITIES AND INDEMNITIES

12.1   Vendor Parties' Indemnities

For the purposes of this Section 12.1, the term "Vendor Parties" shall not include SellCo.  Subject to Sections 6.2 and 12.4, after the Closing, the Vendor Parties shall jointly and severally indemnify, defend and save harmless EFLO, SellCo, the Purchaser and their Related Parties from and against any and all of:

(a)   Purchaser's Losses resulting from breaches of the representations or warranties made by the Vendor Parties in Article 6 or breaches of covenants or agreements made by the Vendor Parties in this Agreement or in the Asset Purchase and Sale Agreement; and

(b)   claims for the payment of Prior Period Taxes provided that written notice of such Claim with reasonable particulars shall have been provided by the Purchaser to the Vendor within 12 months from the Closing Date.

12.2   EFLO and Purchaser's Indemnities

For the purposes of this Section 12.2, the term "Vendor Parties" shall not include SellCo.  Subject to Sections 7.2 and 12.4, except as otherwise indemnified by the Vendor Parties, after the Closing, EFLO and the Purchaser shall jointly and severally indemnify, defend and save harmless the Vendor Parties and their Related Parties, from and against any and all of:

(a)   Vendor's Losses resulting from breaches of the representations or warranties made by EFLO and the Purchaser in Article 7 or breaches of covenants or agreements made by EFLO and the Purchaser in this Agreement;

(b)   all Environmental Liabilities whether occurring before, on or after the Closing Date that arise from or relate to, acts, omissions, events or circumstances, occurring before, on or after the Closing Date, except to the extent that EFLO or the Purchaser is entitled to indemnification pursuant to Section 12.1 in respect of such Environmental Liabilities;

including the effects of, and the costs of complying with, any order or direction of any Government Authority having jurisdiction. In respect to the matters referenced in Section 12.2(b), EFLO and the Purchaser acknowledge that EFLO, the Purchaser and their Related Parties shall not be entitled to any rights or remedies under the common law or in equity or under any Applicable Laws against the Vendor Parties or their Related Parties, including the right to name the Vendor Parties or any of their Related Parties as a third party to any action commenced by any Person against EFLO or the Purchaser, except to the extent necessary to enforce a Claim by EFLO or the Purchaser pursuant to Section 12.1.

12.3   Indemnification Procedure – Third Party Claims

The following procedures shall be applicable to any Claim (a "Third Party Claim") made against a Party (the "Indemnified Party") by a Person other than the particular Indemnified Party or any of its Related Parties for which it is entitled to indemnification, pursuant to this Agreement from the other Party (the "Indemnifying Party"):

(a)   upon the Third Party Claim being made or commenced against the Indemnified Party, the Indemnified Party shall promptly provide written notice thereof to the Indemnifying Party.  The notice shall describe the Third Party Claim in reasonable detail and indicate the estimated amount, if practicable, of the indemnified Losses and Liabilities that have been or may be sustained by the Indemnified Party in respect thereof.  If the Indemnified Party does not give prompt notice to the Indemnifying Party as aforesaid, then such failure shall only lessen or limit the Indemnified Party's rights to indemnity hereunder to the extent that the defence of the Third Party Claim was prejudiced by such lack of prompt notice;

(b)   if the Indemnifying Party acknowledges to the Indemnified Party in writing that the Indemnifying Party is responsible to indemnify the Indemnified Party in respect of the Third Party Claim pursuant hereto, the Indemnifying Party shall have the right to do either or both of the following:

(i)   assume carriage of the defence of the Third Party Claim using legal counsel of its choice and at its sole cost; and\or

(ii)   settle the Third Party Claim provided the Indemnifying Party pays the full monetary amount of the settlement and the settlement does not impose any unreasonable restrictions or obligations on the Indemnified Party;

(c)   each Party shall cooperate with the other in the defence of the Third Party Claim, including making available to the other Party, its directors, officers, employees and consultants whose assistance, testimony or presence is of material assistance in evaluating and defending the Third Party Claim;

(d)   the Indemnified Party shall not enter into any settlement, consent order or other compromise with respect to the Third Party Claim without the prior written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, delayed or conditioned) unless the Indemnified Party waives its rights to indemnification in respect of the Third Party Claim;

(e)   upon payment of the Third Party Claim, the Indemnifying Party shall be subrogated to all claims the Indemnified Party may have relating thereto.  The Indemnified Party shall give such further assurances and cooperate with the Indemnifying Party to permit the Indemnifying Party to pursue such subrogated claims as reasonably requested by it; and

(f)   if the Indemnifying Party has paid an amount pursuant to the indemnification obligations herein and the Indemnified Party shall subsequently be reimbursed from any other source in respect of the Third Party Claim, the Indemnified Party shall promptly pay the amount of the reimbursement (including interest actually received) to the Indemnifying Party, net of Taxes required to be paid by the Indemnified Party as a result of such payment and plus any Taxes saved or recovered by the Indemnified Party as a result of such payment.

12.4   Limitations on Liability

Notwithstanding anything herein to the contrary:

(a)   the indemnities provided in Sections 12.1 and 12.2 shall not apply to Losses and Liabilities to the extent reimbursed by insurance to, or, other than with respect to the Devon Claim, caused by the negligence, willful default or misconduct of, the Party claiming indemnity;

(b)   the Vendor shall have no obligation to indemnify the Purchaser in respect of any Environmental Liabilities pursuant to Section 12.1 except to the extent resulting from a breach of the representation and warranty in Section 6.1(rr) and then subject to the provisions of Section 6.2 and the other provisions of this Section 12.4;

(c)   the sole remedy after Closing for a Party's breach of a warranty or covenant or incorrectness of a representation shall be the indemnities provided in Sections 12.1 and 12.2;

(d)   if an indemnified party's Losses and Liabilities at any time subsequent to the making of an indemnity payment are reduced by any net tax benefit or recovery, the amount of such reduction shall promptly be repaid by the indemnified party to the indemnifying party;

(e)   the Parties acknowledge and agree that: (i) the indemnities provided for in Sections 12.1 and 12.2(a) shall only apply to the extent written notice of a Claim is delivered within 12 months from the Closing Date (or such other period as specified in Section 6.2) and in a manner specified under this Agreement, and (ii) the indemnity provided for in Section 12.2(b) shall only apply to the extent written notice of a Claim is delivered within 5 years from the Closing Date and in a manner specified under this Agreement, and that in the case of each of (i) and (ii) such limitations are intended by the Parties as a limitation of liability that represents a fair and equitable allocation of the risks and liabilities that each Party has agreed to assume in connection with the subject matter hereof and is not an agreement within the provision of subsection 7(2) of the Limitations Act (Alberta); and

(f)   the liability of the Purchaser, EFLO, EFLO Yukon and their respective Affiliates under this Agreement (other than pursuant to section 12.2(b)) shall be collectively limited to the aggregate amount of $4,500,000.

37

ARTICLE 13

TERMINATION

13.1   Termination

This Agreement may only be terminated pursuant to Section 9.1, 9.2 or 9.3, in which event:

(a)   each Party shall be released from all obligations hereunder, other than Losses and Liabilities for breaches by it of this Agreement prior to termination; and

(b)   subject to its rights under Section 13.1(a), each Party will each bear all costs incurred by it prior to such termination.

ARTICLE 14 

INFORMATION, MATERIALS AND CONTINUING REPORTS

14.1   Delivery of Records

Within 20 Business Days after the Closing, Nahanni and the Vendor shall deliver to the Purchaser originals of the files, reports and data pertaining to the Assets comprised in the Miscellaneous Interests, unless and to the extent that the Purchaser agrees to allow the Nahanni and the Vendor to deliver all or any of such records, files, reports and data at a later date.

14.2   Access to Information Post-Closing

After the Closing Date, the Vendor may, upon reasonable notice to the Purchaser and subject to contractual restrictions relative to disclosure, have access during normal business hours to the Title and Operating Documents and the other files, reports and data pertaining to the Assets comprised in the Miscellaneous Interests and to obtain and copy such information in respect of matters arising or relating to any period of time through the Closing if copies of such records or if the information derived from such access would be helpful or beneficial to the Vendor or its Affiliates:

(a)   in connection with audits;

(b)   in connection with the preparation of tax returns;

(c)   in connection with the Vendor's or any of its Related Parties' dealings with Government Authorities;

(d)   in connection with any pre-Closing Date activities of SellCo;

(e)   to comply with any Applicable Law; or

(f)   in connection with any action, suit or proceeding commenced or threatened by the Purchaser or any of its Related Parties or any third party against the Vendor or its Related Parties or for which the Vendor or any of its Related Parties may have any liability.

38

14.3   Retention Period

(a)   The Purchaser agrees that all of the information and materials of the Vendor or SellCo that relate to or were created with respect to SellCo or the Assets arising or relating to the period through the Closing, shall be retained, maintained in good order and good condition and kept in a reasonably accessible location by the Purchaser and its Affiliates, for a period of time (the "Retention Period") beginning on the Closing Date and ending on the earlier of: (i) the expiration of all applicable limitations periods for all tax periods beginning before the Closing, as such limitations periods are provided for under applicable statutes or pronouncements of all relevant taxing authorities; or (ii) December 31, 2012.

(b)   The Purchaser may destroy or give up possession of any such information or materials if it first offers the Vendor the opportunity (by delivery of at least 60 days' prior written notice to the Vendor), at the Vendor's expense (which includes compensation to the Purchaser of its reasonable expenses), to obtain delivery of or a copy of so much of such information or materials as the Vendor, in its sole discretion, desires.

14.4   Historical Information

(a)   If the Closing is completed, then at the request of EFLO or the Purchaser, and only to the extent necessary to comply with the Purchaser's Securities Requirements, Nahanni and the Vendor shall:  (i) provide EFLO, the Purchaser and their Affiliates with SellCo Information as reasonably requested by the Purchaser; and (ii) provide reasonable access during normal business hours to its personnel who are responsible for SellCo Information.  The Purchaser shall pay all audit and review fees incurred in connection with the preparation of any operating statements and other disclosure documents.

(b)   Subject to Section 14.4(d), the Vendor hereby consents to the use by EFLO, the Purchaser or their Affiliates of SellCo Information and any information derived therefrom in any public disclosure required by EFLO, the Purchaser or their Affiliates to comply with the Purchaser's Securities Requirements.

(c)   The obligations of the Vendor to disclose or provide reasonable access to SellCo Information pursuant to this Section 14.4 shall terminate on March 31, 2014.

(d)  Prior to the Closing Date, except in such form as may be required for the Purchaser's Securities Requirements, the Purchaser shall and shall cause its Affiliates to keep all SellCo Information confidential and not use or disclose such SellCo Information except for the purposes set forth in this Section.  EFLO and the Purchaser shall be liable for and indemnify and save harmless the Vendor and its Related Parties from and against any Losses and Liabilities suffered or incurred by any of them as a result of a breach of this Section by EFLO or the Purchaser or any Claim arising out of any use of SellCo Information including any disclosure document that incorporates such SellCo Information.

(e)   In this Section:

(i)   "SellCo Information" means historical financial information and reserves data relating to the Assets and the SellCo Shares, including source records, books, general ledger, invoices, operating statements and other materials, inthe possession of any of the Vendor, Nahanni or Apex or to which any of them has reasonable access; and

(ii)   "Purchaser's Securities Requirements" means requirements under applicable securities laws in Canada or in the United States that EFLO, the Purchaser or its Affiliates may be required to comply with by a securities commission or similar securities regulatory authority in connection with the filing by EFLO, the Purchaser or its Affiliates of any public disclosure documents.

39

ARTICLE 15

WAIVER

15.1   Waiver Must be in Writing

No waiver by any Party of any breach of any of the terms, conditions, representations or warranties in this Agreement shall take effect or be binding upon that Party unless the waiver is expressed in writing under the authority of that Party and any waiver so given shall extend only to the particular breach so waived and shall not limit or affect any rights with respect to any other or future breach.

ARTICLE 16

ASSIGNMENT

16.1   Assignments

No Party may assign its interest in or under this Agreement without the prior written consent of the other Parties.

ARTICLE 17

NOTICE

17.1   Service of Notice

All notices required or permitted hereunder or with respect to this Agreement shall be in writing and shall be deemed to have been properly given and delivered when delivered personally or transmitted by confirmed facsimile addressed to the Parties, respectively, as follows:

EFLO and the EFL Overseas, Inc.

Purchaser: 333 N. Sam Houston Parkway, Suite 600

Houston, Texas  77060

Attention: Keith Macdonald

Facsimile No.: (281) 272-1227

40

With a copy to:

Bennett Jones LLP

4500 Bankers Hall East

855 – 2nd Street S.W.

Calgary, Alberta T2P 4K7

Attention: Brent Kraus

Facsimile No.: (403) 265-7219

the Vendor Parties: Nahanni Energy , Inc.

Suite 2300, 634 – 8th Avenue S.W.

Calgary, Alberta

Attention: Michael Kamis

Facsimile No.: (403)

With a copy to:

McMillan LLP

1900, 736 – 6 Avenue S.W.

Calgary, Alberta  T2P 3T7

Attention: E.A. Leew / R. Peters

Facsimile No.: (403) 531-4700

Any notice or communication sent by personal service or facsimile shall be deemed received when delivery is made or reception of the transmission is complete except that, if such delivery or transmission is sent on a day that is not a Business Day or after 4:00 p.m. (Calgary time) then the same shall be deemed received on the next Business Day.

17.2   Right to Change Address

A Party may change its address for service by notice to the other Party, and such changed address for service thereafter shall be effective for all purposes of this Agreement.

ARTICLE 18

PUBLIC ANNOUNCEMENTS

18.1   Public Announcements

No public announcement or press release by a Party concerning the Transaction shall identify the name of the other Party or any shareholder thereof or be made by a Party without the prior written consent and approval of the other Party; provided that nothing contained herein shall prevent a Party at any time furnishing any information to any Government Authority or to the public if required by Applicable Law or the rules of any applicable stock exchange.  A Party that proposes to make such a public disclosure shall, to the extent reasonably possible, provide the other Party with a draft of such statement in sufficient time prior to its release to enable the other Party to review such draft and advise that Party of any comments it may have with respect thereto, it being understood that, upon signing this Agreement, the Purchaser will be permitted to immediately issue a press release announcing the Transaction provided such press release has been approved by the Vendor, acting reasonably, and the contents of such press release are required to be disclosed by Applicable Law or the rules of any applicable stock exchange.

41

ARTICLE 19

MISCELLANEOUS PROVISIONS

19.1   Further Assurances

From time to time, as and when reasonably requested by the other Party, a Party shall execute and deliver or cause to be executed and delivered all such documents and instruments and shall take or cause to be taken all such further or other actions to implement or give effect to the Transaction, provided such documents, instruments or actions are consistent with the provisions of this Agreement.  All such further documents, instruments or actions shall be delivered or taken at no additional consideration other than reimbursement of any expenses reasonably incurred by the Party providing such further documents or instruments or performing such further acts, by the Party at whose request such documents or instruments were delivered or acts performed other than overhead and general administrative costs.

19.2   Applicable Law and Attornment

This Agreement shall be construed in accordance with the laws of the Province of Alberta and the laws of Canada applicable therein and shall be treated in all respects as an Alberta contract.  The Parties irrevocably submit to the jurisdiction of the courts of the Province of Alberta and the courts of appeal therefrom.  The Parties each hereby attorn to and accept the exclusive jurisdiction of such courts.

19.3   Time

Time shall be of the essence in this Agreement.

19.4   Continuing Agreement

After Closing, the covenants and agreements contained in this Agreement shall continue in effect until performed and discharged except to the extent the continued effectiveness or enforceability of any such agreement or covenant is limited in duration as expressly provided herein.

19.5   Entire Agreement

This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and cancels and supersedes any prior understandings and agreements between the Parties hereto with respect to the subject matter hereof, including any letter agreements between the Purchaser and the Vendor.  No modification of or amendment to this Agreement shall be valid or binding unless set forth in writing and duly executed by all Parties.

19.6   Enurement

This Agreement shall be binding upon and enure to the benefit of the Parties hereto and their respective successors and permitted assigns.  Except in respect of indemnities hereunder in favour of Related Parties, no Person other than the Parties and their successors and permitted assigns shall be entitled to any rights or benefits hereunder.

19.7   Severability

If any provision of this Agreement is held to be invalid, illegal or unenforceable, the invalidity, illegality or unenforceability will not affect any other provision of this Agreement and this Agreement will be construed as if the invalid, illegal or unenforceable provision had never been contained herein unless the deletion of the provision would result in such material change to cause the completion of the Transaction to be unreasonable.

19.8   Counterparts

This Agreement may be executed in counterpart and all executed counterparts together shall constitute one agreement.  Signature pages from separate counterparts may be faxed and may be combined to form a single counterpart.  This Agreement shall not be binding upon any Party unless and until executed by all Parties.

42

IN WITNESS WHEREOF the Parties have duly executed this Agreement on the date first above written.

EFL OVERSEAS, INC.
By:	/s/ Keith Macdonald
	Name:  Keith Macdonald Title:    Chief Executive Officer

1693730 ALBERTA LTD.
By:	/s/ Keith Macdonald
	Name:  Keith Macdonald Title:    President

NAHANNI ENERGY INC.
By:	/s/ Michael Kamis
	Name:   Michael Kamis Title:      President

1700665 ALBERTA LTD.
By:	/s/ Michael Kamis
	Name:   Michael Kamis Title:      President

APEX ENERGY (2000), INC.
By:	/s/ Michael Kamis
	Name:   Michael Kamis Title:      President

CANADA SOUTHERN PETROLEUM #1 L.P. by its general partner APEX ENERGY (2000), INC.
By:	/s/ Michael Kamis
	Name:    Michael Kamis Title:      President

43

EX-10.3

EXHIBIT 10.3

KOTANEELEE CLOSING AGREEMENT

THIS AGREEMENT made as of the 29th day of June, 2012.

BETWEEN:

DEVON CANADA, a general partnership, having an office in the City of Calgary, in the Province of Alberta (hereinafter referred to as "Vendor")

-and-

EFL OVERSEAS, INC., a body corporate, being a state of Nevada US Corporation (hereinafter referred to as "Purchaser")

WHEREAS Vendor and Purchaser have entered into an Agreement of Purchase and Sale ("Sale Agreement") dated June 29, 2012 relating to Vendor's interest in the Kotaneelee property, in the Yukon Territory as described therein ("Assets");

AND WHEREAS Purchaser has agreed to provide Vendor with certain indemnities and financial assurances, including a letter of credit and a corporate guarantee relating to the sale of the Assets.

NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the Parties have agreed as follows:

 ARTICLE 1

INTERPRETATION

1.1   Definitions

In this Agreement, unless expressly stated otherwise, capitalized terms shall have the meanings ascribed to them in the Sale Agreement.  In addition, the following terms shall have the following meanings:

(a)   "Abandonment and Reclamation Obligations" means all past, present and future obligations to abandon the Wells and restore and reclaim the surface sites thereof, to decommission and remove the facilities and equipment comprised in the Tangibles and restore, remediate and reclaim the surface sites thereof and to reclaim and restore the lands to which the surface rights relate including the lands used to gain access thereto, all in accordance with generally accepted oil and gas industry practices and in compliance with the Regulations;

1

(b)   "Approved Bank Rating" means any two of the following generic rating categories or higher, applicable to a person's long-term, senior unsecured, non-credit enhanced and non-implied debt rating, set opposite such Approved Rating Organization's name:

Approved Rating Organization	Category
Dominion Bond Rating Service Limited	A(high)
Moody's Investor Services Inc.	A1
Standard & Poor's	A+
Fitch	A+

(c)   "Corporate Guarantee"  means the form of limited Guarantee to be provided by Holloman Corporation or other mutually agreed to companies at Closing in favour of the Vendor in the form set out in Schedule "A" attached hereto;

(d)   "Environment" means the components of the earth and includes ambient air, land, surface and sub-surface strata, groundwater, surface water, all layers of the atmosphere, all organic and inorganic matter and living organisms, and the interacting natural systems that include such components;

(e)   "Environmental Liabilities" means

(i)   any and all damage, contamination or other adverse situations pertaining to the Environment and relating to or caused by the Assets or operations thereon or related thereto, however and by whomsoever caused, and whether such damage, contamination or other adverse situations occur or arise in whole or in part prior to, at or subsequent to the date hereof; and

(ii)   all past, present and future obligations and liabilities arising directly or indirectly, whether before or after the date hereof, from:

(A)   Environmental Matters;

(B)   non-compliance with, violation of or liability under any Regulations pertaining to the Environment; or

(C)   the Abandonment and Reclamation Obligations;

(f)   "Environmental Matters" means, in relation to the Environment, any activity, event or circumstance in respect of or relating to past, present or future assets or activities regarding the Assets including:

(i)   the storage, use, holding, collection, accumulation, assessment, generation, manufacture, construction, processing, treatment, stabilization, disposition, handling, transportation, or release of hydrocarbon, hazardous substances and environmental contaminants;

(ii)   the protection of the Environment; or

(iii)   pollution, reclamation or restoration of the Environment;

2

(g)   "Letter of Credit" means an irrevocable, on demand, standby, multidraw letter of credit from a financial institution which has an Approved Bank Rating in the amount of Five Million ($5,000,000.00) Canadian Dollars issued in favour of Vendor in the form set out in Schedule "B" attached hereto.

(h)   "Losses" means all losses, death, injuries, damage, expenses, interest, charges, assessments, damages, liabilities, fines, penalties, actions, causes of action, suits, claims and demands, including all reasonable legal and other professional fees and expenses in relation thereto on a full recovery basis, but notwithstanding the foregoing shall not include any income tax liabilities or any liability for indirect or punitive damages including without limitation any consequential losses or loss of profits.

 ARTICLE 2

CORPORATE GUARANTEE AND LETTER OF CREDIT

2.1   Corporate Guarantee and Letter of Credit

At Closing, Purchaser covenants to provide Vendor with an executed Corporate Guarantee from its affiliate Holloman Corporation and in addition, Purchaser shall provide to the credit of Vendor the Letter of Credit.  Vendor agrees to discuss with Purchaser the termination, amendment or replacement of the Corporate Guarantee or the Letter of Credit, or both, from time to time as requested by Purchaser, however, Vendor's agreement to terminate, amend or replace the same shall be at the Vendor's discretion, acting reasonably, based on equivalent credit risk to Vendor having regard, inter alia, to equivalent capital size and creditworthiness.

2.2   Letter of Credit

Vendor shall not be entitled to draw upon the Letter of Credit unless Vendor first provides written notice to Purchaser claiming indemnification pursuant to this Agreement or the Sale Agreement, and after a period of 30 days following Purchaser's receipt of such claim.

 ARTICLE 3

ENVIRONMENTAL INDEMNITIES

3.1   Abandonment and Reclamation

Purchaser shall see to the timely performance of all Abandonment and Reclamation Obligations pertaining to the Assets, which in the absence of this Agreement would be the responsibility of Vendor.  After Closing, Purchaser shall be liable to Vendor for and shall, in addition, indemnify Vendor from and against, any and all Losses suffered, sustained, paid or incurred by Vendor should Purchaser fail to timely perform such obligations.

3

3.2   Environmental Matters

It is acknowledged that Purchaser has been provided with the right and the opportunity to conduct due diligence investigations with respect to existing or potential Environmental Liabilities.  Provided Closing occurs, Purchaser agrees that Vendor shall have no liability whatsoever for any Environmental Liabilities and in this regard, Purchaser shall be solely liable to and indemnify and defend Vendor from and against all Losses which Vendor may suffer, sustain, pay or incur as a result of any act, omission, matter or thing related to the Environmental Liabilities except to the extent that any such Losses are matters or things for which Purchaser is entitled to indemnification pursuant to clause 5.1 of the Sale Agreement.  Subject to the foregoing, this liability and indemnity shall apply without limit and without regard to cause or causes, including without limitation the negligence, whether sole, concurrent, gross, active, passive, primary or secondary, or the wilful or wanton misconduct of Vendor, Purchaser or any Third Party.  Purchaser acknowledges and agrees that it shall not be entitled to any rights or remedies as against Vendor under the common law or statute pertaining to any Environmental Liabilities including, without limitation, the right to name Vendor as a third party to any action commenced by any Third Party against Purchaser.  Nothing herein contained shall prejudice any claims or remedies that Vendor may have against Purchaser in relation to such claim or remedy outside this Agreement including rights and remedies under the common law or statute.

3.3   Limitation

Notwithstanding any other provision in this Agreement: (i) neither Party shall be responsible for indirect or punitive damages (including without limitation consequential losses or loss of profits) suffered or incurred by the other Party; and (ii) Purchaser shall not be liable to nor be required to indemnify Vendor in respect of any Losses suffered, sustained, paid or incurred by Vendor in respect of which Vendor is liable to and has indemnified Purchaser pursuant to clause 5.1 of the Sale Agreement and Vendor shall not be liable to nor be required to indemnify Purchaser in respect of any Losses suffered, sustained, paid or incurred by Purchaser in respect of which Purchaser is liable to and has indemnified Vendor pursuant to clause 5.2 of the Sale Agreement, in both cases disregarding the time limit set out in clause 5.3 of the Sale Agreement.

 ARTICLE 4

GENERAL TERMS

4.1   Further Assurances

Each Party will, from time to time and at all times after Closing, without further consideration, do such further acts and deliver all such further assurances, deeds and documents as shall be reasonably required in order to fully perform and carry out the terms of this Agreement.

4

4.2   Entire Agreement

The provisions contained in any and all documents and agreements collateral hereto other than the Sale Agreement shall at all times be read subject to the provisions of this Agreement and, in the event of conflict, the provisions of this Agreement shall prevail.  No amendments shall be made to this Agreement unless in writing, executed by the Parties.  This Agreement and the Sale Agreement supersedes all other agreements, documents, writings and verbal understandings among the Parties relating to the subject matter hereof and expresses the entire agreement of the Parties with respect to the subject matter hereof with the exception of the Confidentiality Agreement signed between the Parties on October 13, 2010, which shall be effective until Closing.

4.3   Governing Law

This Agreement shall, in all respects, be subject to, interpreted, construed and enforced in accordance with and under the laws of the Province of Alberta and the laws of Canada applicable therein and shall, in every regard, be treated as a contract made in the Province of Alberta.  The Parties irrevocably attorn and submit to the jurisdiction of the courts of the Province of Alberta and courts of appeal therefrom in respect of all matters arising out of this Agreement.

4.4   Assignment and Enurement

(a) Purchaser may assign this Agreement to a direct or indirect wholly-owned subsidiary without the consent of Vendor, provided that in the event of such assignment the assignor shall remain liable for any of the affiliate assignee's obligations under this Agreement, unless otherwise consented to in writing by Vendor, which consent may be unreasonably and arbitrarily withheld.

(b) Subject to clause 4.4 (a), this Agreement may not be assigned by a Party without the prior written consent of the other Party, which consent may be unreasonably and arbitrarily withheld. If Purchaser wishes to assign this Agreement to a third party, Purchaser shall provide Vendor with prior written notice and the Vendor and the Purchaser shall meet to mutually discuss the assignment or re-issuance of a new Corporate Guarantee and Letter of Credit in favour of Vendor, if requested by Purchaser.  It shall be reasonable for Vendor to refuse to provide its consent for an assignment by Purchaser as set out herein until the mutual resolution of the assignment or re-issuance of a new Corporate Guarantee and Letter of Credit in favour of Vendor is agreed to, executed and delivered to Vendor. Subject to the foregoing, this Agreement shall be binding upon and shall enure to the benefit of the Parties and their respective administrators, trustees, receivers, successors and permitted assigns.

4.5   Time of Essence

Time shall be of the essence in this Agreement.

5

4.6   Notices

The addresses for service and the fax numbers of the Parties shall be as follows:

Vendor -	c/o Devon Canada
	2000, 400 ‑ 3rd Avenue S.W.
	Calgary, Alberta
	T2P 4H2
	Attention:	Land Department
	Fax:	(403) 232‑7429
Purchaser -	EFL Overseas, Inc.
	333 North Sam Houston Parkway East
	Suite 600
	Houston, Texas 77024
	Attention:	Keith Macdonald or Robert Wesolek
	Fax:	(281) 260-1010

All notices, communications and statements required, permitted or contemplated hereunder shall be in writing, and shall be delivered as follows:

(a)   by personal service on a Party at the address of such Party set out above, in which case the item so served shall be deemed to have been received by that Party when personally served;

(b)   by facsimile transmission to a Party to the fax number of such Party set out above, in which case the item so transmitted shall be deemed to have been received by that Party when transmitted;

(c)   except in the event of an actual or threatened postal strike or other labour disruption that may affect mail service, by mailing first class registered post, postage prepaid, to a Party at the address of such Party set out above, in which case the item so mailed shall be deemed to have been received by that Party on the third Business Day following the date of mailing; or

(d)   by package delivery service, signature required, to a Party at the address of such Party set out above, in which case the item shall be deemed to have been received by that Party upon signature receipt.

A Party may from time to time change its address for service or its fax number or both by giving written notice of such change to the other Parties.

4.7   Invalidity of Provisions

In case any of the provisions of this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

6

4.8   Waiver

No failure on the part of any Party in exercising any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any right or remedy in law or in equity or by statute or otherwise conferred.  No waiver of any provision of this Agreement, including without limitation, this section, shall be effective otherwise than by an instrument in writing dated subsequent to the date hereof, executed by a duly authorized representative of the Party making such waiver.

4.9   Amendment

This Agreement shall not be varied in its terms or amended by oral agreement or by representations or otherwise other than by an instrument in writing dated subsequent to the date hereof, executed by a duly authorized representative of each Party.

4.10   Agreement not Severable

This Agreement extends to the whole of the Assets and is not severable without Purchaser's express written consent or as otherwise herein provided.

4.11   Counterpart Execution

This Agreement may be executed in counterpart, no one copy of which need be executed by Vendor and Purchaser.  A valid and binding contract shall arise if and when counterpart execution pages are executed and delivered by Vendor and Purchaser.

IN WITNESS WHEREOF the Parties have executed this Agreement as of the day and year first above written.

DEVON CANADA, by its Managing partner, Devon Canada Corporation		EFL OVERSEAS, INC.
Per:	/s/ Dennis Eisner	Per:	/s/ Keith Macdonald
Per:	Dennis Eisner, Manager, Land	Per:	Keith Macdonald, CEO

7

THE FOLLOWING PAGES COMPRISE SCHEDULE "A" ATTACHED TO AND FORMING PART OF A KOTANEELEE CLOSING AGREEMENT AS OF THE 29TH DAY OF JUNE, 2012 BETWEEN DEVON CANADA AND EFL OVERSEAS, INC.

Form of Corporate Guaranty

THIS GUARANTY is entered into effective the ___ day of July, 2012 by Holloman Corporation (the “Guarantor”), in favour of Devon Canada, a General Partnership (the “Beneficiary”);

WHEREAS EFL Overseas, Inc. (“Debtor”), is  an affiliate of the Guarantor;

AND WHEREAS Debtor and Beneficiary have entered into an Agreement of Purchase and Sale dated June 29, 2012 ("Sale Agreement") whereunder Beneficiary sold certain assets to Debtor;

AND WHEREAS in conjunction with the Sale Agreement, Debtor and Beneficiary have entered into a Kotaneelee Closing Agreement dated June 29, 2012 ("Closing Agreement") whereunder Debtor agreed to provide the Beneficiary with certain environmental, abandonment and reclamation covenants and indemnities (collectively "Debtor's Obligations and Liabilities") , including a letter of credit and this Corporate Guarantee;

AND WHEREAS, the Guarantor has agreed to enter into this Guaranty to provide assurance for the performance of Debtor’s Obligations and Liabilities.

AND WHEREAS, the Beneficiary confirms that this Guaranty is subject to the Guarantor's previously issued security in favour of third parties ("Existing Security") for the purposes of its routine day to day business in the ordinary course.

NOW THEREFORE AND IN CONSIDERATION OF THE FOLLOWING TERMS AND CONDITIONS:

1.Subject to the terms hereof, the Guarantor hereby irrevocably guarantees the payment by Debtor of all Debtor's Obligations and Liabilities under the Closing Agreement (even if such payments are deemed to be damages), when and if due and / or payable.  The Guarantor’s liability hereunder shall be and is specifically limited to Debtor's Obligations and Liabilities and in no event shall the Guarantor be subject hereunder to consequential, exemplary, equitable, loss of profits, punitive, tort, or any other damages, costs or attorney’s fees except to the extent specifically provided for under the terms of the Sale Agreement to be due from or applicable to the Debtor.

2.In no event shall the liability of Guarantor to Beneficiary under this Guaranty exceed, in the aggregate, the amount of Ten Million ($10,000,000.00 Cdn.) Canadian Dollars ("Maximum Guaranty Value"), and the maximum amount payable under this Guaranty shall be limited by the Maximum Guaranty Value. Beneficiary acknowledges and agrees that the letter of credit (the "Letter of Credit") required under the Closing Agreement in favour of Vendor, together in the aggregate with the value from time to time of any long term cash bonds, letters of credit or cash deposits required to be made to any authority in connection with the Debtor's Obligations and Liabilities under the Closing Agreement (even if such obligations are associated with damages), outstanding at any point at which a Payment Demand is made under the Guaranty shall reduce on a dollar for dollar basis the Maximum Guarantee Value.  "Long term" as used in the preceding sentence shall mean for the duration of any wells, facilities or other infrastructure until abandonment and reclamation of same.

8

3.This Guaranty is a primary obligation of the Guarantor and shall be construed as unconditional and absolute, subject to the Existing Security and also the terms hereof.  Except as set out in Article 2 hereof,the Guarantor’s obligations hereunder with respect to any Obligation shall not be affected by the existence, validity, enforceability, perfection, release or impairment of value of any other collateral held by Beneficiary for such Debtor's Obligations and Liabilities.  Beneficiary shall not be obligated to file any claim relating to the Debtor's Obligations and Liabilities owing to it in the event that Debtor becomes subject to a bankruptcy, reorganization, or similar proceeding, and the failure of Beneficiary to so file shall not affect the Guarantor’s obligations hereunder.  The Guarantor and the Beneficiary further agree that the Beneficiary may resort to the Guarantor for payment of any of the Debtor's Obligations and Liabilities only after it has exhausted its remedies pursuant to the Letter of Credit.  In the event that any payment to Beneficiary in respect to any Debtor Obligations and Liabilities is rescinded or must otherwise be restored or returned by Beneficiary upon the insolvency, bankruptcy or reorganization of the Debtor or for any other reason whatsoever, Guarantor shall remain liable hereunder in respect to such Debtor Obligations and Liabilities as if such payment had not been made.

4.This Guaranty is a continuing guaranty and is binding as a continuing obligation of the Guarantor until expiration or termination of this Guaranty.

5.  Guarantor shall not be discharged or released from its obligations hereunder by:

a)   any extension, renewal, settlement, compromise or waiver by the Beneficiary of any of the Debtor's Obligations and Liabilities;

b)   any modification or amendment of any documentation in respect of the Closing Agreement; or

c)   any insolvency, bankruptcy, reorganization or other similar proceeding affecting Debtor or its assets or any resulting release or discharge of any Debtor's Obligations and Liabilities.

6.In the event of a default or failure to make payment in respect of the Debtor's Obligations and Liabilities under the Closing Agreement by Debtor, the Beneficiary shall submit written notice to Guarantor describing in reasonable detail the default or failure on the part of Debtor (“Payment Demand”).  Upon receipt of said Payment Demand, Guarantor will have five (5) days to cure any default or failure by Debtor.

7.Notwithstanding anything in this Guaranty, Guarantor hereby reserves the right to assert all rights and other defences which Debtor may have to performance or payment of any Debtor's Obligations and Liabilities, other than defences arising from the bankruptcy, insolvency, dissolution, or liquidation of the Debtor.

8.Upon performance and payment of all Debtor's Obligations and Liabilities owing to the Beneficiary, the Guarantor shall be subrogated to the rights of the Beneficiary against Debtor.

9

9.The parties shall not assign their obligations under this Guaranty without the prior written consent of the other party, which consent shall not be unreasonably withheld, however, it shall be reasonable for the Beneficiary to refuse consent if, in its opinion, acting reasonably, there would be a material adverse change in its secured position given the capital profile or general creditworthiness of the proposed assignee.  This Guaranty shall inure to the benefit of the Beneficiary and its successors and assigns, and shall be binding upon the Guarantor and its successors and assigns.

10.This Guaranty may be terminated in accordance with clause 2.1 of the Closing Agreement and shall terminate upon the Guarantor having paid out to Beneficiary or other third parties on Beneficiary's behalf, or having assumed in writing, liabilities and obligations equal to, in the aggregate, the Maximum Guaranty Value as adjusted pursuant to Section 2.

11.This Guaranty shall be governed by and construed in accordance with the laws of the Province of Alberta, Canada without regard to principles of conflicts of law.  With respect to any and all disputes arising out of or in connection with this Guaranty, including without limitation, its formation, validity, interpretation, execution, termination or breach, each party irrevocably: (i) submits to the non-exclusive jurisdiction of the courts in the Province of Alberta; (ii) agrees and consents to service of process by certified mail, delivered to the party at the address indicated in this Guaranty; (iii) waives any objection, with respect to such proceedings, that such court does not have jurisdiction over such party; and (iv) waives any objection to the venue of any proceedings in any such court and waives any claim that such proceedings have been brought in an inconvenient forum. Nothing in this Guaranty precludes any party from bringing proceedings in any other jurisdiction to enforce any judgment obtained in any proceedings referred to in this paragraph, nor will bringing of such enforcement proceedings in any one or more jurisdictions preclude the bringing of enforcement proceedings in any other jurisdiction.

12.The Guarantor hereby waives diligence, presentment, demand for payment (other than the Payment Demand), protest, notice of acceptance or any other notice whatsoever.

13.  The Guarantor in signing the Guaranty, represents and warrants to the Beneficiary that:

a)   The Guarantor is a corporation duly organized under the laws of the State of Texas and existing in good standing and has full power and authority to make and deliver this Guaranty,

b)   The signing and delivery and performance of this Guaranty by the Guarantor has been duly authorized by all necessary actions of its directors and shareholders and does not and will not violate the provisions of, or constitute default under, any presently applicable law or its articles of incorporation or by-laws or any agreement presently binding on it, and

c)   This Guaranty has been duly executed and delivered by the authorized officer(s) of the Guarantor and constitutes its lawful, binding and legally enforceable obligation against it in accordance with its terms (except as enforceability may be limited by bankruptcy, insolvency, moratorium and other similar laws affecting enforcement of creditors’ rights in general and general principles of equity).

10

14.Any notice, Payment Demand, correspondence, request or other communication to be given in connection with this Guaranty (herein collectively called “Notice”) shall be in writing and delivered personally, mailed by certified mail, postage prepaid and return receipt requested, express courier, or by facsimile, to the addresses set forth below.  Notice given by personal delivery, express courier, or mail shall be effective upon actual receipt, or if receipt is refused or rejected, upon attempted delivery.  Notice given by facsimile shall be effective upon actual receipt if received during the recipient’s normal business hours, or at the beginning of the recipient’s next business day after receipt if not received during the recipient’s normal business hours.  All Notices by facsimile shall be confirmed promptly after transmission in writing by certified mail, express carrier, or personal delivery.  Any party may change any address to which Notice is to be given to it by giving Notice as provided above of such change of address.

 To the Beneficiary at:

Devon Canada

2000, 400 - 3rd Ave. S.W.

Calgary, Alberta, CANADA  T2P 4H2

Attention:           Land Manager

Fax:                      (403) 232-7429

And to the Guarantor at:

Holloman Corporation

333 N. Sam Houston Pkwy. East

Suite 600

Houston, Texas 77060 United States

Attention:           Keith Macdonald or Robert Wesolek

Fax:                      (281) 260-1010

15.The waiver, failure to exercise, or delay in exercising by Beneficiary of any right, term, condition, or provision contained in this Guaranty will not be deemed to be a waiver of the current breach or any subsequent breach of the same or any other term, condition, or provision contained in this Guaranty.

16.Guarantor confirms that it has executed and delivered this Guaranty after reviewing the terms and conditions of this Guaranty and all other information that it has deemed appropriate in order to make its own credit analysis and decision to execute and deliver this Guaranty.  Guarantor confirms that it has independently investigated Debtor’s creditworthiness and is not executing and delivering this Guaranty in reliance on any representation or warranty by Beneficiary as to such creditworthiness.  Guarantor expressly assumes all responsibilities to remain informed of Debtor’s financial condition and any circumstances affecting Debtor’s ability to perform its obligations under the Sale Agreement and Closing Agreement or any collateral securing all or any part of the Debtor's Obligations and Liabilities.

17.Notwithstanding anything else herein set forth, this Guaranty constitutes the entire agreement between the Beneficiary and the Guarantor with respect to the subject matter hereof and cancels and supersedes any prior understandings and agreements between such parties with respect thereto.  There are no representations, warranties, terms, conditions, undertakings or other agreements, expressed, implied or statutory, between such parties other than expressly set forth in this Guaranty.  Neither this Guaranty nor any of the terms hereof may be amended, supplemented, waived or modified, orally or otherwise, except by written instrument signed by the party against which the enforcement of this amendment, supplement, waiver or modification shall be sought.  If any one or more provisions of this Corporate  Guaranty shall for any reason or to any extent be determined invalid or unenforceable, all other provisions shall nevertheless, remain in full force and effect.

11

IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed by its proper duly authorized officers as of the date and year first above written.

HOLLOMAN CORPORATION

Per:

12

THE FOLLOWING PAGES COMPRISE SCHEDULE "B" ATTACHED TO AND FORMING PART OF A KOTANEELEE CLOSING AGREEMENT MADE AS OF THE 29TH DAY OF JUNE, 2012 BETWEEN DEVON CANADA AND EFL OVERSEAS, INC.

Form of Letter of Credit

LETTER OF CREDIT FORMAT

STAND-BY L/C

DATE:	(Date)
REFERENCE NUMBER:
ADVISING BANK:	___________________________
	___________________________
	___________________________
	Attn:  ______________________
	Swift address: ________________
	Fax:  (___) ___________________
BENEFICIARY:	Devon Canada
	2000, 400 - 3rd Avenue S.W.
	Calgary, Alberta  T2P 4H2
	Attn:  ________________
	Fax:  (___) _____________
ISSUE DATE:	____________________
AMOUNT:	$5,000,000.00 Cdn.

Quote:

On behalf of EFL Overseas, Inc., we hereby issue in your favour our irrevocable standby letter of credit in the amount of Five Million ($5,000,000.00) Dollars Canadian.

A payment under this standby letter of credit shall be made upon you presenting to ________________________ this letter of credit and a demand in writing, signed by the person who has been duly authorized to sign on your behalf along with a certificate executed by an officer of the Beneficiary stating that the Letter of Credit is properly payable pursuant to clause 2.2 of the Kotaneelee Closing Agreement dated July 29, 2012 between EFL Overseas, Inc. and Devon Canada.

The said demand shall refer to this letter of credit by the above number and shall state the amount demanded.

13

Upon receipt of the said documents, the bank shall pay to you the amount stated under the said demand to be payable to you without enquiring whether you have a right to such amount as between yourself and the customer, providing such amount, does not exceed the aggregate amount of the standby letter of credit.

Partial drawings are permitted.

Request for any amendment except reduction in amount must be made directly to our customer who must then instruct us accordingly.

This letter of credit may be cancelled upon our receipt at our above noted address of the original letter of credit and the beneficiary's signed letter addressed to us and requesting cancellation of the letter of credit.

Except as otherwise stated, this letter of credit is subject to International Standby Practices (ISP 98) International Chamber of Commerce, as reprinted below:

This Letter of Credit is subject to the International Standby Practices 1998, known as International Chamber of Commerce Publication No. ISP98 (“ISP98”), and, to the extent not addressed by ISP98, shall be governed by the laws of the Province of Alberta, Canada (without regard to its conflict of law principles).

With respect to any and all disputes arising out of or in connection with this Letter of Credit, including without limitation, its formation, validity, interpretation, execution, termination or breach, each party irrevocably: (i) submits to the exclusive jurisdiction of the courts of the Province of Alberta, Canada; (ii) agrees and consents to service of process by certified mail, delivered to the party at the address indicated in this Letter of Credit; (iii) waives any objection, with respect to such proceedings, that such court does not have jurisdiction over such Party; and (iv) waives any objection to the venue of any proceedings in any such court and waives any claim that such proceedings have been brought in an inconvenient forum. Nothing in this Letter of Credit precludes either party from bringing proceedings in any other jurisdiction to enforce any judgment obtained in any proceedings referred to in this paragraph, nor will bringing of such enforcement proceedings in any one or more jurisdictions preclude the bringing of enforcement proceedings in any other jurisdiction.

This Letter of Credit is not assignable or transferable.

We engage to honour presentations submitted within the terms and conditions indicated above.

14

EX-14.1

EXHIBIT 14.1

Code of Ethics for Principal Executive

 and Senior Financial Officers

I.

Introduction and Purpose

This Code of Ethics for Principal Executive and Senior Financial Officers (hereinafter referred to as the “Code”) helps maintain standards of business conduct and ensures compliance with legal requirements, specifically, but not limited to, Section 406 of the Sarbanes-Oxley Act of 2002 and SEC rules promulgated thereby for EFL Overseas, Inc. (hereinafter referred to as the “Company”).

In addition to securing compliance with legal requirements, the purpose of the Code is to deter wrongdoing and promote ethical conduct, and full, fair, accurate, timely, and understandable disclosure of financial information in the periodic reports of the Company.  The matters covered in this Code are of the utmost importance to the Company, our stockholders and our business partners, and are essential to our ability to conduct our business in accordance with our stated values.

Principal and Financial executives hold an important and elevated role in corporate governance and are uniquely capable and empowered to ensure that stockholders' interests are appropriately balanced, protected and preserved.  Accordingly, this Code provides principles to which financial executives are expected to adhere and advocate.  This Code embodies rules regarding individual and peer responsibilities, as well as responsibilities to the company, the public and others.

II.

Application

This Code is applicable to the following persons (hereinafter referred to as the “Officers”):

1.   The Company’s principal executive officers;

2.   The Company’s principal financial officers;

3.   The Company’s principal accounting officer or controller; and

4.   Persons performing similar functions.

Code of Ethics – Page 1

III.

Code of Ethics:

Each Officer shall adhere to and advocate the following principles and responsibilities governing professional and ethical conduct:

1.   Act with honesty and integrity, avoiding actual or apparent conflicts of interest in personal and professional relationships.

2.   Provide information that is full, fair, accurate, complete, objective, relevant, timely, and understandable to the Company’s Board of Directors, the Securities and Exchange Commission, the Company’s stockholders, and the public.

3.   Comply with applicable governmental laws, rules, and regulations.

4.   Act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing your independent judgment to be subordinated.

5.   Take all reasonable measures to protect the confidentiality of non-public information about the Company acquired in the course of your work except when authorized or otherwise legally obligated to disclose such information and to not use such confidential information for personal advantage.

6.   Assure responsible use of and control over all assets and resources employed or entrusted to you.

7.   Promptly report to the Chairman of the Audit Committee (or in the absence of an Audit Committee, to the full Board of Directors):

a.   any information you may have regarding any violation of this Code;

b.   any actual or apparent conflict of interest between personal and/or professional relationships involving management or any other employee with a role in financial reporting disclosures or internal controls;

c.   any information you might have concerning evidence of a material violation of the securities or other laws, rules or regulations applicable to the Company and its operations;

d.   significant deficiencies in the design or operation of internal controls that could adversely affect the Company’s ability to record, process, summarize or report financial data; or

e.   any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's financial reporting, disclosures or internal controls.

Code of Ethics – Page 2

IV.

Reporting Procedure, Process and Accountability

As discussed above, Officers shall promptly report any violation of this Code to the Chairman of the Company’s Audit Committee (or in the absence of an Audit Committee, to the full Board of Directors).

Reports of violations under this Code received by the Chairman of the Audit Committee shall be investigated by the Audit Committee (or in the absence of an Audit Committee, to the full Board of Directors).  If the Audit Committee finds a violation of this Code, it shall refer the matter to the full Board of Directors.

In the event of a finding that a violation of this Code has occurred, appropriate action shall be taken that is reasonably designed to deter wrongdoing and to promote accountability for adherence to this Code, and may include written notices to the individual involved of the determination that there has been a violation, censure by the Board, demotion or re-assignment of the individual involved, suspension with or without pay or benefits, and up to and including, if appropriate, termination of the individual's employment. In determining what action is appropriate in a particular case, the Board of Directors (or the independent directors of the Board as the case may be) shall take into account all relevant information, including the nature and severity of the violation, whether the violation was a single occurrence or repeated occurrences, whether the violation appears to have been intentional or inadvertent, whether the individuals in question had been advised prior to the violation as to the proper course of action and whether or not the individual in question had committed other violations in the past.

V.

Anonymous Reporting

Any violation of this Code and any violation by the Company or its directors or officers of the securities laws, rules, or regulations, or other laws, rules, or regulations applicable to the Company may be reported to the Chairman of the Audit Committee anonymously.

VI.

No Retaliation

It is against the Company’s policy to retaliate in any way against an Officer for good faith reporting of violations of this Code.

VII.

Waiver and Amendment

The Company is committed to continuously reviewing and updating its policies and procedures.  Therefore, this Code is subject to modification.  Any amendment or waiver of any provision of this Code must be approved in writing by the Company’s Board of Directors and promptly disclosed pursuant to applicable laws and regulations.

Code of Ethics – Page 3

VIII.

Acknowledgment Of Receipt Of Code Of Ethics For

Principal Executive And Senior Financial Officers

I have received and read the Company's Code of Ethics for Principal Executive and Senior Financial Officers (the “Code”).  I understand the standards and policies contained in the Code and understand that there may be additional policies or laws applicable to my job.  I agree to comply with the Code in all respects.

If I have questions concerning the meaning or application of the Code, any Company policies, or the legal and regulatory requirements applicable to my job, I know that I can consult with the Chairman of the Audit Committee, knowing that my questions or reports will remain confidential to the fullest extent possible.

I understand that my agreement to comply with this Code does not constitute a contract of employment.

___________________________

Officer Name

___________________________

Signature

___________________________

Date

Please sign and return this form to the Company’s Chairman of the Audit Committee (or in the absence of an Audit Committee, to the full Board of Directors).

Code of Ethics – Page 4

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Keith Macdonald, certify that:

1. I have reviewed this Annual Report on Form 10-K of EFL Overseas, Inc.;

2. Based on my knowledge, this report, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 29, 2012	By:	/s/ Keith Macdonald
		Keith Macdonald,
		Principal Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Robert Wesolek, certify that:

1. I have reviewed this Annual Report on Form 10-K of EFL Overseas, Inc.;

2. Based on my knowledge, this report, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 29, 2012	By:	/s/ Robert Wesolek
		Robert Wesolek,
		Principal Financial Officer

EX-32

EXHIBIT 32

In connection with the annual report of EFL Overseas, Inc., (the “Company”) on Form 10-K for the years ended Augsut 31, 2012 as filed with the Securities Exchange Commission on the date hereof (the “Report”), We, Keith Macdonald, Principal Executive Officer and Robert Wesolek, Principal Financial Officer of the Company, certify pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

	EFL OVERSEAS, INC.
Date: November 29, 2012	By:	/s/ Keith Macdonald
		Keith Macdonald,
		Principal Executive Officer

Date:  November 29, 2012	By:	/s/ Robert Wesolek
		Robert Wesolek,
		Principal Financial Officer

EX-99.1

EXHIBIT 99.1

EFL OVERSEAS INC.

CHARTER FOR THE AUDIT COMMITTEE

OF THE BOARD OF DIRECTORS

Purpose

The purpose of the Audit Committee is to assist the Board of Directors' oversight of:

· the integrity of the Company's financial statements;

· the Company's compliance with legal and regulatory requirements;

· the independent auditor's qualifications and independence; and

· the performance of the Company's internal audit function and independent auditors.

Structure and Membership

Number. The Company’s goal shall be the formulation of an Audit Committee consisting of at least three independent members of the Board of Directors in accordance with SEC Rule 10a-3.

Independence. Except as otherwise permitted by the Sarbanes-Oxley Act of 2002 and the applicable rules thereunder, each member of the Audit Committee shall be “independent” as defined by such Act and rules.

Financial Literacy. Each member of the Audit Committee shall be able to read and understand fundamental financial statements, including the Company's balance sheet, income statement, and cash flow statement, at the time of his or her appointment to the Audit Committee. At least one member of the Audit Committee shall be a “financial expert” as defined by Section 803.B of The American Stock Exchange Company Guide and applicable SEC rules.

Chair. Unless the Board of Directors elects a Chair of the Audit Committee, the Audit Committee shall elect a Chair by majority vote.

Compensation. The compensation of Audit Committee members shall be as determined by the Board of Directors. No member of the Audit Committee may receive any compensation from the Company other than director's fees.

Selection and Removal. Members of the Audit Committee shall be appointed by the Board of Directors. The Board of Directors may remove members of the Audit Committee, with or without cause.

Authority and Responsibilities

General

The Audit Committee shall discharge its responsibilities, and shall assess the information provided by the Company's management and the independent auditor, in accordance with its business judgment.

1

Oversight of Independent Auditors

Selection. The Audit Committee shall have the sole authority to appoint, determine funding for, and oversee the independent auditors as set forth in Section 301 of the Sarbanes-Oxley Act of 2002 and the applicable rules thereunder.

Independence. The Audit Committee shall take, or recommend that the full Board of Directors take, appropriate action to oversee the independence of the independent auditor. In connection with this responsibility, the Audit Committee shall obtain and review a formal written statement from the independent auditor describing all relationships between the independent auditor and the Company, including the disclosures required by Independence Standards Board Standard No. 1. The Audit Committee shall engage in an active dialogue with the independent auditor concerning any disclosed relationships or services that might impact the objectivity and independence of the auditor.

Compensation. The Audit Committee shall be directly responsible for setting the compensation of the independent auditor. The Audit Committee is empowered, without further action by the Board of Directors, to cause the Company to pay the compensation of the independent auditor established by the Audit Committee.

Pre-approval of Services. The Audit Committee shall pre-approve all auditing services, which may entail providing comfort letters in connection with securities underwritings, and non-audit services (other than de minimus non-audit services as defined by the Sarbanes-Oxley Act of 2002 and the applicable rules thereunder) to be provided to the Company by the independent auditor. The Audit Committee shall cause the Company to disclose in its SEC periodic reports the approval by the Audit Committee of any non-audit services to be performed by the independent auditor.

Oversight. The independent auditor shall report directly to the Audit Committee and the Audit Committee shall be directly responsible for oversight of the work of the independent auditor, including resolution of disagreements between Company management and the independent auditor regarding financial reporting. In connection with its oversight role, the Audit Committee shall, from time to time as appropriate:

obtain and review the reports required to be made by the independent auditor pursuant to paragraph (k) of Section 10A of the Securities Exchange Act of 1934 regarding:

o   critical accounting policies and practices;

o   alternative treatments of financial information within generally accepted accounting principles that have been discussed with Company management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor; and

o   other material written communications between the independent auditor and Company management.

Review of Audited Financial Statements

Discussion of Audited Financial Statements. The Audit Committee shall review and discuss with the Company's management and independent auditor the Company's audited financial statements, including the matters about which Statement on Auditing Standards No. 61 (Codification of Statements on Auditing Standards, AU §380) requires discussion.

Recommendation to Board Regarding Financial Statements. The Audit Committee shall consider whether it will recommend to the Board of Directors that the Company's audited financial statements be included in the Company's Annual Report on Form 10-K.

Audit Committee Report. The Audit Committee shall prepare for inclusion where necessary in a proxy or information statement of the Company relating to an annual meeting of security holders at which directors are to be elected (or special meeting or written consents in lieu of such meeting), the report described in Item 407 of Regulation S-K.

2

Review of Other Financial Disclosures

Independent Auditor Review of Interim Financial Statements. The Audit Committee shall direct the independent auditor to use its best efforts to perform all reviews of interim financial information prior to disclosure by the Company of such information and to discuss promptly with the Audit Committee and the Chief Financial Officer any matters identified in connection with the auditor's review of interim financial information which are required to be discussed by Statement on Auditing Standards Nos. 61, 71 and 90. The Audit Committee shall direct management to advise the Audit Committee in the event that the Company proposes to disclose interim financial information prior to completion of the independent auditor's review of interim financial information.

Controls and Procedures

Oversight. The Audit Committee shall coordinate the Board of Director's oversight of the Company's internal accounting controls, the Company's disclosure controls and procedures and the Company's code of conduct. The Audit Committee shall receive and review the reports of the CEO and CFO required by Section 302 of the Sarbanes-Oxley Act of 2002 (and the applicable rules thereunder) and Rule 13a-14 of the Exchange Act.

Procedures for Complaints. The Audit Committee shall establish procedures for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.

Related-Party Transactions. The Audit Committee shall review and, prior to the Company's engaging in such transaction, must approve all related-party transactions.

Procedures and Administration

Meetings. The Audit Committee shall meet as often as it deems necessary in order to perform its responsibilities, but not less than four (4) times a year. The Audit Committee shall keep such records of its meetings as it shall deem appropriate.

Subcommittees. The Audit Committee may form and delegate authority to one or more subcommittees (including a subcommittee consisting of a single member), as it deems appropriate from time to time under the circumstances. Any decision of a subcommittee to pre-approve audit or non-audit services shall be presented to the full Audit Committee at its next scheduled meeting.

Charter. At least annually, the Audit Committee shall review and reassess the adequacy of this Charter and recommend any proposed changes to the Board for approval.

Independent Advisors. The Audit Committee shall have the authority to engage such independent legal, accounting and other advisors as it deems necessary or appropriate to carry out its responsibilities. Such independent advisors may be the regular advisors to the Company. The Audit Committee is empowered, without further action by the Board of Directors, to cause the Company to pay the compensation of such advisors as established by the Audit Committee.

Investigations. The Audit Committee shall have the authority to conduct or authorize investigations into any matters within the scope of its responsibilities as it shall deem appropriate, including the authority to request any officer, employee or advisor of the Company to meet with the Audit Committee or any advisors engaged by the Audit Committee.

3

EX-99.2

EXHIBIT 99.2

XML

9. INCOME TAXES (Details) (USD $)	12 Months Ended
	Aug. 31, 2012	Aug. 31, 2011
Canadian
Income Tax Expense (Benefit), at Federal Statutory Income Tax Rate	$ (469,659)
Statutory tax rates	30.00%
Expected recovery of income taxes at statutory rates	140,898
Valuation Allowances	(140,898)
Provision for income taxes	0
United States
Income Tax Expense (Benefit), at Federal Statutory Income Tax Rate	(2,744,710)	(1,547,188)
Statutory tax rates	35.00%	35.00%
Expected recovery of income taxes at statutory rates	960,649	541,516
Valuation Allowances	(960,649)	(541,516)
Provision for income taxes	$ 0	$ 0

XML

4. OIL AND GAS PROPERTIES (Details) (Fair Value of Asset Acquired, USD $)	Aug. 31, 2012
Fair Value of Asset Acquired
Proven Properties
Intangibles	$ 6,780,000
Plant and equipment	6,484,000
Gathering systems	1,788,000
Vehicles	4,527
Leasehold costs	581,379
Subtotal	15,637,906
Unproven Leasehold Costs	6,465,622
Total	22,103,529
Goodwill	1,194,365
Total Assets Acquired - KGP	$ 23,297,894

XML

7. RELATED PARTY TRANSACTIONS (Details Narrative 1) (USD $)	Aug. 31, 2012	Aug. 31, 2011
Related Party Transactions Details Narrative 1
Management Fees-CEO	$ 240,000	$ 113,548

XML

3. FAIR VALUE MEASUREMENTS

12 Months Ended

Aug. 31, 2012

Fair Value Disclosures [Abstract]

3. FAIR VALUE MEASUREMENTS

The Company  estimates the fair values of financial and non-financial assets and liabilities under ASC Topic 820 “Fair Value Measurements and Disclosures” (“ASC Topic 820”). ASC Topic 820 provides a framework for consistent measurement of fair value for those assets and liabilities already measured at fair value under other accounting pronouncements. Certain specific fair value measurements, such as those related to share-based compensation, are not included in the scope of ASC Topic 820. Primarily, ASC Topic 820 is applicable to assets and liabilities related to financial instruments, to some long-term investments and liabilities, to initial valuations of assets and liabilities acquired in a business combination, and to long-lived assets written down to fair value when they are impaired. It does not apply to oil and natural gas properties accounted for under the full cost method, which are subject to impairment based on SEC rules. ASC Topic 820 applies to assets and liabilities carried at fair value on the consolidated balance sheet, as well as to supplemental fair value information about financial instruments not carried at fair value.

Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of these techniques requires significant judgment and is primarily dependent upon the characteristics of the asset or liability, the principal (or most advantageous) market in which participants would transact for the asset or liability and the quality and availability of inputs. Inputs to valuation techniques are classified as either observable or unobservable within the following hierarchy:

● Level 1 — quoted prices in active markets for identical assets or liabilities.

● Level 2 — inputs other than quoted prices that are observable for an asset or liability. These include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

● Level 3 — unobservable inputs that reflect the Company’s own expectations about the assumptions that market participants would use in measuring the fair value of an asset or liability.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters.  Where observable prices or inputs are not available, valuation models are applied.  These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instrument’s complexity.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Acquired oil and gas properties are reported at fair value on a nonrecurring basis in the Company’s balance sheet.  See Note 2, Oil and Gas Acquisitions for further discussion of the methods and assumptions used to estimate fair values.

Cash, Cash Equivalents and the Fair Value of Financial Instruments

The Company considers all highly liquid instruments with an original maturity of three months or less at the time of issuance to be cash equivalents.  Cash and cash equivalents totaled $2,206,347 and $487,017 at August 31, 2012 and 2011, respectively. The Company is exposed to a concentration of credit risk with respect to its cash deposits. The Company places cash deposits with highly rated financial institutions in the United States and Canada. At times, cash balances held in financial institutions may be in excess of insured limits. The Company believes the financial institutions are financially strong and the risk of loss is minimal. The Company has not experienced any losses with respect to the related risks and does not believe its exposure to such risks is more than normal.

The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, other receivables, accounts payable, accrued liabilities and demand notes payable approximates their carrying value due to their short-term nature.

XML

5. ASSET RETIREMENT OBLIGATIONS (Details) (USD $)	12 Months Ended
	Aug. 31, 2012	Aug. 31, 2011
Asset Retirement Obligations Details
Balance, Beginning	$ 80,000
Liabilities incurred (acquired)	7,057,716	80,000
Accretion expense
Liabilities (settled)
Changes in asset retirement obligations
Balance, Ending	7,137,716	80,000
Total Balance, August 31, 2012 - Current	80,000
Total Balance, August 31, 2012 – Long Term	$ 7,057,716

XML

4. OIL AND GAS PROPERTIES (Details 3) (USD $)	12 Months Ended		49 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	Aug. 31, 2012
Accrued expenditures on oil and gas properties	$ 33,135	$ 31,159	$ 64,294
Asset retirement obligations		80,000	80,000
Unproven
Balance, Beginning
Expenditures on oil and gas properties	724,500	11,200
Accrued expenditures on oil and gas properties	31,159	33,135
Asset retirement obligations		80,000
Oil and gas property impairment	(835,659)	(44,335)
Balance, Ending

XML

6. NOTES PAYABLE (Details) (USD $)	Aug. 31, 2012	Aug. 31, 2011
Notes Payable Details
Notes payable		$ 72,500

XML

8. CAPITAL STOCK AND STOCK BASED COMPENSATION (Details) (USD $)	12 Months Ended
	Aug. 31, 2012
Number of Shares	1,200,000
Option 1
Number of Shares	300,000
Exercise Price	2.15
Vesting Period	0 years
First Date Exercisable	Aug. 27, 2012
Expiration Date	Aug. 27, 2014
Option 2
Number of Shares	300,000
Exercise Price	2.30
Vesting Period	6 months
First Date Exercisable	Feb. 27, 2013
Expiration Date	Aug. 27, 2014
Option 3
Number of Shares	300,000
Exercise Price	2.5
Vesting Period	2 years
First Date Exercisable	Aug. 27, 2014
Expiration Date	Aug. 27, 2017
Option 4
Number of Shares	300,000
Exercise Price	2.65
Vesting Period	2 years
First Date Exercisable	Aug. 27, 2014
Expiration Date	Aug. 27, 2017

XML

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Aug. 31, 2012

Accounting Policies [Abstract]

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary EFLO Energy Yukon Ltd., after elimination of intercompany balances and transactions. The Company’s interest in oil and gas exploration and production ventures and partnerships are proportionately consolidated. These consolidated financial statements and related notes are presented in accordance with US GAAP, and are expressed in United States dollars. The Company is an exploration stage company as defined by “Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 915, Development Stage Entities.”

Use of Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to these consolidated financial statements relate to carrying values of oil and gas properties, the estimate of proved oil and gas reserves and related present value estimates of future net cash flows there from, asset retirement obligations, the valuation of goodwill, determination of fair values of stock-based transactions, deferred income tax rates, and environmental risks and exposures.

Allowance for Doubtful Accounts

The Company routinely assesses the recoverability of all material receivables to determine their collectability. All of the Company's receivables are from joint venture partners and large gas marketers. The Company is exposed to a concentration of credit risk with respect to its accounts receivable. The Company believes its financial partners are financially strong and the risk of loss is minimal. Generally, the Company's natural gas receivables are collected within three months. The Company accrues a reserve on a receivable when, based on the judgment of management, it is probable that a receivable will not be collected and the amount of any reserve may be reasonably estimated. As of August 31, 2012 and 2011, the Company had no amount recorded as an allowance for doubtful accounts.

Oil and Gas Properties

The Company utilizes the full cost method to account for its investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs relating to unproved properties, geological expenditures, tangible and intangible development costs including direct internal costs are capitalized to the full cost pool. Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations.

Depletion, depreciation and amortization (DD&A) of oil and gas properties is calculated quarterly, using the Units of Production Method (UOP). The UOP calculation, in simplest terms, matches the percentage of estimated proved reserves produced each quarter with the costs of those reserves. The result is to recognize expense at the same pace that the reservoirs are actually depleting. The amortization base in the UOP calculation includes the sum of proved property costs net of accumulated DD&A, estimated future development costs (future costs to access and develop reserves) and asset retirement costs which are not already included in oil and gas property, less related salvage value. Costs of unproved properties are not amortized until the proved reserves associated with the projects can be determined or until impairment occurs. If an assessment of such properties indicates that properties are impaired, the amount of impairment is added to the capitalized cost base to be amortized.

The capitalized costs included in the full cost pool are subject to a "ceiling test" (based on the average of the first-day-of-the-month prices during the twelve-month period prior to August 31, 2012 pursuant to the SEC’s “Modernization of Oil and Gas Reporting” rule), which limits such costs to the aggregate of the (i) estimated present value, using a ten percent discount rate, of the future net revenues from proved reserves, based on current economic and operating conditions, (ii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized, (iii) the cost of properties not being amortized, less (iv) income tax effects related to differences between the book and tax basis of the cost of properties not being amortized. If net capitalized costs exceed this limit, the excess is charged to expense in the current period. At August 31, 2011, all of the Company’s oil and gas properties were impaired and expensed to the extent of their carrying value. At August 31, 2012, the Company recorded no write-downs of the carrying value of its proved oil and gas properties.

Oil and Gas Acquisitions

The Company accounts for the acquisition of oil and gas properties under the requirements of Financial Accounting Standards Board (FASB) ASC Topic 805, Business Combinations (ASC Topic 805), issued in December 2007, with additional guidance issued in April 2009.  ASC Topic 805 requires an acquiring entity to recognize all assets acquired and liabilities assumed at fair value under the acquisition method of accounting, provided they qualify for acquisition accounting under the standard.  The Company accounts for all property acquisitions that include working interests in proved leasehold, both operated and non-operated, that would generate more than an immaterial balance of goodwill as business combinations.  The Company does not apply acquisition accounting to the purchase of oil and gas properties entirely comprised of unproved leasehold, which is in compliance with ASC Topic 805. In accordance with this guidance the Company has recognized the fair value of all the assets acquired and liabilities assumed in connection with its Kotaneelee Gas Project working interest acquisition from Devon effective July 18, 2012.

The Company adopted ASC Topic 805 effective December 23, 2009.  Accordingly, the Company, on an ongoing basis, conducts assessments of net assets acquired to determine if acquisition accounting is appropriate.  As appropriate, the Company properly records assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisitions are expensed as incurred.  The Company uses relevant market assumptions to determine fair value and allocate purchase price, such as future commodity pricing for purchased hydrocarbons, market multiples for similar transactions and replacement value for certain equipment.  Many of the assumptions are unobservable.

Asset Retirement Obligations

The Company records asset retirement obligations based on the guidance set forth in ASC Topic 410, as a liability in the period in which it incurs an obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The estimated balance of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate. This liability is capitalized as part of the cost of the related asset and amortized over its useful life.

Long-Lived Assets

The carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.

Environmental

Oil and gas activities are subject to extensive federal, state and provincial environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites.

Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a non-capital nature are recorded when an environmental assessment and/or remediation is probable, and the costs can be reasonably estimated.

Revenue Recognition

The Company recognizes natural gas revenue under the sales method of accounting for its interests in producing wells as natural gas is produced and sold from those wells. Natural gas sold by the Company is not significantly different from the Company’s share of production. The Company recognizes revenue upon transfer of ownership of the product to the customer which occurs when (i) the product is physically received by the customer, (ii) an invoice is generated which evidences an arrangement between the customer and the Company, (iii) a fixed sales price has been included in such invoice and (iv) collection from such customer is reasonably assured. Gas sales are reported net of applicable production taxes.

Stock-Based Compensation

The Company records compensation expense in the consolidated financial statements for stock-based payments using the fair value method. The fair value of stock options granted to directors and employees is determined using the Black-Scholes option valuation model at the time of grant. Fair value for common shares issued for goods or services rendered by non-employees are measured based on the fair value of the goods and services received. Stock-based compensation is expensed with a corresponding increase to share capital.

Income Taxes

Income taxes are determined using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the 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 deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes that date of enactment. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.

The Company accounts for uncertainty in income taxes by applying a two-step method. First, it evaluates whether a tax position has met a more likely than not recognition threshold, and second, it measures that tax position to determine the amount of benefit, if any, to be recognized in the financial statements. The application of this method did not have a material effect on the Company's consolidated financial statements.

Foreign Currency Gains and Losses

The Company’s functional and reporting currency is the United States dollar. The functional currency of our Canadian subsidiary is the Canadian dollar. Financial statements of our Canadian subsidiary are translated to United States dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income as a component of stockholders’ equity. Transaction gains and losses are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. As of August 31, 2012, the Company has not entered into derivative instruments to offset the impact of foreign currency fluctuations.

Earnings Per Share

The Company presents both basic and diluted earnings per share (“EPS”) on the face of the consolidated statements of operations. Basic EPS is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including convertible debt, stock options, and warrants, using the treasury stock method. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. Diluted EPS amounts are equal to those of Basic EPS for each period since the Company is in a net loss position.

As of August 31, 2012 and 2011, the Company had 1,820,204 and 596,870 shares of its common stock available through the exercise of non-dilutive stock warrants, respectively (Note 8).

Recent Accounting Pronouncements

The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements to have a material impact on its financial position, results of operations or cash flows.

XML

8. CAPITAL STOCK AND STOCK BASED COMPENSATION (Details 1) (USD $)	12 Months Ended
	Aug. 31, 2012
Capital Stock And Stock Based Compensation Details 1
Number of Options Outstanding, Beginning
Number of Options Granted	1,200
Number of Options Exercised
Number of Options Forfeited
Number of Options Outstanding, Ending	1,200
Number of Options Exercisable	300
Weighted Average Exercise Price Outstanding, Beginning
Weighted Average Exercise Price Granted	$ 2.4
Weighted Average Exercise Price Forfeited
Weighted Average Exercise Price Outstanding, Ending	$ 2.4
Weighted Average Exercise Price Exercisable	$ 2.15
Weighted Average Remaining Contractual Life (in years) Outstanding	3 years 6 months
Weighted Average Remaining Contractual Life (in years) Exercisable	2 years
Aggregate Intrinsic Value Outstanding	$ 0
Aggregate Intrinsic Value Exercisable	$ 0

XML

Balance Sheets (USD $)	Aug. 31, 2012	Aug. 31, 2011
ASSETS
Cash	$ 2,206,347	$ 487,017
Accounts receivable
Accrued gas sales	178,225
Joint interest owners and other	122,745
Prepaids	204,892	21,875
Other	17,919	3,436
Total current assets	2,730,128	512,328
OIL AND GAS PROPERTIES, full cost method
Proved properties, net of accumulated depletion and depreciation of $405,082	15,232,824
Unproven properties	6,465,622
Total	21,698,446
OTHER ASSETS-Goodwill	1,194,365
Total assets	25,622,939	512,328
CURRENT LIABILITIES
Accounts payable and accrued liabilities	1,483,041	299,701
Notes payable		72,500
Asset retirement obligation	80,000	80,000
Total current liabilities	1,563,041	452,201
ASSET RETIREMENT OBLIGATION-Long term	7,057,716
Total liabilities	8,620,757	452,201
STOCKHOLDERS' EQUITY
Capital Stock Authorized: 75,000,000 common shares, par value $0.001 per share Issued and outstanding:17,478,539 and 7,196,870 common shares at August 31, 2012 and August 31, 2011, respectively	17,479	7,197
Additional paid-in capital	21,830,083	1,683,890
Accumulated other comprehensive loss	(7,299)
Deficit accumulated during the exploration stage	(4,838,081)	(1,630,960)
Total stockholders' equity	17,002,182	60,127
Total liabilities and stockholders' equity	$ 25,622,939	$ 512,328

XML

Consolidated Statements of Shareholders Equity (Deficit) (USD $)	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Loss	Deficit Accumulated During Exploration Stage	Total
Beginning Balance, Amount at Jul. 21, 2008
Common Stock issued for cash at $0.0001 per share - July 2008, Shares	100,000,000
Common Stock issued for cash at $0.0001 per share - July 2008, Amount	$ 100,000	$ (95,000)			$ 5,000
Ending Balance, Amount at Aug. 31, 2008	100,000	(95,000)		(5,145)	(145)
Ending Balance, Shares at Aug. 31, 2008	100,000,000
Common Stock issued for cash at $0.0015 per share - February 2009, Shares	3,300,000
Common Stock issued for cash at $0.0015 per share - February 2009, Amount	3,300	1,650			4,950
Net loss				(14,777)	(14,777)
Ending Balance, Amount at Aug. 31, 2009	103,300	(93,350)		(19,922)	(9,972)
Ending Balance, Shares at Aug. 31, 2009	103,300,000
Forgiveness of debt by former director		9,337			9,337
Common Stock redeemed and cancelled at $0.001 per share - April 2010, Shares	(96,700,000)
Common Stock redeemed and cancelled at $0.001 per share - April 2010, Amount	(96,700)	96,600			(100)
Comprehensive loss				(63,850)	(63,850)
Ending Balance, Amount at Aug. 31, 2010	66,000	12,587		(83,772)	(64,585)
Ending Balance, Shares at Aug. 31, 2010	6,600,000
Investment units issued for cash at $2.30 per unit - April 2011 (net of fees), Shares	86,870
Investment units issued for cash at $2.30 per unit - April 2011 (net of fees), Amount	87	191,013			191,100
Investment units issued for cash at $3.00 per unit - April 2011 (net of fees), Shares	390,000
Investment units issued for cash at $3.00 per unit - April 2011 (net of fees), Amount	390	1,122,810			1,123,200
Investment units issued for cash at $3.00 per unit - May 2011 (net of fees), Shares	120,000
Investment units issued for cash at $3.00 per unit - May 2011 (net of fees), Amount	120	357,480			357,600
Net loss				(1,547,188)	(1,547,188)
Ending Balance, Amount at Aug. 31, 2011	7,197	1,683,890		(1,630,960)	60,127
Ending Balance, Shares at Aug. 31, 2011	7,196,870
Conversion of indebtedness to investment units, Shares	23,334
Conversion of indebtedness to investment units, Amount	23	69,977			70,000
Issued for services, Shares	483,334
Issued for services, Amount	484	944,065			944,549
Stock-based compensation granted		246,976			246,976
Issued for cash at $1.20 per unit (net of fees), Shares	2,525,001
Issued for cash at $1.20 per unit (net of fees), Amount	2,525	2,942,425			2,944,950
Issued in connection with Devon asset acquisition, Shares	7,250,000
Issued in connection with Devon asset acquisition, Amount	7,250	15,942,750			15,950,000
Net loss				(3,207,121)	(3,207,121)
Foreign currency translation			(7,299)		(7,299)
Total Comprehesive loss					(3,214,420)
Ending Balance, Amount at Aug. 31, 2012	$ 17,479	$ 21,830,083	$ (7,299)	$ (4,838,081)	$ 17,002,182
Ending Balance, Shares at Aug. 31, 2012	17,478,539

XML

11. SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED) (Details) (USD $)	Aug. 31, 2012	Aug. 31, 2011
Supplementary Oil And Gas Information Details
Future cash inflows	$ 11,478,000
Production costs and abandonment costs	(10,198,000)
Development	(3,751,900)
Income tax expense
Future net cash flows	(2,471,900)
10% annual discount rate for estimated timing of cash flows	392,000
Standardized measure of discounted future net cash flows	$ (2,079,900)

XML

8. CAPITAL STOCK AND STOCK BASED COMPENSATION (Tables)

12 Months Ended

Aug. 31, 2012

Capital Stock And Stock Based Compensation Tables

Schedule of Stock Based Compensation

Number of Shares Issuable Upon Exercise of Option	Exercise Price	Vesting Period	First Date Exercisable	Expiration Date
300,000	$2.15	None	8/27/2012	8/27/2014
300,000	$2.30	6 Months	2/27/2013	8/27/2014
300,000	$2.50	2 Years	8/27/2014	8/27/2017
300,000	$2.65	2 Years	8/27/2014	8/15/2017
1,200,000

Options	Shares (000)		Weighted-Average Exercise Price		Weighted-Average Remaining Contract Term (yrs)		Aggregate Intrinsic value
Outstanding – September 1, 2011		––		––
Granted		1,200	$	2.40
Exercised		––		––
Forfeited or expired		––		––
Outstanding – August 31, 2012		1,200	$	2.40		3.49	$	0.00
Exercisable – August 31, 2012		300	$	2.15		1.99	$	0.00

XML

7. RELATED PARTY TRANSACTIONS (Details Narrative) (USD $)	Aug. 31, 2012
Related Party Transactions Details Narrative
Finder's compensation	$ 844,282

XML

11. SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED) (Tables)

12 Months Ended

Aug. 31, 2012

Supplementary Oil And Gas Information Tables

Schedule of estimated net quantities of oil and natural gas reserves

	Natural Gas
		(mcf)
Proved developed reserves
August 31, 2011		––
August 31, 2012		2,067,900
Proved undeveloped reserves
August 31, 2011		––
August 31, 2012		3,295,500
Total proved reserves:
Balance August 31, 2010		––
Extensions, discoveries and other additions		––
Purchases of minerals in-place		––
Revisions of previous estimates		––
Production		––
Sales of properties		––
Balance August 31, 2011		––
Extensions, discoveries and other additions		––
Purchases of minerals in-place		5,474,825
Revisions of previous estimates		––
Production		(111,425	)
Sales of properties		-
Balance August 31, 2012		5,363,400

XML

1. NATURE AND CONTINUANCE OF OPERATIONS

12 Months Ended

Aug. 31, 2012

Accounting Policies [Abstract]

1. NATURE AND CONTINUANCE OF OPERATIONS

EFL Overseas, Inc. (the “Company”), was incorporated in the State of Nevada on July 22, 2008, and prior to March 2011, was relatively inactive. During March 2011, the Company initiated operations focused on oil and gas exploration and development in the United States and Canada. On July 18, 2012, the Company’s wholly owned subsidiary, EFLO Energy Yukon Ltd., completed an acquisition of Devon Canada’s entire right and interest (generally a working interest of 22.989%, with a working interest of 69.337% in one gas well) in the Kotaneelee Gas Project (Note 4).

The Company’s Consolidated financial statements are prepared on a going concern basis in accordance with generally accepted accounting principles in the United States (“US GAAP”) which contemplates the realization of assets and discharge of liabilities and commitments in the normal course of business. The Company is in the exploration stage. It has not generated operating revenues, and has accumulated losses of $4,838,081 since inception. The Company has funded its operations through the issuance of capital stock and debt. Management plans to raise additional funds through third-party equity or debt financings and the joint venturing of its exploration efforts with third parties. There is no certainty that further funding will be available as needed. These factors raise substantial doubt about the ability of the Company to continue operating as a going concern. The Company’s ability to continue its operations as a going concern, realize the carrying value of its assets, and discharge its liabilities in the normal course of business is dependent upon its ability to raise capital sufficient to fund its commitments and ongoing losses, and ultimately generate profitable operations.

XML

Balance Sheets (Parenthetical) (USD $)	Aug. 31, 2012	Aug. 31, 2011
Stockholders Equity
Common Stock Shares Par value	$ 0.001	$ 0.001
Common Stock Shares Authorized	75,000,000	75,000,000
Common Stock Shares Issued	17,478,539	7,196,870
Common Stock Shares Outstanding	17,478,539	7,196,870

XML

11. SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED)

12 Months Ended

Aug. 31, 2012

Notes to Financial Statements

11. SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED)

Estimated Net Quantities of Oil and Natural Gas Reserves

The following estimates of the net proved oil and natural gas reserves of our oil and gas properties, located entirely in Canada, are based on evaluations prepared by AJM Deloitte, (“AJM”) independent petroleum engineers. Reserve volumes and values were determined under the method prescribed by the SEC, which requires the application of the 12-month average price for natural gas and oil calculated as the un-weighted arithmetic average of the first-day-of-the-month price for each month within the 12-month prior period to the end of the reporting period and current costs held constant throughout the projected reserve life. Reserve estimates are inherently imprecise and estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, reserve estimates are expected to change as additional performance data becomes available.

Estimated quantities of proved domestic oil and gas reserves and changes in quantities of proved developed and undeveloped reserves in barrels (Bbls) and thousands of cubic feet (Mcf) for each of the periods indicated were as follows:

	Natural Gas
		(mcf)
Proved developed reserves
August 31, 2011		––
August 31, 2012		2,067,900
Proved undeveloped reserves
August 31, 2011		––
August 31, 2012		3,295,500
Total proved reserves:
Balance August 31, 2010		––
Extensions, discoveries and other additions		––
Purchases of minerals in-place		––
Revisions of previous estimates		––
Production		––
Sales of properties		––
Balance August 31, 2011		––
Extensions, discoveries and other additions		––
Purchases of minerals in-place		5,474,825
Revisions of previous estimates		––
Production		(111,425	)
Sales of properties		-
Balance August 31, 2012		5,363,400

As of August 31, 2012, on a barrel of equivalent basis, 61% (2011 – NIL) of our estimated reserves, respectively, were classified as proved undeveloped. These reserves relate to zones that are either behind pipe, or that have been completed but not yet produced, or zones that have been produced in the past, but are not now producing because of mechanical reasons. These reserves are considered to be a lower tier of reserves than producing reserves because they are frequently based on volumetric calculations rather than performance data. Future production associated with behind pipe reserves is scheduled to follow depletion of the currently producing zones in the same wellbores. It should be noted that additional capital may have to be spent to access these reserves. The capital and economic impact of production timing are reflected in this Note 11, under “standardized measure of discounted future net cash.”

We did not have any PUD reserves that were not scheduled to be converted into proved developed reserves within the five year requirement at August 31, 2011.

	August 31,
	2012	2011
	($/Mcf)	($/Mcf)
Commodity prices used in determining future cash flows	$2.14	-

Standardized Measure of Discounted Future Net Cash Flows

A summary of the standardized measure of discounted future net cash flows relating to proved crude oil and natural gas reserves is shown below. Future net cash flows are computed using the average of the first-day-of-the-month commodity prices during the 12-month period ending on August 31, 2012, costs and statutory tax rates (adjusted for tax credits and other items) that relate to our existing proved crude oil and natural gas reserves.

The standardized measure of discounted future net cash flows related to proved oil and gas reserves as of August 31, 2012 and 2011 are as follows:

	2012		2011
Future cash inflows	$   11,478,000	$	––
Less related future: Production costs and abandonment costs	(10,198,000)		––
Development	(3,751,900)		––
Income tax expense	––		––
Future net cash flows	(2,471,900)		––
10% annual discount rate for estimated timing of cash flows	392,000		––
Standardized measure of discounted future net cash flows	$  (2,079,900)	$	––

Changes in Standardized Discounted Future Net Cash Flows

A summary of the changes in the standardized measure of discounted future net cash flows applicable to proved crude oil and natural gas reserves follows:

	2012		2011
Beginning of year	$                  ––		$                    ––
Revisions of previous estimates
Changes in prices and costs	––		––
Changes in quantities	19,848		––
Additions to proved reserves resulting from extensions, discoveries and improved recovery, less related costs	––		––
Purchases of reserves in place	1,280,000		––
Sales of reserves in place	––		––
Accretion of discount	––		––
Sales, net of production costs	(19,848	)	––
Net change in income taxes	––		––
Changes in rate of production	––		––
Change in development costs	(3,751,900)		––
Other, net	392,000		––
Net change	––		––
End of year	$    (2,079,900	)	$                   ––

XML

Document and Entity Information (USD $)	12 Months Ended
	Aug. 31, 2012	Nov. 29, 2012	Feb. 29, 2012
Document And Entity Information
Entity Registrant Name	EFL OVERSEAS, INC.
Entity Central Index Key	0001448806
Document Type	10-K
Document Period End Date	Aug. 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--08-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 22,138,100
Entity Common Stock, Shares Outstanding		19,009,205
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2012

XML

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Aug. 31, 2012

Summary Of Significant Accounting Policies Policies

Basis of Presentation

Basis of Presentation

These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary EFLO Energy Yukon Ltd., after elimination of intercompany balances and transactions. The Company’s interest in oil and gas exploration and production ventures and partnerships are proportionately consolidated. These consolidated financial statements and related notes are presented in accordance with US GAAP, and are expressed in United States dollars. The Company is an exploration stage company as defined by “Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 915, Development Stage Entities.”

Use of Estimates

Use of Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to these consolidated financial statements relate to carrying values of oil and gas properties, the estimate of proved oil and gas reserves and related present value estimates of future net cash flows there from, asset retirement obligations, the valuation of goodwill, determination of fair values of stock-based transactions, deferred income tax rates, and environmental risks and exposures.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

The Company routinely assesses the recoverability of all material receivables to determine their collectability. All of the Company's receivables are from joint ventures partners and large gas marketers. The Company is exposed to a concentration of credit risk with respect to its accounts receivable. The Company believes its financial partners are financially strong and the risk of loss is minimal. Generally, the Company's natural gas receivables are collected within three months. The Company accrues a reserve on a receivable when, based on the judgment of management, it is probable that a receivable will not be collected and the amount of any reserve may be reasonably estimated. As of August 31, 2012 and 2011, the Company had no amount recorded as an allowance for doubtful accounts.

Oil and Gas Properties

Oil and Gas Properties

The Company utilizes the full cost method to account for its investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs relating to unproved properties, geological expenditures, tangible and intangible development costs including direct internal costs are capitalized to the full cost pool. Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations.

Depletion, depreciation and amortization (DD&A) of oil and gas properties is calculated quarterly, using the Units of Production Method (UOP). The UOP calculation, in simplest terms, matches the percentage of estimated proved reserves produced each quarter with the costs of those reserves. The result is to recognize expense at the same pace that the reservoirs are actually depleting. The amortization base in the UOP calculation includes the sum of proved property costs net of accumulated DD&A, estimated future development costs (future costs to access and develop reserves) and asset retirement costs which are not already included in oil and gas property, less related salvage value. Costs of unproved properties are not amortized until the proved reserves associated with the projects can be determined or until impairment occurs. If an assessment of such properties indicates that properties are impaired, the amount of impairment is added to the capitalized cost base to be amortized.

The capitalized costs included in the full cost pool are subject to a "ceiling test" (based on the average of the first-day-of-the-month prices during the twelve-month period prior to August 31, 2012 pursuant to the SEC’s “Modernization of Oil and Gas Reporting” rule), which limits such costs to the aggregate of the (i) estimated present value, using a ten percent discount rate, of the future net revenues from proved reserves, based on current economic and operating conditions, (ii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized, (iii) the cost of properties not being amortized, less (iv) income tax effects related to differences between the book and tax basis of the cost of properties not being amortized. If net capitalized costs exceed this limit, the excess is charged to expense in the current period. At August 31, 2011, all of the Company’s oil and gas properties were impaired and expensed to the extent of their carrying value. At August 31, 2012, the Company recorded no write-downs of the carrying value of its proved oil and gas properties.

Oil and Gas Acquisitions

Oil and Gas Acquisitions

The Company accounts for the acquisition of oil and gas properties under the requirements of Financial Accounting Standards Board (FASB) ASC Topic 805, Business Combinations (ASC Topic 805), issued in December 2007, with additional guidance issued in April 2009.  ASC Topic 805 requires an acquiring entity to recognize all assets acquired and liabilities assumed at fair value under the acquisition method of accounting, provided they qualify for acquisition accounting under the standard.  The Company accounts for all property acquisitions that include working interests in proved leasehold, both operated and non-operated, that would generate more than an immaterial balance of goodwill as business combinations.  The Company does not apply acquisition accounting to the purchase of oil and gas properties entirely comprised of unproved leasehold, which is in compliance with ASC Topic 805. In accordance with this guidance the Company has recognized the fair value of all the assets acquired and liabilities assumed in connection with its Kotaneelee Gas Project working interest acquisition from Devon effective July 18, 2012.

The Company adopted ASC Topic 805 effective December 23, 2009.  Accordingly, the Company, on an ongoing basis, conducts assessments of net assets acquired to determine if acquisition accounting is appropriate.  As appropriate, the Company properly records assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisitions are expensed as incurred.  The Company uses relevant market assumptions to determine fair value and allocate purchase price, such as future commodity pricing for purchased hydrocarbons, market multiples for similar transactions and replacement value for certain equipment.  Many of the assumptions are unobservable.

Asset Retirement Obligations

 Asset Retirement Obligations

The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs an obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The estimated fair value of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate. This liability is capitalized as part of the cost of the related asset and amortized over its useful life.

Long-Lived Assets

Long-Lived Assets

The carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.

Environmental

Environmental

Oil and gas activities are subject to extensive federal, state and provincial environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites.

Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a non-capital nature are recorded when an environmental assessment and/or remediation is probable, and the costs can be reasonably estimated.

Revenue Recognition

Revenue Recognition

The Company recognizes natural gas revenue under the sales method of accounting for its interests in producing wells as natural gas is produced and sold from those wells. Natural gas sold by the Company is not significantly different from the Company’s share of production. The Company recognizes revenue upon transfer of ownership of the product to the customer which occurs when (i) the product is physically received by the customer, (ii) an invoice is generated which evidences an arrangement between the customer and the Company, (iii) a fixed sales price has been included in such invoice and (iv) collection from such customer is reasonably assured. Gas sales are reported net of applicable production taxes.

Stock-Based Compensation

Stock-Based Compensation

The Company records compensation expense in the consolidated financial statements for stock-based payments using the fair value method. The fair value of stock options granted to directors and employees is determined using the Black-Scholes option valuation model at the time of grant. Fair value for common shares issued for goods or services rendered by non-employees are measured based on the fair value of the goods and services received. Stock-based compensation is expensed with a corresponding increase to share capital.

Income Taxes

Income Taxes

Income taxes are determined using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the 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 deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes that date of enactment. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.

The Company accounts for uncertainty in income taxes by applying a two-step method. First, it evaluates whether a tax position has met a more likely than not recognition threshold, and second, it measures that tax position to determine the amount of benefit, if any, to be recognized in the financial statements. The application of this method did not have a material effect on the Company's consolidated financial statements.

Foreign Currency Gains and Losses

Foreign Currency Gains and Losses

The Company’s functional and reporting currency is the United States dollar. The functional currency of our Canadian subsidiary is the Canadian dollar. Financial statements of our Canadian subsidiary are translated to United States dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income as a component of stockholders’ equity. Transaction gains and losses are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. As of August 31, 2012, the Company has not entered into derivative instruments to offset the impact of foreign currency fluctuations.

Earnings Per Share

Earnings Per Share

The Company presents both basic and diluted earnings per share (“EPS”) on the face of the consolidated statements of operations. Basic EPS is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including convertible debt, stock options, and warrants, using the treasury stock method. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. Diluted EPS amounts are equal to those of Basic EPS for each period since the Company is in a net loss position.

As of August 31, 2012 and 2011, the Company had 1,820,204 and 596,870 shares of its common stock available through the exercise of non-dilutive stock warrants, respectively (Note 8).

Recent Accounting Pronouncements

Recent Accounting Pronouncements

The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements to have a material impact on its financial position, results of operations or cash flows.

XML

Statements of Operations (Unaudited) (USD $)	12 Months Ended		49 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	Aug. 31, 2012
Income Statement [Abstract]
Gas sales, net	$ 251,290		$ 251,290
EXPENSES
Lease operating expense	255,143		255,143
Management and director's fees	997,836	173,548	1,196,384
Stock-based compensation expense	789,277		789,277
Consulting fees	530,127	331,851	876,978
Professional fees	217,487	121,996	380,244
Office, travel and general	223,462	84,134	316,607
Depletion, depreciation and amortization	400,744		400,744
Oil and gas property impairment	44,335	835,659	879,994
Total Expenses	3,458,411	1,547,188	5,095,371
OPERATING LOSS	(3,207,121)	(1,547,188)	(4,844,081)
OTHER INCOME (EXPENSE)
Gain on forgiveness of accounts payable			6,000
NET LOSS	(3,207,121)	(1,547,188)	(4,838,081)
Foeign currency translation	(7,299)		(7,299)
COMPREHENSIVE LOSS	$ (3,214,420)	$ (1,547,188)	$ (4,845,380)
BASIC AND DILUTED NET LOSS PER COMMON SHARE	$ (0.38)	$ (0.23)
WEIGHTED AVERAGE NUMBER OF BASIC AND DILUTED COMMON SHARE OUTSTANDING	8,467,594	6,855,836

XML

6. NOTES PAYABLE

12 Months Ended

Aug. 31, 2012

Debt Disclosure [Abstract]

6. NOTES PAYABLE

Non-interest bearing notes, unsecured and payable upon demand to unrelated parties:

	August 31, 2012		August 31, 2011
Notes payable	$	––	$	72,500
	$	––	$	72,500

On December 26, 2011, the Company retired $70,000 in non-interest bearing notes payable to an unrelated party using 23,334 investment units paid to the noteholder (Note 8). The residual balance was paid in cash.

XML

5. ASSET RETIRMENT OBLIGATIONS

12 Months Ended

Aug. 31, 2012

Notes to Financial Statements

5. ASSET RETIRMENT OBLIGATIONS

In connection with its acquisition of the Devon Assets, the Company acquired $7,057,716 in asset retirement obligations relating with its portion of the abandonment, reclamation and environmental liabilities associated with the KGP. The Company also incurred $80,000 in asset retirement obligations related to the future plugging and abandonment of the Test Well on the San Miguel Lease. Under the provisions of “ASC Topic 410, Asset Retirement and Environmental Obligations”, the fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred with a corresponding increase in the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is amortized over the useful life of the related asset.  If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.

At August 31, 2012, the Company’s interest in the San Miguel Lease was impaired and expensed to the extent of its carrying value, which included the full amount of the associated asset retirement obligation. The entire asset retirement obligation relating to the San miguel Lease has been classified as a current liability. The present value of the asset retirement obligation acquired in connection with the KGP is equivalent to its fair value computed as of July 18, 2012.

The Company has no assets that are legally restricted for purposes of settling asset retirement obligations. As part of the Company’s acquisition of the Devon Assets, it provided Devon a corporate guarantee (the “Guarantee”) in the amount of CAD$10,000,000 (USD$9,980,000) and delivered a letter of credit in the amount of CAD$4,380,000 (USD$4,371,000) to Devon (the “Devon LOC”). The Company also agreed to deliver a letter of credit in the amount of CAD$625,000 (USD$624,000) to the government of the Yukon Territory as soon as practicable (the “Yukon LOC”). The amounts of the Devon LOC and Yukon LOC reduce the amount of the Guarantee on a dollar-for-dollar basis. The Company is primarily responsible for payment of all asset retirement obligations. The Guarantee, Devon LOC and Yukon LOC are only available to Devon in the event the Company defaults upon its asset retirement obligations relating to the Devon Assets.

The following table summarizes the Company’s asset retirement obligation transactions the fiscal years ended August 31, 2012 and 2011:

Asset Retirement Obligations
Balance, August 31, 2010	$	––
Liabilities incurred (acquired)		80,000
Accretion expense		––
Liabilities (settled)		––
Changes in asset retirement obligations		––
Balance, August 31, 2011		80,000
Liabilities incurred (acquired)		7,057,716
Accretion expense		––
Liabilities (settled)		––
Changes in asset retirement obligations		––
Total Balance, August 31, 2012	$	7,137,716
Total Balance, August 31, 2012 - Current	$	80,000
Total Balance, August 31, 2012 – Long Term	$	7,057,716

XML

9. INCOME TAXES (Tables)

12 Months Ended

Aug. 31, 2012

Income Taxes Tables

Provision for Federal income tax

	Canadian Year Ended August 31,2012			United States Year Ended August 31,2012			United States Year Ended August 31,2011
	$	(469,659	)	$	(2,744,710	)	$	(1,547,188	)
Statutory tax rates		30	%		35	%		35	%
Expected recovery of income taxes at statutory rates		140,898			960,649			541,516
Valuation Allowance		(140,898	)		(960,649	)		(541,516	)
Provision for income taxes	$	—		$	—		$	—

Net deferred tax assets

	Canadian Year Ended August 31,2012			United States Year Ended August 31,2012			United States Year Ended August 31,2011
Deferred income tax assets:
Impairment	$	—		$	307,998		$	292,480
Organization costs		—			76,732			103,418
Accrued salaries		—			—			36,242
US net operating loss carryforwards		—			545,564
Canadian net operating loss carryforwards		140,898			—			138,696
Stock Compensation		—			599,273
Total deferred income tax assets		140,898			1,529,567			570,836
Less: valuation allowance		(140,898	)		(1,529,567	)		(570,836	)
Deferred income tax assets, net	$	—		$	—		$	—

XML

4. OIL AND GAS PROPERTIES (Tables)

12 Months Ended

Aug. 31, 2012

Oil And Gas Properties Tables

Schedule of Oil and Gas Acquisition

Asset Description	Fair Value of Asset Acquired
Proven Properties
Intangibles	$                 6,780,000
Plant and equipment	6,484,000
Gathering systems	1,788,000
Vehicles	4,527
Leasehold costs	581,379
	15,637,906
Unproven Leasehold Costs	6,465,622
	22,103,529
Goodwill	1,194,365
Total Assets Acquired - KGP	$                23,297,894

Capitalized acquisition, exploration and development costs incurred on the KGP during the fiscal year ended August 31, 2012 are summarized as follows:

KGP – Proven Properties
Balance, August 31, 2011	$	––
Acquisition costs		15,637,906
Expenditures on oil and gas properties		––
Depletion and depreciation		(405,082	)
Oil and gas property impairment		––
Balance, August 31, 2012	$	15,232,824

KGP – Unproven Properties
Balance, August 31, 2011	$	––
Acquisition costs		6,465,622
Expenditures on oil and gas properties		––
Depletion and depreciation		––
Oil and gas property impairment		––
Balance, August 31, 2012	$	6,465,622

Revenue and direct costs incurred on the KGP from the date of acquisition through August 31, 2012 are summarized as follows:

		From Acquisition (July 18, 2012) to August 31, 2012
Crude oil and natural gas production revenues	$	257,599
Operating cost:
Depreciation, depletion and amortization
Recurring		(400,744	)
Additional		––
Lease operating expenses		(255,143	)
Royalties		(6,309	)
Results of operations	$	(404,597	)
Barrels of oil equivalent (6:1) produced		18,571
Recurring DD&A per barrel of oil equivalent (6:1)	$	21.58

The costs incurred on the Mathews Lease during the fiscal years ended August 31, 2012 and 2011 are summarized as follows:

San Miguel Oil Project – Unproven
Balance, August 31, 2010	$	––
Expenditures on oil and gas properties		724,500
Accrued expenditures on oil and gas properties		31,159
Asset retirement obligations		80,000
Oil and gas property impairment		(835,659	)
Balance, August 31, 2011		––
Expenditures on oil and gas properties		11,200
Accrued expenditures on oil and gas properties		33,135
Asset retirement obligations		––
Oil and gas property impairment		(44,335	)
Balance, August 31, 2012	$	––

XML

9. INCOME TAXES

12 Months Ended

Aug. 31, 2012

Income Tax Disclosure [Abstract]

9. INCOME TAXES

The Company is subject to United States federal income taxes at an approximate rate of 35%, and Canadian income taxes at a rate of 30%. The reconciliation of the provision for income taxes at the applicable statutory rate compared to the Company’s income tax expense as reported is as follows:

	Canadian Year Ended August 31, 2012			United States Year Ended August 31, 2012			United States Year Ended August 31, 2011
	$	(469,659	)	$	(2,744,710)	)	$	(1,547,188	)
Statutory tax rates		30	%		35	%		35	%
Expected recovery of income taxes at statutory rates		140,898			960,649			541,516
Valuation Allowance		(140,898	)		(960,649	)		(541,516	)
Provision for income taxes	$	––		$	––		$	––

The significant components of deferred income tax assets at August 31, 2012 and 2011 are as follows:

	Canadian Year Ended August 31, 2012			United States Year Ended August 31, 2012			United States Year Ended August 31, 2011
Deferred income tax assets:
Impairment	$	––		$	307,998		$	292,480
Organization costs		––			76,732			103,418
Accrued salaries		––			––			36,242
US net operating loss carryforwards		––			545,564			––
Canadian net operating loss carryforwards		140,898			––			138,696
Stock Compensation		––			599,273			––
Total deferred income tax assets		140,898			1,529,567			570,836
Less: valuation allowance		(140,898	)		(1,529,567	)		(570,836	)
Deferred income tax assets, net	$	––		$	––		$	––

At August 31, 2012, the Company had accumulated United States and Canadian non-capital loss carry-forwards of approximately $1,558,755 and $720,949, respectively, that expire in 2032.

The potential future tax benefits of these expenses and losses carried-forward have not been reflected in these consolidated financial statements due to the uncertainty regarding their ultimate realization.

The Company has no uncertainties in income tax positions which, in the opinion of its management, need to be recognized in the consolidated financial statements. The Company’s tax returns for all years since inception remain open to review and examination by tax authorities.

XML

7. RELATED PARTY TRANSACTIONS

12 Months Ended

Aug. 31, 2012

Related Party Transactions [Abstract]

7. RELATED PARTY TRANSACTIONS

In connection with its acquisition of the Devon Assets, the Company acquired $7,057,716 in asset retirement obligations with its portion of the abandonment, reclamation and environmental liabilities associated with the KGP. To secure its obligation, the Company provided Devon the Guarantee, the Devon LOC, and the Yukon LOC (Note 5). The Guarantee was provided to Devon by the Company’s largest shareholder, Holloman Corporation, in exchange for 3,250,000 shares of its restricted common stock. Likewise, the Devon LOC was provided to Devon by Pacific LNG Operations Ltd. (“PLNG”). PLNG is also committed to provide the Yukon LOC to the government of the Yukon Territory. In exchange for the Devon LOC and Yukon LOC the Company issued PLNG 4,000,000 shares of its restricted common stock. Our directors, James Ebeling and Eric Prim are officers of Holloman Corporation, and Henry Aldorf, the Chairman of the Company’s Board of Directors, is a director of PLNG.

Effective January 20, 2011, a company controlled by the Company’s Chief Executive Officer, its Chief Financial Officer, and an unrelated consultant (the “Finders”) entered into an agreement with the Company providing for the payment of finder’s compensation ranging from 5% (on transaction values greater than $1,000,000) to 10% (on transactions values up to $300,000) on transactions introduced to the Company by or through the Finders for a period of two years (the “Finder’s Fee Agreement”). Under the Finder’s Fee Agreement, compensation is divided equally between the Finders and the Finders may elect whether the finder’s compensation is payable in cash, or shares of the Company’s restricted common stock. If the Finders elect to receive payment in stock, the shares into which finder’s compensation will be converted will be calculated using the average closing price of the Company’s common stock for the ten trading days preceding the closing date of the transaction to which the compensation relates. The Finder’s Fee Agreement specifically recognizes that the KGP has been presented to the Company by the Finder’s. As of August 31, 2012 total finder’s compensation of $844,282 has been accrued under the Finder’s Fee Agreement in connection with the Company’s acquisition of the KGP.

In connection with the San Miguel Agreement, the Company obtained $400,000 in temporary financing from its largest shareholder. This financing was subject to a non-interest bearing demand note payable. The entire $400,000 note balance was repaid by the Company during May 2011.

During fiscal years 2012 and 2011, management fees totaling $240,000 and $113,548, respectively, were incurred with an entity controlled by the Company’s Chief Executive Officer. Under the terms of a consulting agreement, this compensation is payable in equal parts cash and shares of the Company’s restricted common stock (Note 8). The fees were incurred as compensation for services rendered in the normal course of operations. The amount and form of the compensation was established and approved by the Company’s Board of Directors. Amounts of $20,000 and $113,548 of this compensation remained unpaid as of August 31, 2012 and 2011, respectively.

During fiscal years 2012 and 2011, fees totaling $150,900 and $108,675 were incurred with one of the Company’s directors for services provided as a financial consultant. That director became the Company’s Chief Financial Officer during August 2012. Fees in the amount of $28,948 and $14,285 were accrued and unpaid as of August 31, 2012 and 2011, respectively. The fees were incurred as compensation for services rendered in the normal course of operations and were paid at the amount established and agreed to by the related parties.

During fiscal year 2012, management fees totaling $23,161 (2011- $0.00) were incurred with an entity controlled by the Company’s President. The amount of compensation was established and approved by the Company’s Board of Directors. A balance of $47,106, which includes all fees incurred and certain reimbursable expenses, remained unpaid as of August 31, 2012.

XML

8. CAPITAL STOCK AND STOCK BASED COMPENSATION

12 Months Ended

Aug. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

8. CAPITAL STOCK AND STOCK BASED COMPENSATION

Sales of Common Stock and Investment Units

During the period from June 2012, through August 2012, the Company sold 2,525,001 shares of its common stock to nineteen (19) accredited investors at a price of $1.20 per share. Proceeds, net of fees of $85,050 from these private placements, totaled $2,944,950. The sales were made pursuant to the terms of the offering approved by our Board of Directors on May 29, 2012. The Company’s President acquired 500,000 shares in the private placement under these terms.

To secure obligations undertaken in connection with the Company’s acquisition of the Devon Assets, the Company provided Devon the Guarantee, the Devon LOC, and the Yukon LOC (Note 5). The Guarantee was provided to Devon by the Company’s largest shareholder, Holloman Corporation, in exchange for 3,250,000 shares of its restricted common stock with a market value of $2.20 per share. Likewise, the Devon LOC was provided to Devon by Pacific LNG Operations Ltd. (“PLNG”). PLNG is also committed to provide the Yukon LOC to the government of the Yukon Territory. In exchange for the Devon LOC and Yukon LOC the Company issued PLNG 4,000,000 shares of its restricted common stock with a market value of $2.20 per share. The total market value of the  7,250,000 restricted shares provided in connection with acquisition is $15,950,000.

On December 26, 2011, the Company retired $70,000 in non-interest bearing notes payable to an unrelated party. In exchange for the notes, the Company issued 23,334 investment units to the note holder. The investment units were priced at $3.00 each and consisted of one share of the Company’s common stock, and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of the Company’s common stock at a price of $4.50 per share until November 5, 2013.

During May 2011, the Company sold 120,000 investment units. The investment units were priced at $3.00 each and consisted of one share of the Company’s common stock, and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of the Company’s common stock at a price of $4.50 per share until April 15, 2013. Proceeds from the private placement totaled $360,000, all of which was paid in cash. The Company paid $2,400 in finder’s fees in connection with the sale of the units. The Company’s Chief Executive Officer acquired 50,000 investment units in the private placement under these terms.

During March 2011, the Company sold 390,000 investment units. The investment units were priced at $3.00 each and consisted of one share of the Company’s common stock, and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of the Company’s common stock at a price of $4.50 per share until April 1, 2013. Proceeds from the private placement totaled $1,170,000, all of which was paid in cash. The Company paid $46,800 in finder’s fees in connection with the sale of the units.

During December 2010, the Company sold 86,870 investment units. The investment units were priced at $2.30 each and consisted of one share of the Company’s common stock, and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of the Company’s common stock at a price of $3.50 per share until December 29, 2012. Proceeds from the private placement totaled $199,800 of which $174,800 was paid in cash and $25,000 was issued as repayment of indebtedness to the Company’s largest shareholder. Finder’s fees in the amount of $8,700 were paid in connection with the sale of the units.

Stock-Based Compensation

On August 27, 2012, the Company established a Non-Qualified Stock Option Plan and a Stock Bonus Plan (the “Plans”). The Non-Qualified Stock Option Plan (the “Option Plan”) authorizes the issuance of up to 2,000,000 shares of the Company’s common stock. The Stock Bonus Plan provides for the issuance of up to 350,000 common shares (“Bonus Shares”). Under the Plans, shares may only be issued to employees, directors, officers, consultants and advisors, provided qualifying services are rendered.

The Company has full and final authority in its discretion, subject to the provisions of the Plans, and subject to the approval of its Board of Directors, to determine the individuals to whom, and the time or times at which shares or options shall be granted and the number of such shares or options; to construe and interpret the Plans; to determine the terms and provisions of the respective option agreements, which need not be identical, including, but without limitation, terms covering the payment of the option price; and to make all other determinations and take all other actions deemed necessary or advisable for the proper administration of the Plans.  All such actions and determinations shall be conclusively binding for all purposes and upon all persons.

The Company may at any time, and from time to time, amend, terminate, or suspend one or more of the Plans in any manner they deem appropriate, provided that any amendment, termination or suspension may not adversely affect rights or obligations with respect to options or shares previously granted.

Issuance of Options and Bonus Shares

On August 27, 2012, the Company granted options to officers,directors and consultants under the terms shown below. The options were granted pursuant to the Option Plan.

Number of Shares Issuable Upon Exercise of Option		Exercise Price		Vesting Period	First Date Exercisable	Expiration Date
	300,000	$	2.15	None	8/27/2012	8/27/2014
	300,000	$	2.30	6 Months	2/27/2013	8/27/2014
	300,000	$	2.50	2 Years	8/27/2014	8/27/2017
	300,000	$	2.65	2 Years	8/27/2014	8/27/2017
	1,200,000

In applying the Black-Scholes model, the Company used; expected terms of 2-5 years, historical stock price volatility of 67%, a risk-free rate of 4.5% and annual dividend rate of 0%.

Options	Shares (000)		Weighted-Average Exercise Price		Weighted-Average Remaining Contract Term (yrs)		Aggregate Intrinsic value
Outstanding – September 1, 2011		––		––
Granted		1,200	$	2.40
Exercised		––		––
Forfeited or expired		––		––
Outstanding – August 31, 2012		1,200	$	2.40		3.49	$	0.00
Exercisable – August 31, 2012		300	$	2.15		1.99	$	0.00

The weighted-average grant-date fair value of options granted during fiscal 2012 was $0.94.

As of August 31, 2012 there was $885,000 of total unrecognized compensation cost related to non-vested share-based compensation under the Option Plan. Of this amount, $554,000 is expected to be recognized during fiscal 2013, and $331,000 during fiscal 2014. A total of $246,976 in non-cash, stock-based compensation has been recognized in the consolidated statement of operations during 2012 in connection with the Option Plan.

On August 27, 2012, the Company issued 300,000 shares of its common stock to officers and directors pursuant to the Stock Bonus Plan. The fair value for shares of common stock given as compensation is the market price of the stock at date of grant. The 300,000 Bonus Shares had a value of $2.07 per share. The Company recognized non-cash management and director’s fees of $621,000 related to the Bonus Shares in the statements of operations.

Other Stock-Based Compensation

During fiscal years 2012 and 2011, management fees totaling $240,000 and $113,548, respectively, were incurred with an entity controlled by the Company’s Chief Executive Officer. At August 31, 2011, all fees incurred under this arrangement remained unpaid. During the year ended August 31, 2012, $323,548 in fees were paid in shares of the Company’s restricted common stock at a weighted average conversion price of $2.018 per share (160,360 shares).

Stock Warrants and Other

At August 31, 2012, warrants for 620,204 shares of the Company’s common stock were issued and outstanding with a weighted-average remaining life and exercise price of 6.98 months and $4.35, respectively. Of these warrants, 23,334 were issued during fiscal 2012, and 596,870 were were issued during fiscal year 2011. No warrants have been exercised or forfeited since inception.

On April 28, 2010, shareholders owning a majority of the Company’s outstanding shares approved a 20 for 1 forward split of its common stock. The forward stock split became effective on June 30, 2010. All references in these financial statements and related notes to number of shares, price per share and weighted average number of shares outstanding prior to this split have been adjusted to reflect the split  on a retroactive basis unless otherwise noted. At no time has the Company issued more common stock than is legally authorized.

XML

10. SUBSEQUENT EVENTS

12 Months Ended

Aug. 31, 2012

Subsequent Events [Abstract]

10. SUBSEQUENT EVENTS

Oil and Gas Acquisition – Kotaneelee Gas Project

On October 17, 2012, the Company completed a Share Purchase Agreement (the “Purchase Agreement”) with Nahanni Energy Inc., 1700665 Alberta Ltd., Apex Energy (2000), Inc. and Canada Southern Petroleum #1 L.P. (jointly “Nahanni”) for the acquisition of its entire right and interest (generally a working interest of 30.664%) in the KGP (the “Nahanni Assets”).

As consideration for the Nahanni Assets, the Company paid Nahanni CAD$400,000 (USD$398,550) in cash, and CAD$4,100,000 (USD$4,190,610) in shares of one of the Companies subsidiaries, which are exchangeable for 1,614,767 shares of the Company’s restricted common stock. The cash portion of Nahanni’s consideration was offset by CAD$270,000 (USD$265,950) paid in connection with the acquisition of the Devon Assets in settlement of certain Nahanni indebtedness. The number of shares issued by the Company’s subsidiary was calculated by dividing $4,190,610 by the volume weighted average trading price of the Company’s stock for the ten (10) trading days prior to closing the Purchase Agreement.  Both the cash paid and stock issued for the Assets are subject to certain holdbacks for Asset related liabilities or breach of representations and warranties.

In addition, the Company indemnified Nahanni against its portion of the abandonment, reclamation and environmental liabilities associated with the Nahanni Assets. Early estimates of those liabilities range from $9,000,000 to $10,000,000.

As a result of the closing of the Nahanni acquisition, the Company now generally owns a 53.67% interest in the KGP, including an 100% interest in one producing well which was temporarily shut-in for maintenance subsequent to August 31, 2012.

Sales of Common Stock

During October 2012, the Company sold 1,530,666 shares of its common stock to ten (10) accredited investors at a price of $1.20 per share. Gross proceeds from these private placements totaled $1,836,800. We paid $64,288 in finder’s fees in connection with the sale of these shares. The sales were made pursuant to the terms of the offering approved by our Board of Directors on May 29, 2012.

XML

9. INCOME TAXES (Details 1) (USD $)	Aug. 31, 2012	Aug. 31, 2011
Canadian
Deferred income tax assets:
Impairment	$ 0
Organization costs	0
Accrued salaries	0
US net operating loss carryforwards	0
Canadian net operating loss carryforwards	140,898
Stock Compensation	0
Total deferred income tax assets	140,898
Less: valuation allowance	(140,898)
Deferred income tax assets, net	0
United States
Deferred income tax assets:
Impairment	307,998	292,480
Organization costs	76,732	103,418
Accrued salaries	0	36,242
US net operating loss carryforwards	545,564	0
Canadian net operating loss carryforwards	0	138,696
Stock Compensation	599,273	0
Total deferred income tax assets	1,529,567	570,836
Less: valuation allowance	(1,529,567)	(570,836)
Deferred income tax assets, net	$ 0	$ 0

XML

6. NOTES PAYABLE (Tables)

12 Months Ended

Aug. 31, 2012

Notes Payable Tables

Schedule of Notes Payable

	August 31, 2012		August 31, 2011
Notes payable	$	––	$	72,500
	$	––	$	72,500

XML

4. OIL AND GAS PROPERTIES (Details 1) (USD $)	12 Months Ended		49 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	Aug. 31, 2012
Oil and gas property impairment	$ 44,335	$ 835,659	$ 879,994
Proven Properties
Balance, August 31, 2011
Acquisition costs	15,637,906
Expenditures on oil and gas properties
Depletion and depreciation	(405,082)
Oil and gas property impairment
Balance, August 31, 2012	15,232,824
Unproven Properties
Balance, August 31, 2011
Acquisition costs	6,465,622
Expenditures on oil and gas properties
Depletion and depreciation
Oil and gas property impairment
Balance, August 31, 2012	$ 6,465,622

XML

Consolidated Statements of Cash Flows (USD $)	12 Months Ended		49 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	Aug. 31, 2012
Cash FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (3,207,121)	$ (1,547,188)	$ (4,838,081)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation and fee payments	2,035,808		2,035,808
Unrealized foreign exchange losses	(7,299)		(7,299)
Gain on forgiveness of accounts payable			(6,000)
Depletion, depreciation and amortization	405,084		405,084
Oil and gas property impairment	44,335	835,659	879,994
Changes in working capital items-
Accounts receivable	(300,970)		(300,970)
Prepaids and other	(197,500)	(25,311)	(222,811)
Accounts payable and accrued liabilities	305,039	234,198	579,580
Net cash used in operating activities	(922,624)	(502,642)	(1,474,695)
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures on oil and gas properties	(11,200)	(724,500)	(735,700)
Acquisition of oil and gas interest	(289,295)		(289,295)
Cash used by investing activities	(300,495)	(724,500)	(1,024,995)
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock and warrants sold for cash, net of fees	2,944,949	1,646,901	4,601,800
Common stock redeemend for cash			(100)
Proceeds from notes payable		534,500	554,500
Repayment of notes payable	(2,500)	(482,000)	(484,500)
Loan from related parties		10,000	34,337
Net cash provided by financing activities	2,942,449	1,709,401	4,706,037
INCREASE IN CASH	1,719,330	482,259	2,206,347
CASH, BEGINNING OF PERIOD	487,017	4,758
CASH, END OF PERIOD	2,206,347	487,017	2,206,347
SUPPLEMENTAL DISCLOSURE
Cash paid for interest
Cash paid for income taxes
Forgiveness of debt			9,337
NON-CASH INVESTING ACTIVITIES:
Accrued expenditures on oil and gas properties	33,135	31,159	64,294
Asset retirment obligation incrurred		80,000	80,000
Asset retirement obligation acquired in Devon acquisition	7,057,716		7,057,716
NON-CASH FINANCING ACTIVITIES
Common stock issued as repayment of note payable	70,000	25,000	95,000
Common stock issued for services	1,788,831		1,788,831
Common stock issued for Devon assets	$ 15,950,000		$ 15,950,000

XML

4. OIL AND GAS PROPERTIES

12 Months Ended

Aug. 31, 2012

Extractive Industries [Abstract]

4. OIL AND GAS PROPERTIES

Oil and Gas Acquisition – Kotaneelee Gas Project

On July 18, 2012, the Company completed an acquisition of Devon Canada’s (“Devon”) entire right and interest (generally a working interest of 22.989%, with a working interest of 69.337% in one producing gas well) in the Kotaneelee Gas Project (“KGP”). The KGP covers 30,542 gross acres in the Yukon Territory in Canada, and included; a gas dehydration plant (capacity: 70 million cubic feet per day (“MMCFD”)), one gas well producing approximately 3.5 MMCFD, one water disposal well (capacity: 6,000 barrels per day), and two suspended gas wells. The KGP has a fully developed gas gathering, sales and delivery infrastructure, airstrip, roads, flarestack, storage tanks, barge dock and permanent camp facilities.

As consideration for Devon’s working interest in the KGP, (the “Devon Assets”), the Company paid approximately $23,298,000. The consideration was comprised of $290,000 in cash, 7,250,000 shares of the Company’s restricted common stock valued at $15,950,000, and the absorption of $7,058,000 in asset retirement obligations. The Company allocated the consideration paid to the assets acquired based upon their fair value at the date of purchase, as follows:

Asset Description	Fair Value of Asset Acquired
Proven Properties
Intangibles	$                 6,780,000
Plant and equipment	6,484,000
Gathering systems	1,788,000
Vehicles	4,527
Leasehold costs	581,379
	15,637,906
Unproven Leasehold Costs	6,465,622
	22,103,529
Goodwill	1,194,365
Total Assets Acquired - KGP	$                23,297,894

Capitalized acquisition, exploration and development costs incurred on the KGP during the fiscal year ended August 31, 2012 are summarized as follows:

KGP – Proven Properties
Balance, August 31, 2011	$	––
Acquisition costs		15,637,906
Expenditures on oil and gas properties		––
Depletion and depreciation		(405,082	)
Oil and gas property impairment		––
Balance, August 31, 2012	$	15,232,824

KGP – Unproven Properties
Balance, August 31, 2011	$	––
Acquisition costs		6,465,622
Expenditures on oil and gas properties		––
Depletion and depreciation		––
Oil and gas property impairment		––
Balance, August 31, 2012	$	6,465,622

Revenue and direct costs incurred on the KGP from the date of acquisition through August 31, 2012 are summarized as follows:

		From Acquisition (July 18, 2012) to August 31, 2012
Crude oil and natural gas production revenues	$	257,599
Operating cost:
Depreciation, depletion and amortization
Recurring		(400,744	)
Additional		––
Lease operating expenses		(255,143	)
Royalties		(6,309	)
Results of operations	$	(404,597	)
Barrels of oil equivalent (6:1) produced		18,571
Recurring DD&A per barrel of oil equivalent (6:1)	$	21.58

San Miguel Oil Project

On March 31, 2011, the Company initiated oil and gas operations by entry into a Farmout and Participation Agreement which provided for its acquisition of a net working interest ranging from 21.25% to 42.5%, in a 2,629 acre oil and gas lease known as the Matthews Lease, insofar as that lease covers from the surface to the base of the San Miguel formation (the “San Miguel Lease”). The San Miguel Lease is located in Zavala County, Texas, is unproven and has no current production.

During April and May 2011, the Company drilled and completed a test well on the San Miguel Lease (the “Test Well”), performed injection operations and earned its initial interest in the Matthews Lease. The Test Well was drilled into the San Miguel heavy oil zone to a depth of 3,168 feet. The well encountered oil and was completed as a San Miguel producer. After completion, it was determined that the oil was subject to significant viscosity changes related to temperature reductions from formation to recovery at surface. The Test Well was stimulated with nitrified hydrochloric acid and placed on production. To date, however, oil viscosity has prohibited economic operation. As a result of the application of a full cost pool "ceiling test", the Company determined that the book value of the San Miguel Lease was impaired to the extent of its carrying value. Accordingly, during August 2011 and November 2011, the Company recognized losses on the impairment of oil and gas assets of $835,659 and $44,335, respectively. The carrying value of oil and gas properties was likewise reduced to reflect the impairment of the San Miguel Lease.

The Company continues to investigate various methods to improve production from the Test Well. In the event the Company is unable to substantially improve production, it intends to abandon the Test Well, or actively pursue the sale of its interest in the Matthews Lease.

The costs incurred on the Mathews Lease during the fiscal years ended August 31, 2012 and 2011 are summarized as follows:

San Miguel Oil Project – Unproven
Balance, August 31, 2010	$	––
Expenditures on oil and gas properties		724,500
Accrued expenditures on oil and gas properties		31,159
Asset retirement obligations		80,000
Oil and gas property impairment		(835,659	)
Balance, August 31, 2011		––
Expenditures on oil and gas properties		11,200
Accrued expenditures on oil and gas properties		33,135
Asset retirement obligations		––
Oil and gas property impairment		(44,335	)
Balance, August 31, 2012	$	––

XML

4. OIL AND GAS PROPERTIES (Details 2) (USD $)	Aug. 31, 2012
Oil And Gas Properties Details 2
Crude oil and natural gas production revenues	$ 257,599
Recurring	(400,744)
Additional
Lease operating expenses	(255,143)
Royalties	(6,309)
Results of operations	$ (404,597)

XML

9. INCOME TAXES (Details Narrative) (USD $)	12 Months Ended
	Aug. 31, 2012
Income Taxes Details Narrative
Accumulated non-capital loss carry-forwards - United States	$ 1,558,755
Accumulated non-capital loss carry-forwards - Canada	$ 720,949
Operating loss expiry date	Carry-forwards losses expires in 2032

XML

5. ASSET RETIREMENT OBLIGATIONS (Tables)

12 Months Ended

Aug. 31, 2012

Asset Retirement Obligations Tables

Schedule of Asset Retirement Obligation

Asset Retirement Obligations
Balance, August 31, 2010	$	––
Liabilities incurred (acquired)		80,000
Accretion expense		––
Liabilities (settled)		––
Changes in asset retirement obligations		––
Balance, August 31, 2011		80,000
Liabilities incurred (acquired)		7,057,716
Accretion expense		––
Liabilities (settled)		––
Changes in asset retirement obligations		––
Total Balance, August 31, 2012	$	7,137,716
Total Balance, August 31, 2012 - Current	$	80,000
Total Balance, August 31, 2012 – Long Term	$	7,057,716