e-mail: debbie.lewis@canaccord.

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e-mail: david.pescod@canaccord.com

February 10, 2010

Tag Oil

AN INTERVIEW WITH CLIVE STOCKDALE VP CANACCORD (As of February 6, 2010)
David Pescod: Clive the last time we spent a lot of time hounding you for information, it was about an unconventional gas story-Ultra Petroleum-close to a decade ago and who would have thought that would have become a 100 bagger! Any thoughts on that unconventional gas story looking back and how technology has changed in the last decade? Clive Stockdale: That technology has evolved is indisputable-with increasing momentum and the sea change that it has brought, not surprisingly, is still a science not settledfor example the impact medium and long term on natural gas prices and energy substitution. You mention Ultra Petroleum, and that certainly was an overwhelming introduction to the new potential of hitherto marginal plays and, just as success, as opposed to failure, has been said to have many parents, so there have been numerous claimants to the title "Son of Ultra" The consensus embedded in the market right now is that there is room for all the natural gas. That was the message, more or less, presented to the U.S. Congress by the Project Coordinator for the proposed Alaskan Gas Pipeline and Ziff's recent prediction of 20BCF/day of shale gas production in the North American Market ten year's from now would suggest ample room for other sources. I have some nagging reservations, based on maybe being overly impressed by U.S. technical know how, and especially relating to Western Canadian prices, the proximity of major Eastern shale plays to markets-location is all. D.P: We are now looking at a play in (of all places) New Zealand and there are two parts to it. One is a shale play which is unconventional and one which is the stuff we kind of know as standard oil and gas that could grow. But if you could take a look at that and more importantly, your take on the potential for what some suggest is a Bakken look-alike. C.S: New Zealand probably doesn't look like the end of the world to the Asian Giants. But, yes, TAG Oil is in the oil and gas business in New Zealand with, broadly speaking, conventional and shale oil and gas plays in the Northern Island.

David Pescod 780-408-1750

Debbie Lewis 780-408-1748

Fax: 780-408-1501

Page 2

In the west in the Taranaki Basin the Company has a 100% working interest in the Cheal oil pool and it is currently carrying reserves of 530,000 barrels to that interest It’s quite a complex play in the sense that faulting has brought compartmentalization, and that complexity has been absorbed by the Company in the school of hard knocks. It has expanded its acreage position from 5800 acres to 16000 acres and, given the pool size distribution in the basin, looks for potential reserves net to the Company of 10 million barrels. To elaborate a little, now the Company has a 100% interest at Cheal it is moving ahead to optimize production from current wells and this could increase production to 600bbls/day in the near term without even drilling a well. Development drilling is aimed at adding two million barrels of new reserves and step-out drilling into new fault blocks within the Cheal mining permit brings substantial upside potential that has yet to be estimated by the Company or by the Company’s reserve evaluator. The situation is dynamic; a 7910 acre Winchester permit is their most recent acquisition and here, based on 3D seismic, they consider that they have six drill-ready prospects on the west side of the permit, and at least that number of leads. In house estimates of the six-drill ready prospects set a target of 19 million barrels of oil in place. The unconventional play is in the eastern part of the North Island and involves source rocks called the Wapaiwa and Whangai shales and analogies with the Bakken shale can in my opinion trip one up. Some of the shales preliminarily look better, some worse since, after all, we are dealing with 2.4 million acres. D.P: The significance is that little TAG Oil, with only 30 million shares outstanding does have 2.4 million acres. And, in Saskatchewan and North Dakota, if you have a couple of thousand acres, you’re considered lucky. How carried away should one get with all this? C.S: That’s up to you Dave. Hopefully one can appraise it in the context of a risk investment and attempt the calculation of a risk-reward profile. But, before even doing this it's of some comfort to find that such speculation is not confined to the extreme fringe. What piqued my interest was seeing a European bank investment report evaluating a U.S. senior oil and gas company, specifically concentrating on its stealthy acquisition of North American unconventional oil play acreage, valuing as a base case that acreage at $8.6 billion.

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David Pescod 780-408-1750

Debbie Lewis 780-408-1748

Fax: 780-408-1501

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Using its parameters for TAG resulted in the astronomical figure of well over $100.00 per share. The point is that the rising tide of unconventional plays is leading to evaluations that were at the extreme risk fringe moving into the main stream. Once again, however, analogies cause more problems than they solve, so, while piquing interest, it is no substitute for specific information. D.P: Clive, I realize there are some huge numbers being thrown about by companies doing exploration, suggesting that they might have a billion barrels here or a billion there. But when TAG is suggesting in some research reports that they might have up to 12 billion barrels (if not more) how much credibility should a person give to this? C.S: TAG has two reports on the East Coast Basin oil and gas potential. The first done by Sproule in March 2008 gives a figure of 1.7 billion barrels in place, and the analysis identifies 56 leads or prospects-as grassroots as that. Main target reservoirs cited being Miocene sandstones and Pliocene limestone formations. This is an assessment of conventional oil and gas potential. The second report, dated September 2008, by AJM Petroleum Consultants contains the figure of 12.7 billion barrels to which you alluded. In fact its best estimate is 12.7 billion barrels for estimated total original hydrocarbons in place combining both shale potentials with -wait for it- a high estimate of 40billion barrels. This estimate of original oil in place by AJM is based on 187,470 acres of the 2.4 million acres. More interesting to me, however, is a second table of estimates "Prospective Hydrocarbons in Place-Free Hydrocarbons" which has a mean estimate of 6.1 billion barrels going to a high figure of 13.3 billion barrels. That mean figure, employing the bank technique referred to above, i.e. a recovery rate of 2.2% and $6.24 a barrel would give a mean figure of $28.00 per share. However, the consultants give further direction by estimating recoverable hydrocarbons which, on the mean instance, they assess at 182 million barrels-value that at $6.24 per barrel and then the figure becomes $40 per share. What would carried away mean? Going to the best estimate of 12 billion could be one avenue or maybe to the 40 billion! Changing the recovery rate on the eastern conventional plays is another way to go. Additionally, using the high estimate for recoverable hydrocarbons on the shale play could increase the upside to $60 per share. And, of course, we could go with the bank approach. D.P: One of the most important things here is the timing of this play and it’s unfortunate that they won’t be doing their vertical wells until the summer and doing the allimportant horizontals until the third quarter of this year and even then, we know nothing in the oil and gas business happens on time. This is disappointing, isn’t it?

C.S: I don't think disappointment is warranted. Only bad weather is delaying the start of a three well shallow oil well program on the eastern acreage and early March should see the beginning of optimization work on Cheal targeting three wells initially. Success at the shallow 250 meter cored drilling will not result in substantial production increases. These wells are following up on a 100 year old discovery where a 600’ well recorded production of 20 to 50 bbls/day of 50 API sweet oil. This oil was tested and confirmed as having the underlying Whangai and Waipawa shales as the source. The three shallow cored wells will provide TAG with information to determine if there are economics to develop a shallow oil play and on a success case, TAG will plan a multi-well followup program to establish commercial production in the Basin which will significantly enhance the basin’s profile and prospectivity. Production is anticipated to be of the order of 20 to 50 barrels per day per well, but I would expect it to have market impact focusing, as it should, the investor’s attention on the Sproule report and the concept of free hydrocarbons within the shale formations. Again, successful optimization progress at Cheal will support the idea of expansion of the Taranaki play and that also should increase investor interest. So instead of being a disappointment, these near term activities could well act as a curtain raiser for the more significant show starting later in the year. Presently this includes the Broadside #1 well in August/September bordering on the 10 million barrel Ngatoro oil field with success accelerating drilling, notably at Winchester. Again, later this year they plan to drill a serious test of the shale play. The Boar Hill well is scheduled to go to 2000 meters and is significant enough to warrant heightened investor interest. D.P: TAG has a bit of interesting history over the last while with the merging of a few companies and stock roll back, but it looks like its got good leverage with few shares out and money in the bank. Comments?
C.S: It does have an interesting history and I would refer you to the Company’s web-site where it is well set out. What comes through here is that TAG has had its ups and downs, but it has stuck to the job and it has rationalized its interests in an efficient manner and that includes 30 million shares outstanding. D.P: Are there any things we should know about New Zealand considering it is probably the last place in the world many of us thought one should be looking for oil. Or the fact that it even had any production?

David Pescod 780-408-1750

Debbie Lewis 780-408-1748

Fax: 780-408-1501

Page 4

C.S: Don’t underestimate the value of the New Zealand setting and it’s not just the point that they are really good at sailing and rugby... They enjoy, if that's the right word, the rule of law, Anglo-Saxon law, and, going on memory, I think they are number one in a published list compiled to show various degrees of corruption faced by businesses, where the lower you go on the list the more corruption you encounter. Just in case I haven't said that clearly, in the context of doing business and avoiding corruption they are the best. They are the most honest. Not only that, as I said earlier, they are well placed for the Asian markets. D.P: We hear too frequently some people suggesting that some company with a high risk/reward play will be either a $50 stock or a $0.50 stock. How appropriate would this be when considering TAG Oil. C.S: I don't flinch from that at all. From the previous comments the upside should be clear, so I'll concentrate on the risk aspect. My view of the matter in the beginning was that taking into account present reserves at Taranaki and adding in working capital of $11 million the company was worth $1.00 per share. So the recent move in the stock price reflects the markets growing awareness of the possible growth in reserves at Taranaki and the huge potential in the shales. Dividing the premium equally between the two it would seem to me that the current price embodies the idea of a 20% chance that the Taranaki development will develop its full potential leaving a $1.00 per share for the shale play and the associated conventional play, or maybe we could lump the eastern conventional play in with Taranaki and suggest that the premium embodies an overall chance of success of seven percent for success in the conventional plays, assessing the eastern conventional play at a 2.2% chance of developing recoverable reserves based on the estimate of oil in place in the Sproule report, using the bank approach again. though that was used for shale oil. So, the $1.00 per share premium now applies only to the shale play and that, with the shares outstanding, amounts to $30 million. D.P: How does that sit? C.S: Is that out of line? There's no point in going back to the upside considerations since we've gone over that, so one is thrown back on analogies. Another of the companies which I like is CGX Energy which you have advocated throughout the piece. Now with 140 million shares outstanding that company's market value is $226 million and I'm mesmerized by it because of its huge potential in the enormous Atlantic Basin deep water play. But it’s on the come. Similarly, TAG has huge potential, but it is trading with a market valuation of $90 million. Investors are prepared to accept risk premiums and your investors have had the experience of knowing that such high potentials will support premiums in the market over substantial time. Consider the outstanding tenacity of the management of CGX in the face of country border disputes and despite dry holes offshore and frustrating results onshore yet the market supports it because it appreciates both its growing sophistication in analyzing the offshore play and because of the developing deep water play itself. Similarly the market is, via the Bakken successes gaining a greater appreciation of the growing sophistication in unlocking shale oil and the people involved in TAG have also shown impressive tenacity. Now I have probably offended both companies. D.P: That’s true. C.S: From my own experience, when I started in the business, the Cardium was regarded as a really skinny play and I remember participating in wells in the eighties that were regarded as a failure because they only found oil in the Bakken. It bears remembering that one should keep an open mind to developing technology. Again New Zealand is not at the end of the world with its favorable position near to the Asian economies. There are some large players looking at shale plays with fresh eyes and that was not the situation before. A recent news release that three majors are reported to have signed confidential agreements with Toreador Resources to do due diligence on its shale deposits in the Paris Basin is a sign of the times. D.P: Thank you Clive!

DEB’S DITTY: I understand the concept of being a responsible adult… I just don’t understand how it’s relevant to me.

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