BANKERS PETROLEUM ANNOUNCES 2010 FINANCIAL RESULTS

Mar 22, 2011, 08:00 ET from Bankers Petroleum Ltd.

Record Year of Financial and Operating Results

CALGARY, March 22 /PRNewswire-FirstCall/ - Bankers Petroleum Ltd. ("Bankers" or the "Company") (TSX: BNK) (AIM: BNK) is pleased to provide its 2010 Financial Results and Outlook for 2011.

In 2010, Bankers was successful in progressing its strategic objectives and achieved record production, reserves, earnings and cash flow through its largest annual capital investment in Albania, of US$122 million.

    Results at a Glance (US$000, except as noted)

                                            Change         2010         2009
    -------------------------------------------------------------------------
    Oil revenue                                97%      170,376       86,614
    Net operating income                      158%       81,103       31,496
    Net income (loss)                         96 x       14,265         (150)
    Funds generated from operations           188%       73,166       25,422
    Capital expenditures                      218%      122,012       38,324

                                                              December 31
                                                          -------------------
                                             Change       2010         2009
    -------------------------------------------------------------------------
    Cash and deposits                          58%      108,119       68,270
    Working capital                            74%      130,920       75,414
    Total assets                               53%      467,414      304,820
    Bank loans                                 (8%)      25,829       28,085
    Shareholders' equity                       60%      343,307      213,960

    Average production (bopd)                  49%        9,597        6,438
    Average price ($/barrel)                   32%        48.64        36.86
    Netback ($/barrel)                         73%        23.15        13.40

    -   Average production increased 49% to 9,597 bopd from 6,438 bopd in
        2009. Exit production at year-end 2010 exceeded 12,100 bopd as
        compared to 8,100 bopd at year-end 2009.

    -   A second and third drilling rig commenced operation in the Patos-
        Marinza oilfield in January and July 2010, respectively. A total of
        55 wells were drilled and completed in 2010, of which 50 were
        horizontal oil wells.

    -   Reserves in Albania increased at all levels: a 30% increase in the
        Original-Oil-In-Place (OOIP) assessment to 7.8 billion barrels from
        6.0 billion barrels, an increase of 30% to 120 million barrels of
        proved reserves and, an 11% increase to 238 million barrels of proved
        plus probable reserves. Additionally, the Company's independent
        reservoir engineers assigned contingent and prospective resource oil
        estimates of 1.2 billion and 540 million barrels, respectively. The
        corresponding net present value (NPV) after tax (discounted at 10%)
        of the proved plus probable reserves increased by 30% to $2.0 billion
        from $1.5 billion.

    -   In April 2010, the production sharing contract for the Block "F"
        exploration acreage application was finalized. The area contains
        several seismically defined structural and amplitude anomalies
        prospective for oil and natural gas.

    -   On July 15, 2010, the Company completed a prospectus offering with a
        syndicate of underwriters and issued an aggregate of 12,903,228
        common shares at a price of CAD$7.75 per common share on a bought
        deal basis, resulting in gross proceeds of $96.2 million.

    -   The Company continues to maintain a strong balance sheet with cash of
        $108.1 million and working capital of $130.9 million at December 31,
        2010 as compared to cash of $68.3 million and working capital of
        $75.4 million at December 31, 2009.

OUTLOOK

For 2011, our continued focus is to increase reserves, production and maximize cash flow from operations. To achieve this, the Company will implement the following:

    -   Drill 66 horizontal and vertical wells and complete 120 well
        reactivations and work-overs at the Patos-Marinza oilfield. A fourth
        drilling rig is expected in the second quarter.
    -   Increase production facilities to handle our target exit production
        rate of 20,000 bopd.
    -   2011 will be a milestone year for thermal development of the Patos-
        Marinza oilfield. Bankers will drill a vertical delineation well and
        two horizontal wells designed for high pressure and temperature steam
        injection, install a 25,000 BTU steam generator and all associated
        production facilities.
    -   Complete Phase 1 (10 kilometres) of the 40 kilometre pipeline to
        Vlore and construction of the receiving hub in Fier.
    -   Continue with the environmental stewardship and social initiatives in
        our area of operations.
    -   Bankers is building a larger team of senior professionals to
        complement its existing team of engineers, geoscientists, production
        and support staff to manage another record capital program in 2011,
        currently budgeted at $215 million.

For additional information, please see an updated version of the Company's corporate presentation on www.bankerspetroleum.com

Caution Regarding Forward-looking Information

Information in this news release respecting matters such as the expected future production levels from wells, future prices and netback, work plans, anticipated total oil recovery of the Patos-Marinza and Kuçova oilfields constitute forward-looking information. Statements containing forward-looking information express, as at the date of this news release, the Company's plans, estimates, forecasts, projections, expectations, or beliefs as to future events or results and are believed to be reasonable based on information currently available to the Company.

Exploration for oil is a speculative business that involves a high degree of risk. The Company's expectations for its Albanian operations and plans are subject to a number of risks in addition to those inherent in oil production operations, including: that Brent oil prices could fall resulting in reduced returns and a change in the economics of the project; availability of financing; delays associated with equipment procurement, equipment failure and the lack of suitably qualified personnel; the inherent uncertainty in the estimation of reserves; exports from Albania being disrupted due to unplanned disruptions; and changes in the political or economic environment.

Production and netback forecasts are based on a number of assumptions including that the rate and cost of well takeovers, well reactivations and well recompletions of the past will continue and success rates will be similar to those rates experienced for previous well recompletions/reactivations/development; that further wells taken over and recompleted will produce at rates similar to the average rate of production achieved from wells recompletions/reactivations/development in the past; continued availability of the necessary equipment, personnel and financial resources to sustain the Company's planned work program; continued political and economic stability in Albania; approval of the Addendum to the Plan of Development; the existence of reserves as expected; the continued release by Albpetrol of areas and wells pursuant to the Plan of Development and Addendum; the absence of unplanned disruptions; the ability of the Company to successfully drill new wells and bring production to market; and general risks inherent in oil and gas operations.

Contingent resources disclosed herein represent those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations, using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Prospective resources disclosed herein represent those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations, by application of future development projects.

Forward-looking statements and information are based on assumptions that financing, equipment and personnel will be available when required and on reasonable terms, none of which are assured and are subject to a number of other risks and uncertainties described under "Risk Factors" in the Company's Annual Information Form and Management's Discussion and Analysis, which are available on SEDAR under the Company's profile at www.sedar.com.

There can be no assurance that forward-looking statements will prove to be accurate. Actual results and future events could differ materially from those anticipated in such statements. Readers should not place undue reliance on forward-looking information and forward looking statements.

Review by Qualified Person

This release was reviewed by Abdel F. (Abby) Badwi, President & CEO of Bankers Petroleum Ltd., who is a "qualified person" under the rules and policies of AIM in his role with the Company and due to his training as a professional petroleum geologist (member of APEGGA) with over 40 years experience in domestic and international oil and gas operations.

About Bankers Petroleum Ltd.

Bankers Petroleum Ltd. is a Canadian-based oil and gas exploration and production company focused on developing large oil and gas reserves. In Albania, Bankers operates and has the full rights to develop the Patos-Marinza heavy oilfield and has a 100% interest in the Kuçova oilfield, and a 100% interest in Exploration Block F. Bankers' shares are traded on the Toronto Stock Exchange and the AIM Market in London, England under the stock symbol BNK.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS

The following is management's discussion and analysis (MD&A) of Bankers Petroleum Ltd.'s (Bankers or the Company) operating and financial results for the year ended December 31, 2010, compared to the preceding year, as well as information and expectations concerning the Company's outlook based on currently available information. The MD&A should be read in conjunction with the audited consolidated financial statements for the years ended December 31, 2010 and 2009, together with the notes related thereto. Additional information relating to Bankers, including its Annual Information Form (AIF), is on SEDAR at www.sedar.com and on the Company's website at www.bankerspetroleum.com. All dollar values are expressed in US dollars, unless otherwise indicated, and are prepared in accordance with Canadian generally accepted accounting principles (GAAP). The Company reports its heavy oil production in barrels.

This MD&A is prepared as of March 22, 2011.

NON-GAAP MEASURES

Netback per barrel and its components are calculated by dividing revenue, royalties, operating and sales and transportation expenses by the gross production volume during the period. Netback per barrel is a non-GAAP measure but it is commonly used by oil and gas companies to illustrate the unit contribution of each barrel produced.

Net operating income is similarly a non-GAAP measure that represents revenue net of royalties, operating and sales and transportation expenses. The Company believes that net operating income is a useful supplemental measure to analyze operating performance and provides an indication of the results generated by the Company's principal business activities prior to the consideration of other income and expenses.

Funds generated from operations include all cash from operating activities and are calculated before change in non-cash working capital. Reconciliation to the GAAP measure is as follows:

    ($000s)                                                2010         2009
    -------------------------------------------------------------------------
    Cash provided by operating activities                51,452       10,931
    Change in non-cash working capital                   21,714       14,491
                                                   --------------------------
    Funds generated from operations                      73,166       25,422
                                                   --------------------------
                                                   --------------------------

The non-GAAP measures referred to above do not have any standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures used by other companies.

CAUTION REGARDING FORWARD-LOOKING INFORMATION

This MD&A offers our assessment of the Company's future plans and operations as of March 22, 2011 and contains forward-looking information. Such information is generally identified by the use of words such as "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward-looking statements. Statements relating to "reserves" or "resources" are also forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the resources and reserves described can be profitably produced in the future. All such statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Management believes the expectations reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this MD&A should not be unduly relied upon. These statements speak only as of the date hereof.

In particular, this MD&A contains forward-looking statements pertaining to the following:

    -   performance characteristics of the Company's oil and natural gas
        properties;
    -   crude oil production estimates and targets;
    -   the size of the oil and natural gas reserves and/or resources;
    -   capital expenditure programs and estimates;
    -   projections of market prices and costs;
    -   supply and demand for oil and natural gas;
    -   environmental liabilities associated with the Company's operations in
        Albania;
    -   amendments to the Company's petroleum agreement relating to the
        Kuçova oilfield;
    -   expectations regarding the ability to raise capital and to
        continually add to reserves through acquisitions and development; and
    -   treatment under governmental regulatory regimes and tax laws.

These forward-looking statements are based on a number of assumptions, including but not limited to: those set out herein and in the Company's Form 51-101F1 Statement of Reserves Data and Other Oil and Gas Information (NI 51-101 Report), availability of funds for capital expenditures, a consistent and improving success rate for well recompletions at the Patos-Marinza oilfield, the evaluation and the implementation of a successful plan of development relating to the Kuçova oilfield, increasing production as contemplated by the Plan of Development (PoD) and Addendum for the Patos-Marinza oilfield, stable costs, availability of equipment and personnel when required for the Company's operations, continuing favourable relations with Albanian governmental agencies and continuing strong demand for oil and natural gas.

Actual results could differ materially from those anticipated in such forward-looking statements as a result of the risks and uncertainties set forth below:

    -   general economic, market and business conditions;
    -   volatility in market prices for oil and natural gas;
    -   risks inherent in oil and gas production operations including those
        relating to maintaining and increasing oil and gas production;
    -   uncertainties associated with estimating oil and natural gas
        reserves;
    -   competition for, among other things, capital, acquisitions of
        reserves, undeveloped lands and skilled personnel;
    -   incorrect assessments of the value of acquisitions;
    -   geological, technical, drilling and processing problems;
    -   fluctuations in foreign exchange or interest rates and stock market
        volatility;
    -   rising costs of labour and equipment;
    -   failure to agree on terms to an amending agreement in regards to the
        Kuçova oilfield on terms acceptable to the Company, or at all;
    -   changes in foreign laws and regulations including those related to
        tax laws and incentive programs relating to the oil industry;
    -   environmental risks, including larger than expected environmental
        liabilities associated with the Company's operations in Albania;
    -   the ability to implement corporate strategies;
    -   the ability to obtain financing;
    -   the state of domestic and international capital markets;
    -   changes in oil acquisition and drilling programs;
    -   failure to complete and/or realize the anticipated benefits of its
        acquisitions; and
    -   delays resulting from, or inability to obtain, required regulatory
        approvals.

The Company from time to time updates its forward-looking information based on the events and circumstances that occurred during the period and has adjusted its capital expenditure program accordingly to ensure that capital expenditures are funded by cash provided by operations, cash on hand and its available credit.

Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement.

BUSINESS PROFILE

Bankers Petroleum Ltd. is a Canadian-based oil exploration and production company focused on maximizing the value of its heavy oil assets in Albania. The Company is targeting growth in production and reserves through application of new and proven technologies by an experienced technical team. All revenue is currently generated from its operations in Albania, which is located northwest of Greece in South Eastern Europe.

In Albania, Bankers operates and has the full rights to develop the Patos-Marinza and Kuçova oilfields pursuant to License Agreements with the Albanian National Agency for Natural Resources (AKBN) and Petroleum Agreements with Albpetrol Sh.A (Albpetrol), the state owned oil and gas corporation. The licenses became effective in March 2006 and September 2009, respectively, each having a 25 year term with an option to extend at the Company's election for further five year increments. The Patos-Marinza oilfield is the largest onshore oilfield in continental Europe, holding approximately 7.5 billion barrels of original-oil-in-place (OOIP). The Company also has exclusive rights to exploration Block "F" (adjacent to the Patos-Marinza oilfield), a 185,000 acre oil and gas prone exploration field.

OVERVIEW & SELECTED ANNUAL INFORMATION

    ($000s, except as noted)                  Year ended December 31
    -------------------------------------------------------------------------
    Results at a Glance                       2010         2009         2008
    -------------------------------------------------------------------------
    Financial
      Oil revenue                          170,376       86,614      110,253
      Net operating income                  81,103       31,496       51,141
      Net income (loss)                     14,265         (150)      (1,587)
      Basic/diluted earnings (loss)
       per share                       0.060/0.058       (0.001)      (0.009)
      Funds generated from operations       73,166       25,422       41,713
      Additions to property, plant and
       equipment                           122,012       38,324       78,378
    Operating
      Average production (bopd)              9,597        6,438        5,875
      Average price ($/barrel)               48.64        36.86        51.27
      Netback ($/barrel)                     23.15        13.40        23.78
      Average Brent oil price ($/barrel)     79.50        61.67        97.02

                                                     December 31
                                      ---------------------------------------
                                              2010         2009         2008
                                      ---------------------------------------

    Cash and deposits                      108,119       68,270       20,107
    Working capital (deficiency)           130,920       75,414       (7,387)
    Total assets                           467,414      304,820      214,675
    Bank loans                              25,829       28,085       28,125
    Shareholders' equity                   343,307      213,960      125,358

During the year, Bankers increased its revenue, net operating income and funds generated from operations through its continued success with the horizontal drilling program and ongoing well reactivations. The average oil sales price received by the Company during the year was $48.64/bbl, a 36% increase from $36.86/bbl in 2009. Higher average oil prices, in conjunction with keeping overall production costs relatively consistent, resulted in a 73% increase in the average 2010 netback to $23.15/bbl from $13.40/bbl in 2009. On average, the oil price received by the Company in 2010 represented approximately 61% of the Brent oil price, a modest improvement from 60% in 2009. Contracts for 2011 sales now average 65% of the Brent oil price. Oil exports increased to 85% in 2010, from 82% of total sales in 2009, with the balance supplying the domestic Albanian refineries.

Consolidated capital expenditures increased to $122.0 million in 2010 as compared to $38.3 million in 2009 and $78.4 million in 2008.

Shareholders' equity increased to $343.3 million in 2010 from $214.0 million in 2009 and $125.4 million in 2008. The increase in shareholders' equity in 2010 was due to the new equity issue in July 2010 and exercises of warrants and options throughout the year.

Highlights

Bankers accomplished several key achievements during 2010:

    -   Average production increased 49% to 9,597 bopd from 6,438 bopd in
        2009. Exit production at year-end 2010 exceeded 12,100 bopd as
        compared to 8,100 bopd at year-end 2009.

    -   On July 15, 2010, the Company completed a prospectus offering with a
        syndicate of underwriters and issued an aggregate of 12,903,228
        common shares at a price of CAD$7.75 per common share on a bought
        deal basis, resulting in gross proceeds of $96.2 million.

    -   The Company continues to maintain a strong balance sheet with cash of
        $108.1 million and working capital of $130.9 million at December 31,
        2010 as compared to cash of $68.3 million and a working capital of
        $75.4 million at December 31, 2009.

    -   A second and third drilling rig commenced operation in the Patos-
        Marinza oilfield in January and July 2010, respectively. A total of
        55 wells were drilled and completed in 2010, of which 50 were
        horizontal wells.

    -   In April 2010, the production sharing contract for the Block "F"
        exploration acreage application was finalized. The area contains
        several seismically defined structural and amplitude anomalies
        prospective for oil and natural gas.

    -   Reserves in Albania increased at all levels: a 30% increase in OOIP
        assessment to 7.8 billion barrels from 6.0 billion barrels, an
        increase of 11% to 238 million barrels of proved plus probable
        reserves and an increase of 1% to 427 million barrels of proved,
        probable and possible reserves. Additionally, the Company's
        independent reservoir engineers assigned contingent and prospective
        resource oil estimates of 1.2 billion and 540 million barrels,
        respectively. The corresponding net present value (NPV) after tax
        (discounted at 10%) of the proved plus probable reserves increased by
        30% to $2.0 billion from $1.5 billion.

GROWTH STRATEGY

Bankers' strategy is focused on petroleum assets that have long-life reserves with production growth potential. Employing its knowledge base and technical expertise, the Company is working to optimize its existing assets from the application of primary, secondary and enhanced oil recovery (EOR) extraction technologies, creating long-term value for shareholders. This will be accomplished through the attainment of its main objectives: increasing production, reserves, funds generated from operations and net asset value.

Bankers' strategic priorities are to:

    -   Increase reserves and production;

    -   Maintain a strong balance sheet by controlling debt and managing
        capital expenditures;

    -   Control costs through efficient management of operations;

    -   Pursue new and proven technology applications to improve operations
        and assist exploration endeavours;

    -   Expand infrastructure (pipelines, storage, treating capacity) to
        increase production capacity in a cost-effective manner;

    -   Explore undeveloped acreage to identify and create development
        opportunities;

    -   Maintain a strong focus on employee, contractor and community health
        and safety; and

    -   Manage environmental and social performance to minimize negative
        ecological impacts and ensure continued stakeholder support.

In pursuing the long-term growth strategy, Bankers is primarily focused on accessing the heavy oil upside from its Albanian assets, which includes the effective implementation of the Patos-Marinza development plan as well as applying enhanced oil recovery (EOR) and secondary extraction techniques to increase the field's recoverable reserves.

In addition, the Company's strategy involves identifying and acquiring other potential petroleum opportunities in Albania to increase overall value. During the year, negotiations to finalize the Production Sharing Contract for Block "F" exploration acreage were concluded. The area contains several seismically defined structures and amplitude anomalies prospective for oil and natural gas.

Throughout the year, Bankers focused on achieving its priorities and implementing its capital programs in Albania. The Company funded its capital programs using funds generated from operations and existing cash. Strategic allocation of the work program and budget is designated to provide additional recoverable reserves at the Patos-Marinza and Kuçova oilfields and still achieve an appropriate growth in production.

Key Performance Indicators

Key performance indicators relate to those factors that Bankers can directly affect, and are indicators of the Company's ability to provide long-term value to its shareholders, which include optimizing the cost of operations over time, improving exploration and development and increasing operational performance through technology and best practices. Key measurements include operating costs, production volumes and safety performance. These key performance indicators are continuously reviewed and monitored.

In addition, strengthening relationships with employees, governments, communities and other stakeholders are important aspects of the business for Bankers. The effective management of these relationships allows the Company to tap into new growth opportunities and efficiently develop operations for the future.

CAPABILITY TO DELIVER RESULTS

Activity in the oil industry is subject to a range of external factors that are difficult to actively manage, including commodity prices, resource demand, regulator and environmental regulations and climate conditions. Bankers gives significant consideration to these factors and backs-up its strategy by employing and positioning necessary resources to deliver on its goals and commitment to increase value for shareholders. The Company focuses its capital on opportunities that provide the potential for the best returns. Comprehensive insurance policies are in place to help safeguard its assets, operations and employees. Relationships with stakeholders and key partners are carefully cultivated to assist in the Company's future development and growth. The experiences of management and its technical team ensure that the Company can fulfill its commitment to deliver maximum value to its shareholders.

INDUSTRY & ECONOMIC FACTORS

Commodity price and foreign exchange benchmarks for the past two years are as follows:

                                                           2010         2009
    -------------------------------------------------------------------------
    Brent average oil price ($/barrel)                    79.50        61.67
    US/ Canadian dollar year end exchange rate           0.9946       1.0466
    US/ Canadian dollar average exchange rate            1.0299       1.1420

The world crude oil prices strengthened during the course of 2010. Average Brent oil prices improved from $76/bbl in the first quarter to $86/bbl in the fourth quarter of 2010.

In 2010, Bankers generated 85% of its crude oil revenue from sales to international markets. The remainder was sold to ARMO, an independent petroleum refiner in Albania. Both the domestic and international selling prices are based on the Brent oil price. The Company has not entered into any commodity derivative contracts as at or during the year ended December 31, 2010.

The fluctuation in Canadian dollar mirrored that of oil prices in 2010. The appreciation of the Canadian dollar against its US counterpart was most significant in the second part of 2010. On an average basis, the Canadian dollar strengthened by 10% in 2010.

The fluctuations in the foreign exchange currencies impacted cash and some short-term investments that are denominated in Canadian dollars. The strengthening of the Canadian dollar after the July 2010 equity financing was largely responsible for a foreign exchange gain of $5.2 million in 2010.

Significant Developments in 2010

Bankers accomplished several key achievements in 2010 in response to improvements in the commodity market. These events included expansion of the horizontal drilling program by activating a second and third rig; completion of a bought deal equity issue in July; construction of extra tankage at the Port of Vlore export terminal and the overall growth of capital programs.

During the year, Bankers activated a second and third drilling rig, enabling the Company to drill additional vertical delineation wells in the western extension of the field, as well as thermal pilot wells, contributing to the growth of its horizontal programs. A total of 55 wells were drilled and completed in 2010, of which 50 were horizontal wells.

On July 15, 2010, the Company completed a prospectus offering with a syndicate of underwriters and issued an aggregate of 12,903,228 common shares at a price of CAD$7.75 per common share on a bought deal basis, resulting in gross proceeds of $96.2 million.

In 2010, Bankers commenced construction of the extra tankage at the Port of Vlore export terminal. This facility will increase the storage capacity from 80,000 barrels to 160,000 barrels, improving the export shipping logistics and enabling larger crude oil cargoes.

QUARTERLY SUMMARY

Below is a summary of Bankers' performance over the last eight quarters.


                                                 2010
                        -----------------------------------------------------
    ($000s, except
     as noted)            First Quarter    Second Quarter    Third Quarter
    -------------------------------------------------------------------------
                                   $/bbl             $/bbl             $/bbl
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average production
     (bopd)                   8,282             9,830             9,826
    -------------------------------------------------------------------------
    Oil revenue          35,149    47.16   42,147    47.12   42,135    46.61
    Royalties             7,190     9.65    8,367     9.35    8,284     9.16
    Operating expenses    7,925    10.63    8,892     9.94    9,401    10.40
    Sales and
     transportation       4,395     5.90    4,535     5.07    4,804     5.31
                        -----------------------------------------------------
    Net operating
     income              15,639    20.98   20,353    22.76   19,646    21.74
                        -----------------------------------------------------
                        -----------------------------------------------------

                                         2010
                        -----------------------------------
    ($000s, except
     as noted)           Fourth Quarter         Year
    -------------------------------------------------------
                                   $/bbl             $/bbl
    -------------------------------------------------------
    -------------------------------------------------------
    Average production
     (bopd)                  10,424             9,597
    -------------------------------------------------------
    Oil revenue          50,945    53.12  170,376    48.64
    Royalties             9,841    10.26   33,682     9.62
    Operating expenses   10,526    10.98   36,744    10.49
    Sales and
     transportation       5,113     5.33   18,847     5.38
                        -----------------------------------
    Net operating
     income              25,465    26.55   81,103    23.15
                        -----------------------------------
                        -----------------------------------


                                                 2009
                        -----------------------------------------------------
    ($000s, except
     as noted)            First Quarter    Second Quarter    Third Quarter
    -------------------------------------------------------------------------
                                   $/bbl             $/bbl             $/bbl
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average production
     (bopd)                   5,864             6,383             6,258
    -------------------------------------------------------------------------
    Oil revenue          13,052    24.73   20,107    34.63   23,441    40.71
    Royalties             3,486     6.61    5,389     9.28    5,368     9.32
    Operating expenses    5,512    10.44    5,748     9.90    6,083    10.56
    Sales and
     transportation       1,426     2.70    2,003     3.45    2,739     4.76
                        -----------------------------------------------------
    Net operating
     income               2,628     4.98    6,967    12.00    9,251    16.07
                        -----------------------------------------------------
                        -----------------------------------------------------


                                        2009
                        -----------------------------------
    ($000s, except
     as noted)           Fourth Quarter         Year
    -------------------------------------------------------
                                   $/bbl             $/bbl
    -------------------------------------------------------
    -------------------------------------------------------
    Average production
     (bopd)                   7,234             6,438
    -------------------------------------------------------
    Oil revenue          30,014    45.10   86,614    36.86
    Royalties             6,225     9.35   20,468     8.71
    Operating expenses    7,438    11.18   24,781    10.55
    Sales and
     transportation       3,701     5.56    9,869     4.20
                        -----------------------------------
    Net operating
     income              12,650    19.01   31,496    13.40
                        -----------------------------------
                        -----------------------------------


                                             2010
    ($000s,      ------------------------------------------------------------
     except         First       Second      Third       Fourth
     as noted)     Quarter     Quarter     Quarter     Quarter       Year
    -------------------------------------------------------------------------
    Financial
    Funds
     generated
     from operations  13,819      18,792      16,571      23,984      73,166
    Net income           470       2,694       4,267       6,834      14,265
    Basic/ diluted
     earnings per
     share             0.002 0.012/0.011 0.018/0.017 0.028/0.028 0.060/0.058
    General and
     administrative    1,926       1,789       1,927       2,613       8,255
    Total assets     330,371     339,661     445,774     467,414     467,414
    Capital
     expenditures     26,700      29,262      27,991      38,059     122,012
    Bank loans        26,418      27,330      23,887      25,829      25,829


                                             2009
    ($000s,      ------------------------------------------------------------
     except         First       Second      Third       Fourth
     as noted)     Quarter     Quarter     Quarter     Quarter       Year
    -------------------------------------------------------------------------
    Financial
    Funds
     generated
     from operations   1,265       5,998       7,371      10,788      25,422
    Net income (loss) (2,492)     (1,679)      1,708       2,313        (150)
    Basic/ diluted
     earnings (loss)
     per share        (0.014)     (0.009)      0.008       0.010      (0.001)
    General and
     administrative    1,204       2,079       1,410       1,757       6,450
    Total assets     210,674     257,689     292,212     304,820     304,820
    Capital
     expenditures      2,835       6,126      12,104      17,259      38,324
    Bank loans        26,948      32,651      31,355      28,085      28,085
                -------------------------------------------------------------


    DISCUSSION OF OPERATING RESULTS

    Production, Revenue and Netback

                                              2010         2009            %
    -------------------------------------------------------------------------
    Average production (bopd)                9,597        6,438           49
    Oil revenue ($000s)                    170,376       86,614           97
    Netback ($/bbl)
    Average price                            48.64        36.86           32
    Royalties                                 9.62         8.71           10
    Operating expenses                       10.49        10.55           (1)
    Sales and transportation                  5.38         4.20           28
                                          -----------------------------------
    Netback                                  23.15        13.40           73
                                          -----------------------------------
                                          -----------------------------------

During 2010, average production increased 49% to 9,597 bopd from 6,438 bopd for 2009. The exit production rate exceeded 12,100 bopd at 2010 year-end compared to 8,100 at the preceding year-end.

The increase in production was due to the expansion of the drilling program, continued well reactivation program and well recompletion program focused on bringing high productivity wells on stream. In 2010, a total of 55 wells were drilled and completed, of which 50 were horizontal wells.

As of December 31, 2010, the Company had 826 wells in inventory, an increase of 254 wells compared to 572 at the end of 2009. Of these 254 wells, 55 were new wells drilled during 2010 and 199 were taken-over from Albpetrol as the area of development was expanded. The majority of the wells taken-over during the year were part of a consolidation effort to reduce Albpetrol activities in the primary focus areas for future Bankers' development. As such, the majority of these wells were not reactivated with progressing cavity pumping systems in 2010. Of the total 826 wells in inventory at year-end, 445 are producing wells, 9 are water disposal wells and 372 are non-active wells.

In April 2010, Bankers resumed its oil sales to two Albanian refineries operated by ARMO, a domestic petroleum refiner. Under the ARMO crude oil sales contract, the pricing is competitive with export sales. In 2010, Bankers exported 85% of its crude at an average price of $48.94/bbl.

On average, the Company received $48.64/bbl for the year, an increase of 32% from $36.86/bbl for the preceding year. This increase was largely due to the increase in commodity prices. The average Brent oil price for 2010 was $79.50/bbl, compared to $61.67/bbl in 2009, an improvement of 29%. Oil revenue increased 97% to $170.4 million in 2010 compared to $86.6 million in 2009.

The Company achieved record average production of 10,424 bopd during the fourth quarter of 2010 compared to 9,826 bopd during the preceding quarter and 7,234 bopd during the fourth quarter of 2009. In the fourth quarter of 2010, revenue increased 21% and 70%, respectively, compared to the preceding quarter and the same period in 2009. The increase was mainly due to the improvement of oil prices and increased production. The Company received an average sales price of $53.12/bbl during the fourth quarter compared to $46.61/bbl in the third quarter and $45.10/bbl over the same period in 2009, an increase of 14% and 18%, respectively. The Company exported 80% of its crude oil during the fourth quarter compared to 84% during the preceding quarter and 100% during the same period in 2009.

The netback during the fourth quarter of 2010 was $26.55/bbl compared to $21.74/bbl for the preceding quarter and $19.01/bbl for the fourth quarter of 2009, an increase of 22% and 40% respectively.

Royalties

Royalties in Albania are calculated pursuant to the Petroleum Agreement with Albpetrol and consist of a royalty based on Albpetrol's pre-existing production (PEP), a 1% gross overriding royalty (ORR) on new production and a 10% royalty tax (RT) on net production. Overall royalties for the year represented 20% of oil revenue, as compared to 24% for the preceding year. The decrease was due to increased production from new wells. As a percent of revenue, the various royalty components currently represent 10% from PEP, 1% for the ORR and 9% for the RT. Fluctuations in royalty on a per barrel basis are due to changes in the underlying oil prices.

Royalties for the fourth quarter were $10.26/bbl (19% of revenue) compared to $9.16/bbl (20% of revenue) during the preceding quarter and $9.35/bbl (21% of revenue) for the same period in 2009. The average royalty rate declined during the quarter as more oil was produced from new production compared to the preceding quarter and the same period in 2009.

Operating Expenses

Operating expenses for the year were $10.49/bbl, slightly reduced from $10.55/bbl in 2009. On a percentage of revenue basis, operating costs represented 22% of the revenue for the year, compared to 29% for the preceding year. The improvement was due to the increase in production levels, efficiency in well servicing costs and the increase in commodity prices.

Operating expenses during the fourth quarter were $10.98/bbl compared to $10.40/bbl during the third quarter and $11.18/bbl during the same period in 2009. The moderate increase in operating expenses compared to the preceding quarter was a result of increased fuel costs and increased workover costs.

Sales and Transportation

Sales and transportation (S&T) costs for the year increased to $5.38/bbl from $4.20/bbl for 2009, mainly due to the increase in export sales and facility fees during the year and increased use of diesel in blending to alleviate diluent supply limitations.

S&T expenses during the fourth quarter were $5.33/bbl compared to $5.31/bbl during the preceding quarter and $5.56/bbl in the fourth quarter of 2009. The reduction in S&T compared to the same period in 2009 was mainly due to the increase of domestic sales which incurred lower S&T costs. The export sales were 80% of total sales for the fourth quarter, 84% for the preceding quarter and 100% for the same period in 2009.

General and Administrative Expenses

General and administrative (G&A) expenses for the year were $8.3 million, net of capitalization, compared to $6.5 million in 2009, an increase of 28%. The increase in G&A resulted mainly from the currency impact of the stronger Canadian dollar in comparison to the US dollar, as well as increases in professional fees, personnel costs and travel costs.

The 2010 G&A costs represented $2.36/bbl, a 14% reduction from $2.74/bbl in 2009. The reduction in G&A on a per barrel basis was attributed to the production increase in 2010.

During the year, the Company capitalized $10.1 million of G&A and stock based compensation compared to $3.9 million for the preceding year. These expenses were directly related to acquisition, exploration and development activities in Albania.

Non-cash stock-based compensation expense pertaining to stock options granted to officers, directors, employees and service providers were $14.7 million (2009 - $6.5 million). Of this amount, $8.1 million (2009 - $4.5 million) was charged to earnings and $6.6 million (2009 - $2.0 million) was capitalized.

G&A expenses for the fourth quarter of 2010 were $2.6 million compared to $1.9 million in the preceding quarter and $1.8 million for the same period in 2009. The increase was mainly due to strengthening of the Canadian dollar against the US dollar compared to the preceding quarter and the same period in 2009, as well as increases in personnel and travel costs during the fourth quarter of 2010.

Depletion, Depreciation and Accretion

Depletion, depreciation and accretion (DD&A) expenses for the year were $27.5 million ($7.86/bbl) compared to $16.2 million ($6.90/bbl) for 2009. The increase in DD&A expenses reflects higher production in Albania and an increase in depletable assets, inclusive of higher future capital requirements. The Company's independent reserve evaluation prepared in accordance with the National Instrument NI 51-101 assessed proved gross reserves of 120.2 million barrels at December 31, 2010, compared to 92.8 million barrels at December 31, 2009.

DD&A costs for the quarter ended December 31, 2010 were $10.7 million, compared to $6.0 million for the preceding quarter and $4.4 million for the same period in 2009. The increase in DD&A reflects the higher depletion base as a result of increased future development costs, and the increase in production during the quarter. Depletion expenses represented $10.81/bbl for the quarter compared to $6.37/bbl and $6.20/bbl for the preceding quarter and the same period in 2009, respectively.

Future Income Tax Expense

Future income tax liabilities result from the temporary differences between the carrying value and tax values of Albanian assets and liabilities. As of December 31, 2010, the Company recorded a $69.5 million future income tax liability, compared to $39.4 million at the end of the previous year, in relation to the Company's Albanian assets and liabilities. The Company incurred a future income tax expense of $23.5 million for the year compared to $5.9 million for 2009 due to increased earnings. On a quarterly basis, the Company recorded a future income tax expense of $6.1 million compared to $5.5 million for the preceding quarter and $2.7 million for the same period in 2009. Bankers is presently not required to pay cash taxes in any jurisdiction. The Company's cost recovery pool in Albania is $152.6 million. In Canada, the Company has non-capital losses of approximately $27.4 million, the benefit of which has not been recognized in the financial statements.

Net Income (Loss) and Funds Generated from Operations

The Company recorded net income of $14.3 million ($0.060 per share) during the year ended December 31, 2010 and a net loss of $0.2 million ($0.001 per share) for the year ended December 31, 2009.

The Company realized net income of $6.8 million for the fourth quarter compared to net income of $4.3 million in the preceding quarter and $2.3 million for the same period in 2009.

Funds generated from operations amounted to $73.2 million for the year ended December 31, 2010 compared to $25.4 million in 2009. The increase in funds generated from operations was mainly due to higher production and commodity prices during in the year.

Funds generated from operations were $24.0 million for the fourth quarter compared to $16.6 million in the third quarter and $10.8 million for the same period in 2009.

OIL RESERVES

Annually, the Company obtains independent reserves evaluations of its Albanian properties by RPS Energy Canada Ltd. (Patos-Marinza oilfield) and by DeGolyer and MacNaughton Canada Ltd. (Kuçova oilfield). At December 31, 2010, reserves increased on a total proved (1P), total proved plus probable (2P) and total proved, probable and possible (3P) basis. Changes within each reserve basis are shown below. The 2010 finding and development costs for the Albanian properties represented $10.06/bbl on a 1P basis, $5.80/bbl on a 2P basis and $3.85/bbl on a 3P basis.

    Gross Oil Reserves- Using Forecast Prices (Mbbls)
                            ----------------------------- -------------------
                                          2010
                            -----------------------------    2009
                              Patos-              Total     Total
                             Marinza    Kuçova   Albania   Albania      %
    ----------------------------------------------------- -------------------
    Proved
      Developed Producing     17,300         0    17,300    22,900       (24)
      Developed Non-Producing      0         0         0         0         -
      Undeveloped             99,700     3,239   102,939    69,939        47
                            ----------------------------- -------------------
    Total Proved             117,000     3,239   120,239    92,839        30
    Probable                 109,200     8,177   117,377   121,077        (3)
                            ----------------------------- -------------------
    Total Proved Plus
     Probable                226,200    11,416   237,616   213,916        11
    Possible                 168,400    20,587   188,987   208,387        (9)
                            ----------------------------- -------------------
    Total Proved, Probable
     & Possible              394,600    32,003   426,603   422,303         1
    ----------------------------------------------------- -------------------

    Net Present Value at 10% - After Tax Using Forecast Prices ($millions)
                            ----------------------------- -------------------
                                          2010
                            -----------------------------    2009
                              Patos-              Total     Total
                             Marinza    Kuçova   Albania   Albania      %
    ----------------------------------------------------- -------------------
    Proved
      Developed Producing      220.0       0.0     220.0     149.0        48
      Developed Non-Producing    0.0       0.0       0.0       0.0         -
      Undeveloped              710.0      19.0     729.0     376.8        93
                            ----------------------------- -------------------
    Total Proved               930.0      19.0     949.0     525.8        80
    Probable                   904.0     115.0   1,019.0     993.1         3
                            ----------------------------- -------------------
    Total Proved Plus
     Probable                1,834.0     134.0   1,968.0   1,518.9        30
    Possible                 1,278.0     306.2   1,584.2   1,513.7         5
                            ----------------------------- -------------------
    Total Proved, Probable
     & Possible              3,112.0     440.2   3,552.2   3,032.6        17
    ----------------------------------------------------- -------------------

In the Patos-Marinza oilfield, the OOIP at the end of 2010 increased 32% to 7.5 billion barrels from 5.7 billion at the end of 2009. Additionally, the Company's independent reservoir engineers assigned contingent and prospective resource oil estimates of 1.2 billion and 540 million barrels, respectively. This represents the initial assessment of such resources attributed to future thermal recovery technologies and secondary water flood recovery methods at the Patos-Marinza oilfield.

The reserves growth is primarily attributable to increased resource levels, improved well performance, the Company's 2010 horizontal development drilling success and increased commodity prices. This is reflected in the upgrade of 2P and 3P reserves into the 1P and 2P reserves categories, respectively, and the expansion of 3P reserves. All of Patos-Marinza's 2010 reserves estimates are from primary recovery methods.

The Company acquired the Kuçova asset in 2008 and the OOIP resource estimate is 297 million barrels. This property is currently in early stage development and there was no Company production from the Kuçova oilfield in 2010 and only minor field activities were performed. Bankers expects to commence activity in this area in 2011 utilizing a variety of extraction techniques that will lead to creation of a development plan.

CAPITAL EXPENDITURES

    ($000s)                                                2010         2009
    -------------------------------------------------------------------------
    Drilling program                                $    69,572  $    16,451
    Well reactivations                                    8,439        6,704
    Work-over program                                    11,175        5,549
    Evaluation area & thermal                             8,310            -
    Base program
      Facility infrastructure                             1,163            5
      Water control/disposal                              7,049        4,784
      Environmental stewardship                           1,363           82
      Pipeline/sales infrastructure                       7,068          715
      Ecology pits/remediation                            1,988        1,271
      Other                                               3,540        2,207
    Field equipment                                       2,345          556
                                                   --------------------------
                                                    $   122,012  $    38,324
                                                   --------------------------
                                                   --------------------------

Capital expenditures for the year were $122.0 million, compared to $38.3 million in the preceding year, an increase of 218%. This increase was due to the expansion of the Company's capital programs in drilling, work-overs, reactivation and other projects. During the year, Bankers spent $69.6 million on the drilling program for 50 horizontal wells and 2 vertical wells, compared to $16.5 million in 2009 (10 horizontal wells). Bankers spent $8.4 million on well reactivations compared to $6.7 million in the previous year. The increase in well-reactivation costs was a direct result of the increase of wells taken over from Albpetrol. In 2010, a total of 199 wells were taken over from Albpetrol, compared to 80 in 2009. The Company invested $8.3 million on the new evaluation area and thermal project in 2010, which consist of the drilling of 3 vertical wells and the reactivation projects, nil in 2009. Base program expenditures increased 155% during the year due to the increase in sales infrastructure, water control/disposal initiatives, environmental stewardship and facility infrastructure. Included in the year-end property, plant and equipment amounts are field equipment of casing, tubing and other equipment of $17.5 million at December 31, 2010 (2009 - $15.2 million) to be used for future drilling and reactivation programs in Albania.

During the fourth quarter of 2010, Bankers incurred $38.1 million in capital expenditures; $23.4 million on drilling operations, $3.1 million on well reactivations and $5.9 million related to the base program. The balance of the expenditures was incurred on the work-over program, new evaluation area and thermal projects and other miscellaneous expenses and capitalized G&A. By comparison, in the fourth quarter of 2009, the Company incurred $17.3 million in capital expenditures; $6.7 million on drilling operations, $2.7 million on well reactivations and $6.3 million on the base program, with the balance of the expenditures incurred on miscellaneous expenses and capitalized G&A.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2010, Bankers had working capital of $130.9 million (including cash and deposits totalling $108.1 million) and long-term debt of $21.8 million. As of December 31, 2009, the Company had working capital of $75.4 million and a long-term debt of $23.4 million. The improvement in working capital compared to the same period in 2009 was mainly due to the equity issuance and exercises of warrants and options throughout the year.

On July 15, 2010, the Company completed a prospectus offering with a syndicate of underwriters and issued an aggregate of 12,903,228 common shares at a price of CAD$7.75 per common share on a bought deal basis, resulting in gross proceeds of $96.2 million.

On December 31, 2010, Bankers had credit facilities totalling $136.1 million, of which only $25.8 million was utilized. The majority represents a reserve-based long-term facility of $110.0 million from the International Finance Corporation and European Bank for Reconstruction and Development, from which no advances have yet been drawn. The $26.1 million Raiffeisen Bank facility includes a revolving operating loan of $20.0 million (due in March 2012) and term loans totalling $6.1 million. Repayments of $4.6 million were made on the term loans during the year.

The Company's approach to managing liquidity is to ensure a balance between capital expenditure requirements and cash provided by operations, available credit facilities and working capital.

There were approximately 245 million and 247 million shares outstanding as of December 31, 2010 and March 22, 2011, respectively. In addition, the Company had approximately 15 million stock options and 5 million warrants outstanding as of December 31, 2010. Subsequent to 2010 year-end, approximately 5 million stock options were granted and approximately 2 million stock options were exercised, generating proceeds of approximately $3.1 million. On March 22, 2011, Bankers has approximately 17 million stock options and 5 million warrants outstanding. The warrants expire on March 1, 2012 and are exercisable into common shares at CAD$2.37 per share, representing approximately CAD$11.5 million.

Officers and executives of the Company represent approximately 7 percent ownership in the Company on a fully diluted basis. This creates an alignment with shareholders and a team that is dedicated to activities that support future value creation.

In Albania, the Company considers any amounts greater than 60 days as past due. The amount past due has been received subsequent to year end and is not considered to be impaired.

Plan of Development

Bankers has no capital expenditure commitment for the Patos-Marinza oilfield under the Petroleum Agreement. The Company annually submits a work program to AKBN which includes the nature and the amount of capital expenditures to be incurred during that year. Significant deviations in this annual program from the Plan of Development will be subject to AKBN approval. The Petroleum Agreement provides that disagreements between the parties will be referred to an independent expert whose decision will be binding. The Company has the right to relinquish a portion or all of the contract area. If only a portion of the contract area is relinquished then the Company will continue to conduct petroleum operations on the portion it retains and the future capital expenditures will be adjusted accordingly.

Commitments

The Company has long-term lease commitments in Canada and Albania. The minimum lease payments for the next five years are $3.8 million as follows:

    ($000s)                                Albania       Canada        Total
    -------------------------------------------------------------------------
    2011                                  $    557     $    709     $  1,266
    2012                                       425          541          966
    2013                                       318          528          846
    2014                                       318           44          362
    2015                                       318            -          318
                                         ------------------------------------
                                          $  1,936     $  1,822     $  3,758
                                         ------------------------------------
                                         ------------------------------------

The Company has two term loans totalling $6.1 million with a European financial institution that is repayable in equal monthly instalments of $0.4 million until October 31, 2011 and $74,100 until April 2014. Of the amount outstanding, $4.0 million is classified as current and $2.1 million as long-term. Principal repayments of the term loan over the next four years are as follows:

    ($000s)
    ------------------------------------------------------------
    2011                                               $  4,014
    2012                                                    889
    2013                                                    889
    2014                                                    296
                                                      ----------
                                                       $  6,088
                                                      ----------
                                                      ----------

Quarterly Variability

Fluctuations in quarterly results are due to a number of factors, some of which are not within the Company's control such as seasonality and commodity prices.

    -   Seasonality of winter operating conditions combined with the timing
        of transfer of wells from Albpetrol results in production increases
        that are typically higher in the second and third quarters. As new
        wells come on stream, there is a build-up period in production,
        higher sand production and higher well servicing costs, which is
        typical for heavy oil wells in the first year of production. In
        addition, production levels can be affected by water disposal
        constraints, mechanical wellbore and isolation failures, increased
        water production coming from shallower and deeper zones, and a
        shortage of rig work-over capacity and specialised well servicing
        equipment.

    -   The increase in royalties is related to higher oil prices and the
        greater number of wells being taken over from Albpetrol, which
        results in higher pre-existing production.

    -   Fluctuations of operating expenses is part of a continuing trend that
        results from operating efficiencies gained through greater experience
        in field operations and economies of scale as the proportionate share
        of fixed operating expenses declines with production increases.

CRITICAL ACCOUNTING ESTIMATES

The Company's financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). Significant accounting policies are disclosed in Note 2 to the Audited Consolidated Financial Statements. Preparation of financial statements in accordance with GAAP requires that management make estimates that affect the reported amount of assets, liabilities, revenues and expenses. The estimates used in applying these critical accounting policies are as follows:

Capitalized Costs

The Company follows the full cost method of accounting for its oil properties whereby all costs associated with the exploration for and development of oil reserves are capitalized on a cost centre (country) basis. Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling both productive and non-productive wells, production equipment, overhead charges directly related to acquisition, exploration and development activities and asset retirement costs.

Depletion and Depreciation

Capitalized costs within each cost centre are depleted and depreciated on the unit-of-production method based on the estimated gross proved reserves determined by independent petroleum engineers. Depletion and depreciation is calculated using the capitalized costs, plus the estimated future costs to be incurred in developing proved reserves, net of estimated salvage value. Costs of acquiring and evaluating unproved properties are initially excluded from the depletion and depreciation calculation until it is determined whether or not proved reserves can be assigned to such properties.

Proceeds from the sale of oil properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would alter the rate of depletion and depreciation by more than 20 percent in a particular country cost centre, in which case a gain or loss on disposal is recorded.

Equipment, furniture and fixtures are depreciated on the declining balance method at rates of 20 to 30 percent.

Income Taxes

Future income taxes are recorded using the asset and liability method. Under the asset and liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that substantive enactment or enactment occurs. To the extent that the Company does not consider it more likely than not that a future tax asset will be recovered, it provides a valuation allowance against the excess.

Ceiling Test

In accordance with the full cost accounting guideline, the Company evaluates its oil and gas assets to determine that the costs are recoverable and do not exceed the fair value of the properties. The costs are assessed to be recoverable if the sum of the undiscounted cash flows expected from the production of proved reserves and the lower of cost and market of unproved properties exceed the carrying value of the oil and gas assets. If the carrying value of the oil and gas assets is not assessed to be recoverable, an impairment loss is recognized to the extent that the carrying value exceeds the sum of the discounted cash flows expected from the production of proved plus probable reserves and the lower of cost and market of unproved properties. The cash flows are estimated using the future product prices and costs and are discounted using the risk-free rate.

Asset Retirement Obligations

The fair value of estimated asset retirement obligations is capitalized to property, plant and equipment in the period in which the liability is incurred. Asset retirement obligations include those legal obligations where the Company will be required to retire tangible long-lived assets such as producing well sites and facilities. Asset retirement costs for oil properties are amortized as part of depletion and depreciation using the unit-of-production method.

Increases in asset retirement obligations resulting from the passage of time are recorded as accretion expense. Actual abandonment expenditures incurred are charged against the accumulated obligation.

Stock-based compensation

Compensation costs attributable to all stock options granted to employees, directors and service providers are measured at fair value at the date of grant using the Black-Scholes option pricing model and expensed over the vesting period with a corresponding increase to contributed surplus. Upon exercise of options, consideration received, together with the amount previously recognized in contributed surplus, is recorded as an increase to share capital.

RELATED PARTY TRANSACTIONS

The Company had a note receivable from BKX in an amount of $2.7 million as at December 31, 2009. The full amount was received during the year ended December 31, 2010. BKX is considered a related party as BKX and the Company have common directors. The above transaction was considered to be in the normal course of business.

SUBSEQUENT EVENT

In February 2011, the Company entered into financial commodity put contracts representing 4,000 barrels of oil per day at a floor price of $80 per barrel for the period January 1, 2012 to December 31, 2012.

NEW ACCOUNTING STANDARDS

Transition to International Financial Reporting Standards (IFRS)

Commencing on January 1, 2011 International Financial Reporting Standards (IFRS) are the generally accepted accounting principles in Canada. The changeover date of January 1, 2011 requires the restatement, for comparative purposes, of amounts reported by Bankers for the year ended December 31, 2010, including the opening balance sheet as at January 1, 2010. The project to convert to IFRS is being managed by members of the finance and accounting group, who have engaged in IFRS educational programs and continue to develop the Company's adoption to IFRS. The Company's auditors have been and will continue to be involved throughout the process to ensure the Company's policies are in accordance with these new standards.

In July 2009, an amendment to IFRS 1 First Time Adoption of International Reporting Standards was issued that applies to oil and gas assets. The amendment allows an entity that used full cost accounting under its current Canadian GAAP to elect, at its time of adoption, to measure exploration and evaluation assets at the amount determined under the entity's current Canadian GAAP and to measure oil and gas assets in the development and production phases by allocating the amount determined under the entity's current Canadian GAAP for those assets to the underlying assets pro rata using reserve volumes or reserve values as of that date. Bankers will use this exemption. IFRS 1 also provides a number of other optional exemptions and mandatory exceptions in certain areas to the general requirement for full retrospective application which are:

    -   Business Combinations - IFRS 1 would allow the Company to use the
        IFRS rules for business combinations on a prospective. The Company
        plans to use this exemption.

    -   Share-based payments - IFRS 1 allows the Company an exemption on
        IFRS 2, "Share-Based Payments" to equity instruments which vested
        before Bankers' transition date to IFRS. The Company will use this
        exemption.

The transition from Canadian GAAP to IFRS is significant and may materially affect the Company's reported financial position and results of operations. Key differences identified by the Company that will impact the financial statements and the current status of those items are noted:

    -   Property, plant and equipment (PP&E) - This includes oil and gas
        assets in the development and production phases. As all oil and gas
        assets of the Company are in the development and production phases,
        the full amount will be included in PP&E and allocated to two cash
        generating units (CGUs).

    -   Impairment of PP&E assets - Under IFRS, impairment tests of PP&E must
        be performed at the CGU level as opposed to the entire PP&E balance
        which is required under current Canadian GAAP through the full cost
        ceiling test. Impairment calculations are required to be performed
        using fair values of the PP&E assets and the Company will use the
        discounted proved plus probable reserve values for impairment tests
        of PP&E. The Company does not anticipate its PP&E assets to be
        impaired as at January 1, 2010 under IFRS.

    -   Depletion expense - On transition to IFRS, the Company has the option
        to use either proved reserves or proved plus probable reserves in the
        depletion calculation. The Company will use proved plus probable
        reserves in determining depletion expense.

    -   Share based payments - The major difference between current Canadian
        GAAP and IFRS that impacts the Company is the use of an estimated
        forfeiture rate at grant date as opposed to recognizing the impact of
        forfeitures when they occur. The Company will apply a forfeiture rate
        of 5% to all unvested stock options at transition and the impact of
        this is not expected to be material.

    -   Provisions - The major difference between the current Canadian
        standard and IFRS is the discount rate used to measure the asset
        retirement obligation (ARO). Under the current Canadian standard, a
        credit adjusted risk free rate is used, whereby the IFRS allows the
        use of a risk free rate when the expected cash flows are risked.
        There was debate within the industry on the discount rate and whether
        there should be a risk component to it. Based on recent comments made
        by the standard setters and positions within the industry, Bankers
        believes a risk free rate is more appropriate. A lower discount rate
        will increase the ARO liability and on transition to IFRS, the
        corresponding impact will be charged to retained earnings or deficit.

In addition to the accounting policy differences, the Company's transition to IFRS will impact the internal controls over financial reporting, the disclosure controls and procedures and information technology (IT) systems as follows:

    -   Internal controls over financial reporting - Based on the Company's
        accounting policies under IFRS, the Company has assessed whether
        additional controls or changes in procedures are required. Bankers
        does not consider these changes to be significant.

    -   Disclosure controls and procedures - Throughout the transition
        process, the Company will be assessing stakeholder's information
        requirements and will ensure that adequate and timely information is
        provided while ensuring the Company maintains its due process
        regarding information that is disclosed.

    -   IT Systems - The Company has assessed the readiness of its accounting
        software and has and continues to assess other system requirements
        that may be needed in order to perform ongoing calculations and
        analysis under IFRS. These changes are not considered to be
        significant.

Management is continuing to finalize its accounting policies and choices and is continuing with its due process in regards to information that is disclosed. As such, the Company is currently unable to quantify the full impact on the financial statements of adopting IFRS. However, the Company has disclosed certain expectations above based on information known to date. Due to anticipated changes to IFRS and International Accounting Standards prior to the Company's adoption of IFRS, certain items may be subject to change based on new facts and circumstances that arise after the date of this MD&A.

INTERNAL CONTROLS

The Company's President and Chief Executive Officer (CEO) and Executive Vice President, Finance and Chief Financial Officer (CFO) are responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting as defined in NI 52-109.

Disclosure controls and procedures have been designed to ensure that information to be disclosed by the Company is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. The Company's CEO and CFO have evaluated the effectiveness of the disclosure controls and procedures as at December 31, 2010 and have concluded that they are operating effectively to provide reasonable assurance that all material information relating to the Company is disclosed in a timely manner.

Internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of the Company's financial reporting and compliance with generally accepted accounting principles. The CEO and CFO have evaluated the Company's internal controls over financial reporting as at December 31, 2010 based on the framework in "Internal Control Over Financial Reporting - Guidance for Smaller Public Companies" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and have concluded they are designed and operating effectively to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with GAAP. During 2010, there have been no changes to the Company's internal controls over financial reporting that have materially, or are reasonably likely to, materially affect the internal controls over financial reporting.

Because of their inherent limitations, disclosure controls and procedures and internal controls over financial reporting may not prevent or detect misstatements, errors or fraud. Control systems, no matter how well conceived or operated, can provide only reasonable, not absolute assurance that the objectives of the control systems are met.

OUTLOOK

For 2011, our continued focus is to increase reserves, production and maximize cash flow from operations. To achieve this, the Company will implement the following:

    -   Drill 66 horizontal and vertical wells and complete 120 well
        reactivations and workovers at the Patos-Marinza oilfield. A fourth
        drilling rig is expected in the second quarter.

    -   Increase production facilities to handle our target exit production
        rate of 20,000 bopd.

    -   2011 will be a milestone year for thermal development of the
        Patos-Marinza oilfield. Bankers will drill a vertical delineation
        well and two horizontal wells designed for high pressure and
        temperature steam injection, install a 25,000 BTU steam generator and
        all associated production facilities.

    -   Complete Phase 1 (10 kilometres) of the 40 kilometre pipeline to
        Vlore and construction of the receiving hub in Fier.

    -   Continue with the environmental stewardship and social initiatives in
        our area of operations.

    -   Bankers is building a larger team of senior professionals to
        complement its existing team of engineers, geoscientists, production
        and support staff to manage another record capital program in 2011,
        currently budgeted at $215 million.



                           BANKERS PETROLEUM LTD.
                         CONSOLIDATED BALANCE SHEETS
                              AS AT DECEMBER 31
                   (Expressed in thousands of US dollars)
    -------------------------------------------------------------------------

                                   ASSETS
                                                        2010         2009
                                                    -------------------------
    Current assets
      Cash and cash equivalents (Note 12)            $  106,619   $   59,495
      Short-term deposits                                     -        7,275
      Restricted cash                                     1,500        1,500
      Accounts receivable                                29,233       23,358
      Inventory                                           4,199        2,031
      Deposits and prepaid expenses                      16,624        5,899
                                                    -------------------------
                                                        158,175       99,558
    Note receivable (Note 4)                                  -        2,749
    Deferred financing costs (Note 6(e))                 11,805       14,383
    Property, plant and equipment (Note 5)              297,434      188,130
                                                    -------------------------
                                                     $  467,414   $  304,820
                                                    -------------------------
                                                    -------------------------
                                 LIABILITIES
    Current liabilities
      Accounts payable and accrued liabilities       $   23,241   $   19,505
      Current portion of long-term debt (Note 6)          4,014        4,639
                                                    -------------------------
                                                         27,255       24,144

    Long-term debt (Note 6)                              21,815       23,446

    Asset retirement obligations (Note 7)                 5,496        3,856

    Future income tax liability (Note 10)                69,541       39,414

                            SHAREHOLDERS' EQUITY
    Share capital (Note 8(a))                           309,379      206,058
    Warrants (Note 8(b))                                  1,597        1,739
    Contributed surplus (Note 8(e))                      28,715       16,812
    Retained earnings (deficit)                           3,616      (10,649)
                                                    -------------------------
                                                        343,307      213,960
                                                    -------------------------
                                                     $  467,414   $  304,820
                                                    -------------------------
                                                    -------------------------

    Commitments (Note 11)
    Subsequent event (Note 14)

    See accompanying notes to consolidated financial statements.

    APPROVED BY THE BOARD
    "Robert Cross"      Director         "Eric Brown"        Director
    --------------------                 --------------------



                           BANKERS PETROLEUM LTD.
      CONSOLIDATED STATEMENT OF OPERATIONS, COMPREHENSIVE INCOME (LOSS)
                       AND RETAINED EARNINGS (DEFICIT)
                       FOR THE YEARS ENDED DECEMBER 31
       (Expressed in thousands of US dollars, except per share amounts)
    -------------------------------------------------------------------------

                                                        2010         2009
                                                    -------------------------
    Revenue
      Oil revenue                                    $  170,376   $   86,614
      Royalties                                         (33,682)     (20,468)
      Interest                                              732          824
                                                    -------------------------
                                                        137,426       66,970
                                                    -------------------------
    Expenses
      Operating                                          36,744       24,781
      Sales and transportation                           18,847        9,869
      General and administrative                          8,255        6,450
      Interest and bank charges                           1,160          648
      Interest on long-term debt                          1,421        1,858
      Gain on disposal of investments                         -         (347)
      Foreign exchange gain                              (5,225)      (4,586)
      Stock-based compensation (Note 8(d))                8,111        4,545
      Amortization of deferred financing costs
       (Note 6(e))                                        2,789        1,803
      Depletion, depreciation and accretion              27,516       16,208
                                                    -------------------------
                                                         99,618       61,229
                                                    -------------------------
    Income before income tax                             37,808        5,741
    Future income tax expense (Note 10)                 (23,543)      (5,891)
                                                    -------------------------
    Net income (loss) and comprehensive income
     (loss) for the year                                 14,265         (150)
    Deficit, beginning of year                          (10,649)     (10,499)
                                                    -------------------------
    Retained earnings (deficit), end of year         $    3,616   $  (10,649)
                                                    -------------------------
                                                    -------------------------
    Basic earnings (loss) per share                  $    0.060   $   (0.001)
                                                    -------------------------
                                                    -------------------------
    Diluted earnings (loss) per share                $    0.058   $   (0.001)
                                                    -------------------------
                                                    -------------------------

    See accompanying notes to consolidated financial statements.



                           BANKERS PETROLEUM LTD.
                    CONSOLIDATED STATEMENT OF CASH FLOWS
                       FOR THE YEARS ENDED DECEMBER 31
                   (Expressed in thousands of US dollars)
    -------------------------------------------------------------------------

                                                        2010         2009
                                                    -------------------------
    Cash provided by (used in):
    Operating activities
      Net income (loss) for the year                 $   14,265   $     (150)
      Items not involving cash:
      Depletion, depreciation and accretion              27,516       16,208
      Amortization of deferred financing costs            2,789        1,803
      Future income tax expense                          23,543        5,891
      Stock-based compensation                            8,111        4,545
      Unrealized foreign exchange gain                   (3,058)      (2,528)
      Gain on disposal of investments                         -         (347)
                                                    -------------------------
                                                         73,166       25,422
      Change in non-cash working capital (Note 12)      (21,714)     (14,491)
                                                    -------------------------
                                                         51,452       10,931
                                                    -------------------------
    Investing activities
      Additions to property, plant and equipment       (122,012)     (38,324)
      Proceeds from disposal of investments                   -          481
      Change in non-cash working capital  (Note 12)       6,682       (3,670)
                                                    -------------------------
                                                       (115,330)     (41,513)
                                                    -------------------------
    Financing activities
      Issue of shares for cash                          104,720       70,276
      Share issue costs                                  (4,333)      (2,220)
      Note receivable                                     2,749       10,251
      Short-term deposits                                 7,275       (4,275)
      Financing costs                                      (211)      (2,050)
      Decrease in long-term debt                         (2,256)         (40)
                                                    -------------------------
                                                        107,944       71,942
                                                    -------------------------

    Foreign exchange gain on cash and cash
     equivalents                                          3,058        2,528
                                                    -------------------------
    Increase in cash and cash equivalents                47,124       43,888

    Cash and cash equivalents, beginning of year         59,495       15,607
                                                    -------------------------
    Cash and cash equivalents, end of year
     (Note 12)                                       $  106,619   $   59,495
                                                    -------------------------
                                                    -------------------------

    See accompanying notes to consolidated financial statements.



    Notes to Consolidated Financial Statements
    (Expressed in U.S. dollars)
    December 31, 2010 and 2009
    -------------------------------------------------------------------------

    1.  NATURE OF OPERATIONS

        Bankers Petroleum Ltd. (the Company) is engaged in the exploration
        for and development and production of oil in Albania. The Company is
        listed on the Toronto Stock Exchange and the Alternative Investment
        Market (AIM) of the London Stock Exchange under the symbol BNK.

        The Company operates in the Albanian oilfields pursuant to petroleum
        agreements with Albpetrol Sh.A (Albpetrol), the state owned oil
        company, under Albpetrol's existing license with the Albanian
        National Agency for Natural Resources (AKBN). The Patos-Marinza
        agreement and Kuçova agreement became effective in March 2006 and
        September 2007, respectively, and have a 25 year term with an option
        to extend at the Company's election for further five year increments.

    2.  SIGNIFICANT ACCOUNTING POLICIES

        These consolidated financial statements have been prepared in
        accordance with Canadian generally accepted accounting principles.
        The principal accounting policies are outlined below:

        (a) Basis of consolidation

        The consolidated financial statements include the accounts of the
        Company and its wholly-owned subsidiaries - Bankers Petroleum
        International Ltd., Bankers Petroleum Albania Ltd. (BPAL) and
        Sherwood International Petroleum Ltd.

        (b) Financial instruments

        All financial instruments including all derivatives are recognized on
        the balance sheet initially at fair value. Subsequent measurement of
        all financial assets and liabilities except those held-for-trading
        and available-for-sale are measured at amortized cost determined
        using the effective interest rate method. Held-for-trading financial
        assets are measured at fair value with changes in fair value
        recognized in earnings. Available-for-sale financial assets are
        measured at fair value with changes in fair value recognized in
        comprehensive income and reclassified to earnings when impaired.

        Cash and cash equivalents and short-term deposits are
        held-for-trading instruments and the fair values approximate their
        carrying amount due to their short-term nature. Accounts receivable
        is classified as loans and receivables and the fair value
        approximates their carrying value due to the short-term nature of
        these instruments. The note receivable is classified as other
        financial assets and its fair value approximates the carrying value
        as it bears interest at market rate. The accounts payable and accrued
        liabilities are classified as other financial liabilities and the
        fair value approximates their carrying value due to the short-term
        nature of these instruments. The operating and term loans are
        classified as other financial liabilities and their fair value
        approximates their carrying value, as they bear interest at market
        rates.

        Transaction costs are frequently attributed to the issue of a
        financial asset or liability. The Company has selected a policy of
        netting all transaction costs with the related financial assets and
        liabilities.

        The Company may use derivative financial instruments from time to
        time to hedge its exposure to commodity price fluctuations. The
        Company recognizes the fair value of the derivative financial
        instruments on the balance sheet each reporting period. Unrealized
        gains and losses resulting from changes in the fair value of these
        instruments are recognized in net income at the end of each reporting
        period and realized gains and losses are recorded when the instrument
        is settled. The derivative financial instruments are initiated within
        the guidelines of the Company's risk management policy and the
        Company does not enter into derivative financial instruments for
        trading or speculative purposes.

        (c) Foreign currency translation

        The Company and its wholly-owned subsidiaries have a United States
        (US) dollar functional currency. Transactions denominated in foreign
        currencies are translated into US dollar equivalents at exchange
        rates approximating those in effect at the transaction dates. Foreign
        currency denominated monetary assets and liabilities are translated
        at the year-end exchange rate. Gains and losses arising from foreign
        currency translation are recognized in the statement of operations.

        (d) Use of estimates

        Timely preparation of the financial statements in conformity with
        Canadian generally accepted accounting principles requires that
        management make estimates and assumptions and use judgment regarding
        assets, liabilities, revenues and expenses. Such estimates primarily
        relate to unsettled transactions and events as of the date of the
        financial statements. Accordingly, actual results may differ from
        estimated amounts as future confirming events occur.

        In particular, the amounts recorded for depreciation and depletion of
        oil and natural gas properties and equipment, the provision for asset
        retirement obligations, the provision for future income taxes and
        stock based compensation are based on estimates. The ceiling test is
        based on estimates of proved reserves, production rates, future
        commodity prices and future costs and other relevant assumptions.

        (e) Revenue recognition

        Revenue associated with the sales of the Company's oil is recognized
        in income when title and risk pass to the buyer, collection is
        reasonably assured and the price is determinable.

        (f) Income taxes

        Future income taxes are recorded using the asset and liability
        method. Under the asset and liability method, future tax assets and
        liabilities are recognized for the future tax consequences
        attributable to differences between the financial statement carrying
        amounts of existing assets and liabilities and their respective tax
        bases. Future tax assets and liabilities are measured using the
        enacted or substantively enacted tax rates expected to apply when the
        asset is realized or the liability settled. The effect on future tax
        assets and liabilities of a change in tax rates is recognized in
        income in the period that substantive enactment or enactment occurs.
        To the extent that the Company does not consider it more likely than
        not that a future tax asset will be recovered, it provides a
        valuation allowance against the excess.

        (g) Per share amounts

        Basic earnings (loss) per share is calculated using the
        weighted-average number of common shares outstanding during the year.
        The Company uses the treasury stock method to compute the dilutive
        effect of options, warrants and similar instruments. Under this
        method, the dilutive effect on earnings per share is recognized on
        the use of the proceeds that could be obtained upon exercise of
        options, warrants and similar instruments. It assumes that the
        proceeds would be used to purchase common shares at the average
        market price during the period.

        (h) Cash and cash equivalents

        Cash and cash equivalents include cash and highly liquid investments
        with original maturities of three months or less.

        (i) Inventory

        Inventory comprises of crude oil, solar and diesel stock. Inventory
        is valued at the lower of average cost of production and net
        realizable value.

        (j) Property, plant and equipment

        Capitalized costs
        -----------------

        The Company follows the full cost method of accounting for its oil
        properties whereby all costs associated with the exploration for and
        development of oil reserves are capitalized on a cost centre
        (country) basis. Such costs include land acquisition costs,
        geological and geophysical expenses, carrying charges on
        non-producing properties, costs of drilling both productive and
        non-productive wells, production equipment, overhead charges directly
        related to acquisition, exploration and development activities and
        asset retirement costs.

        Depletion and depreciation
        --------------------------

        Capitalized costs within each cost centre are depleted and
        depreciated on the unit-of-production method based on the estimated
        gross proved reserves determined by independent petroleum engineers.
        Depletion and depreciation is calculated using the capitalized costs,
        plus the estimated future costs to be incurred in developing proved
        reserves, net of estimated salvage value. Costs of acquiring and
        evaluating unproved properties are initially excluded from the
        depletion and depreciation calculation until it is determined whether
        or not proved reserves can be assigned to such properties.

        Proceeds from the sale of oil properties are applied against
        capitalized costs, with no gain or loss recognized, unless such a
        sale would alter the rate of depletion and depreciation by more than
        20 percent in a particular country cost centre, in which case a gain
        or loss on disposal is recorded.

        Equipment, furniture and fixtures are depreciated on the declining
        balance method at rates of 20 to 30 percent.

        Ceiling test
        ------------

        In accordance with the full cost accounting guideline, the Company
        evaluates its oil and gas assets to determine that the costs are
        recoverable and do not exceed the fair value of the properties. The
        costs are assessed to be recoverable if the sum of the undiscounted
        cash flows expected from the production of proved reserves and the
        lower of cost and market of unproved properties exceed the carrying
        value of the oil and gas assets. If the carrying value of the oil and
        gas assets is not assessed to be recoverable, an impairment loss is
        recognized to the extent that the carrying value exceeds the sum of
        the discounted cash flows expected from the production of proved plus
        probable reserves and the lower of cost and market of unproved
        properties. The cash flows are estimated using the future product
        prices and costs and are discounted using the risk-free rate.

        Asset retirement obligations
        ----------------------------

        The fair value of estimated asset retirement obligations is
        capitalized to property, plant and equipment in the period in which
        the liability is incurred. Asset retirement obligations include those
        legal obligations where the Company will be required to retire
        tangible long-lived assets such as producing well sites and
        facilities. Asset retirement costs for oil properties are amortized
        as part of depletion and depreciation using the unit-of-production
        method.

        Increases in asset retirement obligations resulting from the passage
        of time are recorded as accretion expense. Actual abandonment
        expenditures incurred are charged against the accumulated obligation.

        (k) Stock-based compensation

        Compensation costs attributable to all stock options granted to
        employees, directors and service providers are measured at fair value
        at the date of grant using the Black-Scholes option pricing model and
        expensed over the vesting period with a corresponding increase to
        contributed surplus. Upon exercise of options, consideration
        received, together with the amount previously recognized in
        contributed surplus, is recorded as an increase to share capital.

        (l) Comparative figures

        Certain prior year figures have been re-classified to conform to the
        current year's presentation.

    3.  FUTURE ACCOUNTING CHANGES

        International Financial Reporting Standards ("IFRS")

        On January 1, 2011 International Financial Reporting Standards (IFRS)
        as issued by the International Accounting Standards Board (IASB) will
        become the generally accepted accounting principles in Canada. The
        adoption date of January 1, 2011 will require the restatement, for
        comparative purposes, of amounts reported by Bankers for the year
        ended December 31, 2010, including the opening balance sheet as at
        January 1, 2010.

        Bankers will release its first IFRS compliant interim financial
        statements for the first quarter of 2011.

    4.  NOTE RECEIVABLE

        The note receivable of nil (2009 - $2.7 million) represents the
        residual amount due from BNK Petroleum Inc. (BKX). BKX is considered
        a related party as BKX and the Company have common directors. The
        above transaction is considered to be in the normal course of
        business and has been measured at the exchange amount being the
        amounts agreed to by both the parties. The full amount outstanding at
        December 31, 2009 was received during the year ended December 31,
        2010.

    5.  PROPERTY, PLANT AND EQUIPMENT

        The following table summarizes the Company's property, plant and
        equipment as at December 31:

                                                          2010
        ---------------------------------------------------------------------
                                                    Accumulated
                                                      Depletion
                                                    and Deprec-          Net
        ($000s)                               Cost       iation   Book Value
        ---------------------------------------------------------------------
        Oil properties                 $   363,864  $    69,741  $   294,123
        Equipment, furniture and
         fixtures                            5,591        2,280        3,311
                                      ---------------------------------------
                                       $   369,455  $    72,021  $   297,434
                                      ---------------------------------------
                                      ---------------------------------------


                                                          2009
        ---------------------------------------------------------------------
                                                    Accumulated
                                                      Depletion
                                                    and Deprec-          Net
        ($000s)                               Cost       iation   Book Value
        ---------------------------------------------------------------------
        Oil properties                 $   229,230  $    43,217  $   186,013
        Equipment, furniture and
         fixtures                            3,830        1,713        2,117
                                      ---------------------------------------
                                       $   233,060  $    44,930  $   188,130
                                      ---------------------------------------
                                      ---------------------------------------

        Depletion for the year ended December 31, 2010 included
        $956.5 million (2009 - $382.0 million) for estimated future
        development costs associated with proved reserves in Albania.

        The Company capitalized general and administrative expenses and
        stock-based compensation of $10.1 million (2009 - $3.9 million) that
        were directly related to exploration and development activities in
        Albania.

        The Company's ceiling test calculation for the Albania cost centre,
        as at December 31, 2010, resulted in no impairment loss. The future
        prices used by the Company in estimating cash flows were based on
        forecasts by independent reserves evaluators, adjusted for the
        Company's quality and transportation differentials. The following
        table summarizes the benchmark prices used in the calculation:

        ---------------------------------------------------------------------
                                                                 Brent Price
        Year                                                     (US$/barrel)
        ---------------------------------------------------------------------
        2011                                                           90.00
        2012                                                           89.50
        2013                                                           89.10
        2014                                                           89.25
        2015                                                           91.00
        Average annual increase, thereafter                               2%
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Company has secured $1.5 million (2009 - $1.5 million) for
        certain capital projects in the Kucova oilfield. These projects are
        expected to be completed in 2011. At December 31, 2010, approximately
        $1.0 million of expenditures have been incurred towards this
        commitment.

    6.  LONG-TERM DEBT

        The Company has credit facilities with three international banks,
        including Raiffeisen Bank, the European Bank for Reconstruction and
        Development (EBRD) and the International Finance Corporation (IFC),
        as summarized below:

                                          Facility
        ($000s)                             Amount      Outstanding Amount
        ---------------------------------------------------------------------
                                                    December 31, December 31,
                                                           2010         2009
                                                   --------------------------
         Raiffeisen Bank
         ---------------
           Operating loan (a)          $    20,000  $    19,741  $    17,358
           Term loan - 2006 (b)              3,125        3,125        6,875
           Term loan - 2009 (c)              2,963        2,963        3,852
         EBRD and IFC*
         ---------------
           Environmental term loan (d)      10,000            -            -
           Revolving loan -
            Tranche 1 (e)                   50,000            -            -
           Revolving loan -
            Tranche 2 (e)                   50,000            -            -
                                      ---------------------------------------
                                       $   136,088  $    25,829  $    28,085
                                      ---------------------------------------
                                      ---------------------------------------
        * all facilities are equally funded

        These facilities are secured by all of the assets of BPAL, assignment
        of proceeds from the Albanian domestic and export crude oil sales
        contracts, a pledge of the common shares of BPAL and a guarantee by
        the Company. The credit facilities are subject to certain covenants
        requiring the maintenance of certain financial ratios, all of which
        were met as at December 31, 2010 and 2009.

        (a) Operating loan

        The operating loan is a revolving facility, has no scheduled
        repayments until its maturity in March 2012 and bears interest at a
        rate relative to the bank's refinancing rate plus 3.5%.

        (b) Term loan - 2006

        This term loan bears interest at the bank's refinancing rate plus
        4.5% and is repayable in equal monthly instalments of $0.3 million
        ending on October 31, 2011. As at December 31, 2010, the entire term
        loan was utilized and has been classified as current.

        (c) Term loan - 2009

        This term loan bears interest at the bank's refinancing rate plus
        4.65% and is repayable in equal monthly instalments of $74,100 ending
        on April 30, 2014. As at December 31, 2010, the entire facility was
        utilized. Of the amount outstanding, $0.9 million is classified as
        current and $2.1 million as long-term. Principal repayments of the
        term loan over the next four years are:

        ($000s)
        ---------------------------------------------------------------------
        2011                                                    $        889
        2012                                                             889
        2013                                                             889
        2014                                                             296
                                                               --------------

                                                                $      2,963
                                                               --------------
                                                               --------------

        (d) Environmental term loan

        The $10.0 million term loan, funded equally by IFC and EBRD, is
        available for environmental and social programs pertinent to the
        Company's activities in Albania. The interest rate is based on the
        London Inter-Bank Offer Rate (LIBOR) plus 4.5%. A standby fee of 0.5%
        is charged on the unutilized portion. At December 31, 2010, none of
        the facility was drawn. Principal repayments commence in April 2013
        in bi-annual instalments of $0.5 million with maturity on October 15,
        2017.

        (e) Revolving loans

        The revolving loans, funded equally by EBRD and IFC, consist of two
        $50.0 million tranches, of which Tranche I is currently available to
        the Company. Tranche II becomes available subject to mutual agreement
        among the Company, IFC and EBRD, when production exceeds 10,000
        barrels of oil per day and the Brent oil price exceeds $62 per barrel
        for twenty consecutive trading days. The interest rate is based on
        LIBOR plus 4.5%. A standby fee of 2.0% is charged on the unutilized
        Tranche I portion and Tranche II portion, when it becomes available.
        At December 31, 2010, none of the facility was drawn. For each of
        Tranche I and Tranche II, the amounts decline to $16.5 million on
        October 15, 2013, $8.3 million on October 14, 2014 with final
        repayment due on October 15, 2015. Setup costs of $16.4 million (2009
        - $16.2 million) pertaining to these facilities, including the value
        attributed to the share purchase warrants (Note 8(b)), have been
        recorded as deferred financing costs and are amortized over the life
        of the revolving facilities. As of December 31, 2010, $4.6 million
        (2009 - $1.8 million) has been amortized. For the year ended December
        31, 2010, $2.8 million (2009 - $1.8 million) has been amortized and
        charged to earnings.

    7.  ASSET RETIREMENT OBLIGATIONS

        In Albania, the Company estimated the total undiscounted amount
        required to settle the asset retirement obligations at $31.5 million
        (2009 - $24.7 million). These obligations will be settled at the end
        of the Company's 25-year license of which 20 years are remaining. The
        liability has been discounted using a credit-adjusted risk-free
        interest rate of 10% (2009 - 10%) and an inflation rate of 2.0% (2009
        - 2.5%) to arrive at asset retirement obligations of $5.5 million as
        at December 31, 2010.


        ($000s)                                            2010         2009
        ---------------------------------------------------------------------
        Asset retirement obligation,
         beginning of year                          $     3,856  $     2,896
           Incurred                                       1,311          656
           Revision                                         (96)           -
           Accretion                                        425          304
                                                   --------------------------
        Asset retirement obligation,
         end of year                                $     5,496  $     3,856
                                                   --------------------------
                                                   --------------------------

    8.  SHAREHOLDERS' EQUITY

        (a) Share capital

        Authorized

        Unlimited number of common shares with no par value.

        Issued

                                                      Number of       Amount
                                                  Common Shares       ($000s)
        ---------------------------------------------------------------------
        Balance, December 31, 2008                  182,540,179  $   121,907

          Prospectus issue                           25,143,800       38,349
          Warrants exercised                         19,144,502       43,731
          Stock options exercised                     1,443,684        4,291
          Share issue costs                                   -       (2,220)
                                                   --------------------------
        Balance, December 31, 2009                  228,272,165      206,058

          Prospectus issue                           12,903,228       96,153
          Warrants exercised                          1,277,267        3,381
          Stock options exercised                     2,342,330        8,120
          Share issue costs                                   -       (4,333)
                                                   --------------------------
        Balance, December 31, 2010                  244,794,990  $   309,379
                                                   --------------------------
                                                   --------------------------

        (a) Share capital (cont'd)

        On July 15, 2010, the Company completed a prospectus offering with a
        syndicate of underwriters and issued an aggregate of 12,903,228
        common shares at a price of CAD$7.75 per common share on a bought
        deal basis, resulting in gross proceeds of $96.2 million. Commissions
        and share issue costs were $4.3 million.

        The following table summarizes the calculation of basic and diluted
        weighted average number of common shares:

                                                           2010         2009
        ---------------------------------------------------------------------
        Weighted-average number of common shares
         outstanding - basic                        236,726,203  206,999,279
        Dilutive effect of stock options              6,947,977            -
        Dilutive effect of warrants                   3,294,984            -
                                                   --------------------------
        Weighted-average number of common shares
         outstanding - diluted                      246,969,164  206,999,279
                                                   --------------------------
                                                   --------------------------

        In computing diluted earnings per share for the year ended December
        31, 2010, 480,000 (2009 - 4,205,000) options were excluded as the
        effect would be anti-dilutive. Due to the net loss in 2009, the
        effect of all options and warrants was anti-dilutive.

        (b) Warrants

        A summary of the changes in warrants is presented below:

                                                      Number of       Amount
                                                       Warrants       ($000s)
        ---------------------------------------------------------------------
        Balance, December 31, 2008                    9,713,375  $     2,088
           Issued                                    16,000,000       14,136
           Transferred to share capital on exercise (19,144,502)     (14,485)
           Forfeited                                   (428,540)           -
                                                   --------------------------
        Balance, December 31, 2009                    6,140,333        1,739
           Transferred to share capital on exercise  (1,277,267)        (142)
                                                   --------------------------
        Balance, December 31, 2010                    4,863,066  $     1,597
                                                   --------------------------
                                                   --------------------------


        The following table summarizes the outstanding and exercisable
        warrants at December 31, 2010:

        ---------------------------------------------------------------------
                           Number of Warrants      Weighted Average Exercise
        Expiry Date    Outstanding and Exercisable        Price (CAD$)
        --------------------------------------------------------------------
        March 1, 2012           4,863,066                     2.37


        The Company calculated the fair value of the warrants issued during
        the year ended December 31, 2009 to be $14.1 million. The Company
        determined this amount using the Black-Scholes option pricing model
        assuming a risk free interest rate of 2.1%, a dividend yield of 0%, a
        forfeiture rate of 0%, an expected volatility of 126% and expected
        life of the warrants to be one year from the date of grant. The fair
        value per warrant for this grant was CAD$1.01. No warrants were
        issued for the year ended December 31, 2010.

        (c) Stock Options

        The Company has established a "rolling" Stock Option Plan. The number
        of shares reserved for issuance may not exceed 10% of the total
        number of issued and outstanding shares and, to any one optionee, may
        not exceed 5% of the issued and outstanding shares on a yearly basis
        or 2% if the optionee is engaged in investor relations activities or
        is a consultant. The exercise price of each option shall not be less
        than the market price of the Company's stock at the date of grant.

        Options issued vest one-third immediately (after three months for new
        employees) following the date of the grant, one-third after one year
        following the date of the grant, and one-third two years following
        the grant date.

        A summary of the changes in stock options is presented below:

                                                             Weighted Average
                                               Number of         Exercise
                                                Options         Price (CAD$)
        ---------------------------------------------------------------------
        Balance, December 31, 2009            12,830,002           2.39
          Granted                              4,140,000           6.71
          Exercised                           (2,342,330)          2.35
          Forfeited                             (113,168)          4.57
                                         ------------------------------------
        Balance, December 31, 2010            14,514,504           3.61
                                         ------------------------------------
                                         ------------------------------------

        The following table summarizes the outstanding and exercisable
        options at December 31:

                               2010                          2009
                  ----------------------------- -----------------------------
                                      Weighted                      Weighted
                                       Average                       Average
                                     Remaining                     Remaining
    Range of                          Contrac-                      Contrac-
    Exercise                              tual                          tual
    Price               Out-     Exer-    Life        Out-     Exer-    Life
    (CAD$)          standing   cisable  (years)   standing   cisable  (years)
    ------------------------------------------- -----------------------------
    1.01 - 1.50    2,283,611  2,300,277    2.7   3,144,444  2,210,930    3.7
    1.51 - 2.00    4,295,167  3,330,827    2.8   4,577,390  2,557,391    3.8
    2.01 - 3.00      627,223    627,223    2.1     903,168    630,939    2.8
    3.01 - 3.50      645,999    645,999    0.4   1,300,000  1,300,000    1.1
    3.51 - 4.00       58,334     58,334    2.6     150,000    116,666    2.3
    4.01 - 4.50    1,775,001  1,775,001    2.3   1,775,000  1,183,331    3.3
    4.51 - 5.00      300,000    300,000    2.5     300,000    200,000    3.5
    5.01 - 6.00      499,167    310,837    3.9     680,000    226,669    4.9
    6.01 - 6.50    2,840,002    919,992    4.0           -          -      -
    6.51 - 7.00      550,000    183,336    4.8           -          -      -
    7.01 - 7.50      160,000     53,333    4.6           -          -      -
    7.51 - 9.50      480,000    159,994    4.2           -          -      -
                  ----------------------        ----------------------
                  14,514,504 10,665,153         12,830,002  8,425,926
                  ----------------------        ----------------------
                  ----------------------        ----------------------


        (d) Stock-based Compensation

        Using the fair value method for stock-based compensation, the Company
        calculated stock-based compensation expense for the year ended
        December 31, 2010 as $14.7 million (2009 - $6.5 million) for the
        stock options granted to officers, directors, employees and service
        providers. Of this amount, $8.1 million (2009 - $4.5 million) was
        charged to earnings and $6.6 million (2009 - $2.0 million) was
        capitalized. The Company determined these amounts using the Black-
        Scholes option pricing model assuming a risk free interest rate range
        of 1.91% - 2.86% (2009 - 1.80% to 2.59%), a dividend yield of 0%
        (2009 - 0%), a forfeiture rate of 0% (2009 - 0%), an expected
        volatility range of 49% - 77% (2009 - 103% to 126%) and expected
        lives of the stock options of five years (2009 - five) from the date
        of grant. The weighted average fair value per option granted during
        the year was CAD$3.96 (2009 - CAD$1.99).

        (e) Contributed Surplus

        The following table summarizes the change in contributed surplus as
        of December 31:

        ($000s)                                            2010         2009
        ---------------------------------------------------------------------
        Balance, beginning of year                  $    16,812  $    11,862
          Stock-based compensation                       14,695        6,560
          Transferred to share capital on exercise       (2,792)      (1,610)
                                                   --------------------------
        Balance, end of year                        $    28,715  $    16,812
                                                   --------------------------
                                                   --------------------------

    9.  SEGMENTED INFORMATION

        The Company defines its reportable segments based on geographic
        locations.

        Year ended December 31, 2010
        ($000s)                            Albania       Canada        Total
        ---------------------------------------------------------------------
        Revenue
          Oil revenue                  $   170,376  $         -  $   170,376
          Royalties                        (33,682)           -      (33,682)
          Interest                               9          723          732
                                      ---------------------------------------
                                           136,703          723      137,426
                                      ---------------------------------------
        Expenses
          Operating                         36,744            -       36,744
          Sales and transportation          18,847            -       18,847
          General and administrative         3,725        4,530        8,255
          Interest and bank charges          1,160            -        1,160
          Interest on long-term debt         1,421            -        1,421
          Foreign exchange gain               (178)      (5,047)      (5,225)
          Stock-based compensation           2,348        5,763        8,111
          Amortization of deferred
           financing costs                   2,789            -        2,789
          Depletion, depreciation and
           accretion                        27,357          159       27,516
                                      ---------------------------------------
                                            94,213        5,405       99,618
                                      ---------------------------------------
        Income (loss) before income
         taxes                              42,490       (4,682)      37,808
        Future income tax expense          (23,543)           -      (23,543)
                                      ---------------------------------------
        Net income (loss) for the year $    18,947       (4,682) $    14,265
                                      ---------------------------------------
                                      ---------------------------------------

        Assets, December 31, 2010      $   360,226  $   107,188  $   467,414
                                      ---------------------------------------
                                      ---------------------------------------
        Additions to property, plant
         and equipment                 $   121,852  $       160  $   122,012
                                      ---------------------------------------
                                      ---------------------------------------

        During the year, the Albania segment recorded domestic sales of $24.8
        million (2009 - $15.5 million) and export sales of $145.6 million
        (2009 - $71.1 million).


        Year ended December 31, 2009
        ($000s)                            Albania       Canada        Total
        ---------------------------------------------------------------------

        Revenue
          Oil revenue                  $    86,614  $         -  $    86,614
          Royalties                        (20,468)           -      (20,468)
          Interest                               1          823          824
                                      ---------------------------------------
                                            66,147          823       66,970
                                      ---------------------------------------
        Expenses
          Operating                         24,781            -       24,781
          Sales and transportation           9,869            -        9,869
          General and administrative         3,055        3,395        6,450
          Interest and bank charges            648            -          648
          Interest on long-term debt         1,858            -        1,858
          Gain on disposal of investments        -         (347)        (347)
          Foreign exchange gain                 (5)      (4,581)      (4,586)
          Stock-based compensation             831        3,714        4,545
          Amortization of deferred
           financing costs                   1,803            -        1,803
          Depletion, depreciation and
           accretion                        16,083          125       16,208
                                      ---------------------------------------
                                            58,923        2,306       61,229
                                      ---------------------------------------
        Income (loss) before income
         taxes                               7,224       (1,483)       5,741
        Future income tax expense           (5,891)           -       (5,891)
                                      ---------------------------------------

        Net income (loss) for the year $     1,333  $    (1,483) $      (150)
                                      ---------------------------------------
                                      ---------------------------------------

        Assets, December 31, 2009      $   221,503  $    83,317  $   304,820
                                      ---------------------------------------
                                      ---------------------------------------
        Additions to property, plant
         and equipment                 $    38,190  $       134  $    38,324
                                      ---------------------------------------
                                      ---------------------------------------


    10. INCOME TAXES

        Future income tax expense relates to the Albanian operations and
        results from the following as of December 31:

        ($000s)                                            2010         2009
        ---------------------------------------------------------------------
        Net book value of property, plant and
         equipment, net of asset retirement
         obligations                                $   291,681  $   180,280
        Cost recovery pool                             (152,599)    (101,452)
                                                   --------------------------

        Timing difference                           $   139,082  $    78,828
                                                   --------------------------
                                                   --------------------------
        Future income tax liability at 50%          $    69,541  $    39,414
                                                   --------------------------
                                                   --------------------------

        The Company's future income tax liabilities result from the temporary
        differences between the carrying value and tax values of its Albanian
        assets and liabilities.

        The cost recovery pool represents deductions for income taxes in
        Albania. Under the terms of the petroleum agreements in Albania, any
        profit will be taxed at a rate of 50 percent.

        The provision for income taxes reported differs from the amounts
        computed by applying the cumulative Canadian federal and provincial
        income tax rates to the income before tax provision due to the
        following:

        ($000s)                                            2010         2009
        ---------------------------------------------------------------------
        Income before income taxes                  $    37,808  $     5,741
        Statutory tax rate                               28.00%       29.00%
                                                   --------------------------
                                                         10,586        1,665
        Difference in tax rates between Albania
         and Canada                                       9,348        2,453
        Non-deductible expenses                           2,271          595
        Valuation allowance                               3,451        2,190
        Other                                            (2,113)      (1,012)
                                                   --------------------------
        Future income tax expense                   $    23,543  $     5,891
                                                   --------------------------
                                                   --------------------------

        The significant components of the Company's future income tax assets
        and liabilities are as follows:


        ($000s)                                            2010         2009
        ---------------------------------------------------------------------
        Future income tax assets
          Non-capital loss carry forwards           $     6,847  $     4,456
          Capital loss                                    2,148        1,124
          Share issue costs                                 882          392
          Property, plant and equipment                     178         (771)
          Less: valuation allowances                    (10,055)      (5,201)
                                                   --------------------------
        Future income tax assets                    $         -  $         -
                                                   --------------------------
                                                   --------------------------
        Future income tax liabilities
          Property, plant and equipment - Albania   $    69,541  $    39,414
                                                   --------------------------
        Future income tax liability                 $    69,541  $    39,414
                                                   --------------------------
                                                   --------------------------

        The Company has available for deduction against future Canadian
        taxable income, non-capital losses of approximately $27.4 million.
        These losses, if not utilized, will expire commencing in 2011 as
        follows:

        ($000s)
        ---------------------------------------------------------------------
        2011                                                     $     1,552
        2015                                                           4,166
        2026                                                           2,310
        2027                                                           5,846
        2028                                                             193
        2029                                                           5,786
        2030                                                           7,534
                                                                -------------
                                                                 $    27,387
                                                                -------------
                                                                -------------


        The potential income tax benefits of these future income tax assets
        have been offset by a valuation allowance and have not been recorded
        in these financial statements.

    11. COMMITMENTS

        The Company leases office premises, of which the minimum lease
        payments for the next five years are:

        ($000s)                            Albania       Canada        Total
        ---------------------------------------------------------------------
        2011                           $       557  $       709  $     1,266
        2012                                   425          541          966
        2013                                   318          528          846
        2014                                   318           44          362
        2015                                   318            -          318
                                      ---------------------------------------
                                       $     1,936  $     1,822  $     3,758
                                      ---------------------------------------
                                      ---------------------------------------

        The Company has debt repayment commitments as disclosed in note 6(a),
        6(b) and 6(c).


    12. SUPPLEMENTAL CASH FLOW INFORMATION

        ($000s)                                            2010         2009
        ---------------------------------------------------------------------
        Operating activities
        Increase in current assets
          Accounts receivable                       $    (5,875) $    (5,767)
          Inventory                                      (2,168)        (443)
          Deposits and prepaid expenses                 (10,725)      (4,668)
        Decrease in current liabilities
          Accounts payable and accrued liabilities       (2,946)      (3,613)
                                                   --------------------------
                                                    $   (21,714) $   (14,491)
                                                   --------------------------
                                                   --------------------------
        Investing activities
        Increase (decrease) in current liabilities
          Accounts payable and accrued liabilities  $     6,682  $    (3,670)
                                                   --------------------------
                                                   --------------------------

        Cash and cash equivalents
          Cash                                      $       862  $     3,895
          Fixed income investments                      105,757       55,600
                                                   --------------------------
                                                    $   106,619  $    59,495
                                                   --------------------------
                                                   --------------------------

        Interest paid                               $     2,581  $     2,506
                                                   --------------------------
                                                   --------------------------

        Interest received                           $       787  $     1,210
                                                   --------------------------
                                                   --------------------------


    13. FINANCIAL INSTRUMENTS

        Financial risk management

        Overview

        The Company has exposure to credit, liquidity and market risk. This
        note presents information about the Company's exposure to each risk,
        the Company's objectives, policies and processes for measuring and
        managing risk, and management of capital.

        The Board of Directors of the Company has the overall responsibility
        for the establishment and oversight of the Company's risk management
        framework. The Board has implemented and monitors compliance with
        risk management policies. The Company's risk management policies are
        established to identify and analyze the risks faced, to set
        appropriate risk limits and controls, and to monitor risks and
        adherence to market conditions and the Company's activities.

        Fair value measurement

        The Company's financial instruments recognized on the balance sheet
        consist of short-term deposits, accounts receivable, note receivable,
        accounts payable and accrued liabilities and long-term debt. The fair
        value of these instruments approximate their carrying amounts due to
        their short terms to maturity or the indexed rate of interest on the
        note receivable and long-term debt.

        Bankers' cash and cash equivalents and short-term deposits are
        transacted in active markets. The Company classifies the fair value
        of these transactions according to the following hierarchy based on
        the amount of observable inputs used to value the instrument.

        Level 1 - Quoted prices are available in active markets for identical
        assets or liabilities as of the reporting date. Active markets are
        those in which transactions occur in sufficient frequency and volume
        to provide pricing information on an ongoing basis.

        Level 2 - Pricing inputs are other than quoted prices in active
        markets included in Level 1. Prices in Level 2 are either directly or
        indirectly observable as of the reporting date. Level 2 valuations
        are based on inputs, including quoted forward prices for commodities,
        time value and volatility factors, which can be substantially
        observed or corroborated in the marketplace.

        Level 3 - Valuations in this level are those with inputs for the
        asset or liability that are not based on observable market data.

        The Company's cash and cash equivalents and short-term deposits have
        been assessed on the fair value hierarchy described above and have
        been classified as Level 1.

        Credit risk

        Credit risk is the risk of financial loss to the Company if a
        customer or counterparty to a financial instrument fails to meet its
        contractual obligations, and arises principally from the Company's
        receivables from petroleum refineries relating to accounts
        receivable. As at December 31, 2010, the Company's receivables
        consisted of $29.0 million (2009 - $23.1 million) of receivables from
        petroleum refineries and $0.2 million (2009 - $0.2 million) of other
        trade receivables, as summarized below:

                                       30 - 60   61 - 90   Over 90
        ($000s)              Current      days      days      days     Total
        ---------------------------------------------------------------------
        Albania              $25,590   $ 3,019   $   408   $     -   $29,017
        Canada                   216         -         -         -       216
                        -----------------------------------------------------
                             $25,806   $ 3,019   $   408   $     -   $29,233
                        -----------------------------------------------------
                        -----------------------------------------------------


        In Albania, the Company considers any amounts greater than 60 days as
        past due. The accounts receivable, included in the table, past due or
        not past due are not impaired. They are from counterparties with whom
        the Company has a history of timely collection and the Company
        considers the accounts receivable collectible. Domestic receivables
        are due by the end of the month following production and export
        receivables are collected within 30 days from the date of the
        shipment. The Company's policy to mitigate credit risk associated
        with these balances is to establish marketing relationships with a
        variety of purchasers. The amount past due has been received
        subsequent to year end and is not considered to be impaired.

        In Canada, no significant amounts are considered past due or
        impaired.

        The carrying amount of accounts receivable represents the maximum
        credit exposure. As of December 31, 2010 and December 31, 2009, the
        Company does not have an allowance for doubtful accounts and did not
        provide for any doubtful accounts nor was it required to write-off
        any receivables.

        Cash and cash equivalents consist of cash and bank balances. The
        Company manages the credit exposure related to short-term investments
        by selecting counter parties based on credit ratings and monitors all
        investments to ensure a stable return, avoiding complex investment
        vehicles with higher risk such as asset backed commercial paper.

        Liquidity risk

        Liquidity risk is the risk that the Company will not be able to meet
        its financial obligations as they are due. The Company's approach to
        managing liquidity is to plan that it will have sufficient liquidity
        to meet its liabilities when due, under both normal and stressed
        conditions without incurring unacceptable losses or risking harm to
        the Company's reputation.

        The timing of cash flows relating to financial liabilities as at
        December 31, 2010, is as follows:


        ($000s)                           2011      2012      2013      2014
        ---------------------------------------------------------------------
        Accounts payable and accrued
         liabilities                   $23,241   $     -   $     -   $     -
        Operating loan                       -    19,741         -         -
        Term loans                       4,014       889       889       296
                                      ---------------------------------------
        Total                          $27,255   $20,630   $   889   $   296
                                      ---------------------------------------
                                      ---------------------------------------


        The Company prepares annual capital expenditure budgets, which are
        regularly monitored and modified as considered necessary. Further,
        the Company utilizes authorizations for expenditures on both operated
        and non-operated projects to further manage capital expenditures. To
        facilitate the capital expenditure program, the Company has a
        revolving credit facility with a European financial institution based
        in Albania, as disclosed in note 6. The Company also attempts to
        match its payment cycle with its collection of petroleum revenues.
        The Company maintains a close working relationship with the European
        bank that provides its credit facility. There were no increases in
        the existing credit facility during the year.

        Market Risk

        Market risk is the risk that changes in market prices, such as
        foreign exchange rates, commodity prices, and interest rates will
        affect the Company's net income. The objective of market risk
        management is to manage and control market risk exposures within
        acceptable limits, while maximizing returns.

        Foreign currency exchange rate risk

        Foreign currency exchange rate risk is the risk that the fair value
        of future cash flows will fluctuate as a result of changes in foreign
        exchange rates. As at December 31, 2010, a 10% change in the foreign
        exchange rate of the Canadian dollar against the United States
        dollar, with all other variables held constant, would affect after
        tax net income for the year by $7.0 million (2009 - $3.8 million).
        The sensitivity is higher in 2010 as compared to 2009 because of an
        increase in Canadian dollar cash and cash equivalents outstanding.

        As at December 31, 2010, a 10% change in the foreign exchange rate of
        the Albanian Lek against the United States dollar, with all other
        variables held constant, would affect after tax net income for the
        year by $1,000 (2009 - $2,000). The sensitivity is lower in 2010
        compared to 2009 because of a decrease in Albania Lek cash and cash
        equivalents outstanding.

        The Company had no forward foreign exchange rate contracts in place
        as at or during the years ended December 31, 2010 and 2009.

        Commodity price risk

        Commodity price risk is the risk that the value of future cash flows
        will fluctuate as a result of changes in commodity prices. Commodity
        prices for petroleum and natural gas are impacted by world economic
        events that dictate the levels of supply and demand. The Company's
        primary revenues are from heavy oil sales in Albania, priced on a
        quality differential basis, to the US dollar-based Brent oil price.
        The Company has not entered into any commodity derivative contracts
        as at or during the years ended December 31, 2010 and 2009.

        Interest rate risk

        Interest rate risk is the risk that future cash flows will fluctuate
        as a result of changes in market interest rates. The Company is
        exposed to interest rate fluctuations on its bank debt which bears a
        floating rate of interest. As at December 31, 2010, a 10% change in
        the interest rate, with all other variables held constant, would
        affect after tax net income for the year by $0.2 million (2009 - $0.3
        million).

        Capital management

        The Company's policy is to maintain a strong capital base thereby
        establishing investor, creditor and market confidence and to sustain
        future business development. The Company manages its capital
        structure and makes necessary adjustments in light of changes in
        economic conditions and the risk characteristics of the underlying
        petroleum and natural gas assets. The Company's capital structure
        includes shareholders' equity, bank debt and working capital. In
        order to maintain the capital structure, the Company may from time to
        time issue shares and adjust capital spending to manage current and
        projected debt levels.

        The Company monitors capital based on the ratio of debt to funds from
        operations. This ratio is calculated as net debt (outstanding bank
        debt less working capital before debt) divided by funds from
        operations. The Company's strategy is to maintain a debt to funds
        from operations ratio of no more than 1.5 to 1. This ratio may
        increase at certain times as a result of acquisitions. In order to
        monitor this ratio, the Company prepares annual capital expenditure
        budgets, which are updated as necessary depending on varying factors
        including current and forecast prices, successful capital deployment
        and general industry conditions. The annual and updated budgets are
        approved by the Board of Directors.

        As at December 31, 2010, the ratio of surplus in debt to funds from
        operations was 1.49 (2009 - 2.04). The decrease was primarily due to
        the increase in funds from operations during the year from $25.4
        million in 2009 to $73.2 million in 2010, partially offset by an
        improvement in net surplus in debt from $52.0 million in 2009 to
        $109.1 million in 2010.

        The Company's share capital is not subject to external restrictions;
        however, the bank debt facility is based on certain covenants, all of
        which were met as at December 31, 2010 and 2009. The Company has not
        paid or declared any dividends since the date of incorporation, nor
        are any contemplated in the foreseeable future.

    14. SUBSEQUENT EVENT

        In February 2011, the Company entered into financial commodity put
        contracts representing 4,000 barrels of oil per day at a floor price
        of $80 per barrel for the period January 1, 2012 to December 31,
        2012.

SOURCE Bankers Petroleum Ltd.