CAZA.L Regulatory News (CAZA)

March 28, 2013

Caza Oil & Gas, Inc.

CAZA ANNOUNCES RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012

HOUSTON, TEXAS (Marketwire - March 28, 2013) - Caza Oil & Gas, Inc. ("Caza" or "the Company") (TSX: CAZ) (AIM: CAZA), the exploration, appraisal, development and production company, is pleased to announce the Company's final results for the year ended December 31, 2012.

2012 highlights include:

·; Annual revenues increased 22% to US$4.97 million ("MM") for the year 2012, (US$4.09MM: 2011) and quarterly revenues for the three month period ended December 31, 2012 increased 31% to US$1.58MM (US$1.21MM for the comparable three month period ended December 31, 2011);

·; Average production volumes for the twelve month period ended December 31, 2012, increased 19% to 285 barrels of oil equivalent ("boe") per day ("boe/d") (240 boe/d: 2011);

·; As estimated by the independent report completed by NSAI (as defined below under Reserve Data) dated as of December 31, 2012 (all reserve figures are net to Caza):

o Proven (1P) reserves at December 31, 2012 increased by 3.1% to 2.42 MM boe (2.35 MMboe in 2011);

o Proven plus Probable (2P) reserves decreased by 11.1% to 10.8 MMboe (12.1 MMboe in 2011); and

o Proven plus Probable plus Possible (3P) reserves to the Company increased by 23.3% to 27.4MMboe (22.3 MMboe in 2011);

·; The NSAI Report has assigned 253 (117 as at December 31, 2011) viable drilling locations to the Company's current leasehold position in the Bone Spring play with total Proven plus Probable plus Possible net reserves to the Company of 24.4 MMboe (16.7 MMboe for the 117 locations as at December 31, 2011);

·; Notwithstanding the divestiture of the San Jacinto Property and selling down in the Company's Copperline, Lennox and Forehand Ranch Bone Spring properties from 100% to the current levels (58.75%; 50%; and 63% respectively), the two wells drilled on Copperline and Forehand Ranch (Caza Ridge 14 State #3H and Forehand Ranch 27 State Com #1H respectively) quickly replaced and surpassed the oil and natural gas production, cash flows and reserve figures lost with the sale of San Jacinto. The decrease in Proven plus Probable reserves outlined above is the result of lost Probable reserves due to selling down in the aforementioned Bone Spring properties in order to manage risk. Management expects these figures to continue to improve as more Bone Spring wells are drilled, completed and brought into production in 2013;

·; Cash and cash equivalents at December 31, 2012, are US$6.8MM;

·; Entered into a £6 million Standby Equity Distribution Agreement ("SEDA") and a US$12 million SEDA-backed Loan Agreement with YA Global Master SPV Ltd., an investment fund managed by Yorkville Advisors Global, LP ("Yorkville").

Recent Developments:

·; The Lennox State Unit 32 No. 2H horizontal well (the "Well") reached the intended total vertical depth ("TVD") of approximately 11,850 feet subsurface on March 12, 2013, and log data was obtained. Based on analysis of the log data, Caza and its partners are currently drilling the lateral section of the Well through the primary objective 3rd Bone Spring Sand to a total measured depth ("TMD") of approximately 15,150 feet. Caza has a 40.00% working interest before payout (31.88% net revenue interest) and a 50.00% working interest after payout (39.85% net revenue interest) in the Well. Once TMD is reached the market will be updated and given a full operational report on the Well.

·; The Company completed a trade on March 25, 2013 in Lea County, New Mexico with The Blanco Company ("Blanco") to acquire a 320 acre lease from Blanco to be called the Gateway Property. Caza Petroleum currently has a 100% working interest (77% net revenue interest) in the property.

·; On January 15, 2013, the Company completed a working interest trade pursuant to which Caza obtained a 20% non-operated working interest (16% net revenue interest) in two leases operated by Occidental Petroleum Corporation covering approximately 1,680 acres in the Bone Spring play in exchange for a 20% non-operated working interest (15.94% net revenue interest) in Caza's Lennox Property.

W. Michael Ford, Chief Executive Officer commented:

"We are pleased with our progress in 2012. The latter portion of the year was particularly positive with material increases in both production and revenues. Caza increased its production volumes by 19% and revenues by 31% in Q4 2012, as compared to Q4 2011, with an annual increase in revenues on the prior year of 22% in 2012. Our Proven reserves also increased during the course of 2012. These increases were the direct result of Caza's successful operations in the Bone Spring play during the year, which remains the focus of the value creating activities we undertake on behalf of our shareholders.

We are pleased to have entered into the SEDA and the Loan Agreement with Yorkville. These facilities provide the Company with flexible funding options, which currently are a cost effective arrangement for obtaining capital to develop the Company's assets, including our inventory of Bone Spring properties. We believe this arrangement is an efficient way to meet our short-term capital requirements.

We were successful in divesting the San Jacinto Wolfberry property in Midland County, Texas for $6.1MM. The proceeds were used to focus on more favorable investment opportunities in the Company's existing Bone Spring assets, namely Copperline, Lennox and Forehand Ranch properties. Even though Caza sold down its percentage holding in these properties, the wells drilled at Copperline and Forehand Ranch have already replaced and surpassed the oil and natural gas production, cash flows and Proven reserve figures lost with the sale of San Jacinto. We look forward to updating the market on progress made at Lennox once our intended TMD is reached.

The Company also leveraged its existing Bone Spring assets to get into new Bone Spring opportunities. In addition to the aforementioned properties, the Company also has acreage inthe following properties: Lynch, Forehand Ranch South, Mad River, Azotea Mesa, Bradley 29, Two Mesas, Quail Ridge, Rover, West Rover, West Copperline, Chaparral 33, Madera and Roja. The Company has acquired approximately 4,100 net acres in the play to date, which represents a conscious effort by Management to add shareholder value by investing in propertiescontaining multiple potential pay zones for oil and liquids-rich natural gas.

Leasing and drilling activity continues to be competitive in the play, and initial producing well rates continue to improve with technological advances in drilling and frac designs. The Company is well positioned in the play, and continues to exploit opportunities to build on its current acreage position.

We made significant progress in 2012, and after laying the groundwork for continued success in the Bone Spring play, we look forward to advancing the Company's prospects and properties during the course of 2013."

Strategy

The Company's stated strategy is to achieve significant growth in reserves and production through:

·; progressing material, internally generated prospects, utilizing cash flows from existing production and exploiting Proven plus Probable reserves; and

·; executing strategic acquisitions of assets at all stages of the development cycle to facilitate longer term organic growth.

In the implementation of this strategy, the Company has a clear set of criteria in high-grading projects:

·; the Company seeks to retain control of project execution and timing through the operatorship of assets;

·; assets should be close to existing established infrastructure, allowing for quick, efficient hook-up and lower operational execution risk;

·; drilling targets in close proximity to known producing reservoirs; and

·; internal models for core projects should demonstrate the ability to deliver at least a 25% rate-of-return on investment.

Assets

The Company is primarily focused in the Permian Basin of west Texas and southeast New Mexico, the most prolific oil and gas basin in North America. Independent forecasts predict that the Permian Basin will have the greatest oil supply growth of any North American basin over the next five years. This provides the Company with low-risk, liquids-rich development opportunities from many geologic reservoirs and play types. The basin also has a vast operational infrastructure in place. The Company is utilizing recent advances in horizontal drilling and dynamic completion technologies to unlock the significant resources within its asset base and the region.

Management has focused efforts on building a core asset base in the prolific Bone Spring play and has concluded that these assets represent the most significant opportunity for the Company to deliver material production, revenue growth and demonstrable shareholder returns within an acceptable timeframe. The Company expects that expanding and diversifying the producing asset base within the Bone Springs play will not only grow the Company but will also make it more resilient to any single project risk.

The Company has now identified over 253 drilling locations in the Bone Spring play according to the NSAI Report. Management believes that the Company is well-positioned with approximately 4,100 net acres in the play and continues to actively monitor opportunities to build on Caza's current acreage position.

The Company's Bone Spring leases are mostly State and Federal leases with primary terms between 5-10 years. In terms of obligations and commitments, one producing well will hold each lease in its entirety.

Financing

The Company's near term intention is to continue to participate in 3 to 4 wells per annum funded from production revenues, existing cash resources and currently available financing. However, management believes that accelerating and expanding this drilling program will significantly increase both production and cash flows, which will optimize the work program and drive economies of scale.

In this regard, the Company and its advisers have been actively considering alternative sources of capital, including a review of possible joint-venture and strategic financing partner options and other debt instruments, which will provide the Company with sufficient leverage and capital to adequately exploit the opportunity but mitigate material equity dilution during the "value accretion" drilling phase.

Outlook

Subject to the availability of appropriate financing, the Company's objective is to embark on an accelerated and expanded drilling program in the Bone Spring play over the next two years. Management believes that such a program has the capacity to increase shareholder value significantly over the period. A program of this type will initially require additional financing of the nature referred to above but would utilize excess operational cash flow to fund further development drilling and lease purchases beyond the initial two year period.

Management believes that such a program can be accomplished by exploiting the Company's existing asset/lease inventory with minimal equity dilution to existing shareholders. However, if appropriate, Management will also seek to identify corporate and asset acquisitions, which will enable the Company to increase its position in the Bone Spring play. Accordingly, in line with the Company's stated strategy, Management's goal is to achieve significant growth in the Company's reserves and production, thereby raising the Company's profile in the basin and allowing shareholder value to be maximized and, if appropriate, fully matured over the short-to-medium term.

Net Reserve Figures by Category:

Caza reported an increase in Proven (1P) reserves at year end 2012 to 2.42 MMboe or an increase of 3.1%; Proven plus Probable (2P) reserves decreased at year end 2012 to 10.8 MMboe or a decrease of 11.1%; Proven plus Probable plus Possible (3P) reserves increased at year end 2012 to 27.4 MMboe or an increase of 23.3% (as depicted in the table below).

Net Reserve Data:

Totals may not add because of rounding. Mbbl, MMcf and Mboe refer to thousand barrels, million cubic feet and thousand boe, respectively.

Present value cash flows of Caza's estimated net Proven and Probable reserves as at December 31, 2012 were as follows:

Present value cash flow, net Proven plus Probable reserves: PV 10% before PV 10% after

income taxes income taxes

(US$MM) (US$MM)

74,789 48,587

The reserves data set out in this announcement (including in the above tables) have been extracted from the NSAI Report and are disclosed, together with additional information relating to the Company's reserves and properties, in the Company's Annual Information Form for the year ending December 31, 2012 (to be filed on SEDAR at www.sedar.com). The evaluation of the reserves data included in the Annual Information Form and in the NSAI Report complies with standards set out in the Canadian Oil and Gas Evaluation Handbook prepared jointly by the Society of Petroleum Evaluation Engineers (Calgary Chapter) and the Canadian Institute of Mining, Metallurgy & Petroleum (Petroleum Society). References to the NSAI Report are to the report prepared on the Company's reserves by Netherland, Sewell & Associates, Inc. as of December 31, 2012, and entitled "Estimates of Reserves and Future Revenue to the Caza Petroleum, Inc. Interest in Certain Oil and Gas Properties Located in Louisiana, New Mexico, and Texas as of December 31, 2012".

About Caza

Caza is engaged in the acquisition, exploration, development and production of hydrocarbons in the following regions of the United States of America through its subsidiary, Caza Petroleum, Inc.: Permian Basin (West Texas and Southeast New Mexico) and Texas and Louisiana Gulf Coast (on-shore).

For further information, please contact:

Caza Oil & Gas, Inc.

Michael Ford, CEO +1 432 682 7424

John McGoldrick, Chairman +65 9731 7471 (Singapore)

Cenkos Securities plc

Jon Fitzpatrick +44 20 7397 8900 (London)

Neil McDonald +44 131 220 6939 (Edinburgh)

VSA Capital Limited

Andrew Raca +44 20 3005 5004

Malcolm Graham-Wood +44 20 3005 5012

M:Communications

Chris McMahon +44 20 7920 2330

In accordance with AIM Rules - Guidance Note for Mining, Oil and Gas Companies, the information contained in this announcement has been reviewed and approved by Anthony B. Sam, Vice President Operations of Caza who is a Petroleum Engineer and a member of The Society of Petroleum Engineers.

The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.

Copies of the Company's financial statements for the year ended December 31, 2012, the accompanying management's discussion and analysis and the Company's Annual Information Form for the year ended December 31, 2012 (which contains further information about the Company, its principal properties and its crude oil and natural gas reserves), will be available on SEDAR at www.sedar.com and the Company's website at www.cazapetro.com. The Company's financial statements have been in accordance with Canadian generally acceptable accounting principles applicable to publicly accountable enterprises. All dollar amounts disclosed in this press release are disclosed in United States dollars.

ADVISORY STATEMENT

Information in this news release that is not current or historical factual information may constitute forward-looking statements within the meaning of securities laws. Such information is often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. Information regarding future exploration, development and drilling activities (including the timing and scope thereof), the availability, sources, use and sufficiency of funding or capital, the ability to expand and accelerate the Company's drilling programs and the results thereof, the ability to increase shareholder value, future dilution and the ability to mitigate same, the implementation and impact of the Company's strategy, geologic and seismic interpretation, joint venture relationships, ability to generate projects, strategic acquisitions and Caza's ability to execute its strategic plan contained in this news release constitutes forward-looking information within the meaning of securities laws. Statements relating to "reserves" are deemed to be 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. Disclosure related to targeted internal rates of return and internal modeling are disclosed to further an understanding of the Company's strategies and are not projections or forecasts. Actual rates of return are likely to differ materially.

Implicit in this information, particularly in respect of production are assumptions regarding projected revenue and expenses, the performance of wells, drilling and operating results, availability of funds, asset dispositions and the ability to secure joint venture partners and internally generate projects. These assumptions, although considered reasonable by the Company at the time of preparation, may prove to be incorrect. Readers are cautioned that actual future operating results and economic performance of the Company are subject to a number of risks and uncertainties, including general mechanical, economic, market and business conditions and could differ materially from what is currently expected as set out above. Production disclosed in this press release is at December 31, 2012. Future production may vary, perhaps materially.

For more exhaustive information on these risks and uncertainties you should refer to the Company's most recently filed Annual Information Form filed on SEDAR at www.sedar.com. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While we may elect to, we are under no obligation and do not undertake to update this information at any particular time, except as required by applicable securities laws.

The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation.

The term boe may be misleading, particularly if used in isolation. A boe conversion of six thousand cubic feet per one barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.

Statements in this news release relating to net present value or future net revenue do not represent fair market value.

Management has prepared the accompanying consolidated financial statements of Caza Oil & Gas, Inc. in accordance with International Financial Reporting Standards.

Management is responsible for the integrity and objectivity of the financial statements. Where necessary, the financial statements include estimates, which are based on management's informed judgments. Management has established systems of internal control that are designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use and to produce reliable accounting records for financial reporting purposes.

The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal control. It exercises its responsibilities primarily through the Audit Committee. The Audit Committee meets periodically with management and the external auditors to satisfy itself that management's responsibilities are properly discharged, to review the consolidated financial statements and to recommend that the consolidated financial statements be presented to the Board of Directors for approval.

Deloitte LLP has audited the consolidated financial statements in accordance with Canadian generally accepted auditing standards to enable them to express an opinion on the fairness of the consolidated financial statements.

(signed) "William M. Ford"

Chief Executive Officer and Director

March 26, 2013

(signed) "James M. Markgraf"

Chief Financial Officer

March 26, 2013

To the Shareholders of

Caza Oil & Gas, Inc.

We have audited the accompanying consolidated financial statements of Caza Oil & Gas, Inc. which comprise the consolidated statements of financial position as at December 31, 2012 and 2011 and the consolidated statements of net loss and comprehensive loss, consolidated statements of cash flows and the consolidated statements of changes in equity for the years then ended, and the notes to the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

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

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

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

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Caza Oil & Gas, Inc. and subsidiaries as at December 31, 2012 and 2011 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.

(signed) "Deloitte LLP"

Chartered Accountants

Calgary, Alberta

March 26, 2013

Consolidated Statements of Financial Position

(In United States Dollars)

On behalf of the Board:

(signed) "J. Russell Porter" (signed) "William M. Ford"

Director Director

Consolidated Statements of Net Loss and Comprehensive Loss

(In United States Dollars)

 Consolidated Statements of Cash Flows

(In United States Dollars)

See accompanying notes to the consolidated financial statements

Consolidated Statements of Changes in Equity

(In United States Dollars)

1. Basis of Presentation

Caza Oil & Gas, Inc. ("Caza" or the "Company") was incorporated under the laws of British Columbia on June 9, 2006 for the purposes of acquiring shares of Caza Petroleum, Inc. ("Caza Petroleum"). The Company and its subsidiaries are engaged in the exploration for and the development, production and acquisition of, petroleum and natural gas reserves. The Company's common shares are listed for trading on the Toronto Stock Exchange trading as the symbol "CAZ" and AIM stock exchange as the symbol "CAZA". The corporate headquarters of the Company is located at 10077 Grogan's Mill Road, Suite 200, The Woodlands, Texas 77380 and the registered office of the Company is located at Suite 1700, Park Place, 666 Burrard Street Vancouver, British Columbia, V6C 2X8.

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"). Caza's presentation currency is the United States ("U.S.") dollar as the majority of its transactions are denominated in this currency.

These financial statements were approved for issuance by the Board of Directors on March 26, 2013.

2. Significant Accounting Policies

The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements, and have been applied consistently by the Company and its subsidiaries.

(a) Basis of consolidation:

Subsidiaries:

Subsidiaries are entities controlled by the Company. Control exists when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that currently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Details of the Company's subsidiaries at the end of the reporting year are as follows:

The proportion not owned by the Company is shown as non-controlling interests in these financial statements and relates to exchangeable rights in Caza Petroleum Inc. which are held by management and which are exchangeable into the Company's shares (see Note 7 (e)).

Jointly controlled operations and jointly controlled assets:

Many of the Company's oil and natural gas activities involve jointly controlled assets. The consolidated financial statements include the Company's share of these jointly controlled assets and a proportionate share of the relevant revenue and related costs.

Transactions eliminated on consolidation:

Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the consolidated financial statements.

(b) Foreign currency:

The Company and its subsidiary companies each determines their functional currency of the primary economic environment in which they operate. The Company's (and its subsidiaries) functional currency is the U.S. Dollar. Transactions denominated in a currency other than the functional currency of the entity are translated at the exchange rate in effect on the transaction date.

 (c) Financial instruments:

Non-derivative financial instruments:

Non-derivative financial instruments comprise accounts receivable, cash and cash equivalents, accounts payable and accrued liabilities, and notes payable. Non-derivative financial instruments are recognized initially at fair value. Subsequent to initial recognition, non-derivative financial instruments are measured as described below.

Cash and cash equivalents:

Cash and cash equivalents comprise cash on hand, term deposits held with banks, other short-term highly liquid investments (including money market instruments) with original maturities of three months or less.

Financial assets at fair value through profit or loss:

An instrument is classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Upon initial recognition attributable transaction costs are recognized in profit or loss when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. The Company has designated cash and cash equivalents as fair value through profit and loss.

Loans and receivables:

Non-derivative financial instruments classed as loans and receivables, such as accounts receivable, accounts payable and accrued liabilities, and notes payable, are measured at amortized cost using the effective interest method, less any impairment losses.

(d) Evaluation and exploration assets:

Pre-license costs are expensed in the statement of operations as incurred.

Exploration and evaluation ("E&E") costs, including the costs of acquiring licenses and directly attributable general and administrative costs, initially are capitalized as either tangible or intangible exploration and evaluation assets according to the nature of the assets acquired. The costs are accumulated in cost centers by well, field or exploration area pending determination of technical feasibility and commercial viability. If exploration does not meet capitalization criteria at this time amounts are expensed as exploration and evaluation.

Assets classified as E&E are not amortized, but are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount. For purposes of impairment testing, exploration and evaluation assets are allocated to cash-generating units ("CGU").

The technical feasibility and commercial viability of extracting a mineral resource is considered to be determinable when proven reserves are determined to exist. A review of each exploration license or field is carried out, at least annually, to ascertain whether proven reserves have been discovered. Upon determination of proven reserves, exploration and evaluation assets attributable to those reserves are first tested for impairment and then reclassified from exploration and evaluation assets to a separate category within tangible assets referred to as petroleum and natural gas interests.

(e) Development and production costs:

Items of property, plant and equipment ("PPE"), which include oil and gas development and production assets, are measured at cost less accumulated depletion and depreciation and accumulated impairment losses. Development and production assets are grouped into CGU's for impairment testing.

Development costs that may be capitalized as PPE include land acquisition costs, geological and geophysical expenses, the costs of drilling productive wells, the cost of petroleum and natural gas production equipment, directly attributable and incremental general overhead and estimated abandonment costs. When significant parts of an item of property, plant and equipment, including oil and natural gas interests, have different useful lives, they are accounted for as separate items.

Gains and losses on disposal of an item of property, plant and equipment, including oil and natural gas interests, are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment. The carrying amount of any replaced or sold component is derecognized.

Maintenance:

The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.

Depletion and depreciation:

The net carrying value of development or production assets is depleted using the unit of production method by reference to the ratio of production in the year to the related proven reserves, taking into account estimated future development costs necessary to bring those proved reserves into production. Future development costs are estimated taking into account the level of development required to produce the reserves. These estimates are reviewed by independent reserve engineers at least annually.

Other Property and Equipment:

For other assets, depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Land is not depreciated.

The estimated useful lives for other assets for the current and comparative years are as follows:

Office equipment 5 - 7 years

Fixtures and fittings 5 - 7 years

Depreciation methods, useful lives and residual values are reviewed at each reporting date.

(f) Impairment:

Financial assets:

A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows.

All impairment losses are recognized in profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost the reversal is recognized in profit or loss.

Non-financial assets:

The carrying amounts of the Company's non-financial assets, other than "E&E" assets and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. An impairment test is completed each year for other intangible assets that have indefinite lives or that are not yet available for use. E&E assets are also assessed for impairment if facts and circumstances suggest that the carrying amount exceeds the recoverable amount and before they are reclassified to property and equipment, as oil and natural gas interests.

For the purpose of impairment testing, assets are grouped together into CGUs. A CGU is a grouping of assets that generate cash flows independently of other assets held by the Company. The recoverable amount of an asset or a CGU is the greater of its value in use and its fair value less costs to sell.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss.

Impairment losses recognized in prior years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depletion and depreciation or amortization, if no impairment loss had been recognized.

(g) Decommissioning liabilities:

The Company recognizes a decommissioning liability in the period in which it has a present legal or constructive liability and a reasonable estimate of the amount can be made. Liabilities are measured based on current requirements, technology and price levels and the present value is calculated using amounts discounted over the useful economic life of the assets. Amounts are discounted using a risk-free rate. On a periodic basis, management reviews these estimates and changes, if any, will be applied prospectively. The fair value of the estimated decommissioning liability is recorded as a long-term liability, with a corresponding increase in the carrying amount of the related asset. The capitalized amount is depleted on a unit-of-production basis over the life of the proved reserves. The liability amount is increased each reporting period due to the passage of time and the amount of accretion is charged to finance expense. Periodic revisions to the estimated timing of cash flows or to the original estimated undiscounted cost can also result in an increase or decrease to the decommissioning liability. Actual costs incurred upon settlement of the obligation are recorded against the decommissioning liability to the extent of the liability recorded.

(h) Notes payable and warrants

The component parts of the notes payable (debt and warrants) issued by the Company are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar instruments without the attached warrants. The discount on the liability component amount is recorded as a contra amount to the notes payable and amortized using the effective interest method until maturity.

The amount recorded as warrants was determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. The warrants are classified as equity, are not subsequently remeasured and will remain in equity until the warrant is exercised. On exercise, the balance will be transferred to share capital.

Transaction costs that relate to the issue of the notes payable are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognized directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component and are amortized over the lives of the notes payable using the effective interest method.

(i) Share capital:

Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects.

(j) Share based payments:

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.

The grant date fair value of options granted to employees is recognized as compensation expense on a graded basis over the vesting period, within general and administrative expenses, with a corresponding increase in share based compensation reserve. A forfeiture rate is estimated on the grant date; however, at the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized on a prospective basis.

(k) Revenue:

Revenue from the sale of oil and natural gas is recorded when the significant risks and rewards of ownership of the product is transferred to the buyer which is usually when legal title passes to the external party. This is generally at the time product enters the pipeline or any other means of transportation. Revenue is measured net of royalties.

(l) Finance income and expenses:

Finance expense comprises interest expense on borrowings, if any, and the unwinding of the discount on decommissioning liabilities.

Borrowing costs incurred for the construction of qualifying assets are capitalized during the period of time that is required to complete and prepare the assets for their intended use or sale. All other borrowing costs are recognized in profit or loss using the effective interest method. The capitalization rate used to determine the amount of borrowing costs to be capitalized is the weighted average interest rate applicable to the Company's outstanding borrowings during the period.

Interest income is recognized as it accrues in profit or loss, using the effective interest method.

(m) Earnings per share:

Basic earnings per share is calculated by dividing the profit or loss attributable to common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of dilutive instruments such as options granted to employees. Diluted per share calculations reflect the exercise or conversion of potentially dilutive securities or other contracts to issue shares at the later of the date of grant of such securities or the beginning of the year. The Company computes diluted earnings per share using the treasury stock method to determine the dilutive effect of its options and warrants. Under this method, the diluted weighted average number of shares is calculated assuming the proceeds that arise from the exercise of outstanding, in-the-money options and warrants are used to purchase common shares of the Company at their average market price for the year. No adjustment to diluted earnings per share or diluted shares outstanding is made if the result of the calculations is anti-dilutive.

(n) Application of new and revised International Financial Reporting Standards (IFRSs) issued but not yet effective.

The Company has not applied the following new and revised IFRSs that have been issued but are not yet effective.

Each of the additional new standards outlined below is effective for annual periods beginning on or after January 1, 2013 (with the exception of IFRS 9, which is effective for annual periods beginning on or after January 1, 2015). The Company has not yet assessed the impact, if any, that the new amended standards will have on its financial statements or whether to early adopt any of the new requirements.

IFRS 9 (revised) "Financial Instruments: Classification and Measurement"

The result of the first phase of the IASB's project to replace IAS 39, "Financial Instruments: Recognition and Measurement". The new standard replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value.

IFRS 10 (new) "Consolidated Financial Statements"

Replaces Standing Interpretations Committee 12, "Consolidation - Special Purpose Entities" and the consolidation requirements of IAS 27 "Consolidated and Separate Financial Statements". The new standard replaces the existing risk and rewards based approaches and establish control as the determining factor when determining whether an interest in another entity should be included in the consolidated financial statements.

IFRS 11 (new) "Joint Arrangements"

Replaces IAS 31 "Interests in Joint Ventures" along with amending IAS 28 "Investment in Associates". The new standard focuses on the rights and obligations of an arrangement, rather than its legal form. The standard redefines joint operations and joint ventures and requires joint operations to be proportionately consolidated and joint ventures to be equity accounted.

IFRS 12 (new) "Disclosure of Interests in Other Entities"

Provides comprehensive disclosure requirements on interests in other entities, including joint arrangements, associates, and special purpose vehicles. The new disclosure requires information that will assist financial statement users in evaluating the nature, risks and financial effects of an entity's interest in subsidiaries and joint arrangements.

IFRS 13 (new) "Fair Value Measurement"

Provides a common definition of fair value within IFRS. The new standard provides measurement and disclosure guidance and applies when IFRS requires or permits the item to be measured at fair value, with limited exceptions. This standard does not determine when an item is measured at fair value and as such does not require new fair value measurements.

(o) Critical accounting judgments and key sources of estimation uncertainty

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements have, in management's opinion, been properly prepared using careful judgment with reasonable limits of materiality.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Critical judgements in applying accounting policies

The following are the critical judgments, apart from those involving estimations (see below), that management has made in the process of applying the Company's accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements include:

i. Estimation of reserves

Estimates of recoverable quantities of proved and probable reserves include judgmental assumptions and require interpretation of complex geological and geophysical models in order to make an assessment of the size, shape, depth and quality of reservoirs, and their anticipated recoveries. The economic, geological and technical factors used to estimate reserves may change from period to period. Reserve estimates are prepared in accordance with the Canadian Oil and Gas Evaluation Handbook and are reviewed by third party reservoir engineers.

Estimates of oil and gas reserves are inherently imprecise, require the application of judgment and are subject to regular revision, either upward or downward, based on new information such as from the drilling of additional wells, observation of long-term reservoir performance under producing conditions and changes in economic factors, including product prices, contract terms or development plans

Changes in reported reserves can impact property, plant and equipment impairment calculations, estimates of depletion and the provision for decommissioning obligations due to changes in expected future cash flows based on estimates of proved and probable reserves, production rates, future petroleum and natural gas prices, future costs and the remaining lives and period of future benefit of the related assets.

ii. Identification of cash-generating units

Management reviews the CGU determination on a periodic basis. The recoverability of property, plant and equipment carrying values are assessed at the CGU level. Determination of what constitutes a CGU is subject to management judgments. The asset composition of a CGU can directly impact the recoverability of the related assets.

iii. Estimation of fair value of stock options

The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option pricing models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. By their nature, these estimates are subject to measurement uncertainty and the effect on the consolidated financial statements of changes of estimates in future periods could be significant.

iv. Valuation of financial instruments

Caza uses valuation techniques that include inputs that are not based on observable market data to estimate the fair value of certain types of financial instruments. The notes provide detailed information about the key assumptions used in the determination of the fair value of the financial instruments.

Key sources of estimation uncertainty

The following are the key assumptions concerning the key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing adjustments to the carrying amounts of assets and liabilities within the next financial year.

·; Estimates of recoverable quantities of proved and probable reserves include judgmental assumptions and the economic, geological and technical factors used to estimate reserves may change from period to period

·; Forward price estimates of the oil and natural gas prices are used in the impairment model. Commodity prices have fluctuated widely in recent years due to global and regional factors including supply and demand fundamentals, inventory levels, weather, economic and geopolitical factors.

·; The impairment model uses discount rate to calculate the net present value of cash flows based on management's estimate of the rate that incorporates the risks associated with the assets. Changes in the general economic environment could result in significant changes in this estimate.

·; Amounts recorded from joint interest partners are based on the Company's interpretation of underlying agreements and may be subject to joint approval. The Company has recorded balances due from its joint interest partners based on costs incurred and its interpretation of allowable expenditures. Any adjustment required as a result of joint interest partner audits are recorded in the period of the determination with joint interest partners.

·; The provision for decommissioning liabilities is based on current legal and constructive requirements, technology, price levels and expected plans for remediation. Actual costs and cash outflows can differ from estimates because of changes in laws and regulations, public expectations, prices and discovery and analysis of site conditions and changes in clean-up technology.

The above judgments, estimates and assumptions relate primarily to unsettled transactions and events as of the date of the consolidated financial statements. Actual results could differ from these estimates and the differences could be material.

3. Exploration and evaluation assets

Included in the $10,464,696 additions to E&E are the costs incurred during the year ended December 31, 2012 for the drilling of the Forehand Ranch 27 State Com # 1H.

The Company impaired expired leases in the amount of $192,935 relating to the Tiree prospect located in Louisiana.

During the year ended December 31, 2011, the Company expensed $6,339,995 of exploration and evaluation costs of which $2,594,801 related to the Marian Baker et al, No 1 well drilled during the three months ended March 31, 2011 that did not encounter hydrocarbons. As well, in the year ended December 31, 2011 the Company recognized impairment to the valuation of the Las Animas prospect in the amount of $1,146,226. The balance of the costs expensed in 2011 related to other leasehold and prospect expenditures that have expired or no longer provide value for the Company.

4. Petroleum and natural gas properties and equipment

Future development costs of proved undeveloped reserves of $28,577,800 were included in the depletion calculation at December 31, 2012 (2011 - $30,722,900).

The Company did not capitalize general and administrative expenses directly to E&E or D&P assets in the years presented.

 The Company performed an impairment test at each period end in the year ended December 31, 2012 to assess whether the carrying value of its petroleum and natural gas properties exceeds fair value. For the year ended December 31, 2012, a net impairment in the amount of $5,904,374 (2011 - $10,842,437) was required to be recorded. In 2012, the impairments were primarily due to reserve valuation changes and recorded in the West Texas and Southeast Texas CGU's in the amounts of approximately $3.52 million and $2.65 million, respectively. There was a net reversal of impairment in the Company's South Louisiana CGU of approximately $266,000 due to the remaining properties in the CGU being more oil in nature and less susceptible to price fluctuations. In 2011, the impairment was primarily due to changes in the Company's estimates of reserves in the Cook Mountain formation in the Southeast Texas CGU.

The impairments were recognized using a 16% and 13.5% discount rate respectively for the March 31, 2012 and December 31, 2012 period ends (2011 - 16%).  The petroleum and natural gas future prices are based on commodity price forecasts of the Company's independent reserve evaluators for 2012 as follows:

(1) Prices used in the impairment test were adjusted for commodity price differentials specific to the Company.

On July 18, 2012, the Company sold the San Jacinto property which includes the Caza Elkins 3401 and 3402 wells for consideration of $5,947,500 net of the Company incurred brokerage fees in the amount of $152,500 associated with the sale. There were also several other small properties that were disposed during the year resulting in aggregate of $6,199,149 net of accumulated depletion from Development & Production Assets, $272,989 of E&E assets and $61,285 of decommissioning costs which were also associated with the disposals. The resulting impact of these sales is a loss on disposal of $461,741. The Company had an 85% working interest in the Caza Elkins 3401 with a 63.75% net revenue interest. In all subsequent wells on the San Jacinto property, including the Caza Elkins 3402 well and the remainder of the leases, Caza had a 75% working interest and a 56.25% net revenue interest. The closing date of the transaction was July 31, 2012.

5. Decommissioning Liabilities

The following is the continuity schedule of the obligation associated with the retirement of oil and gas properties:

The undiscounted amount of cash flows, required over the estimated reserve life of the underlying assets, to settle the obligation, adjusted for inflation, is estimated at $1,398,296 (December 31, 2011 - $1,533,283). The December 31, 2012 obligation was calculated using a risk free discount rate of 2.5 percent (2011 - 2.5%) and an inflation rate of 3 percent (2011 - 3%). It is expected that these obligations will be funded from general Company resources at the time the costs are incurred with the majority of costs expected to occur between 2013 and 2030.

6. Income Taxes

The following is a reconciliation of income taxes, calculated at the combined statutory federal and provincial income tax rates, to the income tax recovery included in the consolidated statements of net loss.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. The components of the Company's deferred income tax assets and liabilities are as follows:

The Company has the following net operating losses available to be carried forward to offset future operating income for Caza's US and Canadian entities:

7. Share Capital and Warrants

(a) Authorized

 Unlimited number of voting common shares.

(b) Issued

(c) Stock options

The maximum number of common shares for which options may be granted, together with shares issuable under any other share compensation arrangement of the Company, is limited to 10% of the total number of outstanding common shares (plus common shares that would be outstanding upon the exercise of all exchangeable rights) at the time of grant of any option. The exercise price of each option may not be less than the fair market value of the Company's common shares on the date of grant. Except as otherwise determined by the Board and subject to the limitation that the stock options may not be exercised later than the expiry date provided in the relevant option agreement but in no event later than 10 years (or such shorter period required by a stock exchange) from their date of grant, options cease to be exercisable: (i) immediately upon a participant's termination by the Company for cause, (ii) 90 days (30 days in the case of a participant engaged in investor relations activities) after a participant's termination from the Company for any other reason except death and (iii) one year after a participant's death. Subject to the Board's sole discretion in modifying the vesting of stock options, stock options will vest, and become exercisable, as to 33⅓% on the first anniversary of the date of grant and 33⅓% on each of the following two anniversaries of the date of grant. All options granted to a participant but not yet vested will vest immediately upon a change of control or upon the Company's termination of a participant's employment without cause. A summary of the Company's stock option plan as at December 31, 2012 and changes during the year ended on those dates is presented below:

During the year ended December 31, 2012, 5,660,000 options (2011 - 1,500,000) were granted at a fair value of $0.2646 per option (2011 - $0.13) and 100,000 options were granted at a fair value of $0.1599 per option. The fair value of these options was determined using the Black-Sholes model with the following assumptions:

(d) Shared base compensation reserve

The following table presents the changes in the share based compensation reserve:

(e) Non-controlling interest

(i) Management has a non-controlling interest in the Company which allows shares of Caza Petroleum, Inc. to be exchanged into the Company's shares at an exchange rate of 2800 to 1.

In 2011, issuances of common shares had a nominal impact on the number of exchangeable rights in the year.

8. Related Party Transactions

Singular Oil & Gas Sands, LLC ("Singular") is a related party as it is a company under common control with Zoneplan Limited, which is a significant shareholder of Caza.

Singular participates in the drilling of the Matthys McMillan Gas Unit #2 and the O B Ranch #1 and 2 wells located in Wharton County, Texas. Under the terms of that agreement, Singular paid 14.01% of the drilling costs through completion to earn a 10.23% net revenue interest on the Matthys McMillan Gas Unit #2 well and paid 12.5% of the drilling costs to earn a 6.94% net revenue interest on the O B Ranch #1 well. Under the terms of the agreement of the O B Ranch #2 Singular paid 9.375% of the drilling costs to earn approximately 6.8% net revenue interest. This participation was in the normal course of Caza's business and on the same terms and conditions to those of other joint interest partners. Singular owes the Company $6,337 in joint interest partner receivables as at December 31, 2012 (December 31, 2011 - $492,240).

All related party transactions are in the normal course of operations and have been measured at the agreed to exchange amounts, which is the amount of consideration established and agreed to by the related parties and which is comparable to those negotiated with third parties.

Remuneration of key management personnel of the Company, which includes directors, officers and other key personnel, is set out below in aggregate:

 As of December 31, 2012, the Company is committed under operating leases for its offices and corporate apartment in the following aggregate minimum lease payments which are shown below as operating commitments:

2013 $ 271,965

2014 $ 258,075

2015 $ 184,402

10. Supplementary Information

a) net change in non-cash working capital

(b) supplementary cash flow information

(c) cash and cash equivalents

The money market instruments bear interest at a rate of 0.082% as at December 31, 2012

(December 31, 2011 - 0.033%).

11. Capital Risk Management

The Company's objectives when managing capital is to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders. The Company defines capital as shareholder's equity, working capital (excluding current portion of decommissioning liabilities) and credit facilities when available. The Company manages the capital structure in light of changes in economic conditions and the risk characteristics of the underlying assets. The Company's objective is met by retaining adequate equity and working capital to provide for the possibility that cash flows from assets will not be sufficient to meet future cash flow requirements. The Board of Directors does not establish quantitative return on capital criteria for management; but rather promotes year over year sustainable profitable growth.

The Company has evaluated its net working capital balance as at December 31, 2012 and 2011. Due to long lead times on several of the Company's exploration and development projects, from time to time the Company secures capital to fund its investments in petroleum and natural gas exploration projects in advance which has resulted in a net working capital balance. As exploration and development projects progress the Company expects the net working capital balance to significantly decrease from current levels, and additional capital may be required to fund additional projects. If the Company is unsuccessful in raising additional capital, the Company may have to sell or farm out certain properties. If the Company cannot sell or farm out certain properties, it will be unable to participate with joint interest partners and may forfeit rights to some of its properties.

12. Financial Instruments

The Company holds various forms of financial instruments. The nature of these instruments and the Company's operations expose the Company to commodity price, credit, and foreign exchange risks. The Company manages its exposure to these risks by operating in a manner that minimizes its exposure to the extent practical.

(a) Commodity Price Risk

The Company is subject to commodity price risk for the sale of natural gas. The Company may enter into contracts for risk management purposes only, in order to protect a portion of its future cash flow from the volatility of natural gas and natural gas liquids commodity prices. To date the Company has not entered into any forward commodity contracts.

(b) Credit Risk

Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the consolidated statement of financial position date. A majority of the Company's financial assets at the consolidated statement of financial position date arise from natural gas liquids and natural gas sales and the Company's accounts receivable that are with these customers and joint venture participants in the oil & natural gas industry. Industry standard dictates that commodity sales are settled on the 25th day of the month following the month of production. The Company's natural gas and condensate production is sold to large marketing companies. Typically, the Company's maximum credit exposure to customers is revenue from two months of sales. During the year ended December 31, 2012, the Company sold 58.84% (December 31, 2011 - 68.96%) of its natural gas and condensates to a single purchaser. These sales were conducted on transaction terms that are typical for the sale of natural gas and condensates in the United States. In addition, when joint operations are conducted on behalf of a joint interest partner relating to capital expenditures, costs of such operations are paid for in advance to the Company by way of a cash call to the partner of the operation being conducted.

Caza management assesses quarterly whether there should be any impairment of the financial assets of the Company. At December 31, 2012, the Company had overdue past due accounts receivable from certain joint interest partners of $58,757 which were outstanding for greater than 60 days (2011 - $135,835) and $170,741 that were outstanding for greater than 90 days (2011 - $443,466). At December 31, 2012, the Company's three largest joint interest partners represented approximately 34%, 19% and 11% of the Company's receivable balance (December 31, 2011 - 13%, 10% and 9% respectively). The Company has sales concentration with three significant customers each representing more than 10% of the accounts receivable at 39.3%, 17.7% and 15.2% respectively (December 31, 2011 - 50.8%, 19.8%, 12.0% and 11.9% respectively). The maximum exposure to credit risk is represented by the carrying amount on the consolidated statement of financial position of cash and cash equivalents, accounts receivable and deposits.

Trade receivables disclosed above include amounts that are past due at the end of the reporting period for which the Group has not recognized an allowance for doubtful debts because there has not been a significant change in credit quality and the amounts (which include interest accrued after the receivable is more than 60 days outstanding) are still considered recoverable.

(c) Foreign Currency Exchange Risk

The Company is exposed to foreign currency exchange fluctuations, as certain general and administrative expenses are or will be denominated in Canadian dollars and United Kingdom pounds sterling. The Company's sales of oil and natural gas are all transacted in US dollars. At December 31, 2012, the Company considers this risk to be relatively limited and not material and therefore does not hedge its foreign exchange risk.

(d) Fair Value of Financial Instruments

The Company has determined that the fair values of the financial instruments consisting of cash and cash equivalents, accounts receivable and accounts payable are not materially different from the carrying values of such instruments reported on the consolidated statement of financial position due to their short-term nature. At December 31, 2012, the fair value of the notes payable is $2,171,061.

IFRS establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are described below:

·; Level 1: Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

·; Level 2: Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.

·; Level 3: Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

The Company's cash and cash equivalents, which are classified as fair value through profit or loss, are categorized as Level 1 financial instruments.

The Company's notes payable are categorized as Level 2 financial instruments and were recorded at fair valued on issuance using a market interest rate for similar debt issued without the warrants attached.

All other financial assets are classified as loans or receivables and are accounted for on an amortized cost basis. All financial liabilities are classified as other liabilities. There are no financial assets on the consolidated statement of financial position that have been designated as available-for-sale. There have been no changes to the aforementioned classifications during the years presented.

(e) Liquidity Risk

Liquidity risk includes the risk that, as a result of our operational liquidity requirements:

·; The Company will not have sufficient funds to settle a transaction on the due date;

·; The Company will be forced to sell assets at a value which is less than what they are worth; or

·; The Company may be unable to settle or recover a financial asset at all.

The Company's operating cash requirements including amounts projected to complete the Company's existing capital expenditure program are continuously monitored and adjusted as input variables change. These variables include but are not limited to, available bank lines, natural gas production from existing wells, results from new wells drilled, commodity prices, cost overruns on capital projects and regulations relating to prices, taxes, royalties, land tenure, allowable production and availability of markets. As these variables change, liquidity risks may necessitate the Company to conduct equity issues or obtain project debt financing. The Company also mitigates liquidity risk by maintaining an insurance program to minimize exposure to insurable losses. The financial liabilities as at December 31, 2012 that subject the Company to liquidity risk are accounts payable, accrued liabilities and notes payable. The contractual maturity of these financial liabilities is generally the following sixty days from the receipt of the invoices for goods of services and can be up to the following next six months, except for the notes payable which are repaid on a monthly basis for the next eleven months. Management believes that current working capital will be adequate to meet these financial liabilities as they become due.

13. General and Administrative

During the year ended December 31, 2012 the Company incurred general and administrative expenses in the amount of $5,660,196 (December 31, 2011 - $5,911,834 and salaries in the amount of $2,136,490 (December 31, 2011- $1,651,938). Stock compensation amortization accounted for $217,506 of the general and administrative costs for the year ended December 31, 2012 (December 31, 2011-$87,868).

14. Notes Payable

On November 23, 2012 the Company entered into a £6 million Standby Equity Distribution Agreement ("SEDA") and a $12 million SEDA-backed Loan Agreement (the "Loan" or "Loan Agreement") with YA Global Master SPV Ltd., an investment fund managed by Yorkville Advisors Global, LP ("Yorkville").

Caza received an initial draw-down of $2.2 million on the Loan Agreement and may draw a second advance of $1.8 million at its discretion. Additional draw-downs may be made with the mutual agreement of the parties. Loan repayment is supported by the SEDA facility, allowing Caza the option to issue equity at a 5% discount to fair market value.

The loan bears interest at a rate of 9% per annum and may be prepaid without penalty. The loan is to be funded by way of an initial draw-down and further supplementary draw-down amounts. The principal is repayable in monthly installments over a period of one year from the date of advance, with repayments weighted towards the end of each term. As a result the initial draw down is classified as a current liability. In connection with each draw-down, Yorkville is entitled to receive an 8% implementation fee and a specified number of Common Share purchase warrants. The warrants have a term of three years and entitle the holder to acquire one Common Share at an exercise price of 125% of the market price calculated in accordance with the Loan Agreement. In connection with the initial draw-down Caza issued to Yorkville 1,055,224 warrants having an exercise price of $0.33 (Note 7). These warrants have been valued at $89,674.

The SEDA facility provides for Yorkville to subscribe for up to £6 million of Common Shares over a term of three years. The timing and amount of advances are at Caza's discretion. Subject to any minimum price specified by Caza in advance, shares sold under the SEDA are priced at 95% of the prevailing market price on the AIM calculated in accordance with the SEDA during a 10-day pricing period, which may be extended by mutual agreement. Unless otherwise agreed, each advance may not exceed £1 million, 400% of the average daily value traded of Caza's Common Shares on AIM for the five trading days immediately prior to date of an advance request or result in Yorkville holding more than 2.99% of Caza's outstanding Common Shares. No amounts have been drawn on the SEDA facility as of December 31, 2012.

15. Financing costs

16. Subsequent Event

The Company entered into an Equity Adjustment Agreement with Global Master SPV Ltd., an investment fund managed by Yorkville Advisors Global, LP in conjunction with its Standby Equity Distribution Agreement dated November 23, 2012 with Yorkville. Pursuant to the Agreement, the Company issued 3,846,154 common shares to Yorkville at a price of £0.13 per share for aggregate proceeds of £500,000.

Under the terms of the Agreement, if on February 28, 2014 the common share market price (determined as 95% of the average daily volume weighted average price of common shares (VWAP) during the preceding 22 trading days) is greater than £0.13, then Yorkville will pay to the Company the difference multiplied by the number of New Common Shares, and if the market price is less than £0.13 then the Company will pay to Yorkville the difference multiplied by the number of New Common Shares. The Company has deposited in escrow £275,000 as security for this contingent payment obligation.

The New Common Shares were admitted for trading on AIM effective on March 8, 2013. Following admission, the Company had 168,589,821 common shares outstanding.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following Management's Discussion and Analysis ("MD&A") of the financial results for Caza Oil & Gas, Inc. ("Caza" or the "Company") should be read in conjunction with the audited consolidated financial statements as at and for the year ended December 31, 2012. Additional information relating to the Company can be found on SEDAR at www.sedar.com. All figures herein have been prepared in accordance with International Financial Reporting Standards ("IFRS") unless otherwise stated. This MD&A is dated March 26, 2013

Forward Looking Information

In addition to historical information, the MD&A contains forward-looking statements that are generally identifiable as any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events of performance (often, but not always, through the use of words or phrases such as "will", "may", "will likely result," "expected," "is anticipated," "believes," "estimated," "intends," "plans," "projection" and "outlook"), are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such forward-looking statements.

These statements are based on certain factors and assumptions regarding the results of operations, the performance of projected activities and business opportunities. Specifically, we have used historical knowledge and current industry trends to project budgeted expenditures for 2013. While we consider these assumptions to be reasonable based on information currently available to us, they may prove to be incorrect.

Actual results achieved will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors. Such factors include, but are not limited to: risks associated with the Company's stage of development; competitive conditions; share price volatility; risks associated with crude oil and natural gas exploration and development; risks related to the inherent uncertainty of reserves and resources estimates; possible imperfections in title to properties; the volatility of crude oil and natural gas prices and markets; environmental regulation and associated risks; loss of key personnel; operating and insurance risks; the inability to add reserves; risks associated with industry conditions; the ability to obtain additional financing on acceptable terms if at all; non operator activities; the inability of investors in certain jurisdictions to bring actions to enforce judgments; equipment unavailability; potential conflicts of interest; risks related to operations through subsidiaries; risks related to foreign operations; currency exchange rate risks and other factors, many of which are beyond the control of the Company. Accordingly, there is no representation by Caza that actual results achieved during the forecast period will be the same in whole or in part as that forecast. Further, Caza undertakes no obligation to update or revise any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events, except as required by applicable securities laws.

Financial outlook information contained in this MD&A about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this MD&A should not be used for purposes other than for which it is disclosed herein.

Non-IFRS Measures

The financial data presented herein has been prepared in accordance with IFRS. The Company has also used certain measures of financial reporting that are commonly used as benchmarks within the oil and natural gas production industry in the following MD&A discussion. The measures are widely accepted measures of performance and value within the industry, and are used by investors and analysts to compare and evaluate oil and natural gas exploration and producing entities. Most notably, these measures include "operating netback" and "funds flow from (used in) operations". Operating netback is a benchmark used in the crude oil and natural gas industry to measure the contribution of oil and natural gas sales and is calculated by deducting royalties and operating expenses from revenues. Funds flow from (used in) operations is cash flow from operating activities before changes in non-cash working capital, and is used to analyze operations, performance and liquidity. These measures are not defined under IFRS and should not be considered in isolation or as an alternative to conventional IFRS measures. These measures and their underlying calculations are not necessarily comparable or calculated in an identical manner to a similarly titled measure of another entity. When these measures are used, they are defined as "non IFRS" and should be given careful consideration by the reader.

Note Regarding Boes and Mcfes

In this MD&A, barrels of oil equivalent ("boe") are derived by converting gas to oil in the ratio of six thousand cubic feet ("Mcf") of gas to one barrel ("bbl") of oil (6 Mcf: 1 bbl) and one thousand cubic feet of gas equivalent ("Mcfes") are derived by converting oil to gas in the ratio of one bbl of oil to six Mcf (1 bbl: 6 Mcf). Boes and Mcfes may be misleading, particularly if used in isolation. A boe conversion of 6 Mcf of natural gas to 1 bbl of oil, or a Mcfe conversion ratio of 1 bbl of oil to 6 Mcf of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.

Currency

References to "dollars" and "$" are to U.S. dollars and references to "CDN$" are to Canadian dollars.

STRATEGY AND ASSETS

The Company's stated strategy is to achieve significant growth in reserves and production through:

·; progressing material, internally generated prospects, utilizing cash flows from existing production and exploiting Proven plus Probable reserves; and

·; executing strategic acquisitions of assets at all stages of the development cycle to facilitate longer term organic growth.

In the implementation of this strategy, the Company has a clear set of criteria in high-grading projects:

·; the Company seeks to retain control of project execution and timing through the operatorship of assets;

·; assets should be close to existing established infrastructure, allowing for quick, efficient hook-up and lower operational execution risk;

·; drilling targets in close proximity to known producing reservoirs; and

·; internal models for core projects should demonstrate the ability to deliver at least a 25% rate-of-return on investment.

Assets

The Company is primarily focused in the Permian Basin of west Texas and southeast New Mexico, the most prolific oil and gas basin in North America. Independent forecasts predict that the Permian Basin will have the greatest oil supply growth of any North American basin over the next five years. This provides the Company with low-risk, liquids-rich development opportunities from many geologic reservoirs and play types. The basin also has a vast operational infrastructure in place. The Company is utilizing recent advances in horizontal drilling and dynamic completion technologies to unlock the significant resources within its asset base and the region.

Management has focused efforts on building a core asset base in the prolific Bone Spring play and has concluded that these assets represent the most significant opportunity for the Company to deliver material production, revenue growth and demonstrable shareholder returns within an acceptable timeframe. The Company expects that expanding and diversifying the producing asset base within the Bone Springs play will not only grow the Company but will also make it more resilient to any single project risk.

The Company has now identified over 253 drilling locations in the Bone Spring play according to the NSAI Report. Management believes that the Company is well-positioned with approximately 4,100 net acres in the play and continues to actively monitor opportunities to build on Caza's current acreage position.

The Company's Bone Spring leases are mostly State and Federal leases with primary terms between 5-10 years. In terms of obligations and commitments, one producing well will hold each lease in its entirety.

Financing

The Company's near term intention is to continue to participate in 3 to 4 wells per annum funded from production revenues, existing cash resources and currently available financing. However, management believes that accelerating and expanding this drilling program will significantly increase both production and cash flows, which will optimize the work program and drive economies of scale.

In this regard, the Company and its advisers have been actively considering alternative sources of capital, including a review of possible joint-venture and strategic financing partner options and other debt instruments, which will provide the Company with sufficient leverage and capital to adequately exploit the opportunity but mitigate material equity dilution during the "value accretion" drilling phase.

Outlook

Subject to the availability of appropriate financing, the Company's objective is to embark on an accelerated and expanded drilling program in the Bone Spring play over the next two years. Management believes that such a program has the capacity to increase shareholder value significantly over the period. A program of this type will initially require additional financing of the nature referred to above but would utilize excess operational cash flow to fund further development drilling and lease purchases beyond the initial two year period.

Management believes that such a program can be accomplished by exploiting the Company's existing asset/lease inventory with minimal equity dilution to existing shareholders. However, if appropriate, Management will also seek to identify corporate and asset acquisitions, which will enable the Company to increase its position in the Bone Spring play. Accordingly, in line with the Company's stated strategy, Management's goal is to achieve significant growth in the Company's reserves and production, thereby raising the Company's profile in the basin and allowing shareholder value to be maximized and, if appropriate, fully matured over the short-to-medium term.

SELECT ANNUAL INFORMATION

(1) Calculated based on cash flow from operating activities before changes in non-cash working capital and certain other items. See "Non GAAP Measures".

(2) Basic share amounts are calculated based on the number of outstanding common shares plus the number of common shares issuable pursuant to a share exchange and shareholders agreement (such exchangeable rights are referred to as the "Exchangeable rights") among Caza and members of Caza's senior management.

(3) Calculated by deducting royalties and operating costs from revenues. See "Non-GAAP Measures".

Highlights

Ø Natural gas, natural gas liquids and crude oil production increased by 19% in 2012 in comparison to 2011, averaging 285 boe per day in 2012 (includes associated condensate production). The increase was mainly due to the Company focusing on oil rich prospects for exploration activities.

Ø A strong fourth quarter in 2012 saw production increased by 19% to 28,716 boe for the three month period ending December 31, 2012 as compared to 24,105 boe for the three month period ending December 31, 2011.

Ø A strong fourth quarter in 2012 saw revenues increased 31% to $1,580,214 for the three month period ended December 31, 2012 as compared to $1,206,649 for the three month period ended December 31, 2011. For the year ended December 31, 2012 revenues increased 22% to $4,969,258 as compared to $4,089,894 for the year ended December 31, 2011.

Operating Netback Summary (Non-GAAP)

The following table presents the Company's operating netback which is a non-GAAP measure:

The change in netbacks for the twelve months ended December 31, 2012 occurred as a result of small increase in revenue of $1.08 per/boe as compared to the previous year. Production expense increased $6.29 /boe as compared to the period ended December 31, 2011. There was a small increase in severance and transportation of $0.04 per boe as a result of an 22% increase in revenue as compared to the previous year.

FINANCIAL AND OPERATING RESULTS

Petroleum and Production Revenue

For the Company, revenues from oil and gas sales increased by 22% to $4,969,258 in 2012 up from $4,089,894 in 2011. The increase resulted from increased production volumes brought on by new wells brought on line and a 2% increase in the average sales price to an average sale price of $47.72 per boe.

Average daily production increased by 18% to 285 boe/d in 2012 from 240 boe/d in 2011. The increase was mainly due to additional wells coming on line. Natural gas production made up 55% of Caza's production during 2012 with natural gas liquids and crude oil comprising the remaining 45%. This is compared to an 65% natural gas production in 2011 showing a shift toward exploration and production of oil based reserves.

Natural gas, natural gas liquids and crude oil revenues increased 19% to $1,580,214 for the three-month period ended December 31, 2012 from $1,206,649 for the three-month period ended December 31, 2011. Caza's production volumes increased 19% to 28,716 boe for the three-month period ended December 31, 2012 up from 24,105 boe for the comparative period. This represents an average daily production rate increase of 19% for the three-months period ended December 31, 2012 as compared to the comparative period. The average natural gas, natural gas liquids and crude oil price received by Caza increased 10% to $55.03 per boe during the three-month period ended December 31, 2012 from $50.06 per boe during the comparative period. The increase in revenues and production volumes for the three-month period ended December 31, 2012 from the comparative period occurred is a result of additional wells brought on line during the year. Our future revenue and production volumes will be directly affected by North American natural gas prices, West Texas Intermediate crude oil prices and natural gas liquid prices, the performance of existing wells, drilling success and the timing of the tie-in of wells into gathering systems. Presently the Company has not hedged any of its production and does not have any commodity price management programs in place.

Production Expenses

Severance tax is a tax imposed by states on natural resources such as crude oil, natural gas and condensate extracted from the ground. The tax is calculated by applying a rate to the dollar amount of production from the property or a set dollar amount applied to the volumes produced from the property.

During the year ended December 31, 2012, Caza incurred aggregate production, transportation and severance expenses of $1,830,422 or an average per boe of $17.58. During the year ended December 31, 2011, Caza's aggregate production, transportation and severance expenses were $994,040 or an average per boe of $11.34. Such expenses on a per boe basis have increased during the year ended December 31, 2012 by 55% as compared to the same period in 2011. The Company incurred costs in the amount of $599,463 during the year ended December 31, 2012 on the San Jacinto properties that were sold in the third quarter of 2012.

Severance taxes and transportation expenses were $388,389 during the year and are included in production expense. This is an increase of 17% from the prior year's severance taxes and transportation expenses. The increases in severance taxes and transportation expenses are a result of the 19% increase in production levels during 2012 and the 2% increase in commodity prices on a per boe basis as compared to the respective periods in 2011.

Severance taxes and transportation expenses totaled $138,546 ($4.82/boe) for the three-month period ended December 31, 2012, as compared to $85,816 ($3.56/boe) in the comparative period. Severance taxes and the transportation expense increased 61% as a result of the higher production volumes and commodity prices in the three month period ended December 31, 2012 as compared to the comparative period.

Production expenses for the three-month period ended December 31, 2012 were $108,841 compared to $298,985 for the comparative period. Caza's average lifting cost for the three-month period ended December 31, 2012 was $3.79 per boe versus $12.40 per boe for the comparative period. The decrease in production costs for the year ended December 31, 2012 occurred in part due to costs savings achieved as a result of the disposition of the San Jacinto properties that had high operating costs along with the Company holding an 85% and 75% working interest respectively in the two wells in the prospect.

Depletion, Depreciation, Amortization and Accretion

Depletion, depreciation, amortization and accretion expense for the three-month period ended December 31, 2012 increased to $1,104,500 ($38.46/boe) from $842,054 ($34.93/boe) in the comparative period. Depletion, depreciation and accretion expense increased to $3,160,057 ($29.46 per boe) in 2012 from $2,996,600 ($34.17 per boe) in 2011.

The increased depletion expense for the period ended December 31, 2012 occurred as a result of the relationship of the costs incurred in drilling activities carried out in the West Texas and Southeast Texas CGU's in relation to the associated reserves recorded. This brought about an aggregate 5% increase in depletion expense as compared to the respective period in 2011 but on a per boe basis the depletion expense decreased by 12%.

Costs of unproved properties of $10,085,746 were excluded from depreciable costs in the exploration and evaluation assets. A proportionate amount of the carrying value will be transferred to the depletable pool as reserves are proven through the execution of Caza's exploration program.

Accretion expense is the increase in the present value of the asset retirement obligation for the current period and the amount of this expense will increase commensurate with the asset retirement obligation as new wells are drilled or acquired through acquisitions.

General and Administrative Expenses

Net general and administrative expenses for 2012 decreased to $5,660,196 from $5,911,834 for 2011 showing a decrease of 4% from the comparative period. On a boe basis the net general and administrative expenses decreased by 46% and 19% for the respective three-month period and year ended December 31, 2012 due to the increase in production volumes along with the small decrease in expenses from the comparative period.

During 2012, Caza did not capitalize general and administrative expenses relating to exploration and development activities. Stock-based compensation expense in the amount of $95,580 (2011 - $43,385) is included in general and administrative expenses for the three-month period ended December 31, 2012 and $217,504 (2011 - $87,867) is included for the year ended December 31, 2012. Caza recorded no forfeitures in stock options for the year ended December 31, 2012.   

Income Taxes

Presently the Company does not expect to pay current taxes in the foreseeable future based on existing tax pools, planned capital activities and current forecasts of taxable income. However, the Company's tax horizon will ultimately depend on several factors including commodity prices, property dispositions, future production, corporate expenses, and capital expenditures to be incurred in future reporting periods. Estimated income tax losses available to be carried forward as at January 1, 2011 with respect to the Company's operations are as follows: