CAZA.L Regulatory News (CAZA)

March 25, 2011

Caza Oil & Gas, Inc.: ANNOUNCES RESULTS FOR THE YEAR ENDED DECEMBER 31, 2010

HOUSTON, TEXAS -- Caza Oil & Gas, Inc. ("Caza" or "the Company") (TSX: CAZ) (AIM: CAZA) announces the Company's final results for the year ended 31 December 2010. Caza has hydrocarbon exploration, development and production assets in Texas, New Mexico and Louisiana, USA.

2010 highlights include:

o Proven reserves at 31 December 2010 increased 113% to 10,396 MMcfe and Proven plus Probable reserves increased by 8.9% from 31 December 2009, as estimated by the NSAI Report (as defined below under Reserve Data) dated as of 31 December 2010;

o Net present value of future net revenue attributable to proved reserves increased to US$28million and proved plus probable reserves of US$84.3 million (discounted 10%) as estimated by the NSAI Report;

o Production volumes increased 47% for the three month period ended 31 December 2010, as compared to the previous three month period ended 30 September 2010;

o Revenues increased 88% to $742,409 for the three month period ended 31 December 2010, as compared to $395,725 for the previous three month period ended 30 September 2010;

o The company engaged Cenkos Securities plc as its Nominated Adviser and raised a net $28,590,154 USD through an issuance of 45,000,000 common shares in a private placement at approximately US$0.67 (42 pence per common share);

o Cash and cash equivalents at 31 December 2010 of US$33,885,980 (US$9,268,547 in 2009); and

o Net Working Capital of US$29,370,087 (2009-US$8,376,463) at 31 December 2010.

W. Michael Ford, Chief Executive Officer commented:

"We are encouraged by our positive results in 2010. In particular, the last quarter was very good with material increases in both production and revenues and a successful raise. Caza increased its production volumes by 47% and revenues by 88% for Q4 2010 as compared to Q3 2010. These increases were the result of our successful drilling operations during the last half of the year. Our proven reserves more than doubled during the course of the year. The net present value of the estimated future net revenue (discounted 10%) of our proved reserves also improved as compared to the prior year-end, increasing by 56.6%. We entered 2011 well funded with a cash and cash equivalents balance as of December 31, 2010, of approximately US$33.9 million, and we plan to deploy a significant portion of these funds on drilling in the coming months. We believe that with our cash reserves, Caza is well placed to execute a strategy of revenue and reserves growth.

We made good progress in the Permian Basin at our Windham Wolfberry project in Upton County, Texas. Under the Company's farmout agreement with Devon, two wells were drilled: the Caza 158 #1, which averaged a gross rate of 100 bbl/d of oil in December 2010 from just two of five potential pay zones; and the Caza 162 #1, which is in the completion phase. Since the end of the year, Devon has also drilled the Caza 158 #2 well, which is also in the completion phase with a possible fourth well planned for June 2011. This project fully developed could yield 16 locations assuming 80 acre spacing.

In Wharton County, Texas, Caza drilled and completed two wells: the Matthys-McMillan #2 in the Yegua formation; and the O.B. Ranch #1 in the Cook Mountain formation. We believe the success of these wells has opened new opportunities for Caza in the Yegua and Cook Mountain trends. Accordingly, Caza is steadily building a position in the new play and is currently reprocessing the Wharton data. Integrating recent results into the reprocessing will help to better plan future prospect development, and we expect further drilling in the near future.

We also expect to commence operations on a new Permian Basin project soon, our San Jacinto Wolfberry (oil) project in Midland County, Texas. Caza will be the operator of the project, and we have acquired an 85% gross working interest in approximately 480 acres with five proved undeveloped locations.

In summary, the Company has established a diverse portfolio of attractive projects, which can be progressed in the short term."

Copies of the Company's financial statements for the year ended 31 December 2010, the accompanying management's discussion and analysis and the Company's Annual Information Form for the year ended 31 December 2010 (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.

For further information, please contact:

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

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.

Reserve Data:

Caza reported an increase in proved (1P) reserves at year end 2010 to 10,396.4 MMcfe or an increase of 113%; proved plus probable (2P) reserves increased at year end 2010 to 29,056.4 MMcfe or an increase of 8.9%; proved plus probable plus possible (3P) reserves decreased at year end 2010 to 55,047.0 MMcfe or a decrease of 41.2% (as depicted in the table below).

Present value cash flows of Caza's estimated net proved and probable reserves as at 31 December 2010 were:

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 31 December 2010 (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 31 December 2010, and entitled "Estimate of Reserves and Future Net Revenue to the Caza Petroleum, Inc. Interest in Certain Oil and Gas Properties Located in Louisiana, New Mexico and Texas as of December 31, 2010".

About Caza

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

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), drilling programs, 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.

Implicit in this information, particularly in respect of production are assumptions regarding projected revenue and expenses, the performance of wells 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, 2010. 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 which will be filed at www.sedar.comon March 25, 2011. 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 term "Mcfe" may be misleading, particularly if used in isolation. An Mcfe conversion of one barrel per six thousand cubic feet (1 Bbl: 6 Mcf) of oil to 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.

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 Canadian generally accepted accounting principles.

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 & Touche 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 22, 2011

(signed) "James M. Markgraf"

Chief Financial Officer

March 22, 2011

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 balance sheets as at December 31, 2010 and 2009, and the consolidated statements of net loss, comprehensive loss and deficit and cash flows for the years then ended, and the notes to the consolidated financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of 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 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 financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the 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 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 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, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

(signed) "Deloitte & Touche LLP"

Chartered Accountants

Calgary, Alberta

March 24, 2011

Consolidated Balance Sheets

(In United States Dollars)

See accompanying notes to the consolidated financial statements

On behalf of the Board:

Consolidated Statements of Net Loss, Comprehensive Loss, and Deficit

(In United States Dollars)

Consolidated Statements of Cash Flows

(In United States Dollars)

Supplementary information (Note 9)

See accompanying notes to the consolidated financial statements

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 all of the outstanding shares of Caza Petroleum, Inc. ("Caza Petroleum"). The Company and its wholly owned 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 TSX and AIM stock exchanges.

Caza's reporting and measurement currency is the United States ("US") dollar as the majority of its operations and transactions are denominated in this currency.

2. Significant Accounting Policies

The consolidated financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles. The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Actual results could differ from those estimates. These consolidated financial statements have, in management's opinion, been properly prepared using careful judgment with reasonable limits of materiality and within the framework of the significant accounting policies summarized below:

(a) Basis of consolidation

The consolidated financial statements include those of the Caza, and its wholly owned subsidiaries Caza Petroleum, Caza Operating, LLC, Falcon Bay Sutton County, LLC and Falcon Bay Operating, LLC. All material inter-company transactions have been eliminated.

(b) Financial Instruments

All financial instruments are classified into one of the following five categories: held for trading, held-to-maturity, loans and receivables, available-for-sale financial assets, or other financial liabilities. Initial and subsequent measurement and recognition of changes in the value of financial instruments depends on their initial classification:

·; Held-to-maturity investments, loans and receivables, and other financial liabilities are initially measured at fair value and subsequently measured at amortized cost. Amortization of premiums or discounts and losses due to impairment are included in current period net earnings.

·; Available-for-sale financial assets are measured at fair value. Revaluation gains and losses are included in other comprehensive income until the asset is removed from the balance sheet.

·; Held for trading financial instruments are measured at fair value. All gains and losses are included in net earnings in the period in which they arise.

All derivative financial instruments are classified as held for trading financial instruments and are measured at fair value. All gains and losses are included in net earnings in the period in which they arise.

(c) Comprehensive loss

Comprehensive loss consists of net loss and other comprehensive income (OCI) which includes unrealized gains and losses, such as: changes in the currency translation adjustment relating to self-sustaining foreign operations; unrealized gains or losses on available-for-sale investments; and the effective portion of gains or losses on derivatives designated as cash flow hedges.

(d) Cash and cash equivalents

Cash and cash equivalents consists of cash on deposit and money market instruments that are highly liquid having a maturity date of not more than ninety days at the time of purchase.

(e) Joint venture operations

Substantially all of the Company's petroleum and natural gas exploration activities are conducted jointly with others. These consolidated financial statements reflect only the Company's proportionate interest in such activities.

(f) Property and equipment

The Company follows the full cost method of accounting for petroleum and natural gas operations whereby all costs relating to the acquisition, exploration and development of petroleum and natural gas reserves are initially capitalized into a single United States cost centre. Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling both productive and non-productive wells, related production equipment costs, asset retirement and abandonment costs and overhead charges directly related to acquisition, exploration and development activities.

Capitalized costs, excluding costs related to unproven properties, are depleted and depreciated using the unit-of-production method based on estimated proven petroleum and natural gas reserves before deduction of royalties as determined by independent petroleum engineers. For the purposes of depreciation and depletion, petroleum and natural gas reserves and production are converted to an energy equivalent basis using a ratio of one barrel of oil to six thousand cubic feet of natural gas.

Costs of acquiring and evaluating unproved properties are initially excluded from depletion calculations. These unevaluated properties are assessed periodically to ascertain whether impairment has occurred. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion.

Proceeds from the sale of petroleum and natural gas properties will be applied against capitalized costs, with no gain or loss recognized, unless such a sale would result in a greater than 20% change in the depletion and depreciation rate.

A limit is placed on the carrying value of the net capitalized costs in each cost centre in order to test impairment. The Company performs this impairment test as at the end of each reporting period. An impairment loss may exist when the carrying value of a cost centre exceeds the estimated undiscounted future net cash flows associated with the cost centre's proved reserves. An impairment loss is calculated as the excess of the costs carried on the balance sheet over the discounted future net cash flows associated with the cost centre's proved plus probable reserves and is charged to net income. Reserves are determined pursuant to the Canadian Securities Administrators' National Instrument 51-101 "Standard of Disclosure for Oil and Gas Activities".

Office equipment and furniture is carried at cost and depreciated on a straight line basis over the estimated service lives of five to seven years.

(g) Revenue recognition

Revenue from the sale of petroleum, gas and liquids is recognized when title passes to the customer based on volume delivered at contractual delivery points and rates. The costs associated with the delivery, including operating and transportation expenses, are recognized in the same period in which the related revenue is earned.

(h) Future income taxes

The Company follows the liability method of accounting for income taxes. Under this method, future tax assets and liabilities are determined based on differences between the carrying value and the tax basis of assets and liabilities, and measured using the substantively enacted tax rates and laws expected to be in effect when the differences are expected to reverse. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period in which the change is substantively enacted. Future income tax assets are only recognized to the extent it is more likely than not that sufficient future taxable income will be available to allow the future income tax asset to be realized; a valuation allowance is recorded to reduce the future income tax assets to the amount to be realized..

(i) Asset retirement obligations

The Company recognizes the fair value of a liability for an asset retirement obligation in the period in which it is incurred or when a reasonable estimate of the fair value can be made, and records a corresponding increase in the carrying value of the related long-lived asset. The fair value is determined through a review of engineering studies, industry guidelines, and management's estimate on a site-by-site basis. The liability is subsequently adjusted for the passage of time, which is recognized as an accretion expense in the consolidated statement of net loss. The liability is also adjusted due to revisions in either the timing or the amount of the original estimated cash flows associated with the liability. Actual costs incurred upon settlement of the asset retirement obligations are charged against the asset retirement obligation.

(j) Foreign currency translation

The Company translates foreign currency denominated monetary assets and liabilities at the exchange rate in effect at the balance sheet date and non-monetary assets and liabilities are translated at historical exchange rates. Revenues and expenses are translated at transaction date exchange rates except depletion and depreciation expense, which is translated at the same historical exchange rate as the related assets. Exchange gains or losses are included in the determination of net loss.

(k) Stock-based compensation

The Company accounts for stock-based compensation using the fair-value method of accounting for stock options issued to directors, officers and employees using the Black-Scholes option-pricing model. Under this method, the compensation costs attributed to the stock options are measured at the time of grant or issuance and amortized over the vesting period with a corresponding increase to contributed surplus. When stock options are exercised, the associated amounts previously recorded as contributed surplus are reclassified to common share capital. The Company does not incorporate an estimated forfeiture rate for stock options that will not vest but instead accounts for forfeitures in the period in which they occur.

(l) Per share information

Basic per share amounts are calculated using the total weighted average number of common shares outstanding during the period. Shares outstanding also include common shares issuable upon exchange of Caza Petroleum shares. Diluted per share calculations reflect the exercise or conversion of potentially dilutive securities to issue shares at the later of the date of grant of such securities or the beginning of the period. The Company computes diluted loss per share using the treasury stock method to determine the dilutive effect of securities or other contracts. 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 are used to purchase common shares of the Company at their average market price for the period. No adjustment to diluted loss per share or diluted shares outstanding is made if the result of the calculations is anti-dilutive.

(m) Measurement uncertainty

Management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the reporting period. Actual results can differ from those estimates.

Recorded amounts for depletion and depreciation of petroleum and natural gas properties and equipment are based on estimates of petroleum and natural gas reserves. The ceiling test and impairment calculations are based on estimates of petroleum and natural gas reserves, future costs required to develop those reserves and the fair value of unproved properties. By their nature, these estimates of reserves and the related future cash flows are subject to measurement uncertainty, and the effect on the consolidated financial statements of future periods could be significant.

The asset retirement obligation depends on estimates of current market interest rates, future restoration and reclamation expenditures and the timing of those expenditures. 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.

The consolidated financial statements include accounts receivable, joint venture receivables and accruals based on the terms of existing joint venture agreements. Due to varying interpretations of the definition of terms in these agreements the amounts recorded by management as accounts receivables and joint venture receivables as well as accruals made by management in this regard may be significantly different from those determined by the Company's joint venture partners.

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. 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.

The provision for income taxes is based on judgments in applying income tax law and estimates on the timing, likelihood and reversal of temporary differences between the accounting and tax bases of assets and liabilities. 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.

(n) Adoption of International Financial Reporting Standards 

In February 2008, the AcSB confirmed that all Canadian publicly accountable enterprises will be required to adopt International Financial Reporting Standards (IFRS) for interim and annual reporting purposes for fiscal years beginning on or after January 1, 2011. Management is currently assessing the impact of the convergence of Canadian GAAP with IFRS on the results of operations, financial position and disclosures.

3. Property and Equipment

At December 31, 2010, the cost of petroleum and natural gas properties includes $6,744,154 (December 31, 2009 - $11,662,047) relating to unproven properties which have been excluded from costs subject to depletion and depreciation. No events or circumstances suggest that the undeveloped properties, and all associated costs are impaired at December 31, 2010. Future development costs related to proved undeveloped reserves of $18,864,600 were included in the depletion calculation (2009 - $4,504,300).

During the year ended December 31, 2010, the Company received reimbursements of prior period costs as a result of joint exploration agreements with other companies. This resulted in a decrease of $988,850 to the petroleum and natural gas properties and equipment.

During year ended December 31, 2010, the Company capitalized $219,790 of general and administrative expenses (2009 - $317,409) relating to exploration and development activities of which $29,681 related to stock based compensation (2009 - $162,337).

The Company performed an impairment test at December 31, 2010 to assess whether the carrying value of its petroleum and natural gas properties exceeds fair value. No impairment was required to be recorded as at December 31, 2010 and 2009. The petroleum and natural gas future prices (adjusted for quality differentials) are based on commodity price forecasts of the Company's independent reserve evaluators for 2010 as follows:

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

4. Asset Retirement Obligations

The following table presents the reconciliation of the beginning and ending obligations associated with the estimated retirement of petroleum and natural gas properties:

The undiscounted amount of cash flows required over the estimated reserve life of the underlying assets, to settle the obligations, adjusted for inflation, is estimated at $1,032,726 (2009 - $795,234). The obligation was calculated using a credit-adjusted risk free discount rate of 6 percent and an inflation rate of 3 percent. It is expected that this obligation will be funded from general Company resources at the time the costs are incurred with the majority of costs expected to occur between 2011 and 2030.

5. 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.

Future 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 future 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:

6. Share Capital

(a) Authorized

 Unlimited number of voting common shares.

(b) Issued

(i) The Company issued 45,000,000 common shares in a private placement at approximately $0.67 (42 pence per common share). Pursuant to this private placement, the Company incurred $1,545,896 of share issuance costs.

(ii) Caza issued 700,000 broker warrants to the selling agents as partial consideration for their services. Each broker warrant entitles the holder to purchase one common share at a price of CDN $0.80 per share, approximately $0.79 per share, expired on December 12, 2009.

 (iii) 18,000,000 warrants for the purchase of 19,800,000 common shares have expired as at December 31, 2010.

(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, 2010 and 2009 along with changes during the respective years ended on those dates is presented below.

During the year ended December 31, 2010, 7,950,000 options were granted at a fair value of $0.05 per option and 20,000 options were granted at a fair value of $0.24 per option. The fair value of these options was determined using the Black-Sholes model with the following assumptions:

(d) Contributed surplus

The following table presents the changes in contributed surplus:

(i) During the period ended December 31, 2010 19,800,000 warrants expired with an assigned value of $3,870,000.

(ii) During the twelve month period ended December 31, 2010, $373,123 of the stock based compensation expense was recognized in the consolidated income statement (December 31, 2009 - $352,978) and $29,681 was capitalized (December 31, 2009 - $162,336). During the twelve month period ended December 31, 2010, stock options in the amount of $57,953 were forfeited.

7. Related Party Transactions

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.

The aggregate amount of expenditures made to related parties:

In 2010, Singular Oil & Gas Sands, LLC ("Singular") agreed to participate in the drilling of the Matthys McMillan Gas Unit #2 and the O B Ranch #1 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. This participation was in the normal course of Caza's business and on the same terms and conditions to those of other joint venture partners. Singular owes the Company $19,968 in joint venture partner receivables as at December 31, 2010. Singular is a related party as it is a company under common control with Zoneplan Limited, which is a significant shareholder of Caza.

8. Commitments and Contingencies

(a) As of December 31, 2010, the Company is committed under operating leases for its offices and corporate apartment in the following aggregate minimum lease payments which are shown below:

9. 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 0.136% as at December 31, 2010 (December 31, 2009 - 0.0099%). Cash on deposit is held with Wells Fargo Bank Texas and the money market account is a fund managed by Wells Fargo Brokerage Services, LLC investing in U.S. Treasury Bill securities.

10. 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 equity, working capital 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, 2010. 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 venture partners and may forfeit rights to some of its properties.

11. 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 its petroleum and 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 condensate 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 balance sheet date. A majority of the Company's financial assets at the balance sheet 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 and 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, 2010, the Company sold 58% (December 31, 2009 - 66%) 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 venture partner relating to capital expenditures, costs of such operations are paid for in advance to the Company by way of a cash call by the partner of the operation being conducted.

Caza management assesses quarterly if there should be any impairment of the financial assets of the Company. At December 31, 2010, the Company had overdue accounts receivable from certain joint interest partners of $279,014 which were outstanding for greater than 60 days and an additional $388,587 that were outstanding for greater than 90 days. During the year ended December 31, 2010, there was no impairment required on any of the financial assets of the Company. At December 31, 2010, the Company's two largest joint venture partners represented approximately 25% and 15% of the Company's receivable balance respectively (December 31, 2009 - 61% and 11% respectively). The maximum exposure to credit risk is represented by the carrying amount on the balance sheet of cash and cash equivalents and accounts receivable.

(c) Foreign Currency Exchange Risk

The Company is exposed to foreign currency exchange fluctuations, as certain general and administrative expenses are denominated in Canadian dollars and United Kingdom pounds sterling. The Company's sales of petroleum and natural gas are all transacted in US dollars. At December 31, 2010, the Company considers its foreign exchange risk to be relatively limited; therefore it 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 and accrued liabilities are not materially different from the carrying values of such instruments reported on the balance sheet due to their short-term nature.

The Company classifies the fair value of these financial instruments according to the following hierarchy based on the amount of observable inputs used to value the instrument.

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

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

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

All financial assets (except for cash and cash equivalents which are classified as held for trading), are classified as either loans and receivables and are accounted for on an amortized cost basis. Accounts payable and accrued liabilities are classified as other liabilities. There are no financial assets on the balance sheet that have been designated as available-for-sale. There have been no changes to the aforementioned classifications during the year ended December 31, 2010.

(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 financial 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, 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, 2010 that are subject to liquidity risk are accounts payable and accrued liabilities. 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. Management believes that the Company's current working capital will be adequate to settle these financial liabilities as they become due.

(f) Concentration Risk

The Company holds substantially all of its cash and cash equivalents at one financial institution.