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Caza Announces Results for the Year Ended December 31, 2013

HOUSTON, TEXAS -- (Marketwired) -- 03/25/14 -- Caza Oil & Gas, Inc. ("Caza" or "the Company") (TSX:CAZ)(AIM:CAZA) is pleased to announce the Company's final results for the year ended December 31, 2013.

2013 highlights include:


--  Annual revenues for the twelve month period ended December 31, 2013
    increased 67% to US$8.31 million ("MM") for the year 2013 (US$4.97MM:
    2012) 
    
--  Quarterly revenues for the three month period ended December 31, 2013
    increased 114% to US$3.38MM (US$1.58MM for the comparable three month
    period ended December 31, 2012) 
    
--  Average production volumes for the year 2013, increased 19% to 338
    barrels of oil equivalent ("boe") per day ("boe/d") (285 boe/d: 2012) 
    
--  Caza's net average production volumes between March 1 and March 15, 2014
    equate to 888 boe/d, which is an increase of 44.6 % over 614 boe/d as at
    December 31, 2013 
    
--  As estimated by the independent report completed by NSAI (as defined
    below under Reserve Data) dated as of December 31, 2013 (all reserve
    figures are net to Caza): 
    --  Proven (1P) reserves increased by 83.3% to 4.44 MMboe (2.42 MMboe:
        2012) 
    --  Proven plus Probable (2P) reserves increased by 79.2% to 19.3 MMboe
        (10.8 MMboe: 2012) 
    --  Proven plus Probable plus Possible (3P) reserves increased by 39.1%
        to 38.2 MMboe (27.4 MMboe: 2012) 
        
--  In addition to the Company's current PDP and PDNP Bone Spring reserves,
    the NSAI Report has assigned 314 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 these locations of
    33.9 MMboe (253 locations and 24.4 MMboe for the Company's Bone Spring
    locations as at December 31, 2012) 
    
--  Cash and cash equivalents at December 31, 2013, are US$18.5 (US$6.8MM as
    at December 31, 2012) 

Recent 2014 highlights:


--  On March 20, 2014, the Company commenced drilling operations on the
    Gramma Ridge 27 State #1H well. The well is the initial test well on
    Caza's Gramma Ridge Property and is targeting the 3rd Bone Spring Sand
    interval. 
    
--  On March 11, 2014, the Company announced the results of its West
    Copperline 29 Fed #3H well in Lea County, New Mexico, which reached the
    intended total measured depth of approximately 15,804 feet in the 3rd
    Bone Spring Sand, was subsequently fracture stimulated and under
    controlled flowback produced at a peak 24 hour gross rate of 879 bbls of
    oil and 1.374 MMcf of natural gas, which equates to 1,108 boe on March
    7, 2014. The well subsequently produced at the higher rate of 969 bbls
    of oil and 1.21 MMcf, which equates to 1,176 boe on March 11, 2014. 
    
--  On February 5, 2014, the Company provided a Fourth Quarter production
    update highlighting the significance of the Bone Spring production to
    the Company to date. The announcement forecasted Caza's net aggregate
    production to reach 32,783 boe for the month of April 2014, which
    equates to 1,092 boe/d. That growth is forecasted to continue through
    August 2014, when net aggregate production is expected to reach 35,538
    boe for the month, which equates to 1,185 boe/d. The Company continues
    to progress towards meeting these forecasts and is performing in line
    with Management expectations. 
    
--  On December 19, 2013, the Company drew an advance of US$10MM pursuant to
    its Note Purchase Agreement with Apollo Investment Corporation, an
    Investment fund managed by Apollo Investment Management (collectively
    "Apollo"). With this advance, the Company has drawn an aggregate of
    US$35MM from the total facility of US$50MM. 

W. Michael Ford, Chief Executive Officer commented:

"We are pleased with our significant progress in 2013. The latter portion of the year was particularly positive with material increases in both production and revenues. Caza increased its production volumes by 61% and revenues by 114% in Q4 2013, as compared to Q4 2012, with an annual increase in revenues on the prior year of 67% in 2013. Our Proven reserves also significantly increased by more than 83% during the course of 2013. These increases were the direct result of Caza's successful operations in the Bone Spring play during the year, and this remains the focus of the value creating activities we undertake on behalf of our shareholders. Additionally, Caza's Q1 2014 recent events have added significantly to our current production figures, and we expect to continue that trend into Q2 2014.

The Note Purchase Agreement with Apollo continues to provide the Company with the necessary capital to drill and develop the Company's inventory of Bone Spring properties. We believe this arrangement is an effective way to meet short-term capital requirements needed to accelerate our highly successful Bone Spring drilling campaign. However, we continue to actively evaluate all funding options to ensure that the capital structure of the Company is appropriate and sufficient to allow the Company to deliver on its stated strategy of achieving significant growth in reserves and production and, further, that we are utilizing the most cost effective option for the Company and the shareholders.

The Company's Bone Spring inventory has grown in 2013 and now includes the following 19 properties: Gramma Ridge, Gateway, Marathon Road, Lennox, Forehand Ranch, Forehand Ranch South, Jazzmaster, Mad River, Azotea Mesa, Bradley 29, Two Mesas, Quail Ridge, Rover, West Rover, Copperline, West Copperline, Chaparral 33, Madera and Roja. The Company has acquired approximately 4,800 net acres in the play to date. Our Bone Spring holdings continue to represent a conscious effort by Management to invest in properties containing multiple potential pay zones for oil and liquids-rich natural gas, which has created and should continue to create shareholder value.

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 2013. As stated last year at this time, we laid the groundwork for success in the Bone Spring play in 2012. Those efforts resulted in significant growth to cashflow, revenue and reserve values in 2013, and we intend to capitalize on that success with even greater growth during the course of 2014."

Strategy

The Company's stated strategy for 2013 produced excellent results, and the stated strategy for 2014 is to continue in the same vein. The Company plans to build on the success achieved in 2013, and intends 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 now demonstrated 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 continue to grow the Company but will also make it more resilient to single project risk.

The Company has now identified 314 drilling locations in the Bone Spring play according to the NSAI Report. Management believes that the Company is well-positioned with approximately 4,800 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 intention is to participate in approximately 15-20 Bone Spring play 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 all available financing options, including a review of possible asset sales, joint-venture and strategic financing partner options, other debt instruments and equity fundraisings that could provide the Company with sufficient leverage and capital to adequately exploit current and future Bone Spring opportunities.

Outlook

The Company's objective is to capitalize on its 2013 success and embark on an accelerated and expanded drilling program in the Bone Spring play over the next two years. Based on the Company's Bone Spring success and its subsequent growth in 2013, Management believes that such a program has the capacity to increase shareholder value significantly over the period. A program of this type will eventually require additional financing 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 continue the Company's significant growth in Company 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 2013 to 4.44 MMboe or an increase of 83.3%; Proven plus Probable (2P) reserves increased at year end 2013 to 19.3 MMboe or an increase of 79.2%; Proven plus Probable plus Possible (3P) reserves increased at year end 2013 to 38.17 MMboe or an increase of 39.1% (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.


----------------------------------------------------------------------------
                              2013                         2012             
----------------------------------------------------------------------------
                      Mbbl      MMcf      Mboe      Mbbl      MMcf      Mboe
----------------------------------------------------------------------------
Proven Developed                                                            
Producing            701.7   1,264.2     912.4     169.4     906.7     320.5
----------------------------------------------------------------------------
Non-Producing         49.9     269.3      94.8     106.5     421.9     176.8
----------------------------------------------------------------------------
Undeveloped        2,431.9   6,030.2   3,436.9   1,131.6   4,774.3   1,927.3
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Total Proven       3,183.5   7,563.7   4,444.1   1,407.6   6,102.9   2,424.8
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Probable          10,615.2  25,518.0  14,868.2   4,274.3  24,464.3   8,351.7
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Total Proven +                                                              
 Probable         13,798.7  33,081.7  19,312.3   5,681.8  30,567.2  10,776.3
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Possible          12,772.5  36,506.6  18,857.0   8,574.4  48,577.5  16,670.7
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Total Proven +                                                              
 Probable +                                                                 
 Possible         26,571.2  69,588.3  38,169.3  14,256.2  79,144.7  27,447.0
----------------------------------------------------------------------------

Present value cash flows of Caza's estimated net Proven and Probable reserves as at December 31, 2013 were as follows:


Present value cash flow, net Proven plus   PV 10% before     PV 10% after   
 Probable reserves:                        income taxes      income taxes   
                                           US$220.5MM        US$143.3MM     

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, 2013 (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, 2013, 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, 2013".

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).

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, 2013, the accompanying management's discussion and analysis and the Company's Annual Information Form for the year ended December 31, 2013 (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, 2013. 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's Report to Shareholders

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.


William M. Ford                                                             
Chief Executive Officer and Director                                        
March 25, 2014                                                              
                                                                            
James M. Markgraf                                                           
Chief Financial Officer                                                     
March 25, 2014                                                              

Independent Auditor's Report

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, 2013 and 2012 and the consolidated statements of net loss and comprehensive loss, cash flows and changes in equity for the years then ended, and a summary of significant accounting policies and other explanatory information.

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. as at December 31, 2013 and 2012 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.


Deloitte LLP                                                                
                                                                            
Chartered Accountants                                                       
Calgary, Alberta                                                            
March 25, 2014                                                              
                                                                            
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                        Caza Oil & Gas, Inc.
                               Consolidated Statements of Financial Position
                                                  (In United States Dollars)
                                                                            
As at December 31,                                   2013              2012 
----------------------------------------------------------------------------
                                                                            
Assets                                                                      
                                                                            
  Current                                                                   
  Cash and cash equivalents (Note 10(c))  $    18,495,086   $     6,809,640 
  Restricted cash (Note 13)                       455,317                 - 
  Accounts receivable                           5,582,816         3,854,146 
  Prepaid and other                               104,444           368,745 
                                        ------------------------------------
                                               24,637,663        11,032,531 
                                                                            
Other assets                                            -            98,336 
Exploration and evaluation assets (Note                                     
 3)                                             7,843,846        10,085,746 
Petroleum and natural gas properties and                                    
 equipment (Note 4)                            46,618,635        20,552,077 
                                        ------------------------------------
                                                                            
                                          $    79,100,144   $    41,768,690 
                                        ------------------------------------
                                        ------------------------------------
                                                                            
Liabilities                                                                 
                                                                            
Current                                                                     
  Accounts payable and accrued                                              
   Liabilities                            $    16,153,038   $     8,645,896 
  Derivative liabilities (Notes 13 and                                      
   15)                                            491,044                 - 
  Notes payable (Note 14)                               -         1,941,476 
  Unrealized loss on hedging contracts                                      
   (Note 12a)                                     186,463                 - 
  Decommissioning liabilities (Note 5)            122,269           210,696 
                                        ------------------------------------
                                               16,952,814        10,798,068 
                                                                            
                                                                            
Notes payable (Notes 14 and 15)                35,855,042                 - 
Decommissioning liabilities (Note 5)              850,365           757,102 
                                        ------------------------------------
                                               53,658,221        11,555,170 
Total Equity                                                                
  Share capital (Note 7(b))                    77,967,487        75,064,216 
  Warrants (Note 7(b))                            156,365            89,674 
  Share based compensation reserve             10,480,968         9,648,162 
  Deficit                                     (60,759,064)      (53,298,407)
                                        ------------------------------------
Equity attributable to owners of the                                        
Company                                        27,845,756        31,503,645 
Non-controlling interests                      (2,403,833)       (1,290,125)
                                        ------------------------------------
                                                                            
Total equity                                   25,441,923        30,213,520 
                                        ------------------------------------
                                                                            
                                          $    79,100,144   $    41,768,690 
                                        ------------------------------------
                                        ------------------------------------
                                                                            
See accompanying notes to the consolidated financial statements             

On behalf of the Board:

J. Russell Porter, Director

William M. Ford, Director


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                        Caza Oil & Gas, Inc.
                  Consolidated Statements of Net Loss and Comprehensive Loss
                                                  (In United States Dollars)
                                                                            
For the years ended December 31,                     2013              2012 
----------------------------------------------------------------------------
                                                                            
Revenues                                                                    
  Petroleum and natural gas               $     8,312,526   $     4,969,258 
  Interest income                                   1,261             4,356 
                                        ------------------------------------
                                                8,313,787         4,973,614 
                                        ------------------------------------
Expenses (Income)                                                           
                                                                            
  Production                                    2,334,159         1,830,423 
  General and administrative                    6,209,190         5,660,196 
  Depletion, depreciation and                                               
   amortization (Note 4)                        3,435,862         3,133,108 
  Financing costs (Note 17)                     2,516,312            55,427 
  Other expense (income) (Note 13)                542,783          (226,223)
  Exploration and evaluation impairment                                     
   (Note 3)                                     1,481,691           192,935 
  Development and production impairment                                     
   (Note 4)                                             -         5,904,374 
  Loss on disposal of assets                      120,041           461,471 
  Realized loss on hedge contracts                 15,283                 - 
  Unrealized loss on hedging contracts            186,463                 - 
  Remediation and maintenance                           -           209,902 
  Bad debt expense                                 46,368                 - 
                                        ------------------------------------
                                               16,888,152        17,221,613 
                                        ------------------------------------
                                                                            
Loss before income taxes                       (8,574,365)      (12,247,999)
                                                                            
Income taxes (Note 6)                                   -                 - 
                                        ------------------------------------
                                                                            
Net loss and comprehensive loss           $    (8,574,365)  $   (12,247,999)
                                        ------------------------------------
                                        ------------------------------------
                                                                            
Attributable to:                                                            
  Owners of the Company                        (7,460,658)      (10,550,726)
  Non-controlling interests                    (1,113,707)       (1,697,273)
                                        ------------------------------------
                                                                            
                                          $    (8,574,365)  $   (12,247,999)
                                        ------------------------------------
                                        ------------------------------------
                                                                            
Net loss per share                                                          
  - basic and diluted                     $         (0.04)  $         (0.06)
                                        ------------------------------------
                                                                            
Weighted average shares outstanding                                         
  - basic and diluted (1)                     175,085,231       164,743,667 
                                        ------------------------------------
                                                                            
(1) The options and warrants have been excluded from the diluted loss per   
 share computation as they are anti-dilutive                                
                                                                            
See accompanying notes to the consolidated financial statements             
                                                                            
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                        Caza Oil & Gas, Inc.
                                       Consolidated Statements of Cash Flows
                                                  (In United States Dollars)
                                                                            
For the years ended December 31                       2013             2012 
----------------------------------------------------------------------------
                                                                            
OPERATING                                                                   
  Net loss                                  $   (8,574,365)  $  (12,247,999)
                                                                            
  Adjustments for items not affecting                                       
   cash:                                                                    
    Depletion, depreciation and                                             
     amortization                                3,435,862        3,133,108 
    Unwinding of the discount (Note 5)              23,503           14,986 
    Share-based compensation                       852,406          217,506 
    Development and production impairment                                   
     (Note 4)                                            -        5,904,374 
    Exploration and evaluation impairment                                   
     (Note 3)                                    1,481,693          192,935 
    Non-cash financing costs                       569,309                - 
    Unrealized currency gain                       (39,266)               - 
    Loss on disposal of assets                     120,041          461,471 
    Realized loss on hedging contracts              15,283                - 
    Unrealized loss on hedging contracts           186,463                - 
    Interest income                                 (1,261)          (4,356)
    Changes in derivative liabilities and                                   
     other                                         474,104          (36,113)
  Changes in non-cash working capital                                       
   (Note 10(a))                                   (353,874)         770,034 
                                          ----------------------------------
  Cash flows used in operating activities       (1,810,102)      (1,594,054)
                                          ----------------------------------
                                                                            
FINANCING                                                                   
  Proceeds from issuance of shares (Notes                                   
   7 and 13)                                     2,647,661                - 
  Finance costs paid (Notes14 and 15)           (3,511,146)        (168,850)
  Issuance of notes payable and warrants                                    
   (Notes 14 and 15)                            38,628,381        2,200,000 
  Note principal payments                       (1,127,500)               - 
  Interest received                                  1,261            4,356 
  Changes in non-cash working capital                                       
   (Note 10(a))                                    326,374         (154,377)
                                          ----------------------------------
  Cash flow from financing activities           36,965,031        1,881,129 
                                          ----------------------------------
                                                                            
INVESTING                                                                   
  Exploration and evaluation expenditures                                   
   (Note 3)                                    (27,977,466)     (10,464,696)
  Development and production expenditures                                   
   (Note 4)                                     (1,304,691)      (1,949,389)
  Purchase of office furniture and                                          
   equipment (Note 4)                               (1,250)          (1,944)
  Proceeds from the sale and disposal of                                    
   assets                                                -        5,947,500 
  Restricted cash                                 (416,050)               - 
  Partner reimbursement (Note 3)                    61,364          436,649 
  Changes in non-cash working capital                                       
   (Note 10a)                                    6,168,610        2,350,269 
                                          ----------------------------------
  Cash flows used in investing activities      (23,469,483)      (3,681,611)
                                          ----------------------------------
                                                                            
INCREASE (DECREASE) IN CASH AND CASH                                        
 EQUIVALENTS                                    11,685,446       (3,394,536)
CASH AND CASH EQUIVALENTS, BEGINNING OF                                     
 YEAR                                            6,809,640       10,204,176 
                                          ----------------------------------
                                                                            
CASH AND CASH EQUIVALENTS, END OF YEAR      $   18,495,086   $    6,809,640 
                                          ----------------------------------
                                          ----------------------------------
                                                                            
See accompanying notes to the consolidated financial statements             
                                                                            
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                        Caza Oil & Gas, Inc.
                               Consolidated Statements of Changes in Equity 
                                                  (In United States Dollars)
                                                                            
For the years ended December 31,                     2013              2012 
----------------------------------------------------------------------------
                                                                            
Share Capital                                                               
  Balance, Beginning of Year              $    75,064,216   $    75,064,216 
  Common shares issued                          2,903,271                 - 
                                        ------------------------------------
  Balance, End of Year                         77,967,487        75,064,216 
                                        ------------------------------------
                                                                            
Warrants                                                                    
  Balance, Beginning of Year                       89,674                 - 
  Issued                                           66,691            89,674 
                                        ------------------------------------
  Balance, End of Year                            156,365            89,674 
                                        ------------------------------------
                                                                            
Share based compensation reserve                                            
  Balance, Beginning of Year                    9,648,162         9,430,656 
  Exercise of stock options                       (19,600)                - 
  Share-based compensation                        852,406           217,506 
                                        ------------------------------------
  Balance, End of Year                         10,480,968         9,648,162 
                                        ------------------------------------
                                                                            
Deficit                                                                     
  Balance, Beginning of Year                  (53,298,407)      (42,747,681)
  Net loss allocated to the owners of                                       
   the Company                                 (7,460,658)      (10,550,726)
                                        ------------------------------------
  Balance, End of Year                        (60,759,064)      (53,298,407)
                                        ------------------------------------
                                                                            
Non-Controlling Interests                                                   
  Balance, Beginning of Year                   (1,290,125)          407,148 
  Net loss allocated to non-controlling                                     
   interests                                   (1,113,707)       (1,697,273)
                                        ------------------------------------
  Balance, End of Year                         (2,403,833)       (1,290,125)
                                        ------------------------------------
                                                                            
Total Equity                              $    25,441,923   $    30,213,520 
                                        ------------------------------------
                                        ------------------------------------
                                                                            
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 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 consolidated financial statements were approved for issuance by the Board of Directors on March 17, 2014.

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:


----------------------------------------------------------------------------
                                  Place of       Proportion of ownership    
                               incorporation  interest and voting power held
Name of subsidiary             and operation          by the Company        
----------------------------------------------------------------------------
                                                 December 31,   December 31,
                                                         2013           2012
----------------------------------------------------------------------------
Caza Petroleum Inc.            Delaware/Texas             87%            86%
Caza Operating, LLC                     Texas            100%           100%
Falcon Bay Operating, LLC               Texas            100%           100%
Falcon Bay Sutton County, LLC           Texas            100%           100%

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:

Derivatives

Derivatives, including derivative liabilities and hedging contracts, are classified as fair value through profit or loss. Changes in the fair value of derivatives are recognized through earnings.

Non-derivative financial instruments:

Non-derivative financial instruments comprise accounts receivable, cash and cash equivalents, restricted cash, 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 classified 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).

Effective January 1, 2013, Caza adopted IFRS 10 "Consolidated Financial Statements", IFRS 11 "Joint Arrangements, IFRS 12 "Disclosure of Interests in Other Entities", and the amendments to IAS 28 "Investments in Associates and Joint Ventures."

There were no changes to the consolidated financial statements or the consolidation process as a result of adoption of IFRS 10. IFRS 11 classifies interests in joint arrangements as joint ventures or joint operations depending on the rights and obligations of the parties in the arrangement. Caza performed a review of interests in joint arrangements and concluded that shared wells operate as joint operations and accordingly there is no change in the accounting for these assets as a result of adoption of this standard. As a result, there were no changes as a result of the adoption of IFRS 12 as well.

Furthermore Caza was also required to adopt IFRS 13 "Fair Value Measurements," amendments to IAS 1 "Presentation of Financial Statements," amendments to IFRS 7 "Financial Instruments: Disclosures." There were no material changes as a result of the adoption of these standards.

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

The IASB has undertaken a three-phase project to replace IAS 39 "Financial Instruments: Recognition and Measurement" with IFRS 9 "Financial Instruments." In November 2009, the IASB issued the first phase of IFRS 9, which details the classification and measurement requirements for financial assets. Requirements for financial liabilities were added to the standard in October 2010. 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.

In November 2013, the IASB issued the third phase of IFRS 9 which details the new general hedge accounting model. Hedge accounting remains optional and the new model is intended to allow reporters to better reflect risk management activities in the financial statements and provide more opportunities to apply hedge accounting. The Company does not employ hedge accounting for its risk management contracts currently in place. In July 2013, the IASB deferred the mandatory effective date of IFRS 9 and has left this date open pending the finalization of the impairment and classification and measurement requirements. IFRS 9 is still available for early adoption. The full impact of the standard on the Company's consolidated financial statements will not be known until the project is complete.

(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 various inputs and assumptions used in determining the fair value of
    the unrealized loss on hedging contracts and the derivative liabilities
    are subject to estimation uncertainty. 

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                                         
----------------------------------------------------------------------------
--------------------------------------------------------------------------- 
                                       December 31, 2013  December 31, 2012 
----------------------------------------------------------------------------
Balance, beginning of year               $    10,085,746    $     4,941,256 
Additions to exploration and evaluation                                     
 assets                                       28,004,357         10,464,696 
Transfers to property, plant and                                            
 equipment                                   (28,764,566)        (4,417,633)
Disposals of assets                                    -           (272,989)
Joint interest billing partner                                              
 reimbursements                                        -           (436,649)
Impairment                                    (1,481,691)          (192,935)
----------------------------------------------------------------------------
Balance, end of year                     $     7,843,846    $    10,085,746 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Included in the $28,004,357 additions to E&E are the costs incurred during the year ended December 31, 2013 for the drilling the Bone Spring play in New Mexico.

The Company impaired expired leases in the amount of $1,481,691 relating to expiring leasehold in Southern Louisiana and East Texas. During the year ended December 31, 2012, the Company expensed $192,935 of expiring leasehold costs relating to the Tiree prospect located in Louisiana.


----------------------------------------------------------------------------
4.Petroleum and natural gas properties and equipment                        
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                Development &                               
                                   Production      Corporate                
Cost                                   Assets         Assets          Total 
----------------------------------------------------------------------------
Balance, December 31, 2011    $    45,223,073   $    826,882  $  46,049,955 
Additions                           1,949,389          1,944      1,951,333 
Disposal of assets                 (7,740,218)             -     (7,740,218)
Transfers from E&E                  4,417,633              -      4,417,633 
----------------------------------------------------------------------------
Balance, December 31, 2012    $    43,849,877   $    828,826  $  44,678,703 
Additions                           1,399,773          1,250      1,401,023 
Disposal of assets                   (411,614)             -       (411,614)
Transfers from E&E                 28,764,566              -     28,764,566 
Other                                 (61,364)             -        (61,364)
----------------------------------------------------------------------------
Balance, December 31, 2013    $    73,541,238   $    830,076  $  74,371,314 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                Development &                               
Accumulated Depletion,             Production      Corporate                
 Depreciation and Impairment           Assets         Assets          Total 
----------------------------------------------------------------------------
Balance, December 31, 2011    $    15,943,179   $    687,035  $  16,630,214 
Depletion and depreciation          3,039,488         93,620      3,133,108 
Disposal of assets                 (1,541,070)             -     (1,541,070)
Impairment                          5,904,374              -      5,904,374 
----------------------------------------------------------------------------
Balance, December 31, 2012         23,345,971        780,655     24,126,626 
Depletion and depreciation          3,621,476         31,953      3,653,429 
Disposal of assets                    (27,376)             -        (27,376)
Impairment                                  -              -              - 
----------------------------------------------------------------------------
Balance, December 31, 2013    $    26,940,071   $    812,608  $  27,752,679 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Carrying amounts                                                            
At December 31, 2012          $    20,503,906   $     48,171  $  20,552,077 
At December 31, 2013          $    46,601,167   $     17,468  $  46,618,635 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Future development costs of proved undeveloped reserves of $59,907,000 were included in the depletion calculation at December 31, 2013 (2012 - $28,577,800).

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 December 31, 2013 to assess whether the carrying value of its petroleum and natural gas properties exceeds recoverable amount. No impairment was required to be recorded (2012 - $5,904,374). 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. In 2012, 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.

The impairment test used a 12.5% discount rate for the period ended December 31, 2013 (2012 - 13.5%). The petroleum and natural gas future prices are based on commodity price forecasts of the Company's independent reserve evaluators for 2013 as follows:


                                             NYMEX                   Natural
Year                                  Crude Oil(1)                    Gas(1)
                                           ($/bbl)                 ($/mmbtu)
----------------------------------------------------------------------------
2014                                         95.54                     4.192
2015                                         93.17                     4.351
2016                                         92.08                     4.516
2017                                         94.82                     4.910
2018                                         95.44                     5.348
Thereafter (inflation %)                  +2.0%/yr                  +2.0%/yr
----------------------------------------------------------------------------
(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 an 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 being removed from the statement of financial position. The resulting impact of these sales is a loss on disposal of $461,741. 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:


                                              Year ended         Year ended 
                                       December 31, 2013  December 31, 2012 
                                      ------------------ ------------------ 
Decommissioning liabilities, beginning                                      
 of year                                $        967,798   $      1,052,091 
Obligations incurred                             312,894             74,899 
Revision in estimated cash flows and                                        
 discount rate                                  (190,916)           181,776 
Obligations settled                             (140,645)          (355,954)
Unwinding of the discount                         23,503             14,986 
                                      ------------------ ------------------ 
Decommissioning liabilities, end of                                         
 year                                   $        972,634   $        967,798 
Current portion                                  122,269            210,696 
                                      ------------------ ------------------ 
Long-term decommissioning liabilities            850,365            757,102 
                                      ------------------ ------------------ 
                                      ------------------ ------------------ 

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 $2,083,992 (December 31, 2012 - $1,398,296). The December 31, 2013 obligation was calculated using a risk free discount rate of 3.7 percent (2012 - 2.5%) and an inflation rate of 3 percent (2012 - 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 2014 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.


----------------------------------------------------------------------------
                                                      2013             2012 
                                          ----------------------------------
                                                                            
Loss before income taxes                    $   (8,574,365)  $  (12,247,999)
                                                                            
  Income tax (recovery) at statutory rate                                   
   of 25% (2012 - 25%)                          (2,143,591)      (3,062,000)
  Difference in statutory tax rates:                                        
   Canada vs. United States                       (857,436)      (1,224,800)
  Stock-based compensation                         298,342           76,127 
  Other                                         (1,181,120)         130,055 
  Unrecognized deferred tax assets               3,883,805        4,080,618 
                                          ----------------------------------
Provision for (recovery) of income taxes    $            -   $            - 
                                          ----------------------------------

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:


----------------------------------------------------------------------------
                                                      2013             2012 
----------------------------------------------------------------------------
United States:                                                              
                                                                            
Deferred income tax liability (asset):                                      
                                                                            
  Petroleum and natural gas properties      $   12,894,704   $    4,779,773 
  Decommissioning obligations                     (340,423)        (338,729)
  Net operating losses carried forward         (34,179,543)     (22,182,500)
                                          ----------------------------------
                                               (21,625,262)     (17,741,456)
                                                                            
  Unrecognized deferred tax asset               21,625,262       17,741,456 
                                          ----------------------------------
Net deferred income tax liability (asset)   $            -   $            - 
                                          ----------------------------------

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


----------------------------------------------------------------------------
       Expiring at December 31,                       Amounts               
----------------------------------------------------------------------------
                                                                            
                                                        US                  
                 2026                                1,484,777              
                 2027                               11,146,427              
                 2028                               16,409,534              
                 2029                                1,887,722              
                 2030                                9,004,333              
                 2031                               14,887,664              
                 2032                               14,704,775              
                 2033                               26,342,957              

7. Share Capital and Warrants


(a) Authorized                                                              
    Unlimited number of voting common shares.                               
                                                                            
(b) Issued                                                                  
                           December 31, 2013          December 31, 2012     
                            Number              $       Number             $
                      ------------------------------------------------------
                      ---------------------------                           
Opening balance common                                                      
 shares                164,743,667  $  75,064,216  164,743,667 $  75,064,216
Stock issuances         17,821,430      2,883,671            -             -
Exercise of stock                                                           
 options                   400,000         19,600            -             -
----------------------------------------------------------------------------
Balance, end of year   182,965,097  $  77,967,487  164,743,667 $  75,064,216
----------------------------------------------------------------------------
                                                                            
Opening balance                                                             
 warrants                1,055,224         89,674            -             -
Common share warrants                                                       
 issued (Notes 13 and                                                       
 15)                     2,529,333         66,691    1,055,224        89,674
----------------------------------------------------------------------------
Balance, end of year  3,584,557(1)  $     156,365    1,055,224 $      89,674
----------------------------------------------------------------------------
(1) 1,055,224 warrants are exercisable at $0.33 and expire on November 23,  
 2015 and 2,529,333 warrants are exercisable at $0.17 and expire on November
 1, 2016.                                                                   
                                                                            
(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 33 1/3% on the first anniversary of the date of grant
    and 33 1/3% 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, 2013 and changes during the year   
    ended on those dates is presented below:                                
                                                                            
                                  Year ended               Year ended       
                              December 31, 2013        December 31, 2012    
                          --------------------------------------------------
                                           Weighted                 Weighted
                                            average                  average
                                Number of  Exercise      Number of  exercise
Stock Options                     options     price        options     price
----------------------------------------------------------------------------
Beginning of year              16,900,000     $0.28     11,140,000     $0.28
Granted                                 -         -      5,760,000     $0.28
Exercised                         400,000     $0.07              -         -
Forfeited                         515,000     $0.45              -         -
                          --------------------------------------------------
End of year                    15,985,000     $0.28     16,900,000     $0.28
                          --------------------------------------------------
Exercisable, end of year       11,791,660     $0.29      8,274,995     $0.34
                          --------------------------------------------------
                          --------------------------------------------------
                                                                            
                    Number               Weighted                           
               Outstanding                Average                     Number
                     as at              Remaining                Exercisable
Date of           December  Exercise  Contractual        Date of    December
Grant             31, 2013     Price         Life         Expiry    31, 2013
----------------------------------------------------------------------------
January 31,                                          January 31,            
 2007            1,725,000    $ 0.50         3.09           2017   1,725,000
December 12,                                        December 12,            
 2007            1,500,000    $ 0.79         3.95           2017   1,500,000
April 7, 2008      500,000    $ 0.59         4.27  April 7, 2018     500,000
April 9, 2010    4,550,000    $ 0.07         6.28  April 9, 2020   4,550,000
April 12, 2010     400,000    $ 0.07         6.29 April 12, 2020     400,000
May 19, 2010       250,000    $ 0.07         6.39   May 19, 2020     250,000
September 14,                                      September 14,            
 2010               20,000    $ 0.35         6.71           2020      20,000
October 12,                                          October 12,            
 2011            1,500,000    $ 0.13         7.79           2021     999,999
January 31,                                          January 31,            
 2012              100,000    $ 0.16         8.09           2022      33,333
December 4,                                          December 4,            
 2012            5,440,000    $ 0.28         8.93           2022   1,813,328
----------------------------------------------------------------------------
                15,985,000                   6.71                 11,791,660
----------------------------------------------------------------------------

During the year ended December 31, 2013, nil options were granted (2012 - 5,660,000 were granted at a fair value of $0.2646 per option). The fair value of these options was determined using the Black-Sholes model with the following assumptions:


                                                      2012
                                                ----------
                 Dividend yield                        Nil
                 Expected volatility                  199%
                 Risk free rate of return             0.7%
                 Weighted average life             3 years
                 Forfeiture rate                       Nil
                                                          
(d) Shared base compensation reserve                                        

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


                                            December 31,        December 31,
                                                    2013                2012
----------------------------------------------------------------------------
Balance, beginning of year             $       9,648,162   $       9,430,656
Exercise of stock options                        (19,600)                  -
Stock based compensation expense                 852,406             217,506
----------------------------------------------------------------------------
Balance, end of year                   $      10,480,968   $       9,648,162
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(e) Non-controlling interest                                                
                                                                            
                                                 December 31,   December 31,
                                                         2013           2012
----------------------------------------------------------------------------
                                                                            
Number of exchangeable rights outstanding,                                  
 beginning and end of year (i)                     26,502,000     26,502,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(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 2013, 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 participated 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 $51,431 in joint interest partner receivables as at December 31, 2013 (December 31, 2012 - $6,337).

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:


                                                Year ended        Year ended
                                              December 31,      December 31,
                                                      2013              2012
----------------------------------------------------------------------------
Salaries and wages                          $    1,727,200    $    1,437,314
Short term benefits                                      -                 -
Share-based payments                               654,774           180,740
----------------------------------------------------------------------------
Total compensation                          $    2,381,974    $    1,618,054
----------------------------------------------------------------------------
----------------------------------------------------------------------------

9. Commitments and Contingencies

As of December 31, 2013, 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:


2014      $    258,075   
2015      $    184,402   

The Company is required under the Apollo Note Agreement to convey a proportionately reducible 2% overriding royalty interest in each lease acquired by Caza using proceeds advanced under this agreement. These amounts are not payable until such a time that these leases produce petroleum and natural gas revenues. See Note 14 for additional information.

10. Supplementary Information

(a) net change in non-cash working capital


                                               Years ended December 31,     
                                                      2013             2012 
----------------------------------------------------------------------------
Provided by (used in)                                                       
------------------------------------------                                  
Accounts receivable                         $   (1,728,669)  $     (173,148)
Prepaid and other                                  362,637         (154,377)
Accounts payable and accrued liabilities         7,507,142        3,293,451 
                                          ----------------------------------
                                                 6,141,110   $    2,965,926 
                                          ----------------------------------
                                                                            
Summary of changes                                                          
Operating                                   $     (353,874)  $      770,034 
Investing                                        6,168,610        2,350,269 
Financing                                          326,374         (154,377)
                                          ----------------------------------
                                            $    6,141,110   $    2,965,926 
                                          ----------------------------------

(b) supplementary cash flow information


                                                                            
                                           Year ended             Year ended
                                    December 31, 2013      December 31, 2012
----------------------------------------------------------------------------
Interest paid                                     $ -                    $ -
Interest received                               1,261                  4,356

(c) cash and cash equivalents


                                                                            
                                         December 31,           December 31,
                                                 2013                   2012
----------------------------------------------------------------------------
Cash on deposit                   $        13,625,703    $         6,073,807
Money market instruments                    4,869,383                735,833
                              ----------------------------------------------
Cash and cash equivalents         $        18,495,086    $         6,809,640
                              ----------------------------------------------
                              ----------------------------------------------

The money market instruments bear interest at a rate of 0.010% as at December 31, 2013

(December 31, 2012 - 0.082%).

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 shareholders' equity, working capital (excluding current portion of decommissioning liabilities), credit facilities and notes payable 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.


                                           December 31,        December 31, 
                                                   2013                2012 
----------------------------------------------------------------------------
Cash and cash equivalents              $    (18,495,086)   $     (6,809,640)
Other current assets                        ( 6,142,577)         (4,222,891)
Accounts payable and accrued                                                
Liabilities                                  16,153,038           8,645,896 
Notes payable (Notes 14 and 15)                       -           1,941,476 
----------------------------------------------------------------------------
Adjusted working capital               $     (8,484,625)   $       (445,159)
                                                                            
Note payable                                 35,855,042                   - 
Shareholders' equity                         25,441,923          30,213,520 
----------------------------------------------------------------------------
                                                                            
Total capital                          $     52,812,340    $     29,768,361 
----------------------------------------------------------------------------

The Company has evaluated its net working capital balance as at December 31, 2013 and 2012. 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. During 2013, the Company issued additional notes payable of $35.9 million. 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. . On November 6, 2013, the Company entered into swap contracts to limit exposure to declining crude oil prices for approximately 75% of its production from currently producing wells. Under these swaps, the Company receives or pays monthly a cash settlement on the covered production of the difference between the swap price and the month average of the daily closing quoted spot price per barrel of West Texas Intermediate NYMEX crude oil. For the remainder of 2013 the swap covers 9,685 barrels of oil at a swap price of $94.25. During the 12 months ending December 2014, the swap covers 40,524 barrels of oil at a swap price of $92.55. During the 12 months ending December 2015, the swap covers 28,410 barrels of oil at a swap price of $87.05. For the three month period ended December 31, 2013 the Company recognized a loss of $15,283 on the swap contracts settled. At December 31, 2013 the Company recorded an unrealized loss of $186,463 on the unsettled future contractual obligations due to higher commodity prices.


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, 2013, the Company sold 71% (December 31, 2012 - 59%) 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, 2013, the Company had overdue past due accounts receivable from certain joint interest partners of $156,426 which were outstanding for greater than 60 days (2012 - $58,757) and $17,460 that were outstanding for greater than 90 days (2012 - $170,741). At December 31, 2013, the Company's three largest joint interest partners represented approximately 18%, 4% and 3% of the Company's receivable balance (December 31, 2012 - 34%, 19% and 11% 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. The Company manages exposure on cash balances by holding cash with large and reputable financial institutions. The Company also assesses the credit worthiness of each counterparty before entering into contracts and ensures the counterparties meet minimum credit quality requirements.


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, 2013, 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, restricted cash, 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, 2013, the fair value of the notes payable is $35,855,042 plus transaction costs which approximates net book value as interest rates fluctuate.

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 and restricted cash, which are classified as fair value through profit or loss, are categorized as Level 1 financial instruments.

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.

The Company's equity facility balances as described in Note 13 and the note payable - Yorkville as described in Note 15 were recorded at fair value at the inception date using a market interest rate for similar debt issued without the warrants attached. The note payable - Apollo as described in Notes 14 were recorded at fair value on issuance using a market interest rate for similar debt issued without the overriding royalty interest attached. At December 31, 2013, the fair value of the notes payable is recorded at amortized cost and the carrying value approximates fair value.

The Company's derivative liabilities as described in Notes 13 and 15 are Level 2 financial instruments and commodity price contracts are a Level 2 financial instrument.

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, 2013 that subject the Company to liquidity risk are accounts payable, accrued liabilities, notes payable and derivative 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, except for the notes payable which are a long term financial liability. Management believes that current working capital will be adequate to meet these financial liabilities as they become due.

13. Equity Facility

On November 23, 2012 the Company entered into a GBP 6 million Standby Equity Distribution Agreement ("SEDA Agreement") 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"). During 2013 the Company received cash in the amount of US$2,154,211 for shares issued under the SEDA agreement..

In 2012, 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 Agreement, allowing Caza the option to issue equity at a 5% discount to fair market value. In connection with initial draw-down Caza issued to Yorkville 1,055,224 warrants having an exercise price of $0.33. These warrants have been valued at US$89,674. This loan agreement was rolled into the 4.3 million convertible loan agreement discussed below.

The Company entered into an Equity Adjustment Agreement (the "Adjustment Agreement") on March 5, 2013 with Global Master SPV Ltd., an investment fund managed by Yorkville Advisors Global, LP in conjunction with its SEDA Agreement dated November 23, 2012 with Yorkville. Pursuant to the Adjustment Agreement, during the three months ended March 31, 2013, the Company issued 3,846,154 common shares to Yorkville at a price of GBP 0.13 per share for aggregate proceeds of GBP 500,000 (US$756,451). The Company has deposited in escrow GBP 275,000 (US$ - $455,317) as security for this contingent payment obligation, which has been recorded within restricted cash on the consolidated statements of financial position.

Under the terms of the Adjustment Agreement, if on December 31 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 GBP 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 GBP 0.13 then the Company will pay to Yorkville the difference multiplied by the number of New Common Shares. The fair value of this derivative was calculated using Monte-Carlo Simulation at the date of issuance using inputs as of that date and at December 31, 2013 using inputs as of December 31, 2013, including the share price of $0.13 per share, the strike price of $0.08 per share, risk-free interest rate of 0.91%, a dividend yield of nil, a weighted average volatility factor of 79.3%, and an expected life of 2.8 years. The derivative liability is classified as a financial instrument measured at fair value though profit or loss. The fair value of the derivative liability amounting US$330,768 as of December 31, 2013 has been included within current liabilities on the consolidated statement of financial position, and the change in fair value of US$275,768 since the date of issuance is included in other expenses in the consolidated statement of net loss and comprehensive loss.

14. Notes Payable - Apollo

The Company also entered into a Note Purchase Agreement ( the "Note Agreement") dated May 23, 2013 with Apollo Investment Corporation ("the Note Holder"), an investment fund managed by Apollo Investment Management, pursuant to which the Note Holder has agreed to purchase from the Company up to US$50,000,000 of its senior secured notes. The Company received US$20,000,000 at the closing of the Note Agreement ("Tranche A Apollo Note") with an additional drawdown of US$5,000,000 and US$10,000,000 on September 11, 2013 and December 19, 2013, respectively. As at December 31, 2013, the Company may draw additional advances up to US$15,000,000 until August 23, 2014, if at the time of the advance, the Company meets the specified minimum production and drilling cost requirements for previous wells drilled under the program that were financed with funding from the Note Purchase Agreement. In addition to these funds, the Company will have the ability to reinvest cash flow from program wells back into the drilling program.

In connection with the Tranche A Apollo Note, the Company incurred a total of US$1,667,500 in transaction costs (consisting of US$1,540,000 in issuance costs and US$127,500 relating to the fair value of the 2% overriding royalty conveyed at the closing of the Note Purchase Agreement). In addition, the Company also incurred structuring fees of US$1,659,912 in connection with the Note Purchase Agreement. The Tranche A Apollo Note is classified as other financial liabilities and is measured at amortized cost.

The outstanding balance of the Tranche A Apollo Note as at December 31, 2013 was US$32,027,393 (net of unamortized transaction costs US$2,972,607). This outstanding balance matures on May 23, 2017. The Tranche A Apollo Note bears interest at a floating rate of one-month LIBOR (with a floor of 2%) plus 10% per annum, payable monthly. In an event of default under the Note Purchase Agreement, additional interest will be payable at a default rate of 5% per annum, but only during the period of default.

The Company is required to comply with financial covenants, which are tested quarterly, providing for specified interest coverage ratios beginning in the quarter ending September 30, 2013, and asset coverage ratios and minimum production, beginning in the quarter ending March 31, 2014. Furthermore, the Company is required to maintain a limit on expenditures for general and administrative costs.

Any outstanding balances in the Note Purchase Agreement may be prepaid at the option of the Company at any time at premiums that vary over time. The Note Purchase Agreement is also subject to a mandatory prepayment from the proceeds of the sale of assets and from funds received from transactions outside of the ordinary course of business. Additionally, if in any period the Company fails to comply with any financial or performance covenants, certain mandatory payments are required. Outstanding balances under the Note Purchase Agreement are secured by first-priority security interests in all of the Company's assets.

In addition to the 2% overriding royalty interest conveyed at the closing of the Note Purchase Agreement in its properties in Eddy and Lea Counties, New Mexico, the Company is also required to convey a proportionately reducible 2% overriding royalty interest in each lease acquired by Caza using proceeds from the Note Purchase Agreement. These amounts are not payable until such a time that these leases produce petroleum and natural gas revenues.

Upon full repayment of Tranche A Apollo Note, the overriding royalty interests will convert to a 25% net profits interest in each property, proportionately reduced to reflect the Company's working interest as provided in the Agreement, which will reduce to a 12.5% net profits interest at such time as the Note Holder achieves specified investment criteria pursuant to the Note Purchase Agreement. The Note Agreement provides for customary events of default. Additionally, an event of default would occur upon a change of control of the Company, which consists of (i) a shareholder acquiring more than 35% of the Company's outstanding Common Shares, (ii) a change in the composition of the board of directors by more than 1/3 during a 12-month period or (iii) a termination of service by any three of the five executive officers of the Company.

15. Notes Payable - Yorkville

On November 1, 2013 the Company entered into an agreement in relation to a $4.3 million convertible unsecured loan (the "Loan") to be made available by YA Global Master SPV Ltd., an investment fund managed by Yorkville. The Loan consists of $3.5 million of new credit facilities along with an additional $0.84 million that will be used to repay amounts which remain outstanding under the prior loan from Yorkville. In connection with the Loan, the Company incurred a total of US$304,060 in transaction costs. The Loan will mature in two years, which may be extended to three years by Yorkville. The Loan bears interest on outstanding principal at 8% per annum and interest is payable quarterly only in Common Shares based on a conversion price equal to 92.5% of the average price of the Common Shares during the ten trading days prior to the interest payment date. At Yorkville's option, outstanding principle of the loan is convertible into Common Shares of the Company and the conversion price will be a price per Common Share equal to either (a) 92.5% of the average price of the Common Shares during the ten trading days prior to the conversion to a maximum of $450,000 per month or (b) at Yorkville's option, a fixed price of GBP 0.14. In connection with the Loan, Yorkville received an 8% implementation fee and a three year warrants valued at US$73,865 to purchase 2,529,333 Common Shares at an exercise price of $0.17 per share. The fair value of this derivative was calculated using inputs as of December 31, 2013, including the share price of $0.143 per share, credit spread of 9.73%, a dividend yield of nil, an estimated implied volatility factor of 40%, and an expected life of two years. The fair value of the derivative liability amounting $160,276 as of December 31, 2013 has been included within current liabilities on the consolidated statement of financial position.


                                                                            
----------------------------------------------------------------------------
                                                                            
For the year ended December 31,                                        2013 
----------------------------------------------------------------------------
Fair value notes payable                                   $      4,264,399 
Embedded derivative                                                (160,276)
Less : financing fees                                              (276,473)
                                                         -------------------
Note payable                                               $      3,827,650 
                                                         -------------------
                                                         -------------------

16. General and Administrative

During the year ended December 31, 2013 the Company incurred general and administrative expenses in the amount of $6,209,190 (December 31, 2012 - $5,660,196) and salaries in the amount of $2,376,209 (December 31, 2012 - $2,136,490). Stock compensation amortization accounted for $852,406 of the general and administrative costs for the year ended December 31, 2013 (December 31, 2012 - $217,506).

17. Financing costs


----------------------------------------------------------------------------
                                             Years ended December 31,       
                                                     2013               2012
----------------------------------------------------------------------------
Unwinding of the discount (Note 5)                                          
                                         $         23,502   $         14,986
Amortization of financing fees                    604,023             19,285
Interest expense                                1,888,787             21,156
                                      --------------------------------------
Total financing costs                    $      2,516,312   $         55,427
                                      --------------------------------------
                                      --------------------------------------

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following Management's Discussion and Analysis ("MD&A") of the financial results for Caza Oil & Gas, Inc. ("Caza", "Corporation" or the "Company") should be read in conjunction with the audited consolidated financial statements as at and for the year ended December 31, 2013. 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 25, 2014.

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. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

CURRENCY

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

STRATEGY AND ASSETS

Strategy

The Company's 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 325 drilling locations in the Bone Spring play according to the NSAI Report. Management believes that the Company is well-positioned with approximately 4,892 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.

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 potential to increase shareholder value significantly over the period. A program of this type will initially require additional financing of the nature 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. 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


                                           2013          2012          2011 
----------------------------------------------------------------------------
Financial                                                                   
Revenue oil & gas                     8,312,526     4,969,258     4,089,894 
Funds flow from (used in)                                                   
 operations (1)                      (1,508,501)   (2,323,619)   (2,577,763)
  Per share - basic and diluted           (0.01)        (0.01)        (0.02)
Net loss                             (8,574,365)  (12,247,999)  (23,277,032)
  Per share - basic and diluted           (0.04)        (0.06)        (0.14)
Capital expenditures                 29,222,045    12,024,155    17,591,692 
Total assets                         79,100,144    41,768,690    48,558,875 
Total non-current liabilities        36,705,407       757,102     1,052,091 
Cash and working capital              8,484,625       445,159     8,845,433 
Common shares outstanding, end of                                           
 year (2)                           209,467,097   191,245,667   191,245,667 
                                                                            
Operations                                                                  
Operating netback ($/boe) (3)                                               
  Revenue oil & gas                       67.29         47.72         46.64 
  Severance tax and transportation                                          
   expense                                 5.77          3.73          3.77 
  Production expenses                     13.12         13.85          7.56 
----------------------------------------------------------------------------
  Operating netback (3)                   48.40         30.14         35.31 
Average daily oil production                                                
 (boe/day)                                  338           285           240 
----------------------------------------------------------------------------
                                                                            
(1) Calculated based on cash flow from operating activities before changes  
    in non-cash working capital and certain other items. See "Non IFRS      
    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 among Caza and members of     
    Caza's senior management.                                               
                                                                            
(3) Calculated by deducting royalties and operating costs from revenues. See
    "Non-IFRS Measures".                                                    

Highlights


--  Natural gas, natural gas liquids and crude oil production increased by
    19% in 2013 in comparison to 2012, averaging 338 boe per day in 2013
    (includes associated condensate production). The increase was mainly due
    to the Company focusing on oil rich prospects for exploration
    activities.  
    
--  A strong fourth quarter in 2013 saw production increase by 61% to 46,270
    boe for the three month period ending December 31, 2013 as compared to
    28,716 boe for the three month period ending December 31, 2012. 
    
--  A strong fourth quarter in 2013 saw revenues increase by 114% to
    $3,381,486 for the three month period ended December 31, 2013 as
    compared to $1,580,214 for the three month period ended December 31,
    2012. For the year ended December 31, 2013 revenues increased 67% to
    $8,312,256 as compared to $4,969,258 for the year ended December 31,
    2012. 

Operating Netback Summary (Non-IFRS)

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


                               Three Months ended     Twelve Months ended   
                                  December 31,            December 31,      
(on a boe basis)                   2013        2012        2013        2012 
----------------------------------------------------------------------------
Oil and natural gas revenue   $   73.08   $   55.03   $   67.29   $   47.72 
Production expense                (6.72)      (3.79)     (13.12)     (13.85)
Severance expense                 (5.96)      (4.28)      (5.49)      (3.20)
Transportation expense            (0.21)      (0.54)      (0.28)      (0.53)
----------------------------------------------------------------------------
Operating netback (non-IFRS)      60.19       46.42       48.40       30.14 

The change in netbacks for the twelve months ended December 31, 2013 occurred as a result of a revenue increase of $19.57 per/boe as compared to the previous year. Production expenses decreased $0.73 /boe as compared to the period ended December 31, 2012. And there was an increase in severance taxes and transportation costs of $2.04 per boe as a result of the 41% increase in commodity pricing as compared to the previous year.

FINANCIAL AND OPERATING RESULTS

Petroleum and Production Revenue


                         Three Months ended          Twelve Months ended    
                            December 31,                December 31,        
                              2013          2012          2013          2012
----------------------------------------------------------------------------
Natural gas                                                                 
Production (Mcf)            72,304        74,498       248,864       346,520
Revenue ($)                322,166       287,360       943,327       982,170
Price ($/Mcf)                 4.46          3.86          3.79          2.83
----------------------------------------------------------------------------
Light/medium crude                                                          
 oil                                                                        
Production (bbls)           32,819        14,709        75,737        42,876
Revenue ($/bbl)          3,050,368     1,226,014     7,134,709     3,795,892
Price ($/bbl)                92.95         83.35         94.20         88.72
----------------------------------------------------------------------------
                                                                            
Natural gas liquids                                                         
Production (bbls)            1,400         1,591         6,319         3,601
Revenue ($/bbl)              8,952        66,840       234,489       191,196
Price ($/bbl)                 6.39         42.01         37.11         53.09
----------------------------------------------------------------------------
Combined                                                                    
Production (boe)            46,270        28,716       123,533       104,140
Revenue ($)              3,381,486     1,580,214     8,312,526     4,969,258
Price ($/boe)                73.08         55.03         67.29         47.72
----------------------------------------------------------------------------
                                                                            
Boe/d                          503           312           338           285
----------------------------------------------------------------------------
                                                                            
Mcfe/d                       3,018         1,873         2,032         1,707
----------------------------------------------------------------------------

For the Company, revenues from oil and gas sales increased by 67% to $8,312,526 in 2013 up from $4,969,258 in 2012. The increase resulted from increased production volumes brought on by new wells brought on line during 2013 and a 41% increase in the average sales price to an average sale price of $67.29 per boe.

Average daily production increased by 19% to 338 boe/d in 2013 from 285 boe/d in 2012. The increase was mainly due to additional wells coming on line from the drilling program in the New Mexico Bone Spring play. Natural gas production made up 34% of Caza's production during 2013 with natural gas liquids and crude oil comprising the remaining 66%. This is compared to a total production profile comprised of 55% natural gas production in 2012, reflecting a shift toward exploration and production of oil based reserves.

Natural gas, natural gas liquids and crude oil revenues increased 114% to $3,381,486 for the three-month period ended December 31, 2013 from $1,580,214 for the three-month period ended December 31, 2012. Caza's production volumes increased 61% to 46,270 boe for the three-month period ended December 31, 2013 up from 28,716 boe for the comparative period. This represents an average daily production rate increase of 61% for the three-months period ended December 31, 2013 as compared to the comparative period. The average natural gas, natural gas liquids and crude oil price received by Caza increased 33% to $73.08 per boe during the three-month period ended December 31, 2013 from $55.03 per boe during the comparative period. The increase in revenues and production volumes for the three-month period ended December 31, 2013 from the comparative period occurred is a result of additional wells brought on line during the year in the New Mexico Bone Spring play. 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.

Production Expenses


                                Three Months ended       Twelve Months ended
                                      December 31,              December 31,
                                 2013         2012         2013         2012
----------------------------------------------------------------------------
Severance tax ($)             275,956      123,034      678,640      332,860
Transportation ($)              9,498       15,512       34,672       55,530
Production ($)                310,782      108,841    1,620,847    1,442,033
----------------------------------------------------------------------------
Severance, transportation                                                   
 and production ($)           596,236      247,387    2,334,159    1,830,423
Severance, transportation                                                   
 and production ($/Boe)         12.89         8.61        18.89        17.58
----------------------------------------------------------------------------

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, 2013, Caza incurred aggregate production, transportation and severance expenses of $2,334,159 or an average per boe of $18.89. During the year ended December 31, 2012, Caza's aggregate production, transportation and severance expenses were $1,830,423 or an average per boe of $17.58. Such expenses on a per boe basis have increased during the year ended December 31, 2013 by 8% as compared to the same period in 2012.

Severance taxes and transportation expenses were $713,311 during the year and are included in production expense. This is an increase of 84% 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 2013 and the 41% increase in commodity prices on a per boe basis as compared to the respective periods in 2012.

Severance taxes and transportation expenses totaled $285,454 ($6.17/boe) for the three-month period ended December 31, 2013, as compared to $138,546 ($4.82/boe) in the comparative period. Severance taxes and the transportation expense increased 106% as a result of the higher production volumes and commodity prices in the three month period ended December 31, 2013 as compared to the comparative period.

Production expenses for the three-month period ended December 31, 2013 were $310,782 as compared to $108,841 for the comparative period. Caza's average lifting cost for the three-month period ended December 31, 2013 was $6.72 per boe versus $3.79 per boe for the comparative period. The increase in production costs for the year ended December 31, 2012 occurred in part due to workovers on certain wells and the growth in producing wells in the New Mexico Bone Spring play.

Depletion, Depreciation, Amortization and Accretion

Depletion, depreciation, amortization and accretion expense for the three-month period ended December 31, 2013 increased to $1,250,493 ($27.03/boe) from $1,125,438 ($39.19/boe) in the comparative period. Depletion, depreciation and accretion expense increased to $3,459,365 ($28.00 per boe) in 2013 from $3,148,094 ($30.23 per boe) in 2012.


                                Three Months ended       Twelve Months ended
                                      December 31,              December 31,
                                 2013         2012         2013         2012
----------------------------------------------------------------------------
Depletion and depreciation                                                  
 ($)                        1,242,198    1,122,537    3,435,862    3,133,108
Accretion ($)                   8,295        2,901       23,503       14,986
----------------------------------------------------------------------------
Depletion, depreciation                                                     
 and accretion ($)          1,250,493    1,125,438    3,459,365    3,148,094
Depletion, depreciation                                                     
 and accretion ($/Boe)          27.03        39.19        28.00        30.23

The decreased depletion expense on a per boe basis for the period ended December 31, 2013 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 7% decrease in depletion expense on a per boe basis as compared to the respective period in 2012.

Costs of unproved properties of $7,843,846 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


                               Three Months ended       Twelve Months ended 
                                     December 31,              December 31, 
                                2013         2012         2013         2012 
----------------------------------------------------------------------------
General and                                                                 
 administrative ($)        1,807,442    1,399,714    6,372,751    5,777,933 
Joint venture partner                                                       
 reimbursements ($)                -            -            -            - 
General and                                                                 
 administrative recovery                                                    
 ($)                         (44,858)     (32,540)    (163,561)    (117,737)
----------------------------------------------------------------------------
Net general and                                                             
 administrative ($)        1,762,584    1,367,174    6,209,190    5,660,196 
General and                                                                 
 administrative ($/Boe)        39.06        48.74        51.59        55.48 
Net general and                                                             
 administrative ($/Boe)        38.09        47.61        50.26        54.35 
----------------------------------------------------------------------------

Net general and administrative expenses for 2013 increased to $6,209,190 from $5,660,196 for 2012 showing an increase of 10% from the comparative period. On a boe basis the net general and administrative expenses decreased by 20% and 8% for the respective three-month period and year ended December 31, 2013 due to the increase in production volumes offset by the 10% increase in expenses from the comparative period. Stock-based compensation expense in the amount of $242,190 (2012 - $95,580) is included in general and administrative expenses for the three-month period ended December 31, 2013 and $852,406 (2012 - $217,505) is included for the year ended December 31, 2013. During 2013, Caza did not capitalize general and administrative expenses relating to exploration and development activities. Caza recorded forfeitures of 515,000 stock options for the year ended December 31, 2013.

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, 2014 with respect to the Company's operations are as follows:


---------------               
Expiring at                   
December 31,               US$
---------------               
2026                 1,484,777
2027                11,146,427
2028                16,409,534
2029                 1,887,722
2030                 9,004,333
2031                14,887,664
2032                14,704,775
2033                26,342,957

Gain (Loss) on Risk Management Contracts

The Company has entered into commodity price derivative contracts to limit exposure to declining crude oil prices in accordance with its covenants under the Note Purchase Agreement. All derivative contracts are approved by the board of directors before the Company enters into them. The Company's risk management strategy is dictated in part by covenants in the Note Purchase Agreement (as defined herein) which require the Company to hedge approximately 75% of its production. The contracts limit exposure to declining commodity prices, thereby protecting project economics and providing increased stability of cash flows and for capital expenditure programs.

Under these contracts, the Company receives or pays monthly a cash settlement on the covered production of the difference between the swap price specified in the applicable contract and the month average of the daily closing quoted spot price per barrel of West Texas Intermediate NYMEX crude oil. These agreements cover 40,524 bbl of oil at a swap price of $92.55 during the year ending December 31, 2014 and cover 28,410 barrels of oil at a swap price of $87.05 during the year ended December 31, 2015. As at December 31, 2013, approximately 75% of the Company's oil production was subject to such arrangements.

The fair value of the Company's commodity price derivative contracts represents the estimated amount that would be received for settling the outstanding contracts on December 31, 2013, and will be different than what will eventually be realized. The fair value of these assets at a particular point in time is affected by underlying commodity prices, expected commodity price volatility and the duration of the contract and is determined by the expected future settlements of the underlying commodity. The gain or loss on such contracts is made up of two components; the realized component, which reflects actual settlements that occurred during the period, and the unrealized component, which represents the change in the fair value of the contracts during the period.

For the three month period ended December 31, 2013 the Company recognized a loss of $15,283 on its settled commodity price derivative contracts and recorded an unrealized loss of $186,463 on unsettled commodity price derivative contracts due to higher commodity prices.

Net loss

Net loss in 2013 decreased by 30% to $8,574,365 ($0.04 per share, basic and diluted) compared to $12,247,999 ($0.06 per share, basic and diluted) in 2012. Caza incurred a net loss of $2,851,859 for the three-month period ended December 31, 2013 as compared to a net loss of $4,384,652 during the comparative period. The decrease in net loss during such periods was attributable to the absence of an asset impairment in 2013 (2012 - $5,904,374), which was partially offset by increased financing and stock compensation expenses and by aggregate losses of $201,746 pursuant to the Company's risk management agreements in 2013.

Investments

Interest income for the three-month period ended December 31, 2013 was $244 and $1,261 for the year ended December 31, 2013, a decrease from $4,356 during the year ended December 31, 2012. Interest was earned on the proceeds received from advances made pursuant the Company's credit facilities and cash on hand. Caza invested these funds in short-term money market funds. The Company does not hold any asset backed commercial paper.

Funds flow from (used in) operations (Non-IFRS)

The following table reconciles the non-IFRS measure "funds flow from (used in) operations" to "net loss", the most comparable measure calculated in accordance with IFRS. Cash flow from operations before changes in non-cash working capital provides better information as it ignores timing differences resulting primarily from fluctuations in payables and receivables. As such it is a common measure used by management in the oil and gas industry.


                               Three Months ended       Twelve Months ended 
                                     December 31,              December 31, 
($)                             2013         2012         2013         2012 
----------------------------------------------------------------------------
Net loss                  (2,851,859)  (4,384,653)  (8,574,365) (12,247,999)
Depletion, depreciation,                                                    
 amortization              1,242,197    1,122,537    3,435,862    3,133,108 
Accretion                      8,295        2,901       23,503       14,986 
Stock-based compensation     242,190       95,580      832,806      217,506 
Impairment of oil & gas                                                     
 properties                        -    3,215,868            -    5,904,374 
Exploration and                                                             
 evaluation expense          741,016      192,935    1,481,691      192,935 
Other income                 217,567            -      217,567            - 
Disposal of assets                 -        3,456      243,592      461,471 
Unrealized losses from                                                      
 risk management                                                            
 contracts                   186,463            -      186,463            - 
Unrealized losses under                                                     
 Adjustment Agreement        491,044            -      491,044              
Non-cash financing costs                                                    
 and                               -            -      153,336            - 
----------------------------------------------------------------------------
Funds flow (used in)                                                        
 operations                  276,913      248,624   (1,508,501)  (2,323,619)
                                                                            
----------------------------------------------------------------------------
Funds flow loss per                                                         
 share - basic and                                                          
 diluted                        0.00         0.00        (0.01)       (0.01)
                                                                            
----------------------------------------------------------------------------

The increase in funds flow from (used in) operations as compared to the previous periods is associated with increased revenues during 2013, which was offset by increased production expense and general and administration expense as compared to 2012.

Capital Expenditures


                                 Three Months ended      Twelve Months ended
                                       December 31,             December 31,
By Type ($)                       2013         2012         2013        2012
----------------------------------------------------------------------------
Drilling and completions    10,039,324    5,613,636   25,940,124   8,953,239
Seismic                              -            -      126,800           -
Facilities and lease                                                        
 equipment                           -      802,868            -   1,683,374
Office furnishings and                                                      
 equipment                           -            -        1,250       1,944
Leasehold geological                                                        
 /geophysical                    5,798       67,018    3,081,676   1,196,156
Other costs (recovery)         (13,364)     857,588       72,195     189,442
----------------------------------------------------------------------------
Total                       10,031,758    7,341,110   29,222,045  12,024,155

During the year ended December 31, 2013, Caza drilled fourteen gross wells (3.56 net) with activities concentrated in the Bone Spring play in New Mexico.

Outstanding Share Data

Caza is authorized to issue an unlimited number of common shares without par value. Holders of common shares are entitled to one vote per share on all matters voted on a poll by shareholders, and are entitled to receive dividends when and if declared by the board of directors out of funds legally available for the payment of dividends. Upon Caza's liquidation or winding up or other distribution of its assets among its shareholders for the purpose of winding up its affairs, holders of common shares are entitled to share pro rata in any assets available for distribution to shareholders after payment of all obligations of the Company. Holders of common shares do not have any cumulative voting rights or pre-emptive rights to subscribe for any additional common shares.

At March 24, 2014 190,352,617 common shares were issued and outstanding. Common shares are issuable pursuant to outstanding incentive compensation options and common share purchase warrants. In addition, the management team has the right at any time to exchange the Caza Petroleum, Inc. ("Caza Petroleum") shares currently held by them for an aggregate of 26,502,000 common shares.

Common shares are also issuable pursuant to a $4.3 million convertible unsecured loan (the "Convertible Loan") dated November 5, 2013 between Caza and YA Global Master SPV Ltd. ("Yorkville"), an investment fund managed by Yorkville Advisors LLC. The outstanding principal of the Convertible Loan is convertible at Yorkville's option into common shares at a conversion price per share which will be determined at the date of each conversion. Such price shall be equal to either (a) 92.5% of the average price of the common shares during the 10 trading days prior to the conversion (such conversion being restricted to a maximum of $450,000 per month) or (b) at Yorkville's option, a fixed price of GBP 0.14 (such conversion being subject to no maximum amount). The Convertible Loan will mature on November 5, 2015, subject to Yorkville's right to extend the term by one year. At maturity, the outstanding principal balance will convert into common shares at a conversion price equal to the closing price of the common shares on the preceding trading day. As conversion prices will only be determined under the Convertible Loan when conversions occur, the number of common shares issuable pursuant to the Conversion Note is not ascertainable at this time.

The following table sets forth the classes and number of outstanding equity securities of the Company and the number of issued and issuable common shares on a fully diluted basis.


                                              Issued and Issuable Securities
Common Shares                                                               
  Issued and outstanding                                         190,352,617
  Issuable from Exchangeable rights                               26,502,000
  Issuable from exercise of warrants                               3,584,557
  Issuable from exercise of stock options                         15,985,000
  Issuable pursuant to Convertible Loan                                 -(1)
Total Common Shares issued and issuable                          236,424,174
                                              ------------------------------
                                                                            
Warrants Issued and Outstanding                                             
  Warrants to purchase common shares                                        
   outstanding                                                     3,584,557
                                                                            
Stock Options Issued                                                        
  Management Stock options outstanding                            15,985,000
                                                                            
Convertible Loan                                                            
  Common shares issuable pursuant to                                        
   Convertible Loan                                                     -(1)

(1) The number of common shares issuable pursuant to the Convertible Loan is not ascertainable at this time.

Commitments

The following is a summary of the estimated amounts required to fulfill Caza's remaining contractual commitments as at December 31, 2013:


                                    less than      1-3     4-5            
Type of Obligation ($)        Total     1 Year     Years   Years  Thereafter
                                                                            
Operating leases            442,477    258,075   184,402       -           -
Asset retirement                                                            
 obligations                972,634    122,269         -       -     850,365
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Total contractual                                                           
 commitments              1,415,111    380,344   184,402       -     850,365
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Liquidity and Capital Resources

Caza's strategy is to participate in three to four wells per annum funded from production revenues, existing cash resources and available financing under the Note Purchase Agreement or the SEDA (each as defined below). In the event additional sources of financing become available the Company would consider increases to its drilling program. The Company is focused on securing appropriate levels of capitalization to support its business strategy. As commodity prices or production fluctuates, the Company intends to alter its capital program or reduce costs in order to maintain an acceptable level of capitalization.

At December 31, 2013, Caza had a working capital surplus of $8,484,625 as compared to $445,159 as at December 31, 2012 and $8,484,625 as at December 31, 2011. This increase of $8,039,466 in working capital from December 31, 2012 resulted primarily from drawdowns from credit facilities in the amount of $38,880,012 offset by capital expenditures of $29,222,045 in connection with drilling and lease acquisition activities, $1,508,501 in funds flow used in operations and the derivative liabilities of $110,000. Caza had a cash balance of $18,495,086 as of December 31, 2013. The current working capital surplus of $8,484,625 does not include the decommissioning liabilities of $122,269.

Caza and its subsidiary Caza Petroleum Inc. may be considered to be "related parties" for the purposes of Multilateral Instrument 61-101 of the Canadian Securities Administrators. As a result, Caza or Caza Petroleum Inc. may be required to obtain a formal valuation or disinterested shareholder approval before completing certain transactions with the other party.

During the year ended December 31, 2013, the Company secured funding under the following agreements:

Note Purchase Agreement

On May 23, 2013, the Company entered into a Note Purchase Agreement (the "Note Agreement") with Apollo Investment Corporation (the "Note Holder"), an investment fund managed by Apollo Investment Management, pursuant to which the Note Holder agreed to purchase up to US$50,000,000 of senior secured notes ("Notes") from the Company. Under the Note Purchase Agreement, the Company is required to comply with financial covenants, which are tested quarterly, providing for specified interest coverage ratios beginning in the quarter ending September 30, 2013, and asset coverage ratios and minimum production, beginning in the quarter ending March 31, 2014. The Company is also required to maintain a limit on general and administrative costs. Due to drilling delays, the Company did not satisfy the minimum interest coverage ratio for the periods ended September 30 and December 31, 2013. These have been waived by Apollo. The Company and Apollo are discussing an amendment regarding this ratio to account for the drilling delays. Any outstanding balances of the Notes may be prepaid at the option of the Company at any time at premiums that vary over time. The Note Purchase Agreement is also subject to a mandatory prepayment from the proceeds of the sale of assets and from funds received from transactions outside of the ordinary course of business. Certain mandatory payments are also required if in any period the Company fails to comply with any financial or performance covenants. The Note Agreement provides for customary events of default. Additionally, an event of default would occur upon a change of control of the Company, which consists of (i) a shareholder acquiring more than 35% of the Company's outstanding common shares, (ii) a change in the composition of the board of directors by more than 1/3 during a 12-month period or (iii) a termination of service by any three of the five executive officers of the Company. Outstanding balances under the Notes are secured by first-priority security interests in all of the Company's assets.

In addition to a 2% overriding royalty interest conveyed at the closing of the Note Agreement in its properties in Eddy and Lea Counties, New Mexico, the Company is also required to convey a proportionately reducible 2% overriding royalty interest in each lease acquired with proceeds from the Note Agreement. Upon full repayment of the Notes, the overriding royalty interests will convert to a 25% net profits interest in each property, proportionately reduced to reflect the Company's working interest as provided in the Note Agreement, which will reduce to a 12 1/2% net profits interest at such time as the Note Holder achieves specified investment criteria pursuant to the Note Agreement.

During 2013, the Company sold an aggregate of Notes in the aggregate principal amount of US$35,000,000 to the Note Holder. The Company may draw additional advances of up to US$15,000,000 until August 23, 2014, if at the time of the advance, the Company meets the specified minimum production and drilling cost requirements for previous wells drilled under the program financed by the Note Purchase Agreement. In addition to these funds, the Company has the ability to reinvest cash flow from program wells back into the drilling program.

The outstanding balance of the Notes as at December 31, 2013 was US$35,000,000 (exclusive of unamortized transaction costs US$2,972,607). The Notes bear interest at a floating rate of one-month LIBOR (with a floor of 2%) plus 10% per annum, payable monthly and mature on May 23, 2017. In an event of default under the Note Purchase Agreement, additional interest will be payable at a default rate of 5% per annum, but only during the period of default.

In connection with the sale of the Notes, the Company incurred a total of US$1,667,500 in transaction costs (consisting of US$1,540,000 in issuance costs and US$127,500 relating to the fair value of the 2% overriding royalty conveyed at the closing of the Note Purchase Agreement). In addition, the Company also incurred structuring fees of US$1,659,912 in connection with the Note Purchase Agreement. The Notes are classified as other financial liabilities and are measured at amortized cost.

Standby Equity Distribution Agreement

The Company and Yorkville are party to a GBP 6 million Standby Equity Distribution Agreement ("SEDA") dated November 23, 2012. The SEDA allows Caza to issue equity at a 5% discount to market to fund loan repayments or well costs in certain circumstances. As at December 31, 2013, the company has drawn down an aggregate of GBP 1,450,000 under the SEDA. During 2013, the Company issued 13,975,276 common shares under the SEDA at an average price of GBP 0.965 per share for gross proceeds of $2,154,210. The SEDA expires on November 23, 2015.

Convertible Loan

On November 1, 2013, the Company borrowed $4,338,264 from Yorkville pursuant to the Convertible Loan. Loan proceeds of $838,264 were used to pay off the remaining balance of the Company's US$12 million SEDA backed Loan Agreement with Yorkville. The Convertible Loan bears interest on outstanding principal at 8% per annum and interest is payable only in common shares based on a conversion price equal to 92.5% of the average price of the common shares during the ten trading days prior to the interest payment date. The amounts outstanding under the Convertible Loan Agreement shall generally be satisfied through the issuance of common shares to the lender, although upon default the Convertible Loan may become due and payable in certain circumstances. As at December 31, 2013, the principal amount of the Convertible Loan had not been converted, in whole or in part.

Equity Adjustment Agreement

The Company entered into an Equity Adjustment Agreement (the "Adjustment Agreement") on March 5, 2013 with Yorkville. Pursuant to the Adjustment Agreement, during the three months ended March 31, 2013, the Company issued 3,846,154 common shares to Yorkville at a price of GBP 0.13 per share for aggregate proceeds of GBP 500,000. The proceeds were subject to adjustment as more particularly described under the heading "Share Price Risk".

Transactions with Related Parties

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.

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 is a related party as it is a company under common control with Zoneplan Limited, which is a significant shareholder of Caza.

Summary of Quarterly Results


                                            Three                           
                               Three       months        Three        Three 
                              months        ended       months       months 
                               ended    September        ended        ended 
                        December 31,          30,     June 30,    March 31, 
                                2013         2013         2013         2013 
----------------------------------------------------------------------------
                                                                            
Petroleum and natural                                                       
 gas sales                 3,381,486    2,583,753    1,067,991    1,279,297 
Net income (loss)         (2,851,860)  (1,370,132)  (3,039,336)  (1,313,035)
  Per share - basic and                                                     
   diluted                     (0.01)       (0.01)       (0.02)       (0.01)
Funds flow from                                                             
 operations (See note)                                                      
 (1)                         276,913     (128,852)  (1,277,772)    (378,779)
  Per share - basic and                                                     
   diluted                      0.00        (0.00)       (0.00)       (0.00)
Net capital expenditures  10,031,758   19,190,280    5,275,110    2,563,409 
Average daily production                                                    
 (boe/d)                         503          397          223          230 
Weighted average shares                                                     
 outstanding             182,965,097  177,701,939  170,879,773  165,867,263 
                                                                            
                                            Three                           
                               Three       months        Three        Three 
                              months        ended       months       months 
                               ended    September        ended        ended 
                        December 31,          30,     June 30,    March 31, 
                                2012         2012         2012         2012 
----------------------------------------------------------------------------
                                                                            
Petroleum and natural                                                       
 gas sales                1, 580,214      902,622    1,093,694    1,392,728 
Net income (loss)         (4,384,653)  (2,203,998)  (1,967,238)  (3,692,110)
  Per share - basic and                                                     
   diluted                     (0.03)       (0.01)       (0.01)       (0.02)
Funds flow from(used in)                                                    
 operations (See note)                                                      
 (1)                         248,624     (926,578)  (1,297,649)    (348,016)
  Per share - basic and                                                     
   diluted                      0.00         0.02        (0.01)       (0.00)
Net capital expenditures   7,341,110    2,391,421    1,352,748      938,874 
Average daily production                                                    
 (boe/d)                         312          239          276          311 
Weighted average shares                                                     
 outstanding             164,743,667  164,743,667  164,743,667  164,743,667 

1.  Calculated based on cash flow from operations before changes in non-cash
    working capital. 

Factors that have caused variations over the quarters:


--  Revenues have fluctuated as a result of changes in the Company's
    production and in commodity prices; 
    
--  Revenues and operating netback (Non-IFRS) have generally increased as a
    result of the Company's increased oil production; 
    
--  Net loss in 2012 increased as a result of asset write-downs; 
    
--  Leasehold costs increased due to a growing prospect inventory in Texas
    and south east New Mexico; and 
    
--  Capital expenditures increased during the second half of 2013 as the
    Company deployed capital made available under the Note Purchase
    Agreement and other funding arrangements. 

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, share price 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.

Commodity Price Risk

The Company is subject to commodity price risk for the sale of natural gas and other hydrocarbons. The Company has and may in the future enter into forward commodity contracts for risk management purposes, in order to protect all or a portion of its future cash flow from the volatility of hydrocarbon commodity prices or to satisfy contractual obligations under loan or other agreements with third parties. See "Gain (Loss) on Risk Management Contracts" for details regarding the Company's existing forward commodity contracts.

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 crude oil, natural gas liquids and natural gas sales and the Company's accounts receivable that are with 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, natural gas liquids and crude oil 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, 2013, the Company sold 71% (December 31, 2012 - 59%) of its natural gas, natural gas liquids and crude oil to a single purchaser. These sales were conducted on transaction terms that are typical for the sale of natural gas, natural gas liquids and crude oil 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, 2013, the Company had overdue accounts receivable from certain joint interest partners of $156,426 which were outstanding for greater than 60 days and $17,460 that were outstanding for greater than 90 days. At December 31, 2013, the Company's two largest joint venture partners represented approximately 18% and 4% of the Company's receivable balance respectively (December 31, 2012 - 34% and 19% 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.

Share Price Risk

Share price risk arises under the terms of the Adjustment Agreement. As amended, such agreement provides that, if on December 31, 2014 the common share market price is greater than GBP 0.13, then Yorkville will pay to the Company the difference multiplied by the number of common shares issued thereunder, and, if the market price is less than GBP 0.13, then the Company will pay to Yorkville the difference multiplied by such number of common shares.

The fair value of this derivative was calculated as at December 31, 2013 using inputs as of that date, including the share price, the strike price and the estimated volatility over the remaining term. The derivative liability is classified as a financial instrument measured at fair value though profit or loss. The fair value and unrealized loss of this derivative liability was $330,768 as of December 31, 2013

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, 2013, the Company considers this risk to be relatively limited and not material; therefore it does not hedge its foreign exchange risk.

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 balance sheet due to their short-term nature. See "Gain (Loss) on Risk Management Contracts" and "Share Price Risk" for details regarding the fair value of the Company's existing forward commodity and equity adjustment contracts, respectively

All financial assets except for cash and cash equivalents which are classified as held for trading, are classified as either 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 balance sheet that have been designated as available-for-sale. There have been no changes to the aforementioned classifications in the current fiscal period ended December 31, 2010.

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, 2013 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 support these financial liabilities.

Critical Accounting Estimates

The policies discussed below are considered particularly important as they require management to make informed judgments, some of which may relate to matters that are inherently uncertain. The financial statements have been prepared in accordance with Canadian IFRS. In preparing financial statements, management makes certain assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. The basis for these estimates is historical experience and various other assumptions that management believes to be reasonable. Actual results could differ from the estimates under different assumptions or conditions.

Reserves - The Company engages independent qualified reserve evaluators to evaluate its reserves each year. Reserve determinations involve forecasts based on property performance, future prices, future production and the timing of expenditures; all these are subject to uncertainty. Reserve estimates have a significant impact on reported financial results as they are the basis for the calculation of depreciation and depletion. Revisions can change reported depletion and depreciation and earnings; downward revisions could result in a ceiling test write down.

Decommissioning Liabilities - The Company provides for the estimated abandonment costs using a fair value method based on cost estimates determined under current legislative requirements and industry practice. The amount of the liability is affected by the estimated cost per well, the timing of the expenditures and the discount factor used. These estimates will change and the revisions will impact future accretion, depletion and depreciation rates.

Income taxes - The utilization of future tax assets subject to an expiry date are based on estimates of future cash flows and profitability. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes of estimates in future periods could be significant.

Stock based Compensation - 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. This model is used to value the stock options granted. In addition, option pricing models require the input of highly subjective assumptions including the expected stock price volatility. Changes in the subjective input assumptions can materially affect the fair value estimates as reflected in the consolidated financial statements

Recent Accounting Pronouncements

The Company has assessed new and revised accounting pronouncements that have been issued that are not yet effective and determined that the following may have a significant impact on the Company

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.

Effective January 1, 2013, Caza adopted IFRS 10 "Consolidated Financial Statements", IFRS 11 "Joint Arrangements, IFRS 12 "Disclosure of Interests in Other Entities", and the amendments to IAS 28 "Investments in Associates and Joint Ventures."

There were no changes to the consolidated financial statements or the consolidation process as a result of adoption of IFRS 10. IFRS 11 classifies interests in joint arrangements as joint ventures or joint operations depending on the rights and obligations of the parties in the arrangement. Caza performed a review of interests in joint arrangements and concluded that shared wells operate as joint operations and accordingly there is no change in the accounting for these assets as a result of adoption of this standard. As a result, there were no changes as a result of the adoption of IFRS 12 as well.

Furthermore Caza was also required to adopt IFRS 13 "Fair Value Measurements," amendments to IAS 1 "Presentation of Financial Statements," amendments to IFRS 7 "Financial Instruments: Disclosures." There were no material changes as a result of the adoption of these standards.

The Company will also continue to monitor standards development as issued by the IASB and the AcSB as well as regulatory developments as issued by the CSA, which may affect the timing, nature or disclosure of its adoption of IFRS.

RISK FACTORS

Investors should carefully consider the risk factors set out below and consider all other information contained herein and in the Company's other public filings before making an investment decision. The risks and uncertainties set out below and elsewhere in this Annual Information Form are not the only ones facing the Corporation. Additional risks and uncertainties not presently known to the Corporation or that the Corporation currently considers immaterial may also impair the business and operations of the Corporation and Caza Petroleum or cause the price of the Common Shares to decline. If any of the following risks actually occur, the Corporation's business may be harmed and the financial condition and results of operations may suffer significantly. In that event, the trading price of the Common Shares could decline and holders of Common Shares may lose all or part of their investment.

Stage of Development

An investment in the Corporation is subject to certain risks related to the nature of the Corporation's business and its early stage of development. There are numerous factors which may affect the success of the Corporation's business which are beyond the Corporation's control including local, national and international economic and political conditions. The Corporation's business involves a high degree of risk which a combination of experience, knowledge and careful evaluation may not overcome. The Corporation has no earnings and there can be no assurance that the Corporation's business will be successful or profitable or that additional commercial quantities of crude oil and natural gas will be discovered by the Corporation. The Corporation has not paid any dividends and it is unlikely to pay dividends in the immediate or foreseeable future.

Substantial Capital Requirements

The Corporation anticipates making substantial capital expenditures for the acquisition, exploration, development and production of oil and natural gas reserves in the future. The Corporation's current revenues are not sufficient to fund these activities and the Corporation may not have access to the capital necessary to undertake or complete future drilling programs. In addition, uncertain levels of near term industry activity coupled with the present global financial uncertainty exposes the Corporation to additional access to capital risk. There can be no assurance that debt or equity financing will be available or sufficient to meet these requirements or for other corporate purposes or, if debt or equity financing is available, that it will be on terms acceptable to the Corporation. The inability of the Corporation to access sufficient capital for its operations could have a material adverse effect on the Corporation's business.

Availability of Funding

The Corporation's cash flow is and may not be sufficient to fund its ongoing activities. The Corporation currently intends to rely on certain existing sources of funding. Availability of these is dependent on the satisfaction of certain conditions and there can be no assurance such sources will remain available to the Corporation in the future. From time to time, the Corporation may also require additional financing in order to carry out its oil and gas acquisition, exploration and development activities. The lack of availability of existing financing or the failure to obtain additional financing on a timely basis could cause the Corporation to forfeit its interest in certain properties, miss certain acquisition opportunities and reduce or terminate its operations, and may affect the Corporation's ability to expend the capital required to replace its reserves or to maintain its production. There can be no assurance that additional debt or equity financing will be available to meet these requirements or, if available, on terms acceptable to the Corporation. This may be complicated by the limited market liquidity for the shares of smaller companies, restricting access to some institutional investors. Continued uncertainty in domestic and international credit markets could also materially affect the Corporation's ability to access sufficient capital for its capital expenditures and acquisitions. Furthermore, if additional financing is raised through the issuance of equity, control of the Corporation may change and the shareholders may suffer dilution. The Corporation may also consider asset dispositions or farm-out or joint venture arrangements in order to fund or implement its exploration and development activities; however, there can be no assurance that the Corporation will be able to secure such dispositions or arrangements on acceptable terms or at all. The inability of the Corporation to access sufficient capital for its operations and/or to secure acceptable alternative arrangements may have a material adverse effect on the Corporation's ability to execute its business strategy and on its business, financial condition, results of operations and prospects. If the Corporation is unable to satisfy its obligations or otherwise commits an event of default under its existing credit arrangements, the Corporation's lenders may receive a judgment and have a claim on the Corporation's assets. The proceeds of any sale of assets would be applied to satisfy amounts owed to the creditors. Only after the proceeds of that sale were applied towards the debt would the remainder, if any, be available for distribution to shareholders.

Global Financial Conditions and Recession

Market events and conditions, including disruptions in the international credit markets and other financial systems and the deterioration of global economic conditions, have caused significant volatility to commodity prices. These conditions have caused a loss of confidence in the broader U.S. and global credit and financial markets and resulting in government intervention in major banks, financial institutions and insurers and creating a climate of greater volatility, less liquidity, widening of credit spreads, a lack of price transparency, increased credit losses and tighter credit conditions. Notwithstanding various actions by governments, concerns about the general condition of the capital markets, financial instruments, banks, investment banks, insurers and other financial institutions caused the broader credit markets to further deteriorate and stock markets to decline substantially. Although economic conditions have improved, the recovery from the recession has been slow in various jurisdictions including in Europe and the United States and has been impacted by various ongoing factors including high sovereign debt levels, concerns regarding defaults by certain governments, particularly in Europe, and high levels of unemployment, which continue to impact commodity prices and to result in high volatility in the stock market.

Competitive Conditions

The oil and natural gas industry is highly competitive and Caza and its subsidiaries compete with a substantial number of other companies that have greater resources. Many of these companies explore for, produce and market oil and natural gas, carry on refining operations and market the resultant products on a worldwide basis. The primary areas in which the Corporation and its subsidiaries encounter substantial competition are in locating and acquiring desirable leasehold acreage for drilling and development operations, locating and acquiring attractive producing oil and natural gas properties, and obtaining purchasers and transporters of the oil and natural gas they produce. Many of these competitors have financial, technical and other resources substantially greater than those of the Corporation. To the extent that these companies enjoy technological advantages, they may be able to implement new technologies more rapidly than Caza and its subsidiaries. There is also competition between producers of oil and natural gas and other industries producing alternative energy and fuel. The inability to acquire desirable properties, assets or service providers as a result of competition may have a material adverse effect on Caza's business, financial condition, results of operations and trading price of the Common Shares.

Share Price Volatility

The share price of emerging companies can be highly volatile. The price at which the Common Shares are traded and the price at which investors may realize their Common Shares will be influenced by a large number of factors, some specific to Caza and its operations and some which may affect companies trading on exchanges generally. These factors may include the performance of the Corporation and its subsidiaries, large purchases or sales of the Common Shares, legislative changes and general economic, political or regulatory conditions. Prospective investors should be aware that the value of an investment in the Corporation may go down as well as up and that the market price of the Common Shares may not reflect the underlying value of Caza. Investors may therefore realize less than, or lose all of, their investment.

Crude Oil and Natural Gas Exploration and Development

Crude oil and natural gas exploration involves a high degree of risk and there is no assurance that expenditures made on future exploration or development activities by the Corporation and its subsidiaries will result in discoveries of crude oil, condensate or natural gas that are commercially or economically feasible to produce and sell. It is difficult to project the costs of implementing any exploratory drilling program due to the inherent uncertainties of drilling in unknown formations, the shortages of and delays in the availability of drilling rigs and equipment, the costs associated with encountering various drilling conditions such as over pressured zones and tools lost in the hole, and changes in drilling plans and locations as a result of prior exploratory wells or additional seismic data and interpretations thereof.

The Corporation's operations are subject to all the risks normally associated with the exploration, development and operation of crude oil and natural gas properties and the drilling of crude oil and natural gas wells, including encountering unexpected formations or pressures, mechanical failures, premature declines of reservoirs, environmental damage, blow outs, cratering, fires and spills, all of which could result in personal injuries, loss of life and damage to property of the Corporation and others. In accordance with customary industry practice the Corporation and its subsidiaries do maintain insurance coverage, but are not fully insured against all risks, nor are all such risks insurable. Environmental regulation is becoming increasingly stringent and costs and expenses of regulatory compliance are increasing.

Exploration, appraisal and development of crude oil and natural gas reserves is speculative and involves a significant degree of risk. Few properties that are explored are ultimately developed into new reserves. If at any stage the Corporation and its subsidiaries are precluded from pursuing their exploration or development program, or such program is otherwise not continued, the Corporation's business, financial condition and/or results of operations and, accordingly, the trading price of the Common Shares is likely to be materially adversely affected.

Reserves and Future Net Revenue Estimates

There are numerous uncertainties inherent in estimating quantities of proved, probable and possible reserves and cash flows to be derived from reserves, including many factors beyond the control of the Corporation. The reserves and cash flow information set forth in this Annual Information Form represent estimates only. The reserves and estimated future net cash flows from Caza Petroleum's properties have been independently evaluated by NSAI in the NSAI Report with an effective date of December 31, 2013. The Corporation owns 87.35% of Caza Petroleum with the balance held by the Management Team. This evaluation includes a number of assumptions relating to factors such as initial production rates, production decline rates, ultimate recovery of reserves, timing and amount of capital expenditures, marketability of production, future prices of crude oil and natural gas, operating costs, abandonment and salvage values, royalties, government levies that may be imposed over the producing life of the reserves and reserves which are currently undiscovered but may be discovered at a future date. These assumptions were based on price forecasts in use at the date the relevant evaluations were prepared and many of these assumptions are subject to change and are beyond the control of the Corporation. Actual production and cash flows derived there from will vary from these evaluations, and such variations could be material. Due to the limited history of Caza Petroleum's producing wells, a significant portion of its reserves have not been estimated on a decline curve analysis of production, but rather on a volumetric basis which assumes certain characteristics of the reservoir.

The present value of estimated future net revenues referred to herein should not be construed as the current market value of estimated crude oil and natural gas reserves attributable to Caza Petroleum's properties. The estimated discounted future net revenues from reserves are based upon price and cost estimates which may vary from actual prices and costs and such variance could be material. Actual future net revenues will also be affected by factors such as the amount and timing of actual production, supply and demand for crude oil and natural gas, curtailments or increases in consumption by purchasers and changes in governmental regulations or taxation.

Title to Properties

At the Corporation's development stage, its primary emphasis presently is upon acquiring oil and gas leasehold interests in its prospects and properties for purposes of assembling drilling prospects and drilling wells. Those leasehold interests may be acquired by various means, including direct acquisition from the owner of the mineral estate, farmout and farmin agreements with current holders of leasehold interests, participation and exploration agreements by which Caza or its subsidiaries join with other industry participants to share the costs of acquisition, exploration, and/or development costs, and other forms of agreement. In the case of farmout, farmin, participation and exploration agreements, a party may assume certain obligations to pay certain monies, acquire leases, drill wells, and/or share in other costs in order to acquire an interest in a given prospect or well. Pursuant to such agreements, one party may pay or otherwise bear the costs of another party as consideration for earning an interest, which is known as a "carry", or a "carried interest". In essence, the party bearing the costs in such an arrangement has a contractual right to earn an interest in the leases, equipment, and production associated with a given property. Once such leasehold interests are initially earned, depending upon the agreement, a party may relinquish or otherwise forfeit interests or the opportunity to earn additional interests in the future if the earning party fails to continue to bear its share of ongoing or future obligations associated with drilling, maintenance, and development operations.

Caza Petroleum and other subsidiaries of the Corporation have entered such types of agreements with respect to many of their principal prospects and properties, but not all. As to certain prospects and properties, these subsidiaries have entered multiple such agreements which may create complex earning scenarios. As a result, the subsidiaries must perform, or continue to perform, certain obligations in order to earn, or to retain, interests and/or the right to earn interests in the future. As to a number of properties and prospects, leasehold interests must be earned through the drilling and funding of oil and gas wells upon the respective lands. In addition, often parties to such agreements must make participation elections, which potentially may result in their forfeiture of interests, or alternatively, their right to acquire additional interests resulting from forfeitures by other parties. Such elections may occur more than once during the process of drilling a well. The Corporation's subsidiaries future performance under such agreements, coupled with the performance and elections by other parties, can cause these interests to increase or decrease over the time period during which such performance and elections must occur.

At the exploration stage, it is a common practice in the oil and gas industry to employ the services of landmen to review the recorded public records on file to determine the current record title interest owners to the mineral estate beneath a specific tract of land. Since the mineral and surface estates can be severed from one another, it is not uncommon for oil and gas companies to focus on the mineral estate, for mineral leasing purposes, rather than the surface estate. In a competitive situation, this procedure is also utilized because the time periods necessary to order more thorough abstracts of title and to identify the record title ownership for mineral estates in various tracts of land could place the company at a competitive disadvantage.

Such preliminary title reviews are useful in the determination of apparent title to the subject lands but are subject to error and subject to other matters of record that may burden, diminish or defeat a company's interests in the acquired lands. Caza Petroleum generally employs reputable landmen who are experienced in title searches in the areas in which Caza Petroleum seeks to acquire interests, and the work product of those landmen are ordinarily believed to be accurate for the lands identified and pursued.

Prior to drilling a well, and after leases are secured based upon the preliminary title investigation, a more complete title review may be commissioned, or an abstract of title may be acquired, for purposes of preparing a formal drilling title opinion. Certified abstracts include copies of documents that affect ownership under a given tract of land. Such documents may include evidence of liens and encumbrances, defects in title, boundary conflicts, legal proceedings, competing claims to title, prior leases, regulatory restrictions, and similar factors. The drilling title opinion, if any, is prepared by a title attorney, and examines and discusses certain title elements, identifies certain title issues, and may recommend certain steps to pursue in resolving any such issues prior to drilling an oil or gas well. Title opinions, if any, may be prepared prior to the actual drilling of a well. They may, however, be commissioned prior to the purchase of leases where the size of the tract, the amount of lease bonus at risk, or known complexities in title warrant a detailed investigation before acquiring leases.

Caza and its subsidiaries frequently rely upon landmen to perform title reviews for purposes of acquiring leasehold interests. The Corporation's subsidiaries also review the preliminary title reviews, or title opinions if available, of companies from which it acquires interests or with which it enters agreements to earn such interests. In some cases, a title attorney may be employed to review the ownership of the mineral estate prior to acquiring leases from the owner of the mineral estate, and that review may or may not, depending upon the circumstances, address other estates in the lands (e.g., the surface ownership) and the elements stated above.

Thus, although title reviews have been and may continue to be performed according to standard industry practice prior to the acquisition of most crude oil and natural gas leases or rights to acquire leases in prospects and properties or the commencement of drilling wells, such reviews do not guarantee or preclude that an unidentified or latent defect in the chain of title will not exist, or that a third party claim will not arise that burdens, diminishes or defeats the claim of the Corporation or its subsidiaries which could result in a reduction of the revenue received by the Corporation or its subsidiaries and could have a material adverse effect on the Corporation's business, financial condition, results of operations and trading price, if any, of the Common Shares. In addition, the Corporation's subsidiaries may elect to accept certain risks in connection with title to its oil and gas prospects and properties, and acceptance of such risks can result in loss of title to all or a portion of one or more given properties, title curative costs, re-acquisition costs, and/or a reduction in the revenue received by the Corporation or its subsidiaries and could have a material adverse effect on the Corporation's business, financial condition, results of operations, and trading price of the Common Shares.

Volatility of Crude Oil and Natural Gas Prices and Markets

The Corporation's financial condition, operating results and future growth are dependent on the prevailing prices for crude oil and natural gas production. Historically, the markets for crude oil and natural gas have been volatile and such markets are likely to continue to be volatile in the future. Prices for crude oil and natural gas are subject to large fluctuations in response to relatively minor changes to the demand for crude oil and natural gas, whether the result of uncertainty or a variety of additional factors beyond the control of the Corporation. The Corporation and its subsidiaries must periodically negotiate contracts with a limited number of potential purchasers. The price negotiated is influenced by the size of the crude oil or natural gas stream, the nature of the crude oil or natural gas and its location when produced. Any substantial decline in the prices of crude oil and natural gas could have a material adverse effect on the Corporation and the level of its crude oil and natural gas reserves. Additionally, the economics of producing from some wells may change as a result of lower prices, which could result in a suspension of production. No assurance can be given that crude oil and natural gas prices will be sustained at levels which will enable the Corporation or its subsidiaries to operate profitably. The Corporation and its subsidiaries avail themselves of forward sales or other forms of hedging activities from time to time in accordance with the Note Purchase Agreement with a view to mitigating its exposure to the risk of price volatility. Such agreements may result in sales of crude oil and natural gas which are greater or less than the prevailing spot prices for such products, which will result in realized or unrealized gains or losses for the Corporation. Further details regarding these swap arrangements are set forth in Note 12 of Caza's audited annual financial statements for the year ending December 31, 2013.

Environmental Regulation and Risks

Extensive federal, state and local environmental laws and regulations in the United States affect all of the operations of the Corporation and its subsidiaries. These laws and regulations set various standards regulating certain aspects of health and environmental quality, provide for penalties and other liabilities for the violation of such standards, and establish in certain circumstances obligations to remediate current and former facilities and locations where operations are or were conducted. In addition, special provisions may be appropriate or required in environmentally sensitive areas of operation. There can be no assurance that the Corporation or its subsidiaries will not incur substantial financial obligations in connection with environmental compliance.

Significant liability could be imposed on the Corporation or its subsidiaries for damages, clean-up costs or penalties in the event of certain discharges into the environment, environmental damage caused by previous owners of properties purchased by the Corporation's subsidiaries or non-compliance with environmental laws or regulations. Such liability could have a material adverse effect on the Corporation. Moreover, the Corporation cannot predict what environmental legislation or regulations will be enacted in the future or how existing or future laws or regulations will be administered or enforced. Compliance with more stringent laws or regulations, or more vigorous enforcement policies of any regulatory authority, could in the future require material expenditures by the Corporation or its subsidiaries for the installation and operation of systems and equipment for remedial measures, any or all of which may have a material adverse effect on the Corporation and could have a material adverse effect on the Corporation's business, financial condition, results of operations and trading price of the Common Shares.

Loss of Key Personnel

The Corporation depends to a large extent on the efforts and continued employment of the Management Team, who have developed the operations of Caza Petroleum and its predecessors since inception. The loss of the services of these officers or other key personnel could adversely affect the Corporation's business, and the Corporation does not maintain key man insurance on any of these persons. The success of drilling operations and other activities integral to its business will depend in part on the ability to attract and retain experienced geologists, engineers and other professionals. Competition for experienced geologists, engineers and some other professionals is extremely intense. The Corporation's ability to compete in the oil and natural gas exploration and production industry will be harmed to the extent that the Corporation and its subsidiaries are unable to retain and attract experienced technical personal.

Operating and Insurance Risks

The operations of the Corporation and its subsidiaries are subject to hazards and risks inherent in drilling for, producing and transporting crude oil and natural gas. These risks include, among others, fires, explosions, geologic formations with abnormal pressures, collapses of casing surrounding the drill pipe in wells, mechanical failures, failure of oilfield drilling and service tools, uncontrollable flows of underground natural gas, oil and formation water, changes in below ground pressure in a formation that causes the surface to collapse or crater, pipeline ruptures and cement failures, and environmental hazards such as leaks, spills and toxic discharges. These risks can cause substantial losses resulting from personal injury or loss of life, damage and destruction of property and equipment, pollution and other environmental damage, regulatory investigations and penalties, and suspension of operations. As protection against operating hazards and in accordance with customary industry practices, the Corporation and its subsidiaries maintain insurance coverage against some, but not all, potential losses because the insurance coverage is not available or because premium costs are considered too high. Losses could occur for uninsured risks or in amounts exceeding the insurance coverage and these losses could have a materially adverse effect on the Corporation's business, financial condition, results of operations and trading price of the Common Shares.

Need to Add Reserves

The Corporation's crude oil and natural gas reserves and production, and therefore its cash flows and earnings are highly dependent upon the Corporation developing and increasing its current reserve base and discovering or acquiring additional reserves. Without the addition of reserves through exploration, acquisition or development activities, the Corporation's reserves and production will decline over time as reserves are depleted. To the extent that cash flow from operations is insufficient and external sources of capital become limited or unavailable, the Corporation and its subsidiaries may be unable to make the capital investments required to maintain and expand their crude oil and natural gas reserves. There can be no assurance that the Corporation or its subsidiaries will be able to find and develop or acquire additional reserves to replace production at commercially feasible costs. Failure to replace reserves could have a material adverse effect on Caza's business, financial condition, results of operations and trading price of the Common Shares.

Industry Conditions

The crude oil and natural gas industry is intensely competitive and the Corporation and its subsidiaries compete with other companies which possess greater technical and financial resources. Many of these competitors not only explore for and produce crude oil and natural gas, but also carry on refining operations and market petroleum and other products on an international basis. Crude oil and natural gas production operations are also subject to all the risks typically associated with such operations, including but not limited to premature decline of reservoirs and invasion of water into producing formations.

The marketability and price of crude oil and natural gas which may be acquired or discovered by the Corporation or its subsidiaries will be affected by numerous factors beyond the control of the Corporation. Pricing of crude oil is dependent on supply and demand for specific qualities of crude oil in specific market areas and quality differentials are therefore subject to change with time. The ability of the Corporation and its subsidiaries to market any natural gas discovered may depend upon its ability to acquire space on pipelines which deliver natural gas to commercial markets. The Corporation is also subject to market fluctuations in the prices of crude oil and natural gas, uncertainties related to the delivery of its reserves to pipelines and processing facilities and extensive government regulation relating to prices, taxes, royalties, land tenure, allowable production, the export of crude oil and natural gas and many other aspects of the crude oil and natural gas business.

The Corporation and its subsidiaries are also subject to a variety of waste disposal, pollution control and similar environmental laws and regulations in each of the jurisdictions in which the Corporation or its subsidiaries operate or may operate. Environmental regulations place restrictions and prohibitions on emissions of various substances produced concurrently with crude oil and natural gas and can impact the selection of drilling sites and facility locations, potentially resulting in increased capital expenditures. The Corporation and its subsidiaries may be responsible for abandonment and site restoration costs.

Non-Operator Activities

The Corporation's subsidiaries do not operate all of the properties in which they have an interest. Some properties are operated by other companies, and the Corporation and its subsidiaries have limited ability to influence or control the operation or future development of these non-operated properties or the amount of capital expenditures that may be required to fund their operation. Dependence on the operator and other working interest owners for these projects and the limited ability to influence or control the operation and future development of these properties could have a material adverse effect on the realization of targeted returns or lead to unexpected future costs.

Inability to Bring Actions or Enforce Judgments by United Kingdom Investors

The Corporation is incorporated under the laws of Canada, and its principal executive offices are located in the United States. A majority of the directors and officers of the Corporation reside principally in the United States and all or a substantial portion of the Corporation's assets and the assets of these persons are located outside the United Kingdom. Consequently, it may not be possible for an investor to effect service of process within the United Kingdom on the Corporation or those persons. Furthermore, it may not be possible for an investor to enforce judgments obtained in United Kingdom courts based upon the civil liability provisions of United Kingdom securities laws or other laws of the United Kingdom against the Corporation or those persons. There is doubt as to the enforceability in original actions in Canadian courts of liabilities deriving from English's securities laws, and as to the enforceability in Canadian courts of judgments of English courts obtained in actions based upon the civil liability provisions of English securities laws.

Equipment Unavailability

Caza Petroleum does not own the drilling rigs and related equipment required to develop its oil and gas properties and relies on third parties to provide drilling and other oil field services. Demand is high for equipment and services in the geographic areas that Caza Petroleum has selected for exploration and development. This demand may reduce the availability of that equipment and services and could delay Caza Petroleum's exploration, development and exploitation activities. The leases under which Caza Petroleum develops properties provide time periods during which it must generate production of oil or gas or the lease expires. Any delay that prevented completion of drilling on leased property during the term of the lease would require additional expenditures by Caza Petroleum to renew the lease or possibly the loss of any benefit from past development expenditures and future production revenue. In addition, the high demand for equipment and services increases the costs to Caza Petroleum of the equipment and associated supplies and personnel. Any substantial delays to gain access to equipment and services or material increases in costs could adversely affect Caza Petroleum's business and financial condition and have a material adverse effect on Caza's business, financial condition, results of operations and trading price of the Common Shares.

Potential Conflicts of Interest

There are potential conflicts of interest to which some of the directors and officers of the Corporation are subject in connection with the operations of the Corporation. Some of the directors and officers are material shareholders of Caza Petroleum or are engaged and will continue to be engaged in the search for crude oil and natural gas interests on their own behalf and on behalf of other corporations, and situations may arise where the directors and officers will be in direct competition with the Corporation. Conflicts of interest, if any, which arise will be subject to and be governed by procedures prescribed by the BCBCA which require a director or officer of a corporation who is a party to or is a director or an officer of or has a material interest in any person who is a party to a material contract or proposed material contract with the Corporation, to disclose his interest and to refrain from voting on any matter in respect of such contract unless otherwise permitted under the BCBCA.

Operating Through Subsidiaries

The Corporation currently conducts all of its operations through its subsidiary, Caza Petroleum. Therefore the Corporation will be dependent on the cash flows of Caza Petroleum and its subsidiaries to meet its obligations. The ability of Caza Petroleum and its subsidiaries to make payments to the Corporation may be constrained by among other things: the level of taxation, particularly corporate profits and withholding taxes, in the jurisdiction in which it operates.

In addition, the Corporation and Caza Petroleum may be considered to be "related parties" for the purposes of Multilateral Instrument 61-101 of the Canadian Securities Administrators and Caza or Caza Petroleum may therefore be required to obtain a formal valuation or disinterested shareholder approval before completing certain transactions with the other party.

Risks of Foreign Operations

All of the Corporation's crude oil and natural gas properties and operations are located in the United States. As such, the Corporation is subject to political, economic, and other uncertainties, including, but not limited to, changes in energy policies, currency fluctuations and royalty and tax increases and other risks arising out of foreign governmental sovereignty over the areas in which the Corporation's operations are conducted, as well as risks of loss due to terrorism. The Corporation's operations may also be adversely affected by laws and policies of Canada affecting foreign trade, taxation and investment. In the event of a dispute arising in connection with the Corporation's operations in the United States, the Corporation may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdictions of the courts of Canada or enforcing Canadian judgments in such other jurisdictions. Accordingly, the Corporation's exploration, development and production activities in the United States could be substantially affected by factors beyond the Corporation's control, any of which could have a material adverse effect on the Corporation's business, financial condition, results of operations and trading price of the Common Shares.

Fluctuations in Foreign Currency Exchange Rates

All of the Corporation's operations are located in the United States and all of the Corporation's sales are denominated in U.S. dollars. The SEDA and certain conversion formulae under the Convertible Loan Agreement are denominated in pounds sterling. Fluctuations in the U.S. dollar or pound sterling exchange rates may cause a negative impact on revenue and costs or on the Corporation's ability to raise capital and could have a material adverse impact on the Corporation's operations.

Marketability of Production

The ability to generate revenue is dependent upon Caza Petroleum's ability to market its production. The marketability of such production depends in part upon a variety of factors, some of which are beyond Caza Petroleum's control. Some of these factors include the ability to:


--  transport its crude oil and natural gas to market; 
--  access processing facilities and refining capacity; and 
--  obtain required regulatory approvals. 

Caza Petroleum delivers oil and natural gas through pipelines and gathering systems and on barges that it does not own. These facilities may not be available to Caza Petroleum in the future. Other factors influencing the marketability of production include the nature of the crude oil produced, the availability and capacity of production gathering systems and pipelines, U.S. federal and state control and regulation of crude oil and natural gas production, transportation, and export and government intervention in the internal energy demand and supply balance. If marketability factors change, the impact on Caza Petroleum's ability to generate revenues and operate profitably could be substantial.

Seasonal Nature of the Business

Seasonal weather conditions and lease stipulations can limit drilling and producing activities and other oil and natural gas operations in certain areas of the Texas Gulf Coast region. These seasonal anomalies can increase competition for equipment, supplies and personnel during the spring and summer months, which could lead to shortages and increase costs or delay operations. Such cost increases or delays could have a material adverse effect on Caza's business, financial condition, results of operations and trading price of the Common Shares.

Terrorism

On September 11, 2001, the United States was the target of terrorist attacks of unprecedented scope, and the United States and others instituted military action in response. These conditions caused instability in world financial markets and generated global economic instability. The continued threat of terrorism, the impact of military and other action, including U.S. military operations in Iraq and Afghanistan and the geopolitical conditions in the Middle East generally may lead to continued volatility in prices for crude oil and natural gas and could affect the markets for Caza Petroleum's production. In addition, future acts of terrorism could be directed against companies operating in the United States. Further, the U.S. government has issued public warnings that indicate that energy assets might be specific targets of terrorist organizations. These developments have subjected Caza Petroleum's operations to increased risks and, depending on their ultimate magnitude, could have a material adverse effect on Caza's business, financial condition, results of operations and trading price of the Common Shares.

INTERNAL CONTROL OVER FINANCIAL REPORTING

The Chief Executive Officer and the Chief Financial Officer are responsible for establishing and maintaining internal control over financial reporting (ICFR), as such term is defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for Caza. They have, as at the financial year ended December 31, 2013, designed ICFR, or caused it to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. The control framework our officers used to design Caza's ICFR is the Internal Control -- Integrated Framework (COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Under the supervision of the Chief Executive Officer and the Chief Financial Officer, Caza conducted an evaluation of the effectiveness of our ICFR as at December 31, 2013 based on the COSO Framework. Based on this evaluation, the officers concluded that Caza's ICFR was effective as of December 31, 2013.

There were no changes in our ICFR during the year ended December 31, 2013 that materially affected, or are reasonably likely to materially affect, Caza's internal control over financial reporting.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Caza's Chief Executive Officer and Chief Financial Officer have designed, or caused to be designed under their supervision, disclosure controls and procedures to provide reasonable assurance that: (i) material information relating to the Company is made known to Caza's Chief Executive Officer and Chief Financial Officer by others, particularly during the period in which the annual filings are being prepared; and (ii) information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time period specified in securities legislation. Such officers have evaluated, or caused to be evaluated under their supervision, the effectiveness of Caza's disclosure controls and procedures at the financial year end of the Company and have concluded that the Company's disclosure controls and procedures are effective at the financial year end of the Company.

ADDITIONAL INFORMATION

Further information regarding the Company, including its Annual Information Form, can be accessed under the Company's public filings found at http://www.sedar.com and on the Company's website at www.cazapetro.com.

Contacts:
Caza Oil & Gas, Inc.
Michael Ford
CEO
+1 432 682 7424

Caza Oil & Gas, Inc.
John McGoldrick
Chairman
+65 9731 7471 (Singapore)
www.cazapetro.com

Cenkos Securities plc
Beth McKiernan
+44 131 220 9778 (Edinburgh)

Cenkos Securities plc
Neil McDonald
+44 131 220 6939 (Edinburgh)

VIGO Communications
Chris McMahon
Patrick d'Ancona
+44 20 7920 2330

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