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									Management’s Report

Management is responsible for the information contained in this annual report. The consolidated financial
statements have been prepared in accordance with Canadian generally accepted accounting principles, and
include amounts based on management’s informed judgments and estimates. Where alternative accounting
methods exist, management has chosen those it deems to be the most appropriate based on Winstar’s
operations. The financial and operating information included in this annual report is consistent with that contained
in the consolidated financial statements in all material respects.

To assist management in fulfilling its responsibilities, systems of accounting, internal controls, and disclosure
controls are maintained to provide reasonable, but not absolute, assurance that financial information is reliable and
accurate and that assets are adequately safeguarded.

PricewaterhouseCoopers LLP Chartered Accountants, appointed annually by the Shareholders to serve as
Winstar’s external auditors, have audited the consolidated financial statements. They have performed such tests
as they deemed necessary to enable them to express an opinion on these consolidated financial statements. The
external auditors have unrestricted access to the Management of Winstar, the Audit Committee and the
Board of Directors.

The Board of Directors has appointed a three-person Audit Committee, consisting of directors who are neither
employees nor officers of Winstar and all of whom are independent. It meets regularly with management and
external auditors to discuss controls over the financial reporting process, auditing and other financial reporting
matters. In addition, the Audit Committee recommends the appointment of Winstar’s external auditors. The Audit
Committee meets at least quarterly with management and the external auditors to review and approve interim
consolidated financial statements prior to their release and recommends the unaudited interim consolidated
financial statements to the Board of Directors for their approval. Annually, the Board of Directors reviews and
approves Winstar’s annual audited consolidated financial statements, Management’s Discussion and Analysis,
Annual Information Form and Management Information Circular. The Board of Directors has approved the
consolidated financial statements and the Management’s Discussion and Analysis based on the recommendations
of the Audit Committee.

Charles de Mestral                                          Brad Giblin
Chief Executive Officer                                     Chief Financial Officer
March 17 2011                                               March 17, 2011

                                                                                                                        Winstar | Management’s Report | 1

                              Auditor’s Report
                              March 17 2011

                              To the Shareholders of Winstar Resources Ltd.
                              We have audited the accompanying consolidated financial statements of Winstar Resources Ltd and its subsidiaries,
                              which comprise the consolidated balance sheets as at December 31, 2010 and 2009 and the consolidated statements
                              of operations and deficit, comprehensive loss and accumulated other comprehensive loss and cash flows for the years
                              then ended, and the related notes including a summary of significant accounting policies.

                              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 Canadian generally accepted accounting principles, 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

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

                              In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
                              Winstar Resources Ltd and its subsidiaries as at December 31, 2010 and 2009 and the results of its operations and its
                              cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

                              Chartered Accountants
                              Calgary, Alberta, Canada

2 | Independent Auditor’s Report | Winstar

                                                                                                        Financial Statements
Financial Statements
Consolidated Balance Sheets
                                                                      As at December 31,
(CDN $ thousands)                                              2010                2009
Cash and cash equivalents                                      8,439              8,753
Restricted cash (note 7)                                       1,411              1,383
Accounts receivable (note 8)                                  10,370              5,504
Prepaids                                                        476                 719
Inventory (note 9)                                             1,151              1,284
Future income tax asset (note 16)                              4,040                121
Discontinued operations (note 6)                                136                 213
                                                              26,023             17,977

Property and equipment (note 10)                              95,529            76,691
Other assets (note 11)                                          267               1,875
Discontinued operations (note 6)                                942               1,098
                                                             122,761             97,641

Accounts payable and accrued liabilities                      13,571              8,850
Deferred revenue (note 12)                                     3,486                   -
Discontinued operations (note 6)                               1,633                992     On behalf of the Board,
                                                              18,690              9,842

Future income tax liability (note 16)                         20,569              7,511
Asset retirement obligation and other provisions (note 13)     7,846              5,417     Bruce Libin
Discontinued operations (note 6)                                   -              1,163     Director
Total Liabilities                                             47,105            23,933

Shareholders' equity
Share capital (note 14)                                      113,089           108,490      Charles de Mestral
Contributed surplus (note 14)                                  3,237              3,740     Director

Accumulated other comprehensive loss                         (17,995)           (14,199)
Deficit                                                      (22,675)          (24,323)
                                                              75,656            73,708
                                                                                            David A. Monachello
                                                             122,761             97,641
See accompanying notes

                                                                               Winstar | Consolidated Financial Statements | 3
          Financial Statements
                                 Consolidated Statements of Operations and Deficit
                                                                                      Years ended December 31,
                                 (CDN $ thousands)                                     2010              2009
                                 Petroleum and natural gas sales                     52,734           36,584
                                 International royalty income                          1,103            1,272
                                 Royalties                                            (7,133)          (5,119)
                                                                                     46,704           32,737
                                 Operating                                            9,148             7,786
                                 General and administration                            7,051            5,956
                                 Exploration expense                                    760               675
                                 Depletion, depreciation and accretion               16,990           16,770
                                 Interest expense                                        13               147
                                 Foreign exchange loss/(gain)                           541            (1,034)
                                 Other expenses                                         253                 9
                                                                                     34,756           30,309
                                 Earnings before tax                                 11,948             2,428
                                 Current income tax expense (note 16)                    65                  -
                                 Future income tax expense (note 16)                  9,822               519
                                                                                      9,887               519
                                 Net income from continuing operations                2,061             1,909
                                 Net loss from discontinued operations (note 6)        (413)           (8,505)
                                 Net earnings/(loss)                                  1,648            (6,596)

                                 Deficit, beginning of year                          (24,323)         (17,727)
                                 Deficit, end of year                                (22,675)        (24,323)
                                 Net earnings/(loss) per share (note 14)
                                 Basic and diluted from
                                 continuing operations                                  0.06             0.06
                                 Basic and diluted from
                                 discontinued operations                               (0.01)           (0.25)
                                 Basic and diluted                                      0.05            (0.19)
                                 See accompanying notes

                                 Consolidated Statement of Comprehensive
                                 Loss & Accumulated Other Comprehensive Loss
                                                                                      Years ended December 31,
                                 (CDN $ thousands)                                     2010              2009
                                 Net earnings/(loss)                                  1,648            (6,596)
                                 Other comprehensive loss
                                 Unrealized exchange loss on translation
                                 of self-sustaining foreign operations                (3,796)         (12,381)
                                 Other comprehensive loss                             (3,796)         (12,381)
                                 Comprehensive loss                                   (2,148)         (18,977)
                                 Accumulated other comprehensive loss
                                 beginning of year                                   (14,199)          (1,818)
                                 Other comprehensive loss                             (3,796)         (12,381)
                                 Accumulated other comprehensive loss, end of year   (17,995)         (14,199)
                                 See accompanying notes

4 | Consolidated Financial Statements | Winstar
                                                                                                                            Financial Statements
Consolidated Statements of Cash Flow
                                                                                     Years ended December 31,
(CDN $ thousands)                                                                     2010               2009
Net income from continuing operations                                                2,061             1,909
Add non-cash items:
 Stock-based compensation                                                              860               463
 Depletion, depreciation and accretion                                              16,990            16,770
 Future income tax expense                                                           9,822               519
                                                                                    29,733            19,661
Change in non-cash working capital                                                   4,234             3,865
Cash flow from continuing
operating activities                                                                33,967            23,526
Cash flow from discontinued operations before change in non- cash working capital     (337)               (81)
Change in non-cash working capital from discontinued operations                       (368)               58
Cash flow used in
discontinued operations                                                               (705)               (23)
Cash flow from operating activities                                                 33,262            23,503

Issuance of shares                                                                   3,205                   -
Cash flow from financing activities                                                  3,205                   -

Additions to property and equipment                                                 (38,311)         (18,150)
Change in non-cash working capital                                                   1,944           (15,458)
Investing activities from
continuing operations                                                               (36,367)         (33,608)
Disposal of property and equipment from discontinued operations                           -            9,447
Change in non-cash working capital from discontinued operations                           -               (55)
Investing activities from
discontinued operations                                                                   -            9,392
Cash used in investing activities                                                   (36,367)         (24,216)

Effect of translation on
foreign currency cash                                                                 (386)             (426)
Decrease in cash and cash equivalents                                                 (286)           (1,139)
Cash and cash equivalents, beginning of year                                        10,136            11,275
Cash and cash equivalents, end of year                                               9,850            10,136
See accompanying notes
Supplementary cash flow information:
Cash interest paid                                                                      40               154
Cash taxes paid                                                                           -                  -

                                                                                               Winstar | Consolidated Financial Statements | 5
                                    Notes to Consolidated
       Notes to Financials

                                    Financial Statements
                                    For the Years Ended December 31, 2010 & 2009

                                    1. Description of Business
                                    Winstar Resources Ltd. (the “Company” or “Winstar”) is a publicly traded international oil and gas exploration and
                                    development Company. The Company is headquartered in Calgary, Alberta, Canada. The International head office
                                    is located in Breda, The Netherlands, with offices located in Tunisia, Hungary, Romania and Switzerland. Winstar
                                    is focused on Tunisia with additional operations and opportunities in Hungary and Romania. The Company’s
                                    multinational asset base includes both low-risk developments and high impact exploration opportunities.

                                    2. Summary of Significant Accounting Policies
                                    Basis of Presentation
                                    The consolidated financial statements, which have been prepared in accordance with accounting principles
                                    generally accepted in Canada, have in management’s opinion, been properly prepared within reasonable limits of
                                    materiality and within the framework of the accounting policies summarized below.

                                    Certain information provided for the prior period has been reclassified to conform to the presentation adopted in
                                    the current period.

                                    Measurement Uncertainty
                                    The preparation of the financial statements in conformity with generally accepted accounting principles requires
                                    management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
                                    disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts
                                    of revenues and expenses during the year. Actual results could differ from those estimates. The Company
                                    uses estimates to calculate depreciation, depletion and accretion expense, to assess impairment of oil and
                                    gas properties, goodwill and inventory, to estimate asset retirement obligations, to determine the fair value of
                                    stock options to be recorded as stock based compensation expense, to determine the likelihood and amount of
                                    contingent losses and to estimate tax expense. These estimates are reviewed by management on an on-going
                                    basis. Changes in facts and circumstances may result in revised estimates, and actual results could differ from
                                    those estimates.

                                    For oil and gas properties, the Company calculates depreciation, depletion and accretion expense and assesses
                                    impairment using management estimates of oil and gas reserves remaining in properties, commodity prices and
                                    capital costs required to develop those reserves. By their nature, estimates of volumes and the related future
                                    cash flows are subject to measurement uncertainty, and the impact of differences between actual and estimated
                                    amounts on the consolidated financial statements of future periods could be material. Such reserve estimates,
                                    which have been estimated by independent engineering firms, are subject to change as additional information
                                    becomes available.

6 | Notes to Consolidated Financial Statements | Winstar
Numerous assumptions and judgments are required                 Property & Equipment

                                                                                                                                          Notes to Financials
in the fair value calculation of the asset retirement
obligation (ARO) including the ultimate settlement              The Company uses the successful efforts method of
amounts, inflation factors, credit-adjusted discount            accounting for oil and gas activities. Costs to acquire
rates, timing of settlement, and changes in the legal,          mineral interest in oil and gas properties, to drill and
regulatory, environmental and political environments. To        equip exploratory wells that find proved reserves and to
the extent future revisions to these assumptions impact         drill and equip development wells are capitalized. Costs
the fair value of the existing ARO liability, a corresponding   to drill exploratory wells that do not find proved reserves
adjustment is made to the petroleum and natural gas             are expensed at the moment that the exploratory drilling
properties balance.                                             proves to be unsuccessful. Geological and geophysical
                                                                costs and costs of carrying and retaining unproved
                                                                properties are expensed as they are incurred.
The consolidated financial statements of the Company            Unproved oil and gas properties are periodically assessed
include the financial statements of the Company and             for impairment after considering the remaining term of
those of its wholly owned subsidiaries Winstar B.V.,            the lease, drilling results, the evaluation of geological
Winstar Tunisia B.V., Athanor Management Services S.A.,         data and other information. A loss is recognized at
Winstar Hungary Ltd. and Winstar Satu Mare SRL. All             the time of impairment by providing an impairment
intercompany accounts and transactions were eliminated          allowance. Capitalized costs of producing oil and gas
on consolidation.                                               properties, after considering estimated salvage values,
                                                                are depreciated and depleted over proved developed
A substantial portion of the Company’s activities is            reserves using the unit of production method; while
conducted jointly with others and the consolidated              acquired resource properties, with proved reserves,
financial statements reflect only the Company’s                 are depleted over proved reserves using the unit of
proportionate interest in such activities.                      production method. Pipelines and associated facilities are
                                                                depreciated on a straight line basis over their expected
Foreign Currency Translation                                    useful lives. Acquisition costs of probable reserves are
The reporting currency of the Company is the Canadian           not depleted or amortized while under active evaluation
dollar. The Company’s self-sustaining foreign operations        for commercial reserves. Costs are transferred to
are translated into Canadian dollars using the current rate     depletable costs as proved reserves are recognized.
method, whereby assets and liabilities are translated at
                                                                Expenditures for maintenance, repairs and minor
period-end exchange rates while revenues and expenses
                                                                renewals necessary to maintain properties in operating
are converted using average rates for the period. The
                                                                condition are expensed as incurred. Costs associated
Company’s share capital amounts are translated at
                                                                with major replacement and renewals are capitalized
rates in effect at the time of issuance. Translation gains
                                                                when the service potential of the reserves have
and losses are deferred and included in a separate
                                                                been enhanced.
component of shareholders’ equity described as
accumulated other comprehensive loss.
                                                                Other property and equipment, primarily furniture
                                                                and equipment, is carried at cost less accumulated
Cash & Cash Equivalents                                         depreciation. Depreciation expense is computed using
Cash and cash equivalents consist of cash and highly            the straight-line method over the estimated useful
liquid investments with an original maturity of three           lives of the assets, which range from three to 10 years.
months or less. Cash and cash equivalents are stated            Additions to and major improvements of property and
at cost, which approximates market value. Short-term            equipment are capitalized.
investments pledged as collateral for an irrevocable
standby letter of credit are classified as restricted cash.     Impairment of Long-Lived Assets
                                                                Long-lived assets, such as property and equipment, are
Inventory                                                       reviewed for impairment annually or whenever events
Inventory of oil products is valued at the lower of cost        or changes in circumstances indicate that the carrying
(determined weighted average method) or market.                 amount of an asset may not be recoverable.
The cost of production inventoried is determined
on a property-by-property basis, consisting of lifting          Recoverability of assets to be held and used is measured
and transportation costs, depletion and depreciation.           by comparison of the carrying amount of an asset to
Inventory of materials includes spare parts for operation       estimated undiscounted future cash flows expected to be
in the field, and is stated as acquisition cost less any        generated by the asset. Cash flows are calculated based
allowance for obsolete items or impairment.                     on third party quoted forward prices, adjusted for the

                                                                                                    Winstar | Notes to Consolidated Financial Statements | 7
                                Company’s contract prices and quality differences.             Corporate Income Taxes
          Notes to Financials
                                If the carrying amount of an asset exceeds its estimated
                                future cash flows, an impairment charge is recognized,         The Company uses the liability method to account for
                                measured by the amount by which the carrying amount            income taxes. Under this method, future tax assets and
                                exceeds the fair value of the asset.                           liabilities are recognized for the future tax consequences
                                                                                               attributable to the difference between financial statement
                                                                                               carrying amounts of existing assets and liabilities and
                                Other Assets                                                   their respective tax bases and the operating loss and
                                Other assets include acquired seismic data and other           tax credit carry forwards. Future tax assets and liabilities
                                long-term receivables. Other assets are reviewed for           are measured using substantively enacted tax rates that
                                impairment annually or whenever events or changes in           are expected to be in effect when the differences are
                                circumstances indicate that the carrying amount of an          expected to reverse. The effect on future tax assets and
                                asset may not be recoverable.                                  liabilities of a change in tax rate is recognized into
                                                                                               income in the period that includes the substantial
                                Asset Retirement Obligations                                   enactment. Future income tax assets are recorded in
                                                                                               the financial statements if realization is considered
                                The Company recognizes the fair value of an ARO in the         more likely than not.
                                period in which it is incurred when a reasonable estimate
                                of the fair value can be made. On a periodic basis,
                                management will review these estimates, and changes,           Financial Instruments
                                if any, to the estimate will be applied on a prospective       The Company establishes the classification of financial
                                basis. The fair value of the estimated ARO is recorded         instruments at their initial recognition. Financial assets
                                as a long-term liability, with a corresponding increase in     are classified as held for trading, available for sale, held to
                                the carrying amount of the related assets. The capitalized     maturity or loans and receivables. Financial liabilities are
                                amount is amortized to earnings on a basis consistent          classified as held for trading or other liabilities.
                                with depreciation and depletion of the underlying assets.
                                Subsequent to the initial measurement of the ARO, the          Financial instruments classified as held for trading, other
                                obligation is adjusted at the end of each period to reflect    than derivative instruments that are effective hedging
                                the passage of time and changes in the amount or timing        instruments, are measured at fair value with changes
                                of estimated future cash flows underlying the obligation.      in fair value recognized in earnings. Derivatives that
                                Revisions to the estimated timing of cash flows or to the      are designated as, and continue to be, effective cash
                                original estimated undiscounted cost would also result         flow hedging instruments have gains and losses in fair
                                in an increase or decrease to the ARO. Any difference          values recognized through other comprehensive income.
                                between the actual costs incurred and the recorded             Derivatives that are designated as fair value hedging
                                liability is recorded as a gain or loss in the statements of   instruments have gains and losses recognized
                                operations in the period in which the settlement occurs.       in earnings.

                                Revenue Recognition                                            Financial instruments classified as available for sale are
                                                                                               measured at fair value using quoted prices in an active
                                The Company recognizes revenue when products
                                                                                               market. Changes in fair value are recognized in other
                                are shipped and the customer takes ownership
                                                                                               comprehensive income until the item is derecognized or
                                and assumes risk of loss, collection of the relevant
                                                                                               determined to be impaired, at which time the cumulative
                                receivable is reasonably assured, persuasive evidence
                                                                                               gain or loss previously reported in other comprehensive
                                of an arrangement exists and the sales price is fixed
                                                                                               income is recognized in earnings. When actively quoted
                                or determinable. Sales in excess of production that
                                                                                               prices are not available, fair value is determined using
                                result in an overlift position are accounted for using the
                                                                                               other valuation techniques. If fair value cannot be reliably
                                entitlements method; revenue is recognized based on the
                                                                                               estimated, the item is carried at cost.
                                quantity of product delivered. The net overlift position is
                                recorded as a liability valued at the lower of (1) the price   Financial instruments classified as held to maturity,
                                in effect at the time of production, (2) market value, or      loans and receivables or other liabilities are measured at
                                (3) contracted price.                                          fair value upon initial recognition but are subsequently
                                                                                               measured at their amortized cost using the effective
                                The Company recognizes international royalty revenue at
                                                                                               interest method.
                                the time the related oil production occurs and, under the
                                relevant concession agreement, collection of the relevant
                                receivable is probable and the sales price is fixed and
                                reasonably determinable.

8 | Notes to Consolidated Financial Statements | Winstar
Basic & Diluted Per                                          adoption of this standard has had no material impact on

                                                                                                                                         Notes to Financials
                                                             The Company’s Consolidated Financial Statements.
Share Calculations
Net income per share is calculated by dividing net income    “Non-controlling Interests,” Section 1602, which
by the weighted-average number of common shares              establishes the accounting for a non-controlling interest
outstanding. Diluted net income per share is calculated      in a subsidiary in the consolidated financial statements
                                                             subsequent to a business combination. The standard
giving effect to the potential dilution that could occur
                                                             requires a non-controlling interest in a subsidiary to be
if the stock options were exercised in exchange for
                                                             classified as a separate component of equity. In addition,
common shares.
                                                             net earnings and components of other comprehensive
The Company uses the treasury stock method to                income are attributed to both the parent and non-
determine the dilutive impact of options. This method        controlling interest. The adoption of this standard has
assumes that any proceeds from the exercise of options       had no material impact on the Company’s Consolidated
                                                             Financial Statements.
would be used to purchase common shares at the
average price during the period. When the assumed
                                                             The above CICA Handbook sections are converged with
proceeds purchase a greater number of shares than were
                                                             IFRS. The Company will be required to report its results in
issued, the impact is considered to be anti-dilutive and
                                                             accordance with IFRS beginning in 2011.
dilutive net income per share is considered equal to basic
net income per share.
                                                             4. Financial Instruments
Stock-Based Compensation
                                                             & Financial Risk Factors
The Company’s stock options, which are described in
Note 14, are accounted for under the fair value method.
                                                             Financial Instruments
Under this method, compensation expense is measured
at fair value at the grant date using the Black-Scholes      The Company’s financial instruments include cash and
option pricing model and recognized over the vesting         cash equivalents, restricted cash, bank debt, accounts
period with a corresponding credit to contributed surplus.   receivable and payable, for which the amounts recorded
                                                             on the balance sheet are reasonable estimates of their
Upon the exercise of stock options, consideration paid
                                                             fair values due to the relatively short periods to maturity
by the option holder together with the amount previously
                                                             and the commercial terms of these instruments.
recognized in contributed surplus is recorded as an
increase to share capital.
                                                             Financial Risk Factors
                                                             The Company is exposed to a number of different
3. Accounting Changes                                        financial risks arising from normal course business
                                                             exposures, as well as the Company’s use of financial
On January 1, 2010, The Company adopted the following
                                                             instruments. These risk factors include market risk
Canadian Institute of Chartered Accountants ( CICA )
                                                             relating to commodity prices, foreign currency risk and
Handbook sections:
                                                             interest rate risk, as well as liquidity risk and credit risk.
“Business Combinations,” Section 1582, which
                                                             (a) Market risk
replaces the previous business combinations standard.
                                                                 Market risk is the risk or uncertainty arising from
The standard requires assets and liabilities acquired in         possible market price movements and their impact on
a business combination, contingent consideration and             the future performance of the business. The market
certain acquired contingencies to be measured at their           price movements that could adversely affect the
fair values as of the date of acquisition. In addition,          value of the Company’s financial assets, liabilities
acquisition-related and restructuring costs are to be            and expected future cash flows include commodity
recognized separately from the business combination and          price risk (crude oil and natural gas), foreign currency
included in the statement of earnings. The adoption of           exchange risk and interest rate risk. Refer to the
this standard has had no material impact the Company’s           sensitivity section of Management’s Discussion
Consolidated Financial Statements.                               and Analysis for a sensitivity analysis relating to
                                                                 commodity price and foreign exchange fluctuations.
“Consolidated Financial Statements,” Section 1601,
which, together with Section 1602 below, replace the            (i) Commodity price risk
former consolidated financial statements standard.                  The Company’s financial performance is closely
Section 1601 establishes the requirements for the                   linked to crude oil and natural gas prices. The
preparation of consolidated financial statements. The               Company may use derivative instruments from

                                                                                                   Winstar | Notes to Consolidated Financial Statements | 9
                                       time to time to hedge its exposure to commodity
                                                                                                 5. Capital Disclosures
          Notes to Financials
                                       prices. As at December 31, 2010, Winstar has no
                                       such derivative instruments in effect.                    The Company’s capital structure consists of shareholders’
                                                                                                 equity excluding accumulated other comprehensive loss
                                   (ii) Foreign currency exchange risk
                                                                                                 and cash and cash equivalents. The Company’s primary
                                        The Company is exposed to fluctuations of foreign
                                                                                                 capital management objectives are to maintain a flexible
                                        exchange rates in its international subsidiaries
                                                                                                 capital structure which optimizes the costs of capital at
                                        as revenues, expenses, capital expenditures, or
                                                                                                 acceptable risk while providing an appropriate return to
                                        financial instruments may fluctuate due to change
                                                                                                 its shareholders and to maintain a strong capital base so
                                        in rates. As crude oil, the Company’s primary
                                                                                                 as to maintain investor confidence and sustain ongoing
                                        product, is priced in U.S. dollars, fluctuations in US
                                                                                                 development. The Company has the ability to adjust its
                                        $/Cdn $ exchange rates may impact revenues. The
                                                                                                 capital structure by issuing new equity, and modifying
                                        Company’s exposure is partially offset by sourcing
                                                                                                 its capital expenditures program to the extent the capital
                                        capital projects in US dollars.
                                                                                                 expenditures are not committed and conducting capital
                                                                                                 projects through joint ventures. In response to market
                                   (iii) Interest rate risk
                                                                                                 uncertainty and volatility in commodity prices, the
                                         The Company is exposed to interest rate risk
                                                                                                 Company has been, and will continue to be conservative
                                         as changes in interest rates may affect future
                                                                                                 in its capital spending. The Company’s short-term capital
                                         cash flows and the fair values of its financial
                                                                                                 commitments are limited to seismic acquisition and
                                         instruments. The primary exposure is related to
                                                                                                 drilling required to extend its Igal II permit in Hungary.
                                         short term Bankers’ Acceptance notes and interest
                                                                                                 This activity is expected to be financed through joint
                                         on its short term credit facility.
                                                                                                 venture partnerships, for which management is currently
                                (b) Liquidity risk                                               pursuing and evaluating prospects.
                                   Liquidity risk is the risk that the entity will encounter
                                                                                                 At December 31, 2010, the Company had $7.3 million of
                                   difficulties in meeting obligations associated with
                                                                                                 working capital, no long-term debt and a $10.0 million
                                   financial liabilities. The Company believes that it
                                                                                                 available line of credit. The working capital surplus is
                                   has access to sufficient capital through internally
                                                                                                 anticipated to be invested primarily into Winstar’s Tunisian
                                   generated cashflows, external sources and
                                                                                                 operations. If and when the Company was to draw on its
                                   committed borrowing facilities to meet current
                                                                                                 line of credit, it will be governed by the following financial
                                   spending forecasts.
                                                                                                 covenants: (a) current asset to current liability ratio
                                   Surplus cash is invested into a range of short-term           greater than 1.1 to 1.0, where current liabilities exclude
                                   Bankers’ Acceptance notes and the Company seeks to            the outstanding balance drawn on the line of credit; and
                                   ensure security and liquidity of those investments.           (b) funded debt to EBITA ratio less than 1.5 to 1.0, where
                                                                                                 funded debt is the outstanding balance drawn on the line
                                   The Company has no long term debt instruments;                of credit and EBITA is financial statement net income less
                                   therefore financial liabilities consist of trade and          financial statement interest, tax, depreciation/depletion,
                                   other payables, all of which are classified as current.       exploration and accretion expenses.
                                   The Company has an available line of credit up to
                                   $10 million, which is undrawn as of December 31,
                                   2010. Refer to Note 15 to the consolidated financial
                                   statements for a schedule of current and long
                                   term obligations.

                                (c) Credit risk
                                    Credit risk is the risk that a customer or counter party
                                    will fail to perform an obligation or fail to pay amounts
                                    due causing a financial loss. The Company constantly
                                    monitors the exposure to any single customer or
                                    counter-parties along with the financial position of
                                    the customer or counter party. Of the $10.4 million
                                    accounts receivable balance, $5.3 million and $2.0
                                    million are due from two customers related to
                                    December oil and gas sales respectively and
                                    have been subsequently received. An additional
                                    $2.2 million relate to tax credits expected to offset
                                    2011 taxes payable.

10 | Notes to Consolidated Financial Statements | Winstar
6. Discontinued Operations

                                                                                                                                     Notes to Financials
                                                                                                       As at December 31,
(CDN $ thousands)                                                                              2010                 2009
Accounts receivable                                                                               43                  81
Prepaids                                                                                          93                 132
                                                                                                136                  213
Property and equipment                                                                          942               1,098
                                                                                                942               1,098

Accounts payable and accrued liabilities                                                        314                  743
Asset retirement obligations                                                                   1,319                249
                                                                                               1,633                992

Asset retirement obligations                                                                       -              1,163
                                                                                               1,633              2,155

                                                                                              Years ended December 31,
(CDN $ thousands)                                                                              2010                 2009
Petroleum and natural gas sales                                                                 194               3,259
Royalties                                                                                        (12)               (390)
                                                                                                182               2,869
Operating                                                                                       419                2,109
General and administration                                                                         -                 414
Exploration expense                                                                             188                  312
Depletion, depreciation and accretion                                                             72              1,220
Expiry of undeveloped land                                                                         -                 122
Impairment of property and equipment                                                               -              2,169
Interest income                                                                                   (6)                (17)
Other (income)/expense                                                                           (78)                127
                                                                                                595               6,456
Income loss before tax                                                                          (413)             (3,587)
Current income tax expense                                                                         -                  29
Future income tax expense                                                                          -              4,889
Net loss from discontinued operations                                                           (413)             (8,505)

Discontinued operations include Canadian and Hungarian operations. Effective September 1, 2009 Winstar disposed of
the majority of its Canadian assets and continues to evaluate disposal options for the remaining Sturgeon Lake assets.
Effective September 14, 2010 the Company disposed of its Igall II exploration permits for a net royalty interest on
future production and is actively pursuing the disposal of its remaining Hungarian Assets. Operations in Hungary were
limited to intermittent production in 2010.

                                                                                              Winstar | Notes to Consolidated Financial Statements | 11
                                7. Restricted Cash
          Notes to Financials   As at December 31, 2010, the Company has a $1.4 million irrevocable standby letter of credit issued by a Canadian
                                chartered bank as required to meeting future abandonment obligations existing on certain oil and gas properties. The
                                Company has pledged $1.4 million of short term investments as security, which is recorded as restricted cash.

                                8. Accounts Receivable
                                                                                                                                         As at December 31,
                                (CDN $ thousands)                                                                                2010                 2009
                                Trade receivables                                                                               7,427               3,533
                                Other receivables                                                                                 550               1,392
                                International accrued royalty income                                                               92                 242
                                Taxation recoverable                                                                            2,301                 337
                                                                                                                               10,370               5,504

                                Accrued royalty income has been recognized as at December 31, 2010 and 2009 from ETAP the government-owned
                                oil and gas company of Tunisia. The royalty income arises pursuant to a requirement for ETAP to pay to Winstar a
                                pre-determined total amount, to be funded from 25% of ETAP’s share of oil production from the Sabria concession, in
                                which ETAP has a 55% working interest. The royalty is calculated annually in November in an amount based on the oil
                                production during the preceding 12 months. As at December 31, 2010 the Company has accrued the entirety of the
                                pre-determined amount, therefore no additional revenue is expected prior to the payout of the existing accrual in 2011.

                                9. Inventory
                                                                                                                                         As at December 31,
                                (CDN $ thousands)                                                                                2010                 2009
                                Materials                                                                                       1,151               1,034
                                  Operating Expenses                                                                                 -                  79
                                  Transportation Costs                                                                               -                  17
                                  Depletion                                                                                          -                 154
                                                                                                                                1,151               1,284

                                Materials inventory consist of inventory on hand to reduce the time required for repairs and maintenance field
                                equipment due to long lead times and remote field operations in the Company’s concessions in Southern Tunisia.

12 | Notes to Consolidated Financial Statements | Winstar
10. Property & Equipment

                                                                                                                                          Notes to Financials
 (CDN $ thousands)                                                                          Depletion and
 As at December 31, 2010                                                           Cost      Depreciation      Net Book Value
 Petroleum and natural gas properties                                          140,640            60,084              80,556
 Work in progress                                                                14,392                 -             14,392
 Other property and equipment                                                     1,816            1,235                 581
                                                                               156,848            61,319              95,529
 As at December 31, 2009
 Petroleum and natural gas properties                                           114,897           46,855              68,042
 Work in progress                                                                 7,998                 -              7,998
 Other property and equipment                                                     1,664            1,013                 651
                                                                               124,559            47,868              76,691

During the year ended December 31, 2010, $274,000 of engineering salaries (2009 - $57,000) and $57,000 of stock-
based compensation expense (2009 - nil) relating to those employees was capitalized.

The Company performed impairment tests on a property-by-property basis in each country in which it operates. No
impairments were recognized in the current or prior year. Fair value is calculated using discounted cash flows at a
risk-free rate.

11. Other Assets
                                                                                                            As at December 31,
 (CDN $ thousands)                                                                                  2010                 2009
 Non-current taxes receivable                                                                        107               1,732
 Non-current deposits                                                                                  68                  68
 Other                                                                                                 92                  75
                                                                                                     267               1,875

The Company pays various withholding and advance taxes in its Tunisian concessions, which are deductible against
taxable income. For those assets where it is not anticipated that these advances will be used as a deduction against
current taxes payable, the balances are therefore classified as other long term assets.

12. Deferred Revenue
At December 31, 2010 the Company overlifted 37     ,338 bbls of crude, which is valued at its contracted price of
US$93.87/bbl resulting in $3.5 million (2009 – nil) of deferred revenue.

                                                                                                   Winstar | Notes to Consolidated Financial Statements | 13
                                13. Asset Retirement Obligation & Other Provisions
          Notes to Financials                                                                                                             As at December 31,
                                (CDN $ thousands)                                                                                2010                  2009
                                Balance, beginning of year                                                                      5,006                5,829
                                  Increase in obligations during the period                                                     1,328                      -
                                  Change in estimate                                                                                  -                 412
                                  Translation adjustment                                                                         (296)                 (851)
                                  Settlement of obligations during the period                                                         -                   (3)
                                  Accretion expense                                                                               498                   502
                                Reclassified as discontinued operations for prior period - Hungary                                    -                (883)

                                Balance, end of year                                                                            6,536                5,006
                                Other provisions                                                                                1,310                   411
                                Asset retirement obligations and other provisions                                                7,846                5,417

                                The future asset retirement obligation relates to the Company’s wells and facilities and was calculated by management
                                using estimated costs to abandon and reclaim the properties and the estimated timing of the costs to be incurred in
                                future periods. At December 31, 2010, the estimated total undiscounted asset retirement obligation from continuing
                                operations was $17 million (2009 - $16.1 million). These obligations will be settled based on the useful lives of the
                                underlying assets, the majority of which are expected to be settled within the next 20 years, primarily between 2022
                                and 2030. The discounted future asset retirement obligation was calculated using a weighted average discount rate of
                                10% and an expected inflation rate of 2%.

                                14. Share Capital
                                (a) Authorized
                                    Unlimited number of voting common shares with no par value

                                   Unlimited number of first and second preferred shares

                                   The first and second preferred shares may be issued in one or more series. The directors of the Company are
                                   authorized to fix the number of preferred shares in each series and to determine the designation, rights, privileges,
                                   restrictions and conditions attached to the preferred shares.

                                                                                                                              of shares              Amount
                                                                                                                           (thousands)         ($ thousands)
                                Balance, December 31, 2008 and December 31, 2009                                               34,223              108,490
                                Issued on exercise of stock options                                                             1,057                3,205
                                Re-classification of contributed surplus on exercise of options                                     -                1,394
                                Balance, December 31, 2010                                                                     35,280              113,089

                                (b) Stock-based compensation
                                    The Company has established a stock option plan whereby options may be granted to the Company’s directors,
                                    officers, employees and consultants for up to 10% of the outstanding common shares. As at December 31, 2010,
                                    the maximum number of remaining grantable options was 1,476,000 (2009 – 724,000). The exercise price of each
                                    option shall not be less than the weighted average trading price of the common shares on the TSX for the five
                                    trading days immediately prior to the grant date. Existing options have a maximum term of five years and option
                                    vesting is determined by the Board of Directors.

14 | Notes to Consolidated Financial Statements | Winstar
The following is a continuity schedule of outstanding stock options for which share have been reserved:

                                                                                                                                                      Notes to Financials
                                                                                December 31, 2010                         December 31, 2009
                                                                                        Weighted                                   Weighted
                                                                                         Average                                    Average
                                                                      Options      Exercise Price           Options           Exercise Price
                                                                  (thousands)       ($ per share)       (thousands)            ($ per share)
Opening balance                                                        2,698                3.63               2,509                   3.75
Granted                                                                  510                3.85                 355                   2.02
Exercised                                                             (1,057)               3.03                      -                    -
Forfeited                                                               (103)               4.20                (166)                  4.96
Closing balance                                                        2,048                3.69               2,698                   3.63

The fair market value of options was estimated at the date of grant using a Black-Scholes option pricing model with the
following assumptions:

                                                                                                               Years ended December 31,
                                                                                                                2010                   2009
Risk free interest rate (%)                                                                                           3                    3
Expected life (years)                                                                                                 4                    4
Expected volatility (%)                                                                                              62                   58

Based on fair market values, compensation expense for the year ended December 31, 2010, was $917,000
(2009 - $498,000), of which $860,000 (2009 - $464,000) has been recorded as non-cash stock-based compensation
expense classified as general and administrative expense.

The following summarizes information about stock options outstanding at December 31, 2010:

                                                                      Options Outstanding                                 Options Exercisable
   Range of exercise       Weighted average      Number outstanding    Weighted average        Weighted average        Number outstanding
  prices ($ per share)   exercise price ($ per      at December 31,           remaining      exercise price ($ per        at December 31,
                                       share)      2010 (thousands)      contractual life                  share)        2010 (thousands)
    2.02– 2.70                      2.30                   535                    2.99                  2.37                        429
    2.90 – 4.36                     3.81                 1,087                    2.41                  3.79                        757
    5.00 – 5.65                     5.16                   425                    2.27                  5.16                        426
                                    3.69                 2,048                    2.66                  3.77                      1,612

(c) Contributed surplus
    The following table outlines the changes in the contributed surplus balance:

(CDN $ thousand)                                                                                                2010                   2009
Balance, January 1                                                                                             3,740                  3,242
Stock-based compensation costs                                                                                   917                    498
Re-classification to common shares on exercise of stock options                                                (1,394)                     -
Expiry of unvested options                                                                                        (26)                     -
Balance, December 31                                                                                           3,237                  3,740

                                                                                                               Winstar | Notes to Consolidated Financial Statements | 15
                                (d) Earnings per share

          Notes to Financials
                                    The following is a reconciliation of basic and diluted net income/(loss) per common share:

                                                                                                                               Years ended December 31,
                                (CDN $ thousands)                                                                               2010              2009
                                Net income from continuing operations                                                          2,061             1,909
                                Net loss from discontinued operations                                                           (413)           (8,505)
                                Net income/(loss) for the period                                                               1,648            (6,596)
                                (thousands of common shares)
                                Weighted average number of common shares                                                   34,646              34,233
                                Dilutive securities issued under stock compensation plan                                         138                  -
                                Weighted average number of diluted common shares                                           34,784              34,233
                                (dollars per common share)
                                Basic and diluted from continuing operations                                                    0.06              0.06
                                Basic and diluted from discontinued operations                                                 (0.01)            (0.25)
                                Basic and diluted                                                                               0.05             (0.19)

                                Options have a dilutive effect under the treasury stock method only when the average market price of the common
                                stock during the year exceeds the exercise price of the option.

                                15. Commitments
                                Romania Joint Venture Agreement
                                During Q2 2009, the Company entered into a joint venture agreement whereby the Company would fulfill certain
                                commitments to earn a 60% interest in the onshore Satu Mare concession in northwestern Romania. Under the terms
                                of the joint venture, the Company has committed to a work program, which is estimated to cost US $6.6 million by
                                2012. The remaining work program consists of the acquisition of 300 kilometres of new 2D seismic, and the drilling of
                                one exploration well.

                                Chouech Essaida Concession
                                The Tunisian state oil and gas company, ETAP has the right to earn up to a 50% working interest in the Chouech
                                Essaida concession if and when the cumulative liquid hydrocarbon sales net of royalties and shrinkage from the
                                concession exceeds 6.5 million barrels. As at December 31, 2010, cumulative liquid hydrocarbon sales net of royalties
                                and shrinkage was 3.9 million barrels. Management is of the opinion that, there are sufficient exploration and
                                development opportunities which, if successful, could result in this provision being exercised within the next 10 years.

                                The Company has a six-year lease for office space in Calgary expiring in 2012 with an option to extend the agreement
                                for an additional five-year term. The Company’s Tunisian operations have a one-year lease in Tunisia expiring in 2010, as
                                well as an indefinite termed land and mineral lease in the Zinnia concession. The effects of these commitments have
                                been included in the following:

                                                                                                2011        2012        2013            2014      Total
                                Accounts payable from continuing operations                  13,572            -           -               -   13,572
                                Accounts payable from discontinued operations                   314            -           -               -      314
                                Current ARO from discontinued operations                      1,319            -           -               -    1,319
                                Office leases – Canada                                          400         243            -               -      634
                                Office leases – Winstar BV                                      148            -           -               -      148
                                Total                                                        15,753         234            -               -   15,987

16 | Notes to Consolidated Financial Statements | Winstar
16. Income Taxes

                                                                                                                                 Notes to Financials
                                                                                          Years ended December 31,
(CDN $ thousands)                                                                           2010              2009
Computed expected income tax expense at 28%                                                3,345              564
Higher foreign tax rates                                                                   4,349            1,326
Permanent differences                                                                       (213)            (369)
Stock-based compensation                                                                     245              109
Foreign exchange                                                                             383           (1,127)
Increase in valuation allowance                                                            1,721            1,096
Recoverable income taxes                                                                        -            (623)
Other                                                                                         57             (457)
Total expense                                                                              9,887              519

The disposition of Canadian and Hungarian assets has diminished Winstar’s ability to benefit from its remaining
future tax pools. Therefore, a valuation allowance was taken on 100% of Winstar’s Canadian and Hungarian future
tax assets.

The Tunisian operations incur tax on a concession-by-concession basis. During the year ended December 31, 2010,
the Company’s current tax expense was $65,000 (2009 - nil). The remaining Tunisian concessions have capitalized
expenses and tax loss carry forwards, which on a concession-by-concession basis shelter current revenue from
income tax. As at December 31, 2010, the Tunisian concessions had $8.8 million (2009 - $4.8 million) of tax loss
carry forwards and $51.1 million (2009 - $56.1 million) of undepreciated capital costs. The tax loss carry forwards
will continue through to the end of the concessions term which may be as long as 25 years. The undepreciated
capital costs have no expiry dates.

The components of the future income tax liability are as follows:

                                                                                          Years ended December 31,
(CDN $ thousands)                                                                          2010               2009
Differences between the tax bases and reported
amounts for depreciable assets                                                          (25,360)          (12,061)
Asset retirement obligation                                                               3,008             2,414
Share issue costs                                                                             92              206
Tax loss carry forwards                                                                  10,192             6,778
Deferred revenue                                                                           1,744                 -
Other                                                                                       (122)             121
Gross liability                                                                          (10,446)          (2,542)
Valuation allowance                                                                       (6,083)          (4,848)
Total liability                                                                         (16,529)            (7,390)

                                                                                          Winstar | Notes to Consolidated Financial Statements | 17
                                17. Segmented Disclosure
          Notes to Financials   (CDN $ thousands)
                                Year ended December 31,             Tunisian Operations   European Operations (1)             Corporate (2)                Total
                                                                       2010        2009      2010          2009       2010            2009       2010       2009
                                      Oil and liquids               47,564     32,294            -            -          -               -    47,564     32,294
                                      Natural gas                    5,171      4,290            -            -          -               -     5,171      4,290
                                      Petroleum and
                                      natural gas sales            52,735      36,584            -            -          -               -    52,735     36,584
                                      International royalty
                                      income                         1,103      1,272            -            -          -               -     1,103      1,272
                                      Royalties                     (7,133)     (5,119)          -            -          -               -     (7,133)   (5,119)
                                                                   46,705      32,737            -            -          -               -    46,705     32,737
                                 Segmented expenses
                                      Operating                      9,150       7,786           -            -          -               -     9,150      7,786
                                      General and administrative     2,513      1,669         654          727       3,884         3,560       7,051      5,956
                                      Exploration expense              560        571         200          104           -               -       760       675
                                      DD&A                          16,913     16,628            -            -        77            142      16,990     16,770
                                      Interest expense                  22        142           (9)           -          -              5         13       147
                                      Foreign exchange
                                      loss/(gain)                      509         (23)          -            -        32         (1,011)        541     (1,034)
                                      Other (income)/expense           116           9         13             -       124                -       253          9
                                                                   29,783      26,782         858          831       4,117         2,696      34,758     30,309
                                 Earnings before tax                16,922      5,955        (858)        (831)     (4,117)       (2,696)     11,947      2,428
                                 Current tax expense                    65           -           -            -          -               -        65          -
                                 Future income tax expense           9,822        519            -            -          -               -     9,822       519
                                 Net earnings/(loss) from
                                 continuing operations               7,035      5,436        (858)        (831)     (4,117)       (2,696)      2,060      1,909
                                 Net earnings/(loss) from
                                 discontinued operations                  -          -       (465)        (511)        52         (7,994)       (413)    (8,505)
                                 Net earnings/(loss)                 7,035      5,436      (1,323)     (1,342)      (4,065)     (10,690)       1,647     (6,596)
                                 Capital expenditures
                                      & exploration                 38,012     18,052            -            -          -               -    38,012     18,052
                                      Other                            198          76           -            -       101              23        299        99
                                      Discontinued operations             -          -           -            -          -             50           -       50
                                 Total capital expenditure          38,210     18,128            -            -       101              73     38,311     18,201
                                 Total assets                      88,990      96,014       1,092        1,419      32,679           208      122,761    97,641

                                (1)    The European segment consists of Winstar Satu Mare SRL operating in Romania as well as Hungarian operations which
                                       are classified as discontinued operations.
                                (2)    The Corporate segment includes Canadian operations, which are classified as discontinued.

18 | Notes to Consolidated Financial Statements | Winstar

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