Letter to Shareholders

July 29, 2011

Dear Shareholders,

I am very pleased to say that TAG Oil will start the 2012 fiscal year in a position of significant financial strength, with strong working capital, debt-free status and rapidly growing production and reserves. Along with a relatively undiluted capital structure, TAG is at the forefront of its peer group, with a solid foundation to expand its business in the years ahead. During the 2011 fiscal year, TAG has achieved many significant corporate milestones, with our operations delivering better-than-anticipated results with new discoveries in Taranaki. While our operations and new oil and gas discoveries in the Taranaki Basin are driving near-term cash flow to our highest-ever levels achieved, our greatest pursuit still lies ahead, as we diligently move closer to testing the major resource potential estimated in our East Coast Basin prospects.

Production and Development – Taranki Basin, New Zealand
The beginning of the 2011 fiscal year saw TAG's production rate averaging 372 barrels of oil equivalent (BOE) per day. We now produce approximately 950 BOE per day, with an anticipated production ramp-up past 5,000 BOE per day from our current "behind-pipe" production capability at our Cheal and Sidewinder oil and gas fields. These newly discovered oil and gas reserves are only awaiting Cheal's artificial lift system expansion and the Sidewinder Production Station commissioning, both on schedule to occur in coming months.

Our excellent drilling success in the Taranaki Basin has encouraged TAG to aggressively move forward with further drilling that will commence in September 2011. This next phase of drilling will continue to target the same Mt. Messenger and Urenui Formations where we achieved excellent flow rates with robust economic potential, as well as deeper, high-impact wildcat targets in new, exciting formations such as the Moki Formation. Our goal for this next phase of drilling, consisting of infill, development and step out wells, is to further build our near term producing reserves, and further exploit the numerous exploration and development opportunities that remain in our Taranaki acreage.

The table below summarizes the results from the six successful new wells TAG recently drilled in the Taranaki Basin. The high productivity flow rates achieved from production testing demonstrate the high-impact potential, with robust economics in our Taranaki operations.

Exploration East Coast Basin – New Zealand
As the first mover to identify the tight oil potential in the East Coast Basin in 2006, TAG Oil acquired a large land base covering the most prospective acreage for its exploration. The formations are high-quality source rocks with the potential to contain a very valuable resource: Sharing many characteristics with the successful tight oil plays in North America, such as the Bakken, they provide a model for potential success in New Zealand.

As part of our scheduled commitments to the New Zealand government, we have voluntarily relinquished some acreage that we have determined to have minimal or no exploration potential. We have, however, retained a current high-graded land position of 1.7 million acres (2,656 sections) of what we consider to the most prospective acreage with the highest chance of achieving commercial success based on technical data we have acquired over the years.

In November 2008 TAG Oil retained AJM Petroleum Consultants to independently assess the resource potential of the Waipawa and Whangai source rocks within our permits. Given the limited data available at that time, just 200,000 acres of our current 1.7 million acres was assessed in this report. The report concludes a best estimate potential of 12.6 billion barrels of oil equivalent of undiscovered Hydrocarbon-In-Place.

Undiscovered Resource Potential on 200,000 acres (billion barrels of oil)

	Low Case	Best Case	High Case
Unconventional Exploration	4,022,263,000	12,654,778,000	39,835,707,000

Over the past 18 months, TAG Oil has compiled significant amounts of critical data through: seismic acquisition, analysis of core and oil samples, land mapping, and shallow drilling, all of which further supports the prospectivity of the tight oil play. We drilled three shallow stratigraphic wells to total depths of 250-300m which intercepted oil-and-gas bearing sands over 11 to 13 gross meters at approximately 200m depth, under anomalously high-pressures, all recovering 50-degree API sweet light crude oil. The oil was lab tested and its been positively confirmed that the source of the oil is from the underlying formations.

We are encouraged with these results and we will plan a test of this shallow play during the coming year, but our primary pursuit is the significant resource potential in the Whangai and Waipawa formations. In late 2011, TAG will begin the next phase of exploration with a goal to establish that commercial amounts of oil and gas can be produced directly from these high-quality source rock formations.

TAG has started initial consultation by discussing our operational plans with landowners, and through informal meetings with teachers and students at local schools. Further consultation and information sharing will also be initiated with local Iwi, district councils and residents to ensure our activities are understood and conducted respectfully.

Going forward in New Zealand
Oil and gas has grown to be the third largest contributor to New Zealand's export economy and TAG has been the most active oil and gas company onshore in the Taranaki Basin over the past 12 months. As we see the benefits of these efforts, we also appreciate the opportunity New Zealand provides us to do business, as well as the tremendous support TAG Oil has received from the people of New Zealand, its government and a very competent service industry.

We operate in a country that is stable, fiscally attractive and provides access to nearby demand from Asian markets for all oil produced at Malaysian Tapis Crude prices, which are currently above US $120 per barrel.

We are proud of what TAG Oil has achieved, but by no means are we satisfied. We are approaching exciting programs as our projects continue to build momentum in both the Taranaki and East Coast Basins. We will continue to execute our strategic growth plan by continuing to build reserves and cash flow in our lower risk ventures in Taranaki, while working toward the big prize of commercializing the East Coast Basin in the coming months and years.

Best Regards,

TAG Oil Ltd.

Garth Johnson
Chief Executive Officer

This next phase of drilling will continue to target the same Mt. Messenger and Urenui Formations where we achieved excellent flow rates with robust economic potential, as well as deeper, high- impact wildcat targets in new, exciting formations such as the Moki Formation.

The East Coast Basin was independently estimated to have a total hydrocarbon potential with a best-estimate volume of 12.6 billion barrels of undiscovered hydrocarbon-in-place within the Waipawa and Whangai tight oil and gas source rock formations.