Letter to Shareholders

March 30, 2010

I am pleased to report TAG's strong financial results, 3rd Quarter profitability, and the completion of several strategic acquisitions. These achievements have firmly positioned TAG with:

100% control of all assets;
Near-term production and reserve growth potential at Cheal, a recently commissioned production facility capable of 2,000 barrels of oil per day;
Low-risk exploration prospects in the Taranaki discovery fairway; and
A 2.4 million-acre unconventional fractured oil shale frontier.

Here are some highlights for the third quarter of TAG's 2010 fiscal year:

Production revenue of $3,452,359 (nine months: $4,712,532) recorded, compared to $671,355 in Q2;
Net income of $336,239, compared to a net loss of $1.9 million in Q2;
Production of 23,314 net barrels of oil, compared to 9,607 barrels in Q2;
33,023 net barrels of oil sold for the quarter, compared to 8,728 barrels of oil sold in Q2;
Production costs reduced by 38% to $21 per barrel compared to $34 per barrel for the comparable period last year;
Increased cash and cash equivalents, after all acquisition costs, from $6.5 million to $9.4 million, ending the quarter with working capital of $10.5 million and no debt;
Completed the acquisition of the remaining interest in the Cheal oil and gas field;
Completed the business combination with Trans-Orient Petroleum Ltd.;
Completed the acquisition of the remaining exploration interest in PEP 38748, located within the Taranaki Basin production fairway;
Awarded a 100% interest in a 61,900-acre permit extension located in the southern portion of PEP 38348, onshore in the East Coast Basin covering the Kawakawa oil-shale prospect.

TAG's third quarter was undoubtedly a significant milestone in the Company's history. Closing several transformational acquisitions has built a strong foundation for significant growth. We are proud of these achievements, and management now looks forward to focusing attention on exploitation of the significant upside potential within TAG's acreage while also pursuing additional growth opportunities that have been identified and are being assessed.

The first phase of optimization work at the Cheal oil and gas field began in March 2010.

This program is anticipated to increase daily production, reduce production costs, increase reserve recovery rates and establish a new reserve base in a secondary formation. The program consists of the following operations:

Cheal-A7 will be fracture stimulated; downhole completion equipment will be reconfigured to increase oil flow capabilities in the wellbore and reduce operating costs. Third-party reservoir modeling has indicated the fracture stimulation could increase daily production from the Cheal-A7 well by 60% to 80%, along with the benefit of improved reserve recovery. Cheal-A7 is currently flowing approximately 75 barrels of oil per day.
TAG will re-enter a suspended wellbore, Cheal-1, and target the bypassed Urenui Formation approximately 400m shallower than the main producing Mt. Messenger zone. Cheal-1 was originally drilled in 1995, unsuccessfully targeting a deeper formation (Moki Formation), and the Urenui Formation currently has no assigned reserves at Cheal. However, the Urenui formation encountered at Cheal-1 was previously perforated, tested and stabilized at approximately 50 barrels of oil and more than 1mmcf of gas per day (approximately 200 boe per day). TAG will re-configure the downhole completion tools in the existing well, adding downhole heating and other wax reduction technology to re-test the Urenui Formation at a depth of approximately 1,400m. The Urenui Formation has consistently demonstrated oil and gas shows in all eleven Cheal wells drilled, but was bypassed to focus on production from the Mt. Messenger formation at approximately 1,800m.
Cheal-A3X operations will remove a leaking casing patch that was initially set to patch perforations in this well over the Urenui Formation at approximately 1,400m. TAG will set a removable bridge plug below the Urenui formation, temporarily suspending production from the Mt. Messenger Formation. The completion string will be reconfigured with wax reduction technology and re-installed to test the Urenui Formation.

We are deploying advanced oil field technologies and procedures that are commonplace in North America but not yet applied to the Cheal field. With a cost of under $2 million, this initial program is not only attractive in terms of return on investment, but it will also provide a catalyst for future technology-driven development of the Cheal pool. The coming test will also potentially capture reserves not yet booked from a secondary oil and gas formation.

The East Coast Basin

TAG Oil recently drilled the Waitangi Hill-2 well, the first in an initial three-well program, located in the 530,000-acre Waitangi Hill permit PEP 38348 and twin to the historic Waitangi-1 oil discovery drilled in the early 1900s. The Company chose to suspend the well for safety reasons, but the Waitangi Hill-2 well has already provided further confirmation that this permit, 100% controlled by TAG, has an active light oil and gas generating system in place.

This initial program is intended to appraise and assess the economics of this shallow conventional oil play, and to collect valuable data to evaluate deepening these wells by another 1000-1500m to intersect the Waipawa Black Shale and Whangai Shale formations. Oil production from Waitangi-1 has confirmed the underlying Waipawa Black Shale and the Whangai Shale as the source of its high-quality light oil, and further gas, oil and core samples from Waitangi Hill-2 have been sent for analysis.

Click to view video (1:21)

As a junior explorer we are pursuing the unconventional oil-shale play through operations designed to safely and cost-effectively de-risk the play at each stage of exploration within this frontier Basin. The goal for Waitangi Hill-2 was to further validate the prospectivity of the unconventional oil shale play and I believe this goal was achieved.

As we continue exploring the shale potential within the East Coast Basin we have the following attributes supporting a viable and valuable unconventional play within the Waipawa and Whangai shales:

High-quality, light sweet crude has been generated and is being expelled;
Oil has been geochemically typed to these shales;
The shales are naturally-fractured, they are mature and they are accessible at shallow-depths due to uplifting;
A clay-like formation located immediately above the shales provides a competent, over-pressured seal;
Oil and gas seeps throughout our 2.4 million acres confirm the shales are widespread throughout permits.

The next two Waitangi Hill wells will utilize equipment more capable of handling anomalously pressured shallow oil and gas zones that led to the gas kicks experienced with Waitangi Hill-2.

I am pleased to be leading TAG Oil during this exciting time. We have assembled a focused, diligent and high-quality team with a common goal of creating significant value for our shareholders and I look forward to reporting to you in the years ahead.

Sincerely,

Garth Johnson
Chief Executive Officer

"Oil prices will increase...driven by continued demand from developing countries such as China and India against a tightening availability of crude oil supplies."