ANNUAL INFORMATION FORM

KFG RESOURCES Ltd.
118 Lower Woodvi1le Road, Suite #2
Natchez, Mississippi
39120

September 1, 2000

An additional copy of this Annual Information Form may be obtained upon request from KFG Resources Ltd. at the above address.

KFG RESOURCES LTD.
ANNUAL INFORMATION FORM
September 1, 2000

ITEM I - NAME AND INCORPORATION

Organization of the Issuer

KFG Resources Ltd. (the "Company") was incorporated under the laws of the Province of British Columbia on Apri17, 1994. The Company's authorized capital is 100,000,000 common shares without par value.

The Company has one subsidiary, KFG Petroleum Corporation ("KFG Petroleum") a corporation organized under the laws of Mississippi. The Company owns 100% of the outstanding shares of KFG Petroleum. KFG Petroleum owns 100% of the outstanding shares of Shamrock Drilling Inc. ("Shamrock Drilling") a corporation organized under the laws of Mississippi.

To the best of the Company's knowledge and belief, the following is a complete list of persons and/or companies who beneficially own, directly or indirectly, or exercise control or direction over, shares carrying more than 10% of the voting rights attached to the common shares of the Company as of the close of business on August 1, 2000.

1. These percentages assume the Holder exercises all of its underlying securities and no other options, warrants, convertible notes or other underlying securities currently outstanding are exercised.
2. This does not include 300,000 Directors' options for the purchase of common shares, 131,907 common shares to be issued as bonus shares in consideration of Mr. Kadane's guarantee of certain indebtedness of the Company or 3,990,000 common shares which may be issued upon conversion of notes and warrants to be issued pursuant to a subscription agreement dated June 22, 2000 between the Company and Robert A. Kadane, all of which are subject to shareholder approval. If all of these issuances are approved and assuming Mr. Kadane exercises his rights to acquire all underlying common shares and no other outstanding rights are exercised, Mr. Kadane would hold 45.35% of the outstanding common shares of the Company. This percentage assumes Mr .Kadane exercises all of his underlying securities and no other options, warrants, convertible notes or other underlying securities currentlyoutstanding are exercised.
3. This is the number of common shares Union Securities Ltd. would hold if it fully converted the note and warrants issued pursuant to a subscription agreement with the Company dated July 5, 2000.

ITEM 2 - GENERAL DEVELOPMENT OF THE BUSINESS

The Company is a small, independent energy company engaged in the exploration, development and production of on-shore oil and gas reserves, with activities concentrated in Concordia and Catahoula Parishes, Louisiana, Adams and Wilkinson Counties, Mississippi and Commanche County, Kansas. In addition. through KFG Petroleum's subsidiary, Shamrock Drilling, the Company is engaged in contract oil and gas well drilling for third parties and for its own account in East Central Louisiana and Southwest Mississippi. The Company has net production of approximately 40 barrels of oil per day and 750,000 cubic feet of natural gas per day.

ITEM 3 -NARRATIVE DESCRIPTION OF THE BUSINESS

The Company was incorporated on April 7, 1994, and in May, 1994, the Company purchased all of the issued and outstanding shares of KFG Petroleum in consideration of the issuance to the then stockholders of KFG Petroleum of an aggregate of 3,333,333 common shares of the Company. The assets of KFG Petroleum at that time consisted primarily of varying interests in producing and non-producing oil and gas properties located in Catahoula and Concordia Parishes, Louisiana, and Adams and Wilkinson Counties, Mississippi.

In January, 1997, KFG Petroleum acquired all of the shares of Shamrock Drilling for cash consideration of US$550,000. Shamrock Drilling is engaged in the contract oil and gas well drilling business, generally in East-Central Louisiana and South-West Mississippi. The assets of Shamrock Drilling consist primarily of its drilling rig and related equipment and cash items, and minor interests in certain producing oil properties.

The oil and gas industry in general consists of the exploration, development, production, transportation and marketing of crude oil and natural gas and their by-products. Through KFG Petroleum, the Company is engaged in the exploration, development and production of crude oil and the acquisition and operation of producing oil properties and is not engaged in transportation, refining or marketing activities.

Through KFG Petroleum, the Company has working interests in four gas properties, the Acres, Hackney, Lousch and Kansas University leases. Several new gas exploration projects have been entered into in Catahoula Parish and East Feliciana Parish that will be drill tested in the current fiscal year. Industry partners and funds from a private placement will be used to finance the projects as well as cash flow generated by KFG Petroleum and Shamrock Drilling.

Through Shamrock Drilling, the Company is engaged in the contract drilling of exploratory oil and gas wells for the account of third parties or for its own account.

The Company's activities in the States of Mississippi and Louisiana are carried on through its offices in Natchez, Mississippi. Kansas gas operations are managed out of a Company office in Denver, Colorado.

The Company has 4 main profit centers: (i) net sales of oil and natural gas; (ii) overhead from properties KFG Petroleum operates; (iii) interests in wells KFG Petroleum promotes for itself; and (iv) revenue from Shamrock Drilling operations.

At present, the Company has interests in 27 producing oil wells and 11 natural gas wells with working interests varying from 10.63% to 64.75% and covering approximately 2628 gross (422.4 net) acres. For the fiscal year ended April 30, 2000, properties in which the Company had an interest produced approximately 96,228 barrels of crude oil, 9,604 barrels of which were for the Company's interest. For the fiscal year ended April 30, 2000, the Company's interest in gas properties produced 36,865 net Mcf of gas for the Company.

The wells that KFG Petroleum operates are operated pursuant to operating agreements which govern the relationship between KFG Petroleum as operator and the other owners of working interests in the properties. For each operated well, KFG Petroleum receives monthly fees ranging from US$218 to US$506, which are competitive in the areas of operations. KFG Petroleum is also reimbursed for expenses incurred in connection with well operations. KFG Petroleum attempts to assume the position of operator in wells in which it participates and in the acquisition of producing properties.

KFG Petroleum has historically acquired interests in oil properties through transactions with private investors in which the investors pay 100% of the costs and receive a 75% interest in the properties and KFG Petroleum receives a 25% carried interest in the properties. In this manner KFG Petroleum attempts to recover its costs incurred in connection with the acquisition of leases which are considered to warrant exploratory drilling, together with associated geology and engineering costs and general and administrative costs.

After exploratory drilling has been completed, KFG Petroleum and the investors jointly elect either to abandon the well or to attempt to put the well into production. In the latter case, KFG Petroleum pays its proportionate share (being 25% in the example where KFG Petroleum retains a 25% carried interest) of completion costs and expenses, and thereafter of operating expenses. In the case of a development well, all parties, including Petroleum, bear their share of the costs of drilling and, if successful, completion costs. Although the Company intends to continue to conduct its business and operations in this manner, it may in the future seek to acquire producing properties by purchasing selected properties or acquiring other corporations which have producing properties.

Approximately 90% of KFG Petroleum's oil production is purchased by Plains All American Inc., an unrelated party, and, as is customary for producers such as KFG Petroleum, purchases are not made under any contractual arrangements. The remainder of KFG Petroleum's production is sold to a small number of other purchasers. Under these arrangements the purchasers take all of the Company's production. The Company expects its present sale arrangements with Plains All American Inc. will continue, but if not, similar arrangements could be made with other purchasers. The price paid for KFG Petroleum's oil is the posted market price established by the purchaser.

KFG Petroleum currently has two contracts for the purchase of gas. Pursuant to a two-year agreement. Kansas Gas Supply has agreed to purchase all of the gas produced by the Acres Lease. The Lousch and Cronin wells are under a one year contract to Kansas Gas Supply which is renewable on a year to year basis. KFG Petroleum recently entered into a one-year agreement with PRG Incorporated ("PRG") wherein PRG agrees to purchase all gas produced by the Hackney "B", Kansas University and Christopher wells. The agreement with PRG will expire in June, 2001 unless KFG Petroleum exercises its option to renew the agreement for an additional year. The prices for both the Kansas Gas Supply and PRG agreements is based on the inside FERC price posted by the purchaser .

The Company has, in addition to its operating officers, a bookkeeper and an administrative assistant. Well operations are supervised by KFG Petroleum's officers and a field supervisor and four full-time pumpers and other field employees who are engaged as independent contractors.

While at the present, the price of oil and gas is considerably higher than one year ago, the oil and gas industry has, in the past, been uncertain and unstable largely due to excess oil production and production capability exerting their influence on petroleum markets.

ITEM 4 -SELECTED FINANCIAL INFORMATION

The following selected financial data has been derived from the audited consolidated financial statements of the Company which have been prepared in accordance with accounting principles generally accepted in Canada. The selected financial data should be read in conjunction with those financial statements and the notes thereto.

Audited Financial Year Ended April 30

For a presentation of the Company's selected financial information on a quarterly basis, please see the Form 6l-Quarterly Reports which have been prepared by the Company and filed each quarter, the contents of which are incorporated herein by reference.

Dividend Policy

Since incorporation, the Company has not declared or paid any dividends. The Company intends to retain its earnings and does not currently expect to pay dividends for the foreseeable future. Earnings will be reinvested in the Company to promote future growth.

ITEM 5 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For a complete review of Management's Discussion and Analysis, a discussion of Liquidity and Capital Resources and Results of Operations, please see the Form 61-Quarterly Reports which have been prepared by the Company and filed each quarter, the contents of which are incorporated herein by reference.

ITEM 6 -MARKET FOR SECURITIES

The Company's shares are listed on the Canadian Venture Exchange trading under the symbol KFG.

ITEM 7 - DIRECTORS AND OFFICERS

The names, municipalities of residence and principal occupations of the Directors and officers of the Company and, in the case of Directors, the year in which they first became a Director, are set out as follows:

Robert A. Kadane, Keith N. Pople and Michael P. Raferty are members of the Company's Audit committee. The Company does not have an Executive Committee.

To the best of the Company's knowledge and belief, the Directors and officers of the Company as a group presently directly own 21.26% of the outstanding common shares of the Company. This percentage does not include present shares which may be issued upon exercise of outstanding notes, warrants or options currently held by the Directors and officers of the Company.

The term of office of each of the present Directors expires at the next Annual General Meeting or when his successor is duly elected or appointed.

ITEM 8 - ADDITIONAL INFORMATION

The comparative consolidated financial statements of the Company for the years ended April 30, 2000, and Apri130, 1999, together with the report of the auditors thereon, have been filed with the relevant securities regulatory authorities.

Additional information including Directors' and officers' remuneration and indebtedness, principal holders of the Company's securities, options to purchase securities and interests of insiders in material transactions, where applicable, is contained in the Company's Information Circular for its 2000 Annual Meeting of Members which involves the election of Directors.

The Company will provide to any person, upon request to the Secretary of the Company at 118 Lower Woodville Road, Suite #2 Natchez, Mississippi, 39120 (601) 446-5219:

• (i) One copy of this Annual Information Form and, if specifically requested, one copy of any document or the pertinent pages of such documents incorporated by reference herein;
• (ii) One copy of the Company's audited consolidated financial statements for its most recently completed financial year, together with the accompanying report of the auditor and one copy of any interim financial statements of the Company subsequent to the financial statements for the most recently completed financial year; and
• (iii) One copy of the Information Circular of the Company in respect of its most recent annual meeting of shareholders that involved the election of Directors.

Regarding requests for the documents set out in (i), (ii) and (iii) above, the Company may require the payment of a reasonable charge in the request is made by a person who is not a security holder of the Company.

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