Risk Factors

Investment in the shares of Lynden Energy Corp. (“Lynden” or the “Corporation”) must be regarded as highly speculative due to the nature of the Corporation’s business and its present stage of development. The following are risk factors associated with the Corporation.

Limited Operating History

The Corporation has no history of earnings. The Corporation’s continued operation will be dependent upon its ability to generate operating revenues and to procure additional financing.Exploration, Development and Production Risks

Oil and gas operations involve many risks that even a combination of experience and knowledge and careful evaluation may not be able to overcome. The long-term commercial success of Lynden will depend on its ability to find, acquire, develop and commercially produce oil and natural gas reserves. Without the continual addition of new reserves, any existing reserves Lynden may have at any particular time and the production therefrom will decline over time as such existing reserves are exploited. A future increase in Lynden’s reserves will depend not only on its ability to explore and develop any properties it may have from time to time, but also on its ability to select and acquire suitable producing properties or prospects. No assurance can be given that Lynden will be able to continue to locate satisfactory properties for acquisition or participation. Moreover, if such acquisitions or participations are identified, Lynden may determine that current markets, terms of acquisition and participation or pricing conditions make such acquisitions or participations uneconomic. There is no assurance that further commercial quantities of oil and natural gas will be discovered or acquired by Lynden.

Future oil and gas exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient net revenues to return a profit after drilling, operating and other costs. Completion of a well does not assure a profit on the investment or recovery of drilling, completion and operating costs. In addition, drilling hazards or environmental damage could greatly increase the cost of operations, and various field operating conditions may adversely affect the production from successful wells. These conditions include delays in obtaining governmental approvals or consents, shut-ins of connected wells resulting from extreme weather conditions, insufficient storage or transportation capacity or other geological and mechanical conditions. While diligent well supervision and effective maintenance operations can contribute to maximizing production rates over time, production delays and declines from normal field operating conditions cannot be eliminated and can be expected to adversely affect revenue and cash flow levels to varying degrees.

Oil and natural gas exploration, development and production operations are subject to all the risks and hazards typically associated with such operations, including hazards such as fire, explosion, blowouts, cratering, sour gas releases and spills, each of which could result in substantial damage to oil and natural gas wells, production facilities, other property and the environment or in personal injury. In accordance with industry practice, Lynden will not be fully insured against all of these risks, nor are all such risks insurable. Although Lynden will maintain liability insurance in an amount that it considers consistent with industry practice, the nature of these risks is such that liabilities could exceed policy limits, in which event Lynden could incur significant costs that could have a material adverse effect upon its financial condition. Oil and natural gas production operations are also subject to all the risks typically associated with such operations, including encountering unexpected formations or pressures, premature decline of reservoirs and the invasion of water into producing formations. Losses resulting from the occurrence of any of these risks could have a materially adverse effect on future results of operations, liquidity and financial condition.

Competition

The petroleum industry is competitive in all its phases. Lynden will compete with numerous other participants in the search for the acquisition of oil and natural gas properties and in the marketing of oil and natural gas. Their competitors include oil and gas companies that have substantially greater financial resources, staff and facilities than those of Lynden, as the case may be. Lynden’s ability to increase reserves in the future will depend not only on its ability to explore and develop its present properties, but also on its ability to select and acquire suitable producing properties or prospects for exploratory drilling. Competitive factors in the distribution and marketing of oil and natural gas include price and methods and reliability of delivery.

Regulatory

Oil and natural gas operations (exploration, production, pricing, marketing and transportation) are subject to extensive controls and regulations imposed by various levels of government that may be amended from time to time. Lynden’s operations may require licenses from various governmental authorities. There can be no assurance that Lynden will be able to obtain all necessary approvals, licenses and permits that may be required to carry out exploration and development at its projects. A failure to obtain such approval on a timely basis or material conditions imposed by such authority in connection with the approval would materially affect the prospects of Lynden.

Environmental

All phases of the oil and natural gas business present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of federal, provincial and local laws and regulations. Environmental legislation provides for, among other things, restrictions and prohibitions on spills, releases or emissions of various substances produced in association with oil and gas operations. The legislation also requires that wells and facility sites be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. Compliance with such legislation can require significant expenditures and a breach may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. The discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities to governments and third parties and may require Lynden to incur costs to remedy such discharge. Although Lynden believes that it will be in material compliance with current applicable environmental regulations no assurance can be given that environmental laws will not result in a curtailment of production or a material increase in the costs of production, development or exploration activities or otherwise adversely affect Lynden’s financial condition, results of operations or prospects.

Prices, Markets and Marketing

The marketability and price of oil and natural gas that may be acquired or discovered by Lynden will be affected by numerous factors beyond its control. Lynden’s ability to market its natural gas may depend upon its ability to acquire space on pipelines that deliver natural gas to commercial markets. Lynden may also be affected by deliverability uncertainties related to the proximity of its reserves to pipelines and processing facilities and related to operational problems with such pipelines and facilities and extensive government regulation relating to price, taxes, royalties, land tenure, allowable production, the export of oil and natural gas and many other aspects of the oil and natural gas business.

Both oil and natural gas prices are unstable and are subject to fluctuation. Any material decline in prices could result in a reduction of Lynden’s net production revenue. The economics of producing from some wells may change as a result of lower prices, which could result in a reduction in the volumes of Lynden’s reserves. Lynden might also elect not to produce from certain wells at lower prices. All of these factors could result in a material decrease in Lynden’s net production revenue causing a reduction in its oil and gas acquisition, development and exploration activities.

Substantial Capital Requirements

It is anticipated that Lynden will make substantial capital expenditures for the acquisition, exploration, development and production of oil and natural gas reserves in the future. If Lynden’s revenues or reserves decline, it may have limited ability to expend the capital necessary to undertake or complete future drilling programs. There can be no assurance that debt or equity financing, or cash generated by operations will be available or sufficient to meet these requirements or for other corporate purposes or, if debt or equity financing is available, that it will be on terms acceptable to Lynden. Moreover, future activities may require Lynden to alter its capitalization significantly. The inability of Lynden to access sufficient capital for its operations could have a material adverse effect on Lynden’s financial condition, results of operations or prospects.

Additional Funding Requirements

Lynden’s cash flow from its reserves may not be sufficient to fund its ongoing activities at all times. From time to time, Lynden may require additional financing in order to carry out its oil and gas acquisition, exploration and development activities. Failure to obtain such financing on a timely basis could cause Lynden to forfeit its interest in certain properties, miss certain acquisition opportunities and reduce or terminate its operations. If Lynden’s revenues from its reserves decrease as a result of lower oil and natural gas prices or otherwise, it will affect Lynden’s ability to expend the necessary capital to replace its reserves or to maintain its production. If Lynden’s cash flow from operations is not sufficient to satisfy its capital expenditure requirements, there can be no assurance that additional debt or equity financing will be available to meet these requirements or available on terms acceptable to Lynden. Events in the equity market may impact Lynden’s ability to raise additional capital in the future.

Issuance of Debt

From time to time Lynden may enter into transactions to acquire assets or the shares of other corporations. These transactions may be financed partially or wholly with debt, which may increase Lynden’s debt levels above industry standards. Depending on future exploration and development plans, Lynden may require additional equity and/or debt financing that may not be available or, if available, may not be available on favourable terms. Neither Lynden’s articles nor its by-laws limit the amount of indebtedness that Lynden may incur. The level of Lynden’s indebtedness from time to time, could impair Lynden’s ability to obtain additional financing in the future on a timely basis to take advantage of business opportunities that may arise.

Availability of Drilling Equipment and Access

Oil and natural gas exploration and development activities are dependent on the availability of drilling and related equipment in the particular areas where such activities will be conducted. Demand for such limited equipment or access restrictions may affect the availability of such equipment to Lynden and may delay exploration and development activities. Lynden will not be the operator of all of its oil and gas properties, and as a result Lynden will be dependent on such operators for the timing of activities related to such properties and will be largely unable to direct or control the activities of the operators.

Title to Assets

Although title reviews will generally be conducted prior to the purchase of most oil and natural gas producing properties or the commencement of drilling wells, such reviews do not guarantee or certify that an unforeseen defect in the chain of title will not arise to defeat Lynden’s claim which could result in a reduction or elimination of the revenue received by Lynden.

Insurance

Lynden’s involvement in the exploration for and development of oil and gas properties may result in Lynden becoming subject to liability for pollution, blow outs, property damage, personal injury or other hazards. Although prior to drilling Lynden will obtain insurance in accordance with industry standards to address such risks, such insurance has limitations on liability that may not be sufficient to cover the full extent of such liabilities. In addition, such risks may not in all circumstances be insurable or, in certain circumstances, Lynden may elect not to obtain insurance to deal with specific risks due to the high premiums associated with such insurance or other reasons. The payment of such uninsured liabilities would reduce the funds available to Lynden. The occurrence of a significant event that Lynden is not fully insured against, or the insolvency of the insurer of such event, could have a material adverse effect on Lynden’s financial position, results of operations or prospects.

Reliance on Key Personnel

Lynden’s success will depend in large measure on certain key personnel. The loss of the services of such key personnel could have a material adverse affect on Lynden. Lynden does not anticipate having key person insurance in effect for management. The contributions of these individuals to the immediate operations of Lynden are of central importance. In addition, the competition for qualified personnel in the oil and natural gas industry is intense and there can be no assurance that Lynden will be able to continue to attract and retain all personnel necessary for the development and operation of its business. Investors must rely upon the ability, expertise, judgment, discretion, integrity and good faith of the management of Lynden.

Dilution

Lynden may make future acquisitions or enter into financings or other transactions involving the issuance of securities of Lynden which may be dilutive.

Delays in Business Operations

In addition to the usual delays in payments by purchasers of oil and natural gas to Lynden or to the operator, and the delays by operators in remitting payment to Lynden, payments between these parties may be delayed due to restrictions imposed by lenders, accounting delays, delays in the sale or delivery of products, delays in the connections of wells to a gathering system, adjustment for prior periods, or recovery by the operator of expenses incurred in the operation of the properties. Any of these delays could reduce the amount of cash flow available for the business of Lynden in a given period and expose Lynden to additional third party credit risks.

Alternatives to and Changing Demand for Petroleum Products

Full conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and natural gas, and technological advances in fuel economy and energy generation devices could reduce the demand for crude oil and other liquid hydrocarbons. Lynden cannot predict the impact of changing demand for oil and natural gas products, and any major changes may have a material adverse effect on Lynden’s business, financial condition, results of operations and cash flows.

Income Taxes

Lynden will file all required income tax returns and believes that it will be in full compliance with the provisions of federal (Canada and United States) and all applicable provincial and state tax legislation. However, such returns are subject to reassessment by the applicable taxation authority. In the event of a successful reassessment of Lynden whether by re-characterization of exploration and development expenditures or otherwise, such reassessment may have an impact on current and future taxes payable.

Assessments of Value of Acquisitions

Acquisitions of oil and gas issuers and oil and gas assets are typically based on engineering and economic assessments made by independent engineers and Lynden’s own assessments. These assessments both will include a series of assumptions regarding such factors and recoverability and marketability of oil and gas, future prices of oil and gas and operating costs, future capital expenditures and royalties and other government levies which will be imposed over the producing life of the reserves. Many of these factors are subject to change and are beyond Lynden’s control. In particular, the prices of and markets for oil and natural gas products may change from those anticipated at the time of making such assessment. In addition, all such assessments involve a measure of geologic and engineering uncertainty which could result in lower production and reserves than anticipated. Initial assessments of acquisitions may be based on reports by a firm of independent engineers that are not the same as the firm Lynden uses for its year end reserve evaluations. Because each of these firms may have different evaluation methods and approaches, these initial assessments may differ significantly from the assessments of the firm used by Lynden. Any such instance may offset the return on and value of the Lynden shares.

Third Party Credit Risk

Lynden is or may be exposed to third party credit risk through its contractual arrangements with its current or future joint venture partners, marketers of its petroleum and natural gas production and other parties. In the event such entities fail to meet their contractual obligations to Lynden, such failures could have a material adverse effect on Lynden and its cash flow from operations.