Management’s Discussion and Analysis of Financial Condition and Operations

Basis of Presentation and Transition to IFRS

As of 01 January 2011, Phoenix Canada Oil Company Limited (“Company”) adopted international Financing Reporting Standards (“IFRS”) for Canadian publicly accountable enterprises. Prior to the adoption of IFRS, we followed Canadian Generally Accepted Accounting Principles (“Canadian GAAP”). While IFRS has numerous similarities to Canadian GAAP, some of the corporate accounting policies have changed as a result of the transition to IFRS. The most significant accounting policy changes that have had an impact on the results of our operations are discussed in more detail in the Accounting Changes section of this Management Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”).

This MD&A should be read in conjunction with our audited consolidated annual financial statements as at and for the period ending 31 December 2011, which have been prepared using IFRS and the provisions of National Instrument 51-102, and should also be read in conjunction with the audited consolidated financial statements herewith which were prepared after the mandatory adoption of IFRS and which will be included in this MD&A for the fiscal year ended 31 December 2011. Copies of all relevant financial documents and interim Company filings to date may also be referenced on the regulatory filings website — www.SEDAR.com. Interested readers are also suggested to refer to the corporate website — www.phoenix-pco.com. This MD&A has been prepared as at 27 April 2012.

Significant Company Performance and Progress Overview

The energy world is increasingly in a state of flux — including the pivotal Phoenix role in advancing our proprietary roles in developing Hydrogen and “Synfuel” technologies technically, financially and legally. The relevant statistics point to the expanding Phoenix role in moving towards foreseeable commerciality of these replacement (not renewable nor alternative) energy systems.

Phoenix holds exclusive ownership of its proprietary “Synfuel” technology, and has filed for U.S. and international provisional patents covering the novel compounding of Hydrogen with captured carbon emissions. The Hydrogen and carbon components of Phoenix “Synfuel” can derive from diverse and widely available sources. The “Synfuel” equivalent of conventional liquid transportation fuels, ranging from light-end jet fuel and kerosene, to mid-range gasoline and heavy-end diesel oil products, can all employ the existing, long-established liquid fuel distribution infrastructure.

The “Synfuel” technology can also play a central role in advancing economic Carbon Capture and Storage/Sequestration (CCS) systems that can be further upgraded by our environmentally benign Carbon Capture and Recycling (CCR) strategy. Phoenix also plans for a leading role in the inevitable future “Hydrogen Economy” through control of a proprietary technology covering the light-powered generation of low cost Hydrogen gas from an ordinary water feedstock (including seawater).

The world Hydrogen gas market, now at $300-billion annually, is growing at more than 10% per year. Major ancillary Hydrogen gas generation will also be required for the future proprietary Phoenix “Synfuel” market. It is proposed that the full range of conventional liquid hydrocarbon transportation fuels, derived from the compounding of hydrogen with captured carbon emissions from any source, will be produced.

The recently publicized development of large scale shale gas and oil reserves as an energy alternative, may be over-rated. By definition, shale is a tight rock — with minimal porosity and permeability, which obviously limits produceable hydrocarbon reserves. Early and precipitous production decline curves are a virtual certainty. With world oil demand now over 88-million barrels per day, a hard number, each increasingly rare billion-barrel oil discovery covers less than 12 days of current world oil consumption. We can logically conclude that the Hydrogen alternative will be targeted for the eventual displacement of conventional liquid transportation fuels.

A Canadian Government Collaborative Grant for the Company’s research project entitled “Efficient Catalytic Systems for Reverse Water Gas Shift (RWGS) Reactions Based on Nano Structured Nickel Catalysts” has been approved by the Natural Sciences and Engineering Research Council of Canada (NSERC). The Phoenix expert research on the subject is focusing on the electrochemical promotion of catalytic reactions for the design of novel catalytic systems to be employed in the applications of metals, alloys and composites in special catalysts and fuel cells.

The research program grant will fund the development of a Low Carbon Hydrocarbon Fuel (LCHF), or “Synfuel”, a proprietary synthetic hydrocarbon fuel that is compounded from diverse sources of Hydrogen and carbon. “Synfuel” is chemically identical to conventional petroleum-based liquid fuels. The funded research will advance the further development of the Phoenix system to basically convert carbon dioxide to produce carbon monoxide and water, with the proprietary flowsheets designed for commercial “Synfuel” production from carbon monoxide compounded with Hydrogen.

More recently, SABIC IP, the North American petrochemical unit of Saudi Basic Industries Corp. of Riyadh, Saudi Arabia, has agreed with Phoenix to evaluate the Company-developed, proprietary, scalable, reactor unit designed for the photo-chemical generation of Hydrogen gas. Also covered in the SABIC accord is the disclosure of the Phoenix production system for “Synfuel,” our proprietary process for generating the full range of conventional liquid transportation fuels by compounding Hydrogen with captured carbon dioxide emissions, both from a diversity of sources.

Phoenix is also participating in the major funding of a large-scale Hydrogen generation R&D program employing an alternative water-splitting technology described as the copper-chlorine (CuCl) cycle and solar photocatalysis. This project includes the provision of $10-million cash and in-kind funding from the Ontario Ministry of Research and Innovation, Atomic Energy of Canada, Ontario Power Generation (Ontario’s power utility), among other major industry partners.

Phoenix intends to continue to target its Hydrogen energy initiative which will be powered by a virtually inexhaustible, pollution-free, energy resource that will generate low cost, sustainable, clean energy while emitting only pure water vapor upon combustion. Slated for mitigation, or elimination, are the costs and dangers of the wide range of noxious emissions of carbon dioxide, sulphur dioxide, nitrous oxide and other greenhouse gases, as well as the costly and problematic nuclear energy requirement for very long term disposal and/or storage of the spent fuel.

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The Company’s non-operated, minority (averaging 10%), working and royalty interests in mature Western Canada gas production are largely nearing the end of their economic life. Also included are interests in two modest development wells recently drilled on expiring central Alberta leasehold interests (12.5% and 6.25) which were successfully completed late last year. Commercial production completions are deferred, awaiting improved natural gas prices.

Also held are conservative, income-producing, equity and trust investment income positions in other public companies which were established to increase current income from the Company’s substantial free cash balances during the current extremely low market interest rate environment.

The Company continues to monitor international oil and gas tender offerings in regions where Phoenix is known and holds proprietary geological and geophysical data. Of current interest is the Phoenix participation in a late 1980s $2.7-million seismic exploration program which generated considerable technical data which is now held by Phoenix (the seismic program was financed by PetroCanada). No conclusion is now possible concerning the successful outcome, or otherwise, of Phoenix plans to participate in competitive bidding for foreign oil and gas exploration rights.

Assets (other than Cash and Equivalents)
The Company’s primary marketable equity investment positions, aside from the aggregate of publicly-traded income-producing investments disclosed in the audited 2011 consolidated Financial Statements, comprise 2,469,467 common shares in Theralase Technologies Inc. (near one-half of a Theralase share for each Phoenix share) (TSXV Symbol: TLT) and 385,729 common shares in Starrex Mining Corporation Ltd., (about 11.4% of its issued capital) (TSXV “NEX” Symbol: STX.H). Both companies are active reporting public issuers in good standing and are deemed to be related to Phoenix by virtue of common major equity positions. Management will consider the pro rata distribution of our Theralase and Starrex stakes to the then Phoenix shareholders as a condition precedent in a future transaction that may result in the change-in-control of the Company.

The interesting investment potential of the Theralase proprietary cancer therapy biotech prospects, and its long established proprietary medical laser device manufacturing and distribution business, merit the following special overview in this Phoenix MD&A.

Theralase designs, manufactures and distributes medical laser devices with unique and innovative, patented, super-pulsed, biofeedback laser technology that can be employed in a wide range of bio-stimulation and bio-destructive clinical applications, including cancer treatment. The Theralase technology platform targets several diverse healthcare sectors — firstly, for non-invasive pain management and control and for clinical therapy for neural muscular skeletal conditions, including many forms of arthritis — secondly, to bio-stimulate and accelerate wound care and healing, including bone fracture regeneration and to improve osteoarthritic conditions — and thirdly, combining photodynamic suprametallic compounds (PDCs) with the proprietary Theralase laser technology to attack, internally at depths below the skin surface, specially-targeted cancerous tumors, deleterious bacterium (the increasingly problematic “superbug” now plaguing hospital surgeries with bed sores), viruses, fat cells and smoking cessation trigger points.

The Theralase corporate website — www.THERALASE.com — provides further medical and layman particulars on their range of products, testimonials and recent constructive research developments, with special reference to small animal (rodents) pre-clinical cancer therapy trials which have been ongoing since about mid-year 2011, and final slated for completion and evaluation about mid-year 2012.

Theralase holds 100% of its manufacturing and sales distribution subsidiary — Theralase Inc. – established about 18 years ago as a medical laser device design, development, manufacturing and distribution business. Ongoing independent laboratory clinical research has also recently confirmed the significant operational safety of several proprietary PDC photodynamic compounds under assessment for the destruction of breast, prostate, brain, colon and other cancer cell lines. Importantly, the PDCs employed in these clinical trials have shown an ability to selectively target cancerous cells. Additional cancer cell lines and various bacterial species will be targeted in clinical trials to test and improve the efficacy of cell and bacterial kill employing this interesting Theralase technology.

The continuing Theralase penetration of diverse healthcare markets is driven by the inevitable progression of the developed world’s demographics. People are living longer — long enough to become afflicted by aches and pains in many body joints, as well as through the age deterioration of the body’s soft tissue, cartilage and bone structure. The healthcare sectors dealing with wound healing and bone restoration, as well as with cancer therapy, are also directly and positively driven by the worldwide aging demographic trends.

An earlier pro rata distribution of a sizeable interest in the Theralase share position held by Phoenix resulted in many of our shareholders currently holding interesting equity positions in Theralase — increasingly recognized by the financial community as a progressive emerging biotech. Theralase’s current operating sales, now returning only a modest cash flow, differentiates it from most conventional “burn-rate” biotech start-ups. A steady record of commercial medical laser device sales is being maintained — while the Company continues to support clinical research of its innovative technical/medical platform which effectively capitalizes on its proprietary laser-based technology.

Financial Condition
During the period under review (the fiscal year ending 31 December 2011) the Company’s current asset position declined to $7,578,000 from $8,100,000 at the earlier year-end largely due to changes in valuations of investment holdings. Current liabilities declined to $208,000 at the current year-end from $398,000 at the end of the prior period, largely due to the provisions for the non-cash future income tax liability of $24,000 at the end of the current year, from $224,000 the prior year. Expenditures during the current reporting period on the Company’s proprietary Hydrogen generation project has been capitalized as a longer term research and development asset. The capitalized direct expenditures on the Hydrogen project to the end of the period under review now aggregates over $1,347,000.

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