As filed with the Securities and Exchange Commission on April 2, 2001

Commission file number:  0-24027

Registrant's telephone number, including area code:   (403) 264-7020

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common stock, par value $0.001 per share.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes      No   

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this Chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   

The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 29, 2001 was approximately $13,660,000 based upon the closing price per share of the registrant's common stock of $3.125 on that date.

The number of shares outstanding of the registrant's common stock as of March 29, 2001:  13,112,116 shares.

Information required by Part III (Items 10, 11, 12 and 13) is incorporated into this annual report by reference to the registrant's definitive proxy statement to be disseminated in advance of its annual meeting of stockholders to be held later in fiscal 2001.

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The information set forth in Item 1 of this annual report, captioned "Business," is current as of March 29, 2001, unless an earlier or later date is indicated in that section. The information set forth in the sections of this annual report other than Item 1 is current as of December 31, 2000, unless an earlier or later date is indicated in those sections.

All references to "dollars" in this annual report refer to United States or U.S. dollars unless specific reference is made to Canadian or Cdn. dollars. For information relative to rates of exchange and currency conversion, see note 2(m)  to our consolidated financial statements.

Energy Exploration Technologies ("we," "our company" or "NXT") is a technology-based reconnaissance exploration company which utilizes our proprietary, quantum physics-based, stress field detection or "SFD" remote-sensing airborne survey technology to quickly and inexpensively identify and high-grade oil and natural gas prospects. We are a publicly traded company whose common stock trades over-the-counter on the NASD Electronic Bulletin Board under the symbol "ENXT." Our principal executive offices are located at 840 7th Avenue S.W., Suite 700, Calgary, Alberta, Canada T2P 3G2, and our telephone number is (403) 264-7020.

We use our SFD technology to survey or reconnoiter large exploration areas from our survey aircraft at speeds of approximately 200 mph to identify and "high-grade" leads for further evaluation and potential drilling. Our SFD technology is a recently developed technology which we adapted for airborne survey operations and field tested for independent geologists and our joint venture partners during 1996 and 1997. We commenced SFD survey activities on a full commercial basis for our joint venture partners in 1998.

Our SFD technology affords us the relatively inexpensive ability to obtain near real-time analysis and interpretation of potential hydrocarbon accumulations in a matter of days or weeks, as compared to months and in some situations years in the case of the seismic methods currently employed by the oil and gas exploration industry for wide area exploration or reconnaissance. These cost and time advantages will ultimately enable us to effectuate potentially significant reductions in oil and gas exploration "finding costs." Finding costs include the cumulative costs of acquiring seismic, purchasing mineral rights, and drilling and completing exploration wells. The ability to reduce finding costs is an extremely important financial benchmark in the oil and gas industry, insofar as low finding costs represent a measure of an oil and gas company's ability to effectively and efficiently find new reserves and to generate cash flow.

We conduct our SFD reconnaissance exploration activities, as well as land acquisition, drilling, completion and production activities to exploit prospects identified using our SFD technology, through two wholly-owned operating subsidiaries: NXT Energy USA Inc. which focuses on United States-based exploration principally on behalf of our United States-based joint venture; and NXT Energy Canada Inc. which focuses on Canadian-based exploration on behalf of our Canadian-based joint ventures and for our own account. All reconnaissance exploration activities are conducted by NXT Energy USA and NXT Energy Canada using NXT-owned aircraft operated by our two wholly-owned aviation operation subsidiaries, NXT Aero USA Inc. and NXT Aero Canada Inc. NXT, in turn, concentrates on research and development efforts to improve the efficacy of our SFD survey system.

We were initially incorporated in Nevada on September 27, 1994 under the name "Auric Mining Corporation." In January 1996, we acquired all of the common stock of NXT Energy USA (then known as Pinnacle Oil Inc.) from its stockholders in exchange for our common stock. As consequence of this reverse acquisition, NXT Energy USA became our wholly-owned subsidiary and its stockholders acquired a 92% controlling interest in our common stock. Prior to this transaction we were a corporate shell conducting no active business, and NXT Energy USA was a development stage research and development enterprise holding world-wide rights to use what is now our SFD technology for hydrocarbon exploration purposes. Immediately after this transaction we changed our name to "Pinnacle Oil International, Inc," and subsequent to that, on June 13, 2000, changed our name to Energy Exploration Technologies.

Our corporate objective is to become an industry leader in technology-driven oil and gas exploration. Utilizing our unique and exclusive SFD technology, we believe we can provide competitive advantages to our joint venture partners not seen in the exploration business.

Our primary objective at this stage of our development is to continue to statistically demonstrate and prove-out the efficacy of our SFD technology through the drill-bit on an appropriate number of representative prospects. Only by so proving our SFD technology to oil & gas industry explorationists-who are traditionally conservative, cautious and skeptical of new technologies-will we be able to achieve the industry market acceptance, and resultant access to the large amounts of capital to fund the exploration, land acquisition and drilling efforts, that will be necessary to fully exploit the commercial potential of our SFD technology.

Since September 1999 NXT has either participated with our joint venture partners in or carry a non-participatory interest in eighteen exploratory wells concentrated in two geographic regions, southwestern Wyoming and southern Alberta. The results of these drilling efforts have been mixed. The limited drilling results to date appear to validate the effectiveness of our SFD technology insofar as most of the wells drilled have encountered hydrocarbon bearing formations, although the utility of these results in empirically validating the SFD are complicated by a number of factors relating to play selection, such as the low porosity or tight sands. The wells have not, however, been demonstrated to date as satisfactory commercial successes to date for a variety of reasons. With respect to southwestern Wyoming, a number of drilled and cased wells have not yet been tied into gas pipelines, and a number of other drilled wells have not been completed, due to cost and distance factors. Moreover, a number of other prospects in this locale have not been developed due to environmental considerations. In the case of southern Alberta, while a number of our drilling efforts encountered commercial zones, these zones are in shallower horizons which NXT has been excluded from participating in pursuant to the terms of underlying drilling contracts entered into by our joint venture partners.

An additional factor that has adversely affected NXT's ability to prove-out our SFD technology through the drill bit has been the unprecedented drop and then unprecedented rise in oil and natural gas prices, and the adverse impact of those changes on our exploration programs. Specifically, during 1998, when oil prices dropped to historical lows, our joint venture partners were extremely cautious in acquiring land positions and commencing drilling projects due to poor drilling economics, notwithstanding the availability of land at low prices. Thereafter, during the period beginning in mid-1999 and continuing until today, land acquisition prices have rapidly increased to unprecedented levels as a result of the increase of oil and natural gas prices to historical highs. While our joint venture partners increased their activity level as a consequence of the better drilling economics attendant to higher oil and natural gas prices, their efforts to acquire drilling rights for many favorable SFD-qualified locations have been frustrated as a consequence of the intense competition and extraordinarily high prices required to acquire those rights. NXT and its joint venture partners have each, for instance, made lease bids they believed to be sufficiently aggressive in a number of areas defined by our SFD technology, but lost out to the successful bidder by factors ranging from 2X to 10X. As a result, we have not had the volume of drilling results we had hoped for over the past 18 months and, equally important, have been unable to acquire drilling rights for a number of our best SFD-qualified prospects.

A third factor is play selection. Decisions under our joint venture agreements relative to which areas to explore, which plays to drill, and which drilled wells to complete and tie-in are dependent upon the decisions of our joint venture partners, and in many cases revolve around geological/geophysical or economic considerations that are not necessarily coincident with NXT's primary objective for the test well to be a true and unambiguous test of our SFD technology. For example, a number of wells in which we have participated to date have been drilled at locations outside the optimum area selected by our SFD technology as the best location for a number of reasons. In some of these cases there was no choice as we were required to participate in a well with a third party to earn into the prospect. In other cases the decision was made based strictly upon geological or geophysical considerations factors unrelated to our SFD data. As alluded to above, some of the locations drilled were unconventional and technically difficult plays due to low porosity, while in other locations shallower producing zones were excluded as a condition to drilling the location.

Finally, the exploration and drilling process is, by definition, an expensive, time-consuming, complicated and risky process, even with the advantages afforded by our SFD technology. Also, while we believe we have taken great strides in developing our SFD technology, it nevertheless still remains in its infancy as a predictive tool, and further development is required with respect to improving the operational performance and abilities of the technology itself and the quality of the SFD data generated, as well as advancing the process of interpreting SFD data, in order to achieve the commercial potential of our technology. As such, advancements in both the operation of the technology and the interpretive process will be analogous to the development of seismic as a geophysical data acquisition and interpretation technique. These advances will only be achieved by further research and development efforts toward improving our SFD technology, and additional hands-on experience by our geological and geophysical staff in interpreting SFD data under a much wider variety of geological, geophysical and operational circumstances, and the development of detailed statistical databases of these results in order to identify trends and performance criteria and to otherwise quantify the interpretation process. For these reasons our joint venture partners, who are responsible for contributing the bulk of funds for the exploration, land acquisition and drilling operations under our joint venture agreements, have been extremely cautious in testing the technology through the drill-bit. These partners have also indicated, in view of the drilling results to date, that they will continue to be very cautious going forward pending further developments.

Based upon our recent experience, we now believe that the most effective strategy to attain our primary objective in proving out our SFD technology is twofold, as follows:

• first, in order to continue to prove-out our technology through the drill bit, NXT will:

• continue to acquire and develop prospects on a joint working interest basis with our joint venture partners in the same manner as we have previously done, and

• concurrently with developing projects under our joint venture agreements, take the lead in selected circumstances in controlling the direction and timing of the exploration, land acquisition and development process in order to accelerate the proving-out process; and

• second, NXT will focus on developing detailed statistical databases of SFD survey results in order to identify trends and performance criteria and to otherwise qualify the interpretation process, which will afford both present and prospective joint venture or drilling partners with more objective empirical information on the operational abilities of our SFD technology.

By taking control of the exploration, land acquisition and development process under selected circumstances as discussed above, NXT will attempt to ensure that the following objectives, which we consider to be lessons learned over the past year, are appropriately addressed:

• We focus our drilling efforts on areas we believe represent true and unambiguous tests of our SFD technology.

• We test our SFD technology in an appropriate number of varying play concepts.  Like seismic, our SFD technology will work for some play types better than for others. For example, we have not yet tested our SFD technology in many of the more conventional plays in the United States and Western Canada.

• We concentrate, at least in the short term, on prospects that can easily be imaged with conventional seismic data in order to ensure that we have a high degree of confidence in our drill sites.

• We expeditiously pursue seismic, land acquisition and drilling operations to prove-out prospects when we believe the circumstances to be warranted.

• We focus our exploration efforts on areas in which we believe we will have a reasonable opportunity to also focus our exploration efforts on areas which we believe prospectively contain subsurface structures and other features indicative of large hydrocarbon accumulations which our SFD technology has previously demonstrated to be particularly adept at locating.  By way of example, we believe that our SFD technology is particularly adept at finding basement structures and pinnacle reefs-small structures that are very difficult to locate due to their very small areal extent but which can be very prolific producers due to their depth and trapping mechanism.

• We avoid exploration areas where we cannot acquire all production zones.  This is an issue because our SFD technology cannot to date determine the depth of subsurface structures or other potential hydrocarbon-bearing features with a sufficient degree of accuracy. For instance, our exploration efforts in southern Alberta to date have focused on finding deep pools in areas known to contain gas in shallower zones which the land holder reserved and carved out from the farm-out agreement. While our exploration efforts sometimes indicated the existence of hydrocarbons signals, we were unsure if they were in shallow or deeper zones. Our drilling efforts on these prospects resulted in commercial quantities of gas in the reserved shallower zones in some cases; while gas or oil discovered in the deeper zones occurred in marginal commercial quantities due to permeability and porosity issues. While our SFD technology is arguably successful in identifying this shallow gas, it is not a commercial success since we are not entitled to any share of production from these shallower zones.

• We also avoid exploration areas with inherent technical difficulties of a nature our SFD technology cannot currently satisfactorily address.  Our SFD technology cannot to date determine whether reservoirs or sands containing SFD-identified prospects have sufficient permeability and porosity to enable any hydrocarbon accumulations to be extracted in commercial quantities. By way of example, our exploration efforts in Wyoming to date have principally focused on delineating over-pressurized gas sands well-known for their low permeability and porosity. Even though we have been technically successful in locating these types of accumulations, the tight sands make it difficult to extract the gas. As a consequence, new and expensive fracing techniques may be required, or drilling efforts may be limited to locations identified by 3D seismic to contain fractures or micro-faults. Development of these types of accumulations have been delayed pending resolution of these issues.

This evolution in our business strategy to lead and take control of the exploration process in selected circumstances is a new development, as NXT has only recently put into place the geophysical staff necessary to augment our geological staff in order to properly evaluate prospects for acquisition and drilling. The major consideration in pursuing this revised strategy as compared to the previous strategy of letting our joint venture partners determine all exploration, land acquisition and drilling strategies is the perceived need to participate in both seismic and land acquisition costs. In the past we generally participated with our joint venture partners on a 22.5% and 77.5% working interest split, but without any obligation to participate in seismic costs. We will endeavor to continue to participate with our joint venture partners on the same basis, although our interest will likely be increased to 50% on some of the prospects we will control, and we may share seismic costs on the same basis on selected prospects. Once we have acquired drilling rights, actual drilling, production and marketing activities would be conducted by our joint venture partners or through contracted third parties.

It should be noted that prospects that are confirmed through exploratory drilling as containing commercial quantities of oil and gas may become immediately marketable based on the size of the estimated reserves. It is therefore not necessary to actually place production wells on-line to recognize some value of these reserves, and we may consider selling the reserves and associated drilling rights to third parties based upon a discounted cash flow formula derived from estimated reserves and other production and market factors. We also anticipate that we will have the similar ability, once our SFD technology is more widely demonstrated, to sell SFD prospects on the market, even if exploratory wells have not been drilled. We have, in fact, set up a mechanism under our joint venture agreements to dispose of lower-ranked SFD prospects which may have commercial value.

Due to the nature and early stage of development of our SFD technology and also due to the practices of the oil and gas industry and its experience and attitudes toward new and unproven technologies, the only practical way for NXT to further demonstrate our SFD technology, achieve industry acceptance and to generate revenues and profits is to participate in drilling projects either through our joint-venture partners or on our own account. We believe that we would need to participate in a minimum of 30 prospects in order to statistically prove-out the efficacy of our SFD technology. Since costs to acquire or conduct ancillary seismic, to acquire drilling rights, and to drill, case and complete wells and to tie-them into sales or gathering systems, are very expensive and can easily exceed $1 million per well, the overall cost to prove-out our SFD technology over at least 30 prospects will be fairly high and will require significant capital resources, particularly if NXT as opposed to our joint venture or other drilling partners is required to bear a significant portion or all of these costs. You should read that section of this annual report captioned "Management's Discussion And Analysis Of Financial Condition And Results Of Operations-Liquidity And Capital Resources-Capital Requirements Going Forward," for further information relating to NXT's current capital resources and the amount of funds it will require in order to facilitate our proposed fiscal 2001 drilling program.

Our United States exploration efforts to date have been focused on the Greater Green River Basin in Wyoming and the Williston Basin in North Dakota. These exploration activities have been conducted under a joint exploration and development agreement with CamWest Exploration LLC, a Colorado-based exploration company. Under this agreement we conduct aerial surveys to identify prospects in exploration areas in the United States selected by CamWest.

Our Canadian exploration efforts to date have been focused on southern and central Alberta. The majority of these exploration activities have been conducted under an exploration joint venture agreement with Encal Energy Ltd., a Calgary-based exploration and production company. Under this agreement we conduct aerial surveys to identify prospects in exploration areas in Canada selected by Encal.

Over the past year we also demonstrated our SFD technology in parts of central and northwestern Alberta and northeastern British Columbia for two prospective joint venture partners, pursuant to agreements whereby they would pay all of our aerial surveys costs. We have reached material agreement with the first joint venture partner, a small independent public Canadian exploration company which has formally accepted nine prospects for development, and anticipate the joint venture agreement will be finalized and signed in the near future. The second prospective joint venture partner, a large independent public Canadian exploration company, declined to participate further pending additional statistical and drilling verification. We are currently in negotiations with a third prospective joint-venture partner, a small private independent Canadian exploration company, relative to conducting surveys in two basins in eastern Canada.

We have also conducted exploration, seismic and land acquisition activities in western Canada on a limited basis for our own account over the past one and one-half years, and recently accelerated this process. We anticipate developing these prospects through a joint venture with one of our Canadian joint venture partners.

From the inception of our commercial airborne survey activities in mid-1997 through the date of this annual report, we have flown over:

• 166 surveys in 20 exploration areas in the United States and Canada for our joint-venture partners and, based upon our analysis and interpretation of SFD data acquired during these flights, tendered to those partners 155 prospects in these areas which we believe to have commercial potential, and

• 31 surveys in three exploration areas for our own account, and identified 12 prospects in these areas which we believe to have commercial potential.

Of the 155 prospects we have tendered to our current joint venture partners:

• Eleven prospects have been accepted by our joint venture partners for acquisition and drilling upon completion of their geological and geophysical evaluation;

• 21 prospects have been designated as "key tracts" by our joint venture partners for future drilling based upon long-term considerations such as land availability;

• 64 prospects have been rejected by our joint venture partners and have either reverted to NXT for our own account or will be jointly exploited by NXT and the joint venture partner pursuant to the terms of the joint venture agreement; and

• the balance of the tendered prospects remain subject to acceptance pending completion of geological and geophysical evaluation, land acquisition or other considerations.

Of the 12 prospects we have identified for our own account, we have entered into stand-alone agreements with our partners to acquire and develop one of these prospects. We are currently advancing the balance of these prospects using available seismic to help market these opportunities either to existing partners or industry participants.

The joint venture agreements we have entered into with CamWest and Encal generally entitle us to elect to receive either a capital investment and generally risk-free overriding royalty of 5% to 8% of oil or natural gas revenues received by the joint venture partner with respect to the prospect, or a working interest of up to 45% of the joint venture partner's net revenues with respect to the prospect. In any situation where we elect to receive this royalty, our joint venture partner will be responsible, at its own cost and risk, to acquire the necessary drilling rights and to acquire or conduct the necessary seismic for the prospect if it has not already done so, and to conduct all drilling, production and marketing activities necessary to exploit the prospect. In any situation where we elect to participate on a working interest basis, we must bear our share of the acquisition of mineral and drilling rights (if necessary), drilling and production costs incurred with respect to the prospect based upon our working interest percentage. Although we will bear our share of these costs, our joint venture partner will nevertheless remain responsible for acquiring or conducting all seismic and conducting and managing all drilling, production and marketing activities to exploit the prospect. Our joint venture partners are also required under the terms of their joint venture agreements to reimburse us for 100% of the expenses we incur in conducting aerial surveys for that partner.

Our recent practice with our joint venture partners has been to participate in selected prospects on a combination working interest/overriding royalty interest basis, typically a 22.5 working interest and a 4% overriding royalty. However, as previously discussed, NXT has recently evolved our business strategy to lead and take control of the exploration process in selected circumstances with respect to prospects we acquire for our own account. The major consideration in pursuing this revised strategy as compared to the previous strategy of letting our joint venture partners determine all exploration, land acquisition and drilling strategies is the need to participate in both seismic and land acquisition costs. In the past we generally participated with our joint venture partners on a 22.5% to 77.5% working interest basis, but without any obligation to participate in seismic costs. With respect to prospects we acquire for our own account we will endeavor to continue to participate with our joint venture partners on the same basis, although our interest will likely be increased to 50% on many of the prospects we will control, and we will share seismic costs on the same basis. In either case we will continue to earn a gross overriding royalty on production revenues. Once we have acquired drilling rights, actual drilling, production and marketing activities would be conducted by our joint venture partners or through contracted third parties. For further information regarding our joint venture partners and joint venture agreements, see "-Joint Venture Partners And Arrangements."

The status of our current drilling and completion activities as of the date of this report is as follows:

Our U.S. joint venture partner, CamWest, has drilled or participated in seven wells to date in the Green River Basin in southwestern Wyoming on three separate prospects-the Poblano/Juel Springs block, Gold Coast and Leucite Hills South. The Green River Basin is well-known for containing natural gas in marginally permeable tight sands, which ultimately makes extraction of gas in commercial quantities very difficult. Six of these wells (Poblano/Juel Springs and Gold Coast) targeted unconventional deep over-pressured gas sands, while the remaining well (Leucite Hills South) targeted conventional shallow gas sands.

• Poblano/Juel Springs-We elected through NXT Energy USA to participate on a working interest basis with CamWest in drilling exploration wells on two contiguous ten square mile prospects-Poblano, which is located approximately eight miles southeast of the giant multi-TCF Jonah field; and Juel Springs, which adjoins Poblano to the south. CamWest has since drilled three deep wells at Poblano, while a third-party operator drilled a fourth deep well at Juel Springs. As a consequence of our elections under our joint venture agreement, we acquired a combination 16.875% overall working interest and a 2.49% net overriding royalty interest on the Poblano exploration block, and a combination 5.625% overall working interest and a 0.8% overall net overriding royalty interest on the Juel Springs exploration block.

All four wells drilled to date encountered over-pressured gas sands at depths to 13,300 feet that have very low permeability. Two wells-one each at Poblano and Juel Springs-were subsequently cased and completed as marginal gas producers based upon $2 per mmcf/d gas prices. The well completed at Poblano tested rates as high as 1.2 to 2.4 mcf/d, although a stabilized flow was not achieved due to production of extraneous water. While pressure gradients at our Poblano wells (approximately 0.70 psi/ft) appear to be higher than those typically found at Jonah (approximately 0.53 psi/ft), the overall quality of the Poblano reservoirs in terms of porosity and permeability appear to be slightly lower. The Juel Springs well also encountered higher than normal pressure gradients. The Poblano/Juel Springs pools are capable of producing from the Mesa Verde formation, a deeper interval than the producing Lance formation at Jonah.

Based upon the similarities between  Poblano and Jonah reservoir characteristics, CamWest has decided to follow the approach successfully used to develop Jonah. Specifically, we believe that the large increases in commercial production rates at Jonah over the past several years, ranging from an average of approximately one to two mmcf/d per new well at the commencement of development in 1994 to approximately five to six mmcf/d per new well today, can be primarily attributed to a strategy of selecting drilling locations through the identification of natural micro-fracturing of the productive reservoirs as identified from analysis of 3D seismic in conjunction with infill drilling results. In furtherance of this belief, CamWest decided in late summer to participate in a 144 square mile 3D seismic program, which we hope will enable it to delineate the fault and micro-fracture patterns propagated in Poblano's gas-charged reservoirs, as well as information regarding several other SFD prospects in the surrounding area. We believe that Poblano will have the potential, if satisfactory information is acquired through this pending seismic program, to also deliver commercial production results on a well by well basis.

Pending the completion and evaluation of the 3D seismic program, CamWest decided for cost considerations to delay the completion of the second and third wells it drilled on Poblano and the construction of a twelve-mile pipeline to tie all three wells into the Jonah gas gathering system that it had previously planned for the third quarter of fiscal 2000. Given the scope and complexity of the 3D seismic program, the relatively high costs to drill and complete wells due to the depth of the Mesa Verde group, and the possible need to utilize relatively new and expensive fracing techniques specific to that formation, we anticipate that the decision to continue development of this field will be not be made by CamWest until mid-to-late 2001 at the earliest. We have not ascertained the potential estimated or proven reserves of the reservoirs at the Poblano/Juel Springs block.

• Gold Coast-We elected through NXT Energy USA to participate on a working interest basis with CamWest in drilling an exploration well on this 40,000-acre exploration block. Pursuant to our election under our joint venture agreement, we acquired a combination 14.875% overall working interest and a 2.1% overall net overriding royalty interest on the overall exploration block. CamWest has since drilled two deep wells to date at this prospect. The first well encountered a thick gas and condensate saturated sand section in the intermediate Blair section that resulted in a 25-foot gas flare at surface during drilling operations. Unfortunately, CamWest was forced to junk and abandon this well without drilling to the deeper formation after the intermediate casing collapsed. A replacement well drilled one-half mile east of the original test well did not encounter the quality of sand and shows encountered in the Blair in the initial well. The deeper Muddy sand was also poorly developed, and despite gas shows from fractured intervals this well has been temporarily abandoned. The evaluation of these drilling results and determination of future development activities is pending a number of considerations, including further seismic delineation of the area and the release of adjacent lands for drilling as the result of a pending environmental assessment by the Bureau of Land Management.

• Leucite Hills South-We elected through NXT Energy USA to participate on a working interest basis with CamWest in drilling an exploration well on this ten square mile prospect. In order to acquire drilling rights for this prospect-a conventional shallow sand play-and to earn the right to drill our most prospective location, the owner of the mineral rights required CamWest to farm-in on a test well to be drilled by the owner as operator in a location approximately one mile to the south of our recommended SFD prospect. This well was drilled, cased and completed as a 200 mcf/d gas test. The operator will tie the well into a proposed gathering system when additional area production warrants. No additional exploratory or step-out wells have been scheduled for drilling at this location to date. While NXT did not conduct extensive SFD surveys over the drilling location in this original earning section, the operator had 3D seismic data over the area which indicated a reasonable chance of success, and the participation in that well therefore appeared warranted in order to earn the right to drill on our preferred location. As a consequence of the farm-in, we acquired a combination 11.25% overall working interest and a 1.6% overall net overriding royalty interest in that section.

Since the drilling of the first test well, the operator has attempted to obtain a permit to drill a vertical test well on our recommended SFD prospect, however, the Bureau of Land Management has declined to grant the permit due to rugged surface geography. The operator continues to negotiate with the BLM with respect to this matter. If the BLM does not ultimately approve a vertical well, the operator would most likely have to drill a more expensive directional well to access the area. It should be noted that the operator now has reprocessed 3D seismic which infers enhanced porosity and permeability in the portion of the prospect recommended by NXT as compared to the location of the test well.

Encal has drilled or participated or holds an interest in eleven wells drilled to date in Southern Alberta on four separate prospect areas-Monarch, the Dalroy/Irricana block, Carbon and Parflesh. Monarch is located near Lethbridge, while the Dalroy/Irricana block, Carbon and Parflesh are all located in the same general area east of Calgary, Alberta, on lands held by a common mineral owner. As a condition to allowing Encal to drill test wells on its properties, the common mineral owner expressly excluded rights to all shallow gas on these three prospects under the terms of the farm in agreement.

• Monarch-We acquired through NXT Energy Canada a combination 22.5% overall working interest and a 3.1% overall net overriding royalty interest on lands acquired by Encal in this exploration block under our joint venture agreement. Encal's initial exploratory well has been cased and completed, and tested commercial quantities of gas. A second well was recently drilled on this block by a third party operator after NXT and Encal farmed-out their interests. This well has been cased and will be completed by that operator after spring break-up. This well, if successful, could justify building a gathering system into the area picking-up our first well. The potential estimated or proven reserves of these reservoirs have not been ascertained.

• Dalroy/Irricana Block-We have participated with Encal through NXT Energy Canada in six wells it has drilled on this block, at working interests rates varying from 22.5% to 3% under our joint venture agreement. We also acquired a gross-overriding royalty position on a seventh well drilled by Encal in which we elected not to participate. This play was targeted by Encal for the purpose of testing whether our SFD technology and seismic could image the stratigraphically trapped Crossfield member of the Wabamun formation. All seven wells were drilled with the assistance of geological mapping together with high-resolution 2D and 3D seismic and extensive geophysical modeling of the Crossfield reservoir.

Five of the wells encountered one or more commercial shallow gas reservoirs that were excluded from our earning under the terms of the farm in agreement with the mineral rights holder. Three of the wells, including two horizontal wells, were cased for potential gas production from the deeper Crossfield zone and suspended pending further completion activity by Encal. The Crossfield zone in each of these wells encountered uncommercial heavy oil with traces of natural gas. This condition is quite unexpected in this zone and is well beyond the resolution of both the SFD and 3D seismic. A fourth well intercepted a usually productive BQ channel; however, the channel was found to be shale filled and the well was abandoned after examining the initial well data. A fifth well encountered uncommercial gas and was abandoned, while a sixth well encountered gas and has been completed and is on production test. Encal also drilled a seventh well on the block in which NXT elected not participate, which also encountered uncommercial heavy oil and abandoned.

• Carbon-Through NXT Energy Canada we acquired a 2.5% overall net overriding royalty interest on lands acquired by Encal in this exploration block under our joint venture agreement. Encal drilled, cased and completed an initial exploratory well as a natural gas discovery, and has suspended that well pending further completion activity. The potential estimated or proven reserves of the reservoir has not been ascertained.

• Parflesh-This play was selected by Encal to test a deep structural change identified by the SFD in the area, which 3D seismic indicated could be a thick Mississippian section. The Mississippian zone, when drilled, was determined to be impermeable, and Encal abandoned the well.

'Quantum theory' incorporates two bodies of physics¾ 'quantum mechanics,' which deals with wave¾ particle duality, superposition principle, uncertainty principle, wave function and probabilities; and 'special relativity' which examines the effects of space-time geometry and the relativity of motion. Traditional physics, known as ' classical theory,' cannot account for the structure and behavior of elementary particles, such as, for example, the lattice-vibration effects that arise from electrons colliding with atoms. In contrast, quantum theory is successful in dealing with these phenomena. It describes matter and energy interactions in the universe in terms of single indivisible units called 'quanta,' or in the singular 'quantum.'

According to the 'standard model' of quantum theory, which summarizes current understanding of elementary particles and the fundamental forces of nature, 'fields' are the basic make-up of the universe. Therefore, each elementary particle has an associated field with it. Little ripples in these fields carry information, energy and momentum from one area or particle to another.

Quantum theory describes matter as both waves and as particles. A direct consequence of the wave-particle duality is the 'uncertainty principle' advanced by Heisenberg. According to this principle, particles do not have definite locations, speeds, and paths as usually described by classical physics. Instead, quantum theory describes positions and other properties of particles in terms of the incidental events where the property will have a certain value. The way a quantum object behaves is defined by its 'wave function' developed by Schrödinger, allowing us to compute the 'probability' that certain events will be observed. Everything in quantum theory is based on probability. This simply means that one cannot predict an event definitely but can estimate the probability for the event to occur.

In spite of its success, there are situations where quantum theory is insufficient to give proper explanation. Under the umbrella of quantum theory, three fundamental forces-'electromagnetic,' 'weak,' and 'strong'-are successfully unified. However, it cannot adequately incorporate the fourth force, 'gravitation.' None of the branches of quantum theory can account for the discrepancies in masses of elementary particles. To address this issue, Higgs proposed a mechanism-known as 'massive gauge bosons'-by which particles acquire mass without breaking the symmetry laws of modern physics. 'Higgs bosons' have no intrinsic spin or electric charge and cannot be distinguished from empty space or vacuum. It is now proposed by physicists that the all-pervading Higgs scalar fields homogenize space and give rise to as many particles as there are many special scalar fields. In support, Peccei-Quinn symmetry and String theory predict the existence of 'composite scalar fields' that are massless at high energies. Presently, physicists are working on proving the existence of these complex scalar fields. They forecast a number of individual and composite Higgs fields and torsion fields, the latter of which relates to the quantum spin of empty space or vacuum. These issues have ramifications in our theoretical discussions with respect to the operation of our SFD technology and we interpret the role of Higgs fields as being direct and relevant.

On a global and basinal scale, the earth's crust is under variable stress resulting from crustal plate (tectonic) movements that produce subsurface mechanical interactions. Mechanical stress is manifest in the macroscopic deformation of buried sediments and rock strata, the microscopic deformation of their constituent minerals, and ultimately on the subatomic level. It is well known that electrical energy balance in a crystal lattice is maintained by the alternation of equal and opposite charges. However, when the crystal lattice of a material, for example quartz, is suddenly subjected to stress, electromagnetic radiation will be emitted. Under sustained localized stress conditions, we believe that 'scalar energy fields' are also generated or modified at a quantum level. The word 'scalar' in its basic form means that the field carries magnitude but not direction, unlike vector fields resulting from conventional electromagnetic fields that carry both magnitude and direction. The generated or modified scalar energy fields are non-electromagnetic in nature, and we believe are related to Higgs and torsion fields.

We also believe that our SFD sensors act as non-linear 'chaotic' devices. Chaos theory characterizes chaotic devices as behaving in a complex manner, despite the fact that they can be described quite simply. By definition, these systems exhibit unpredictable dynamics that are sensitive to their initial conditions. Chaotic systems are mathematically deterministic-that is, they follow precise laws, but their irregular behavior can appear random to the casual observer. The response of our device to a phenomenon may diverge exponentially and much faster than that of a slower linear system. Once a response to a phenomenon is initiated, it will proceed until saturation or occurrence of the next phenomenon. Even though, within the confinement of the inherent restrictions of quantum mechanics, the number of possibilities of reacting to the same stimulus is deterministic, the device still behaves irregularly. Nevertheless, by cycling about an optimum function point, the behavior of a quantum device can achieve some stability in a way that never quite repeats itself.

Sustained geological stress will lead to the development of new conditions manifested in scalar energy fields of different origin that are related to Higgs and torsion fields. We postulate that the fields generated or modified are due to complex variations in quantum vibrations and vacuum interactions. These fields carry information, momentum and, in some cases, substantial energy. Although these energy fields appear scalar in nature, they can in effect act as vector fields under certain conditions.

When scalar energy fields interact with subsurface phenomenon they develop a variety of energy vortices. These vortices may dynamically increase and decrease in magnitude, and when traversed they significantly affect the quantum interactions in our SFD sensor. Based upon the high correlation of SFD responses to known oil and gas fields across North America which we have determined from several thousand surveys, it appears that these vortices are associated with 'mechanical' and 'hydraulic' stresses which we believe to be related to geologic structures and hydrocarbon accumulations.

Subsurface mechanical stresses are caused by directional tectonic forces that disrupt the stress and pressure equilibrium in buried strata. Sedimentary basins consisting of relatively undisturbed flat-lying or gently dipping sediments or sedimentary rock generally maintain a balanced pressure equilibrium and therefore exhibit low constant stress. Where tectonic forces have compressed, folded, faulted, or fractured the sedimentary package, a balanced mechanical equilibrium is not maintained, and these areas exhibit stresses in one or more directions depending upon the geology and the geometry of the deformation. In other areas where the regional strata is characterized by non-uniform geologic layering, particularly areas containing abrupt stratigraphic inhomogeneities such as buried reefs, channels and erosional edges, these appear to exhibit higher residual stress than the encompassing regional strata.

Subsurface hydraulic stresses are caused by the presence of fluids (liquids and gases), such as water, oil and natural gas, within the strata and, more particularly, the inherent and directional pressures resulting from the relative buoyancy of the fluids. A simple illustration of buoyancy is the effect of submerging a beach ball in a swimming pool. When a beach ball is submerged it attempts to rise to the top of the pool because the air in the beach ball is less dense than the surrounding water. This upward pressure, which displaces the water above the beach ball as it rises to the surface, is called buoyancy. Oil and gas exhibit the same properties when formed underground-they will percolate upwards through the strata by way of fractures or permeable strata until they either reach the surface or are stopped or "trapped" by a non-porous barrier, in which case they will continue to exert pressure against the trapping barrier.

While the response of our SFD sensor to known structurally trapped accumulations is more readily demonstrated, responses to stratigraphically trapped accumulations has lead us to infer that a hydraulic component of stress exists in certain trapping conditions. As a consequence, our SFD technology has practical applications as an oil and gas finding tool.

Our SFD technology is comprised of the following components, which we collectively refer to as our "SFD survey system," used for the following functions:

• Stress Field Detector-the stress field detector or "SFD" is a unit which houses the principal component of our technology-the SFD sensor-which, as discussed above, is a passive transducer which interacts with energy fields created by subsurface stresses as our aircraft overflies those areas and registers that interaction in the form of digitalized electronic signals. When NXT conducts SFD surveys we use an SFD unit incorporating four interchangeable SFD sensors, which allows us to collect four sets of SFD signals. The ability to collect data from multiple SFD sensors is important for several reasons. First, it facilitates repeatability and signal verification, and cuts down on the need for additional SFD survey flights. Second, we use several different SFD sensor designs which allows us to collect different qualitative information. For example, one design of SFD sensor appears to better identify anomalies associated with subsurface structures, while another design appears to offer more information concerning faults. Finally, the SFD sensors are extremely sensitive devices, and the operational ability of any one sensor while on an SFD survey flight may be adversely impacted by a number of factors, including turbulence, the turning motion and angle of the aircraft, signal saturation or over-load, and in some cases mere age.

All SFD sensors and the SFD unit and housing into which they are incorporated and contained are custom designed, fabricated and assembled in-house by our SFD research & development team, using micro-machined parts milled to specification in-house by our machinist. Our SFD research & development team is constantly experimenting with new configurations and materials in order to improve SFD sensor performance and reliability. One of the current projects of our research & development team is to expand the SFD unit to an eight SFD sensor array while further reducing the size of the entire unit.

• Data Acquisition System-used in conjunction with the SFD unit on surveys, our data acquisition system is a compact, portable military-grade computer system which concurrently acquires the four electronic digital signals from the SFD unit in two different data formats per signal set, marks each of the eight signal sets with their geographic location using global positioning satellite or "GPS" coordinates, and then stores this information for subsequent processing and interpretation at our home base. The principal characteristics of this computer system (in addition to compactness and portability) are

• durability and reliability while on field mission and in turbulent flying conditions (hence our acquisition of a military-grade computer for this function); and

• ability to process and store large amounts of data on interchangeable hard drives (we collect approximately 8 gigabytes of information per survey flight).

• Data Processing and Interpretation Systems-once returned to our home base, the SFD data collected is processed and converted into a format that can be used by our interpretive staff. At this time each set of collected electronic digital signals is converted into two separate data sets using different formats, or a total of eight sets in total. The entire process requires approximately three hours of time and 11 gigabytes of storage. All processing is performed by NXT staff using NXT's in-house computer work stations and proprietary processing software which has been developed over the past four years. Once the SFD data has been processed, our geological and geophysical staff review the data, plot the flight lines, and produce computer-generated maps using NXT's in-house computer work stations, proprietary processing software and industry standard mapping software and databases.

In operational practice, our SFD survey system is flown in our survey aircraft over pre-selected exploration areas at varying altitudes and from different directions. As the SFD sensors interact with the constantly changing stress fields as we survey, they register a multitude of responses that we record in the form of electronic digital signals that resemble waveforms, which we refer to as "SFD signals." Our proprietary data acquisition system acquires and records these signals and marks their geographic location with global positioning satellites using "GPS" coordinates. These integrated signals are now referred to as "SFD data." The SFD signals are also displayed in real time on board our survey aircraft, which allows our on-board technical crew to immediately identify areas of particular interest for further investigation.

Once SFD datasets acquired from our airborne survey operations are returned to our home offices, our geological and geophysical interpretive staff process the data, plot the flight lines, and produce computer-generated base maps. We then commence the following screening and interpretation process:

• First, we screen the SFD data for "anomalous" signals on the flight line, which we refer to as "SFD anomalies". These SFD anomalies include signals from both unknown or non-producing areas that we survey as well as signals obtained over known oil and gas pool crossings.

• Once we have identified the SFD anomalies on a given flight line, we then isolate and distinguish SFD anomalies which have signal characteristics indicative of subsurface mechanical conditions which we refer to as "structural signals," and subsurface hydraulic conditions which we refer to as "hydrocarbon signals." At this point, we contrast these new structural and hydrocarbon signals with signals found over known oil and gas accumulations in the area. This comparative process, which we discuss in greater detail below, is very similar to that used in seismic interpretation.

• Our geological team then puts each identified SFD anomaly into subsurface context using our in-house geological database. The SFD anomaly may then become a "SFD lead" should the structural and hydrocarbon signals of the SFD anomaly appear to coincide in proper geologic context. In other words we answer the question, does the anomaly make sense where it appears in the sedimentary basin? Where we have sufficiently qualified an SFD lead with further SFD data acquired from additional surveys, we reclassify the lead as a "recommended SFD prospect" and tender it to our joint venture partner for its further geological and geophysical evaluation.

In reaching its conclusion as to the coincidence of favorable geology and structural or hydrocarbon signals, our geological team will evaluate the following factors in the overall context of its understanding of the local geology:

• "Templating" Signals With Those Of Known Oil And Gas Accumulations

• Signal Characteristics

• Hydrocarbon signals directly indicate oil and gas accumulations, while the structural signals only infer oil and gas accumulations for the reasons indicated above;

• The confluence of both structural and hydrocarbon signals, when present, enhances our comfort level in a commercial trap; and

• The hydrocarbon signal alone lends itself to the potential identification of an abundant number of "stratigraphically trapped" oil and gas accumulations which are generally less susceptible to detection by seismic methods.

Once we tender a recommended SFD prospect to one of our joint venture partners, they conduct whatever conventional geological, geophysical and economic evaluations of the prospect they may deem prudent in making a decision to proceed with drilling. If the joint venture partner decides to drill a recommended SFD prospect, the prospect is characterized as an "accepted SFD prospect," in which case we make our elections relating to accepting an overriding royalty and/or participating in the drilling and production of the prospect through a working interest.

We conduct our SFD surveys at speeds of approximately 200 mph, and survey approximately 800 linear miles in a four-hour day of recording. For each day of recording, it takes our staff between one to two days of data processing and interpretation-including plotting flight routes, screening and analyzing anomalies, putting the anomalies in geologic context, and ranking the anomalies-to sufficiently identify and recommend the SFD prospects from that flight line. The actual amount of time required is ultimately determined by the following factors:

• The number and types of SFD anomalies identified on the flight line;

• The quality of the SFD data;

• The complexity of the subsurface geology under the flight line;

• The amount of available geological information; and

• The amount of SFD data available from other SFD survey flights intercepting the potential prospect.

As a consequence, we are able to record and interpret approximately 800 linear miles of SFD data acquired in one SFD survey flight over a period of only a few days at a cost of $5 to $10 per mile. By way of comparison, traditional land-based seismic crews record up to five linear miles of 2D seismic per day, depending on acquisition parameters, at a cost of approximately $5,000 to $20,000 per mile. Two or more weeks are then required to process the data, followed by another several weeks for interpretation. As a result, it can take a minimum of six months to record and interpret 1,000 linear miles of new 2D seismic data, at a total cost of $5 million to $20 million. Greatly adding to these direct seismic expenses are the obvious opportunity costs of allowing aggressive competitors with similar seismic capabilities an equal chance to image oil and gas accumulations during the same six month interpretation period. With our SFD technology, opportunity costs due to time lag are negligible.

We identify approximately twenty SFD leads on average for each four-hour day of surveying, and ultimately tender, on average, two or 10% of these leads to our joint venture partners as recommended SFD prospects for further evaluation. The SFD prospects which we tender can be pool to field-sized targets that could require two to ten wells or more to exploit depending upon accumulation. At our current projected annual rate of six to eight survey days per month for ten months of airplane availability, we anticipate we can identify 120 to 180 recommended SFD prospects per year assuming no excessive downtime. We anticipate that we will increase our monthly flying rate at some future date as we increase our efficiencies, which would result in a corresponding increase in the number of recommended SFD prospects we identify. The actual number of these recommended SFD prospects that are accepted and ultimately drilled by our joint venture partners will, however, be dependent upon any number of competitive, geological and environmental variables.

Before we tender a recommended SFD prospect to a joint venture partner, we will typically interpret two or more SFD data sets for the prospect, which requires in turn a corresponding number of SFD survey flights to acquire the data. If we are not able to acquire sufficient quality SFD data for an SFD lead from a single survey project, then we will be able in many instances to evaluate this information and tender the recommended SFD prospect to the joint venture partner in a matter of days following commencement of the interpretation process. However, in many cases we must perform additional survey flights over a target zone at a later date due to a number of factors, including delays attributable to weather, a need to acquire more definitive SFD data, and requests by the joint venture partner to further define the prospect or its surrounding area. Also, since we acquire SFD data during our entire flight rather than limiting the data acquisition process to our targeted zones, we typically encounter new SFD leads outside these zones which will require additional SFD data for their further evaluation. It may take several weeks or even months to perform follow-up surveys on these SFD leads due to impending survey and interpretation obligations to current joint venture partners, as well as weather conditions which may impede our ability to fly. We anticipate that a number of these timing issues will be addressed to the extent we are able to augment our current operational capacity with additional survey aircraft and interpretation staff.

We believe that our joint venture partners will not only be more successful in their drilling programs as a result of their reliance on our SFD technology, but also be capable of accessing superior opportunities more quickly than their competitors. However, the time it may take for a joint venture partner to get to the drilling stage of an SFD prospect can still be lengthy depending upon any number of factors, including the following:

• Regardless of the quality of SFD data we have to support our recommendation in tendering a recommended SFD prospect, it currently remains necessary where possible for our joint venture partners to conduct further geological and geophysical evaluations, including 2D or 3D seismic surveys where warranted, of each recommended SFD prospect. Because our SFD technology is a reconnaissance instrument or location-finder, this must be done to determine the optimum drilling location and potential pay zone depth where that type of information can be obtained depending upon the geological and geophysical characteristics of the prospect.

• In some cases our joint venture partners may have the ability to conduct their geologic and geophysical evaluation relatively quickly, such as in circumstances where they have or can obtain sufficient quality commercial or proprietary local seismic data. However, in many cases, particularly those where we identify promising SFD prospects outside target survey areas in which our joint venture partners already own drilling rights, local seismic data will not be existent or available. Seismic surveying, especially 3D seismic, requires governmental and environmental permits, satisfied surface land owners, and competent recording crews, among other things, and usually takes several months to acquire and process.

• If our joint venture partners do not own mineral and drilling rights to a specific prospect, they must obtain these rights in order to drill. Negotiating deals with current mineral owners can be complicated, time consuming and frustrating, particularly when the prospective mineral rights lie in a highly competitive exploration area, or are already held by an oil & gas company. Some of the factors which influence our joint venture partners' ability to acquire the mineral and drilling rights at all, or the cost they must pay to acquire these rights, include:

• whether the prospect lies in an active and competitive exploration area;

• current oil & gas prices and their perceived direction;

• the duration of the remaining term of a mineral lease;

• the size and configuration of the mineral holdings sought (contiguous land positions are more valuable and therefore more expensive to acquire than patchwork holdings); and

• the proximity of oil and gas gathering and processing infrastructure.

Also, our joint venture partners might be required, in the case of a farm-in, to first participate in the drilling of a location outside of our prospect in order to earn the right to later drill at the site of the prospect. This is done occasionally to earn valuable acreage "through the drill bit."

• When mineral rights are held by the federal or state government, or held by the Crown (Canada), these lands may be acquired by posting for sale, but remain subject to the uncertainties of the bidding or auction process, and may require a considerable lead time before being offered for bid.

We currently operate in only one business segment, oil and natural gas exploration, insofar as we intend to develop all oil and natural gas exploration prospects identified using our proprietary "SFD" remote-sensing airborne survey technology either directly for our account or indirectly for our account through working interest or overriding royalty interests through our joint venture partners. We do not currently sell or market our SFD data as a separate product to third parties. For geographical segment information, see note 15 to our consolidated financial statements included in Item 14 of this annual report.

Our Canadian joint venture partner is Encal Energy Ltd., located in Calgary, Alberta, Canada. Encal is an intermediate Canadian exploration company listed on the Toronto and New York Stock Exchanges, which has recently reached an agreement to be acquired by Calpine Corp. As of December 31, 2000, Encal had total assets of Cdn. $1.11 billion and 154.2 million boe of total proved reserves. For 2000, Encal averaged 17,934 barrels per day of oil and natural gas liquid production and 167 million cubic feet per day of natural gas production.

Our current relationship with Encal is governed by the terms of an Exploration And Joint Venture Agreement entered into in September 1997 and which, pursuant to an extension agreed upon in May 2000, expires on March  31, 2001. Discussions relating to the extension of this agreement are currently underway between NXT and Encal. The material terms of the current joint venture agreement with Encal are summarized as follows:

• NXT conducts SFD surveys on selected "exploration areas" identified by Encal of up to 2,400 square miles. Encal is required to reimburse us for all daily aircraft rental, pilot salary, food and accommodation costs we incur to conduct these surveys, up to a maximum of $5,000 per survey day. We retain the right to reject any presented exploration area for any bona fide reason, including safety or technical concerns.

• When we have completed our survey, screening and interpretation activities with respect to an exploration area, we are required to present Encal a written report listing our recommended SFD prospects and a summary of our interpretations for the flight lines within the exploration area, as well as a map of flight lines and locations of all SFD anomalies from the flight within the exploration area. We are also obligated to give Encal the opportunity to review the SFD data in our offices.

• Once we have tendered our report to Encal, it will have 90 days to conduct conventional geological and geophysical evaluation of each recommended SFD prospect tendered to it in order to determine whether it will accept the prospect for potential drilling. If Encal accepts the exploratory prospect, it will become an accepted SFD prospect. If Encal rejects the prospect, we will attempt to agree on a procedure for its joint exploitation. If we cannot reach agreement with Encal on a mechanism to exploit the prospect, it will become our exclusive property and we may deal with it in any manner we deem appropriate, subject to a two year confidentiality restriction if the prospect is located on specified Encal lands.

• If Encal elects to drill a test well on an accepted SFD prospect:

• NXT will be entitled to a 4.5% to 5% gross overriding royalty on Encal's net revenue interests on that prospect; and

• NXT can also elect a 5.625%, 11.25%, 16.875% or 22.5% working interest based on Encal's interest on that prospect, without any reduction to our gross overriding royalty. Should we elect to participate on a working interest basis, we will be obligated to bear our percentage share of Encal's land acquisition, drilling and development costs for that well, and will be entitled to receive a commensurate percentage of all revenues received by Encal after the deduction of royalties, severance taxes and production and marketing costs.

• We are obligated, whenever the number of active recommended SFD prospects is less than fifteen, to devote at least 50% of our worldwide survey capacity to identify prospects for Encal, until the amount or "inventory" of active recommended SFD prospects reaches eighteen. For purposes of the foregoing, the following exploration prospects are not included in the "inventory" of active recommended SFD prospects:

• Any recommended SFD prospect for which Encal is unable to obtain drilling rights;

• Any recommended SFD prospect on which Encal drills a test well; and

• Any recommended SFD prospect rejected by Encal.

• We have also agreed that:

• we will have no more than two additional joint venture partners in Canada, although there are no restrictions on the number of joint venture partners we may utilize outside of Canada; and

• we will not grant larger exploration areas to any other joint venture partners than those granted to Encal;

• Encal will be the operator, and will make all decisions relating to management and control for all prospects developed by the joint venture. In this regard, Encal will be responsible for

• conventional oil and gas exploration, operation, development and management of the joint venture and any of its oil and gas properties; and

• the production and marketing of any petroleum substances which are produced from the joint venture.

• Should production be processed through Encal's production facilities, we will pay Encal a reasonable proportional fee for the use of these facilities. If production is processed through a third-party's production facilities, we will be charged our portion of the actual costs for services performed.

It should be noted that as of the date of this annual report our company and Encal are not strictly following the prospect tendering and prospect evaluation time periods mandated in the Encal joint venture agreement insofar as we are currently working on the processes inherent in meeting these periods due to the evolving nature of the SFD identification and interpretation processes.

Our United States-based joint venture partner is CamWest Exploration LLC, a privately held oil and gas exploration company located in Denver, Colorado, and McKinney, Texas. CamWest is principally owned by Stephens Group, Inc., a private company headquartered in Little Rock, Arkansas, which invests primarily in energy, media, telecommunications and investment banking companies, and which has invested $8.5 million in our company through CamWest's affiliates.

Our current relationship with CamWest is governed by the terms of a Joint Exploration And Development Agreement which we entered into in April 1998, and which expires in March, 2003. This agreement was originally entered into with an affiliate of CamWest, CamWest Limited Partnership. However, CamWest Limited Partnership assigned its rights and obligations under the joint venture agreement to CamWest on January 29, 1999, in order to establish an entity dedicated solely to SFD exploration and drilling activities.

The material terms of the joint venture agreement with CamWest are as follows:

• NXT conducts SFD surveys on selected "exploration areas" in the United States or internationally outside of Canada identified by CamWest of up to 2,400 square miles, and CamWest is required to reimburse us for 100% of all daily aircraft rental, pilot salary, food and accommodation costs we incur to conduct these surveys. We retain the right to reject any presented exploration area for any bona fide reason, including safety or technical concerns.

• When we have completed our survey screening and interpretation activities with respect to an exploration area, we are required to present CamWest a written report listing our recommended SFD prospects and a summary of our interpretations for the flight lines within the exploration area, together with a map of flight lines and locations of all SFD anomalies from the flight within the exploration area.

• Once we have tendered our report to CamWest, it will have 90 days, at its sole cost, to conduct conventional geological and geophysical evaluation of each recommended SFD prospect tendered to it in order to determine whether it will drill a test well on the prospect. If CamWest decides to drill the exploratory prospect, it will become an accepted SFD prospect. If CamWest declines to drill, the prospect will be deemed rejected, in which case it will be tendered to a limited liability company which will be managed by CamWest, and owned 50% by us and 50% by CamWest, for joint exploitation.

• Once CamWest elects to drill a test well on any accepted SFD prospect, we will be deemed to have a 45% working interest in that well along the lines discussed below; provided, however, we shall have the right, for a period of 15 days after CamWest notifies us it intends to drill, or 48 hours after notice that a drilling rig is located on the test well site if sooner, to reconsider our election. In this case we may either choose to either retain our 45% working interest, or reduce our working interest to a percentage less than 45%, or convert our entire interest to an overriding royalty along the lines discussed below.

• Should we elect to participate on a working interest basis, we will be obligated to bear our elected percentage (i.e., 45% or less) of CamWest's land acquisition, drilling and development costs for that well, and will be entitled to receive a commensurate percentage of all revenues received by CamWest after the deduction of royalties, severance taxes and production and marketing costs.

• Should we elect an overriding royalty, we will receive a 5% royalty of CamWest net revenues if production is less than 1,000 barrels of oil or oil equivalents per month, and an 8% royalty when production equals or exceeds 1,000 barrels of oil or oil equivalents per month.

• We are obligated, whenever the "inventory" of active recommended SFD prospects is less than 31, to commence and continue SFD surveying until there are again 36 recommended SFD prospects in active inventory.

• We have also agreed that:

• whenever the number of active recommended SFD prospects in active inventory for CamWest is below the minimum requirement, we will dedicate at least 50% of our worldwide SFD survey capacity toward CamWest's requirements, unless we have obligations under three or more other joint venture agreements, in which case we must dedicate at least 25% of our worldwide SFD survey capacity to CamWest; and

• CamWest will have the exclusive rights for SFD surveys in 2,400 square mile "exclusive areas" selected by CamWest outside of Canada; provided, however, that these areas are limited to a total of 1,000,000 square miles within the United States and an additional 1,000,000 square miles outside of the United States and Canada.

• CamWest will be the operator, and will make all decisions relating to management and control of, all recommended SFD prospects developed under the joint venture. In this regard, CamWest will be responsible for:

• conventional oil and gas exploration, operation, development and management of the joint venture and any of its oil and gas properties; and

• the production and marketing of any petroleum substances which are produced from the joint venture.

• Should production be processed through CamWest's production facilities, we will pay CamWest a reasonable proportional fee for the use of these facilities. If production is processed through a third-party's production facilities, we will be charged our portion of the actual costs for services performed.

It should be noted that as of the date of this annual report our company and CamWest are not strictly following the prospect tendering and prospect evaluation time periods mandated in the CamWest joint venture agreement insofar as we are currently working on the processes inherent in meeting these periods due to the evolving nature of the SFD identification and interpretation processes. We are also using a combination working interest/overriding royalty election in lieu of that specified in the CamWest joint venture agreement.

Since we use our SFD technology for wide-area oil and gas reconnaissance exploration, our "competition" would generally be described as other technologies used for wide-area oil and gas reconnaissance exploration. The principal competitive technology in this regard would be seismic, which is well accepted in the industry and has, in fact, been used since 1919. While there are numerous industry competitors of all sizes which offer seismic services, the largest industry competitors to our knowledge are Baker Hughes Inc., Schlumberger Limited, Compagnie Generale de Geophysique, S.A, Seitel, Inc., Veritas DGC Inc. and Petroleum Geo-Services A.S.A.

There are also a number of other technologies used in the industry for "passive" wide-area oil and gas reconnaissance exploration, including aeromagnetic, gravity, ground or surface radar, satellite surveys, telemetrics and spectrum analyzers, however, we do not believe that any of these technologies have been accepted in the industry as a highly predictive general exploration tool.

To our knowledge there are no other companies in the oil and gas exploration industry who commercially employ any quantum physics-based technology similar to our SFD technology.

While the technologies noted above are competitive to ours in the sense that all are used for wide-area reconnaissance exploration, you should note that there is no direct competition in the sense that we do not offer the use of our SFD technology to the industry on a fee-for-service basis as is ordinarily the case with respect to the providers of these other technologies. Consequentially, we do not have any customers for our SFD technology other than our two present joint venture partners.

As of December 31, 2000, we had 22 full-time employees and one part-time employee providing services in one or more of the following areas:

• A prospect identification, evaluation and acquisition team comprised of nine members involved in collecting SFD data through aerial SFD surveys, interpreting that data and placing it into proper geological and geophysical context, and conducting land acquisition and drilling activities. Included in this team are three professional geologists, one professional geophysicist, two SFD and geological interpretive and support technicians, a professional pilot and two survey flight technicians.

• A nine member technical development team who focus their efforts on SFD research, development and improvement, as well as developing computer hardware and software necessary to collect, store and process SFD data for subsequent geological and geophysical interpretation. Included in this team are the inventor of the SFD (George Liszicasz), an SFD research scientist holding a Ph.D. in mico-electronics, a project director holding degrees in mechanical and electrical engineering, a software designer holding a Ph.D. degree in geophysics, two computer programmers, one electronics technician and a professional machinist.

• A management and administrative team comprised of ten professionals and support personnel, including NXT's President (a professional geologist), Executive Vice President (also a professional geologist), Chief Financial Officer and General Counsel, Controller and Land Manager.

None of our employees are covered by collective bargaining agreements. We have employment contracts with our four senior executives and professional geologists and geophysicists. We believe we have a favorable relationship with all of our employees.

Our research and development activities to date have focused on developing, improving and testing our SFD survey system and related components. Our research and development expenses amounted to $368,249, $272,489 and $57,823 for our 2000, 1999 and 1998 fiscal years, respectively. Our research and development budget for fiscal 2001 is $180,000.

We are not dependent upon any third party contract manufacturers or suppliers to satisfy our technology requirements. Our SFD sensors and the SFD unit in which they are incorporated are custom designed, fabricated and assembled in-house by our SFD research & development team, using micro-machined parts milled to specification in-house by our machinist. Our in-house research & development team and machinist also design, fabricate and assemble the specialized racks used to hold our data acquisition equipment on our survey aircraft, as well as specialized pivoting inertial platforms for the SFD unit itself which are necessary to dampen vibration and turbulence during aerial survey missions and adjust for g-forces and other effects associated with turning and other in-flight maneuvers. All materials and components used are readily available. The customized software used in our data acquisition system to collect and process SFD signals are written and modified in-house by our computer programmers and, in some cases, by outside consulting programmers with whom we have long-standing relationships. The computer hardware we use in SFD survey system (other than the SFD unit), and the balance of the computer software we use, are all readily available from retail or wholesale sources.

We have four wholly-owned operating subsidiaries:  NXT Energy USA Inc. (formerly known as Pinnacle Oil Inc.) and NXT Aero USA Inc., Nevada corporations formed on October 20, 1995 and August 28, 2000, respectively; and NXT Energy Canada Inc. (formerly known as Pinnacle Oil Canada Inc.) and NXT Aero Canada Inc., federal Canadian corporations formed on April 1, 1997 and October 30, 2000, respectively.  NXT Energy USA focuses on United States-based exploration and NXT Energy Canada focuses on Canadian-based exploration. All reconnaissance exploration activities are conducted by NXT Energy USA and NXT Energy Canada using NXT-owned aircraft operated by NXT Aero USA Inc. and NXT Aero Canada, respectively. NXT, in turn, concentrates on research and development efforts to improve the efficacy of our SFD survey system.

The oil and natural gas industry in general is subject to extensive controls and regulations imposed by various levels of the federal and state governments in the United States and federal and provincial governments in Canada. In particular, oil and gas exploration and production is subject to laws and regulations governing environmental quality and pollution control, limits on allowable rates of production by well or proration unit, and other similar regulations. Laws and regulations generally are intended to prevent waste of oil and natural gas; protect rights to produce oil and natural gas between owners in a common reservoir, control the amount of oil and natural gas produced by assigning allowable rates of production, and control contamination of the environment. Environmental regulations affect our operations on a daily basis. Public interest in the protection of the environment has increased dramatically in recent years. Drilling in certain areas has been opposed by environmental groups and, in certain areas, has been restricted. We believe that the trend of more expansive and stricter environmental legislation and regulations will continue.

We do not expect that any of these government controls or regulations will affect projects in which we participate in a manner materially different than they would affect project of similar size or scope of operations. All current legislation is a matter of public record and we are not able to accurately predict what additional legislation or amendments may be enacted. Governmental regulations may be changed from time to time in response to economic or political conditions. Any laws enacted or other governmental action taken which prohibit or restrict onshore and offshore drilling or impose environmental protection requirements that result in increased costs to the oil and gas industry in general would have a material adverse effect on our business, results of operations and financial position.

The oil and gas exploration and development projects in which we participate through our joint venture partners will also be subject to the usual hazards incident to the drilling of oil and gas wells, including the risk of fire, explosions, blow-out, pipe failure, casing collapse, abnormally pressured formations and environmental hazards such as oil spills, gas leaks, ruptures and discharges of toxic gases. In addition to the foregoing, offshore operations are subject to the additional hazards of marine operations, such as capsizing, collision and adverse weather and sea conditions. These hazards can cause personal injuries or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and penalties and suspension of operations.

The project operator will, in accordance with prevailing industry practice, maintain insurance against some, but not all, of these risks. The insurance maintained by the project operator generally would not cover claims relating to failure of title to oil and gas leases, trespass during survey acquisition or surface damage attributable to seismic operations, or business interruption, nor would it protect against loss of revenues due to well failure. There can be no assurance that any insurance obtained by the project operator covering claims related to worker's compensation, comprehensive general liability for bodily injury and property damage, comprehensive automobile liability and pollution, cleanup, underground blowout and evacuation will be adequate to cover any losses or liabilities which may be incurred within projects in which we participate. We also cannot predict the continued availability of insurance coverage or the availability of insurance at premium levels that justify its purchase.

Since we do not act as operator on any projects in which we may participate, we are dependent upon our partners to conduct operations in a manner so as to minimize these operating risks.

In cases where we have direct liability as a result of our participation on a working interest basis, the failure or inability of the project operator to procure insurance at an acceptable cost or the occurrence of a significant adverse event not fully insured or indemnified against could have a direct material, adverse effect on our business, financial condition and operating condition. In these cases our exposure will be commensurate with our participation percentage .

While we would have no direct liability in cases where our participation is limited to an overriding royalty interest, the failure or inability of the project operator to procure insurance at an acceptable cost or the occurrence of a significant adverse event not fully insured or indemnified against could have an indirect material, adverse effect on our business, financial condition and operating results to the extent it adversely affects our joint venture partner's ability to complete current projects or explore for and develop additional projects.

Our rights to use our SFD technology arises from an SFD technology license pursuant to which we were granted the exclusive worldwide right to use, possess and control the SFD for hydrocarbon identification and exploration purposes and any SFD data derived from that use for the same purpose pursuant to a license granted to us by Momentum Resources Corporation, which is the owner of the SFD. We own and control all of the data acquisition, processing and interpretation systems used with the SFD for hydrocarbon identification and exploration purposes.

The terms of our license are set forth in an SFD License Agreement dated December 31, 2000, which supercedes prior more restrictive licenses granted on August 1, 1996 and April 3, 1998. Momentum Resources is a Bahamas corporation which is indirectly owned and controlled by Messrs. George Liszicasz and R. Dirk Stinson, who were also parties to the license. Mr. Liszicasz, who is the inventor of the SFD technology, is also our largest stockholder and the Chief Executive Officer and a director of our company. Mr. Stinson is our second largest stockholder and a past director and officer.

The material terms of the SFD License Agreement, as most recently amended, are summarized as follows:

• We hold the exclusive worldwide right to use, possess and control all SFDs created as of December 31, 2000, as well as any enhanced or improved versions designed, fabricated and assembled by our research & development team.

• We are also entitled to the exclusive use of all SFD data generated by our SFDs for hydrocarbon identification and exploration purposes.

• All amounts we expend in base SFD research or in enhancing or improving SFD units will, in conformity with prior practice, be offset against any royalties payable to Momentum Resources at the rate of $1 of offset per $2 of royalties, subject to satisfaction of budgetary considerations.

• We are obligated to pay Momentum Resources an "SFD Royalty," calculated on a prospect-by-prospect basis and payable quarterly, equal to 5% of the "net SFD profits" associated with that prospect. Net SFD Profits generally refer to all revenues from a prospect, including both from the sale of petroleum substances extracted or the sale of the prospect itself, and also including revenues from joint venture partners such a gross overriding royalties, net of all costs and expenses paid by NXT to identify, acquire, develop, complete, and connect the prospect and to extract petroleum substances, including associated financing costs. As of the date of this annual report no royalties have been earned by Momentum Resources.

• In addition to the noted royalty payments, we are obligated to grant Momentum Resources "performance warrants" entitling it to purchase 16,000 unregistered shares of our common stock for each month in which production from SFD prospects exceeds 20,000 barrels of hydrocarbons. The exercise price for these warrants will be the "fair market value" of our common stock as determined by reference to the closing price on the last business day of the quarter of the calculation, and the warrants lapse to the extent unexercised three years from the date of grant. NXT shall not, under any circumstances, be obligated to grant warrants which would entitle the holders to acquire more than 8% of our common stock, after taking into consideration outstanding unexercised warrants The performance warrants are also non-transferable except to Momentum Resource's affiliates. As of the date of this annual report no performance warrants have been earned by Momentum Resources.

• Momentum Resources is prohibited during the term of the license from engaging in the identification or exploitation of hydrocarbons for its own account, and cannot grant any license or sublicense to any third party to use SFDs or SFD data for the identification or exploitation of hydrocarbons.

• The initial term of the license expires on December 31, 2005, however, it renews automatically for additional one year terms unless we give written notice to Momentum Resources, no later than 60 days prior to the expiration of the pending term, of our election not to automatically renew the license. Moreover, NXT must obtain the approval of disinterested majorities of its Board of Directors and stockholders in order to take any action to terminate the license.

• Momentum Resources, in turn, reserves the right to terminate the SFD technology license upon the occurrence of any of the following events:

• our failure to make any payment required under the license;

• our abandonment or discontinuance of the conduct of the oil and gas exploration business;

• our dissolution or liquidation;

• our assignment of our assets for the benefit of our creditors, or our filing bankruptcy, or the appointment of a receiver for our business or property; or

• our failure to perform any other material covenant, agreement or term of the license.

• NXT is also prohibited from amending or modifying the license without the consent of a majority of our non-Momentum Resources related directors and, should the amendments when taken as a whole be deemed to be materially adverse to NXT, by a majority of our non-Momentum Resources related stockholders.

As noted above, we have the exclusive right to use, possess and control SFDs and SFD data for hydrocarbon exploration pursuant to the terms of our SFD License Agreement with Momentum Resources. While Momentum Resources claims common law ownership of the SFDs, it has not obtained patent or copyright protection for these rights. Based in part on an opinion of patent counsel, Momentum Resources and our company each believe that the disclosure risks inherent in patent or copyright registration far outweigh any legal protections which might be afforded by such registration. In the absence of significant patent or copyright protection, we may be vulnerable to competitors who attempt to imitate the SFDs, or to develop functionally similar technologies.

Although we believe that we have all rights necessary to market our services without infringing upon any patents or copyrights held by others, we cannot give you any assurance that conflicting patents or copyrights do not exist. We rely upon trade secret protection and confidentiality and non-disclosure agreements with our employees, consultants, joint venture partners and others to protect our proprietary rights. Furthermore, we do not believe, were Momentum Resources to apply for and receive patent protection, that the patent would necessarily protect Momentum Resources or our company from competition. Momentum Resources and our company therefore anticipate continued reliance upon contractual rights and on common law to protect our trade secrets. The steps taken by our company and Momentum Resources to protect our respective rights may not be adequate to deter misappropriation, or to preclude an independent third party from developing functionally similar technology.

Our principal executive office and research & development facilities are located at Suite 700, Phoenix Place, 840 7th Avenue S.W., Calgary, Alberta, T2P 3G2. These facilities, consisting of 13,325 square feet, are leased for a five-year term extending through January 31, 2003. Our combined obligations for base lease payments and building operating cost and other pass-through items under this lease as of December  31, 2000 is Cdn. $21,418 per month, which translates into U.S. $14,283 per month based upon the closing conversion rate as of that date. We have the option under our lease, at the expiration of the five year term, to renew the lease if we have had no defaults under the lease. We believe that these facilities are adequate for our needs for the near future. We also maintain executive office facilities in Las Vegas, Nevada, for United States operational requirements, which we rent on a quarterly basis.

We also maintain hangar, maintenance and office facilities for our survey aircraft and aircraft operations consisting of 14,513 rentable square feet. These facilities are leased under a five-year operating lease which expires May 31, 2005. Our obligations under this lease as of December 31, 2000 is Cdn. $13,345 per month, which translates into U.S. $8,900 per month based upon the closing conversion rate as of that date. The monthly lease obligation increases three percent annually commencing June 1, 2002 until the end of the lease term.

We believe that our current facilities are adequate for our needs for the foreseeable future.

NXT owns two aircraft, a twin-engine turbo-powered Piaggio P180 Avanti aircraft we acquired in April 2000 which we use as our principal SFD survey aircraft, and a twin-engine Aerocommander 680 aircraft acquired in November 1998 which we use for research & development activities and as our back-up SFD survey aircraft. NXT has upgraded these aircraft with specialized pivoting inertial platforms for our SFD units, specialized equipment racks for our data acquisition computers, additional electrical systems necessary to contain and operate our SFD survey system, and additional navigational and safety systems necessary for the conduct of low level survey operations.

We have no producing properties or oil and gas revenues or proven reserves for any of our most recent three fiscal years ended December 31, 2000. For information concerning our oil and gas properties, see that section in Item 1 of this annual report captioned "Business-Exploration Efforts."

As of the date of this annual report, there are:

• no material pending legal or governmental proceedings relating to our company or properties to which we are a party, or to our knowledge any proceeding of this nature which are being contemplated or threatened; and

• to our knowledge, no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material interest adverse to us.

No matters were submitted to a vote of our security holders during our fourth quarter ended December 31, 2000.

Our common stock trades over-the-counter on the NASD OTC Bulletin Board under the trading symbol "ENXT." The following table lists, by calendar quarter, the volume of trading and the high and low sales prices of our common stock on the NASD OTC Bulletin Board for our three most recent fiscal years ended December 31, 2000. You should note that we changed our symbol from "PSFD" to "ENXT" effective June 16, 2000, following the change in our corporate name.