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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**Washington, D.C. 20549****

FORM 10-QSB

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2007

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT

For the transition period from _________ to __________

Commission file number 000-50375

CALIFORNIA OIL & GAS CORPORATION(Exact name of small business issuer as specified in its
charter)

|Nevada                                                               | 98-0389524                          
|-------------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or
      organization) | (I.R.S. Employer Identification No.)

#260, 600  6th Avenue SW, Calgary, Alberta, T2P 0S5(Address of principal executive offices)

(403) 261-1965(Issuers telephone number)

N/A(Former name, former address and former
fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 [X]   No [   ]

State the number of shares outstanding of each of the issuers
classes of common equity, as of the latest practicable date:

40,572,680common shares issued and
outstanding as of October 4, 2007.

Transitional Small Business Disclosure Format (Check one): Yes
[   ]   No [X]

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). (Check one): Yes
[   ]   No [X]

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2 

PART I

Item 1. Financial Statements

Our financial statements are stated in United States Dollars
(US$) and are prepared in accordance with United States Generally Accepted
Accounting Principles.

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 3 

|California Oil & Gas Corporation(formerly Ucluelet Exploration Corp.)
|---------------------------------------------------------------------
|                                                                     
|                                                                     
|                                                                     
|BALANCE SHEET                                                        
|(unaudited)                                                          

|                                                        |   | August 31, 2007 |  
|------------------------------------------------------- | - | --------------- | -
|                                                        |   |                 |  
|ASSETS                                                  |   |                 |  
|Current assets                                          |   |                 |  
|Cash                                                    | $ | 29,342          |  
|Other receivables                                       |   | 119,987         |  
|Total current assets                                    |   | 149,329         |  
|                                                        |   |                 |  
|Long term assets                                        |   |                 |  
|Oil and gas properties, net (successful efforts method) |   | 2,981,876       |  
|Property and equipment, net                             |   | 1,478           |  
|                                                        |   | 2,983,354       |  
|                                                        |   |                 |  
|                                                        |   |                 |  
|Total Assets                                            | $ | 3,132,683       |  
|                                                        |   |                 |  
|LIABILITIES AND
      SHAREHOLDERS' EQUITY              |   |                 |  
|Current liabilities                                     |   |                 |  
|Account payable and accrued liabilities                 | $ | 829,753         |  
|                                                        |   |                 |  
|Total current liabilities                               |   | 829,753         |  
|                                                        |   |                 |  
|SHAREHOLDERS'
      EQUITY                              |   |                 |  
|Common Stock - $.001 par value, 600,000,000 shares      |   |                 |  
|authorized, 40,572,680 outstanding                      |   | 40,573          |  
|Additional paid in capital                              |   | 3,281,607       |  
|Accumulated
      deficit                               |   | (1,019,250      | )
|Total shareholders' equity                              |   | 2,302,930       |  
|                                                        |   |                 |  
|Total Liabilities & Shareholders'
      Equity          | $ | 3,132,683       |  

The accompanying notes are an integral part of these
financial statements

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 4 

|California Oil & Gas Corporation(formerly Ucluelet Exploration Corp.)    
|-------------------------------------------------------------------------
|                                                                         
|                                                                         
|STATEM ENTS OF OPERATIONS                                                
|For the three and nine month pe riod ended August 31,
      2007 and 2006
|(unaudited)                                                              

|                                          |   | For the three month period |   |   | For the nine month period |  
|----------------------------------------- | - | -------------------------- | - | - | ------------------------- | -
|                                          |   | ended
      August 31,     |   |   | ended
      August 31,    |  
|                                          |   | 2007                       |   |   | 2006                      |  
|                                          |   |                            |   |   |                           |  
|REVENUES                                  |   |                            |   |   |                           |  
|Gas
      sales, net of royalty           | $ | 65,806                     |   | $ | -                         |  
|                                          |   |                            |   |   |                           |  
|                                          |   |                            |   |   |                           |  
|EXPENSES                                  |   |                            |   |   |                           |  
|Mining
      and exploration              |   | -                          |   |   | -                         |  
|General & administrative                  |   | 165,478                    |   |   | 75,980                    |  
|Write-off
      of oil and gas properties |   | 8                          |   |   | -                         |  
|Stock based compensation                  |   | -                          |   |   | 40,938                    |  
|Total expenses                            |   | 165,486                    |   |   | 116,918                   |  
|                                          |   |                            |   |   |                           |  
|Net operating loss                        |   | (99,680                    | ) |   | (116,918                  | )
|                                          |   |                            |   |   |                           |  
|Other income                              |   |                            |   |   |                           |  
|Interest income                           |   | 2                          |   |   | 480                       |  
|Net loss                                  | $ | (99,678                    | ) | $ | (116,438                  | )
|                                          |   |                            |   |   |                           |  
|Net loss per share                        |   |                            |   |   |                           |  
|Basic and diluted                         | $ | (0.00                      | ) | $ | (0.00                     | )
|                                          |   |                            |   |   |                           |  
|Weighted average shares outstanding       |   |                            |   |   |                           |  
|Basic and diluted                         |   | 39,820,766                 |   |   | 37,038,000                |  

The accompanying notes are an integral part of these
financial statements

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 5 

|California Oil & Gas Corporation(formerly Ucluelet Exploration Corp.)
|---------------------------------------------------------------------
|                                                                     
|                                                                     
|STATEM ENTS OF CASH FLOWS                                            
|For the nine months ended August 31, 2007 and 2006                   
|(unaudited)                                                          

|                                                            |   | Nine
      months ended August 31, |  
|----------------------------------------------------------- | - | ---------------------------------- | -
|                                                            |   | 2007                               |  
|Cash flows from operating activities                        |   |                                    |  
|Net loss                                                    | $ | (568,626                           | )
|Adjustments
      to reconcile net loss to cash             |   |                                    |  
|used by operating activities                                |   |                                    |  
|Depreciation and depletion                                  |   | 18,139                             |  
|Write-off
      of oil and gas properties                   |   | 253,217                            |  
|Stock based compensation                                    |   | 58,771                             |  
|Net changes in :                                            |   |                                    |  
|Deposits                                                    |   | 100,000                            |  
|Other
      receivables                                     |   | (51,331                            | )
|Accounts payable and accrued liability                      |   | (25,586                            | )
|Net cash flows used in operating activities                 |   | (215,416                           | )
|Cash flows from investing activities                        |   |                                    |  
|Acquisition of oil and gas
      properties                 |   | (1,704,656                         | )
|Net cash flows used in investing activitie
      s          |   | (1,704,656                         | )
|                                                            |   |                                    |  
|Cash flows from financing activities                        |   |                                    |  
|Proceeds from sale of common
      shares, net              |   | 1,239,912                          |  
|Net cash flows provided by financing activities             |   | 1,239,912                          |  
|                                                            |   |                                    |  
|Increase (decrease) in cash                                 |   | (680,160                           | )
|                                                            |   |                                    |  
|Cash, beginning of period                                   |   | 709,502                            |  
|                                                            |   |                                    |  
|Cash, end of period                                         | $ | 29,342                             |  
|Net cash paid during the period for:                        |   |                                    |  
|Interest                                                    | $ | -                                  |  
|Income taxes                                                | $ | -                                  |  
|Non cash transactions:                                      |   |                                    |  
|Oil and gas properties financed
      with accounts payable | $ | 699,251                            |  
|Deposits
      reclassified to oil & gas properties         | $ | 250,000                            |  

The accompanying notes are an integral part of these
financial statements

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 6 

|California Oil & Gas Corporation(formerly Ucluelet Exploration Corp.)
|---------------------------------------------------------------------
|                                                                     
|                                                                     
|                                                                     
|Notes to the Financial Statements August 31, 2007                    
|(unaudited)                                                          

|1. | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The accompanying unaudited interim financial statements
      of California Oil & Gas Corporation (formerly Ucluelet Exploration
      Corp.) (the Company) have been prepared in accordance with accounting
      principles generally accepted in the United States of America and the
      rules of the Securities and Exchange Commission (SEC), and should be
      read in conjunction with the audited financial statements and notes
      thereto contained in the Companys annual report filed with the SEC on
      Form 10-KSB. In the opinion of management, all adjustments, consisting of
      normal adjustments, necessary for a fair presentation of financial
      position and the results of operations for the interim periods presented
      have been reflected herein. The results of operations for interim periods
      are not necessarily indicative of the results to be expected for the full
      year. Notes to the financial statements which would substantially
      duplicate the disclosure contained in the audited financial statements for
      the most recent fiscal year end November 30, 2006 as reported in Form
      10-KSB, have been omitted.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | During the period ended August 31, 2007, management
      determined it was no longer necessary to continue reporting as an
      exploration stage company. As such cumulative inception to date
      information will no longer be included.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|2. | Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | On August 7, 2007 the Company closed a private placement
      receiving gross proceeds of $200,000 for 363,636 units at $0.55 per unit.
      Each unit consisted of one share of common stock and one share purchase
      warrant. A whole warrant entitles the purchaser to purchase an additional
      common share at a price of $0.75 for a period of 12 months from the date
      of closing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | On April 9, 2007 the Company closed a private placement
      receiving gross proceeds of $500,000 for 909,091 units at $0.55 per unit.
      Each unit consisted of one share of common stock and one half of one share
      purchase warrant. A whole warrant entitles the purchaser to purchase an
      additional common share at a price of $0.65 for a period of 24 months from
      the date of closing. On February 12, 2007 the Company closed a private
      placement receiving gross proceeds of $500,000 for 833,333 units at $0.60
      per unit. Each unit consisted of one share of common stock and one half of
      one share purchase warrant. A whole warrant entitles the purchaser to
      purchase an additional common share at a price of $0.75 for a period of 18
      months from the date of closing. As of August 31, 2007 there were
      40,572,680 common shares issued and 43,536,149 common shares, on a diluted
      basis.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The fair market value of the 300,000 options issued in
      April 2006 is being expensed ratably over the one year vesting period.
      Stock based compensation of $58,771 and $64,591 was expensed during the
      nine months ended August 31, 2007 and August 31, 2006
  respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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 7 

|California Oil & Gas Corporation(formerly Ucluelet Exploration Corp.)
|---------------------------------------------------------------------
|                                                                     

| |                           |  | Warrants   |   |   | Exercise Price |  |  | Expiry Date     | 
| | ------------------------- |  | ---------- | - | - | -------------- |  |  | --------------- | 
| |                           |  |            |   |   |                |  |  |                 | 
| | Balance November 30, 2005 |  | -          |   |   |                |  |  |                 | 
| | Issued March 20, 2006     |  | 1,110,000  |   | $ | 0.55           |  |  | March 19, 2007  | 
| | Issued April 10, 2006     |  | 300,000    |   | $ | 0.85           |  |  | April 9, 2008   | 
| | Issued November 27, 2006  |  | 1,428,620  |   | $ | 1.00           |  |  | May 26, 2008    | 
| |                           |  |            |   |   |                |  |  |                 | 
| | Balance November 30, 2006 |  | 2,838,620  |   |   |                |  |  |                 | 
| |                           |  |            |   |   |                |  |  |                 | 
| | Expired March 19, 2007    |  | (1,110,000 | ) |   |                |  |  |                 | 
| |                           |  |            |   |   |                |  |  |                 | 
| | Issued February 12, 2007  |  | 416,667    |   | $ | 0.75           |  |  | August 12, 2008 | 
| | Issued April 9, 2007      |  | 454,546    |   | $ | 0.65           |  |  | April 8, 2009   | 
| | Issued August 7, 2007     |  | 363,636    |   | $ | 0.75           |  |  | August 7, 2008  | 
| |                           |  |            |   |   |                |  |  |                 | 
| |                           |  |            |   |   |                |  |  |                 | 
| | Balance August 31, 2007   |  | 2,963,469  |   |   |                |  |  |                 | 

|3. | Oil and Gas Properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | During the nine month period ended August 31, 2007 the
      Company acquired certain non- producing oil and gas leases in California
      and completed a natural gas well on the Krotz Springs prospect in
      Louisiana. The Krotz Springs well, Haas-Hirsch No. 60, came on production
      in late May 2007. Total cost of these assets was $2.32 million as of
      August 31, 2007. During the nine months ended August 31, 2007, Krotz
      Springs, which is the Companys only proved property, generated $76,595 in
      net revenues after deducting royalties of $9,178.                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4. | Subsequent events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Subsequent to August 31, 2007 the Company initiated a
      Seismic Survey Program in the East Slopes project located in Kern County,
      California as contemplated by the terms of a Seismic Option Farmin
      Agreement dated June 27, 2007 between, among others, the Company and
      Chevron U.S.A. Inc. Under this agreement, Chevron has the option to earn
      in to an interest in the Companys East Slopes project if it funds 100% of
      the cost of a 3-D Seismic Survey Program in the San Joaquin Basin in
      Southern California. The Company believes that the seismic program should
      be completed in Q4, 2007.      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | On October 19, 2007 the Company issued two convertible
      debenture agreements, one to the Companys Chief Executive Officer and the
      other to its Chief Financial Officer. These convertible debentures, both
      of which are for $100,000, have a one year term with an interest rate of
      6% per annum. The Company has the option to repay these debentures at any
      time during the one year term. Each debenture holder has the option to
      convert his debenture to common shares of the Company at a fixed price of
      $0.75 per share based on the outstanding amount of the debenture at the
      time of conversion.

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 8

Item 2. Managements Discussion and Analysis and Plan of
Operation.

FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements.
Forward-looking statements are statements that relate to future events, future
financial performance or are otherwise projections of future results. In some
cases, you can identify forward-looking statements by terminology such as may,
should, expects, plans, anticipates, believes, estimates,
predicts, potential or continue or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks in the
section of this quarterly report on Form 10-QSB entitled Risk Factors, that
may cause our companys or our industrys actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by these
forward-looking statements.

Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.

Our financial statements are stated in United States Dollars
(US$) and are prepared in accordance with United States Generally Accepted
Accounting Principles.

Unless otherwise specified in this quarterly report, all dollar
amounts are expressed in United States dollars and all references to common
shares refer to shares of our common stock.

As used in this quarterly report, the terms we, us, our,
our Company and California Oil & Gas mean our company, California Oil
& Gas Corporation, unless otherwise indicated.

Our Current Business

We are an early stage production company engaged in the
identification, acquisition and exploration of oil and natural gas properties.
Since transitioning our focus from mineral resource properties to oil and
natural gas properties in January of 2006, we have entered into letters of
intent and agreements, all of which are discussed below in greater detail,
whereby we have earned, or we hope in the future to earn, an interest in certain
oil and gas properties located in California and Louisiana. Also as discussed
below, a letter of understanding with March Resources Corporation whereby we had
hoped to earn an interest in a project located in Chile has been terminated
effective June 26, 2007.

Plan of Operation and Cash Requirements

Overview

You should read the following discussion of our financial
condition and results of operations together with the consolidated audited
financial statements and the notes to consolidated audited financial statements
included elsewhere in this filing prepared in accordance with accounting
principles generally accepted in the United States. This discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those anticipated in these
forward-looking statements.

California

To date, our partners in the East Slopes project have leased
over 18,000 acres of mineral property in four prospect areas. During the next
six months, these partners intend to acquire 3-D seismic data covering three of
these four areas.

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 9 

On July 9, 2007 we, together with the other participants in the
East Slopes project, entered into a seismic option farm-in agreement dated for
reference June 21, 2007 with Chevron U.S.A. Inc. granting to Chevron an option
to farm-in to a 50% interest in the East Slopes project if Chevron funds a High
Definition 3-D Exploration Seismic Survey over a project area in the San Joaquin
area of Southern California consisting of approximately 19,000 acres. The
project area is comprised of 16,000 gross acres of mineral leaseholds to be
contributed by our current partners and approximately 3,000 gross acres of
mineral leaseholds to be contributed by Chevron, all of which has been
subdivided into three prospect areas. Under the terms of the agreement, Chevron
has the right, but is not obligated, to fund the high definition 3-D exploration
seismic survey over the project area. The agreement provides that if Chevron
chose to fund the survey, our company would act as the operator. The agreement
also provides that if the survey is shot and the data is acquired, processed and
delivered to the other parties to the agreement, Chevron will have earned its
50% interest in the 16,000 gross acres of mineral leaseholds contributed by our
partners. If this occurs, our current partners will have the option to farm-in
to a 50% interest in the 3,000 gross acre area contributed to the project by
Chevron by drilling three initial test wells, one in each of the three prospect
areas into which the overall project has been subdivided. If this occurs, then
our current partners as a group and Chevron will then each hold a 50% interest
in the lands and wells. The agreement provides that our company would also be
the operator for the purposes of drilling each of these three test wells. If
after we have drilled these three test wells the parties decide to continue
exploration in any of the prospect areas, Chevron will have the right, at its
option, to become the operator in place of our company. Beginning in
mid-September, 2007, we began preliminary work on the 3-D seismic project data
acquisition began October 15, 2007.

Our company does not currently own any interest in this Eastern
Slopes project. We have previously entered into a farm-in agreement with our
current partners pertaining to our ability to earn an interest. Under this
agreement, and following interpretation of any seismic data derived from the
High Definition 3-D Exploration Seismic Survey, we will have the option to earn
a 12.5% interest (after recovery of 200% of costs) in the seismic area leases
and wells by paying 25% of the cost of three wells in each of the three prospect
areas covered by the seismic survey.

Under the farm-in agreement with Chevron, Chevron has a call
right to purchase any oil, gas or other hydrocarbons produced under the terms of
the agreement at posted, competitive pricing.

We anticipate that we will spend approximately $1 million on
this project over the next 12 months.

In the North project, basic exploration techniques have
identified an area that could be prospective for shallow oil production. Over
the next 12 months we plan to continue our geologic analysis of the area, the
acquisition of oil and gas leases in areas considered prospective, and
acquisition of 2-D and 3-D seismic data in anticipation of beginning exploratory
drilling. We anticipate that we will spend approximately $1,500,000 on this
project over the next 12 months.

Louisiana

At the South Krotz Springs project located in St. Landry
Parish, the operator has completed drilling the Haas-Hirsch No. 1 Well (formerly
known as the Haas-Hirsch Unit Well No. 60). The well encountered, based on mud
log and electric log analyses, 2 commercial zones which could be productive for
natural gas and condensate. The lower of the 2 zones, the Second Cockfield sand,
was perforated and tested at rates of about 900 mcfd at 600 psi wellhead
pressure. After a 17 hour flow period through a production test unit, the well
was tied into a pre-existing flowline on location and gas sales commenced May
16, 2007. The well is currently producing and we are receiving revenues from
sales of natural gas. The operator is considering a workover to complete the
First Cockfield Sand and the potential for commingled production with the
currently producing Second Cockfield sand. We currently estimate that the
remainder of the drilling, completion and tie-in for this well should cost our
company approximately $600,000 over the next 12 months.

We believe that further activity in Krotz Springs should
involve the purchase and reinterpretation of existing seismic data. The
reinterpretation of this data could result in the selection of other drilling
locations in the 4,500 acre Krotz Springs Unit, and if so, an election to drill
an additional well could be made during the next few months with drilling to
follow. We estimate that our share of the costs of this additional well and
activity over the next 12 months could be approximately $1,500,000.

---

 10 

Our E project in Louisiana involves the potential exploration
of a subterranean structure. Current operations involve leasing of acreage over
the structure that our partners believe may be prospective for oil, gas and/or
condensate. After leasing is completed, we expect that our partners will
consider acquisition of 3-D seismic data. If interpretation of the seismic data
identifies prospective locations, exploration wells would be planned and
drilled. We believe that it is unlikely that a well will be drilled during the
12 month period ending September 30, 2008. We anticipate that we will spend
approximately $2,000,000 for our share of any leasing and seismic data
acquisition and drilling planning during this 12 month period.

Chile

On May 15, 2007, we received a cash call from March Resources
Corp. as contemplated in our Letter of Understanding with March Resources dated
September 11, 2006. We did not remit the cash requested and, on June 26, 2007,
March Resources sent us notice that we had failed to comply with our obligations
under that Letter of Understanding and, as a result, that they were terminating
the Letter of Understanding and retaining our $250,000 deposit.

Other Activity

We expect to continue to investigate other opportunities within
the oil and gas sector, both domestic and international, over the next 12
months. We anticipate that our costs for the investigation and analysis of
opportunities over the next 12 months should be approximately $200,000. Unless
we are successful in identifying a project or projects that are, in our opinion,
worth pursuing, it is unlikely that we will incur significant project costs in
the coming 12 month period.

Cash Requirements

We estimate that we will spend approximately $400,000 on general
  and administrative expenses over the next 12 months and working capital of approximately
  $7,000,000. Working capital requirements may increase if we identify, assess
  and acquire one or more new oil and gas exploration or development properties
  during the year. The amount of the increase will depend, to a large extent,
  on the nature of the properties identified, if any.

Based on our current plan of operations, we do not have
sufficient funds for the next 12 months. We believe that we will require
additional funds to continue our exploration operations. If we are unable to
raise additional financing in the next 12 months, and we fail to otherwise
generate any cash flow through operations, we will be required to modify our
operations plan accordingly or even to cease operations altogether. These funds
may be raised through equity financing, debt financing or other sources, and may
result in substantial dilution of the equity ownership of our shares. There can
be no assurance that we will be able to raise the funds required or maintain
operations at a level sufficient for an investor to obtain a return on his
investment in our common stock. Further, we may continue to be unprofitable.

Financial Condition, Liquidity and Capital Resources

From the date of inception on June 21, 2002, to the date we
abandoned our mineral exploration business, we were engaged in the acquisition
and exploration of mineral properties. Our principal capital resources have been
acquired through the issuance of common stock.

At August 31, 2007, we had a working capital deficiency of
$680,424.

At August 31, 2007, our total assets of $3,132,683 consisted of
current assets of $149,329 and oil and gas properties and other long term assets
of $2,983,354. This compares with our assets at August 31, 2006 of $795,091
which consisted of cash and a deposit.

At August 31, 2007, our total liabilities were $829,753,
compared to our liabilities of $18,658 as at August 31, 2006. The increase in
these liabilities consisted primarily of trade payables.

---

 11 

On August 7, 2007, we closed a private placement of 363,636
units for gross proceeds of $200,000. Each unit consisted of one common share
and one common share purchase warrant. Each common share purchase warrant
entitles the holder to purchase one additional common share of our company at a
price of $0.55 per warrant share until the warrants expire on August 7, 2008.

The continuation of our business is dependent upon obtaining
financing, a successful program of acquisition and exploration, and, finally,
achieving a profitable level of operations. The issuance of additional equity
securities by us could result in a significant dilution in the equity interests
of our current stockholders. Obtaining commercial loans, assuming those loans
would be available, will increase our liabilities and future cash commitments.

There are no assurances that we will be able to obtain funds
required for our continued operations. As noted herein, we are pursuing various
financing alternatives to meet our immediate and long-term financial
requirements. There can be no assurance that additional financing will be
available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain the additional
financing on a timely basis, we will be unable to conduct our operations as
planned, and we will not be able to meet our other obligations as they become
due. In such event, we will be forced to scale down or perhaps even cease our
operations.

We have no long-term debt and do not regard long-term borrowing
as a good, prospective source of financing at this stage in the development of
our company and its business.

Results of Operations.

We posted a loss of $568,626 for the nine month period ended
August 31, 2007, as compared to a loss of $216,411 for the nine month period
ended August 31, 2006, and losses of $1,019,250 from inception to August 31,
2007. Oil and natural gas revenues, net of royalties, were $76,595 for the nine
months ended August 31, 2007 (nil for the nine months ended August 31, 2006).
The principal component of our losses from inception has been general and
administrative expenses. The principal components of our loss for the nine month
period ended August 31, 2007 were general and administrative expenses, stock
based compensation ($58,771 during the nine month period ended August 31, 2007
as compared to $64,591 during the nine month period ended August 31, 2006), in
addition to the write-off of $253,217 as the result of the termination of our
agreement with March Resources in respect of the Chile project (as compared to
nil in write-offs for resource properties for the nine months ended August 31,
2006). Legal costs were $53,714 for the nine month period ended August 31, 2007,
compared to $24,443 for the nine month period ended August 31, 2006. Accounting
and audit costs were $72,316 for the nine month period ended August 31, 2007,
compared to $24,365 for the nine month period ended August 31, 2006. Consulting
fees increased to $56,980 during the nine month period ended August 31, 2007
from $44,981 for the nine month period ended August 31, 2006. Office expense
increased to $36,911 for the nine month period ended August 31, 2007 compared to
$15,976 for the nine month period ended August 31, 2006. Corporate expenses,
including transfer agent fees, news release costs and stock exchange filing fees
were $39,110 for the nine month period ended August 31, 2007 compared to $18,705
for the nine months ended August 31, 2006. Travel expenses for the nine month
period ended August 31, 2007 were $42,565 compared to $23,830 for the nine month
period ended August 31, 2006. Depletion and depreciation expense was $18,139 for
the nine month period ended August 31, 2007 compared to nil for the nine month
period ended August 31, 2006. Operating expense was $13,643 for the nine month
period ended August 31, 2007 compared to nil for the nine month period ended
August 31, 2006. These increases, aggregating $428,475, are due primarily tothe increase in activity commencing upon the abandonment of our mineral
resource properties, the shift in our business from mineral resources to oil and
gas, and the change in management that lead to this shift, all of which took
place during the first few months of calendar year 2006.

Product Research and Development

Our business plan is focused on a strategy of acquiring and
maximizing the long-term exploration and development of oil and gas
opportunities. To date, execution of our business plan has largely focused on
assessing prospective oil and gas interests and acquiring the interests that we
have acquired in California and Louisiana, as well as those that we recently
failed to farm-in on in Chile. As our plans for these properties continue to
develop based on leasing progress, results of initial wells and other
exploration and related events that will evolve over time, we hope to structure
and implement an exploration and development plan. In addition, we continue to
look for additional properties of interest.

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 12 

Purchase of Significant Equipment

We do not intend to purchase any significant equipment
(excluding oil and gas activities) over the next twelve months.

Employees

We do not currently have any employees (other than our
directors and officers who, at present, have not signed an employment or
consulting agreement with us). We do not expect any material changes in the
number of employees over the next 12 month period (although we may enter into
employment or consulting agreements with our officers or directors). We do and
will continue to outsource contract employment as needed. We have an agreement
with one consultant who performs general administrative and clerical functions
for our company on an as-needed basis.

Going Concern

Due to the uncertainty of our ability to meet our current
operating expenses and the capital expenses noted above, in their report on the
annual financial statements for the year ended November 30, 2006, our
independent auditors included an explanatory paragraph regarding concerns about
our ability to continue as a going concern. Our financial statements contain
additional note disclosures describing the circumstances that lead to this
disclosure by our independent auditors.

There are no assurances that we will be able to obtain further
funds required for our continued operations. As noted herein, we are pursuing
various financing alternatives to meet our immediate and long-term financial
requirements. There can be no assurance that additional financing will be
available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain the additional
financing on a timely basis, we will be unable to conduct our operations as
planned, and we will not be able to meet our other obligations as they become
due. In such event, we will be forced to scale down or perhaps even cease our
operations.

Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines
fair value, establishes a framework for measuring fair value in GAAP, and
expands disclosures about fair value measurements. This statement is effective
for financial statements issued for fiscal years beginning after November 15,
2007. Management is currently evaluating the impact SFAS No. 157 will have on
our financial position, results of operations, and cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities  including an amendment
of FASB statement No. 115. This Statement permits all entities to choose, at
specified election dates, to measure eligible items at fair value (the fair
value option). A business entity shall report unrealized gains and losses on
items for which the fair value option has been elected in earnings (or another
performance indicator if the business entity does not report earnings) at each
subsequent reporting date. Upfront costs and fees related to items for which the
fair value option is elected shall be recognized in earnings as incurred and not
deferred. If an entity elects the fair value option for a held-to-maturity or
available-for-sale security in conjunction with the adoption of this Statement,
that security shall be reported as a trading security under Statement 115, but
the accounting for a transfer to the trading category under paragraph 15(b) of
Statement 115 does not apply. Electing the fair value option for an existing
held-to-maturity security will not call into question the intent of an entity to
hold other debt securities to maturity in the future. This statement is
effective as of the first fiscal year that begins after November 15, 2007. We
are currently analyzing the effects of SFAS 159 but do not expect its
implementation will have a significant impact on our financial condition or
results of operations.

In July 2006, the FASB issued FASB Interpretation (FIN) No.
48 Accounting for Uncertainty in Income Taxes  An Interpretation of FASB
Statement No. 109. FIN 48 prescribes detailed guidance for the financial
statement recognition, measurement, and disclosure of uncertain tax positions
recognized in an enterprises financial statements in accordance with SFAS No.
109, Accounting for Income Taxes. Tax positions must meet a more-likely-than-not
recognition threshold at the effective date to be recognized upon the adoption
of FIN 48 and in

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 13 

subsequent periods. FIN 48 will be effective for fiscal years
beginning after December 15, 2006, and the provisions of FIN 48 will be applied
to all positions upon the adoption of the Interpretation. The cumulative effect
of applying the provisions of this Interpretation will be reported as an
adjustment to the opening balance of retained earnings for that fiscal year.
Management is currently evaluating the impact of FIN 48 on the financial
statements but does not believe that its adoption will have a material effect on
our financial position, results of operations, or cash flows.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United States.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses. These estimates and assumptions are affected by managements
application of accounting policies. We believe that understanding the basis and
nature of the estimates and assumptions involved with the following aspects of
our consolidated financial statements is critical to an understanding of our
financials.

We have historically incurred losses, and through August 31,
2007 have incurred losses of $1,019,250 since inception. Because of these
historical losses, we will require additional working capital to develop our
business operations. We do not anticipate that we will derive any revenues from
operations unless and until we establish the existence of a reserve on any of
our properties and put a well into production. There can be no assurance that we
can do so or that, even if we are successful in doing so that we will be able to
operate profitably.

We intend to raise additional working capital as and when we
need it through private placements, public offerings and/or bank financing. We
have historically raised working capital through the sale of equity securities
but there can be no assurance that we will be able to continue to do so. As of
the date of this quarterly report on Form 10-QSB, we are not engaged in any
discussions with prospective investors and we have no definitive agreements for
the investments of any funds in our company.

There are no assurances that we will be able to either (1)
achieve a level of revenues adequate to generate sufficient cash flow from
operations; or (2) obtain additional financing through either private
placements, public offerings and/or bank financing necessary to support our
working capital requirements. To the extent that funds generated from operations
and any private placements, public offerings and/or bank financing are
insufficient, we will have to raise additional working capital. No assurance can
be given that additional financing will be available, or if available, will be
on terms acceptable to us. If adequate working capital is not available we may
not increase our operations.

These conditions raise substantial doubt about our ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might be necessary
should we be unable to continue as a going concern.

RISK FACTORS

GENERAL STATEMENT ABOUT RISKS

An investment in our common stock involves a number of very
significant risks. You should carefully consider the following risks and
uncertainties in addition to other information in this prospectus in evaluating
our company and our business before purchasing shares of our company's common
stock. Our business, operating results and financial condition could be
seriously harmed due to any of the following risks. You could lose all or part
of your investment due to any of these risks.

This quarterly report on Form 10-QSB contains forward-looking
statements. Forward-looking statements are statements that relate to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by the use of terminology such as "may", "should",
"expects", "plans", "anticipates", "believes", "estimates", "predicts",
"potential" or "continue" or the negative of these terms or other comparable
terminology. Examples of forward-looking statements made in this quarterly
report include statements about:

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 14 

- Our future operating results,
- Our future capital expenditures,
- Our expansion and growth of operations, and
- Our future investments in and acquisitions of oil and natural gas
  properties.

These statements are only predictions and involve known and
unknown risks, uncertainties and other factors, including:

- General economic and business conditions,
- Exposure to market risks in our financial instruments,
- Fluctuations in worldwide prices and demand for oil and natural gas,
- Fluctuations in the levels of our oil and natural gas exploration and
  development activities,
- Risks associated with oil and natural gas exploration and development
  activities,
- Competition for raw materials and customers in the oil and natural gas
  industry,
- Technological changes and developments in the oil and natural gas industry,
- Regulatory uncertainties and potential environmental liabilities, and
- the risks in the section of this quarterly report entitled "Risk Factors",

any of which may cause our or our industry's actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements.

While these forward-looking statements and any assumptions upon
which they are based are made in good faith and reflect our current judgment
regarding the direction of our business, actual results will almost always vary,
sometimes materially, from any estimates, predictions, projections, assumptions
or other future performance suggested herein. Except as required by applicable
law, including the securities laws of the United States, we do not intend to
update any of the forward-looking statements to conform these statements to
actual results.

Our common shares are considered speculative during the
development of our new business operations. Prospective investors should
consider carefully the risk factors set out below.

Risks Relating to Our Business:

Our independent auditors have expressed substantial doubt
about our ability to continue as a going concern.

For the first time since inception, during the nine month
period ended August 31, 2007, we began to generate revenues from operations due
to natural gas production from our well in Krotz Springs, Louisiana. This well
commenced production in May 2007 and has generated oil and gas revenues, net of
royalties, of $76,595 for the period beginning from commencement of production
and ended August 31, 2007. We incurred a net loss of $568,626 for the nine month
period ended August 31, 2007 and $216,411 for the nine month period ended August
31, 2006. We anticipate that we will continue to incur operating expenses
partially offset by oil and gas revenues

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 15 

unless and until we find oil or natural gas in sufficient
quantities as will enable us to realize a profit or until we sell a property for
a profit. On August 31, 2007, we had cash of $29,342. At August 31, 2007, we had
a working capital deficiency of $680,424. We estimate our average monthly
operating expenses to be approximately $35,000 each month, excluding exploration
but including general and administrative expense and investor relations
expenses. We estimate that we will need approximately $7,000,000 for drilling,
exploration, leasing and other exploration and development costs arising from
our exploration activities during the next 12 months. Therefore, we believe that
we will require approximately $7,000,000 to fund our continued operations for
the 12 month period ending August 31, 2008. As a result, we believe that we will
have to raise additional funds to meet our currently budgeted operating
requirements for the next 12 months. As we cannot assure a lender that we will
be able to successfully acquire, explore and develop oil and gas properties, we
will probably find it difficult to raise debt financing from traditional lending
sources. We have traditionally raised our operating capital from sales of equity
securities, but there can be no assurance that we will continue to be able to do
so. If we cannot raise the money that we need to continue to acquire, explore
and develop oil and gas properties, we may be forced to delay, scale back, or
eliminate our activities. If any of these were to occur, there is a substantial
risk that our business would fail.

These circumstances raise substantial doubt about our ability
to continue as a going concern, as described in the explanatory paragraph to our
independent auditors' report on our consolidated financial statements for the
year ended November 30, 2006, which are included in our annual report on Form
10-KSB. Although our consolidated financial statements raise substantial doubt
about our ability to continue as a going concern, they do not reflect any
adjustments that might result if we are unable to continue our business.

If we are able to obtain additional funding by selling
our equity securities, our existing shareholders may suffer substantial
dilution.

We believe that we will require approximately $7,000,000 in
additional funds to maintain or expand our oil and gas exploration activities
over the next 12 months. We have historically raised funds required for this
purpose from the sale of equity securities. While there can be no assurance that
we will be able to raise any additional funds through the sale of our equity
securities, any success may result in substantial dilution to our existing
shareholders.

We are an early stage production company with a limited
  operating history implementing a new business plan

We are an early stage production company with only a limited
operating history upon which to base an evaluation of our current business and
future prospects, and we have just begun to implement our business plan, having
started in the oil and gas exploration and development industry in February of
2006. Our operations will be subject to all the risks inherent in the
establishment of a developing enterprise and the uncertainties arising from the
absence of a significant operating history. If we cannot successfully implement
our business plan and we are not able to operate profitably, you could lose some
or all of your investment in our company.

If we are unable to retain the services of our directors
and executive officers or if we are unable to successfully recruit qualified
managerial and field personnel having experience in oil and natural gas
exploration, we may not be able to continue our operations.

Our success depends to a significant extent upon the continued
service of John McLeod, our President, Treasurer, Secretary and a director. Loss
of the services of Mr. McLeod could have a material adverse effect on our
growth, revenues, and prospective business. We do not maintain key-man insurance
on the life of Mr. McLeod. In addition, in order to successfully implement and
manage our business plan, we will be dependent upon, among other things,
successfully recruiting qualified managerial and field personnel having
experience in the oil and natural gas exploration business. Competition for
qualified individuals is intense. There can be no assurance that we will be able
to find, attract and retain existing employees or that we will be able to find,
attract and retain qualified personnel on acceptable terms.

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 16 

Our directors and executive officers are employed
elsewhere and their time and efforts will not be devoted to our company
full-time.

With the exception of John McLeod, who works for our company on
a full-time basis, our directors and executive officers are employed in other
positions with other companies. As a result, they will manage our company on a
part-time basis. Because of this fact, the management of our company may suffer
and our company could under-perform or fail.

The oil and natural gas industry is highly competitive
and there is no assurance that we will be successful in acquiring leases.

The oil and natural gas industry is intensely competitive.
Although we do not compete with other oil and gas companies for the sale of any
oil and gas that we may produce, as there is sufficient demand in the world
market for these products, we compete with numerous individuals and companies,
including many major oil and natural gas companies which have substantially
greater technical, financial and operational resources and staff. Accordingly,
there is a high degree of competition for desirable oil and natural gas leases,
suitable properties for drilling operations and necessary drilling equipment, as
well as for access to funds. We cannot predict if the necessary funds can be
raised or that any projected work will be completed.

There can be no assurance that we will identify and
acquire an oil and natural gas exploration property. Even if we do acquire such
a property, there can be no assurance that we will discover oil or natural gas
in any commercial quantity thereon.

Exploration for economic reserves of oil and natural gas is
subject to a number of risks. There is competition for the acquisition of
available oil and natural gas properties. Even if we are able to acquire an oil
and natural gas exploration property, few properties that are explored are
ultimately developed into producing oil and/or natural gas wells. If we cannot
acquire one or more oil and natural gas exploration properties and discover oil
or natural gas in any commercial quantity thereon, our business will fail.

Even if we acquire an oil and natural gas exploration
property and establish that it contains oil or natural gas in commercially
exploitable quantities, the potential profitability of oil and natural gas
ventures depends upon factors beyond the control of our company.

The potential profitability of oil and natural gas properties
is dependent upon many factors beyond our control. For instance, world prices
and markets for oil and natural gas are unpredictable, highly volatile,
potentially subject to governmental fixing, pegging, controls or any combination
of these and other factors, and respond to changes in domestic, international,
political, social and economic environments. Additionally, due to worldwide
economic uncertainty, the availability and cost of funds for production and
other expenses have become increasingly difficult, if not impossible, to
project. In addition, adverse weather conditions can hinder drilling operations.
These changes and events may materially affect our future financial performance.
These factors cannot be accurately predicted and the combination of these
factors may result in our company not receiving an adequate return on invested
capital.

In addition, a productive well may become uneconomic in the
event water or other deleterious substances are encountered which impair or
prevent the production of oil and/or natural gas from the well. Production from
any well may be unmarketable if it is impregnated with water or other
deleterious substances. Also, the marketability of oil and natural gas which may
be acquired or discovered will be affected by numerous related factors,
including the proximity and capacity of oil and natural gas pipelines and
processing equipment, market fluctuations of prices, taxes, royalties, land
tenure, allowable production and environmental protection, all of which could
result in greater expenses than revenue generated by the well.

The marketability of natural resources will be affected
by numerous factors beyond our control which may result in us not receiving an
adequate return on invested capital to be profitable or viable.

The marketability of natural resources which may be acquired or
discovered by us will be affected by numerous factors beyond our control. These
factors include market fluctuations in oil and natural gas pricing and demand,
the

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 17 

proximity and capacity of natural resource markets and
processing equipment, governmental regulations, land tenure, land use,
regulation concerning the importing and exporting of oil and natural gas and
environmental protection regulations. The exact effect of these factors cannot
be accurately predicted, but the combination of these factors may result in us
not receiving an adequate return on invested capital to be profitable or
viable.

Oil and natural gas operations are subject to
comprehensive regulation which may cause substantial delays or require capital
outlays in excess of those anticipated causing an adverse effect on our
company.

Oil and natural gas operations are subject to federal, state,
and local laws relating to the protection of the environment, including laws
regulating removal of natural resources from the ground and the discharge of
materials into the environment. Oil and natural gas operations are also subject
to federal, state, and local laws and regulations which seek to maintain health
and safety standards by regulating the design and use of drilling methods and
equipment. Various permits from government bodies are required for drilling
operations to be conducted; no assurance can be given that standards imposed by
federal, provincial, or local authorities may be changed and any such changes
may have material adverse effects on our activities. Moreover, compliance with
such laws may cause substantial delays or require capital outlays in excess of
those anticipated, thus causing an adverse effect on us. Additionally, we may be
subject to liability for pollution or other environmental damages. To date, we
have not been required to spend any material amount on compliance with
environmental regulations. However, we may be required to do so in the future
and this may affect our ability to expand or maintain our operations.

Exploration and production activities are subject to
certain environmental regulations which may prevent or delay the commencement or
continuation of our operations.

In general, our exploration and production activities are
subject to certain federal, state and local laws and regulations relating to
environmental quality and pollution control. Such laws and regulations increase
the costs of these activities and may prevent or delay the commencement or
continuation of a given operation. Specifically, we may be subject to
legislation regarding emissions into the environment, water discharges and
storage and disposition of hazardous wastes. In addition, legislation has been
enacted which requires well and facility sites to be abandoned and reclaimed to
the satisfaction of state authorities. However, such laws and regulations are
frequently changed and we are unable to predict the ultimate cost of compliance.
Generally, environmental requirements do not appear to affect us any differently
or to any greater or lesser extent than other companies in the industry.

Exploratory drilling involves many risks and we may
become liable for pollution or other liabilities which may have an adverse
effect on our financial position.

Drilling operations generally involve a high degree of risk.
Hazards such as unusual or unexpected geological formations, power outages,
labor disruptions, blow-outs, sour natural gas leakage, fire, inability to
obtain suitable or adequate machinery, equipment or labor, and other risks are
involved. We may become subject to liability for pollution or hazards against
which it cannot adequately insure or which it may elect not to insure. Incurring
any such liability may have a material adverse effect on our financial position
and operations.

There are significant title risks associated with the
properties subject to our farm-out agreements.

In the event that we or our operating partners do not meet
regulated expenditure requirements or development conditions to convert permits
to leases or obtain an extension of such development requirements, the right to
explore for bitumen or oil shale, as applicable, may be lost. We believe that we
or our operating partners have good and proper right, title and interest in and
to the permits and leases that we intend to exploit. However, we have not
obtained title opinions on all of our interests. Even with respect to interests
where we have obtained title opinions, the opinions may be subject to
unregistered claims. Accordingly, ownership of our oil and natural gas
exploration rights could be subject to prior unregistered agreements or
interests or undetected claims or interests.

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 18 

We have not yet established any reserves and resources
and we cannot assure you that we will ever establish any reserve or resource on
the properties subject to our farm-out agreements.

There are numerous uncertainties inherent in estimating
quantities of oil and natural gas resources, including many factors beyond our
control, and no assurance can be given that the recovery of oil and natural gas
resources will be realized. In general, estimates of recoverable oil and natural
gas resources are based upon a number of factors and assumptions made as of the
date on which the resource estimates were determined, such as geological and
engineering estimates which have inherent uncertainties and the assumed effects
of regulation by governmental agencies and estimates of future commodity prices
and operating costs, all of which may vary considerably from actual results. All
such estimates are, to some degree, uncertain and classifications of oil and
natural gas resources are only attempts to define the degree of uncertainty
involved. For these reasons, estimates of the recoverable oil and natural gas
resources, the classification of oil and natural gas resources based on risk of
recovery, prepared by different engineers or by the same engineers at different
times, may vary substantially. No estimates of commerciality or recoverable oil
and natural gas resources can be made at this time, if ever.

Any change to government regulation/administrative
practices may have a negative impact on our ability to operate and our
profitability.

The business of oil and natural gas exploration and development
is subject to substantial regulation under various countries laws relating to
the exploration for, and the development, upgrading, marketing, pricing,
taxation, and transportation of oil and natural gas and related products and
other matters. Amendments to current laws and regulations governing operations
and activities of oil and natural gas exploration and development operations
could have a material adverse impact on our business. In addition, there can be
no assurance that income tax laws, royalty regulations and government incentive
programs related to the properties subject to our farm-out agreements and the
oil and natural gas industry generally will not be changed in a manner which may
adversely affect our progress and cause delays, inability to explore and develop
or abandonment of these interests.

Permits, leases, licenses, and approvals are required from a
variety of regulatory authorities at various stages of exploration and
development. There can be no assurance that the various government permits,
leases, licenses and approvals sought will be granted in respect of our
activities or, if granted, will not be cancelled or will be renewed upon expiry.
There is no assurance that such permits, leases, licenses, and approvals will
not contain terms and provisions which may adversely affect our exploration and
development activities.

Risks Relating to Our Shares of Common Stock

Our stock is a penny stock. Trading of our stock may be
restricted by the SEC's penny stock regulations which may limit a stockholder's
ability to buy and sell our stock.

Our stock is a penny stock. The Securities and Exchange
Commission has adopted Rule 15g-9 which generally defines penny stock to be
any equity security that has a market price (as defined) less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules, which impose
additional sales practice requirements on broker-dealers who sell to persons
other than established customers and accredited investors. The term
accredited investor refers generally to institutions with assets in excess of
$5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the SEC which provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. The bid and offer
quotations, and the broker-dealer and salesperson compensation information, must
be given to the customer orally or in writing prior to effecting the transaction
and must be given to the customer in writing before or with the customer's
confirmation. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from these rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the stock
that is subject to these

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 19 

penny stock rules. Consequently, these penny stock rules may
affect the ability of broker-dealers to trade our securities. We believe that
the penny stock rules discourage investor interest in and limit the
marketability of our common stock.

Financial Industry Regulatory Authority sales practice
requirements may also limit a stockholders ability to buy and sell our shares
of common stock.

In addition to the penny stock rules described above, the
Financial Industry Regulatory Authority (known as FINRA) has adopted rules
that require that in recommending an investment to a customer, a broker-dealer
must have reasonable grounds for believing that the investment is suitable for
that customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customers financial status, tax status, investment
objectives and other information. Under interpretations of these rules, the
Financial Industry Regulatory Authority believes that there is a high
probability that speculative low priced securities will not be suitable for at
least some customers. Financial Industry Regulatory Authority requirements make
it more difficult for broker-dealers to recommend that their customers buy our
shares of common stock, which may limit your ability to buy and sell our shares
of common stock and have an adverse effect on the market for its shares.

Our directors and executive officers beneficially own a
total of 7,692,860 shares of our company. They may sell some of these shares in
the future, which could cause the price of our common stock to fall, which will
reduce the value of your shares.

Our directors and executive officers beneficially own a total
of 7,692,860shares of stock, which is 18.96% of the number of our shares
of common stock that are currently issued and outstanding. Subject to all
holding periods under applicable securities laws, our directors and executive
officers will likely sell a portion or all of their stock in the future. If they
do sell their stock into the market, the sales may cause the market price of the
stock to drop.

We do not intend to pay dividends on any investment in
the shares of stock of our company.

We have never paid any cash dividends and currently do not
intend to pay any dividends for the foreseeable future. To the extent that we
require additional funding currently not provided for in our financing plan, our
funding sources may prohibit the payment of a dividend. Because we do not intend
to declare dividends, any gain on an investment in our company will need to come
through an increase in the stocks price. This may never happen and investors
may lose all of their investment in our company.

We do not currently have a shareholder rights plan or any
anti-takeover provisions in our by-laws.

We do not currently have a shareholder rights plan or any
anti-takeover provisions in our by-laws. Without any anti-takeover provisions,
there is no deterrent for a take-over of our company, which may result in a
change in our directors or executive officers.

Our by-laws contain provisions indemnifying our directors
and executive officers against all costs, charges and expenses incurred by them.

Our by-laws contain provisions with respect to the
indemnification of our directors and executive officers against all costs,
charges and expenses, including an amount paid to settle an action or satisfy a
judgment, actually and reasonably incurred by him, including an amount paid to
settle an action or satisfy a judgment in a civil, criminal or administrative
action or proceeding to which he/she is made a party by reason of his/her being
or having been one of our directors or executive officers.

In the future, the trading price of our common shares may
be subject to wide fluctuations.

In the future, the trading price of our common shares may be
subject to wide fluctuations. Trading prices of the common shares may fluctuate
in response to a number of factors, many of which will be beyond our control. In
addition, the stock market in general, and the market for oil and natural gas
exploration and development companies

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 20 

in particular, has experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of such companies. Market and industry factors may adversely affect
the market price of the common shares, regardless of our operating performance.

In the past, following periods of volatility in the market
price of a companys securities, securities class-action litigation has often
been instituted. Such litigation, if instituted, could result in substantial
costs and a diversion of managements attention and resources.

Item 3. Controls and Procedures

We maintain disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our reports
filed under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, and that such information
is accumulated and communicated to our management, including our principal
executive officer (our president and chief executive officer) and our principal
accounting and financial officer (our chief financial officer) to allow for
timely decisions regarding required disclosure. In designing and evaluating our
disclosure controls and procedures, our management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and our
management is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.

As of August 31, 2007, the end of the three month period year
covered by this report, we carried out an evaluation, under the supervision and
with the participation of our management, including our president and chief
executive officer and our chief financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on the
foregoing, our president and chief executive officer and our chief financial
officer concluded that our disclosure controls and procedures were effective as
of the end of the period covered by this quarterly report.

There have been no significant changes in our internal controls
over financial reporting that occurred during the quarter ended August 31, 2007
that have materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We know of no material, active or pending legal proceedings
against our company, nor are we involved as a plaintiff in any material
proceeding or pending litigation. There are no proceedings in which any of our
directors, officers or affiliates, or any registered or beneficial shareholder,
is an adverse party or has a material interest adverse to our interest.

Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.

On August 7, 2007, we closed a private placement of 363,636
units for gross proceeds of $200,000. Each unit consisted of one common share
and one common share purchase warrant. Each common share purchase warrant
entitles the holder to purchase one additional common share of our company at a
price of $0.55 per warrant share until the warrants expire on August 7, 2008.

In the subscription agreement, we agreed that within 60 days
after closing we would file with the Securities and Exchange Commission a
registration statement on Form SB-2 registering for resale the common shares and
the common shares underlying the common share purchase warrants comprising the
units that were sold in this private placement.

We issued these Units to one non U.S. person (as that term is
defined in Regulation S of the Securities Act of 1933) in an offshore
transaction in which we relied on Regulation S promulgated under the Securities
Act of 1933.

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 21 

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibits Required by Item 601 of Regulation S-B.

|Exhibit Number and Exhibit Title
|--------------------------------
|                                
|(3)                             
|                                
|3.1                             
|                                
|3.2                             
|                                
|3.3                             
|                                
|3.4                             
|                                
|3.5                             
|                                
|(4)                             
|                                
|4.1                             
|                                
|(10)                            
|                                
|10.1                            
|                                
|10.2                            
|                                
|10.3                            
|                                
|10.4                            
|                                
|10.5                            

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 22 

|10.6 | Purchase and
        Sale Agreement with Aspire Capital, Inc. dated November 14, 2006 (incorporated
        by reference from our Annual Report on Form 10-KSB filed on March 15,
        2007).                                                                                                            
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                             
|10.7 | Seismic Option
        Farmin Agreement with Calstar Oil & Gas Ltd., Nomad Hydrocarbons Ltd.,
        Nomad Hydrocarbons LLC, Daybreak Oil and Gas, Inc. and Consolidated Beacon
        Resources Ltd. (incorporated by reference from our Quarterly Report on
        Form 10-QSB filed on July 13, 2007).
|     |                                                                                                                                                                                                                                                                                                             
|10.8 | Form of Subscription
        Agreement (incorporated by reference from our Current Report on Form 8-K
        filed on August 8, 2007).                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                             
|(14) | **Code
        of Ethics**                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                             
|14.1 | Code of Business
        Conduct and Ethics (incorporated by reference from our Annual Report on
        Form 10-KSB filed on February 27, 2004).                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                             
|(31) | **Section
        302 Certifications**                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                             
|31.1 | Section
        302 Certification of John G.F. McLeod (filed herewith).                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                             
|31.2 | Section
        302 Certification of Norman S. Johnson (filed herewith).                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                             
|(32) | **Section
        906 Certification**                                                                                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                             
|32.1 | Section
        906 Certification of John G.F. McLeod (filed herewith).                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                             
|32.2 | Section
        906 Certification of Norman S. Johnson (filed herewith).                                                                                                                                                                                                                                    

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- 23 -

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

CALIFORNIA OIL & GAS CORPORATION

/s/ John McLeod John McLeod, President, Treasurer,
Secretary and Director (Principal Executive Officer)

Date: October 22, 2007



/s/ Norman S. Johnson Norman S. Johnson, Chief Financial
Officer (Principal Financial Officer and Principal Accounting Officer)

Date: October 22, 2007

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