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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, 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 May 31, 2008

[ ] 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:

41,588,471 common shares issued and outstanding as of July
21, 2008.

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 -

INSERT FINANCIAL STATEMENTS HERE

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|California Oil & Gas Corporation
|--------------------------------

BALANCE SHEETS

|                                                              |   | **May 31, 2008** |   |   | November 30, 2007 |  
|------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | -
|                                                              |   | (unaudited)      |   |   |                   |  
|ASSETS                                                        |   |                  |   |   |                   |  
|Current assets                                                |   |                  |   |   |                   |  
|Cash                                                          | $ | 18,976           |   |   | 238,140           |  
|Joint interest billings receivables                           |   | 116,301          |   |   | 1,217,948         |  
|Restricted
      cash - certificates of deposit               |   | 30,000           |   |   | 30,000            |  
|Deposits                                                      |   | 16,250           |   |   | 16,250            |  
|Total current assets                                          |   | 181,527          |   |   | 1,502,338         |  
|                                                              |   |                  |   |   |                   |  
|Long term assets                                              |   |                  |   |   |                   |  
|Oil and gas properties, net
      (successful efforts method) |   | 870,663          |   |   | 924,778           |  
|Property
      and equipment, net                             |   | 1,907            |   |   | 2,119             |  
|                                                              |   | 872,570          |   |   | 926,897           |  
|                                                              |   |                  |   |   |                   |  
|                                                              |   |                  |   |   |                   |  
|Total Assets                                                  | $ | 1,054,097        |   | $ | 2,429,235         |  
|                                                              |   |                  |   |   |                   |  
|LIABILITIES AND SHAREHOLDERS'
      EQUITY                    |   |                  |   |  
|Current liabilities                                           |   |                  |   |   |                   |  
|Accounts
      payable and accrued liabilities                | $ | 682,364          |   | $ | 1,964,200         |  
|Debentures, related parties                                   |   | 175,000          |   |   | 175,000           |  
|Total
        current liabilities                             |   | 857,364          |   |   | 2,139,200         |  
|                                                              |   |                  |   |   |                   |  
|Total liabilities and contingencies                           |   | 857,364          |   |   | 2,139,200         |  
|                                                              |   |                  |   |   |                   |  
|Contingencies                                                 |   |                  |   |   |                   |  
|                                                              |   |                  |   |   |                   |  
|Shareholders' equity                                          |   |                  |   |   |                   |  
|                                                              |   |                  |   |   |                   |  
|                                                              |   |                  |   |   |                   |  
|                                                              |   |                  |   |   |                   |  
|                                                              |   | 41,589           |   |   | 40,889            |  
|Additional
      paid in capital                              |   | 4,266,317        |   |   | 3,741,018         |  
|Accumulated
      deficit                                     |   | (4,111,173       | ) |   | (3,491,872        | )
|Total shareholders' equity                                    |   | 196,733          |   |   | 290,035           |  
|                                                              |   |                  |   |   |                   |  
|Total Liabilities and Shareholders' Equity                    | $ | 1,054,097        |   | $ | 2,429,235         |  

The accompanying notes are an integral part of these financial
  statements

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|California Oil & Gas Corporation
|--------------------------------

STATEMENTS OF OPERATIONS(unaudited)

|                                     |   | For the three months ended |   |   | For the six months ended |  
|------------------------------------ | - | -------------------------- | - | - | ------------------------ | -
|                                     |   | May 31,                    |   |   | May 31,                  |  
|                                     |   | 2008                       |   |   | 2007                     |  
|                                     |   |                            |   |   |                          |  
|REVENUES                             |   |                            |   |   |                          |  
|Gas sales, net of royalty            | $ | 64,603                     |   | $ | 10,789                   |  
|                                     |   |                            |   |   |                          |  
|                                     |   |                            |   |   |                          |  
|EXPENSES                             |   |                            |   |   |                          |  
|Production costs                     |   | 23,031                     |   |   | -                        |  
|General & administrative             |   | 311,942                    |   |   | 93,856                   |  
|Depletion and depreciation           |   | 40,245                     |   |   | 4,961                    |  
|Impairment of oil and gas properties |   | -                          |   |   | 253,209                  |  
|Total expenses                       |   | 375,218                    |   |   | 352,026                  |  
|Operating loss                       |   | (310,615                   | ) |   | (341,237                 | )
|Other income                         |   |                            |   |   |                          |  
|Interest income                      |   | -                          |   |   | 143                      |  
|Net loss                             | $ | (310,615                   | ) | $ | (341,094                 | )
|                                     |   |                            |   |   |                          |  
|Net loss per share                   |   |                            |   |   |                          |  
|Basic and diluted                    | $ | (0.01                      | ) | $ | (0.01                    | )
|Weighted average shares outstanding  |   |                            |   |   |                          |  
|Basic and diluted                    |   | 41,300,693                 |   |   | 39,561,237               |  

The accompanying notes are an integral part of these financial
  statements

Page 2

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|California Oil & Gas Corporation
|--------------------------------

STATEM ENTS OF CASH FLOWS(unaudited)

|                                                            |   | For the six months ended M ay 31, |  
|----------------------------------------------------------- | - | --------------------------------- | -
|                                                            |   | 2008                              |  
|Cash flows from operating activitie s                       |   |                                   |  
|Net loss                                                    | $ | (619,301                          | )
|Adjustments to reconcile
      net loss to cash             |   |                                   |  
|used by operating
      activities                          |   |                                   |  
|Depreciation
      and depletion                            |   | 92,752                            |  
|Impairment of oil and gas properties                        |   | -                                 |  
|Stock
      based compensation                              |   | 421,024                           |  
|Net changes
      in :                                      |   |                                   |  
|Deposits                                                    |   | -                                 |  
|Joint interest billing receivables                          |   | 1,101,648                         |  
|Accounts
      payable and accrued liability                |   | (1,281,837                        | )
|Net cash flows used in ope rating activitie
      s         |   | (285,714                          | )
|Cash flows from investing activitie s                       |   |                                   |  
|Acquisition
      of oil and gas properties                 |   | (38,425                           | )
|Net cash flows used in investing activitie s                |   | (38,425                           | )
|                                                            |   |                                   |  
|Cash flows from financing activities                        |   |                                   |  
|Proceeds
      from sale of common shares, net              |   | 104,975                           |  
|Net cash flows provided by financing activitie s            |   | 104,975                           |  
|                                                            |   |                                   |  
|Net de crease in cash                                       |   | (219,164                          | )
|                                                            |   |                                   |  
|Cash, be ginning of pe riod                                 |   | 238,140                           |  
|                                                            |   |                                   |  
|Cash, end of pe riod                                        | $ | 18,976                            |  
|Net cash paid during the period for:                        |   |                                   |  
|Interest                                                    | $ | -                                 |  
|Income taxes                                                | $ | -                                 |  
|Non cash transactions:                                      |   |                                   |  
|Oil and gas
      properties financed with accounts payable | $ | -                                 |  
|Deposits reclassified to
      oil & gas properties         | $ | -                                 |  

The accompanying notes are an integral part of these financial
  statements

Page 3

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|California Oil & Gas Corporation
|--------------------------------

Notes to the Financial Statements May 31, 2008 
  (unaudited)

|1. | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The accompanying unaudited interim financial statements
        of California Oil & Gas Corporation (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, 2007 as reported
        in Form 10-KSB, have been omitted.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|2. | Reclassification                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Certain amounts in the 2007 financial statements have
        been reclassified to conform to the 2008 financial statement presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|3. | Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | As of May 31, 2008, there were 41,588,471 common shares
        issued and 45,672,276 common shares, on a diluted basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | On April 9, 2008, the Company issued 700,000 units of
        our company to one investor, who is the wife of the president of the Company,
        in a private placement at a price of $0.15 per unit for aggregate proceeds
        of US$105,000. Each unit consists of one common share and one half common
        share purchase warrant. Each full common share purchase warrant entitles
        the holder to purchase one additional common share of our company at a
        price of $0.20 per warrant share until the warrants expire on April 8,
        2009. The fair market value of the 350,000 purchase warrants issued in
        April 2008 was valued at $24,190. The fair market value of the options
        was calculated using the Black-Scholes option pricing as follows: risk
        free interest rate %, 3.36; volatility %, 111; expected life, 2 years.                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The fair market value of the 2,500,000 options issued
        in November 2007 was valued at $838,212 and is being expensed ratably
        over the three year vesting period. Stock based compensation of $421,024
        and $58,771 was expensed during the six months ended May 31, 2008 and
        May 31, 2007, respectively. The fair market value of the options was calculated
        using the Black-Scholes option pricing as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

2007Risk free interest rate (%)
      3.36Volatility (%)
      137Expected life (years)
      3


|4. | Oil and Gas Properties                                                                                                                                                                                                                                                                                                                            
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                   
|   | During the six month period ended May 31, 2008, the
        Company acquired certain non-producing oil and gas leases in California
        for $38,425. The Krotz Springs property, which is the Companys only
        proved property, generated $105,646 in net revenues, after deducting royalties
        of $6,454 for the six months ended

Page 4

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|California Oil & Gas Corporation
|--------------------------------

May 31, 2008. This revenue is retained
  by the operator as payment of balances owed. See Litigation Contingency below.
  As of May 31, 2008 the net book value of the oil and gas properties was $870,663
  which is made up of $870,663 from unproven properties.

|5. | Litigation Contingency                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | On April 3, 2008, The Company received a petition filed
        by Daybreak Oil & Gas, Inc. in the Nineteenth Judicial District Court
        of the State of Louisiana, Parish of East Baton Rouge, Suit Number 562933,
        Division SEC.24. In that petition, Daybreak Oil & Gas alleges that
        the Company owes Daybreak Oil & Gas the amount of $587,465, being
        25% of the cost of the #60 Haas-Hirsch well in the Krotz Springs Prospect,
        as the result of our breach of a Joint Operating Agreement in which we
        agreed to pay 25% of the costs associated with the well. Daybreak Oil
        & Gas is also seeking interest on the amounts alleged owing plus a
        reasonable attorneys fee and the costs of the action. The Company
        has filed a statement of defense in the State of Louisiana. As of May
        31, 2008 the full amount of the asserted damages, less attorneys
        fees and interest, has been accrued by the Company. Ultimately, if litigation
        ensues and judgement requiring immediate payment results, there could
        be a significant adverse impact on the Companys operations.

Page 5

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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.

Plan of Operation and Cash Requirements

Overview

You should read the following discussion of our financial
condition and results of operations together with our reviewed but unaudited
financial statements and the notes to those reviewed but unaudited 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 19,000 acres of mineral property in four prospect areas. During the next
six months, these partners intend to finalize interpretation of a 3-D seismic
program conducted over three of these four areas. Using this information and
acting in consultation with our partners and Chevron U.S.A. Inc., we plan to
select locations for four exploration wells. Following agreement among the
partners, we anticipate that drilling should begin during the next six months,
with the four wells drilled by December

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- 5 

31, 2008, subject to equipment availability, government
approvals (including environmental approvals) and the normal constraints of
weather and financing.

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 funded
a High Definition 3-D Exploration Seismic Survey over a project area in the San
Joaquin area of Southern California consisting of approximately 22,500 acres.
The project area is comprised of 19,000 gross acres of mineral leaseholds to be
contributed by our current partners and approximately 3,500 gross acres of
mineral leaseholds contributed by Chevron, all of which has been subdivided into
three prospect areas. Under the terms of the agreement, Chevron had the right,
but was 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 (which they did), our company would act as the operator. The
agreement also provides that if the survey was shot and the data are acquired,
processed and delivered to the other parties to the agreement, Chevron will have
earned 50% of the interest held by our partners in the 19,000 gross acres of
mineral leaseholds contributed by them and our current partners would have the
option to farm-in to a 50% interest in the 3,500 gross acres contributed to the
project by Chevron by drilling four initial test wells on what all of our
partners mutually agree to be the best exploration prospects within the seismic
acquisition area. 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 four test wells. If after we have drilled these four 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 for the production phase. Beginning in mid-September, 2007, we began
preliminary work on the 3-D seismic project and data acquisition began October
15, 2007. Field data acquisition for the 35.2 square mile seismic survey has
been completed, the data have been processed and interpretation of the data is
nearing completion, but final agreement on the initial four earning locations
has not been reached. Meetings will be held with our partners in the near future
to select these drilling locations, with drilling planned to follow as governed
by equipment availability and permitting.

With the exception of the 50% working interest recently
acquired in 320 acres of leases in the Dyer Creek area, 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 that gives us the
ability to earn an interest. Under this agreement, and following final
interpretation of the seismic data derived from the High Definition 3-D
Exploration Seismic Survey, we will have the option to earn a 12.5% interest
(including 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. Following the earning phase, our capital
requirements would be to a 12.5% working interest.

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 $2 million to
earn and maintain our interest in the East Slopes 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 $500,000 on this
project over the next 12 months, although the prime focus of our company during
this period will be on operation of the initial drilling, and potential
subsequent development of any exploration drilling successes, in the area
covered by the 3-D seismic program.

Our company, in partnership with Consolidated Beacon Resources
Ltd. (TSX-V:KBC-V), a Canadian public company, acquired from third parties a 50%
interest in 320 acres of oil and gas leases in each of the Dyer Creek and
Southeast Edison fields in the San Joaquin Basin in California. The Dyer Creek
acreage (50% working interest) is within the area covered by the 3-D seismic
survey and is subject to the Chevron farm-in. The Southeast Edison leases (50%
working interest) are outside all areas of mutual interest. Both fields were
productive in the 1940s and were abandoned.

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- 6 

We executed a Letter of Intent with Consolidated Beacon
Resources Ltd. to acquire its interests in the San Joaquin Basin, which include
an approximately 10% interest in both the southern and northern areas,
Consolidated Beacons 50% working interest in the 320 acre Dyer Creek parcel and
50% of their 50% interest in the 320 acre Southeast Edison parcel. Consideration
is to be $1,250,000 ($575,000 cash and the remainder in shares of our common
stock at a deemed price of $0.50 per share). This transaction was conditioned on
the approval of Consolidated Beacons shareholders, the TSX Venture Exchange,
financing and other regulatory approval. Consolidated Beacons shareholders, at
their Annual General Meeting on May 2, 2008, did not approve the transaction. As
a result of the failure of the condition, the Letter of Intent has expired.

Louisiana

As we have previously disclosed, the cost of the Krotz Springs
well in Louisiana was significantly over budget. As a result, our share of the
well drilling and completion costs increased from the original estimate of
$1,000,000 to $2,277,058. We have paid $1,856,671 of this amount to the operator
and $420,387 remained outstanding at May 31, 2008. Although the operator has
demanded payment of the balance, we have not made any further payments. We have
previously assigned our share of revenue from the well to the operator and as
revenue is received it goes to reduce the balance claimed by the operator. The
operator has recently filed a lawsuit in State Court in Louisiana to recover the
balance due. We believe that we have defences to this lawsuit. This lawsuit is
discussed in more detail in the section of this Quarterly Report on Form 10-QSB,
titled Legal Proceedings, beginning at page 16<>, below.

The well is currently producing. For the period December 2007
through May 2008 the revenues from this well, net of royalty, were $105,646.
With the exception of ongoing production, we believe that there will be no
activity at Krotz Springs during the next 12 months. As a result of a minor
maintenance procedure, current well production has been significantly higher
than in the past, which has resulted in higher revenue from the well. This
revenue is paid directly to the partner who operated the drilling of the well to
reduce any amount owing on the well.

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 might be planned and
drilled. We believe that it is unlikely that a well will be drilled during the
12 month period ending July 21, 2009. The project is currently on hold and we
anticipate only minimal expenditures over the next 12 months. We are considering
reducing our interest in this project through a sale or farm-out of our
interest.

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 these activities over the next 12
months should be approximately $100,000.

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). One of our directors works full-time for our
company, for which he earns a salary. 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.

Financial Condition, Liquidity and Capital Resources

From inception on June 21, 2002 to November 30, 2006 (the date
that 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.

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- 7 

At May 31, 2008, we had a working capital deficiency of
$675,837.

At May 31, 2008, our total assets of $1,054,097 consisted of
current assets of $181,527 and oil and gas properties and other long term assets
of $872,570. This compares with our total assets at November 30, 2007 of
$2,429,235 which consisted of current assets of $1,502,338 and long term assets
of $926,897. The decrease in total assets is due to a decrease in accounts
receivable of $1,101,647.

At May 31, 2008, our total liabilities were $857,364 compared
to our liabilities of $2,139,200 as at November 30, 2007. The 60% decrease in
these liabilities consisted primarily of a decrease in trade payables of
$1,281,836.

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.

On November 1, 2007, we closed a private placement of 315,791
units for gross proceeds of $180,001. 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 $0.67 per warrant share until the warrants expire on October 31,
2009.

On April 9, 2008, we closed a private placement of 700,000
units for gross proceeds of $105,000. 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 $0.20 per warrant share until the warrants expire on April 8, 2009.

Cash Requirements

Over the next 12 months, we intend to spend approximately
$400,000 on general and administrative expenses, approximately $100,000 on the
search for new opportunities and approximately $2,500,000 on our oil and gas
activities. At May 31, 2008, we had cash of $18,976 and a working capital
deficiency of $675,837. Our working capital requirements could 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 opportunities identified, if any.

Specifically, we estimate our operating expenses for the next
12 months to be as follows:

California Projects
    $
    2,500,000Acquisition evaluation
    $
    100,000General and
      Administrative
    $
    400,000Total
    $
    3,000,000


We do not have the funds required to pay for our proposed
expenditures over the next 12 months. If we cannot raise these funds when needed
we will be required to scale down or discontinue our plan of operations. As we
cannot assure a lender that we will be able to successfully explore and develop
our properties, we believe that we will be unable to raise debt financing from
traditional lending sources. We have traditionally raised our operating capital
from sales of equity, but there can be no assurance that we will be able to do
so on commercially reasonable terms, if at all. If we cannot raise the money
that we need to in order to pursue our business plan, we may be forced to delay,
scale back, or even eliminate our exploration activities. If this were to
happen, our business could fail.

Exploration 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

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- 8 

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.

Going Concern

Our financial statements for the year ended November 30, 2007
were prepared assuming that we would continue as a going concern. As described
in the explanatory paragraph to our independent auditors' report on our
financial statements for the year ended November 30, 2007, which were included
in our annual report on Form 10-KSB filed with the SEC on March 12, 2008, we
have suffered recurring losses from operations, we have negative cash flows, we
have a stockholders deficiency and we are dependent upon obtaining adequate
financing in order to continue to pursue our business plan. These factors raise
substantial doubt about our ability to continue as a going concern. Our
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

Recently Issued Accounting Standards

Management does not anticipate that any recently issued
accounting pronouncements will have a material impact on the financial
statements or cash flows of our company.

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 May 31, 2008
have incurred losses of $4,111,173 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.

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- 9 

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 quarterly report 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:

- 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.

During the three month period ended May 31, 2008, we generated
revenues from operations due to natural gas production from our well in Krotz
Springs, Louisiana. This well commenced production in May 2007 and has

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- 10 

generated oil and gas revenues, net of royalties, of $64,603
for the three month period ended May 31, 2008. We incurred a net loss of
$310,615 for the three month period ended May 31, 2008 and $341,094 for the
three month period ended May 31, 2007. We anticipate that we will continue to
incur operating expenses in excess of revenues from operations 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 May 31, 2008, we had cash
of $18,976. At May 31, 2008, we had a working capital deficiency of $675,837. We
estimate our average monthly operating expenses to be approximately $33,000 each
month, excluding exploration but including general and administrative expense
and investor relations expenses. We estimate that we will need approximately
$2,600,000 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 $3,000,000 to
fund our continued operations and our working capital deficiency 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 believe that we will not
be able 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, 2007, which were included in our annual report on Form
10-KSB filed with the SEC on March 12, 2008. 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 $3,000,000 in
additional funds to maintain or expand our operations 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.

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 Mel Threthart, one of our directors who
works for our company on a full-time basis managing the California program, our
directors and executive officers are employed in other positions with other
companies. As a result, they manage our company on a part-time basis. Because of
this, 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,

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- 11 

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 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

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- 12 

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 we cannot adequately insure or which we 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.

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.

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- 13 

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 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

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- 14 

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.

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 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, principal accounting and financial officer (our president,
chief executive officer and 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 May 31, 2008, 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, chief executive officer and 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 May 31, 2008
that have materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.

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- 15 

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Except for the lawsuit described below, 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.

On or about April 1, 2008, we received a petition filed by
Daybreak Oil & Gas, Inc. in the Nineteenth Judicial District Court of the
State of Louisiana, Parish of East Baton Rouge, Suit Number 562933, Division
SEC.24. In that petition, Daybreak Oil & Gas alleges that our company is in
breach of a Joint Operating Agreement which required that we pay to them an
amount equal to 25% share of the cost of the #60 Haas-Hirsch well in the Krotz
Springs Prospect. Daybreak Oil & Gas claims that the balance due to them on
this obligation is $587,464.55 and they are claiming for this amount plus
interest, a reasonable attorneys fee and the costs of the action. We believe
that we have defences to this action and we have consulted with an attorney
licensed to practice law in the State of Louisiana in anticipation of filing a
statement of defence.

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

On April 8, 2008, we sold 700,000 units of our company to one
investor in a private placement at a price of $0.15 per unit for gross proceeds
of $105,000. 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 $0.20 per
warrant share until the warrants expire on April 8, 2009. The investor is the
wife of an officer of our company and is not a U.S. person. In closing this
private placement we relied on the exemption from registration provided by
Regulation S.

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information.

On May 20, 2008, Norman Johnson resigned as our Chief Financial
Officer. On the same date, we appointed John McLeod as our Chief Financial
Officer. Mr. McLeod is currently our President, Secretary, Treasurer and a
director of our company.

Item 6. Exhibits.

Exhibits Required by Item 601 of Regulation S-B.

|Exhibit | Description                                                                                                                                                                              
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |                                                                                                                                                                                          
|        |                                                                                                                                                                                          
|(3)     | Articles of Incorporation
      and Bylaws                                                                                                                                               
|        |                                                                                                                                                                                          
|3.1     | Articles of Incorporation (incorporated by reference to
      the Companys SB-2 Registration Statement filed January 23, 2003).                                                         
|        |                                                                                                                                                                                          
|3.2     | Bylaws (incorporated by reference to the Companys SB-2
      Registration Statement filed January 23, 2003).                                                                            
|        |                                                                                                                                                                                          
|3.3     | Certificate of Change filed with the Nevada Secretary of
      State on December 21, 2004 (incorporated by reference to our Current
      Report on Form 8-K filed on December 22, 2004).

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- 16 

|Exhibit | Description                                                                                                                                                                                                                                                                                         
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |                                                                                                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                     
|3.4     | Certificate of Change filed with the Nevada Secretary of
      State on January 18, 2006 (incorporated by reference to our Current Report
      on Form 8-K filed on January 26, 2006).                                                                                                             
|        |                                                                                                                                                                                                                                                                                                     
|3.5     | Articles of Merger filed with the Nevada Secretary of
      State on January 31, 2006 (incorporated by reference to our Current Report
      on Form 8-K filed on February 6, 2006).                                                                                                                
|        |                                                                                                                                                                                                                                                                                                     
|(4)     | Instruments Defining the Rights of Security
      Holders                                                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                                     
|4.1     | 2006 Stock Option Plan (incorporated by reference from
      our Current Report on Form 8-K filed on April 26, 2006).                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                     
|4.2     | 2007 Nonqualified Stock Option Plan (incorporated by
      reference from our Current Report on Form 8-K filed on November 28, 2007).                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                     
|(10)    | Material Contracts                                                                                                                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                     
|10.1    | Form of Subscription Agreement (incorporated by reference
      from our Current Report on Form 8-K filed on March 21, 2006).                                                                                                                                                                       
|        |                                                                                                                                                                                                                                                                                                     
|10.2    | Letter of Intent with Nomad Hydrocarbons LLC
      (incorporated by reference from our Annual Report on Form 10-KSB filed on
      March 15, 2007).                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                                     
|10.3    | Letter of Intent with Nomad Hydrocarbons LLC
      (incorporated by reference from our Quarterly Report on Form 10-QSB filed
      on April 13, 2006).                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                                     
|10.4    | Investor Relations Consulting Agreement dated April 10,
      2006 with Cypress Point Capital Inc.  (incorporated by reference
      from our Current Report on Form 8-K filed on April 26, 2006).                                                                                                  
|        |                                                                                                                                                                                                                                                                                                     
|10.5    | Letter of Understanding with March Resources Corp. dated
      September 11, 2006 (incorporated by reference from our Current Report on
      Form 8-K filed on September 12, 2006).                                                                                                                
|        |                                                                                                                                                                                                                                                                                                     
|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).                                                                                                                                                                       
|        |                                                                                                                                                                                                                                                                                                     
|10.9    | Form of Subscription Agreement (US Subscriber)
      (incorporated by reference from our Current Report on Form 8-K filed on
      November 11, 2007).                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                                     
|10.10   | Form of Subscription Agreement (Non-US Subscriber)
      (incorporated by reference from our Current Report on Form 8-K filed on
      November 11, 2007).                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                                     
|10.11   | Form of Warrant Certificate (US Subscriber) (incorporated
      by reference from our Current Report on Form 8-K filed on November 11,
      2007).                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                                     
|10.12   | Form of Warrant Certificate (Non-US Subscriber)
      (incorporated by reference from our Current Report on Form 8-K filed on
      November 11, 2007).                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                     
|10.13   | Subscription Agreement dated April 2, 2008 with Carol
      McLeod (incorporated by reference from our Quarterly Report on Form 10-QSB
      filed on April 21, 2008).                                                                                                                              

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- 17 

|Exhibit | Description                                                                                                                                      
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |                                                                                                                                                  
|        |                                                                                                                                                  
|(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.                                                                                             
|        |                                                                                                                                                  
|(32)    | Section 906 Certification                                                                                                                        
|        |                                                                                                                                                  
|32.1*   | Section
      906 Certification of John G.F. McLeod.                                                                                             

*Filed herewith.

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- 18 -

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 McLeodJohn McLeod, President, Treasurer,
Secretary and Director(Principal Executive Officer, Principal Financial
Officer and Principal Accounting Officer)

Date: July 21, 2008

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