UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 
 FORM
10-KSB
 
 (Mark One)þ
                    
                    ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended September 30, 2006oro
                    
                    TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934FOR
      THE TRANSITION PERIOD FROM ________TO________Commission
      File Number
0-24012
 
 DEEP
WELL OIL & GAS, INC.
 (Formerly
ALLIED DEVICES CORPORATION)
 (Name of
small business issuer in its charter)
 
 Nevada
              
              13-3087510(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)Suite
      700, 10150 – 100 Street, Edmonton, Alberta, Canada
              
              T5J
      0P6(Address
      of principal executive offices)
              
              (Zip
      Code)
 
 Issuer’s
telephone number:(780)
409-8144
 
 Securities
registered under Section 12(b) of the Exchange Act:
 
 Title
      of each class
              
              Name
      of each exchange on which registeredNone
              
              None
 
 Securities
registered under Section 12(g) of the Exchange Act:
 
 Common
      Stock, $0.001 par value per share(Title
      of class)
 
 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 oNo þ
 
 Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.  o
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes oNo þ
 
 The
issuer had no revenues for its most recent fiscal year.
 
 
  The
aggregate market value of the registrant’s common stock held by non-affiliates
computed by reference to the price at which the common equity was sold on
September 29, 2006 was $37,662,018.
 
 (ISSUERS
INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
 
 Check
whether the issuer has filed all documents and reports required to be filed by
Sections 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes oNo þ
 
 As of
November 15, 2008, the Issuer had approximately 106,774,258 shares of common
stock, $0.001 par value per share outstanding.
 
 Transitional
Small Business Disclosure Format (check one): Yes oNo þ
 
 
 
 TABLE
      OF CONTENTS
 
 Page
                      NumberGLOSSARY
      AND ABBREVIATIONS
                    
                    5CURRENCY
      EXCHANGE RATES
                    
                    7CAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING INFORMATION
                    
                    7PART
      IITEM
      1.
                    
                    DESCRIPTION
      OF BUSINESS
                    
                    7General
      Overview
                    
                    7Business
      Development
                    
                    7Business
      of Issuer
                    
                    9Overview
                    
                    9Operations
                    
                    9Sales
      and Marketing
                    
                    12Research
      and Development
                    
                    12Competition
                    
                    12Canadian
      Government and Environmental Regulations
                    
                    12Employees
                    
                    14Royalty
      Agreements
                    
                    14Risk
      Factors
                    
                    14Reports
      to Security Holders
                    
                    17ITEM
      2.
                    
                    DESCRIPTION
      OF PROPERTY
                    
                    17Office
      Leases
                    
                    17Oil
      & Gas Properties
                    
                    17Acreage
                    
                    17Reserves,
      Production and Delivery Commitments
                    
                    19Drilling
      Activity
                    
                    19Present
      Activities
                    
                    19Past
      Activities
                    
                    20ITEM
      3.
                    
                    LEGAL
      PROCEEDINGS
                    
                    21ITEM
      4.
                    
                    SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                    
                    24PART
      IIITEM
      5.
                    
                    MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
                    
                    24Market
      Price Information for Common Stock
                    
                    25Holders
      of Record
                    
                    26Dividends
                    
                    26Equity
      Compensation Plan Information
                    
                    26Stock
      Option Plan
                    
                    27Sales
      of Unregistered Securities
                    
                    27ITEM
      6.
                    
                    MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
                    
                    30
 
 3
 
 REPORT OF
      INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
                        
                        34ITEM
      7.
                        
                        CONSOLIDATED
      FINANCIAL STATEMENTS
                        
                        35Consolidated Balance Sheets
                        
                        35Consolidated
      Statement of Operations
                        
                        36Consolidated
      Statement of Shareholders’ Equity
                        
                        37Consolidated
      Statement of Cash Flows
                        
                        39Notes
      to the Consolidated Financial Statements
                        
                        40ITEM
      8.
                        
                        CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                        
                        53ITEM
      8A.
                        
                        CONTROLS
      AND PROCEDURES
                        
                        54ITEM
      8B.
                        
                        OTHER
      INFORMATION
                        
                        54PART
      IIIITEM
      9.
                        
                        DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
      16(a) OF THE EXCHANGE ACT
                        
                        55ITEM
      10.
                        
                        EXECUTIVE
      COMPENSATION
                        
                        59ITEM
      11.
                        
                        SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                        
                        63ITEM
      12.
                        
                        CERTAIN
      RELATIONSHIP AND RELATED TRANSACTIONS
                        
                        65ITEM
      13.
                        
                        EXHIBITS
      AND REPORTS ON FORM 8-K
                        
                        66ITEM
      14.
                        
                        PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                        
                        70SIGNATURES
                        
                        71
 
 4
 
 GLOSSARY
AND ABBREVIATIONS
 
 The
following are defined terms and abbreviations used herein:
 
 API – a scale developed by the
American Petroleum Institute for measuring the density or gravity (heaviness) of
oil; the higher the number, the lighter the oil.
 
 Barrel – the common unit for
measuring petroleum, including heavy oil. One barrel contains approximately 159
L
 
 Battery – equipment to process
or store crude oil from one or more wells.
 
 Bbl or Bbls – means barrel or
barrels.
 
 Bitumen – is a heavy, viscous
form of crude oil that generally has an API gravity of less than 10
degrees.
 
 Cdn – means Canadian
dollars.
 
 Celsius – a temperature scale
that registers the freezing point of water as 0 degrees and the boiling point as
100 degrees under normal atmospheric pressure. Room temperature is between 20
degrees and 25 degrees Celsius.
 
 Cold Flow – is a production
technique where the oil is simply pumped out of the sands not using a Thermal
Recovery Technique.
 
 Conventional Crude Oil – Crude
oil that flows naturally or that can be pumped without being heated or
diluted.
 
 Core – a cylindrical rock
sample taken from a formation for geological analysis.
 
 Crude Oil – oil that has not
undergone any refining. Crude oil is a mixture of hydrocarbons with small
quantities of other chemicals such as sulphur, nitrogen and oxygen. Crude oil
varies radically in its properties, namely specific gravity and
viscosity.
 
 Cyclic Steam Stimulation
(hereinafter referred to as “CSS”) – is a thermal in situ recovery method, which
consists of a three-stage process involving high-pressure steam injected into
the formation for several weeks. The heat softens the oil while the water vapor
helps to dilute and separate the oil from the sand grains. The pressure also
creates channels and cracks through which the oil can flow   more
easily to the well. When a portion of the reservoir is thoroughly saturated, the
steam is turned off and the reservoir “soaks” for several weeks. This is
followed by the production phase, when the oil flows, or is pumped, up the same
wells to the surface. When production rates decline, another cycle of steam
injection begins. This process is sometimes called “huff-and-puff”
recovery.
 
 Darcy (Darcies)– a measure of
rock permeability (i.e., the degree to which natural gas and crude oil can move
through the rocks).
 
 Density– the heaviness of
crude oil, indicating the proportion of large, carbon-rich molecules, generally
measured in kilograms per cubic metre (kg/m3) or degrees on the American
Petroleum Institute (API) gravity scale.
 
 Development Well – is a well
drilled within a proven area of a natural gas or oil reservoir to the depth of a
stratigraphic horizon known to be productive.
 
 Diluents– light
petroleum liquids used to dilute bitumen and heavy oil so they can flow through
pipelines.
 
 Drill Stem Test (DST)– a
method of formation testing. The basic drill stem test tool consists of a packer
or packers, valves or ports that may be opened and closed from the surface, and
two or more pressure-recording devices. The tool is lowered on the drill string
to the zone to be tested. The packer or packers are set to isolate the zone from
the drilling fluid column.
 
 Drill String– the column, or
string, of drill pipe with attached tool joints that transmits fluid and
rotational power from the kelly to the drill collars and the bit. Often, the
term is loosely applied to include both drill pipe and drill
collars.
 
 Enhanced Oil Recovery – any
method that increases oil production by using techniques or materials that are
not part of normal pressure maintenance or water flooding operations. For
example, natural gas can be injected into a reservoir to “enhance” or increase
oil production.
 
 Exploratory Well – is a well
drilled to find and produce natural gas or oil in an unproven area, to find a
new reservoir in a field previously found to be productive of natural gas or oil
in another reservoir, or to extend a known reservoir.
 
 Farmout – an arrangement
whereby the owner (the “Farmor”) of a lease assigns some portion (or all) of the
lease(s) to another company (the “Farmee”) for drilling in return for the Farmee
paying for the drilling on at least some portion of the lease(s) under the
Farmout.
 
 5
  Gross Acre/Hectare – a gross
acre is an acre in which a working interest is owned. 1 acre = 0.404685
hectares.
 
 Heavy Oil – oil having an API
gravity less than 22.3 degrees.
 
 Horizontal Well – the drilling
of a well that deviates from the vertical and travels horizontally through a
producing layer.
 
 In situ – In the Oil Sands
context, In situ
methods, In situ means
“in place” in Latin, such as SAGD or CSS through horizontal or vertical wells
are required if the oil sands deposits are too deep to mine from the
surface.
 
 Lease – a legal document
giving an operator the right to drill for or produce oil or gas; also, the land
on which a lease has been obtained.
 
 Light Crude Oil – liquid
petroleum which has a low density and flows freely at room temperature. Also
called conventional oil, has an API gravity of at least 22 degrees and a
viscosity less than 100 centipoise (cP).
 
 Net Acre/Hectare – a net acre
is the result that is obtained when fractional ownership working interest is
multiplied by gross acres.
 
 Oil Sands – are naturally
occurring mixtures of bitumen, water, sand and clay that are found mainly in
three areas of Alberta - Athabasca, Peace River and Cold Lake. A typical sample
of oil sand might contain about 12 percent bitumen by weight.
 
 Pay Zone (Net Oil Pay) – the
producing part of a formation.
 
 Permeability – the capacity of
a reservoir rock to transmit fluids; how easily fluids can pass through a rock.
The unit of measurement is the darcy or millidarcy.
 
 Porosity – the capacity of a
reservoir to store fluids, the volume of the pore space within a reservoir,
measured as a percentage.
 
 Primary Recovery – the
production of oil and gas from reservoirs using the natural energy available in
the reservoirs and pumping techniques.
 
 Saturation – the relative
amount of water, oil and gas in the pores of a rock, usually as a percentage of
volume.
 
 SEC – means United States
Securities and Exchange Commission.
 
 Section – in reference to a
parcel of land, meaning an area of land comprising approximately 640
acres.
 
 Solution Gas – natural gas
that is found with crude oil in underground reservoirs. When the oil comes to
the surface, the gas expands and comes out of the solution.
 
 Steam-Assisted Gravity Drainage
(SAGD) – pairs of horizontal wells (an upper well and a lower well) are
drilled into an oil sands formation and steam is injected continuously into the
upper well. As the steam heats the oil sands formation, the bitumen softens and
drains into the lower well, from which it is produced to the
surface.
 
 Thermal Recovery – a type of
improved recovery in which heat is introduced into a reservoir to lower the
viscosity of heavy oils and to facilitate their flow into producing wells. The
pay zone may be heated by injecting steam (steam drive) or by injecting air and
burning a portion of the oil in place (in situ combustion).
 
 Upgrading – the process that
converts bitumen and heavy oil into a product with a density and viscosity
similar to conventional light crude oil.
 
 Viscosity – is a measure of a
fluids resistance to flow. To simplify, the oil’s viscosity represents the
measure for which the oil wants to stay put when pushed (sheared) by moving
mechanical components. It varies greatly with temperature. The more viscous the
oil the greater the resistance and the less easy it is for it to flow.
Centipoise (cp) is the common unit for expressing absolute viscosity. Viscosity
matters to producers because the oil’s viscosity at reservoir temperature
determines how easily oil flows to the well for extraction.
 
 6
 
 CURRENCY
EXCHANGE RATES
 
 Our
functional currency is the US dollar, therefore our accounts are reported in
United States dollars. However, our Canadian subsidiaries maintain their
accounts and records in Canadian currency (“Cdn”). Therefore, all dollar amounts
herein are stated in United States dollars except where otherwise
indicated.
 
 The
following table sets forth the rates of exchange for Canadian dollars per
US$1.00 in effect at the end of the following periods and the average rates of
exchange during such periods, based on the Bank of Canada average noon spot rate
of exchange.
 Year ending September 30,
                        
                        2008
                        
                        
                        2007
                        
                        
                        2006
                        
                        
                        2005
                        
                        
                        2004Rate
      at end of year
                        
                        
                        1.0599
                        
                        
                        $
                        0.9963
                        
                        
                        $
                        1.1153
                        
                        
                        $
                        1.1611
                        
                        
                        $
                        1.2639Average
      rate for the year
                        
                        
                        1.0107
                        
                        
                        $
                        1.1132
                        
                        
                        $
                        1.1425
                        
                        
                        $
                        1.2231
                        
                        
                        $
                        1.3251
 Unless
the context indicates another meaning, the terms the “Company”, “we”, “us” and
“our” refer to Deep Well Oil & Gas, Inc. and its subsidiaries. For
definitions of some terms used throughout this report, see “Glossary and
Abbreviations”.
 
 CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 
 This
Annual Report on Form 10-KSB, including all referenced exhibits, may contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. All statements other than statements of historical facts included or
incorporated by reference in this report, including, without limitation,
statements regarding our future financial position, business strategy, projected
costs and plans and objectives of management for future operations, are
forward-looking statements. In addition, forward-looking statements generally
can be identified by the use of forward-looking terminology such as “may,”
“will,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “believe,”
“plan”, “future”, “strategy”, or “continue”, or the negative thereof or
variations thereon or similar terminology. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct.
Various factors could cause actual results to differ materially from those
expressed in the forward-looking statements, including those described in but
not limited to “Risk Factors” in this Form 10-KSB. We caution readers not to
place reliance on such statements. Unless otherwise required by applicable law,
we assume no obligations to update these forward-looking statements to reflect
actual results, changes in assumptions, or changes in other factors. Also see
“forward-looking statements” under item 6 Management’s Discussion and Analysis
or Plan of Operations elsewhere in this Annual Report on form
10-KSB.
 
 PART
I
 
 ITEM 1.
              DESCRIPTION
      OF BUSINESS
 
 General
Overview
 
 We are an
emerging independent junior oil and gas exploration and development company
headquartered in Edmonton, Alberta, Canada. Our immediate corporate focus is to
develop the existing land base that we presently own in the Peace River Oil
Sands area in North Central Alberta. Our principal office is located at Suite
700, 10150 – 100 Street, Edmonton, Alberta T5J 0P6, our telephone number is
(780) 409-8144 and our fax number is (780) 409-8146. Deep Well Oil & Gas,
Inc. is a Nevada corporation and trades on the pink sheets under the symbol
DWOG. We maintain a website at www.deepwelloil.com.
 
 Business
Development
 
 Deep Well
Oil & Gas, Inc. (hereinafter referred to as “Deep Well”) was originally
incorporated on July 18, 1988 under the laws of the state of Nevada as Worldwide
Stock Transfer, Inc. On October 25, 1990, Worldwide Stock Transfer, Inc. changed
its name to Illustrious Mergers, Inc. On June 18, 1991, a company known as
Allied Devices Corporation was merged with and into Illustrious Mergers, Inc.
and its name was at that time changed to Allied Devices Corporation. On August
19, 1996, a company called Absolute Precision, Inc. was merged with and into
Allied Devices Corporation and it retained its name as Allied Devices
Corporation.
 
 On
February 19, 2003, Deep Well’s predecessor company, Allied Devices Corporation,
filed a Petition for Relief under Chapter 11 of the U.S. Bankruptcy Code in the
United States Bankruptcy Court in and for the Eastern District of New York
titled In re: Allied Devices
Corporation, et al., Chapter 11, Case No. 03-80962-511 (“the Bankruptcy
Action”).
 
 7
 
 On
September 10, 2003, after notice to all creditors and a formal hearing, U.S.
Bankruptcy Judge Melanie L. Cyganowski issued an “Order Confirming Liquidating
Plan of Reorganization” in the Bankruptcy Action (hereinafter referred to as
“Bankruptcy Order”). In conjunction with that Bankruptcy Order, Allied Devices
Corporation’s (herein after referred to as the “Predecessor Company”)
liabilities, among other things, were paid off and extinguished. The Bankruptcy
Order, among other things, implemented a change of control and a group of new
investors took control of the Predecessor Company and changed its name to Deep
Well Oil and Gas, Inc.
 
 Upon
emergence from Chapter 11 proceedings, Deep Well adopted fresh-start reporting
in accordance with the American Institute of Certified Public Accountants
Statement of Position 90-7, Financial Reporting By Entities in Reorganization
Under the Bankruptcy Code (SOP 90-7). For financial reporting purposes, Deep
Well adopted the provisions of fresh-start reporting effective September 10,
2003. All periods presented prior to September 10, 2003, have been designated
Predecessor Company.
 
 On August
18, 2004, Deep Well and Pan Orient Energy Corp. (formerly known as Maxen
Petroleum Inc. hereinafter referred to as “Pan Orient”) jointly participated in
a public offering of Crown Oil Sands Rights held by the Alberta Department of
Energy, in which the joint parties successfully bid on 3 Peace River Oil Sands
Development leases for a total of 31 sections covering 19,609 gross acres (7,936
gross hectares). Deep Well acquired an undivided 80% working interest and Pan
Orient acquired an undivided 20% working interest in the joint
property.
 
 On June
7, 2005, Deep Well acquired 100% of the common shares of Northern Alberta Oil
Ltd. (formerly known as Mikwec Energy Canada, Ltd., hereinafter referred to as
“Northern”) in exchange for 18,208,875 shares of Deep Well’s common stock. Under
the terms of the agreement, Deep Well acquired one hundred percent (100%) of
Northern’s issued and outstanding common stock and obtained exclusive options to
acquire one hundred percent (100%) of Northern’s preferred stock. The agreement
provided that one hundred percent (100%) of Northern’s common and preferred
shareholders would exchange their Northern shares for newly issued shares of
Deep Well’s restricted common stock. Deep Well, through its acquisition of
Northern, acquired a net 80% working interest in 3 Peace River Oil Sands
Development leases, 1 Oil Sands permit and 1 Petroleum and Natural Gas License
for a total of 38.5 sections covering 24,354 gross acres (9,856 gross hectares).
Through this acquisition we have more than doubled our acreage position in the
Peace River Oil Sands to 43,964 gross acres (17,792 gross hectares). Of the
total acreage, 6.5 sections are classified as the Oil Sands Permit and Petroleum
and Natural Gas License and were held by an injunction related to a court
proceeding involving Classic Energy Inc., (hereinafter referred to as
“Classic”), the company Northern acquired this acreage from. The permit and
license have now been released and as of November 15, 2005, were transferred to
Northern.
 
 On June
29, 2005, pursuant to the authority contained in the Nevada Revised Statutes and
Section 3.11 of the Bylaws of our Company, a new Board of Directors was elected
by written consent of a majority of shareholders. The newly elected Board of
Directors are Dr. Horst A. Schmid, Mr. Cyrus Spaulding, and Mr. Donald E. H.
Jones.
 
 On June
29, 2005, Mr. Curtis J. Sparrow was added back to the Board of Directors. At
this time Dr. Horst A. Schmid replaced Mr. Steven P. Gawne as Chief Executive
Officer and President and Mr. Curtis J. Sparrow continued as Corporate
Secretary, Treasurer and Chief Financial Officer of Deep Well.
 
 On
September 15, 2005, Deep Well Oil & Gas (Alberta) Ltd. (hereinafter referred
to as “Deep Well Alberta”), a 100% wholly owned subsidiary company of Deep Well,
was incorporated in the province of Alberta, Canada.  Deep Well
Alberta was incorporated in order to hold Deep Well’s Canadian oil sands leases
other than the oil sands leases already held by Northern. At the time Deep Well
owned 100% of the 6,069,625 issued common shares of Northern but not the
preferred shares of Northern. However, on June 7, 2005, the day Deep Well
acquired the common shares of Northern, Deep Well entered into option agreements
with the preferred shareholders of Northern to acquire 100% of the 432,500
Northern preferred shares in exchange for Deep Well shares. Deep Well acquired
the last of the preferred shares of Northern on April 4, 2007, resulting in
Northern now being a wholly owned subsidiary of Deep Well.
 
 On April
2, 2006, the directors of Deep Well elected Mr. David Roff to the Board of
Directors. Mr. Roff accepted the position on April 3, 2006. Mr. Roff was
formerly the President and sole Director of Deep Well from September 10, 2003
until his resignation on February 6, 2004.
 
 On April
2, 2008, our Company participated in a public offering of Crown Petroleum and
Natural Gas Rights held by the Alberta Department of Energy, in which the
Company successfully bid on 1 Petroleum and Natural Gas Rights parcel covering
3,795 gross acres (1,536 gross hectares) for a total of 6 sections in the Ochre
area located in the Peace River Oil Sands of Alberta. Our Company acquired an
undivided 100% working interest in these 6 sections located in the Peace River
Oil Sands area, approximately 14 miles west of our Sawn Lake properties,
increasing our land holdings in the Peace River area by 8%.
 
 8
 
 On August
20, 2008, the directors of Deep Well elected Mr. Malik Youyou to the Board of
Directors. Mr. Youyou accepted the position on August 20, 2008.
 
 Business of
Issuer
 
 Overview
 
 At this
time, our primary interest is the exploration for and production of oil in the
Peace River Oil Sands area located in North Central Alberta, Canada. We are
engaged in the identification, acquisition, exploration and development of oil
& gas prospects. Our immediate focus is the leases and permits we hold in
the Peace River Oil Sands area. Our main objective is to develop our existing
land holdings as well as identify and develop other commercially viable oil
& gas properties. Exploration and development for commercially viable
production of any oil and gas company includes a high degree of risk which
careful evaluation, experience and factual knowledge may not
eliminate.
 
 Operations
 
 Sawn Lake
Heavy Oil Sands Project:
 
 We
currently own an 80% working interest in 51 contiguous sections of oil sands
development leases, a 40% working interest in an additional 12 sections of oil
sands development leases, an 80% working interest in 6.5 sections of oil sands
permits and a 100% working interest in 6 sections of a Petroleum and Natural Gas
License in the Peace River oil sands in North Central Alberta. The leases,
permits and Petroleum and Natural Gas License cover 47,759 gross acres (19,328
gross hectares). Because of the earlier exploration for conventional crude oil,
other operators targeting the deeper Slave Point Formation have previously
drilled in some areas of our lands. We were able to benefit from data collected
by others pertaining to the drilling of more than seventy-five wells that
penetrated the Bluesky Formation heavy oil reservoir.
 
 On April
26, 2004, Northern signed a Joint Operating Agreement with Pan Orient to provide
for the manner of conducting operations on 3 Peace River oil sands development
leases, totaling 32 sections. The 32 sections were acquired jointly on April 23,
2004, with Northern having an 80% working interest and Pan Orient having a 20%
working interest in the joint lands.
 
 On
December 9, 2004, Deep Well signed a Joint Operating Agreement with 1132559
Alberta Ltd. (hereinafter referred to as “1132559”) under which 1132559
acknowledged the terms under which their 10% working interest acquired from Pan
Orient, in the joint lands covering 3 Peace River oil sands development leases
totalling 31 sections, would be governed.
 
 On
February 25, 2005, Deep Well and Northern signed a Farmout Agreement
(hereinafter referred to as the “Farmout Agreement”) with Surge Global Energy,
Inc. (hereinafter referred to as “Surge US”) and Signet Energy Inc. (formerly
known as Surge Global Energy Canada Ltd., and hereinafter referred to as
“Signet”) (collectively, “Surge”). Signet subsequently merged with 1350826
Alberta Ltd. a wholly owned subsidiary of Andora Energy Corporation (hereinafter
referred to as “Andora”, Pan Orient owns 55.4% of the outstanding shares of
Andora). This agreement allowed Surge to earn up to a 40% working interest in
the farmout lands (50% of our share). Among other things the agreement called
for Surge to drill 10 wells, pay $2,000,000 (less expenses related to a
financing) as a prospect fee, payable as ninety percent (90%) to Northern and
ten percent (10%) to Deep Well, and grant us, in the same proportions, 33.33% of
the shares of Surge US outstanding on the day the agreement was signed. On
February 28, 2005, Deep Well, Northern and Surge also agreed that Deep Well
would be responsible for the portion of the 6.5% royalty payable by Surge, if
any, on lands earned under the February 25, 2005 Farmout Agreement. This
liability could arise by virtue of a royalty agreement between Northern and
Nearshore Petroleum Corporation (hereinafter referred to as “Nearshore”) dated
December 12, 2003. And on February 28, 2005, Nearshore, Northern and Surge,
mutually agreed that an area of exclusion between Nearshore and Northern was
terminated effective February 17, 2005 since the area of exclusion could
interfere with the area of mutual interest provisions in the Farmout Agreement
with Surge. Nearshore is a private corporation incorporated in Alberta, Canada,
and is owned and controlled by Mr. Steven P. Gawne and his wife, Mrs. Rebekah J.
Gawne, who each own 50%. Mr. Steven P. Gawne was formerly the President, Chief
Executive Officer and Director of Deep Well Oil & Gas, Inc. from February 6,
2004 to June 29, 2005. This obligation of our Company was further modified on
November 26, 2007 where we would not be liable or obligated to pay any of this
portion of the royalty due, if any, on the portion of the royalty acquired by
Andora. Also on November 26, 2007, we entered into an agreement that, in
addition to addressing other issues, terminated the Farmout Agreement and
decided the final resolution of what  Signet earned from us under the
Farmout Agreement.
 
 On March
3, 2005, Deep Well, Northern and Surge mutually agreed by letter amending
agreement to extend the payment of the prospect fee under Article 13 of the
Farmout Agreement dated February 25, 2005, whereby Surge was granted an
extension for payment of the prospect fee to the closing date of March 18,
2005.
 
 9
 
 On March
10, 2005, Deep Well, Northern and Surge mutually agreed by letter amending
agreement that Surge US is only a party to the Farmout Agreement for the
purposes of Article 14 of the Farmout Agreement dated February 25,
2005.
 
 On March
10, 2005, Deep Well, Northern and Surge mutually agreed by letter amending
agreement to establish a procedure whereby Signet is to be appointed as the
Operator under the Existing Joint Operating Agreements in respect of all Farmout
Lands in which Signet earns an interest pursuant to Article 7 of the Farmout
Agreement dated February 25, 2005.
 
 On July
14, 2005, our Company and Surge mutually agreed to amend the Farmout Agreement
dated February 25, 2005 in order to extend the date to spud the first well until
September 25, 2005.
 
 On
September 21, 2005, Signet was issued a permit by the Energy Resources
Conservation Board (hereinafter referred to as “ERCB”) for a test well and on
September 28, 2005, Signet began drilling our first well 1-36-091-13W5
(hereinafter referred to as “1-36”) at Sawn Lake, Alberta Canada. Signet did not
spud the first well by the 25th of
September 2005 and we noted them in default of the Farmout
Agreement.
 
 In
October 2005, the ERCB granted our farmout partner and operator, Signet, an
amendment to the original test well permit at Sawn Lake, Alberta Canada, to
proceed with the drilling of our first well at Sawn Lake.
 
 On
November 15, 2005, as part of the settlement of the litigation as described in
this report, we agreed to amend the Farmout Agreement signed on February 25,
2005, between our Company and Surge that had previously been terminated by Deep
Well (as previously disclosed on Form 8-K on September 29, 2005). The amendments
to the agreement provided that: 1.) all conditions of the Farmout Agreement will
be deemed to have been satisfied on September 25, 2005; 2.) the earning period
(the period during which Signet has to drill 10 wells) under the agreement will
be extended until February 25, 2008; 3.) Signet will have until September 25,
2006 to drill an option well (the second well); 4.) an additional 6.5 sections
of land will be added to the land subject to the agreement; 5.) Signet will pay
Deep Well $1,000,000 on November 15, 2005 in satisfaction of the prospect fee
outstanding instead of after drilling the second well as stated in the Farmout
Agreement; and 6.) no shares of Surge US will be issued to Deep Well or
Northern, instead we will receive 7,550,000 common shares of Signet, a private
subsidiary company of Surge US.
 
 On July
17, 2006, Signet had been issued the required licenses by the Government of
Alberta to drill the next 3 horizontal wells in the Bluesky Formation of the
Sawn Lake Heavy Oil Sands project. The next 3 wells to be drilled are within
less than one mile (1.6 km) of the first test well already drilled. These
surface locations were 4-32-091-12W5 (hereinafter referred to as “4-32”),
7-30-091-12W5 (hereinafter referred to as “7-30”) and 13-29-091-12W5
(hereinafter referred to as “13-29”). Seismic and reservoir mapping were
undertaken to be used to support and progress work on near and long-term plans
of development for the Sawn Lake heavy oil project. For further information on
drilling and results see “Present Activities” under Item 2 “Oil and Gas
Properties” herein described in this report.
 
 In
October 2006, the 4-32 and 7-30 wells along with the 1-36 well were suspended.
Signet had undertaken a mapping of the reservoir to assist in its delineation
for any future development of the Sawn Lake property. The first three wells were
drilled in the most heavily documented portion of the Sawn Lake lands. Although,
as indicated by Signet, the preliminary results from the last 2 wells indicated
a lack of cold flow production from well 4-32 and 7-30, the compartmentalized
nature of the reservoir and varying characteristics of these compartments may
show different results with further evaluation.  Our Company felt that
the level of testing on these wells to determine their complete potential was
deficient.
 
 On
September 7, 2007, the claims of Star Capital Inc. against us were dismissed in
their entirety pursuant to an Order granted by the court. Star Capital Inc.’s
claims were originally filed with the Court of Queen’s Bench of Alberta in the
Judicial District of Calgary pursuant to an Originating Notice of Motion which
was filed on December 21, 2006 and a Amended Originating Notice which was filed
on March 29, 2007 against Deep Well, Deep Well Alberta, Northern and some of the
directors of Deep Well and its subsidiaries in addition to other individuals as
set out in its Amended Originating Notice. An Amending Agreement and Mutual
General Release was later implemented by the parties. Subsequent to this
Amending Agreement and Mutual General Release, Star Capital Inc. filed an
additional Originating Notice of Motion on February 26, 2008. The settlement of
this further claim was completed in March of 2008, whereby the parties agreed
upon a Full and Final Mutual Release.
 
 On
September 11, 2007, we exercised our dissenting rights at Signet’s special
meeting of shareholders held in Calgary, Alberta with respect to the
amalgamation between Signet and Andora. Our Company reserves its right to file a
Notice of Motion with the Court of Queen’s Bench of Alberta, Canada as a step
towards enforcing our rights to dissent. On November 19, 2008, we entered into
an arrangement whereby Deep Well’s subsidiaries, Deep Well Alberta and Northern,
exchanged its 755,000 and 6,795,000 common shares of Signet respectively into
224,156 and 2,017,402 common shares of Andora respectively.
 
 10
 
 On
October 1, 2007, we entered into a Consulting Agreement, effective September 20,
2007, with R.N. Dell Energy Ltd. whose primary consultant is Mr. Edward A.
Howard, to assist us in the further exploitation and development of Deep Well’s
Sawn Lake project. Mr. Howard is a Geologist and Palynologist with over 40 years
of heavy oil experience.  Most recently Mr. Howard was Vice President
Exploration and Development for Signet (recently acquired by Andora). Signet was
the Farmee which had the right to earn acreage from Deep Well. Signet’s rights
under the Farmout Agreement to drill to earn more acreage, have since expired
and as of November 26, 2007 the Farmout Agreement has been terminated. At
Signet, Mr. Howard was responsible for the planning and execution of the Sawn
Lake drilling program.  Mr. Howard has also worked with several
companies in the heavy oil sector including Sceptre Resources (taken over by
CNRL) at their Tangleflags field and Shell Canada at their Peace River Project.
Mr. Howard was credited with the discovery and early development of the first
successful Steam Assisted Gravity Drainage heavy oil extraction project for
Sceptre at the Tangleflags field.  While at Shell from 1967 to 1977,
Mr. Howard was instrumental in developing Shell’s Peace River strategy from the
early inception through to the Pilot Plant stage. This project continues to be
one of the most successful in situ oil sands producers. Also, Mr. Howard has
implemented noteworthy Cyclical Stream Simulation projects in
Alberta.  Some of these projects have proven to increase primary and
secondary recovery by 50% - 60%. Mr. Howard’s extensive experience with the
primary and secondary recovery of heavy oil as well as his direct knowledge of
the Peace River oil sands area, specifically the Sawn Lake project, will be of
great benefit to Deep Well.
 
 Effective
October 15, 2007, our Company entered into a Consulting Agreement with Picoplat
Consulting Inc. whose primary consultant is Mr. Ferdinand Brathwaite, to assist
our Company in the exploitation and development of Deep Well’s Sawn Lake
project. Mr. Brathwaite is an Engineering Technologist with substantial
knowledge and expertise related to oil and gas recovery in the Western
Sedimentary Basin. He was previously employed by HBOG as an engineering
technologist and by Royal Bank’s Global Energy And Minerals Group, performing
economic evaluations for both Canadian and U.S. oil and gas properties. He
switched careers and managed a small computer business before returning to the
oil and gas sector under contract with Encana Gas Storage Unit’s New Ventures
Group in the search for gas storage reservoirs in the U.S. Subsequent to the
sale of Encana’s Gas Storage Unit, Mr. Brathwaite consulted with Signet in it’s
development department.
 
 On
November 26, 2007, we entered into mediation with Signet and resolved our
differences and certain collateral matters. The settlement included but is not
limited to:
 
 ·
              the
      Farmout Agreement dated February 25, 2005, being effectively terminated
      concurrently with the execution of the settlement agreement;
      and
 ·
              Signet
      being regarded as having earned the two sections on which the option wells
      were drilled and 4 additional sections as set out in the Settlement;
      and
 ·
              Signet
      being required to reconvey registered title to 57.5 unearned sections of
      the Farmout Lands, as defined in the Farmout Agreement, back to us;
      and
 ·
              our
      Company having the right to retest, at no cost to Signet, the option wells
      previously drilled.
 
 On April
2, 2008, our Company participated in a public offering of Crown Petroleum and
Natural Gas Rights held by the Alberta Department of Energy, in which the
Company successfully bid on 1 Petroleum and Natural Gas Rights parcel covering
3,795 gross acres (1,536 gross hectares) for a total of 6 sections in the Ochre
area. Our Company acquired an undivided 100% working interest in these 6
sections located in the Peace River Oil Sands area approximately 14 miles west
of our Sawn Lake properties, increasing our land holdings in the Peace River Oil
Sands area by 8%.
 
 On
September 10, 2008, the Energy Resources Conservation Board granted us 6 well
licenses and our Company has secured a drilling contract with Precision
Drilling. We plan to drill the first well in December 2008, weather permitting.
Our Company expects to drill and production test 6 wells and possibly an
optional 7th well
over the next 12 months.
 
 On
November 19, 2008, we entered into an arrangement whereby Deep Well’s
subsidiaries, Deep Well Alberta and Northern, exchanged its 755,000 and
6,795,000 common shares of Signet respectively into 224,156 and 2,017,402 common
shares of Andora respectively.
 
 On
December 4, 2008 we successfully spudded the first well planned for our Sawn
Lake Project. The location is located at 12-14-092-13W5 in Northern Alberta and
is to be drilled to a vertical depth of 682 meters (2,238 feet). This well is
still currently drilling. Another location is being prepared for the drilling
rig, currently on the 12-14-092-13W5 well, to be moved over to the second well
to be drilled. We are currently constructing our south access roads in
preparation to drill the 3 southern wells located on our oil sands
permit.
 
 11
 
 Sales
and Marketing
 
 As we
remain in the exploration stage, we have not yet generated any revenues, nor do
we have any customers at this time. The principal target customers for our crude
oil production are expected to be refiners, remarketers and other companies,
some of which have pipeline facilities near our properties. In the event
pipeline facilities are not conveniently available, we intend to truck our oil
to alternative storage, refining or pipeline facilities.
 
 Market
pricing for bitumen is seasonal with lower prices in and around the calendar
year-end being the norm due to lower demand for asphalt and other
bitumen-derived products. By necessity, bitumen is regularly blended with
diluent in order to facilitate its transportation via pipeline to North American
markets. As such, the effective field price for bitumen is also directly
impacted by the input cost of the diluent required, the demand and price of
which is also seasonal in nature (higher in winter as colder temperatures
necessitate more diluent for transportation). Consequently, bitumen pricing is
notoriously weak in and around December 31 and not reflective of the annual
average realized price or the economics of the “business” overall. We have been
advised that, to price bitumen, marketers apply formulas that take as a
reference point the prices published for crude oil of particular qualities such
as “Edmonton light”, “Lloydminster blend”, or the more internationally known
“West Texas Intermediate” (hereinafter referred to as WTI). We also understand
that the price of bitumen fluctuates widely during the course of a year, with
the lowest prices typically occurring at the end of the calendar year because of
decreased seasonal demand for asphalt and other bitumen-derived products coupled
with higher prices for diluents added to facilitate pipeline transportation of
bitumen.
 
 We intend
to sell our oil and gas production under both short-term (less than one year)
and long-term (one year or more) agreements at prices negotiated with third
parties. Under both short-term and long-term contracts, typically either the
entire contract (in the case of short-term contracts) or the price provisions of
the contract (in the case of long-term contracts) are renegotiated from
intervals ranging in frequency from daily to annual.
 
 We will
adopt specific sales and marketing plans once production is
achieved.
 
 Research
and Development
 
 We had no
material research and development costs for the fiscal years ended September 30,
2006, 2005 and 2004.
 
 Competition
 
 We
operate in a highly competitive environment, competing with major integrated and
independent energy companies for desirable oil and natural gas properties as
well as for the equipment, labour and materials required to develop and operate
those properties. Many of our competitors have longer operating histories and
substantially greater financial and other resources greater than ours. Many of
these companies not only explore for and produce crude oil and natural gas, but
also carry on refining operations and market petroleum and other products on a
worldwide basis. Our larger competitors, by reason of their size and relative
financial strength, can more easily access capital markets than we can and may
enjoy a competitive advantage, whereas we may incur higher costs or be unable to
acquire and develop desirable properties at costs we consider reasonable because
of this competition. Larger competitors may be able to absorb the burden of any
changes in laws and regulation in the jurisdictions in which we do business and
handle longer periods of reduced prices of gas and oil more easily than we can.
Our competitors may be able to pay more for productive oil and natural gas
properties and may be able to define, evaluate, bid for and purchase a greater
number of properties and prospects than we can. Our ability to acquire
additional properties in the future will depend upon our ability to conduct
efficient operations, evaluate and select suitable properties, implement
advanced technologies and consummate transactions in a highly competitive
environment.
 
 Competitive
conditions may be substantially affected by various forms of energy legislation
and/or regulation considered from time to time by the government of Canada and
other countries as well as factors that we cannot control, including
international political conditions, overall levels of supply and demand for oil
and gas, and the markets for synthetic fuels and alternative energy
sources.
 
 Canadian
Government and Environmental Regulations
 
 Our Business is Governed by
Numerous Laws and Regulations at Various Levels of Government. These laws
and regulations govern the operation and maintenance of our facilities, the
discharge of materials into the environment and other environmental protection
issues. Under these laws and regulations, we could be liable for personal
injury, clean-up costs and other environmental and property damages as well as
administrative, civil and criminal penalties. Our operator of the properties
with activity on them maintains limited insurance coverage. We as operator will
acquire insurance coverage on properties in which it intends to have activity
on. Accordingly, we could be liable, or could be required to cease production on
properties if environmental damage occurs. The costs of complying with
environmental laws and regulations in the future may harm our business.
Furthermore, future changes in environmental laws and regulations could occur
that result in stricter standards and enforcement, larger fines and liability,
and increased capital expenditures and operating costs, any of which could have
a material adverse effect on our financial condition or results of
operations.
 
 12
 
 Exploration and
Production. Our operations are subject to federal and provincial
governmental regulations. Such regulations include requiring licenses for the
drilling of wells, regulating the location of wells and the method and ability
to produce wells, surface usage and the restoration of land upon which wells
have been drilled, the plugging and abandoning of wells and the transportation
of production from wells. Our operations are also subject to various
conservation regulations, including the regulation of the size of spacing units,
the number of wells which may be drilled in a unit, the unitization or pooling
of oil and gas properties, the rate of production allowable from oil and gas
wells, and the ability to produce oil and gas.
 
 Royalties and
Incentives. Each province and the federal government of Canada have
legislation and regulations governing land tenure, royalties, production rates
and taxes, environmental protection and other matters under their respective
jurisdictions. The royalty regime is a significant factor in the profitability
of oil and natural gas production. Royalties payable on production from lands
other than Crown lands are determined by negotiations between the parties. Crown
royalties are determined by government regulation and are generally calculated
as a percentage of the value of the gross production with the royalty rate
dependent in part upon prescribed reference prices, well productivity,
geographical location, field discovery date and the type and quality of the
petroleum product produced. From time to time, the governments of Canada,
Alberta, British Columbia and Saskatchewan have also established incentive
programs such as royalty rate reductions, royalty holidays and tax credits for
the purpose of encouraging oil and natural gas exploration or enhanced recovery
projects. These incentives generally increase cash flow. See new Alberta Royalty
Regime under “Risk Factors” of this report.
 
 Pricing and
Marketing. The price of oil, natural gas and NGLs sold is determined by
negotiation between buyers and sellers. An order from the National Energy Board
(hereinafter referred to as “NEB”) is required for oil exports from Canada. Any
oil export to be made pursuant to an export contract of longer than one year, in
the case of light crude, and two years, in the case of heavy crude, requires an
exporter to obtain an export license from the NEB. The issue of such a license
requires the approval of the Government of Canada. Natural gas exported from
Canada is also subject to similar regulation by the NEB. Natural gas exports for
a term of less than two years, or for a term of two to twenty years in
quantities of not more than 20,000 mcf per day, must be made pursuant to an NEB
order. Any natural gas exports to be made pursuant to a contract of larger
duration (to a maximum of 25 years) or in larger quantities require an exporter
to obtain a license from the NEB, which requires the approval of the Government
of Canada. Exporters are free to negotiate prices and other terms with
purchasers provided that the export contracts meet certain criteria prescribed
by the NEB. The governments of Alberta, British Columbia and Saskatchewan also
regulate the volume of natural gas which may be removed from those provinces for
consumption elsewhere based on such factors as reserve availability,
transportation arrangements and market considerations.
 
 Environmental
Regulation. The
oil and natural gas industry is subject to environmental regulation pursuant to
local, provincial and federal legislation. Environmental legislation provides
for restrictions and prohibitions on releases or emissions of various substances
produced or utilized in association with certain oil and gas industry
operations. In addition, legislation requires that well and facility sites be
monitored, abandoned and reclaimed to the satisfaction of provincial
authorities. A breach of such legislation may result in the imposition of fines
and penalties. We are committed to meeting our responsibilities to protect the
environment and anticipate making increased expenditures of both a capital and
expense nature as a result of the increasingly stringent laws relating to the
protection of the environment.
 
 The North American Free
Trade Agreement.
The North American Free Trade Agreement (hereinafter referred to as “NAFTA”)
grants Canada the freedom to determine whether exports to the United States or
Mexico will be allowed. In making this determination, Canada must ensure that
any export restrictions do not (i) reduce the proportion of energy exported
relative to the supply of the energy resource; (ii) impose an export price
higher than the domestic price; or (iii) disrupt normal channels of supply. All
parties to NAFTA are also prohibited from imposing minimum export or import
price requirements.
 
 Investment Canada
Act. TheInvestment
Canada Act requires notification and/or review by the Government of
Canada in certain cases, including but not limited to, the acquisition of
control of a Canadian Business by a non-Canadian. In certain circumstances, the
acquisition of a working interest in a property which contains recoverable
reserves will be treated as the acquisition of an interest in a “business” and
may be subject to either notification or review, depending on the size of the
interest being acquired and the asset size of the business.
 
 13
 
 Employees
 
 We
currently have three full-time employees and five prime subcontractors. For
further information on our subcontractors see “Compensation Arrangements for
Executive Officers” under item 10 “Executive Compensation” herein described in
this report. We expect to hire from time to time more employees, independent
consultants, and contractors during the stages of implementing our
plans.
 
 Royalty
Agreements
 
 Through
the acquisition of Northern, our Company became a party to the following royalty
agreement:
 
 On
December 12, 2003, Nearshore entered into a Royalty Agreement with Northern that
potentially encumbers 3 oil sands development leases and 1 oil sands permit
located within our Sawn Lake properties. Nearshore claims a 6.5% gross
overriding royalty from Northern on the leased substances on the land interests
in which Northern holds in the above 3 leases and permit. Nearshore is a private
corporation incorporated in Alberta, Canada, and is owned and controlled by Mr.
Steven P. Gawne and his wife, Mrs. Rebekah J. Gawne, who each own 50% of
Nearshore. Mr. Steven P. Gawne was formerly the President, Chief Executive
Officer and Director of Deep Well Oil & Gas, Inc. from February 6, 2004 to
June 29, 2005.
 
 Risk
Factors
 
 An
investment in our common stock is speculative and involves a high degree of risk
and uncertainty. You should carefully consider the risks described below,
together with the other information contained in our reports filed with the SEC,
including the consolidated financial statements and notes thereto of our Company
before deciding to invest in our common stock. The risks described below are not
the only ones facing our Company. Additional risks not presently known to us or
that we presently consider immaterial may also adversely affect our Company. If
any of the following risks occur, our business, financial condition and results
of operations and the value of our common stock could be materially and
adversely affected.
 
 Any Development Of Our
Resource Will Be Directly Affected By The New Royalty Regime For Alberta.
In October 2007, the Government of Alberta unveiled a new royalty regime. Under
the new royalty regime, the Government of Alberta will increase its royalty
share from oil sands development by introducing price-sensitive formulas, both
pre- and post-payout, rather than implementing an industry-wide tax on oil sands
production. The base royalty will start at one per cent of gross bitumen revenue
and will increase for every dollar the world oil price, as reflected by West
Texas Intermediate (WTI) crude oil price, is priced above $55 per barrel, to a
maximum of nine per cent when oil is priced at Cdn$120 or higher. The net
royalty on oil sands will start at 25 percent and increase for every dollar the
WTI crude oil is priced above Cdn$55 per barrel to 40 percent when the WTI crude
oil is priced at Cdn$120 or higher. The government plans to adopt a permanent
generic “bitumen valuation methodology” by June 30, 2008, after consulting with
stakeholders and independent advisors.The
government also plans to comprehensively and extensively review and tighten, if
required, current rules and enforcement procedures to ensure that absolutely
clear, transparent, auditable and appropriate definitions exist for oil sands
projects and eligible expenditures. Currently, a royalty of one percent of gross
bitumen revenue is payable prior to the payout of specified allowed costs,
including certain exploration and development costs, operating costs and a
return allowance. Once such allowed costs have been recovered, the applicable
royalty is equivalent to the greater of 25% of net project revenue or 1% of
gross revenue. All costs (operating and capital) are 100% deductible in the year
in which they are incurred. The implementation of the proposed changes to the
new royalty regime in Alberta is subject to certain risks and uncertainties. The
significant changes to the royalty regime require new legislation, changes to
existing legislation and regulation and development of proprietary software to
support the calculation and collection of royalties. Additionally, certain
proposed changes contemplate further public and/or industry consultation. There
may be modifications introduced to the proposed royalty structure prior to the
implementation thereof. There can be no assurance that the Government of Alberta
or the Government of Canada will not adopt a new fiscal regime or otherwise
modify the existing fiscal regime (royalties and taxes) governing oil sands
producers in a manner that could materially affect the financial prospects and
results of operations of oil sands developers and producers in
Alberta.
 
 We Are An Exploration Stage
Company Implementing A New Business Plan. We are an exploration stage
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. Since our inception, we have suffered recurring
losses from operations and have been dependent on new investment to sustain our
operations. During the years ended September 30, 2006, 2005 and 2004, we
reported net losses of $1,922,282, $1,262,549 and $525,754 respectively. In
addition, our consolidated financial statements for the year ended September 30,
2006, contain a “going concern” qualification and we cannot give any assurances
that we can achieve profits from operations.
 
 14
 
 The Successful
Implementation Of Our Business Plan Is Subject To Risks Inherent In The Heavy
Oil Business. Our heavy oil operations are subject to the economic risks
typically associated with exploration, development and production activities,
including the necessity of significant expenditures to locate and acquire
properties and to drill exploratory wells. In addition, the cost and timing of
drilling, completing and operating wells is often uncertain. In conducting
exploration and development activities, the presence of unanticipated pressure
or irregularities in formations, miscalculations or accidents may cause our
exploration, development and production activities to be unsuccessful. This
could result in a total loss of our investment in a particular property. If
exploration efforts are unsuccessful in establishing proven reserves and
exploration activities cease, the amounts accumulated as unproven costs will be
charged against earnings as impairments. Our exploitation and development of oil
and gas reserves depends upon access to the areas where our operations are to be
conducted. We conduct a portion of our operations in regions where we are only
able to do so on a seasonal basis. Unless the surface is sufficiently frozen, we
are unable to access our properties, drill or otherwise conduct our operations
as planned. In addition, if the surface thaws earlier than expected, we must
cease our operations for the season earlier than planned. Our operations are
affected by road bans imposed from time to time during the break-up and thaw
period in the Spring. Road bans are also imposed due to snow, mud and rock
slides and periods of high water, which can restrict access to our well sites
and production facility sites. Our inability to access our properties or to
conduct our operations as planned will result in a shutdown or slow down of our
operations, which will adversely affect our business.
 
 We Expect Our Operating
Expenses To Increase Substantially In The Future And We May Need To Raise
Additional Funds. We have a history of net losses and expect that our
operating expenses will increase substantially over the next 12 months as we
continue to implement our business plan. In addition, we may experience a
material decrease in liquidity due to unforeseen capital calls or other events
and uncertainties. As a result, we may need to raise additional funds, and such
funds may not be available on favourable terms, if at all. If we cannot raise
funds on acceptable terms, we may not be able to execute on our business plan,
take advantage of future opportunities or respond to competitive pressures or
unanticipated requirements. This may seriously harm our business, financial
condition and results of operations.
 
 Our Ability To Produce
Sufficient Quantities Of Oil From Our Properties May Be Adversely Affected By A
Number Of Factors Outside Of Our Control. The business of exploring for
and producing oil and gas involves a substantial risk of investment loss.
Drilling oil wells involves the risk that the wells may be unproductive or that,
although productive, the wells may not produce oil in economic quantities. Other
hazards such as unusual or unexpected geological formations, pressures, fires,
blowouts, loss of circulation of drilling fluids or other conditions may
substantially delay or prevent completion of any well. Adverse weather
conditions can also hinder drilling operations. A productive well may become
uneconomic due to pressure depletion, water encroachment, mechanical
difficulties, etc., which impair or prevent the production of oil and/or gas
from the well.
 
 There can
be no assurance that oil will be produced from the properties in which we have
interests. Marketability of any oil that we acquire or discover may be
influenced by numerous factors beyond our control. The marketability of our
production will depend on the proximity of our reserves to and the capacity of,
third party facilities and services, including oil and natural gas gathering
systems, pipelines, trucking or terminal facilities, and processing facilities.
The unavailability or insufficient capacity of these facilities and services
could force us to shut-in producing wells, delay the commencement of production,
or discontinue development plans for some of our properties, which would
adversely affect our financial condition and performance. There may be periods
of time when pipeline capacity is inadequate to meet our oil transportation
needs. During periods when pipeline capacity is inadequate, we may be forced to
reduce production or incur additional expense as existing production is
compressed to fit into existing pipelines. Other risk factors include
availability of drilling and related equipment, market fluctuations of prices,
taxes, royalties, land tenure, allowable production and environmental
protection. We cannot predict how these factors may affect our
business.
 
 In
addition, the success of our business is dependent upon the efforts of various
third parties that we do not control. We rely upon various companies to assist
us in identifying desirable oil prospects to acquire and to provide us with
technical assistance and services. We also rely upon the services of geologists,
geophysicists, chemists, engineers and other scientists to explore and analyze
oil prospects to determine a method in which the oil prospects may be developed
in a cost-effective manner. In addition, we rely upon the owners and operators
of oil drilling equipment to drill and develop our prospects to production.
Although we have developed relationships with a number of third-party service
providers, we cannot assure that we will be able to continue to rely on such
persons. If any of these relationships with third-party service providers are
terminated or are unavailable on commercially acceptable terms, we may not be
able to execute our business plan.
 
 We Do Not Control All Of Our
Operations. We do not operate all of our properties and we therefore have
limited influence over the testing, drilling and production operations of those
properties. Andora operates 12 of our 75.5 sections in which we have a working
interest. We have a 40% working interest in these 12 sections. Our lack of
control of these 12 sections could result in the following:
 
 ·
              The
      operator might initiate exploration or development on a faster or slower
      pace than we prefer;
 
 ·
              The
      operator might propose to drill more wells or build more facilities on a
      project than we have funds for or that we deem appropriate, which could
      mean that we are unable to participate in the project or share in the
      revenues generated by the project;
 
 15
 
 ·
              If
      an operator refuses to initiate a project, we might be unable to pursue
      the project.
 
 Any of
these events could materially reduce the value of those properties
affected.
 
 We Are Party To Some
Lawsuits And Will Be Adversely Affected If We Are Found To Be Liable In
Connection With Any Legal Proceedings.We are party to some
lawsuits described in this Form 10-KSB under the heading “Legal Proceedings”. We
intend to vigorously defend ourselves against the claims made in the lawsuits,
but we cannot predict the outcome of these proceedings, the commencement or
outcome of any future proceedings against us, or whether any such proceeding
would lead to monetary damages that would have a material adverse effect on our
financial position.
 
 Aboriginal Peoples May Make
Claims Regarding The Lands On Which Our Operations Are Conducted.
Aboriginal peoples have claimed aboriginal title and rights to a substantial
portion of western Canada. If any aboriginal peoples file a claim claiming
aboriginal title or rights to the lands on which any of our properties are
located, and if any such claim is successful, it could have a material adverse
effect on our operations.
 
 The
Energy Resources Conservation Board (“ERCB”) that governs our operations in
Alberta, Canada have implemented a new directive (Directive 056) that the
Alberta Government issued its First Nations Consultation Policy on Land
Management and Resource Development on May 16, 2005. The ERCB expects that all
industry applicants must adhere to this policy and the consultation guidelines.
These requirements and expectations apply to the licensing of all new energy
developments and all modifications to existing energy developments, as covered
in Directive 056. In the policy, the Alberta Government has developed
consultation guidelines to address specific questions about how consultation for
land management and resource development should occur in relation to specific
activities. Prior to filing an application, the applicant must address all
questions, objections, and concerns regarding the proposed development project
and attempt to resolve them. This includes concerns and objections raised by
members of the public, industry, government representatives, First Nations,
Métis, and other interested parties.  This process can cause
significant delays in obtaining a drilling permit for exploration and/or a
production well license for both oil and gas.
 
 Market Fluctuations In The
Prices Of Oil Could Adversely Affect Our Business. Prices for oil tend to
fluctuate significantly in response to factors beyond our control. These factors
include, but are not limited to, the continued threat of war in the Middle East
and actions of the Organization of Petroleum Exporting Countries and its
maintenance of production constraints, the U.S. economic environment, weather
conditions, the availability of alternate fuel sources, transportation
interruption, the impact of drilling levels on crude oil and natural gas supply,
and the environmental and access issues that could limit future drilling
activities for the industry.
 
 Changes
in commodity prices may significantly affect our capital resources, liquidity
and expected operating results. Price changes directly affect revenues and can
indirectly impact expected production by changing the amount of funds available
to reinvest in exploration and development activities. Reductions in oil and gas
prices not only reduce revenues and profits, but could also reduce the
quantities of reserves that are commercially recoverable. Significant declines
in prices could result in non-cash charges to earnings due to
impairment.
 
 Changes
in commodity prices may also significantly affect our ability to estimate the
value of producing properties for acquisition and divestiture and often cause
disruption in the market for oil producing properties, as buyers and sellers
have difficulty agreeing on the value of the properties. Price volatility also
makes it difficult to budget for and project the return on acquisitions and
development and exploitation of projects. We expect that commodity prices will
continue to fluctuate significantly in the future.
 
 Our Stock Price Could
Decline. Our common stock is traded on the pink sheets. There can be no
assurance that an active public market will continue for the common stock or
that the market price for the common stock will not decline below its current
price. Such price may be influenced by many factors, including but not limited
to, investor perception of us and our industry and general economic and market
conditions. The trading price of the common stock could be subject to wide
fluctuations in response to announcements of our business developments or our
competitors, quarterly variations in operating results, and other events or
factors. In addition, stock markets have experienced extreme price volatility in
recent years. This volatility has had a substantial effect on the market prices
of companies, at times for reasons unrelated to their operating performance.
Such broad market fluctuations may adversely affect the price of our common
stock. Our stock price may decline as a result of future sales of our shares or
the perception that such sales may occur.
 
 Since we
have not filed all reports required to be filed by us with the SEC, none of our
shares of common stock are currently eligible to be resold pursuant to Rule 144.
However, some of our shares of outstanding common stock are required by contract
to be registered under the Securities Act for resale by the holders. We are
unable to estimate the amount, timing, or nature of future sales of outstanding
common stock. Sales of substantial amounts of our common stock in the public
market may cause the stock’s market price to decline.
 
 16
 
 We Could Be Subject to SEC
Penalties For Not Filing All Of Our SEC Reports. We have not filed all of
the annual and quarterly reports required to be filed by us with the SEC. We are
working diligently to make all such filings but until all such filings are made,
it is possible that the SEC could take enforcement action, including the
de-registration of our securities, against us. If the SEC were to take any such
actions, it could adversely affect the liquidity of trading in our common stock
and the amount of information about our Company that is publicly
available.
 
 Broker-Dealers Are Not
Permitted To Solicit Trades In Our Common Stock. Our common stock is
considered to be a “penny stock” because it meets one or more of the definitions
in the Exchange Act Rule 3a51-1, The principal result or effect of being
designated a “penny stock” is that securities broker-dealers cannot recommend
the stock and may only trade in it on an unsolicited basis.
 
 Risks Related to
Broker-Dealer Requirements Involving Penny Stocks / Risks Affecting Trading and
Liquidity. Section 15(g) of the Securities Exchange Act of 1934, as
amended, and Rule 15g-2 promulgated thereunder by the Commission require
broker-dealers dealing in penny stocks to provide potential investors with a
document disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document before effecting any transaction in a
penny stock for the investor’s account. These rules may have the effect of
reducing the level of trading activity in the secondary market, if and when one
develops.
 
 Potential
investors in our common stock are urged to obtain and read such disclosure
carefully before purchasing any shares that are deemed to be “penny stock.”
Moreover, Commission Rule 15g-9 requires broker-dealers in penny stocks to
approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor’s financial
situation, investment experience and investment objectives. Pursuant to the
Penny Stock Reform Act of 1990, broker-dealers are further obligated to provide
customers with monthly account statements. Compliance with the foregoing
requirements may make it more difficult for investors in our stock to resell
their shares to third parties or to otherwise dispose of them in the market or
otherwise.
 
 Reports to Security
Holders
 
 We are a
Nevada corporation and our common stock is registered under section 12(g) of the
Securities Exchange Act of 1934, as amended. Our annual report on Form 10-KSB,
quarterly reports on Form 10-QSB and Form 10-Q, current reports on Form 8-K and
amendments to those reports can be accessed at the SEC’s website at
www.sec.gov.
  ITEM 2.
              DESCRIPTION
      OF PROPERTY
 
 Office
Leases
 
 We
currently rent an office space on a month-by-month basis for administrative
operations for $3,554.30 Cdn per month at 510 Royal Bank Building 10117 Jasper
Avenue, Edmonton Alberta T5J 1W8. We will be relocating our administrative
operations to Suite 700, 10150 – 100 Street, Edmonton, Alberta T5J 0P6,
effective December 1, 2008. We have entered into a lease for office space in
Calgary. The term of this lease is over five years with the total monthly rents
estimated to be:
 
 ·
              the
      period from December 1, 2007 to November 30, 2009, $3,197.37 Cdn per
      month; and
 ·
              the
      period from December 1, 2009 to November 30, 2010, $3,519.03 Cdn per month
      (additional rent was calculated using $10.35 Cdn per square foot
      calculation for the 2007 operating of the rental lease agreement, as the
      landlord has the right to increase the additional rent for each operating
      year); and
 ·
              the
      period from December 1, 2010 to November 30, 2012, $3,905.03 Cdn per
      (additional rent was calculated using $10.35 Cdn per square foot
      calculation for the 2007 operating year of the rental lease agreement, as
      the landlord has the right to increase the additional rent for each
      operating year).
 
 Oil and Gas
Properties
 
 Acreage
 
 On
November 26, 2007, we entered into mediation with Signet and resolved our
differences and certain collateral matters. The settlement included but is not
limited to:
 
 17
 
 ·
              the
      Farmout Agreement dated February 25, 2005, being effectively terminated
      concurrently with the execution of the settlement agreement;
      and
 ·
              Signet
      being regarded as having earned the two sections on which the option wells
      were drilled and 4 additional sections as set out in the Settlement;
      and
 ·
              Signet
      being required to reconvey registered title to 57.5 unearned sections of
      the Farmout Lands, as defined in the Farmout Agreement, back to the us;
      and
 ·
              our
      Company having the right to retest, at no cost to Signet, the option wells
      previously drilled.
 
 We own an
80% working interest in 51 contiguous sections of oil sands development leases,
an 80% working interest in 6.5 sections of oil sands permits and a 100% working
interest in 6 sections of a Petroleum and Natural Gas License in the Sawn Lake
heavy oil area in North Central Alberta. We have retained an additional 40%
working interest in another 12 sections of oil sands development leases of which
Signet (Signet was subsequently acquired by Andora Energy Corporation) has
earned 40% from Deep Well. The leases and permits cover 47,759 gross acres
(19,328 gross hectares).
 
 Andora
will be the operator of the 12 sections earned by Signet. We will be the
operator of 57.5 sections of oil sands leases and permits in which we own an 80%
working interest and another 6 sections of a Petroleum and Natural Gas License
in which we have a 100% working interest.
 
 On April
2, 2008, our Company participated in a public offering of Crown Petroleum and
Natural Gas Rights held by the Alberta Department of Energy, in which the
Company successfully bid on 1 Petroleum and Natural Gas License parcel covering
3,795 gross acres (1,536 gross hectares) for a total of 6 sections in the Ochre
area. Our Company acquired an undivided 100% working interest in these 6
sections located in the Peace River oil sands area of Alberta, approximately 14
miles west of our Sawn Lake properties, increasing our land holdings in the
Peace River area by 8%.
 
 The
following table summarizes our gross and net developed and undeveloped oil and
natural gas rights under lease as of September 30, 2008.
 
 OIL
AND NATURAL GAS RIGHTS as of September 30, 2008
 Gross
                              Hectares
                            
                            
                            Net
                              Hectares
                            
                            
                            Gross
                              Acres
                            
                            
                            Net
                              AcresDeveloped
      AcreageSawn
      Lake – Peace River Oil Sands Area, Alberta, Canada
                            
                            None
                            
                            
                            None
                            
                            
                            None
                            
                            
                            NoneTotal
                            
                            None
                            
                            
                            None
                            
                            
                            None
                            
                            
                            NoneUndeveloped
      AcreageSawn
      Lake – Peace River Oil Sands Area, Alberta, Canada31
      sections
                            
                            
                            7,936
                            
                            
                            
                            6,349
                            (1)
                            
                            
                            19,610
                            
                            
                            
                            15,688
                            (1)32
      sections
                            
                            
                            8,192
                            
                            
                            
                            5,325
                            (2)
                            
                            
                            20,242
                            
                            
                            
                            13,157
                            (2)6.5
      sections
                            
                            
                            1,664
                            
                            
                            
                            1,331
                            (1)
                            
                            
                            4,112
                            
                            
                            
                            3,289
                            (1)Ochre
      – P&NG License within the Peace River Oil Sands Area, Alberta,
      Canada6
      sections
                            
                            
                            1,536
                            
                            
                            
                            1,536
                            
                            
                            
                            3,795
                            
                            
                            
                            3,795Total
                            
                            
                            19,328
                            
                            
                            
                            14,541
                            
                            
                            
                            47,759
                            
                            
                            
                            35,929
 
 (1) 80%
working interest
 (2) We
have an 80% working interest in 20 sections and a 40% working interest in
another 12 sections
 
 A
developed acre is considered to mean those acres spaced or assignable to
productive wells; a gross acre is an acre in which a working interest is owned,
and a net acre is the result that is obtained when fractional ownership working
interest is multiplied by gross acres. The number of net acres is the sum of the
fractional working interests owned in gross acres expressed as whole numbers and
fractions thereof.
 
 Undeveloped
acreage is considered to be those lease acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil or natural gas, regardless of whether or not that acreage
contains provenreserves, but does not include undrilled acreage held by
production under the terms of a lease. As is customary in the oil and gas
industry, we can generally retain our interest in undeveloped acreage by
drilling activity that establishes commercial production sufficient to maintain
the leases or by paying delay rentals during the remaining primary term of such
a lease. The oil and natural gas leases in which we have an interest are for
varying primary terms, and if production continues from our developed lease
acreage beyond the primary term, we are entitled to hold the lease for as long
as oil or natural gas is produced.
 
 18
 
 Reserves,
Production and Delivery Commitments
 
 In August
of 2004, Northern commenced oil and gas exploration activities with the first
well being drilled on the project in September 2005. We did not engage in any
production activities during the years ending September 30, 2006, 2005 and 2004,
nor did we have any proven or probable reserves at the end of such periods and
thus were not required to provide any of the production data required by
Statement of Financial Accounting Standards No. 69. We do not have any
obligations under existing delivery commitment contracts or agreements calling
for the provision of fixed and determinable quantities of oil and gas over the
next three years, and have therefore not filed any information or reports with
any federal authority or agency containing estimates of total, proven developed
or undeveloped net oil or gas reserves.
 
 Drilling
Activity
 
 The
following tables summarize the results of our drilling activities during the
years ended September 30, 2008, 2007, 2006 and 2005.
 
 Exploratory Wells year ended September 30
                        
                        2008
                        
                        
                        2007
                        
                        
                        2006
                        
                        
                        2005Gross
                        
                        
                        Net
                        
                        
                        Gross
                        
                        
                        Net
                        
                        
                        Gross
                        
                        
                        Net
                        
                        
                        Gross
                        
                        
                        NetGas
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Oil
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Oil/Gas
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Evaluating
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Drilling
      at end of year
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Suspended
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Abandoned
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Total
      Exploratory Wells
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
 Development Wells year ended September 30
                          
                          2008
                          
                          
                          2007
                          
                          
                          2006
                          
                          
                          2005Gross
                          
                          
                          Net
                          
                          
                          Gross
                          
                          
                          Net
                          
                          
                          Gross
                          
                          
                          Net
                          
                          
                          Gross
                          
                          
                          NetGas
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –Oil
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –Oil/Gas
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –Evaluating
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –Drilling
      at end of year
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –Suspended
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          2
                          
                          
                          
                          0.8
                          **
                          
                          
                          1
                          
                          
                          
                          0.4
                          **Abandoned
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –Total
      Development Wells
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          2
                          
                          
                          
                          0.8
                          
                          
                          
                          1
                          
                          
                          
                          0.4
  **40% working
interest
 
 Present
Activities
 
 On
December 4, 2008 we successfully spudded the first well planned for our Sawn
Lake Project. The location is located at 12-14-092-13W5 in Northern Alberta and
is to be drilled to a vertical depth of 682 meters (2,238 feet). This well is
currently being completed. Another location is being prepared for the drilling
rig.. We are currently constructing additional access roads in preparation to
drill on our oil sands properties.
 
 Our
Company’s current and near-term development plan is to use the funds recently
acquired to execute our Company’s plan of development for the Sawn Lake Project.
The first stage of the plan will include production testing and project
re-analysis and engineering study. To accomplish this, our Company recently
purchased and interpreted seismic data for certain sections of the Sawn Lake
project. This recent seismic acquisition and reprocessing is in addition to and
focuses on different areas than the seismic previously acquired and reprocessed
by Signet, the results of which and in addition to the aeromagnetic data, is now
available to our Company by virtue of the November 26, 2007 settlement with
Signet. Based on this newly acquired data log analyses and information obtained
from external public resources, our Company’s exploration team selected 6
locations to be drilled over the next 12 months. Our Company has completed
surveying of these 6 locations along with their respective environmental field
reports. On September 10, 2008, the Energy Resources Conservation Board granted
us 6 well licenses and our Company has secured a drilling contract. Our Company
expects to drill and production test 6 wells and possibly an optional 7th well
over the next 12 months. To assist in defining the Sawn Lake project these 6
locations have been selected to evaluate more of the reservoir than previously
drilled under the Farmout Agreement. As operator for these leases, our Company
will also test to its satisfaction the wells for cold flow capability. The focus
of our Company’s drilling program is to further define the heavy oil reservoir
to establish reserves and to determine the best technology under which oil can
be produced from the Sawn Lake project in order to initiate production to
generate an early positive cash flow.
 
 19
 
 Past
Activities
 
 A
total of three horizontal wells were drilled on the Sawn Lake Property during
2005 and 2006 and a fourth location was prepared for drilling.
 
 The
1st
test well drilled under the Farmout Agreement (at surface location
1-36-091-13W5) was successfully drilled and cased in late October of 2005. This
horizontal well was drilled to a total length of 1,583 meters with a vertical
depth of 752 meters within the Bluesky oil sands zone. On March 23, 2006, Signet
announced that the first horizontal test well on our Sawn Lake property had been
drilled and the reservoir had tested positive for cold flow crude oil pumping
capability. Initial test results by third parties have concluded that the
initial oil samples taken early in the flow period had been analyzed and
determined to be 10.7 degree API with 3.1% sulphur. As part of the November 15,
2005 settlement, we granted Signet a 40% interest in 6 sections, pertaining to
the first well drilled at Sawn Lake. Currently the well has been suspended for
further evaluation. Under the terms of the Farmout Agreement dated February 25,
2005, as amended, Signet has earned a 40% net working interest in the test well
1-36 at the surface location 1-36-091-13W5 and five additional sections for a
total of 6 sections earned being: Township 91, Range 12 West of the 5th,
section 31; Township 91, Range 13 West of the 5th,
section 36; and Township 92, Range 13, sections 2, 11, 12 and 15 as a result of
drilling the first test well of the Sawn Lake Heavy Oil Sands
Project.
 
 The
2nd
well drilled under the Farmout Agreement (at surface location 4-32-091-12W5)
began drilling on August 13, 2006. This was the first of three additional wells
that Signet was to drill in accordance with the Farmout Agreement in the Bluesky
Formation of the Sawn Lake area. This horizontal well was successfully drilled
and cased in August 2006 to a total length of 1,461 meters with a vertical depth
of 668 meters within the Bluesky oil sands zone. Subsequent to the drilling and
logging operations, tubing was run in preparation for potential Bluesky oil
production. As reported by Signet, the well evaluation of the log analysis
confirmed 23 meters of net oil pay, average oil saturation of 78 percent, API
gravity in the range of 6.7 to 7.6 degrees, permeability of up to 8 Darcies,
average porosity of 30% and viscosity between 263,000 and 475,000 centistokes
extrapolated at 20 degrees Celsius and between 4.6 and 5.35 centistokes
extrapolated at 250 degrees Celsius. Signet reported to us that the initial
production tests for cold flow pumping capability were negative, however, the
well is suited for a thermal project. Currently the well has been suspended for
further evaluation.
 
 The
3rd
well drilled under the Farmout Agreement (at surface location 7-30-091-12W5)
began drilling on August 31, 2006. This was the second of three additional wells
that Signet was to drill in accordance with the Farmout Agreement in the Bluesky
Formation of the Sawn Lake area. This horizontal well was successfully drilled
and cased in September 2006 to a total length of 1,437 meters with a vertical
depth of 654 meters within the Bluesky oil sands zone. As reported by Signet,
the well evaluation of the log analysis confirmed 22 meters of net oil pay,
average oil saturation of 68 percent, API gravity in the range of 6.2 to 6.8
degrees, permeability of up to 8 Darcies, average porosity of 30% and viscosity
of 290,000 centistokes extrapolated at 18 degrees Celsius 7.93 centistokes
extrapolated at 250 degrees Celsius. Signet reported to us that the initial
production tests for cold flow pumping capability were negative, however, the
well is suited for a thermal project. Currently the well has been suspended for
further evaluation.
 
 The
proposed 4th well to
be drilled under the Farmout Agreement (at surface location 13-29-091-12W5) was
not drilled since it was determined by Signet that it would not provide any
additional geological information in its delineation of the Sawn Lake Reservoir
beyond that of the two recently drilled wells in the same vicinity.
 
 On
October 12, 2006, the 4-32 and 7-30 wells along with the 1-36 well were
suspended. Signet had undertaken a mapping of the reservoir to assist in its
delineation for any future development of the Sawn Lake property. The first
three wells were drilled in the most heavily documented portion of the Sawn Lake
lands. Although, as indicated by Signet, the preliminary results from the last 2
wells indicated a lack of cold flow production from well 4-32 and 7-30, the
compartmentalized nature of the reservoir and varying characteristics of these
compartments may show different results with further evaluation.
 
 In
December 2006, we notified Signet that we were disputing Signet earning an
additional 12 sections, as a result of drilling the 4-32 and 7-30 wells, because
Signet failed to properly complete the wells by not conducting the production
testing as reasonably required under the Farmout Agreement. The Farmout
Agreement states that the sustained production test must be of sufficient
duration to establish to the Farmor’s (therefore Deep Well’s) reasonable
satisfaction the initial productivity of the earning well. Signet’s view was
that it had earned the 12 sections pursuant to the terms of the Farmout
Agreement. These 12 sections are subject to selection in accordance with the
provisions of the Farmout Agreement. On November 26, 2007, we entered into
mediation with Signet and resolved our differences on this and certain
collateral matters. The settlement included, but is not limited
to:


·
              the
      Farmout Agreement dated February 25, 2005, being effectively terminated
      concurrently with the execution of the settlement agreement;
      and
 ·
              Signet
      being regarded as having earned the two sections on which the option wells
      were drilled and 4 additional sections as set out in the Settlement;
      and
 ·
              Signet
      being required to reconvey registered title to 57.5 unearned sections of
      the Farmout Lands, as defined in the Farmout Agreement, back to us;
      and
 ·
              our
      Company having the right to retest, at no cost to Signet, the option wells
      previously drilled.
 
 20
 ITEM 3.
              LEGAL
      PROCEEDINGS
 
 Deep Well Oil & Gas,
Inc. vs. Surge Global Energy, Inc. – RESOLVED
 
 On
October 13, 2005, Surge filed against us with a Notice of Motion filed in the
Court of Queen’s Bench of Alberta Judicial District of Calgary. The motion among
other things, requested a declaration from us that Signet has complied with
their obligations under a particular Farmout Agreement and a declaration that
Signet has earned 50% of our interest in lands located at LSD
01-36-091-13-W5M.
 
 On
October 14, 2005, we served Surge with a lawsuit issued in the Court of Queen’s
Bench of Alberta Judicial District of Calgary. The lawsuit among other things,
seeks: a declaration that the Farmout Agreement has been terminated, an order
requesting Signet to reconvey to us title documents as defined in the Farmout
Agreement, a declaration that Signet has failed to spud a test well pursuant to
the terms of the Farmout Agreement, an order preventing Signet from entering the
Farmout lands pending resolution to the lawsuit, and other various declaratory
and injunctive relief including damages of $1,000,000 Cdn for trespass and
punitive damages of $250,000 Cdn.
 
 On
October 21, 2005, our Company and Surge agreed to a consent order in the Court
of Queen’s Bench of Alberta Judicial District of Calgary whereby both parties
agreed to consolidate their actions. The consolidated action would continue
under our action and would be tried at the same time.
 
 On
November 15, 2005, as part of a restructuring of Signet, both parties mutually
agreed to dismiss their lawsuits against each other. The dismissals were part of
the Farmout Amending and Farmout Acknowledgement Agreements entered into by our
Company and Surge. The Farmout Amendment and Acknowledgement Agreement were
agreed to upon Signet receiving a private placement for $8,550,000 Cdn in a
convertible debenture and the modification of the February 25, 2005 Farmout
Agreement. The significant amendments were: 1.) Extend the earning period to
February 25, 2008; 2.) Extend the date for which Signet can spud an option well
to September 25, 2006; 3.) Recalculate the payment of the 2nd portion
of the prospect fee, being $1,000,000 to be paid by Signet to Northern and Deep
Well Alberta and omit the conditions under which the $1,000,000 was paid; 4.)
Signet to issue to Northern and Deep Well Alberta 7,550,000 of its common shares
giving our Company a beneficial interest in the Farmee of 31.47% before Signet
issues shares under the private placement financing and 22.7% if the convertible
debenture is converted on a fully diluted basis, and 5.) Our Company give up its
right to acquire shares in Surge US.
 
 I.G.M. Resources Corp. vs.
Deep Well Oil & Gas, Inc. et al
 
 On March
10, 2005 I.G.M. Resources Corp. (hereinafter referred to as “Plaintiff”) filed
against Classic, 979708 Alberta Ltd. (hereinafter referred to as “979708”), Deep
Well Oil & Gas, Inc., Nearshore, Steven P. Gawne, Rebekah Gawne, Gawne
Family Trust, 1089144 Alberta Ltd., John F. Brown, Diane Lynn McClaflin,
Cassandra Doreen Brown, Elissa Alexandra Brown, Brown Family Trust, Priority
Exploration Ltd., Northern Alberta Oil Ltd. and Gordon Skulmoski (the
“Defendants”) a Statement of Claim in the Court of Queen’s Bench of Alberta
Judicial District of Calgary. This suit is part of a series of lawsuits or
actions undertaken by the Plaintiff against some of the other above-named
Defendants.
 
 The
Plaintiff was and still is a minority shareholder of 979708. 979708 was
purportedly in the business of discovering, assembling and acquiring oil &
gas prospects. In 2002 and 2003, 979708 acquired oil and gas prospects in the
Sawn Lake area of Alberta. On or about the 14th of July
2003, all or substantially all the assets of 979708 were sold to Classic. The
Plaintiff claims the value of the assets sold was far in excess of the value
paid for those assets. On April 23, 2004, Northern purchased some of Classic’s
assets, that are under dispute by the Plaintiff. On June 7, 2005, Deep Well
acquired all of the common shares of Northern thereby giving Deep Well an
indirect beneficial interest in the assets the Plaintiff is claiming an interest
in.
 
 21
 
 The
Plaintiff seeks an order setting aside the transaction and returning the assets
to 979708, compensation in the amount of $15,000,000 Cdn, and a declaration of
trust declaring that Northern and Deep Well hold all of the assets acquired from
979708 and any property acquired by use of such assets or confidential
information of 979708, in trust for the Plaintiff.
 
 This
lawsuit has been stayed pending the outcome of the other litigation by the
Plaintiff against the other defendants. We believe the claims and demands
against us are without merit and will vigorously defend against
them.
 
 Hardie & Kelly vs. Brown
et al
 
 On June
2, 2006, Hardie and Kelly (the “Plaintiff”), Trustee of the Estate of John
Forbes Brown, filed against John Forbes Brown, a bankrupt, Diane Lynn McClaflin,
1089144 Alberta Ltd., and Deep Well (the “Defendants”) an Amended Statement of
Claim filed in the Court of Queen’s Bench of Alberta Judicial District of
Calgary. John Forbes Brown was a former officer and then sub-contractor of Deep
Well before and at the time he was assigned into bankruptcy on July 12, 2004.
The Plaintiff claims, in addition to other issues unrelated to Deep Well, that
John Forbes Brown received 4,812,500 Deep Well shares as a result of his
employment in Deep Well and that John Forbes Brown improperly assigned these
shares to the numbered company as a ruse entered into on the eve of insolvency
by John Forbes Brown in order to facilitate the hiding of assets from his
creditors and the trustee of his bankruptcy. The Plaintiff further claims that
on August 23, 2004, John Forbes Brown advised the Plaintiff that he in fact
owned the above shares and did not disclose this ownership in his filed
bankruptcy statement of affairs. The Plaintiff further claims that John Forbes
Brown would lodge the said shares with his lawyer until such time as these
shares could be transferred to the Plaintiff. The Plaintiff further claims that
unbeknownst to them John Forbes Brown surreptitiously removed the shares from
his lawyer’s office and delivered them to Deep Well so that Deep Well could
cancel them. The Plaintiff claims that Deep Well conspired with John Forbes
Brown to defraud the creditors of John Forbes Brown by taking receipt and
canceling the said shares. The Plaintiff claims that consideration paid by Deep
Well for the said shares was invested in the home owned by John Forbes Brown and
his wife. The Plaintiff seeks: 1.) An accounting of the proceeds and benefits
derived by the dealings of the shares; 2.) The home owned by John Forbes Brown
and his wife, to be held in trust on behalf of the Plaintiff and an accounting
of proceeds related to this trust; 3.) Damages from the Defendants because of
their actions; 4.) A judgment for $15,612,645 Cdn; 5.) An order to sell John
Forbes Brown’s home; and 6.) Interest and costs.
 
 We plan
to vigorously defend ourselves against the Plaintiff’s claims.
 
 Menno Wiebe and Jacobean
Resource International vs. Deep Well Oil & Gas, Inc. et
al
 
 On
October 23, 2006, Menno Wiebe and Jacobean Resources International served Deep
Well, Doe individuals and Roe Corporations with a Complaint and Summons filed in
the United States of America, District Court of Clark County, Nevada. The
Complaint alleges a breach of contract in which the Plaintiffs are seeking
monetary damages in excess of $10,000 plus an order directing Defendants to
issue 56,500 shares of Deep Well stock to Plaintiffs. Mr. Menno Wiebe served as
Director and Chief Operating Officer of Deep Well from July 6, 2004 until June
29, 2005.  Mr. Wiebe claims he was the Chief Operating Officer until
October 2005.  Our Company believes that it has meritorious defences
to the plaintiff’s claims and intends to enter into mediation, as called for in
the contract with Menno Wiebe.
 
 Star Capital Inc. vs. Deep
Well Oil & Gas, Inc. et al – RESOLVED
 
 On
December 21, 2006, Deep Well, Deep Well Alberta and some of the directors of our
Company in addition to other individuals were served with an Originating Notice
of Motion, filed in the Court of Queen’s Bench of Alberta Judicial District of
Calgary, by Star Capital Inc. whereby the Applicant claims that the Respondents:
1.) Failed to provide shareholders with proper or any notice of Annual General
Meetings, special meeting of shareholders, or both; 2.) Failed to hold Annual
General Meetings in accordance with the provisions of the Alberta Business
Corporations Act or, in the alternative, with the Nevada Revised Statutes; 3.)
Failed to appoint qualified auditors in accordance with the provisions of the
Alberta Business Corporations Act or, in the alternative, the Nevada Revised
Statutes; 4.) Failed to prepare and file audited financial statements in
accordance with the provisions of the Alberta Business Corporations Act and the
Alberta Securities Act or, in the alternative, the Nevada Revised Statutes; 5.)
Paid management fees in relation to either or both of Deep Well or Deep Well
Alberta to directors, officers and third parties, including the individual
Respondents themselves that are unreasonable, oppressive and have been granted
without proper regard for the interests of shareholders; 6.) In the case of the
individual Respondents, engaged in wrongful self-dealing that is oppressive,
prejudicial to, and unfairly disregards the interests of, shareholders; 7.)
Issued capital stock of Deep Well and instruments for the future purchase of
such capital stock in a manner that is oppressive, unfairly prejudicial to, and
unfairly disregards the interests of shareholders; 8.) Failed to disclose or
failing to disclose in a timely manner material information to the shareholders
and the public, including but not limited to, the fact of the transfer of assets
from Deep Well to Deep Well Alberta and the existence of encumbrances of the oil
sands assets such as gross overriding royalties held by the Respondents Gary
Tighe and Steve Gawne, which distorts the public market in the securities of the
corporate Respondents and is otherwise oppressive, unfairly prejudicial to, and
unfairly disregards the interests of shareholders, including the Applicant; and
9.) Utilized majority shareholder approval for various transactions, including
the appointment of directors, without calling annual or special meetings of
shareholders, in a manner which is oppressive, unfairly prejudicial and unfairly
disregards the minority shareholders and which is otherwise a breach of the
fiduciary duties owed by the directors and officers to the corporations and to
the minority shareholders.
 
 22
 
 On
September 7, 2007, the claims of Star Capital Inc. against our Company were
dismissed in their entirety pursuant to an Order granted by the court. Star
Capital Inc.’s claims were originally filed with the Court of Queen’s Bench of
Alberta Judicial District of Calgary pursuant to an Originating Notice of Motion
which was filed on December 21, 2006, and an Amended Originating Notice which
was filed on March 29, 2007 against Deep Well, Deep Well Alberta, Northern and
some of the directors of Deep Well and its subsidiaries in addition to other
individuals as set out in its Amended Originating Notice. An Amending Agreement
and Mutual General Release were later implemented by the parties. Subsequent to
the Amending Agreement and Mutual General Release, Star Capital Inc. filed an
additional Originating Notice of Motion on February 26, 2008. The settlement of
this further claim was completed in March of 2008, whereby the parties agreed
upon a Full and Final Mutual Release.
 
 Signet Energy, Inc. vs. Deep
Well Oil & Gas, Inc., Northern Alberta Oil Ltd., Deep Well Oil & Gas
(Alberta) Ltd. – RESOLVED
 
 On June
1, 2007, Signet filed a Statement of Claim in the Court of Queen’s Bench of
Alberta Judicial District of Calgary against our Company. The plaintiff claims
that the defendants must pay all rentals and other payments required to maintain
the farmout lands under the Farmout Agreement in good standing. The plaintiff
further claims that they paid all rentals and other amounts required to maintain
the farmout lands in good standing on behalf of the defendants and invoiced the
defendants for the rental amounts and that the defendants refused or neglected
to reimburse their proportionate share of the rental amounts and therefore the
defendants have been enriched to the detriment of the plaintiff by the payment
of the rental amounts. The plaintiff seeks: 1.) Payment in full of $63,269.12 in
Canadian funds for the rental amounts owed; 2.) Interest; 3.) Costs of the
action; and 4.) Such further and other relief as the court deems
just.
 
 On June
25, 2007, our Company served Signet with a Statement of Defence and Counterclaim
issued in the Court of Queen’s Bench of Alberta Judicial District of Calgary.
The defendants state in their defence that: 1.) Any and all such expenditures
are required to be approved in advance; 2.) No such approval was given and that
the plaintiff has failed to properly account to the defendants for all such
expenditures made; 3.) The amount for which the plaintiff is entitled to
reimbursement is approximately $40,000 in Canadian funds; and 4.) If the
plaintiff is indebted to the defendants in an amount in excess of the amount
claimed by the plaintiff then the defendants are entitled to set off against any
amounts that may be owed to the plaintiff. The defendants by counterclaim seek:
1.) The proportionate share of fees and expenses incurred in preserving,
protecting and advancing the rights of the parties to the farmout lands totaling
$101,000 in Canadian funds; 2.) A declaration that the plaintiffs are entitled
to set off the amount of any judgment in favor of the defendant by counterclaim
against the amounts found to be owing to them; 3.) A declaration that the
Farmout Agreement be terminated; 4.) Interest; 5.) Such further and other relief
as the court deems just; and 6.) Costs of the action.
 
 On
November 26, 2007, our Company entered into mediation with Signet and agreed to
jointly discontinue and release the other with respect to the foregoing claims.
The settlement includes but is not limited to:
 
 ·
              the
      Farmout Agreement dated February 25, 2005, being effectively terminated
      concurrently with the execution of the Settlement
    agreement;
 ·
              Signet
      being regarded as having earned the two sections on which the option wells
      were drilled and 4 additional sections as set out in the
      Settlement;
 ·
              Signet
      being required to reconvey registered title to 57.5 unearned sections of
      the Farmout Lands, as defined in the Farmout Agreement, back to our
      Company; and
 ·
              our
      Company having the right to retest, at no cost to Signet, the option wells
      previously drilled.
 
 Deep Well Oil & Gas,
Inc. vs. Tamm Oil and Gas Corp.
 
 On April
4, 2008, our Company commenced a lawsuit in the United States District Court for
the District of Nevada against Tamm Oil and Gas Corp. (hereinafter referred to
as “Tamm”) after attempting to clarify Tamm’s position and rectify Tamm’s
violations. Our Company alleges that: Tamm engaged in an unlawful tender offer
for our Company’s shares, violated United States federal and Nevada state law in
connection with the tender offer, Tamm’s public statements about our Company and
activities related to our Company and our operations are false and misleading,
and Tamm’s statements of purported ownership of our shares of common stock are
false and misleading. On August 22, 2008, our Company filed a First Amended
Complaint in the lawsuit adding additional parties as defendants and asserting a
civil conspiracy claim. Our Company seeks:
  23
 
 1.)
              injunctive
      relief to include and not be limited to a permanent
      injunction:
 a.)
              that
      defendants issue appropriate disclosures and retract false and misleading
      statements concerning Deep Well in their prior representations through SEC
      filings, press releases, and all other appropriate
  means;
 b.)
              prohibit
      defendants from exercising the voting rights or any other rights granted
      through ownership of Deep Well shares on any shares acquired pursuant to
      their unlawful tender offer(s) for Deep Well shares, attempting otherwise
      to influence or control Deep Well or its
  management;
 c.)
              prohibit
      defendants from transferring their Deep Well shares and/or accepting
      transfer of any Deep Well shares acquired through their tender offer(s)
      for Deep Well shares;
 d.)
              prohibit
      defendants from acquiring any additional Deep Well shares and/or taking
      any other actions in furtherance of their tender offer(s) for Deep Well
      shares;
 e.)
              prohibit
      defendants from further conducting the tender offer alleged in the First
      Amended Complaint;
 f.)
              prohibit
      defendants from issuing any false, misleading or derogatory statements
      about Deep Well, relating to its investments in Deep Well, relating to its
      acquisition of Deep Well shares or relating to its control of any Deep
      Well assets;
 g.)
              requiring
      that the transactions through which defendants acquired Deep Well shares
      pursuant to the tender offer(s) for Deep Well shares be completely
      rescinded and unwound and that any transfers made pursuant to those
      acquisitions be reversed;
 h.)
              requiring defendants to comply
      with legal requirements in the making of any future tender offer or
      otherwise acquiring Deep Well
shares;
 
 2.)
              for
      damages and/or treble damages in an amount to be established at
      trial;
 
 3.)
              for
      attorneys’ fees and costs; and
 
 4.)
              for
      all such other further relief as the Court deems just and
      equitable.
 
 Tamm has
filed a motion for partial summary judgment, which is fully briefed and pending
before the court, and several of the new defendants have appeared and filed
motions to dismiss, which are also pending. Discovery in the case is
ongoing.
 
 Northern Alberta Oil Ltd.
vs. 1132559 Alberta Ltd.
 
 On June
27, 2008, our subsidiary, Northern Alberta Oil Ltd.,, filed a Statement of Claim
in the Court of Queen’s Bench of Alberta Judicial District of Edmonton against
1132559 Alberta Ltd. (hereinafter referred to as “113”). In September 2008, Tamm
announced that it had entered into an agreement to acquire 113. The plaintiff
claims that the defendants have not paid their share of the incurred operating
costs for the Sawn Lake project. The plaintiff further claims that they paid the
operating expenses required on behalf of the defendants and invoiced the
defendants for the amounts and that the defendants refused or neglected to
reimburse their proportionate share of the operating costs. The plaintiff seeks:
1.) Payment in full of $74,470.71 in Canadian funds for the amounts invoiced to
the defendants; 2.) Interest pursuant to section 106 of the PASC (“Petroleum
Accountants Society of Canada”) 1996 Accounting Procedure; and 3.) Costs of the
action.
 
 ITEM 4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 There was
no matter submitted during the fiscal year 2006 covered by this report to a vote
of security holders, through the solicitation of proxies or
otherwise.
 
 PART
II
 
 ITEM 5.
              MARKET
      FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDERMATTERS
 
 The
common stock of the Predecessor Company of Deep Well was originally listed on
NASDAQ as of November 17, 1994, however the predecessor company no longer met
listing criteria for NASDAQ and its common stock was delisted to the OTC
Bulletin Board on September 16, 2002.  Subsequent to this delisting,
the Predecessor Company did not, on a timely basis, file a Form 10-Q for the
quarter ended December 31, 2002 and accordingly, its stock was delisted to the
pink sheets on March 25, 2003.
 
 24
 
 Market Price Information for
Common Stock
 
 Deep
Well’s stock is currently quoted on the pink sheets under the trading symbol
DWOG. The following table sets forth the high and low sales prices for Deep Well
common stock as reported on the pink sheets for the periods indicated below.
This table gives effect to both the 2-1 split of March 10, 2004 and the 3-1
split of May 14, 2004. These quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions:
  High
                        (US$)
                      
                      
                      Low
                        (US$)Fiscal
      2003First
      Quarter
                      
                      $
                      0.24
                      
                      
                      $
                      0.12Second
      Quarter
                      
                      $
                      0.13
                      
                      
                      $
                      0.01Third
      Quarter
                      
                      $
                      0.03
                      
                      
                      $
                      0.002Fourth
      Quarter
                      
                      $
                      0.002
                      
                      
                      $
                      0.0003Fiscal
      2004First
      Quarter
                      
                      $
                      0.55
                      
                      
                      $
                      0.05Second
      Quarter
                      
                      $
                      1.30
                      
                      
                      $
                      1.05Third
      Quarter
                      
                      $
                      1.55
                      
                      
                      $
                      0.48Fourth
      Quarter
                      
                      $
                      1.42
                      
                      
                      $
                      0.80Fiscal
      2005First
      Quarter
                      
                      $
                      1.03
                      
                      
                      $
                      0.53Second
      Quarter
                      
                      $
                      0.90
                      
                      
                      $
                      0.35Third
      Quarter
                      
                      $
                      0.58
                      
                      
                      $
                      0.30Fourth
      Quarter
                      
                      $
                      0.68
                      
                      
                      $
                      0.31Fiscal
      2006First
      Quarter
                      
                      $
                      1.31
                      
                      
                      $
                      0.37Second
      Quarter
                      
                      $
                      2.98
                      
                      
                      $
                      1.15Third
      Quarter
                      
                      $
                      2.85
                      
                      
                      $
                      1.45Fourth
      Quarter
                      
                      $
                      1.76
                      
                      
                      $
                      0.58Fiscal
      2007First
      Quarter
                      
                      $
                      0.66
                      
                      
                      $
                      0.33Second
      Quarter
                      
                      $
                      0.56
                      
                      
                      $
                      0.23Third
      Quarter
                      
                      $
                      1.05
                      
                      
                      $
                      0.35Fourth
      Quarter
                      
                      $
                      0.84
                      
                      
                      $
                      0.45Fiscal
      2008First
      Quarter
                      
                      $
                      0.58
                      
                      
                      $
                      0.45Second
      Quarter
                      
                      $
                      0.63
                      
                      
                      $
                      0.31Third
      Quarter
                      
                      $
                      0.73
                      
                      
                      $
                      0.42Fourth
      Quarter
                      
                      $
                      0.55
                      
                      
                      $
                      0.20
 
 On
February 27, 2004, the Board of Directors unanimously approved a forward stock
split of Deep Well’s common stock at a ratio of two (2) shares for every one (1)
share held. The forward split became effective on March 10, 2004. After the
split, Deep Well had 12,337,156 shares of common stock issued and outstanding.
Prior to the effective date of the split, Deep Well had 6,168,578 shares of
common stock outstanding. In connection with the stock split Deep Well increased
its authorized common shares in proportion to the forward stock split. Deep
Well’s authorized common stock after the forward stock split consisted of
100,000,000 shares of common stock. Prior to the split, Deep Well was authorized
to issue 50,000,000 shares of common stock. In connection with the forward
split, Deep Well amended its articles of incorporation with the state of Nevada.
Deep Well did not obtain a shareholder vote of the forward stock split and a
shareholder vote was not required by Nevada law.
  25
 
 On May 4,
2004, our Board of Directors unanimously approved a forward stock split of our
common stock at a ratio of three (3) shares for every one (1) share held. The
forward split became effective on May 14, 2004. After the split, Deep Well had
37,011,468 shares of common stock issued and outstanding. Prior to the effective
date of the split, Deep Well had 12,337,156 shares of common stock outstanding.
In connection with the stock split Deep Well increased its authorized common
shares in proportion to the forward stock split. Deep Well’s authorized common
stock after the forward stock split consisted of 300,000,000 shares of common
stock. Prior to the split, Deep Well was authorized to issue 100,000,000 shares
of common stock. In connection with the forward split, Deep Well amended its
articles of incorporation with the state of Nevada. Deep Well did not obtain a
shareholder vote of the forward stock split and a shareholder vote was not
required by Nevada law.
 
 On June
7, 2005, Deep Well completed the acquisition of 6,069,625 shares of common
stock, representing 100% of the outstanding common stock of Northern pursuant to
an Exchange Agreement, dated as of July 8, 2004 between Deep Well, Northern and
all shareholders of Northern, as amended by an amending agreement dated April
25, 2005. In addition to the common stock of Northern, Deep Well was granted
options to acquire 432,500 shares of preferred stock of Northern and the
preferred shareholders of Northern have the ability to require Deep Well to
acquire such shares. In accordance with the terms of the Agreements, common
shareholders of Northern received three (3) shares of the Deep Well’s restricted
common stock for each one (1) share of Northern’s common stock and preferred
shareholders of Northern will receive thirty (30) shares of Deep Well’s
restricted common stock for each one (1) share of Northern’s preferred stock
held by such shareholders.
 
 On April
4, 2007, our Company completed the acquisition of the preferred shares of
Northern. From February 27, 2006 to April 4, 2007, our Company issued 12,960,000
shares of its common stock to acquire all of the preferred stock of
Northern.
 
 Holders of
Record
 
 As of
October 3, 2008, we had approximately 173 holders of record of our shares of
common stock. Our Company estimates that investment dealers and other nominees
hold common shares for approximately 3,056 beneficial holders.
 
 Dividends
 
 Our
Company has not paid cash dividends since inception. Our Company intends to
retain all of its earnings, if any, for use in its business and does not
anticipate paying any cash dividends in the foreseeable future. The payment of
any future dividends will be at the discretion of the Board of Directors and
will depend upon a number of factors, including future earnings, the success of
our Company’s business activities, capital requirements, the general financial
condition and future prospects of our Company, general business conditions and
such other factors as the Board of Directors may deem relevant.
 
 Equity Compensation Plan
Information
 
 The
following table provides information as of September 30, 2006 with respect to
shares of Deep Well common stock that may be issued under our existing equity
compensation plans.
  Equity Compensation Plan Category
                      
                      (a)
                        Number of Securities
                        to be issued upon
                        exercise of
                        outstanding options,
                        warrants and rights
                      
                      
                      (b)
                        Weighted-average
                        exercise price of
                        outstanding
                        options, warrants
                        and rights
                      
                      
                      (c)
                        Number of Securities
                        remaining available for
                        future issuance under
                        equity compensation
                        plans (excluding securities
                        reflected in column (a))Equity
      compensation plans approved by security holders
                      
                      None
                      
                      
                      None
                      
                      
                      NoneEquity
      compensation plans not approved by security holders
                      
                      
                      2,857,500
                      
                      
                      $
                      0.71
                      
                      
                      
                      3,441,429
                      *Total
                      
                      
                      2,857,500
                      
                      
                      $
                      0.71
                      
                      
                      
                      3,441,429
                      *
  * Based
on 62,979,289 issued and outstanding shares as at September 30,
2006.
 
 26
 
 Stock Option
Plan
 
 On
November 28, 2005, the Board of Directors of Deep Well adopted the Deep Well Oil
& Gas, Inc. Stock Option Plan. The Stock Option Plan, which if administered
by the Board, permits options to acquire shares of Deep Well’s common stock to
be granted to directors, senior officers and employees of our Company, as well
as certain consultants and other persons providing services to our Company. This
Stock Option Plan was adopted to provide an incentive to the retention of
directors, officers and employees as well as consultants our Company may wish to
retain in the future. The maximum number of common shares that may be reserved
for issuance under the Stock Option Plan may not exceed 10% of our Company’s
issued and outstanding common shares, subject to adjustment as contemplated by
the Stock Option Plan. The aggregate number of common shares with respect to
which options may be granted to any one person (together with their associates)
in any one year, together with all other incentive plans of our Company, may not
exceed 500,000 common shares, and in total may not exceed 2% of the total number
of common shares outstanding. On November 28, 2005, the Board granted 375,000
options to acquire common shares to each director of Deep Well and granted
187,500 options to acquire common shares to a director of a subsidiary of Deep
Well. The exercise price of such options is $0.71 per share. In each case, the
vesting of such director options will occur only if the holder of the options
continues to provide services to us during the immediate annual period preceding
the relevant vesting date. The options will terminate at the close of business
five years from the date of grant. In addition, on November 28, 2005, the Board
granted 390,000 options to acquire common shares to certain corporations
providing consulting services to us. Each of such consultants is wholly owned by
directors of our Company. The exercise price of such options is $0.71 per share.
In each case, the vesting of such consultant options will occur only if the
holder of the options continues to provide services to us on the relevant
vesting date. The options will terminate at the close of business five years
from the date of grant. No option granted under the Stock Option Plan may be
exercised until the Stock Option Plan has been approved and ratified by the
holders of a majority of the voting stock of our Company at a shareholders'
meeting or by consent resolution of said majority shareholders.
 
 On
September 28, 2007, the Board of Directors of our Company granted options under
the stock option plan to a certain employee to acquire 36,000 common shares of
our Company at the exercise price of $0.47 per common share, of which 8,000
shall be vested immediately and 28,000 shall be vested at a rate of 2,000 common
shares per month commencing September 30, 2007, so long as the employee
continues to provide employment services on such vesting dates.
 
 On
October 1, 2007, we entered into a Consulting Agreement, effective September 20,
2007, with R.N. Dell Energy Ltd. (hereinafter referred to as “Contractor”). On
September 28, 2007, under the terms of the Consulting Agreement, the Board of
Directors of our Company granted options to the Contractor to acquire 240,000
common shares of our Company at the exercise price of $0.47 per common share
(being the closing price as of the day before the effective date) which shall be
vested at a rate of 20,000 common shares per month commencing October 31, 2007,
so long as the Contractor continues to provide consulting services on such
vesting dates.
 
 Sales of Unregistered
Securities
 
 On March
10, 2005, our Company closed on a transaction pursuant to a certain Securities
Purchase Agreement (“SPA”), with two accredited investors for an aggregate
purchase price of $750,000 pursuant to which our Company sold an aggregate of:
1) 1,875,000 shares of our common stock, par value $0.001 per share, at a
purchase price of $0.40 per share; and 2) 750,000 warrants, of which each of the
warrants is exercisable from March 10, 2005 until March 9, 2010, at an exercise
price equal to $0.50 per share. Our Company issued the aforementioned securities
to the investors pursuant to Rule 506 of Regulation D as promulgated under the
Securities Act of 1933, as amended, and/or Section 4(2) of the Act. In
connection with the SPA, a finder’s fee of $75,000 was paid and 37,500 warrants
were issued. The exercise price of the warrants will be adjusted from time to
time upon the occurrence of certain events, as provided in the warrants, and as
a result of the issuance of common stock on May 25, 2007, and pursuant to the
SPA and Form of Warrant dated March 10, 2005, entered into by and among our
Company and the investors (the “Warrant Holders”), our Company issued an
adjustment to the Warrant Holders. The original warrant dated March 10, 2005,
contained a price adjustment if our Company sells, issues or grants additional
shares of its common stock at a price per share less than the exercise price. In
the event of a price adjustment, the number of shares exercisable under the
warrant would also increase. Therefore, the exercise price of the original
warrant has been adjusted from $0.50 to $0.40 per common share. Our Company has
granted the Warrant Holders new warrants to purchase an additional 196,875
common shares for a total of 984,375 shares of our Company’s common stock at an
adjusted exercise price of $0.40 per share under the same terms as the original
warrant. Our Company entered into a Registration Rights Agreement (“RRA”) with
the investors dated as of March 10, 2005, pursuant to which our Company was
obligated to prepare and file a registration statement no later than 45 days
after the closing date registering the number of shares of our Company’s common
stock which is at least equal to: 1) the aggregate number of shares of common
stock issued under the SPA; and 2) 125% of the aggregate number of shares of
common stock issuable upon exercise of the warrants. Our Company must use its
reasonable best efforts to cause the registration statement to become effective
as soon as practicable following the filing, but in no event later than 120 days
after the closing date. If the registration statement is not filed within 45
days after the closing date or declared effective within the time specified in
the preceding paragraph, our Company was required to make payments to the
investors equal to 2% of the purchase price and an additional 2% of the purchase
price for each subsequent 30-day period as to which the registration statement
was not filed or declared effective. Effective on January 22. 2007, our Company
entered into a Settlement Agreement and Release of All Claims (the “Settlement
Agreement”) with the investors who were in receipt of the above issued shares
with respect to allegations made by the investors that we had breached the SPA
and RRA.
 
 The
Settlement Agreement provides, without any party acknowledging any liability,
for:
 
 ·
              the
      amendment of the SPA to delete certain restrictions on our Company's
      ability to enter into any future
financing;
 
 27
 
 ·
              the
      termination of the RRA;
 ·
              the
      issuance to the Investors of an aggregate of 1,600,000 (one million six
      hundred thousand) shares of common stock of our Company (the "Shares"),
      including the granting of certain piggyback registration rights related
      thereto; and
 ·
              the
      full and final settlement of all existing or potential claims between our
      Company and the Investors arising under the SPA and the
    RRA.
 
 On August
12, 2005, pursuant to subscription agreements, our Company closed a private
placement to three investors of an aggregate of 500,000 units at a price of
$0.40 per unit, for total gross proceeds of $200,000. Each unit consisted of one
common share and one common share purchase warrant, with each warrant entitling
its holder to acquire one share of our common stock at an exercise price of
$0.60. The exercise price of the warrants will be adjusted from time to time
upon the occurrence of certain events, as provided in the warrants. The warrants
expired on August 12, 2008. The units were issued pursuant to Regulation S. In
addition, on August 12, 2005, pursuant to a Debt Settlement Agreement, one
holder of $84,378.40 of our indebtedness exchanged its indebtedness for 210,946
units at a deemed exchange price of $0.40 per unit. Each unit consisted of one
common share and one common share purchase warrant, with each warrant entitling
its holder to acquire one common share of Deep Well, at an exercise price of
$0.60. The exercise price of the warrants will be adjusted from time to time
upon the occurrence of certain events, as provided in the warrants. The warrants
expired on August 12, 2008. The units were issued pursuant to Regulation S under
the 1933 Act..
 
 On
October 11, 2005, pursuant to subscription agreements, our Company closed a
private placement to three investors of an aggregate of 3,150,000 units at a
price of $0.40 per unit, for total gross proceeds of $1,260,000. Each unit
consisted of one common share and one common share purchase warrant, with each
warrant entitling its holder to acquire one share of our common stock at an
exercise price of $0.60 per common share. The exercise price of the warrants
will be adjusted from time to time upon the occurrence of certain events, as
provided in the warrants. The warrants expired on October 11, 2008. In
connection with the private placement, a finder’s fee of $36,000 was paid,
resulting in total net proceeds to our company from the private placement of
$1,224,000. The units were issued pursuant to Regulation S under the 1933
Act.
 
 On
January 13, 2006, pursuant to subscription agreements, our Company closed a
private placement to three investors of an aggregate of 51,200 units at a price
of $1.50 per unit, for total gross proceeds of $76,800. Each unit consisted of
one common share and one common share purchase warrant, with each warrant
entitling its holder to acquire one share of our common stock at an exercise
price of $2.25 per common share. The exercise price of the warrants will be
adjusted from time to time upon the occurrence of certain events, as provided in
the warrants. The warrants expire on January 13, 2009. The units were issued
pursuant to Regulation S. In addition, on January 13, 2006, pursuant to a Debt
Settlement Agreement, one holder of $38,293 of our indebtedness exchanged its
indebtedness for 21,800 units at a deemed exchange price of $1.50 per unit. Each
unit consisted of one common share and one common share purchase warrant, with
each warrant entitling its holder to acquire one common share of Deep Well, at
an exercise price of $2.25. The exercise price of the warrants will be adjusted
from time to time upon the occurrence of certain events, as provided in the
warrants. The warrants expire on January 13, 2009. In connection with the
private placement, a finder’s fee of $7,680 was paid, resulting in total net
proceeds to our company from the private placement of $69,120. The units were
issued pursuant to Regulation S under the 1933 Act.
 
 On
February 23, 2006, pursuant to an exercised option agreement our Company entered
into on June 7, 2005, our Company issued 4,707,750 Deep Well common shares in
exchange for 156,925 of the outstanding preferred shares of Northern. The common
shares were issued pursuant to Section 4(2) of the 1933 Act.
 
 On June
13, 2006, further pursuant to an exercised option agreement our Company entered
into on June 7, 2005, our Company issued 2,867,250 Deep Well common shares in
exchange for 95,575 of the outstanding preferred shares of Northern. The common
shares were issued pursuant to Section 4(2) of the 1933 Act.
 
 On July
28, 2006, a warrant holder of our Company acquired 100,000 common shares upon
exercising warrants at an exercise price of $0.60 per common share for total
gross proceeds to our Company of $60,000. The common shares were issued pursuant
to Section 4(2) of the 1933 Act.
 
 On
September 11, 2006, a warrant holder of our Company acquired 50,000 common
shares upon exercising warrants at an exercise price of $0.60 per common share
for total gross proceeds to our Company of $30,000. The common shares were
issued pursuant to Section 4(2) under the 1933 Act.
 
 On April
4, 2007, pursuant to an option agreement our Company entered into on June 7,
2005, our Company issued 180,000 Deep Well common shares in exchange for
5,400,000 of the outstanding preferred shares of Northern. The common shares
were issued pursuant to Section 4(2) of the 1933 Act. As a result of the
February 23, 2006, June 13, 2006 and the April 4, 2007 exercised option
agreements stated above, Northern became a 100% wholly owned subsidiary of our
Company. As of April 4, 2007 all of the holders of such preferred shares of
Northern have exercised their options in exchange for restricted shares of
common stock of Deep Well. In accordance with the terms and conditions of the
Agreements, Deep Well has now completed the acquisition of 100% of the preferred
shares of Northern in exchange for 12,975,000 shares of common stock of Deep
Well. The shares of common stock of Deep Well issued in exchange for the
Northern preferred shares were issued pursuant to Section 4(2) of the 1933
Act.
  28
 
 On May
25, 2007, pursuant to subscription agreements, our Company completed a private
placement of 5,000,000 units at a price of $0.40 per unit for gross proceeds of
$2,000,000. Each unit consisted of one common share and one common share
purchase warrant, with each warrant entitling its holder to acquire one share of
our common stock at a price of $0.60 per share. The exercise price of the
warrants will be adjusted from time to time upon the occurrence of certain
events, as provided in the warrants. The warrants expire on May 25, 2010. In
connection with the private placement a finder's fee of $150,000 was paid. The
units were issued pursuant to Regulation S under the 1933 Act.
 
 On June
22, 2007, pursuant to subscription agreements, our Company completed a private
placement of 8,333,333 units at a price of $0.60 per unit for $5,000,000. Each
unit consisted of one common share and one common share purchase warrant and
another twelve one-hundredths common share purchase warrant ("Special Warrant").
Each warrant entitles the holder to purchase one additional common share at a
price of $0.90 per common share for a period of three years from the date of
closing. Each Special Warrant entitles the holder to purchase a common share at
a price of $1.20 for a period of five years from the date of closing. The
exercise price of the warrants and the Special Warrants will be adjusted from
time to time upon the occurrence of certain events, as provided in the warrants
and Special Warrants. The warrants expire on June 22, 2010, and the Special
Warrants expire on June 22, 2012.  In connection with the private
placement a finder's fee of $300,000 was paid. The units were issued pursuant to
Regulation S under the 1933 Act.
 
 On July
11, 2007, pursuant to subscription agreements, our Company completed a private
placement of 323,333 units at a price of $0.60 per unit for $194,000. Each unit
consisted of one common share and one common share purchase warrant and another
twelve one-hundredths common share purchase warrant (“Special Warrant”). Each
warrant entitles the holder to purchase one additional common share at a price
of $0.90 per common share for a period of three years from the date of closing.
Each Special Warrant entitles the holder to purchase a common share at a price
of $1.20 for a period of five years from the date of closing. The exercise price
of the warrants and the Special Warrants will be adjusted from time to time upon
the occurrence of certain events, as provided in the warrants and Special
Warrants. The warrants expire on July 11, 2010, and the Special Warrants expire
on 11, 2012. In connection with the private placement a finder’s fee of $9,700
was paid. The units were issued pursuant to Regulation S under the 1933
Act.
 
 In
September 2007, our Company issued an adjustment to three existing warrant
holders. The original warrants dated March 10, 2005, contained a price
adjustment in the event that our Company sold, issued or granted additional
shares of its common stock at a price per share less than the exercise price of
the warrant. In the event of a price adjustment, the number of shares
exercisable under the warrant would also increase. Therefore, the exercise price
of the original warrant has been adjusted from $0.50 to $0.40 per common share.
Our Company has granted the warrant holders new warrants to purchase an
additional 196,875 common shares for a total of 984,375 shares of our Company's
common stock at an adjusted exercise price of $0.40 per share under the same
terms as the original warrant. The warrants were issued pursuant to Section 4(2)
of the 1933 Act.
 
 On August
14, 2008, pursuant to a subscription agreement, our Company completed a private
placement (the “First Tranche”) to one investor for an aggregate of 10,638,297
units at a price of $0.47 per unit, for total gross proceeds of $5,000,000. Each
unit is comprised of one common share, one common share purchase warrant (“Whole
Warrant”) and 0.188000015 of one common share purchase warrant (“Additional
Fractional Warrant”). Each Whole Warrant entitles the holder to purchase one
common share at a price of $0.71 per common share for a period of three years
from the date of closing. Each Additional Fractional Warrant entitles the holder
to purchase 0.188000015 of one common share at a price of $0.95 for a period of
three years from the date of closing. The Whole Warrants and the Additional
Fractional Warrants expire on August 14, 2011. The units were issued pursuant to
Regulation S under the 1933 Act, as amended.
 
 On
October 31, 2008, pursuant to a subscription agreement dated August 14, 2008 and
effective October 31, 2008, we closed the second tranche of a private placement
(the “Second Tranche”) to one investor (the “Subscriber”) of an aggregate of
12,500,000 units (“Units”) at a price of US$0.40 per Unit, for total gross
proceeds of US$5,000,000. Each Unit is comprised of one (1) common share
(“Common Share”), one (1) Common Share purchase warrant (“Whole Warrant”) and
0.16 of one Common Share purchase warrant (“Additional Fractional Warrant”).
Each Whole Warrant entitles the holder to purchase one (1) Common Share at a
price of US$0.60 per Common Share for a period of three years from the date of
closing. Each Additional Fractional Warrant entitles the holder to purchase 0.16
of one Common Share at a price of US$0.80 for a period of three years from the
date of closing. The Whole Warrants and the Additional Fractional Warrants
expire on October 31, 2011. The units were issued pursuant to Regulation S under
the Securities Act of 1933, as amended.
  29
 
 ITEM 6.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
 
 You
should read the following discussion and analysis in conjunction with our 2006
audited consolidated financial statements and related notes. For the purpose of
this discussion, unless the context indicates another meaning, the terms the
“Company”, “we”, “us” and “our” refer to Deep Well Oil & Gas, Inc. and its
subsidiaries.This
discussion includes forward-looking statements that reflect our current views
with respect to future events and financial performance and that involve risks
and uncertainties. Our actual results, performance or achievements could differ
materially from those anticipated in the forward-looking statements as a result
of certain factors including risks discussed in "Management’s Discussion and
Analysis or Plan of Operations – Forward-Looking Statements" below and under the
heading “Risk Factors” in this Annual Report on Form 10-KSB for the year ended
September 30, 2006.
 
 Our consolidated financial
statements and information are reported in U.S. dollars and are prepared based
upon US American
generally accepted accounting principles.
 
 General
Overview
 
 We are an
emerging independent junior oil and gas exploration and development company
headquartered in Edmonton, Alberta, Canada. Our Company’s immediate corporate
focus is to develop the existing land base that it presently controls in the
Peace River Oil Sands area in North Central Alberta. Our principal office is
located at  Suite 700, 10150 100 Street, Edmonton, Alberta T5J 0P6,
our telephone number is (780) 409-8144 and our fax number is (780) 409-8146. Our
Company also has an exploration office in Calgary, Alberta. Deep Well Oil &
Gas, Inc. is a Nevada corporation and trades on the pink sheets under the symbol
DWOG. We maintain a website at www.deepwelloil.com.
 
 Operations and Plan of
Operations over the next 12 months
 
 Finally
the weather changed to below freezing temperature, enabling the preparation of
the infrastructure and moving the drilling rig to the wellsite. On December 4,
2008 we successfully spudded the first well planned for our Sawn Lake Project.
The location is located at 12-14-092-13W5 in Northern Alberta and is to be
drilled to a vertical depth of 682 meters (2,238 feet). This well is currently
being completed. Another location is being prepared for the drilling rig. We are
currently constructing additional access roads in preparation to on our oil
sands properties.
 
 Our
Company’s current and near-term development plan is to use the funds recently
acquired to execute our Company’s plan of development for the Sawn Lake Project.
The first stage of the plan will include production testing and project
re-analysis and engineering study. To accomplish this, our Company recently
purchased and interpreted seismic data for certain sections of the Sawn Lake
project. This recent seismic acquisition and reprocessing is in addition to and
focuses on different areas than the seismic previously acquired and reprocessed
by Signet, the results of which and in addition to the aeromagnetic data, is now
available to our Company by virtue of the November 26, 2007 settlement with
Signet. Based on this newly acquired data log analyses and information obtained
from external public resources, our Company’s exploration team selected 6
locations to be drilled over the next 12 months. Our Company has completed
surveying of these 6 locations along with their respective environmental field
reports. On September 10, 2008, the Energy Resources Conservation Board granted
us 6 well licenses and our Company has secured a drilling contract. Our Company
expects to drill and production test 6 wells and possibly an optional 7th well
over the next 12 months. To assist in defining the Sawn Lake project these 6
locations have been selected to evaluate more of the reservoir than previously
drilled under the Farmout Agreement. As operator for these leases, our Company
will also test to its satisfaction the wells for cold flow capability. The focus
of our Company’s drilling program is to further define the heavy oil reservoir
to establish reserves and to determine the best technology under which oil can
be produced from the Sawn Lake project in order to initiate production to
generate an early positive cash flow.
 
 On
February 25, 2005, we entered into a Farmout Agreement with Signet Energy Inc.
(“Signet” now known as 1350826 Alberta Ltd., a subsidiary company of Andora
Energy Corporation) covering 69.5 sections within the Sawn Lake project. This
agreement allowed Signet to earn up to 40% working interest in the farmout lands
(50% of our Company’s share). Among other things the agreement called for Signet
to drill 10 wells, pay our Company a $2,000,000 prospect fee and grant us 33.33%
of the outstanding shares of Surge on the day the agreement was signed. On
November 15, 2005, our Company and Signet amended the Farmout Agreement and
further agreed to acknowledge the original Farmout Agreement. In accordance with
the Farmout Agreement, Signet was to drill 10 wells, based on a rolling option
to drill, prior to February 25, 2008, at no cost to our Company, to fully earn
its 40% working interest in the project. In addition, our Company owned
7,550,000 common shares of Signet. Under the Farmout Agreement, notice to our
Company of Signet’s intent to drill the next option well was due by December 16,
2006, and accordingly, since such notice was not provided, Signet’s right to
earn additional interest in the Sawn Lake acreage from our Company had expired.
In December 2006, our Company notified Signet that it was disputing Signet
earning an additional 12 sections as a result of drilling the second and third
wells due to Signet’s failure to properly complete the wells by not conducting
the production testing as reasonably required under the Farmout Agreement. The
Farmout Agreement stated that the sustained production test must be of
sufficient duration to establish to the Farmor’s (therefore Deep Well’s)
reasonable satisfaction the initial productivity of the earning well. Signet’s
view was that it had earned the 12 sections pursuant to the terms of the Farmout
Agreement. These 12 sections were subject to selection in accordance with the
provisions of the Farmout Agreement. On November 26, 2007, our Company entered
into mediation with Signet and resolved their differences on this and certain
collateral matters. The settlement included, but is not limited to:
  30
 
 ·
              the
      Farmout Agreement dated February 25, 2005, being effectively terminated
      concurrently with the execution of the settlement agreement;
      and
 ·
              Signet
      being regarded as having earned the two sections on which the option wells
      were drilled and 4 additional sections as set out in the settlement;
      and
 ·
              Signet
      being required to reconvey registered title to 57.5 unearned sections of
      the Farmout Lands, as defined in the Farmout Agreement, back to our
      Company; and
 ·
              our
      Company having the right to retest, at no cost to Signet, the option wells
      previously drilled.
 
 On April
2, 2008, our Company successfully bid on 1 Petroleum and Natural Gas Rights
parcel for a total of 6 sections in the Ochre area covering 3,795 gross acres
(1,536 gross hectares) with a working interest of 100%, increasing our land
holdings in the Peace River area by 8%. Our Company currently owns an 80%
working interest in 51 contiguous sections of oil sands development leases, a
40% working interest in an additional 12 sections of oil sands development
leases, an 80% working interest in 6.5 sections of oil sands permits and a 100%
working interest in the recently acquired 6 sections of a Petroleum and Natural
Gas License in the Sawn Lake heavy oil area in North Central Alberta, bringing
our total land holdings to 75.5 sections covering 47,759 gross acres or 19,328
gross hectares.
 
 Reorganization and Raising
Capital
 
 On
February 19, 2003, our Company filed a Petition for Relief under Chapter 11 of
the U.S. Bankruptcy Code in the United States Bankruptcy Court in and for the
Eastern District of New York titled In re: Allied Devices Corporation, et al.,
Chapter 11, Case No. 03-80962-511 “the Bankruptcy Action”. On September 10,
2003, after notice to all creditors and a formal hearing, U.S. Bankruptcy Judge
Melanie L. Cyganowski issued an “Order Confirming Liquidating Plan of
Reorganization” in the Bankruptcy Action. In conjunction with that Bankruptcy
Order, our Company’s liabilities, among other things, were paid off and
extinguished.
 
 During
the fiscal years 2005, 2006 and 2007, we financed our business operations
through a loan, private offerings of our common stock and the exercise of
certain warrants realizing gross proceeds of $9,570,800. In these offerings we
sold units comprised of common stock and warrants to purchase additional common
stock and as a result we had an aggregate of 15,752,841 outstanding warrants
from these offerings with exercise prices ranging from $0.40 to $2.25, as at
September 30, 2007. If all of the warrants sold in the offerings are exercised
per their terms, we may realize aggregate proceeds of approximately $12,595,559.
However, the warrant holders have complete discretion as to when or if the
warrants are exercised before they expire and we cannot guarantee that the
warrant holders will exercise any of the warrants.
 
 On August
14, 2008, our Company successfully raised $5,000,000 through a private placement
offering for 10,638,297 common shares of our Company to one investor and we
raised an additional $5,000,000 for another 12,500,000 additional common shares
of our Company, which closed on October 31, 2008 with the same investor. With
this private placement our Company has the funds anticipated to complete its
near term business plan. For our long-term operations we anticipate that, among
other options, we will raise funds during the next twenty-four months through
private placements of our common stock under exemptions from the registration
requirements provided by Canadian, United States and state and provincial
securities laws. The purchasers and manner of issuance will be determined
according to our financial needs and the available exemptions. We also note that
if we issue more shares of our common stock, our stockholders may experience
dilution in the percentage of their ownership of common stock. We may not be
able to raise sufficient funding from stock sales for long-term operations and
if so, we may be forced to delay our business plans until adequate funding is
obtained. We believe debt financing will not be an alternative for funding in
the exploration stage of our Company due to the risky nature of business. The
lack of tangible assets places debt financing for our Company beyond the
credit-worthiness required by most lenders.
 
 Significant Changes in
Number of Employees
 
 Our
Company currently has three full-time employees and five prime subcontractors.
For further information on subcontractors see “Compensation Arrangements for
Executive Officers” under item 10 “Executive Compensation” described in this
report. We expect to hire from time to time when required, more employees,
independent consultants and contractors during the stages of implementing our
plans.
 
 Mr. Cyrus
James Spaulding was an independent contractor under his consulting company,
Trebax Projects Ltd. (“Trebax”). He resigned from his position as Chief
Operating Officer of our Company, effective September 21, 2007. As of the
effective date Trebax’s existing consulting agreement has been
terminated.
 
 31
 
 Effective
September 20, 2007, our Company entered into a Consulting Agreement with R.N.
Dell Energy Ltd. whose primary consultant is Mr. Edward A. Howard, to assist our
Company in the further exploitation and development of Deep Well’s Sawn Lake
project. Mr. Howard is a Geologist and Palynologist with over 40 years of heavy
oil experience. Most recently Mr. Howard was Vice President of Exploration and
Development for Signet (recently acquired by Andora). Signet was the Farmee
which had the right to earn acreage from Deep Well. Signet’s rights under the
Farmout Agreement to drill to earn more acreage has since expired and as of
November 26, 2007, the Farmout Agreement has been terminated. At Signet Mr.
Howard was responsible for the planning and execution of the Sawn Lake drilling
program. Mr. Howard has also worked with several companies in the heavy oil
sector including Sceptre Resources (since taken over by CNRL) at their
Tangleflags field and Shell Canada at their Peace River Project. Mr. Howard was
credited with the discovery and early development of the first successful Steam
Assisted Gravity Drainage (“SAGD”) heavy oil extraction project for Sceptre at
the Tangleflags field. While at Shell from 1967 to 1977 Mr. Howard was
instrumental in developing Shell’s Peace River strategy from the early inception
through to the pilot plant stage. This project continues to be one of the most
successful in situ oil sands producers. Also, Mr. Howard has implemented
noteworthy Cyclical Stream Simulation (“CSS”) projects in Alberta. Some of these
projects have proven to increase recovery rates between/from 50% - 60%. Mr.
Howard’s extensive experience with the primary and secondary recovery of heavy
oil as well as his direct knowledge of the Peace River oil sands area,
specifically the Sawn Lake project, will be of great benefit to Deep
Well.
 
 Effective
October 15, 2007, our Company entered into a Consulting Agreement with Picoplat
Consulting Inc. whose primary consultant is Mr. Ferdinand Brathwaite, to assist
our Company in the exploitation and development of Deep Well’s Sawn Lake
project. Mr. Brathwaite is an Engineering Technologist with substantial
knowledge and expertise related to oil and gas recovery in the Western
Sedimentary Basin. He was previously employed by HBOG as an engineering
technologist and by Royal Bank’s Global Energy And Minerals Group, performing
economic evaluations for both Canadian and U.S. oil and gas properties. He
switched careers and managed a small computer business before returning to the
oil and gas sector under contract with Encana Gas Storage Unit’s New Ventures
Group in the search for gas storage reservoirs in the U.S. Subsequent to the
sale of Encana’s Gas Storage Unit, Mr. Brathwaite consulted with Signet in it’s
development department.
 
 Off-Balance Sheet
Arrangements
 
 Our
Company does not have any off-balance sheet arrangements.
 
 Forward-Looking
Statements
 
 This
annual report on Form 10-KSB, including all referenced exhibits, contains
“forward-looking statements” within the meaning of the United States federal
securities laws. The words "may," "believe," "will," "anticipate," "expect,"
"estimate," "project," "future," and other expressions that are predictions of
or indicate future events and trends and that do not relate to historical
matters identify forward-looking statements. The forward-looking statements in
this annual report on Form 10-KSB include, among others, statements with respect
to:
 
 ·
              our
      current business strategy;
 ·
              our
      projected sources and uses of cash;
 ·
              our
      plan for future development and
operations;
 ·
              our
      drilling and testing plans;
 ·
              the
      sufficiency of our capital in order to execute our business
      plan;
 ·
              reserve
      and resource estimates; and
 ·
              the
      timing and sources of our future
funding.
 
 Reliance
should not be placed on forward-looking statements because they involve known
and unknown risks, uncertainties and other factors, which may cause the actual
results to differ materially from the anticipated future results expressed or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially from those set forward in the forward-looking
statements include, but are not limited to:
 
 ·
              changes
      in general business or economic
conditions;
 ·
              changes
      in legislation or regulation that affect our
  business;
 ·
              our
      ability to obtain necessary regulatory approvals and
    permits;
 ·
              opposition
      to our regulatory requests by various third
  parties;
 ·
              actions
      of aboriginals, environmental activists and other industrial
      disturbances;
 ·
              availability
      of labor or materials or increases in their
  costs;
 ·
              the
      availability of sufficient capital to finance our business plans on terms
      satisfactory to us;
 
 32
 
 ·
              adverse
      weather conditions and natural
disasters;
 ·
              risks
      associated with increased insurance costs or unavailability of adequate
      coverage;
 ·
              volatility
      of oil and natural gas prices;
 ·
              competition;
 ·
              changes
      in labor, equipment and capital
costs;
 ·
              future
      acquisitions or strategic
partnerships;
 ·
              the
      risks and costs inherent in
litigation;
 ·
              imprecision
      in estimates of reserves, resources and recoverable quantities of oil and
      natural gas;
 ·
              product
      supply and demand;
 ·
              fluctuations
      in currency and interest rates;
 ·
              the
      risk that our currently proposed private placement will not be completed
      on a timely basis or at all.
 ·
              the
      additional risks and uncertainties, many of which are beyond our control,
      are referred to elsewhere in this Form 10-KSB, and in our other SEC
      filings.
 
 Except as
required by law, we undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise. However, any further disclosures made on related subjects
in subsequent reports on Forms 10-KSB, 10-QSB and 8-K should be
consulted.
 
 33





MADSEN & ASSOCIATES, CPA’S
      INC.
              684
      East Vine St. #3Certified
      Public Accountants and Business Consultants
              Murray,
      Utah 84107Telephone
      801-268-2632Fax
      801-262-3978





Board of
Directors


Deep Well
Oil & Gas, Inc.


Edmonton,
Alberta, Canada





REPORT
OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS





We have
audited the accompanying consolidated balance sheets of Deep Well Oil & Gas,
Inc. and Subsidiary (exploration stage company) at September 30, 2006 and 2005,
and the related statements of operations, stockholders’ equity, and cash flows
for the years ended September 30, 2006 and 2005 and the period September 10,
2003 (date of inception) to September 30, 2006. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to nor
were we engaged to perform an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness for the company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Deep Well Oil &
Gas, Inc. and Subsidiary at September 30, 2006 and 2005, and the related
statements of operations, and cash flows for the years ended September 30, 2006
and 2005 and the period September 10, 2003 (date of inception) to September 30,
2006, in conformity with accounting principles generally accepted in the United
States of America.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company will need additional working
capital for its planned activity and to service its debt, which raises
substantial doubt about its ability to continue as a going concern. Management’s
plans in regard to these matters are described in the notes to the financial
statements. These financial statements do not include any adjustments that might
result from the outcome of this uncertainty.





Murray,
      UtahJuly
      3, 2008
                  
                  /s/
      Madsen & Associates, CPA’s
Inc.


34


DEEP
WELL OIL & GAS, INC. (AND SUBSIDIARY)


(Exploration
Stage Company)


Consolidated
Balance Sheets


September
30, 2006 and 2005





2006
                            
                            
                            2005ASSETSCurrent
      AssetsCash
      and cash equivalents
                            
                            $
                            50,324
                            
                            
                            $
                            135,879Accounts
      receivable
                            
                            
                            59,273
                            
                            
                            
                            48,727Prepaid
      expenses
                            
                            
                            61,376
                            
                            
                            
                            27,901170,973
                            
                            
                            
                            212,507Loan receivable – related
      parties (Note 8)
                            
                            
                            –
                            
                            
                            
                            11,604Oil and gas properties
      (Note 4)
                            
                            
                            4,353,826
                            
                            
                            
                            5,315,252Equipment – net of depreciation(Note 5)
                            
                            
                            3,325
                            
                            
                            
                            602$
                            4,528,124
                            
                            
                            $
                            5,539,965LIABILITIESCurrent
      LiabilitiesAccounts
      payable
                            
                            $
                            207,890
                            
                            
                            $
                            211,716Accounts
      payable – related parties (Note 8)
                            
                            
                            465,737
                            
                            
                            
                            224,247Note
      and accrued interest payable (Note 6)
                            
                            
                            11,250
                            
                            
                            
                            43,160684,877
                            
                            
                            
                            479,123Convertible debenture and
      accrued interest (Note 7)
                            
                            
                            –
                            
                            
                            
                            1,021,463Loan payable(Note
      9)
                            
                            
                            287,406
                            
                            
                            
                            285,958972,283
                            
                            
                            
                            1,786,544SHAREHOLDERS’
      EQUITYCommon stock:(Note
      10)Authorized:
      300,000,000 shares at $0.001 par valueIssued
      and outstanding: 62,979,289 shares(September
      2005 – 52,031,289)
                            
                            
                            62,979
                            
                            
                            
                            52,031Additional
      paid in capital
                            
                            
                            6,513,620
                            
                            
                            
                            3,512,054Capital
      stock subscriptions received 5,400,000 shares(2005
      – 12,975,000 shares)
                            
                            
                            739,827
                            
                            
                            
                            2,027,639Deficit
      (dated September 10, 2003)
                            
                            
                            (3,760,585
                            )
                            
                            
                            (1,838,303
                            )3,555,841
                            
                            
                            
                            3,753,421$
                            4,528,124
                            
                            
                            $
                            5,539,965





See
accompanying notes to the financial statements


35


DEEP
WELL OIL & GAS, INC. (AND SUBSIDIARY)


(Exploration
Stage Company)


CONSOLIDATED
STATEMENT OF OPERATIONS


For
the Years Ended September 30, 2006 and 2005 and the Period September 10,
2003


(Inception
of Exploration Stage) to September 30, 2006





2006
                      
                      
                      2005
                      
                      
                      September 10,
                        2003 to
                        September 30,
                        2006Revenue
                      
                      $
                      –
                      
                      
                      $
                      –
                      
                      
                      $
                      –ExpensesAdministrative
                      
                      
                      1,363,080
                      
                      
                      
                      1,172,417
                      
                      
                      
                      3,129,696Share
      based compensation
                      
                      
                      558,882
                      
                      
                      
                      –
                      
                      
                      
                      558,882Net
      loss from operations
                      
                      
                      (1,921,962
                      )
                      
                      
                      (1,172,417
                      )
                      
                      
                      (3,688,578
                      )Other
      income and expensesInterest
      income
                      
                      
                      2,492
                      
                      
                      
                      13,478
                      
                      
                      
                      15,970Interest
      expense
                      
                      
                      (2,812
                      )
                      
                      
                      (103,610
                      )
                      
                      
                      (112,843
                      )Settlement
      of debt
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      24,866Net
      loss
                      
                      $
                      (1,922,282
                      )
                      
                      $
                      (1,262,549
                      )
                      
                      $
                      (3,760,585
                      )Net
      loss per common shareBasic
      and diluted
                      
                      $
                      (0.03
                      )
                      
                      $
                      (0.03
                      )Weighted
      average outstanding shares
                        –
      stated in 1,000’sBasic
                      
                      
                      58,839
                      
                      
                      
                      38,117





See
accompanying notes to the financial statements


36


DEEP
WELL OIL & GAS, INC. (AND SUBSIDIARY)


(Exploration
Stage Company)


CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ EQUITY


For
the Period September 10, 2003 (Inception of Exploration Stage) to September 30,
2006




Common Shares
                          
                          
                          
                          
                          
                          CapitalAdditional
                          
                          
                          StockPaid in
                          
                          
                          Subscriptions
                          
                          
                          AccumulatedShares
                          
                          
                          Amount
                          
                          
                          Capital
                          
                          
                          Received
                          
                          
                          Deficit
                          
                          
                          TotalBalance at September 10,
      2003
                          
                          
                          991,912
                          
                          
                          $
                          992
                          
                          
                          $
                          (992
                          )
                          
                          $
                          –
                          
                          
                          $
                          –
                          
                          
                          $
                          –Issuance
      of common stock pursuant to bankruptcy agreement September 10,
      2003
                          
                          
                          36,019,556
                          
                          
                          
                          36,019
                          
                          
                          
                          13,981
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          50,000Net
      operating loss for the period September 10 to September 30,
      2003
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          (50,000
                          )
                          
                          
                          (50,000
                          )Return
      and cancellation of common shares
                          
                          
                          (5,775,000
                          )
                          
                          
                          (5,775
                          )
                          
                          
                          5,775
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –Net
      operating loss for the year ended September 30, 2004
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          (525,754
                          )
                          
                          
                          (525,754
                          )Balance
      at September 30, 2004
                          
                          
                          31,236,468
                          
                          
                          
                          31,236
                          
                          
                          
                          18,764
                          
                          
                          
                          –
                          
                          
                          
                          (575,754
                          )
                          
                          
                          (525,754
                          )Issuance
      of common stockPrivate
      placement March 10, 2005-
      Shares
                          
                          
                          1,875,000
                          
                          
                          
                          1,875
                          
                          
                          
                          527,940
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          529,815- Warrants (787,500)(Note 9)
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          205,185
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          205,185Share
      exchange June 7, 2005-
      Shares
                          
                          
                          18,208,875
                          
                          
                          
                          18,209
                          
                          
                          
                          2,476,497
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          2,494,706-
      Conversion rights of preferred shares of subsidiary
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          1,777,639
                          
                          
                          
                          –
                          
                          
                          
                          1,777,639Private
      placement August 12, 2005-
      Shares
                          
                          
                          710,946
                          
                          
                          
                          711
                          
                          
                          
                          151,638
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          152,349- Warrants (710,946)(Note 9)
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          132,030
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          132,030Common
      stock subscription received
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          250,000
                          
                          
                          
                          –
                          
                          
                          
                          250,000Net
      operating loss for the year ended September 30, 2005
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          (1,262,549
                          )
                          
                          
                          (1,262,549
                          )Balance
      at September 30, 2005
                          
                          
                          52,031,289
                          
                          
                          $
                          52,031
                          
                          
                          $
                          3,512,054
                          
                          
                          $
                          2,027,639
                          
                          
                          $
                          (1,838,303
                          )
                          
                          $
                          3,753,421




See
accompanying notes to the financial statements


37


DEEP
WELL OIL & GAS, INC. (AND SUBSIDIARY)


(Exploration
Stage Company)


CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ EQUITY (Continued)


For
the Period September 10, 2003 (Inception of Exploration Stage) to September 30,
2006





Common Shares
                                        
                                        
                                        
                                        
                                        
                                        CapitalAdditional
                                        
                                        
                                        StockPaid
      in
                                        
                                        
                                        Subscriptions
                                        
                                        
                                        AccumulatedShares
                                        
                                        
                                        Amount
                                        
                                        
                                        Capital
                                        
                                        
                                        Received
                                        
                                        
                                        Deficit
                                        
                                        
                                        TotalBalance
      carried forwardAt September 30,
      2005
                                        
                                        
                                        52,031,289
                                        
                                        
                                        $
                                        52,031
                                        
                                        
                                        $
                                        3,512,054
                                        
                                        
                                        $
                                        2,027,639
                                        
                                        
                                        $
                                        (1,838,303
                                        )
                                        
                                        $
                                        3,753,421Issuance
      of common stockPrivate
      placement October 11, 2005-
      Shares
                                        
                                        
                                        3,150,000
                                        
                                        
                                        
                                        3,150
                                        
                                        
                                        
                                        667,266
                                        
                                        
                                        
                                        (250,000
                                        )
                                        
                                        
                                        –
                                        
                                        
                                        
                                        420,416-
      Warrants (3,150,000)
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        553,584
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        553,584Private
      placement January 13, 2006-
      Shares
                                        
                                        
                                        73,000
                                        
                                        
                                        
                                        73
                                        
                                        
                                        
                                        55,345
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        55,418-
      Warrants (73,000)
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        46,402
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        46,402Exercise
      option agreementFebruary
      23, 2006-
      Shares
                                        
                                        
                                        4,707,750
                                        
                                        
                                        
                                        4,708
                                        
                                        
                                        
                                        640,277
                                        
                                        
                                        
                                        (644,985
                                        )
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –Exercise
      option agreementJune
      13, 2006-
      Shares
                                        
                                        
                                        2,867,250
                                        
                                        
                                        
                                        2,867
                                        
                                        
                                        
                                        389,960
                                        
                                        
                                        
                                        (392,827
                                        )
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –Warrants
      exercisedJuly
      28, 2006
                                        
                                        
                                        100,000
                                        
                                        
                                        
                                        100
                                        
                                        
                                        
                                        59,900
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        60,000Warrants
      exercisedSeptember
      11, 2006
                                        
                                        
                                        50,000
                                        
                                        
                                        
                                        50
                                        
                                        
                                        
                                        29,950
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        30,000Options
      granted for services
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        558,882
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        558,882Net
      operating loss for theyear
      ended September 30, 2006
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        (1,922,282
                                        )
                                        
                                        
                                        (1,922,282
                                        )Balance
      at September 30, 2006
                                        
                                        
                                        62,979,289
                                        
                                        
                                        $
                                        62,979
                                        
                                        
                                        $
                                        6,513,620
                                        
                                        
                                        $
                                        739,827
                                        
                                        
                                        $
                                        (3,760,585
                                        )
                                        
                                        $
                                        3,555,841





See
accompanying notes to the financial statements


38


DEEP
WELL OIL & GAS, INC. (AND SUBSIDIARY)


(Exploration
Stage Company)


CONSOLIDATED
STATEMENT OF CASH FLOWS


For
the Years Ended September 30, 2006 and 2005 and the Period September 10,
2003


(Inception
of Exploration Stage) to September 30, 2006





2006
                        
                        
                        2005
                        
                        
                        September 10,
                          2003 to
                          September 30,
                          2006CASH
      PROVIDED BY (USED IN):Operating
      ActivitiesNet
      loss
                        
                        $
                        (1,922,282
                        )
                        
                        $
                        (1,262,549
                        )
                        
                        $
                        (3,760,585
                        )Items
      not affecting cash:Stock
      based compensation
                        
                        
                        558,882
                        
                        
                        
                        –
                        
                        
                        
                        558,882Bad
      debts
                        
                        
                        –
                        
                        
                        
                        170,084
                        
                        
                        
                        170,084Amortization
                        
                        
                        914
                        
                        
                        
                        –
                        
                        
                        
                        914Commissions
      withheld from loans proceeds
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        121,000Net
      changes in non-cash working capital (Note 12)
                        
                        
                        193,643
                        
                        
                        
                        34,006
                        
                        
                        
                        379,465(1,168,843
                        )
                        
                        
                        (1,058,459
                        )
                        
                        
                        (2,530,240
                        )Investing
      ActivitiesLoan
      payable
                        
                        
                        1,448
                        
                        
                        
                        274,404
                        
                        
                        
                        275,852Loan
      to related parties
                        
                        
                        11,604
                        
                        
                        
                        (808,445
                        )
                        
                        
                        (811,746
                        )Purchase
      of equipment
                        
                        
                        (3,637
                        )
                        
                        
                        (333
                        )
                        
                        
                        (3,970
                        )Purchase
      of oil and gas properties
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        (111,392
                        )Cash
      from acquisition of subsidiary
                        
                        
                        –
                        
                        
                        
                        11,141
                        
                        
                        
                        11,141Return
      of costs from farmout agreement
                        
                        
                        961,426
                        
                        
                        
                        –
                        
                        
                        
                        961,426970,841
                        
                        
                        
                        (523,233
                        )
                        
                        
                        321,311Financing
      ActivitiesNote
      payable – advance
                        
                        
                        (31,910
                        )
                        
                        
                        (68,146
                        )
                        
                        
                        (100,056
                        )Convertible
      debenture advance (repayment)
                        
                        
                        (1,021,463
                        )
                        
                        
                        16,573
                        
                        
                        
                        (1,004,890
                        )Proceeds
      from issuance from common stock
                        
                        
                        1,165,820
                        
                        
                        
                        1,269,379
                        
                        
                        
                        2,485,199Proceeds
      from debenture net of commissions
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        879,000112,447
                        
                        
                        
                        1,217,806
                        
                        
                        
                        2,259,253Increase
      (decrease) in cash and cash equivalents
                        
                        
                        (85,555
                        )
                        
                        
                        (363,886
                        )
                        
                        
                        50,324Cash
      and cash equivalents, beginning of year
                        
                        
                        135,879
                        
                        
                        
                        499,765
                        
                        
                        
                        –Cash
      and cash equivalents, end of year
                        
                        $
                        50,324
                        
                        
                        $
                        135,879
                        
                        
                        $
                        50,324Supplemental
      cash flow information:Interest
      expense
                        
                        $
                        2,812
                        
                        
                        $
                        103,610





See
accompanying notes to the financial statements


39


DEEP
WELL OIL & GAS, INC. (AND SUBSIDIARY)


(Exploration
Stage Company)


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2006 and 2005







1.           NATURE
OF BUSINESS AND GOING CONCERN





Nature of
Business





The
Company, and its former subsidiaries, were engaged in the manufacture and
distribution of standard and custom precision mechanical assemblies and
components throughout the United States.





On
February 19, 2003, the Company filed a petition for bankruptcy in the United
States Bankruptcy Court under Chapter 11 in the Eastern District of New York
titled “Allied Devices Corporation, Case No. 03-80962-511”. The Company emerged
from bankruptcy pursuant to a Bankruptcy Court Order entered on September 10,
2003 with no remaining assets or liabilities.





The terms
of the bankruptcy settlement included: (1) a reverse common stock split of 30
shares of outstanding stock for 1 share; (2) increasing the authorized common
capital stock from 25,000,000 to 50,000,000 shares with a par value of $0.001;
(3) a change in the name of the Company from “Allied Devices Corporation” to
“Deep Well Oil & Gas, Inc.”, and (4) the authorization for the issuance of
2,000,000 post split restricted common shares and 4,000,000 post split common
shares in exchange for $50,000, which was paid into the bankruptcy court by the
recipients of the shares.





Restated
and amended articles of incorporation completing the terms of the bankruptcy
have been filed in the state of Nevada.





Upon
emergence from Chapter 11 proceedings, the Company adopted fresh-start reporting
in accordance with the American Institute of Certified Public Accountants
Statement of Position 90-7, Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code (SOP 90-7).  In connection with the adoption
of fresh-start reporting, a new entity was deemed created for financial
reporting purposes. For financial reporting purposes, the Company adopted the
provisions of fresh-start reporting effective September 10, 2003.  All
periods presented prior to September 10, 2003, including the financial
information contained in these financial statements, reflect the Predecessor
Company.  In adopting the requirements of fresh-start reporting as of
September 10, 2003, the company was required to value its assets and liabilities
at fair value and eliminate any accumulated deficit as of September 10,
2003.  The Company emerged from Chapter 11 proceedings with no assets
and liabilities pursuant to the Bankruptcy Order.  Because the current
business, heavy oil and gas exploration, has no relevance to the Predecessor
Company, there is no basis for financial comparisons between the Company’s
current operations and the Predecessor Company.





Subsequent
to the bankruptcy on February 27, 2004, the Company completed a forward stock
split of two shares for each outstanding share.





This
report has been prepared showing the name “Deep Well Oil & Gas, Inc.” and
the post split common stock, with $0.001 par value, from inception. The
accumulated deficit has been restated to zero and dated September 10, 2003, with
the statement of operations to begin on that date.





Going
Concern





The
accompanying audited financial statements have been prepared on a going concern
basis, which anticipates the realization of assets and the liquidation of
liabilities during the normal course of operations.  However, as shown
in these consolidated financial statements, the Company during the year ended
September 30, 2006, incurred a net loss of $1,922,282, although as of that date,
the Company’s total assets exceeded its total liabilities by
$3,555,841.  In addition, the Company has an accumulated deficit of
$3,760,585.  These factors raise doubt about the Company’s ability to
continue as a going concern if changes in operations are not
forthcoming.





The
Company’s ability to continue as a going concern will depend on management’s
ability to successfully implement a business plan which will produce revenues,
control costs, and obtain additional forms of debt and/or equity financing.
These financial statements do not include any adjustments to the amounts and
classification of assets and liabilities that may be necessary should the
Company be unable to continue as a going concern.


40





Management
is of the opinion that the equity funds raised by the Company in its current
Public Offering (see Note 14 below) will be sufficient to finance its operations
until the end of 2008.





2.           SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES





Basis of
Presentation





These
consolidated financial statements are expressed in U.S. dollars and are prepared
in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”).





Basis of
Consolidation





These
consolidated financial statements include the accounts of (i) Deep Well Oil
& Gas (Alberta) Ltd., incorporated under the Business Corporations Act
(Alberta), Canada on September 15, 2005 and (ii) Northern Alberta Oil Ltd., from
the date of acquisition, being June 7, 2005, incorporated under the Business
Corporations Act (Alberta), Canada.  As of September 30, 2006, Deep
Well owned 100% of the Northern common shares and owns 58% (2005 – nil) of the
Northern preferred shares.  All inter-company balances and
transactions have been eliminated. The Company has received “Capital stock
subscriptions” of $739,827 (2005 - $2,027,639) which relates to the Northern
preferred shares for which Deep Well has exclusive rights to call in the
future.  The information furnished includes the financial results of
Northern, with effect from June 7, 2005 (see Note 3 – “Business Combination” to
the Notes to the Consolidated Financial Statements).





Cash and Cash
Equivalents





The
Company considers all highly liquid instruments with a maturity of three months
or less at the time of issuance to be cash equivalents.





Equipment





Equipment
are stated at cost.  Amortization expense is computed using the
declining balance method over the estimated useful life of the
asset.  The following is a summary of the estimated useful lives used
in computing amortization expense:





Equipment                      -   30%





Expenditures
for major repairs and renewals that extend the useful life of the asset are
capitalized.  Minor repair expenditures are charged to expense as
incurred.





Long-Lived
Assets





The
Company reviews for the impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. An impairment loss would be recognized when estimated future
cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount.





Foreign Currency
Translation





The
Company translates integrated foreign operations into the functional currency of
the parent.  Monetary assets and liabilities denominated in foreign
currencies are translated into U.S. dollars at rates of exchange in effect at
the date of the balance sheet.  Non-monetary items are translated at
the rate of exchange in effect when the assets are acquired or obligations
incurred.  Revenues and expenses are translated at average rates in
effect during the period, with the exception of amortization, which is
translated at historic rates.  Exchange gains and losses are charged
to operations.





Part of
the transactions of the Company were completed in Canadian dollars and have been
translated to US dollars as incurred, at the exchange rate in effect at the
time, and therefore, no gains or losses are recognized from the
translations.  US dollars are considered to be the functional
currency.





Accounting
Methods





The
Company recognizes income and expenses based on the accrual method of
accounting.


41





Dividend
Policy





The
Company has not yet adopted a policy regarding payment of
dividends.





Financial and Concentrations
Risk





The
Company does not have any concentration or related financial credit risk except
that cash is maintained in banks over the insured amounts of $100,000, however,
the amounts are maintained in banks of high quality.





Income
Taxes





The
Company utilizes the liability method of accounting for income taxes. Under the
liability method deferred tax assets and liabilities are determined based on the
differences between financial reporting and the tax bases of the assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect, when the differences are expected to reverse.  An allowance
against deferred tax assets is recorded, when it is more likely than not, that
such tax benefits will not be realized.





Due to
the uncertainty regarding the Company’s profitability, the future tax benefits
of its losses have been fully reserved for and no net benefit has been recorded
in the financial statements.





Revenue
Recognition





The
Company is in the business of exploring for, developing, producing and selling
crude oil and natural gas. Crude oil revenue is recognized when the product is
taken from the storage tanks on the lease and delivered to the purchaser.
Natural gas revenues are recognized when the product is delivered into a third
party pipeline downstream of the lease. Occasionally the Company may sell
specific leases and the gain or loss associated with these transactions will be
shown separately from the profit or loss from the operations or sales of oil and
gas products.





Advertising and Market
Development





The
Company expenses advertising and market development costs as
incurred.





Basic and Diluted Net Income
(Loss) Per Share





Basic net
income (loss) per share amounts are computed based on the weighted average
number of shares actually outstanding. Diluted net income (loss) per share
amounts are computed using the weighted average number of common shares and
common equivalent shares outstanding as if shares had been issued on the
exercise of the common share rights unless, the exercise becomes antidilutive
and then only the basic per share amounts are shown in the report.





Financial
Instruments





Fair
Values





The fair
values of the Corporation’s accounts receivables, loan receivable – related
parties, accounts payable, accounts payable – related parties, note and accrued
interest payable and convertible debenture approximate their carrying values due
to the short-term nature of these financial instruments.





Interest
Rate Price Risk





The
interest rate price risk is due to fixed interest rates on the convertible
debenture and loan payable.





Environmental
Requirements





At the
report date environmental requirements related to the mineral claims acquired
are unknown and therefore an estimate of any future cost cannot be
made.


42





Recent Accounting
Pronouncements





The
Company does not expect that the adoption of other recent accounting
pronouncements will have a material impact on its financial
statements.





Estimates and
Assumptions





Management
uses estimates and assumptions in preparing financial statements in accordance
with generally accepted accounting principles. Those estimates and assumptions
affect the reported amounts of the assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and expenses.
Actual results could vary from the estimates that were assumed in preparing
these financial statements.





3.           BUSINESS
COMBINATION





On June
7, 2005, Deep Well completed its acquisition of Northern Alberta Oil Ltd. by way
of a share exchange agreement where by Deep Well would acquire all the
outstanding common shares of Northern by giving up newly issued restricted
shares of Deep Well common stock. In addition Deep Well also has the exclusive
option to acquire all of the preferred shares of Northern through a similar
share exchange. As consideration Northern shareholders will receive three (3)
shares of Deep Well common stock for every one (1) share of Northern common
stock and each preferred Northern stock holder will receive thirty (30) shares
of Deep Well common stock for every one (1) preferred Northern share held. The
Northern preferred shares convert into 12,975,000 Deep Well common
shares.





The
acquisition of Northern allows Deep Well to consolidate its oil sands holdings
in the Sawn Lake Oil Sands Project in North - Central Alberta,
Canada.





The
acquisition of Northern Alberta Oil Ltd. has been accounted for using the
purchase method in accordance with SFAS No. 141 "Business Combinations" ("SFAS
No. 141). Under the purchase method of accounting, the assets and liabilities of
Northern are recorded at their fair values at the acquisition date. The
financial statements and reported results of operations of Deep Well issued
after the completion of the acquisition reflect these fair values, with the
results of Northern being included within the Consolidated Statement of
Operations from June 7, 2005.





As per
SFAS No. 141 the measurement of the consideration is based on the fair value of
the consideration given or the fair value of the net assets acquired, whichever
is more clearly evident and, thus, more reliably measurable. In this case the
quoted market price of the equity security issued (Deep Well shares) to effect
the business combination has been used to estimate the fair value of the net
assets of the entity after recognizing the possible effects of price
fluctuations, quantities traded, issue costs, and the like. In this case the
Company examined two private placements on March 10, 2005 and August 12, 2005 to
determine if discount to the share price would be needed. Both of the private
placements consisted of shares and attached warrants therefore the Black Scholes
pricing model was used to determined how to allocate the private placement
proceeds to the shares and warrants. The results showed that a discount rate
between 37% and 65% would need to be used. The Deep Well share price on June 7,
2005 was $0.39 and with a discount rate of 65% the price per share would be
$0.14.





Included
in the consideration is the possible conversion of each Northern preferred share
into 30 Deep Well shares. This contingent consideration was determinable at the
date of acquisition and has been included as part of the consideration given up
as it was determined, beyond a reasonable doubt, that these shares would be
converted in the future. The exchange agreement stipulated that Deep Well had
the option to 'call' the shares after 35 months and the preferred shareholders
had the option to 'put' those shares to Deep Well anytime within 36 months. It
was Deep Well's intention to 'call' the shares if the preferred shareholders did
not exercise their 'put' within the 36 months. At June 30, 2005 the preferred
shares had not been converted but the amount has been recorded as a "Provision
for conversion of preferred share rights of subsidiary" and included in
Shareholders' Equity.





Total
consideration, including the option to acquire Northern preferred shares in a
share exchange was approximately $4.3 million at the price of $0.14 per share of
Deep Well’s common stock, as analyzed below:





$
                    ’0006,069,625
      of Northern common shares exchanged 3 for 1 at $0.14
                    
                    $
                    2,495432,500
      of Northern preferred shares exchanged 30 for 1 at $0.14
                    
                    
                    1,777$
                    4,272


43





The
following table presents Deep Well’s allocation of the purchase price to the
assets acquired and liabilities assumed, based on their fair
values.





$
                  ’000ASSETSCurrent
      Assets:Cash
                  
                  $
                  11Accounts
      receivable
                  
                  
                  18Prepaid
                  
                  
                  16Total
      current assets
                  
                  
                  45Loans
      receivable – related parties
                  
                  
                  241Oil
      and gas properties
                  
                  
                  5,205Total
      assets
                  
                  
                  5,491LIABILITIESCurrent
      Liabilities:Accounts
      payable
                  
                  
                  124Accounts
      payable – related parties
                  
                  
                  96Loan
      payable
                  
                  
                  11Loan
      payable – related parties
                  
                  
                  988Total
      liabilities
                  
                  
                  1,219Net
      assets acquired with no goodwill allocated in the
    acquisition
                  
                  $
                  4,272





4.           OIL
AND GAS PROPERTIES





The
Company has acquired an 80% interest in certain oil and gas properties, which
after a farmout agreement entered into on February 25, 2005, the Company's
interest was reduced to 40% on twelve sections as described below in the
November 26, 2007 settlement. The certain properties are located in North
Central Alberta, Canada with a life of 15 years. The term include certain
commitments related to oil sand leases which require the payments of rents as
long as the leases are non-producing.





As of now
the payments due in Canadian dollars under this commitment are as
follows:





2007
                        
                        $
                        45,1582008
                        
                        $
                        43,0082009
                        
                        $
                        43,0082010
                        
                        $
                        43,008Subsequent
                        
                        $
                        366,285





The
Government of Alberta owns this land and Deep Well has acquired the rights to
perform oil and gas activities on these lands. The leases are for 15 years
ending from 2018-2019 and if Deep Well meets the conditions of the 15-year
leases Deep Well will then be permitted to drill on and produce oil from the
land into perpetuity.  These conditions give the Company until the
expiration of the leases to meet the following requirements:





a)
            drill
      1 well within each of the 63 sections;
or





b)
            drill
      38 wells within the 63 sections with the balance of the undrilled sections
      having acquired 3.2 km of seismic on each undrilled
    sections.





The
Company plans to meet at least the second of these conditions.





The
Company follows the successful efforts method of accounting for costs of oil and
gas properties. Under this method, acquisition costs of oil and gas properties
and costs of drilling and equipping development wells are capitalized. Costs of
drilling exploratory wells are initially capitalized and, if subsequently
determined to be unsuccessful, are charged to expenses. All other exploration
costs, including geological and geophysical costs and carrying and maintenance
costs, are charged to exploration expenses when incurred.  Producing
properties, non-producing and unproven properties are assessed annually, or more
frequently as economic events indicate, for potential
impairment.


44





This
consists of comparing the carrying value of the asset with the asset's expected
future undiscounted cash flows without interest costs. Estimates of expected
future cash flows represent management's best estimate based on reasonable and
supportable assumptions. Proven oil and gas properties are reviewed for
impairment on a field-by-field basis. In addition, management evaluates the
carrying value of non-producing properties and may deem them impaired for lack
of drilling activities. No impairment losses were recognized for the year ended
September 30, 2006 (2005 - $nil).





Capitalized
costs of proved oil and gas properties are depleted using the unit-of-production
method when the property is placed in production.





Substantially
all of the Company's oil and gas activities are conducted jointly with others.
The accounts reflect only the Company's proportionate interest in such
activities.





On
November 15, 2005, the Company’s subsidiary received an additional 6.5 sections
which consist of a five year oil sand permit rights and Petroleum & Natural
Gas Licenses (P&NG) which were part of the subsidiaries original purchase
agreement.





The
Company currently owns an 80% working interest in 51 contiguous sections of oil
sands development leases and 6.5 sections of oil sands permits in the Sawn Lake
heavy oil area in North Central Alberta. Deep Well has an additional 40% working
interest in another 12 sections of oil sands development leases of which Signet
has earned 40% from Deep Well.





On
November 26, 2007 the Company entered into a settlement with Signet and Andora
Energy Corporation and resolved their differences and certain collateral
matters. The settlement includes but is not limited to:





a)
            the
      Farmout Agreement dated February 25, 2005, being effectively terminated
      concurrently with the execution of the settlement in regards to the
      Settlement Agreement;


b)
            Signet
      being regarded as having earned an 40% working interest in a total of
      twelve sections;


c)
            Signet
      will reconvey registered title to 57.5 unearned sections of the Farmout
      Lands, as defined in the Farmout Agreement, back to the
      Company.





5.           EQUIPMENT





2006
                  
                  
                  2005Accumulated
                  
                  
                  Net
      Book
                  
                  
                  Net
      BookCost
                  
                  
                  Amortization
                  
                  
                  Net
                  
                  
                  NetEquipment
                  
                  $
                  3,970
                  
                  
                  $
                  645
                  
                  
                  $
                  3,325
                  
                  
                  $
                  333Software
                  
                  
                  269
                  
                  
                  
                  269
                  
                  
                  
                  —
                  
                  
                  
                  269$
                  4,239
                  
                  
                  $
                  914
                  
                  
                  $
                  3,325
                  
                  
                  $
                  602





6.           NOTES
AND ACCRUED INTEREST PAYABLE





The
Company has loans outstanding of $11,250 (2005 - $43,160) due on demand bearing
interest at 12%, which includes accrued interest payable to September 30,
2006.




7.           CONVERTIBLE
DEBENTURE





2006
                    
                    
                    2005Convertible
      debenture
                    
                    $
                    —
                    
                    
                    $
                    1,021,463





A
$1,000,000 unsecured convertible debenture was issued during the fiscal 2004
year. The convertible debenture bears interest at 8.5% per annum and is due on
September 6, 2007. The debenture is convertible at the option of the debenture
holder into fully paid, conversion shares which consist of one common share and
one common stock purchase warrant.


45


Each
warrant is convertible to one common share.  The common shares have a
par value of $0.001 and the warrants are convertible as follows:





-
            October
      6, 2004 to September 6, 2005 at $1.00 per
  warrant


-
            September
      7, 2005 to September 6, 2006 at $1.50 per
  warrant


-
            September
      7, 2006 to September 6, 2007 at $2.00 per
  warrant





If at any
time during the term of the debenture the average bid and ask price of the
Company’s common shares is three dollars ($3.00) per share or more for thirty
(30) consecutive calendar days, the Company will have the option to convert the
outstanding debenture into common stock at the price set forth
above.





No value
has been recognized on the conversion rights because the market rate of Deep
Well shares was less then the conversion rate.  The convertible
debenture was fully paid in October 2005.





8.
            SIGNIFICANT
      TRANSACTIONS WITH RELATED PARTIES





Accounts
payable – related parties of $465,737 (2005 - $224,247) results from directors
fees and expenses paid for the Company. Accounts payable – related parties are
unsecured, non-interest bearing and have no fixed terms of
repayment.





The
Company has demand loans due from related parties of $nil (2005 - $11,604),
which bear no interest.





Officers,
directors, their families and their controlled entities have acquired 7.25% of
the Company’s outstanding common capital stock.





9.
            LOAN
      PAYABLE





Loan
payable consists of an amount due to a former director of the Company and a
company controlled by the former director.  This amount is currently
in dispute and is not expected to be repaid.  The amount is unsecured,
bears no interest and has no fixed terms of repayment.





10.
            SHARE
      CAPITAL





On
February 27, 2004, the Board of Directors unanimously approved a forward stock
split of common stock at a ratio of two (2) shares for every one (1) share held.
The forward split became effective March 10, 2004.  After the split,
the Company had 12,337,156 shares of common stock issued and outstanding. Prior
to the effective date of the split, the Company had 6,168,578 shares of common
stock outstanding.





In
connection with the stock split the Company increased its authorized common
shares in proportion to the forward stock split. The Company authorized common
stock after the forward stock split consists of 100,000,000 shares of common
stock.  Prior to the split, the Company was authorized to issue
50,000,000 shares of common stock. In connection with the forward split, the
Company amended its articles of incorporation with the state of Nevada. The
Company did not obtain a shareholder vote of the forward stock split and a
shareholder vote was not required by Nevada law.





On May 7,
2004, the Company filed a Form 8-K that reported that on May 4, 2004, the Board
of Directors unanimously approved a forward stock split of common stock at a
ratio of three (3) shares for every one (1) share held. The forward split became
effective on May 14, 2004. After the split, the Company had 37,011,468 shares of
common stock issued and outstanding. Prior to the effective date of the split,
the Company had 12,337,156 shares of common stock outstanding. In connection
with the stock split, the Company increased the authorized common shares in
proportion to the forward stock split. The authorized common stock after the
forward stock split consists of 300,000,000 shares of common stock. Prior to the
split, the Company was authorized to issue 100,000,000 shares of common stock.
In connection with the forward split, the articles of incorporation were amended
with the State of Nevada. The Company did not obtain a shareholder vote of the
forward stock split and a shareholder vote was not required by Nevada
law.





On March
10, 2005, Deep Well closed on a transaction pursuant to a certain Securities
Purchase Agreement ("SPA"), with two accredited investors for an aggregate
purchase price of $750,000 pursuant to which we sold an aggregate of (i)
1,875,000 shares of Deep Well's common stock, par value $0.001 per share, at a
purchase price of $0.40 per share, and (ii) 750,000 warrants, of which each of
the warrants is exercisable from March 10, 2005 until March 9, 2010, at an
exercise price equal to $0.50 per share. Deep Well issued the aforementioned
securities to the investors pursuant to Rule 506 of Regulation D as promulgated
under the Securities Act of 1933, as amended, and/or Section 4(2) of the Act. In
connection with the SPA, a finder's fee of $75,000 was paid and 37,500 warrants
were issued. The exercise price of the warrants will be adjusted from time to
time upon the occurrence of certain events, as provided in the warrants, and as
a result of the issuance of common stock on May 25, 2007 and pursuant to the SPA
and Form of Warrant dated March 10, 2005 entered into by and among the Company
and the investors (the "Warrant Holders"), our Company issued an adjustment to
the Warrant Holders and the commission holder of the warrants associated with
the finder’s fee.  The original warrant dated March 10, 2005 contained
a price adjustment if our Company sells, issues or grants additional shares of
its common stock at a price per share less than the exercise price. In the event
of a price adjustment, the number of shares exercisable under the warrant would
also increase. Therefore, the exercise price of the original warrant has been
adjusted from $0.50 to $0.40 per common share. Our Company has granted the
Warrant Holders and the holder of the warrants associated with the finder’s fee
new warrants to purchase an additional 196,875 common shares for a total of
984,375 shares of our Company’s common stock at an adjusted exercise price of
$0.40 per share under the same terms as the original warrant Deep Well entered
into a Registration Rights Agreement (“RRA”) with the investors, dated as of
March 10, 2005, pursuant to which Deep Well was obligated to prepare and file a
registration statement no later than 45 days after the closing date registering
the number of shares of our common stock which was at least equal to (i) the
aggregate number of shares of common stock issued under the SPA plus (ii) 125%
of the aggregate number of shares of common stock issuable upon exercise of the
warrants. Deep Well must use its reasonable best efforts to cause the
registration statement to become effective as soon as practicable following the
filing, but in no event later than 120 days after the closing date. If the
registration statement is not filed within 45 days after the closing date or
declared effective within the time specified in the preceding paragraph, Deep
Well was required to make payments to the investors equal to 2% of the purchase
price and an additional 2% of the purchase price for each subsequent 30-day
period as to which the registration statement was not filed or declared
effective. Effective on January 22, 2007, our Company entered into a Settlement
Agreement and Release of All Claims (the "Settlement Agreement") with the
investors who were in receipt of the above issued shares with respect to
allegations made by the investors that our Company had breached the SPA and the
RRA.




46




The
Settlement Agreement provides, without any party acknowledging any liability,
for:





-
            the
      amendment of the SPA to delete certain restrictions on the Company’s
      ability to enter into any future
financing;


-
            the
      termination of the RRA;


-
            the
      issuance to the Investors of an aggregate of 1,600,000 (one million six
      hundred thousand) shares of common stock of the Company (the “Shares”),
      including the granting of certain piggyback registration rights related
      thereto; and


-
            the
      full and final settlement of all existing or potential claims between the
      Company and the Investors arising under the SPA and the
    RRA.





On August
12, 2005, the Company completed a private placement of 500,000 units at a price
of $0.40 per unit, for $200,000. Each unit consists of one common share and one
common share purchase warrant, with each warrant entitling its holder to acquire
one share of its common stock at an exercise price of $0.60. The exercise price
of the warrants will be adjusted from time to time upon the occurrence of
certain events, as provided in the warrants. The warrants expire on August 12,
2008. In addition, on August 12, 2005, pursuant to a Debt Settlement Agreement,
one holder of $84,378.40 of the Company's indebtedness exchanged its debt for
210,946 units at a price of US$0.40 per unit. Each unit consists of one common
share and one common share purchase warrant, with each warrant entitling the
holder to acquire one common share of the Company at US$0.60 per share. The
exercise price of the warrants will be adjusted from time to time upon the
occurrence of certain events, as provided in the warrants. The warrants expire
on August 12, 2008.





On
October 11, 2005 the Company completed a private placement of 3,150,000 units at
a price of $0.40 per unit for $1,260,000. Each unit consists of one common share
and one common share purchase warrant, with each warrant entitling its holder to
acquire one share of its common stock at a price of $0.60 per share. The
exercise price of the warrants will be adjusted from time to time upon the
occurrence of certain events, as provided in the warrants. The warrants expire
on October 11, 2008. In connection with the private placement a finder’s fee of
$36,000 was paid.





On
January 13, 2006, the Company completed a private placement of 51,200 units at a
price of $1.50 per unit, for $76,800. Each unit consists of one common share and
one common share purchase warrant, with each warrant entitling its holder to
acquire one share of its common stock at an exercise price of $2.25 per common
share. The exercise price of the warrants will be adjusted from time to time
upon the occurrence of certain events, as provided in the warrants. The warrants
expire on January 13, 2009. In addition, on January 12, 2006, pursuant to a Debt
Settlement Agreement, one holder of $38,293 of the Company’s indebtedness
exchanged its debt for 21,800 units at a price of US$1.50 per unit. Each unit
consists of one common share and one common share purchase warrant, with each
warrant entitling its holder to acquire one common share of the Company at a
price of US$2.25. The exercise price of the warrants will be adjusted from time
to time upon the occurrence of certain events, as provided in the warrants. The
warrants expire on January 13, 2009. In connection with the private placement, a
finder’s fee of $7,680 was paid.





On
February 23, 2006, pursuant to an exercise option agreement the Company entered
into on June 7, 2005, the Company issued 4,707,750 of its common shares in
exchange for 156,925 of the outstanding preferred shares of Northern Alberta Oil
Ltd. (subsidiary).


47
  On June
13, 2006 pursuant to an exercise option agreement the Company entered into on
June 7, 2005, the Company issued 2,867,250 common shares in exchange for 95,575
of the outstanding preferred shares of Northern Alberta Oil Ltd.
(subsidiary).





On July
28, 2006 a warrant holder of the Company acquired 100,000 common shares, upon
exercising warrants, at an exercise price of $0.60 per common share for total
gross proceeds to the Company of $60,000.





On
September 11, 2006 a warrant holder of the Company acquired 50,000 common shares
upon exercising warrants at an exercise price of $0.60 per common share for
gross proceeds to the Company of $30,000.





The
warrants outstanding as of September 30, 2006 were 4,571,446. There is no value
assigned to these warrants.





11.
            STOCK
      OPTIONS





On
November 28, 2005, the Board of Directors (the “Board’) of Deep Well Oil &
Gas, Inc. (the “Company”) adopted the Deep Well Oil & Gas, Inc. Stock Option
Plan (the “Plan”). The Plan, which will be administered by the Board, permits
options to acquire shares of the Company’s common stock (the “Common Shares”) to
be granted to directors, senior officers and employees of the Company and its
subsidiaries, as well as certain consultants and other persons providing
services to the Company or its subsidiaries.





The
maximum number of shares, which may be reserved for issuance under the Plan, may
not exceed 10% of the Company’s issued and outstanding Common Shares, subject to
adjustment as contemplated by the Plan. The aggregate number of Common Shares
with respect to which options may be granted to any one person (together with
their associates) in any one year, together with all other incentive plans of
the Company, may not exceed 500,000 Common Shares, and in total may not exceed
2% of the total number of Common Shares outstanding.





On
November 28, 2005, the Company granted its directors, Donald E. H. Jones and
Cyrus Spaulding, options to purchase 375,000 shares each of common stock at an
exercise price of $0.71 per share 75,000 vesting immediately and the remaining
vesting one-third on June 29, 2006, one-third on June 29, 2007 and one-third on
June 29, 2008, with a five-year life.





On
November 28, 2005, the Company granted its directors, Horst A. Schmid and Curtis
J. Sparrow, options to purchase 375,000 shares each of common stock at an
exercise price of $0.71 per share 175,000 vesting immediately and the remaining
vesting one-half on February 6, 2007 and one-half on February 6, 2008, with a
five-year life.





On
November 28, 2005, the Company granted a director of a subsidiary of the
Company, Moses Ling, options to purchase 187,500 shares each of common stock at
an exercise price of $0.71 per share 37,500 vesting immediately and the
remaining vesting one-third on June 6, 2006, one-third on June 6, 2007 and
one-third on June 6, 2008, with a five-year life.





On
November 28, 2005, the Company granted Trebax Projects Ltd., a corporation
providing consulting services to the Company or its subsidiary and wholly owned
by a director, options to purchase 390,000 shares of common stock at an exercise
price of $0.71 per share vesting one-third on September 1, 2006, one-third on
September 1, 2007 and one-third on September 1, 2008, with a five-year
life.





On
November 28, 2005, the Company granted Portwest Investments Ltd., a corporation
providing consulting services to the Company or its subsidiary and wholly owned
by a director, options to purchase 390,000 shares of common stock at an exercise
price of $0.71 per share vesting one-third on July 1, 2006, one-third on July 1,
2007 and one-third on July 1, 2008, with a five-year life.





On
November 28, 2005, the Company granted Concorde Consulting, a corporation
providing consulting services to the Company or its subsidiary and wholly owned
by a director, options to purchase 390,000 shares of common stock at an exercise
price of $0.71 per share vesting one-third on July 1, 2006, one-third on July 1,
2007 and one-third on July 1, 2008, with a five-year life.





There
were no stock options granted in 2005 and therefore no share based compensation
expenses were recorded in 2005. For the year ended September 30, 2006, the
Company recorded $558,882 of compensation expense based on its use of the Black
Scholes model to estimate the grant-date fair value of these unit option awards.
No options were exercised during the year ended September 30, 2006, therefore,
the intrinsic value of the options exercised during 2006 is nil. As of September
30, 2006, there was a total of $217,954 of unrecognized compensation cost
related to the non-vested portion of these unit option awards. At September 30,
2006, this cost was expected to recognize over a weighted-average period of 4.16
years. Compensation expense is based upon straight-line amortization of the
grant-date fair value over the vesting period of the underlying unit option.
Since the Company is a relatively new public company and has minimal trading
history, it has used an estimated volatility of approximately 162% for 2006
based on the trading history available.


48


Shares Underlying
                    Options Outstanding
                  
                  
                  Shares Underlying
                    Options ExercisableRange of Exercise Prices
                  
                  Shares
                    Underlying
                    Options
                    Outstanding
                  
                  
                  Weighted
                    Average
                    Remaining
                    Contractual
                    Life
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price
                  
                  
                  Shares
                    Underlying
                    Options
                    Exercisable
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price$0.71
      at September 30, 2006
                  
                  
                  2,857,500
                  
                  
                  
                  4.16
                  
                  
                  $
                  0.71
                  
                  
                  
                  1,377,500
                  
                  
                  $
                  0.71





The
aggregate intrinsic value of exercisable options as of September 30, 2006 was
$nil.





The
Company has used a weighted average risk free rate of 4.32% in its Black Scholes
calculation of grant-date fair value, which is based on U.S. Treasury interest
rates at the time of the grant whose term is consistent with the expected life
of the stock options. Expected life represents the period of time that options
are expected to be outstanding and is based on the Company’s best estimate. The
Company has also discounted the fair value of the stock options calculated using
the Black Scholes model using a discount rate determined by comparing the
trading price of the shares with the deemed price of shares on private
placements closed during the year. The following table represents the weighted
average assumptions used for the Black Scholes option-pricing
model:





2006Average
      risk-free interest rates
                  
                  
                  4.32
                  %Average
      expected life (in years)
                  
                  
                  5Volatility
                  
                  
                  162
                  %





The
following is a summary of stock option activity for 2006:





Number of
                    Shares
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price
                  
                  
                  Weighted
                    Average Fair
                    Market
                    ValueBalance,
      September 30, 2005
                  
                  
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –Options
      forfeited
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Options
      granted
                  
                  
                  2,857,500
                  
                  
                  
                  0.71
                  
                  
                  
                  0.27Options
      exercised
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Balance,
      September 30, 2006
                  
                  
                  2,857,500
                  
                  
                  $
                  0.71
                  
                  
                  $
                  0.27Exercisable,
      September 30, 2006
                  
                  
                  1,377,500
                  
                  
                  $
                  0.71
                  
                  
                  $
                  0.41





The
following table summarizes the status of the Company’s non-vested stock options
since October 1, 2005:





Non-Vested OptionsNumber of
                    Shares
                  
                  
                  Weighted
                    Average
                    Exercise
                    PriceNon-vested
      at October 1, 2005
                  
                  
                  –
                  
                  
                  $
                  –Granted
                  
                  
                  2,857,500
                  
                  
                  
                  0.71Vested
                  
                  
                  1,377,500
                  
                  
                  
                  0.71Forfeited
                  
                  
                  –
                  
                  
                  
                  –Non-vested
      at September 30, 2006
                  
                  
                  1,480,000
                  
                  
                  $
                  0.71




49




Measurement
Uncertainty





The
Black-Scholes option pricing model was developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. Stock options and the warrants attached to the units issued by the
Company are non-transferable. Option pricing models require the input of
subjective assumptions including expected share price volatility. The fair value
estimate can vary materially as a result of changes in the
assumptions.





12.
            CHANGES
      IN NON-CASH WORKING CAPITAL





2006
                  
                  
                  2005Accounts
      receivable
                  
                  $
                  (10,546
                  )
                  
                  $
                  (12,435
                  )Prepaid
      expenses
                  
                  
                  (33,475
                  )
                  
                  
                  22,786Accounts
      payable
                  
                  
                  237,664
                  
                  
                  
                  23,655$
                  193,643
                  
                  
                  $
                  34,006





13.
            INCOME
      TAXES





As of
September 30, 2006, the Company has approximately $1,450,032 of net operating
losses expiring through 2026 that may be used to offset future taxable income
but are subject to various limitations imposed by rules and regulations of the
Internal Revenue Service. The net operating losses are limited each year to
offset future taxable income, if any, due to the change of ownership in the
Company's outstanding shares of common stock. In addition, at September 30,
2006, the Company had an unused Canadian net operating loss carry-forward of
approximately $3,440,416, expiring through 2010.  These operating loss
carry-forwards may result in future income tax benefits of approximately
$1,638,376; however, because realization is uncertain at this time, a valuation
reserve in the same amount has been established. Deferred income taxes reflect
the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes.





The
components of the net deferred tax asset, the statutory tax rate, the effective
rate and the elected amount of the valuation allowance are as
follows:





Year Ended
                      September 30,
                      2006
                    
                    
                    Year Ended
                      September 30,
                      2005Statutory
      and effective tax rateDomesticStatutory
      U.S. federal rate
                    
                    
                    35
                    %
                    
                    
                    35
                    %Foreign
                    
                    
                    32.87
                    %
                    
                    
                    33.62
                    %Income
      taxes recovered at the statutory and effective tax rateDomesticStatutory
      U.S. federal rate
                    
                    $
                    308,457
                    
                    
                    $
                    287,113Foreign
                    
                    
                    342,169
                    
                    
                    
                    148,676Timing
      differences:Non-deductible
      expenses
                    
                    
                    (320,122
                    )
                    
                    
                    (63,060
                    )Financing
      fees
                    
                    
                    61,184
                    
                    
                    
                    18,472Other
      deductible charges
                    
                    
                    54,517
                    
                    
                    
                    736Benefit
      of tax losses not recognized in the year
                    
                    
                    (446,205
                    )
                    
                    
                    (391,937
                    )Income
      tax recovery (expense) recognized in the year
                    
                    $
                    –
                    
                    
                    $
                    –




50




The
approximate tax effects of each type of temporary difference that gives rise to
deferred tax assets are as follows:





September 30,
                    2006
                  
                  
                  September 30,
                    2005Deferred
      income tax assets (liabilities)Net
      operating loss carry-forwards
                  
                  $
                  1,638,376
                  
                  
                  $
                  1,149,229Oil
      and gas properties
                  
                  
                  (92,002
                  )
                  
                  
                  151,605Finance
      fee deductible in future years
                  
                  
                  126,881
                  
                  
                  
                  244,096Equipment
                  
                  
                  379
                  
                  
                  
                  –Valuation
      allowance
                  
                  
                  (1,673,634
                  )
                  
                  
                  (1,544,930
                  )Net
      deferred income tax assets
                  
                  $
                  –
                  
                  
                  $
                  –








14.
            SUBSEQUENT
      EVENTS





Sales of Unregistered
Securities





On April
4, 2007, pursuant to an exercise option agreement the Company entered into on
June 7, 2005, the Company issued 5,400,000 common shares, in exchange for
180,000 of the outstanding preferred shares of Northern Alberta Oil Ltd.
(subsidiary).





As of
April 4, 2007, all Northern preferred shares have been converted into Deep Well
common shares resulting in Deep Well owning 100% of Northern preferred
shares.





On May
25, 2007, the Company completed a private placement of 5,000,000 units at a
price of $0.40 per unit for $2,000,000. Each unit consists of one common share
and one common share purchase warrant, with each warrant entitling its holder to
acquire one share of our common stock at a price of $0.60 per share. The
exercise price of the warrants will be adjusted from time to time upon the
occurrence of certain events, as provided in the warrants. The warrants expire
on May 25, 2010. In connection with the private placement a finder's fee of
$150,000 was paid.





On June
22, 2007, the Company completed a private placement of 8,333,333 units at a
price of $0.60 per unit for $5,000,000. Each unit consists of one common share
and one common share purchase warrant and another twelve one-hundredths common
share purchase warrant ("Special Warrant"). Each warrant entitles the holder to
purchase one additional common share at a price of $0.90 per common share for a
period of three years from the date of closing. Each Special Warrant entitles
the holder to purchase a common share at a price of $1.20 for a period of five
years from the date of closing. The exercise price of the warrants and the
Special Warrants will be adjusted from time to time upon the occurrence of
certain events, as provided in the warrants. The warrants expire on June 22,
2010 and the Special Warrants expire on June 22, 2012. In connection with the
private placement a finder's fee of $300,000 was paid.





On July
11, 2007, the Company completed a private placement of 323,333 units at a price
of $0.60 per unit for $194,000. Each unit consists of one common share and one
common share purchase warrant and another twelve one-hundredths common share
purchase warrant ("Special Warrant"). Each warrant entitles the holder to
purchase one additional common share at a price of $0.90 per common share for a
period of three years from the date of closing. Each Special Warrant entitles
the holder to purchase a common share at a price of $1.20 for a period of five
years from the date of closing. The exercise price of the warrants and the
Special Warrants will be adjusted from time to time upon the occurrence of
certain events, as provided in the warrants. The warrants expire on July 11,
2010 and the Special Warrants expire on July 11, 2012.  In connection
with the private placement a finder's fee of $9,700 was paid.





Compensation to
Directors





On
November 28, 2005, the Company adopted a stock-based compensation plan, under
which each director would receive 75,000 options upon becoming a director and an
additional 100,000 shares for each year or part of a year served as a director.
Directors of subsidiaries, who are not already directors of the Company, would
receive 37,500 options upon becoming a director and an additional 50,000 options
for each year or part of a year served as a director.





Since the
acquisition of Northern Alberta Oil Ltd. the Company and Northern have entered
into the following contracts with the following companies for the services of
their officers:




51




1)
            Portwest
      Investments Ltd., a company owned 100% by Dr. Horst A. Schmid for
      providing services to the Company as Chief Executive Officer and President
      for $12,500 Cdn per month.





2)
            Concorde
      Consulting, a company owned 100% by Curtis J. Sparrow for providing
      services as Chief Financial Officer to the Company for $15,000 Cdn per
      month.





3)
            Trebax
      Projects Ltd., a company 100% owned by Mr. Cyrus Spaulding for providing
      services as Chief Operating Officer for the Company for $130 Cdn per
      hour.





4)
            Brave
      Consulting, a company 50% owned by Mr. David Roff for providing consulting
      services to the Company for $8,000 Cdn per month. As of August 2007 the
      amount has increased to $12,000 per
month.





On
November 28, 2005, the Board granted 390,000 options to each of the first three
companies, listed above, to be vested one third each year over three years, to
acquire a total of 1,170,000 common shares of the Company at an options price of
$0.71 with an expiration date of five years from November 28, 2005.





15.
            LEGAL
      ACTIONS





I.G.M. Resources Corp vs.
Deep Well Oil & Gas, Inc., et al





On March
10, 2005, I.G.M. Resources Corp. ("IGM") filed against Classic Energy Inc.,
979708 Alberta Ltd., Deep Well, Nearshore Petroleum Corporation, Mr. Steven P.
Gawne, Rebekah Gawne, Gawne Family Trust, 1089144 Alberta Ltd., John F. Brown,
Diane Lynn McClaflin, Cassandra Doreen Brown, Elissa Alexandra Brown, Brown
Family Trust, Priority Exploration Ltd., Northern Alberta Oil Ltd. and Gordon
Skulmoski a Statement of Claim in the Court of Queen's Bench of Alberta Judicial
District of Calgary.  This suit is a part of a series of lawsuits or
actions undertaken by IGM against some of the other above
defendants.





IGM was
and still is a minority shareholder of 979708 Alberta Ltd. ("979708"). 979708
was in the business of discovering, assembling and acquiring oil and gas
prospects.  In 2002 and 2003, 979708 acquired oil and gas prospects in
the Sawn Lake area of Alberta.  On or about the 14th of
July, 2003 all or substantially all the assets of 979708 were sold to Classic
Energy Inc.  IGM claims the value of the assets sold was far in excess
of the value paid for those assets.  On April 23, 2004 Northern
Alberta Oil Ltd., purchased Classic Energy Inc.'s assets some of which are under
dispute by IGM.  On June 7, 2005 Deep Well acquired all of the common
shares of Northern Alberta Oil Ltd. thereby giving Deep Well an indirect
beneficial interest in the assets IGM is claiming an interest in.





IGM seeks
an order setting aside the transaction and returning the assets to 979708,
compensation in the amount of $15,000,000 Cdn, a declaration of trust declaring
that Northern Alberta Oil Ltd. and Deep Well Oil & Gas, Inc., hold all of
the assets acquired from 979708 and any property acquired by use of such assets,
or confidential information of 979708, in trust for the Plaintiff.





This
lawsuit has been stayed pending the out come of the other litigation by IGM
against the other defendants. The Company believes the claims are without merit
and will vigorously defend them.





Hardie & Kelly vs. Brown
et al





On June
2, 2006, Hardie and Kelly, Trustee of the Estate of John Forbes Brown filed
against John Forbes Brown, a bankrupt, Diane Lynn McClaflin, 1089144 Alberta
Ltd., and Deep Well an Amended Statement of Claim in the Court of Queen's Bench
of Alberta Judicial District of Calgary.  John Forbes Brown was a
former officer and then sub-contractor of Deep Well before and during the time
he was assigned into bankruptcy on July 12, 2004. The Plaintiff claims, in
addition to other issues unrelated to Deep Well, that John Forbes Brown received
a 4,812,500 Deep Well shares as a result of his employment in Deep Well and that
John Forbes Brown improperly assigned these shares to the numbered company as a
ruse entered into on the eve of insolvency by John Forbes Brown in order to
facilitate the hiding of assets from his creditors and the trustee of his
bankruptcy. The Plaintiff further claims that on August 23, 2004 John Forbes
Brown advised the Plaintiff that he in fact owned the above shares and did not
disclose this ownership in his bankruptcy statement of affairs filed. The
Plaintiff further claims that John Forbes Brown would lodge the said shares with
his lawyer until such time as these shares could be transferred to the
Plaintiff. The Plaintiff further claims that unbeknownst to them John Forbes
Brown surreptitiously removed the shares from his lawyer's office and delivered
them to Deep Well so that Deep Well could cancel them.  The Plaintiff
claims that Deep Well conspired with John Forbes Brown to defraud the creditors
of John Forbes Brown by taking receipt and cancelling the said shares. The
Plaintiff claims that consideration paid by Deep Well for the said shares was
invested in the home owned by John Forbes Brown and his wife. The Plaintiff
seeks; (1) an accounting of the proceeds and benefits derived by the dealings of
the shares; (2) the home owned by John Forbes Brown and his wife, to be held in
trust on behalf of the Plaintiff and an accounting of proceeds related to this
trust; (3) the Plaintiff seeks damages from the Defendants because of their
actions; (4) a judgement for $15,612,645 Cdn; (5) an order to sell John Forbes
Brown's home; and (6) interest and costs.




52




Deep Well
believes it did not conspire with John Forbes Brown to defraud John Forbes
Brown's creditors and further Deep Well did not receive nor give John Forbes
Brown any consideration in regards to the cancelling of said
shares.  The Company plans to vigorously defend itself against the
Plaintiff's claims.





Menno Wiebe and Jacobean
Resource International vs. Deep Well Oil & Gas, Inc., et
al





On
October 23, 2006, Menno Wiebe and Jacobean Resources International served Deep
Well, Doe individuals and Roe Corporations with a Complaint and Summons filed in
the United States of America, District Court of Clark County,
Nevada.  The Complaint alleges a breach of contract in which the
Plaintiffs are seeking monetary damages in excess of $10,000 plus an order
directing Defendants to issue 56,500 shares of Deep Well stock to
Plaintiffs.  The Company believes that it has meritorious defenses to
the Plaintiff's claims and intends to enter into mediation, as called for in the
contract with Menno Wiebe.








ITEM
      8.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE





On August
10, 2004, Deep Well (“the Registrant”) changed accountants from Madsen &
Associates, CPA’s Inc. to Deloitte & Touche LLP. The Registrant decided to
dismiss Madsen & Associates, CPA’s Inc. as its independent accountants.
Madsen & Associates, CPA’s Inc. report on the financial statements for the
period from September 10, 2003 to September 30, 2003 as contained in Form
10-K/A, Amendment Number 2, which was filed on May 13, 2004, was not subject to
an adverse or qualified opinion or a disclaimer of opinion and were not modified
as to uncertainty, audit scope or accounting principles for the period from
September 10, 2003 to September 30, 2003 or for either of the past two years.
Madsen & Associates, CPA’s Inc. report on the financial statements for the
period from September 10, 2003 to September 30, 2003 raises substantial doubt
about the Registrant’s ability to continue as a going concern and that
continuation of the Registrant as a going concern is dependent upon obtaining
additional working capital. The decision to change accountants was approved by
the Registrant’s Board of Directors; and during the period from our engagement
of Madsen & Associates, CPA’s Inc. on February 9, 2004 to the date we
dismissed Madsen & Associates, CPA’s Inc. on August 10, 2004, there were no
disagreements with Madsen & Associates, CPA’s Inc. related to accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of Madsen
& Associates, CPA’s Inc. would have caused Madsen & Associates, CPA’s
Inc. to make reference to the subject matter of the disagreement in connection
with its report. On August 10, 2004, the Registrant engaged Deloitte &
Touche LLP as its independent accountants. The Registrant did not consult with
Deloitte & Touche LLP. its new independent accountants, regarding any matter
prior to its engagement; and the Registrant has provided to Madsen &
Associates, CPA’s Inc., its former accountant, a copy of the disclosures and the
Registrant has requested a letter from Madsen & Associates, CPA’s Inc.
addressed to the Commission, confirming certain statements made by the
Registrant. Changes in the Registrant’s certifying accountant, Letter of Madsen
& Associates, CPA’s Inc. has been filed on Form 8-K on August 16, 2004, and
incorporated herein by reference as exhibit 16.1.





Effective
April 22, 2005, Deloitte & Touche LLP (the “Predecessor Accountant”)
resigned as the independent auditors for the Company. Madsen & Associates
(the “Successor Accountant”) was appointed as our Company’s new independent
accountants. Our Company’s Board of Directors approved this action on April 22,
2005. During the last two fiscal years ended September 30, 2004 and 2003 and the
subsequent periods to April 22, 2005 (i) there were no disagreements between the
Company and Deloitte & Touche LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure which,
if not resolved to the satisfaction of Deloitte & Touche LLP would have
caused Deloitte & Touche LLP to make reference to the matter in its reports
on our Company’s financial statements, and (ii) Deloitte & Touche LLP’s
reports did not contain an adverse opinion or a disclaimer of opinion, or was
qualified or modified as to uncertainty, audit scope, or accounting principles.
During the last two most recent fiscal years ended September 30, 2004 and 2003
and the subsequent periods to April 22, 2005, there were no reportable events as
the term described in Item 304(a)(1)(iv) of Regulation S-B.  Our
Company has not previously consulted with the Successor Accountant regarding the
application of accounting principles to a specific completed or contemplated
transaction or the type of audit opinion that might be rendered on our Company’s
financial statements. Changes in registrant’s certifying accountant, Letter of
Deloitte & Touche LLP has been filed on Form 8-K on August 10, 2005, and
incorporated herein by reference as exhibit 16.2.




53





ITEM
      8A.
            CONTROLS
      AND PROCEDURES





Disclosure Controls and
Procedures





An
evaluation of the effectiveness of our “disclosure controls and procedures” (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934), as amended was carried out by our management with the
participation of our principal executive officer and principal financial
officer, as of the end of our fiscal year ended September 30, 2006. Based upon
that evaluation, our principal executive officer and principal financial officer
have concluded that as of the end of that fiscal year, our disclosure controls
and procedures were not effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is (i)
recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms and (ii) accumulated and communicated to our management,
including our principal executive officer and principal financial officer, to
allow timely decisions regarding required disclosure.





Changes in Internal Control
Over Financial Reporting





During
the fiscal year ended September 30, 2006, there were changes and improvements in
our internal control over financial reporting that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting. During the fiscal year we continued to implement the formalization
and centralization of our accounts payable functions and multi-currency
accounting software.








ITEM
      8B.
            OTHER
      INFORMATION





Deep Well
reported all information that was required to be disclosed during the fourth
quarter of the fiscal year covered by this Form 10-KSB in its report on Form
10-KSB for the year ended September 30, 2005 that was filed on April 22, 2008.
Subsequent events not reported on Form 8-K during the fourth quarter of this
fiscal year covered by this Form 10-KSB but reported in such report on Form
10-KSB are as follows:





Subsequent
Events Not Reported on Form 8-K during the fourth quarter covered by this report
but reported on Form 10-KSB filed on April 22, 2008:





On July
28, 2006, a warrant holder of our Company acquired 100,000 common shares upon
exercising warrants at an exercise price of $0.60 per common share for total
gross proceeds to our Company of $60,000. The common shares were issued pursuant
to Section 4(2) under the 1933 Act.





On
September 11, 2006, a warrant holder of our Company acquired 50,000 common
shares upon exercising warrants at an exercise price of $0.60 per common share
for total gross proceeds to our Company of $30,000. The common shares were
issued pursuant to Section 4(2) under the 1933 Act.




54




PART
III





ITEM
      9.
            DIRECTORS
      AND EXECUTIVE OFFICERS OF THE
REGISTRANT





Directors and Executive
Officers





The
executive officers and directors of Deep Well are as follows:




As
      at September 30, 2006Name
                            
                            Age
                            
                            Position/OfficeDr.
      Horst A. Schmid
                            
                            73
                            
                            Director
      and Chairman of the Board
                              President
      and Chief Executive OfficerMr.
      Curtis J. Sparrow
                            
                            49
                            
                            Director
                              Chief
      Financial Officer, Secretary and TreasurerMr.
      Cyrus Spaulding
                            
                            50
                            
                            Director
                              Chief
      Operating OfficerMr.
      Donald E. H. Jones
                            
                            53
                            
                            DirectorMr.
      David Roff
                            
                            35
                            
                            Director




As
      at September 30, 2007Name
                                
                                Age
                                
                                Position/OfficeDr.
      Horst A. Schmid
                                
                                74
                                
                                Director
      and Chairman of the Board
                                  President
      and Chief Executive OfficerMr.
      Curtis J. Sparrow
                                
                                50
                                
                                Director
                                  Chief
      Financial Officer, Secretary and TreasurerMr.
      Cyrus Spaulding
                                
                                51
                                
                                DirectorMr.
      Donald E. H. Jones
                                
                                54
                                
                                DirectorMr.
      David Roff
                                
                                36
                                
                                Director




As
      at September 30, 2008Name
                              
                              Age
                              
                              Position/OfficeDr.
      Horst A. Schmid
                              
                              75
                              
                              Director
      and Chairman of the Board
                                President
      and Chief Executive OfficerMr.
      Curtis J. Sparrow
                              
                              51
                              
                              Director
                                Chief
      Financial Officer, Secretary and TreasurerMr.
      Cyrus Spaulding
                              
                              52
                              
                              DirectorMr.
      Donald E. H. Jones
                              
                              55
                              
                              DirectorMr.
      David Roff
                              
                              37
                              
                              DirectorMr.
      Malik Youyou
                              
                              55
                              
                              Director





Biographies of Directors and
Executive Officers





Brief
biographies of the executive officers and directors of Deep Well are set forth
below. All directors hold office until the next Annual Stockholders’ Meeting or
until their death, resignation, retirement, removal, disqualification or until
their successors have been elected and qualified. Vacancies in the existing
Board may be filled by majority vote of the remaining directors. Officers of our
Company serve at the will of the Board of Directors. As of September 30, 2006
there are no written employment contracts outstanding, but there are consulting
contracts as disclosed herein.





Dr. Horst
A. Schmid has served as Director and Chairman of the Board since February 6,
2004 to present. Since June 29, 2005 to present he has been the Chief Executive
Officer and President of Deep Well. From September 1996 to present, Dr. Schmid
has been Director, President and Chief Executive Officer of Portwest Investment
Ltd., a private firm, located in Edmonton, Alberta, Canada. Prior to that, Dr.
Schmid spent 15 years as Cabinet Minister for the Government of Alberta and 10
years as Commissioner General for Trade and Tourism. During that time he was
involved in numerous successful overseas negotiations for the Alberta Oil &
Gas Industry, achieving major contracts for Alberta Equipment/Production/Service
Companies. Dr. Schmid has also served as independent Director and Chairman of
Aspire Capital Inc. since 1998. Dr. Schmid also serves as a Director and
Chairman of the Board of Directors of Calstar Oil & Gas Ltd. He is the
recipient of many Canadian and International Awards for his accomplishments. Dr.
Schmid received an Honorary Law Degree from the University of
Alberta.




55




Mr.
Curtis J. Sparrow served as Director of Deep Well from February 6, 2004 until
June 29, 2005. On July 1, 2005, Mr. Sparrow accepted a reappointment back to the
Board of Directors. From February 9, 2004 to present Mr. Sparrow has been the
Chief Financial Officer, Corporate Secretary and Treasurer of Deep Well. Since
before May 1994, Mr. Sparrow has been a self-employed management consultant. Mr.
Sparrow has been involved in the oil and gas industry in various capacities for
over 25 years. He held directorships and senior officer positions with junior
exploration and development companies before becoming a self-employed
consultant. He has since participated in the marketing side of the oil and gas
industry, and was part of an acquisition team formed to assess and develop a bid
for a multi-billion dollar integrated oil company. His experience also includes
corporate and project management, international businesses and mining. Mr.
Sparrow received his Bachelor of Science Degree in Engineering and Masters
Degree in Business Administration from the University of Alberta in May 1978 and
May 1992, respectively. Mr. Sparrow is also a registered Professional
Engineer.





Mr. Cyrus
Spaulding has been Deep Well’s Director from June 29, 2005 to present Early in
his career he joined Husky Oil Operations Ltd. as a reservoir engineering
technologist where he provided data analysis on secondary recovery schemes for
heavy oil projects. In the mid 1990’s he joined Colt Engineering Corporation as
the lead engineer for the Amoco Primrose Commercial SAGD project. He is a
registered Professional Engineer with over 17 years experience in the oil and
gas industry. He has worked on projects in Canada as well as overseas. His
experience includes gas plants, hydrocarbon liquids fractionation plants, heavy
oil pilot plants and heavy oil commercial plants. He has also worked with a
major oil and gas company in Alberta providing forecasting and analysis on heavy
oil projects. Mr. Spaulding is a graduate of Lakehead University. Mr. Spaulding
served the Company as Chief Operating Officer from September 1, 2005 to
September 21, 2007.





Mr.
Donald E. H. Jones has been a Director of Deep Well from June 29, 2005 to
present. Mr. Jones brings over 30 years of broad oil, natural gas and
petrochemical experience to the Company. His experience spans the manufacturing
and service sectors, as well as engineering and project management in the EPC
environment. He has also worked at a senior management level for companies with
both new and established oil and gas properties. At one time, Mr. Jones was
Project Manager, including field construction, commissioning, and optimization
for a SAGD Pilot Facilities which laid the ground work for commercial scale
production and processing of heavy oil. A graduate of the University of Calgary,
Mr. Jones is a registered Professional Engineer. He has significant domestic and
international experience having worked in Canada, Africa, Russia, Kazakhstan,
South East Asia and Columbia, where he is currently manager for a Calgary based
exploration and development Company.





Mr. David
Roff is currently serving as a Director of Deep Well since his reappointment on
April 3, 2006. He was the former President and Sole Director of Deep Well from
September 10, 2003 until February 6, 2004. Mr. Roff is the co-president of,
Brave Consulting, a private consulting and investment corporation and has held
this position since 2001. Brave Consulting was engaged by Deep Well in July 2005
until the present to advise on investment strategies and governance. Mr. Roff
has extensive experience working with small cap public companies for ten years.
Prior to that, Mr. Roff was a management consultant for Coopers & Lybrand
Consulting where he advised large financial institutions, investment fund
complexes and other organizations on technology and internal control strategies.
Mr. Roff is a Chartered Accountant with a B.A. degree from the University of
Western Ontario.





Mr.
Youyou recently became a Director of Deep Well, he accepted the position on
August 20, 2008. Mr. Youyou is an experienced international entrepreneur,
investor and director of several companies. With more than three decades of
business experience in highly competitive global markets, beginning in his
native France, Mr. Youyou brings a strong international perspective to Deep
Well's Board. Mr. Youyou has created and led several companies involved in the
development, branding, and marketing of luxury goods from leading international
houses including Baume & Mercier, Cartier, Piaget, Alfred Dunhill, Mont
Blanc, Van Cleef and Arpels, Chloe and Vacheron Constantin. Over the last two
decades Mr. Youyou successfully established the luxury goods business in Russia
and related markets that emerged from the former Soviet Union.





Family
Relationships





There are
no family relationships among the executive officers and directors.





Significant
Employees





Other
than the current executive officers of our Company the following are expected to
make a significant contribution to our Company:




56




Effective
September 20, 2007, our Company entered into a Consulting Agreement with R.N.
Dell Energy Ltd. whose primary consultant is Mr. Edward A. Howard, to assist our
Company in the further exploitation and development of Deep Well’s Sawn Lake
project. Mr. Howard is a Geologist and Palynologist with over 40 years of heavy
oil experience. Most recently Mr. Howard was Vice President of Exploration and
Development for Signet (recently acquired by Andora). Signet was the Farmee
which had the right to earn acreage from Deep Well. Signet’s rights under the
Farmout Agreement to drill to earn more acreage, has since expired and as of
November 26, 2007, the Farmout Agreement has been terminated. At Signet Mr.
Howard was responsible for the planning and execution of the Sawn Lake drilling
program. Mr. Howard has also worked with several companies in the heavy oil
sector including Sceptre Resources (since taken over by CNRL) at their
Tangleflags field and Shell Canada at their Peace River Project. Mr. Howard was
credited with the discovery and early development of the first successful Steam
Assisted Gravity Drainage (“SAGD”) heavy oil extraction project for Sceptre at
the Tangleflags field. While at Shell from 1967 to 1977 Mr. Howard was
instrumental in developing Shell’s Peace River strategy from the early inception
through to the pilot plant stage. This project continues to be one of the most
successful in situ oil sands producers. Also, Mr. Howard has implemented
noteworthy Cyclical Stream Simulation (“CSS”) projects in Alberta. Some of these
projects have proven to increase recovery rates between/from 50% - 60%. Mr.
Howard’s extensive experience with the primary and secondary recovery of heavy
oil as well as his direct knowledge of the Peace River oil sands area,
specifically the Sawn Lake project, will be of great benefit to Deep
Well.





Involvement in Certain Legal
Proceedings





No
bankruptcy petition has been filed by or against any business of which any
director was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time.





No
current director has been convicted in a criminal proceeding and is not subject
to a pending criminal proceeding (excluding traffic violations and other minor
offences).





No
current director has been subject to any order, judgments, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring, suspending or
otherwise limiting his involvement in any type of business, securities or
banking activities.





No
current director has been found by a court of competent jurisdiction (in a civil
action), the Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, that has not been
reversed, suspended, or vacated.





Audit Committee Financial
Expert





We do not
have an independent audit committee financial expert, on our Board of Directors.
We believe that the cost related to retaining an audit committee financial
expert at this time is prohibitive and that, because, of our limited operations
the services of an independent audit committee financial expert are not
warranted at this time.





Identification of Audit
Committee





On
February 9, 2004 our Board of Directors, in accordance with Section 3(a)(58)(A)
of the Securities Exchange Act of 1934 as amended, appointed an audit committee.
The Board of Directors has designated an audit committee to oversee management’s
conduct of our accounting and financial reporting processes. The audit committee
reviews our financial reports and other financial information disclosed to the
public, the government and various regulatory bodies, our system of internal
accounting, our financial controls, and the annual independent audit of our
financial statements. The audit committee also oversees compliance with legal
and regulatory requirements. On February 9, 2004 to August 14, 2004, the audit
committee members were Mr. Curtis J. Sparrow and Mr. Leonard F. Bolger. Mr.
Leonard F. Bolger served as Chair of the audit committee. On August 14, 2004 the
Board of Directors determined that it was necessary to ratify the members of the
Audit Committee and therefore the Board of Directors approved the appointment of
Dr. Horst A. Schmid and Mr. Leonard F. Bolger as the only two independent
members of the Audit Committee.





On
February 9, 2004 the Board of Directors appointed a compensation committee, a
corporate governance committee and a corporate environmental policy
committee.





Nominating
Committee





The
Company currently does not have a nominating committee. The entire Board of
Directors of the Company participates in the consideration of director nominees,
therefore fulfilling the role of a nominating committee. It is anticipated that
in preparation for our next Shareholder’s meeting it will review shareholder
proposals for nominations to the Board of Directors. Any such proposal must
comply with the proxy rules under the Exchange Act, including Rule
14a-8.




57




Section 16 (a) Beneficial
Ownership Reporting Compliance





Section
16(a) of the Exchange Act requires the Company’s officers, directors and persons
who beneficially own more than 10% of a registered class of the Company’s equity
securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission, and to furnish to the Company copies of such
reports. Based solely on the review of copies of the forms received, by the
Company, during the September 30, 2006 fiscal year, filings of Form 3 as
required under Section 16(a)(2) of the Securities Exchange Act of 1934 by Mr.
David Roff. In addition, the filing of Form 4 as required under Section 16(a)(2)
of the Securities Exchange Act of 1934 by Mr. Curtis J. Sparrow, Mr. Cyrus
Spaulding, Dr. Horst A. Schmid and Mr. Donald E. H. Jones was late.





Code of
Ethics





As of
September 30, 2006 our Company had not yet adopted a formal code of ethics
governing its executive officers and directors. We have not adopted a code of
ethics because we have minimal operations. Our Board of Directors will address
this issue in the future to determine the adoption of a code of ethics. In the
meantime, our management intends to promote honest and ethical conduct, full and
fair disclosure in our reports to the SEC, and compliance with applicable
governmental laws and regulations.




58




ITEM
      10.
            EXECUTIVE
      COMPENSATION





Summary Compensation
Table





The
following table provides information about the compensation paid to, earned or
received during the last two fiscal years ended September 30, 2006 and September
30, 2005 the executive officers listed below (the “Named Executive
Officers”).





Executive
Compensation Summary





Name and Principal
                                            Position
                                          Year
                                          
                                          Salary
                                            Cdn$
                                          
                                          
                                          Bonus
                                          
                                          
                                          Stock
                                            Awards
                                          
                                          
                                          Option
                                            Awards
                                            (If approved
                                            by the
                                            shareholders)
                                          
                                          
                                          Non-Equity
                                            Incentive
                                            Plan
                                            Compen-sation
                                          
                                          
                                          Non-qualified
                                            Deferred
                                            Compen-sation
                                            Earnings
                                          
                                          
                                          All Other
                                            Compen-sation (13)
                                          
                                          
                                          TotalMr. Steven P. Gawne
      (1)
                                          2006
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –President
      and
                                          2005
                                          (2)&
;#16
      0;
                                          
                                          135,000
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          116,276
                                          (15)Chief
      Executive OfficerDr. Horst A. Schmid
      (3)
                                          2006
                                          (4)
                                          $
                                          150,000
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          159,304
                                          (16)
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          7,000
                                          
                                          
                                          $
                                          300,794
                                          (14)President
      and
                                          2005
                                          (5)
                                          
                                          53,500
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          15,000
                                          
                                          
                                          
                                          61,080
                                          (15)Chief
      Executive OfficerMr. Curtis J. Sparrow
      (6)
                                          2006
                                          (7)
                                          $
                                          180,000
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          159,304
                                          (17)
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          3,500
                                          
                                          
                                          $
                                          324,192
                                          (14)Chief
      Financial Officer
                                          2005
                                          (8)
                                          
                                          180,000
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          7,000
                                          
                                          
                                          
                                          162,034
                                          (15)Mr. Menno Wiebe (9)
                                          2006
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –Chief
      Operating Officer
                                          2005
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –Mr. Cyrus Spaulding
      (10)
                                          2006
                                          (11)
                                          $
                                          125,265
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          133,695
                                          (18)
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          –
                                          
                                          
                                          $
                                          3,500
                                          
                                          
                                          $
                                          250,508
                                          (14)Chief
      Operating Officer
                                          2005
                                          (12)
                                          
                                          20,800
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          –
                                          
                                          
                                          
                                          2,500
                                          
                                          
                                          
                                          20,415
                                          (15)





(1) Mr.
Steven P. Gawne had served our Company as President and Chief Executive Officer
from February 6, 2004 until June 29, 2005.





(2) As of
September 30, 2005, Nearshore Petroleum Corporation, a company owned 50% by Mr.
Steven P. Gawne and 50% by his wife, Rebekah Gawne accrued the above fee for Mr.
Gawne’s services. This fee and other amounts were not paid because of disputes
with Mr. Steven P. Gawne.





(3) Dr.
Horst A. Schmid has served our Company as Director and Chairman of the Board
since February 6, 2004 to present. From June 29, 2005 to present he has been the
President and Chief Executive Officer of our Company.





(4) As of
September 30, 2006, Portwest Investments Ltd., a company owned 100% by Dr. Horst
A. Schmid, accrued the above fees for Dr. Schmid’s services provided to our
Company as President and Chief Executive Officer and as of the 2006 year end our
Company owed Portwest Investments Ltd. $68,690.21 Cdn. Dr. Horst A. Schmid
accrued a director’s fee for his services on the Board of Directors as Chairman
of the Board of our Company, as of the September 30, 2006 year end our Company
owed Dr. Schmid $5,000 US for directors fees.





(5) As of
September 30, 2005, Portwest Investments Ltd., a company owned 100% by Dr. Horst
A. Schmid, accrued the above fees for Dr. Schmid’s services provided to our
Company as President and Chief Executive Officer and as of the 2005 year end our
Company owed Portwest Investments Ltd. $5,684.90 Cdn. Dr. Schmid also accrued a
director’s fee for his services on the Board of Directors as Chairman of the
Board of our Company, but none of these fees were paid as of the September 30,
2005 year end but were paid in the September 30, 2006 year end.





(6) Mr.
Curtis J. Sparrow served as Director of our Company from February 6, 2004 until
June 29, 2005. On July 1, 2005, Mr. Sparrow accepted a reappointment back to the
Board of Directors. From February 9, 2004 to present Mr. Sparrow has been the
Chief Financial Officer, Corporate Secretary and Treasurer of our
Company.





(7) As of
September 30, 2006, Concorde Consulting, a company owned 100% by Mr. Curtis J.
Sparrow, accrued the above fees for Mr. Sparrow’s services provided to our
Company as Chief Financial Officer and as of the 2006 year end our Company owed
Concorde Consulting $104,104.01 Cdn. Mr. Curtis J. Sparrow accrued a director’s
fee for his services on the Board of Directors as Director of our Company, as of
the September 30, 2006 year end our Company owed Mr. Sparrow $2,500 US for
directors fees.





(8) As of
September 30, 2005, Concorde Consulting, a company owned 100% by Mr. Curtis J.
Sparrow, accrued the above fees for Mr. Sparrow’s services provided to our
Company as Chief Financial Officer and as of the 2005 year end our Company owed
Concorde Consulting $141,829.75 Cdn. Mr. Sparrow also accrued a director’s fee
for his services on the Board of Directors as Director of our Company, but none
of these fees were paid as of the September 30, 2005 year end but were paid in
the September 30, 2006 year end.




59




(9) Mr.
Menno Wiebe served as Chief Operating Officer of our Company from July 6, 2004
until June 29, 2005.





(10) Mr.
Cyrus Spaulding served as Chief Operating Officer of our Company from September
1, 2005 until September 21, 2007.





(11) As of
September 30, 2006, Trebax Projects Ltd., a company owned 100% by Mr. Cyrus
Spaulding, accrued the above fees for Mr. Spaulding’s services provided to our
Company as Chief Operating Officer and as of the 2006 year end our Company owed
Trebax Projects Ltd. $95,106.07 Cdn. Mr. Cyrus Spaulding accrued a director’s
fee for his services on the Board of Directors of our Company, as of the
September 30, 2006 year end our Company owed Mr. Spaulding $2,500 for directors
fees.





(12) As of
September 30, 2005, Trebax Projects Ltd., a company owned 100% by Mr. Cyrus
Spaulding, accrued the above fees for Mr. Spaulding’s services provided to our
Company as Chief Operating Officer. None of these fees were owed as of September
30, 2005. Mr. Spaulding also accrued a director’s fee for his services on the
Board of Directors of our Company, but none of these fees were paid as of the
September 30, 2005 year end  but were paid in the September 30, 2006
year end.





(13)
Directors Fees.





(14) Cdn
to US dollar conversion is based on the exchange rate of 0.8966 at the end of
the 2006 fiscal year.





(15) Cdn
to US dollar conversion is based on the exchange rate of 0.8613 at the end of
the 2005 fiscal year.





(16) No
option granted under the Stock Option Plan may be exercised until the Stock
Option Plan has been approved and ratified by the holders of a majority of the
voting stock of our Company at a shareholders' meeting or by consent resolution
of said majority shareholders. On November 28, 2005, the Company granted Dr.
Horst A. Schmid options to purchase 375,000 shares of common stock on becoming a
director of our Company, at an exercise price of $0.71 per share, of which
175,000 vested immediately upon grant and another 100,000 vested on February 6,
2006 and another 100,000 vested on February 6, 2007. Based on the Black-Scholes
valuation method Dr. Schmid’s estimated amortized value vested in 2006 was
$93,885 US. In addition to Dr. Schmid’s Director’s options, Portwest Investments
Ltd., a company owned 100% by Dr. Horst A. Schmid, was granted options to
purchase 390,000 shares of common stock for providing consulting services as
President and Chief Executive Officer of our Company, of which 130,000 vested on
July 1, 2006, another 130,000 vested on July 1, 2007 and another 130,000 vested
on July 1, 2008. Based on the Black-Scholes valuation method Portwest Investment
Ltd.’s estimated amortized value vested in 2006 was $65,419 US. These estimated
valuations include the value of the options back until each executive officer
first became a Director. No named Director or executive officer has exercised
any of his stock options.





(17) No
option granted under the Stock Option Plan may be exercised until the Stock
Option Plan has been approved and ratified by the holders of a majority of the
voting stock of our Company at a shareholders' meeting or by consent resolution
of said majority shareholders. On November 28, 2005, the Company granted Mr.
Curtis J. Sparrow options to purchase 375,000 shares of common stock on becoming
a director of our Company, at an exercise price of $0.71 per share, of which
175,000 vested immediately upon grant and another 100,000 vested on February 6,
2006 and another 100,000 vested on February 6, 2007. Based on the Black-Scholes
valuation method Mr. Sparrow’s estimated amortized value vested in 2006 was
$93,885 US.  In addition to Mr. Sparrow’s Director’s options, Concorde
Consulting, a company owned 100% by Mr. Sparrow, was granted options to purchase
390,000 shares of common stock for providing consulting services as Chief
Financial Officer of our Company, of which 130,000 vested on July 1, 2006,
another 130,000 vested on July 1, 2007 and another 130,000 vested on July 1,
2008. Based on the Black-Scholes valuation method Concorde Consulting’s
estimated amortized value vested in 2006 was $65,419 US. These estimated
valuations include the value of the options back until each executive officer
first became a Director. No named Director or executive officer has exercised
any of his stock options.





(18) No
option granted under the Stock Option Plan may be exercised until the Stock
Option Plan has been approved and ratified by the holders of a majority of the
voting stock of our Company at a shareholders' meeting or by consent resolution
of said majority shareholders. On November 28, 2005, the Company granted Mr.
Cyrus Spaulding options to purchase 375,000 shares of common stock, on becoming
a director of our Company, at an exercise price of $0.71 per share, of which
75,000 vested immediately upon grant and another 100,000 vested on June 29,
2006, another 100,000 vested on June 29, 2007 and another 100,000 vested on June
29, 2008. Based on the Black-Scholes valuation method Mr. Spaulding’s estimated
amortized value vested in 2006 was $70,780 US. In addition to Mr. Spaulding’s
Director’s options, Trebax Projects Ltd., a company owned 100% by Mr. Cyrus
Spaulding, was granted options to purchase 390,000 shares of common stock for
providing consulting services as Chief Operating Officer of our Company, of
which 130,000 vested on September 1, 2006, another 130,000 vested on September
1, 2007 and another 130,000 would have vested on September 1, 2008 but Trebax
Projects Ltd. resigned as of September 21, 2007. Based on the Black-Scholes
valuation method Trebax Projects Ltd.’s estimated amortized value vested in 2006
was $62,915 US. These estimated valuations include the value of the options back
until each executive officer first became a Director. No named Director or
executive officer has exercised any of his stock options.




The Board
is continually reviewing all compensation paid to executives of our
Company.





Compensation Arrangements
for Executive Officers





Our
Company has entered into the following contracts with the following companies
for services of certain officers and/or directors of our Company:





1.
            Portwest
      Investments Ltd., a company owned 100% by Dr. Horst A. Schmid for
      providing services as Chief Executive Officer and President for $12,500
      Cdn per month.


2.
            Concorde
      Consulting, a company owned 100% by Mr. Curtis J. Sparrow for providing
      services as Chief Financial Officer for $15,000 Cdn per
    month.




60




3.
            Trebax
      Projects Ltd., a company 100% owned by Mr. Cyrus Spaulding for providing
      services as Chief Operating Officer for $130 Cdn per
  hour.





On
November 28, 2005 the Board granted 390,000 options to acquire common shares to
the above corporations providing consulting services to our Company or its
subsidiary.





Outstanding Equity Awards Granted to Executive Officers at September 30, 2006





Options Awards(1)(If approved by the shareholders)
                
                Stock AwardsName
                
                Number of
                  Securities
                  Underlying
                  Unexercised
                  Options (#)
                  Exercisable
                
                
                Number of
                  Securities
                  Underlying
                  Unexercised
                  Options (#)
                  Unexercisable
                
                
                Equity
                  Incentive Plan
                  Awards:
                  Number of
                  Securities
                  Underlying
                  Unexercised
                  Unearned
                  Options (#)
                
                
                Option
                  Exercise
                  Price ($)
                
                Option
                  Expiration
                  Date
                
                Number of
                  Shares or
                  Units of
                  Stock That
                  Have Not
                  Vested (#)
                
                
                Market
                  Value of
                  Shares or
                  Units of
                  Stock That
                  Have Not
                  Vested ($)
                
                
                Equity
                  Incentive
                  Plan
                  Awards:
                  Number of
                  Unearned
                  Shares,
                  Units or
                  Other
                  Rights That
                  Have Not
                  Vested (#)
                
                
                Equity
                  Incentive Plan
                  Awards:
                  Market or
                  Payout Value
                  of Unearned
                  Shares, Units
                  or Other
                  Rights That
                  Have Not
                  Vested ($)Portwest Investments
      Ltd. (2)
                
                
                130,000
                
                
                
                260,000
                
                
                
                –
                
                
                $
                0.71
                
                11/28/2010
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –Concorde Consulting
      (3)
                
                
                130,000
                
                
                
                260,000
                
                
                
                –
                
                
                $
                0.71
                
                11/28/2010
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –Trebax Projects Ltd.
      (4)
                
                
                130,000
                
                
                
                260,000
                
                
                
                –
                
                
                $
                0.71
                
                11/28/2010
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –





(1) No
option granted under the Stock Option Plan may be exercised until the Stock
Option Plan has been approved and ratified by the holders of a majority of the
voting stock of our Company at a shareholders' meeting or by consent resolution
of said majority shareholders.





(2)
Portwest Investments Ltd., a company owned 100% by Dr. Horst A. Schmid, was
granted options to purchase 390,000 shares of common stock for providing
consulting services as President and Chief Executive Officer of our Company, of
which 130,000 vested on July 1, 2006, another 130,000 vested on July 1, 2007 and
another 130,000 vested on July 1, 2008. See the Executive Compensation Table for
more disclosure.





(3)
Concorde Consulting, a company owned 100% by Mr. Curtis J. Sparrow, was granted
options to purchase 390,000 shares of common stock for providing consulting
services as Chief Financial Officer of our Company, of which 130,000 vested on
July 1, 2006, another 130,000 vested on July 1, 2007 and another 130,000 vested
on July 1, 2008. See the Executive Compensation Table for more
disclosure.





(4) Trebax
Projects Ltd., a company owned 100% by Mr. Cyrus Spaulding, was granted options
to purchase 390,000 shares of common stock for providing consulting services as
Chief Operating Officer of our Company, of which 130,000 vested on September 1,
2006, another 130,000 vested on September 1, 2007 and another 130,000 would have
vested on September 1, 2008 but Trebax Projects Ltd. resigned as of September
21, 2007.  See the Executive Compensation Table for more
disclosure.




Compensation of
Directors





On
November 28, 2005, our Company adopted a cash compensation plan where each
director is paid the amount of $500 for each meeting of the Board of Directors
or committee meetings that they attend, or resolution participated in, plus, we
reimburse each director for actual expenses incurred in connection with Board
meeting attendance. The Chairman of the Board is paid $1,000 for each Board
meeting plus expenses incurred in connection with Board meeting
attendance.





On
November 28, 2005, the Board of Directors of Deep Well adopted the Deep Well Oil
& Gas, Inc. Stock Option Plan. The Stock Option Plan, which if administered
by the Board, permits options to acquire shares of Deep Well’s common stock to
be granted to directors of our Company. The vesting of such director options
will occur only if the holder of the options continues to provide services to us
during the immediate annual period preceding the relevant vesting date. The
options will terminate at the close of business five years from the date of
grant. No option granted under the Stock Option Plan may be exercised until the
Stock Option Plan has been approved and ratified by the holders of a majority of
the voting stock of our Company at a shareholders' meeting or by consent
resolution of said majority shareholders.





For the
year ended September 30, 2006, the Company recorded $558,882 of compensation
expense based on its use of the Black Scholes model to estimate the grant-date
fair value of these unit option awards. No options were exercised during the
year ended September 30, 2006, therefore, the intrinsic value of the options
exercised during 2006 is nil. As of September 30, 2006, there was a total of
$217,954 of unrecognised compensation cost related to the non-vested portion of
these unit option awards. At September 30, 2006, this cost was expected to
recognize over a weighted-average period of 4.16 years. Compensation expense is
based upon straight-line amortization of the grant-date fair value over the
vesting period of the underlying unit option. Since the Company is a relatively
new public company and has minimal trading history, it has used an estimated
volatility of approximately 162% for 2006 based on the trading history available
which increases the amount of compensation allocated to each Director. As of
October 31, 2008, no stock options have been exercised by a
Director.




61




Director
Compensation at September 30, 2006





Name
                      
                      Fees Earned or
                        Paid in Cash ($)
                      
                      
                      Stock Awards
                        ($)
                      
                      
                      Option Awards
                        (If approved by
                        the
                        shareholders)
                        ($)(1)
                      
                      
                      Non-Equity
                        Incentive Plan
                        Compensation
                        ($)
                      
                      
                      Nonqualified
                        Deferred
                        Compensation
                        Earnings ($)
                      
                      
                      All Other
                        Compensation
                        ($)
                      
                      
                      Total ($)Mr. Donald E. H.
      Jones (2)
                      
                      $
                      3,500
                      (3)
                      
                      
                      –
                      
                      
                      $
                      70,780
                      (4)
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      $
                      74,280Mr.
      David Roff (5)
                      
                      $
                      2,000
                      (6)
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      $
                      96,000
      Cdn
                      (7)
                      
                      $
                      88,074
                      (8)–
                      
                      
                      
                      –
                      
                      
                      
                      –





(1) No
option granted under the Stock Option Plan may be exercised until the Stock
Option Plan has been approved and ratified by the holders of a majority of the
voting stock of our Company at a shareholders' meeting or by consent resolution
of said majority shareholders.





(2) Mr.
Donald E. H. Jones has served our Company as Director since June 29, 2005 to
present.





(3) Mr.
Donald E. H. Jones accrued a director’s fee for his services on the Board of
Directors of our Company, as of the September 30, 2006 year end our Company owed
Mr. Jones $2,500 US for directors fees. Mr. Jones attended all of the meetings
of the Board of Directors for the reported fiscal year.





(4) No
option granted under the Stock Option Plan may be exercised until the Stock
Option Plan has been approved and ratified by the holders of a majority of the
voting stock of our Company at a shareholders' meeting or by consent resolution
of said majority shareholders. On November 28, 2005, the Company granted Mr.
Donald E. H. Jones options to purchase 375,000 shares of common stock, on
becoming a director of our Company, at an exercise price of $0.71 per share, of
which 75,000 vested immediately and another 100,000 vested on June 29, 2006,
another 100,000 vested on June 29, 2007 and another 100,000 vested on June 29,
2008. Based on the Black-Scholes valuation method Mr. Jones’ estimated amortized
value vested in 2006 was $70,780 US, which includes the value of the options
back until Mr. Jones first became a Director. Mr. Jones has not exercised any of
his stock options.





(5) Mr.
David Roff was the former President and Sole Director of our Company from
September 10, 2003 until February 6, 2004. Mr. Roff was reappointed as Director
on April 3, 2006.





(6) Mr.
David Roff accrued a director’s fee for his services on the Board of Directors
of our Company, as of the September 30, 2006 year end our Company owed Mr. Roff
$2,000 US for directors fees. Mr. Roff attended 4 out of 7 meetings of the Board
of Directors for the reported fiscal year..





(7) Brave
Consulting Corporation, a company 50% owned by Mr. David Roff, has been a
consultant to Deep Well since July 15, 2005. Brave Consulting Corporation, a
private corporation 50% owned by Mr. Roff and the other 50% is owned by a
non-related third party, was paid a fee of $4,000 Cdn per month from July 2005
until October 2005. From November 2005 until July 2007, Brave Consulting was
paid a fee of $8,000 Cdn per month. From August 2007 until present, Brave
Consulting Corporation is being paid a fee of $12,000 Cdn per
month.





(8) Cdn to
US dollar conversion is based on the exchange rate of 0.8966 at the end of the
2006 fiscal year.




62




ITEM
      11.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED
      STOCKHOLDER MATTERS





The
following tables set forth the number and percentage of the shares of our
Company’s Common Stock owned of record and beneficially by each person or entity
owning more than 5% of such shares and by all executive officers, officers and
directors, as a group at September 30, 2006:





SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS


As
of September 30, 2006





Name and Address of Beneficial
                  Owner
                Title of Class
                
                Number of
                  Shares
                  Beneficially
                  Owned
                
                
                Percentage of
                  Class
                  Beneficially
                  Owned(1)
                
                Nature of OwnershipSteven
      P. Gawne (2)
                  Suite
      3175, 246 Stewart Green SW
                  Calgary,
      Alberta  T3H 3C8 Canada
                Common
                
                
                6,000,000
                
                
                
                9.53
                %
      (2)
                Direct/IndirectC.
      Ruiz Tighe (3)
                  89
      Arbour Ridge Heights NW
                  Calgary,
      Alberta  T3G 3Z2 Canada
                Common
                
                
                3,619,500
                
                
                
                5.75
                %
                Direct/Indirect





(1) Based
on 62,929,289 common shares outstanding on September 30, 2006.





(2) Mr.
Steven P. Gawne directly owns 300,000 shares and his indirect beneficial
ownership consists of Nearshore Petroleum Corporation owning 300,000 shares.
Nearshore Petroleum Corporation is a private corporation registered in Alberta,
Canada, which is 50% owned and controlled by Mr. Gawne and 50% owned and
controlled by his wife, Rebekah Gawne. As a result of Mr. Gawne’s and
Nearshore’s ownership of 100,000 each of preferred shares of Northern which as a
result of the June 7, 2005 acquisition of Northern Alberta Oil Ltd. by our
Company and at Mr. Gawne’s or Nearshore’s option can each convert to 2,700,000
shares of Deep Well common stock each. This means that Mr. Gawne’s indirect
beneficial ownership will consist of Nearshore Petroleum Corporation owning
3,000,000 shares and Mr. Gawne directly owning 3,000,000 shares, for a total of
6,000,000 being 9.53% of our Company once the Northern preferred shares are
converted.





(3) C.
Ruiz Tighe beneficially and indirectly owns 2,940,000 shares of our common stock
held by 1004731 Alberta Ltd., a corporation registered in Alberta, Canada, which
is 100% owned by C. Ruiz Tighe. C. Ruiz Tighe directly holds 679,500 shares of
our common stock.




63




SECURITY
OWNERSHIP OF MANAGEMENT


As
of September 30, 2006





Name and Address of Beneficial Owner
                Title of Class
                
                Number of
                  Shares/Options
                  Beneficially
                  Owned
                
                
                Percentage of
                  Class
                  Beneficially
                  Owned(1)
                
                Nature of
                  OwnershipDr.
      Horst A. Schmid
                  Director
      and Chairman of the Board
                  Suite
      510, 10117 Jasper Avenue
                  Edmonton,
      Alberta  T5J 1W8 Canada
                Common
                
                
                2,355,000
                
                
                
                3.65
                %
                Direct
      and Indirect (2)Mr.
      Curtis J. Sparrow
                  Director,
      Chief Financial Officer, Corporate Secretary and Treasurer
                  Suite
      510, 10117 Jasper Avenue
                  Edmonton,
      Alberta  T5J 1W8 Canada
                Common
                
                
                405,000
                
                
                
                0.63
                %
                Direct
      and Indirect (3)Mr.
      Cryus Spaulding
                  Director
      and Chief Operating Officer
                  416
      Scenic View Bay
                  Calgary,
      Alberta  T3L 1Z4 Canada
                Common
                
                
                980,000
                
                
                
                1.52
                %
                Direct
      and Indirect (4)Mr.
      Donald E. H. Jones
                  Director
                  Calle
      113, Numero 7-21
                  Officina
      706, Edificio Teleport, Torre A
                  Bogota,
      Colombia
                Common
                
                
                175,000
                
                
                
                0.27
                %
                Direct
      (5)Mr.
      David Roff
                  Director
                  31
      Walmer Road Ste. #6
                  Toronto,
      Ontario  M5R 2W7
                Common
                
                
                79,886
                
                
                
                0.12
                %
                Direct
      (6)All
      Officers and Directors as a Group
                Common
                
                
                3,994,886
                
                
                
                6.19
                %
                Indirect





(1) Based on 64,556,789 common shares
issued and outstanding on September 30, 2006 and as if all the warrants and
options noted in this table below were exercised by
management.





(2) Dr.
Horst A. Schmid has served our Company as Director and Chairman of the Board
since February 6, 2004 to present. Dr. Schmid’s indirect beneficial ownership
consists of Portwest Investment Ltd. owning 1,950,000 common shares. Portwest
Investment Ltd. is a private corporation registered in Alberta, Canada, which is
owned and controlled by Dr. Schmid. On November 28, 2005, Dr. Schmid was granted
options to purchase 375,000 shares of common stock on becoming a director of our
Company, of which 175,000 vested immediately upon grant and the remaining
options vested as follows: 100,000 vested on February 6, 2006 and another
100,000 vested on February 6, 2007. Dr. Schmid also has an indirect beneficial
ownership which consists of 390,000 stock options granted to Portwest Investment
Ltd of which 130,000 vested on July 1, 2006, another 130,000 vested on July 1,
2007 and another 130,000 vested on July 1, 2008. No option granted under the
Stock Option Plan may be exercised until the Stock Option Plan has been approved
and ratified by a majority of our shareholders.





(3) Mr. Curtis J. Sparrow was appointed
Director on February 6, 2004 and Chief Financial Officer on February 9, 2004.
Mr. Sparrow was reappointed as Director and Chief Financial Officer on June 29,
2005. On November 28, 2005, Mr. Sparrow was granted options to purchase 375,000
shares of common stock on becoming a director of our Company, of which 175,000
vested immediately upon grant and the remaining options vested as follows:
100,000 vested on February 6, 2006 and another 100,000 vested on February 6,
2007. Mr. Sparrow also has an indirect beneficial ownership which consists of
390,000 stock options granted to Concorde Consulting, a company owned 100% by
Mr. Sparrow, of which 130,000 vested on July 1, 2006, another 130,000 vested on
July 1, 2007 and another 130,000 vested on July 1, 2008. No option granted under
the Stock Option Plan may be exercised until the Stock Option Plan has been
approved and ratified by a majority of our shareholders.





(4) Mr. Cyrus Spaulding was appointed
Director on June 29, 2005 and Chief Operating Officer on September 1, 2005. Mr.
Spaulding’s indirect beneficial ownership consists of 175,000 common shares
through his spouse, Barbara Spaulding, as of September 30, 2006, and 250,000
common shares acquired indirectly through his spouse from an August 12, 2005
private placement which included warrants to purchase another 250,000 common
shares of our Company. November 28, 2005, Mr. Spaulding was granted options to
purchase 375,000 shares of common stock on becoming a director of our Company,
of which 75,000 vested immediately upon grant and the remaining options vested
as follows:100,000 vested on June 29, 2006 and another 100,000 vested on
June 29, 2007 and another 100,000 vested on June 29, 2008.Mr. Spaulding also has an indirect
beneficial ownership, which consists of 390,000 stock options granted to Trebax
Projects Ltd., a company owned 100% by Mr. Cyrus Spaulding, of which 130,000
vested on September 1, 2006, another 130,000 vested on September 1, 2007 and
another 130,000 would have vested on September 1, 2008 but Trebax Projects Ltd.
resigned as of September 21, 2007. No option granted under the Stock Option Plan
may be exercised until the Stock Option Plan has been approved and ratified by a
majority of our shareholders.




64




(5) Mr. Donald E. H. Jones was appointed
Director on June 29, 2005. On November 28, 2005, Mr. Jones was granted options
to purchase 375,000 shares of common stock on becoming a director of our
Company, of which 75,000 vested immediately upon grant and the remaining options
vested as follows:100,000 vested on June 29, 2006 and another 100,000
vested on June 29, 2007 and another 100,000 vested on June 29, 2008.No option granted under the Stock
Option Plan may be exercised until the Stock Option Plan has been approved and
ratified by the a majority of our shareholders.





(6) Mr. David Roff was appointed Director
on April 3, 2006. Mr. Roff’s direct beneficial ownership consists of 79,886
common shares. On October 25, 2006, Mr. Roff was granted options to purchase
375,000 shares of common stock of our Company of which 75,000 of the options
vested immediately upon grant and the remaining options will vest as follows:
100,000 vested on April 6, 2007, another 100,000 vested on April 6, 2008 and
100,000 of will vest on April 6, 2009. No option granted under the Stock Option
Plan may be exercised until the Stock Option Plan has been approved and ratified
by a majority of our shareholders.




Changes
in Control





Except as
described below, Deep Well is not aware of any arrangement that may result in a
change in control of Deep Well or its subsidiary companies.





Since
December 2007, Tamm Oil and Gas Corp. (“Tamm”) and its agents have issued
multiple public statements claiming that Tamm has acquired, or agreed to
acquire, a significant and controlling interest in our Company and our
properties. We are not, and have not been, party to any of Tamm’s public
statements or purported acquisitions of our shares of common stock, and we have
commenced a lawsuit against Tamm alleging that Tamm has violated United States
federal and Nevada state law in connection with Tamm’s recent public statements
and activities related to our Company, our operations and Tamm’s ownership of
our shares of common stock. Tamm has filed a motion for partial summary
judgment, which is fully briefed and pending before the court, and Several of
the new defendants have appeared and filed motions to dismiss, which are also
pending. Discovery in the case is ongoing. For more information about the
foregoing, you should refer to “Item 3. Legal Proceedings” in this Form
10-KSB.





Mr. Malik
Youyou, a Director of the Company, beneficially owns 74,675,331 shares of common
stock of our Company of which 31,471,630 shares were directly acquired by Mr.
Youyou pursuant to three subscription agreements dated June 22, 2007, August 14,
2008 and October 31, 2008 for a total aggregate price of $15,000,000 for all
three private placement transactions. Pursuant to these three private placements
Mr. Youyou also received warrants to acquire 36,471,630 shares of common stock
of Deep Well. In addition, Mr. Youyou indirectly owns 5,057,229 shares of common
stock of Deep Well through Westline Enterprises Limited, a company of which Mr.
Youyou is the sole shareholder. As of the date of this report on Form 10-KSB,
Mr. Youyou has 36 percent of the issued and outstanding common stock of Deep
Well. If Mr. Youyou were to exercise all of his warrants to acquire an
additional 36,471,630 shares of Deep Well’s common stock, and if nobody else
exercised their warrants, Mr. Youyou would have 52 percent of the issued and
outstanding common stock of Deep Well. As of the Date of this report Mr. Youyou
has not exercised any of his warrants.





ITEM
      12.
            CERTAIN
      RELATIONSHIPS AND RELATED
TRANSACTIONS





On
February 23, 2006, pursuant to an exercise option agreement the Company entered
into on June 7, 2005, Mr. Steven P. Gawne and Nearshore partially exercised
their rights under the option agreements, in which our Company issued 300,000
Deep Well common shares to each of Mr. Gawne and Nearshore in exchange for
20,000 of the outstanding preferred shares of Northern Alberta Oil Ltd. The
common shares were issued pursuant to Section 4(2) of the 1933 Act.





Pursuant
to a subscription agreement dated August 12, 2005, Barbara Spaulding the wife of
Mr. Cyrus Spaulding our current director and Chief Operating Officer, subscribed
for 250,000 units of our Company, pursuant to a private placement transaction,
for an aggregate price of $100,000. Each unit consisted of one common share and
one common share purchase warrant, with each warrant entitling its holder to
acquire one share of our common stock at an exercise price of $0.60. The
warrants expired on August 12, 2008 and Barbara Spaulding did not exercise any
of her warrants. The units were issued pursuant to Regulation S under the 1933
Act. As of the date of this report Barbara Spaulding directly owns 250,000
common shares of our Company.





Mr. Malik
Youyou, a Director of the Company, beneficially owns 74,675,331 shares of common
stock of our Company of which 31,471,630 shares were directly acquired by Mr.
Youyou pursuant to three subscription agreements dated June 22, 2007, August 14,
2008 and October 31, 2008 for a total aggregate price of $15,000,000 for all
three private placement transactions. Pursuant to these three private placements
Mr. Youyou also received warrants to acquire 36,471,630 shares of common stock
of Deep Well. In addition, Mr. Youyou indirectly owns 5,057,229 shares of common
stock of Deep Well through Westline Enterprises Limited, a company of which Mr.
Youyou is the sole shareholder. As of the date of this report on Form 10-KSB,
Mr. Youyou has 36 percent of the issued and outstanding common stock of Deep
Well. If Mr. Youyou were to exercise all of his warrants to acquire an
additional 36,471,630 shares of Deep Well’s common stock, and if nobody else
exercised their warrants, Mr. Youyou would have 52 percent of the issued and
outstanding common stock of Deep Well. As of the Date of this report Mr. Youyou
has not exercised any of his warrants.


65





ITEM
      13.
            EXHIBITS
      AND REPORTS ON FORM 8-K





Exhibit No.
              
              Description2.1
              
              Liquidating
      Plan of Reorganization of Allied Devices Corporation, now known as Deep
      Well Oil & Gas, Inc. filed with Form 10-K/A on January 28, 2004, and
      incorporated herein by reference.2.2
              
              Order
      and Plan of Reorganization of the U.S. Bankruptcy Court in and for the
      Eastern District of New York, In re: Allied Devices Corporation, Chapter
      11, Case No. 03-80962-511, dated September 10, 2003 filed with Form 10K/A
      on January 28, 2004, and incorporated herein by
  reference.3.1
              
              Restated
      and Amended Articles of Incorporation filed with and accepted by the
      Secretary of State of Nevada on October 22, 2003 filed with Form 10-K/A on
      January 28, 2004, and incorporated herein by reference.3.2
              
              Amended
      Articles of Incorporation filed with the State of Nevada on February 27,
      2004 filed with Form 8-K on March 5, 2004, and incorporated herein by
      reference.3.3
              
              Amended
      Articles of Incorporation filed with the State of Nevada on May 5, 2004
      filed with Form 8-K on May 7, 2004, and incorporated herein by
      reference.3.4
              
              Registrant’s
      By-laws, filed with Form 10-KSB on February 23, 2007, and incorporated
      herein by reference.4.1
              
              Form
      of Warrant issued pursuant to the Securities Purchase Agreement and
      Registration Rights Agreement dated March 10, 2005, filed with Form 8-K on
      March 14, 2005, and incorporated herein by reference.4.2
              
              Form
      of Warrant issued pursuant to the Subscription Agreement dated August 12,
      2005 by and among our Company with three investors related to the Private
      Placement offering and Debt Settlement Agreement, filed with Form 8-K on
      August 17, 2005, and incorporated herein by reference.4.3
              
              Form
      of Warrant issued pursuant to the Subscription Agreement dated October 11,
      2005 by and among our Company with three investors related to the Private
      Placement offering, filed with Form 8-K on October 19, 2005, and
      incorporated herein by reference.4.4
              
              Form
      of Warrant issued pursuant to the Subscription Agreement dated January 13,
      2006 by and among our Company with three investors related to the Private
      Placement offering and Debt Settlement Agreement, filed with Form 8-K on
      March 6, 2006, and incorporated herein by reference.4.5
              
              Form
      of Warrant issued pursuant to the Subscription Agreement dated May 25,
      2007 by and among our Company with one investor related to the Private
      Placement offering, and filed with Form 8-K on June 13, 2007, and
      incorporated herein by reference.4.6
              
              Form
      of Warrant issued pursuant to the Subscription Agreement dated June 22,
      2007 by and among our Company with one investor related to the Private
      Placement offering, filed with Form 8-K on July 5, 2007, and incorporated
      herein by reference.4.7
              
              Form
      of Special Warrant issued pursuant to the Subscription Agreement dated
      June 22, 2007 by and among our Company with one investor related to the
      Private Placement offering, filed with Form 8-K on July 5, 2007, and
      incorporated herein by reference4.8
              
              Form
      of Warrant issued pursuant to the Subscription Agreement dated July 11,
      2007 by and among our Company with two investor related to the Private
      Placement offering, and filed with Form 10-QSB on October 30, 2007 and
      incorporated herein by reference.4.9
              
              Form
      of Special Warrant issued pursuant to the Subscription Agreement dated
      July 11, 2007 by and among our Company with two investor related to the
      Private Placement offering, and filed with Form 10-QSB on October 30, 2007
      and incorporated herein by reference.4.10
              
              Form
      of adjusted Warrant issued in September 2007 pursuant to the original
      Warrant dated March 10, 2005 by and among our Company with two investors
      related to the Securities Purchase Agreement and Registration Rights
      Agreement, and filed with Form 10-QSB on October 30, 2007 and incorporated
      herein by reference.4.11
              
              Form
      of Warrant issued pursuant to the Subscription Agreement dated August 14,
      2008 by and among our Company with one investor related to the Private
      Placement offering, filed with Form 8-K on August 15, 2008, and
      incorporated herein by reference.4.12
              
              Form
      of Fractional Warrant issued pursuant to the Subscription Agreement dated
      August 14, 2008 by and among our Company with one investor related to the
      Private Placement offering, filed with Form 8-K on August 15, 2008, and
      incorporated herein by
reference.




66




4.13
              
              Form
      of Warrant issued pursuant to the Subscription Agreement dated October 31,
      2008 by and among our Company with one investor related to the Private
      Placement offering, filed with Form 8-K on November 7, 2008, and
      incorporated herein by reference.4.14
              
              Form
      of Fractional Warrant issued pursuant to the Subscription Agreement dated
      October 31, 2008 by and among our Company with one investor related to the
      Private Placement offering, filed with Form 8-K on November 7, 2008, and
      incorporated herein by reference.10.1
              
              Gross
      Overriding Royalty Agreement dated December 12, 2003 between Mikwec Energy
      Canada Limited (now known as Northern Alberta Oil Ltd.) and Nearshore
      Petroleum Corporation, filed with Form 10-KSB on February 23, 2007, and
      incorporated herein by reference.10.2
              
              Joint
      Operating Agreement dated April 26, 2004 between Mikwec Energy Canada
      Limited (now known as Northern Alberta Oil Ltd.) and Maxen Petroleum Inc.
      (now known as Pan Orient Energy Corp.), filed with Form 10-KSB on February
      23, 2007, and incorporated herein by reference.10.3
              
              Consulting
      Agreement by and between Deep Well and Menno Wiebe dated June 8, 2004,
      filed with Form 10-KSB on February 23, 2007, and incorporated herein by
      reference.10.4
              
              Exchange
      Agreement between our Company and Mikwec Energy Canada Limited (now known
      as Northern Alberta Oil Ltd.) dated as of July 8, 2004, and filed with
      Form 8-K on November 5, 2004 and incorporated herein by reference. Form of
      Amending Agreement, dated as of April 25, 2005 and Form of Termination,
      Option and Put Agreement, both filed with Form 8-K on June 10, 2005, and
      incorporated herein by reference.10.5
              
              Employment
      Letter Agreement by and between Deep Well and John Brown dated November
      15, 2004, filed with Form 10-KSB on February 23, 2007, and incorporated
      herein by reference.10.6
              
              Joint
      Operating Agreement dated December 9, 2004 between our Company and 1132559
      Alberta Ltd., filed with Form 10-KSB on February 23, 2007, and
      incorporated herein by reference.10.7
              
              Farmout
      Agreement dated February 25, 2005 by and between the Deep Well Oil &
      Gas, Inc., Northern Alberta Oil Ltd., and Surge Global Energy, Inc., Surge
      Global Energy (Canada) Ltd. (now known as Andora Energy Corporation
      formerly known as Signet Energy, Inc.), filed with Form 10-KSB on February
      23, 2007, and incorporated herein by reference.10.8
              
              Assumption
      of Liabilities and Indemnity Agreement dated February 28, 2005 by and
      between Deep Well Oil & Gas, Inc., Northern Alberta Oil Ltd. and Surge
      Global Energy (Canada) Ltd. (now known as Andora Energy Corporation
      formerly known as Signet Energy, Inc.), filed with Form 10-KSB on February
      23, 2007, and incorporated herein by reference.10.9
              
              Termination
      Agreement dated February 28, 2005 by and between Nearshore Petroleum
      Corporation, Northern Alberta Oil Ltd. and Surge Global Energy (Canada)
      Ltd. (now known as Andora Energy Corporation formerly known as Signet
      Energy, Inc.), filed with Form 10-KSB on February 23, 2007, and
      incorporated herein by reference.10.10
              
              Farmout
      Amending Agreement dated March 3, 2005 by and between our Company, Deep
      Well Oil & Gas, Inc., Northern Alberta Oil Ltd., and Surge Global
      Energy, Inc., Signet Energy, Inc. (formerly known as Surge Global Energy
      (Canada) Ltd., now known as Andora Energy Corporation), filed with Form
      10-KSB on February 23, 2007, and incorporated herein by
      reference.10.11
              
              Two
      Farmout Amending Agreements dated March 10, 2005 by and between our
      Company, Deep Well Oil & Gas, Inc., Northern Alberta Oil Ltd., and
      Surge Global Energy, Inc., Signet Energy, Inc. (formerly known as Surge
      Global Energy (Canada) Ltd., now known as Andora Energy Corporation),
      filed with Form 10-KSB on February 23, 2007, and incorporated herein by
      reference.10.12
              
              Form
      of Securities Purchase Agreement and Registration Rights Agreement dated
      March 10, 2005, by and among our Company and each of Provident Premier
      Master Fund, Ltd. and Grey K Fund LP, filed with Form 8-K on March 14,
      2005, and incorporated herein by reference.10.13
              
              Form
      of Amending Agreement dated as of April 25, 2005, filed with Form 8-K on
      June 10, 2005, and incorporated herein by reference.10.14
              
              Form
      of Termination, Option and Put Agreement, filed with Form 8-K on June 10,
      2005, and incorporated herein by reference.10.15
              
              Consulting
      agreement by and between Northern and Portwest Investments Ltd., dated
      July 1, 2005, filed with Form 10-KSB on February 23, 2007, and
      incorporated herein by reference.10.16
              
              Consulting
      agreement by and between Northern and Concorde Consulting, dated July 1,
      2005, filed with Form 10-KSB on February 23, 2007, and incorporated herein
      by reference.




67




10.17
              
              Farmout
      Amending Agreement dated July 14, 2005 by and between our Company, Deep
      Well Oil & Gas, Inc., Northern Alberta Oil Ltd., and Surge Global
      Energy, Inc., Signet Energy, Inc. (formerly known as Surge Global Energy
      (Canada) Ltd.), filed with Form 10-KSB on February 23, 2007, and
      incorporated herein by reference.10.18
              
              Form
      of Subscription Agreement dated August 12, 2005 by and among our Company
      with three investors related to the Private Placement offering, and Debt
      Settlement Agreement, filed with Form 8-K on August 17, 2005, and
      incorporated herein by reference.10.19
              
              Consulting
      agreement by and between the Northern and Trebax Projects Ltd., effective
      September 1, 2005, filed with Form 10-KSB on February 23, 2007, and
      incorporated herein by reference.10.20
              
              Form
      of Subscription Agreement dated October 11, 2005, by and among our Company
      with three investors related to the Private Placement offering, filed with
      Form 8-K on October 19, 2005, and incorporated herein by
      reference.10.21
              
              Farmout
      Amending Agreement dated November 15, 2005 by and between our Company,
      Deep Well Oil & Gas, Inc., Northern Alberta Oil Ltd., and Surge Global
      Energy, Inc., Signet Energy, Inc. (formerly known as Surge Global Energy
      (Canada) Ltd.), filed with Form 10-KSB on February 23, 2007, and
      incorporated herein by reference.10.22
              
              Farmout
      Acknowledgement Agreement dated November 15, 2005 by and between our
      Company, Deep Well Oil & Gas, Inc., Northern Alberta Oil Ltd., and
      Surge Global Energy, Inc., Signet Energy, Inc. (formerly known as Surge
      Global Energy (Canada) Ltd.), filed with Form 10-KSB on February 23, 2007,
      and incorporated herein by reference.10.23
              
              Deep
      Well Oil & Gas, Inc. Stock Option Plan (“The Plan”), effective
      November 28, 2005, filed with Form 8-K on March 3, 2006, and incorporated
      herein by reference.10.24
              
              Sample
      Stock Option Agreements with all Directors, filed with Form 10-KSB on
      February 23, 2007, and incorporated herein by
reference.10.25
              
              Sample
      Stock Option Agreements with all Contractors, filed with Form 10-KSB on
      February 23, 2007, and incorporated herein by
reference.10.26
              
              Sample
      Indemnity Agreement with all Directors, filed with Form 10-KSB on February
      23, 2007, and incorporated herein by reference.10.27
              
              Form
      of Subscription Agreement dated January 13, 2006 by and among our Company
      with three investors related to the Private Placement offering and Debt
      Settlement Agreement, filed with Form 8-K on March 6, 2006, and
      incorporated herein by reference.10.28
              
              Settlement
      Agreement & Release of All Claims, dated as of January 22, 2007, by
      and among our Company and Grey K Fund LP, Grey K Offshore Fund Ltd.,
      Provident Premier Master Fund Ltd., Atlas Master Fund Ltd. and Gemini
      Master Fund, Ltd., filed with Form 8-K on January 31, 2007, and
      incorporated herein by reference.10.29
              
              Form
      of Non-Qualified Stock Option Agreement issued to Director on April 3,
      2006, filed with Form 10-KSB on February 23, 2007, and incorporated herein
      by reference.10.30
              
              Form
      of Subscription Agreement dated May 25, 2007 by and among our Company with
      one investor, filed with Form 8-K on June 13, 2007, and incorporated
      herein by reference.10.31
              
              Form
      of Subscription Agreement dated June 22, 2007 by and among our Company
      with one investor, filed with Form 8-K on July 5, 2007, and incorporated
      herein by reference.10.32
              
              Form
      of Subscription Agreement dated July 11, 2007 by and among our Company
      with two investors, and filed with Form 10-QSB on October 30, 2007 and
      incorporated herein by reference.10.33
              
              Order
      granted by the court dated September 7, 2007 between our Company and Star
      Capital Inc., and filed with Form 10-KSB on April 22, 2008 and
      incorporated herein by reference.10.34
              
              Form
      of Agreement dated as of September 10, 2007 between our Company and Star
      Capital Inc., and filed with Form 10-KSB on April 22, 2008 and
      incorporated herein by reference.10.35
              
              Form
      of Amending Agreement dated as of September 10, 2007, between our Company
      and Star Capital Inc., and filed with Form 10-KSB on April 22, 2008 and
      incorporated herein by reference.10.36
              
              Consulting
      agreement by and between our Company and R.N. Dell Energy Ltd., effective
      September 20, 2007, and filed with Form 10-QSB on October 30, 2007
      incorporated herein by reference.10.37
              
              Non-Qualified
      Stock Option Agreement issued to R.N. Dell Energy Ltd. effective September
      20, 2007, and filed with Form 10-QSB on October 30, 2007 incorporated
      herein by reference.10.38
              
              Non-Qualified
      Stock Option Agreement issued to Employee effective September 20, 2007 and
      filed with Form 10-QSB on October 30, 2007 incorporated herein by
      reference.10.39
              
              Consulting
      agreement by and between our Company and Picoplat Consulting Inc.,
      effective October 15, 2007, and filed with Form 10-KSB on April 22, 2008
      and incorporated herein by
reference.




68




10.40
              
              Minutes
      of Settlement dated November 26, 2007 by and between Deep Well Oil &
      Gas, Inc. and its subsidiaries and 1350826 Alberta Ltd. and Andora Energy
      Corporation, filed with Form 8-K on December 14, 2007, and incorporated
      herein by reference.10.41
              
              Form
      of Subscription Agreement dated August 14, 2008 by and among our Company
      with one investor, filed with Form 8-K on August 15, 2008, and
      incorporated herein by reference.10.42
              
              Form
      of Subscription Agreement dated October 31, 2008 by and among our Company
      with one investor, filed with Form 8-K on November 7, 2008, and
      incorporated herein by reference.16.1
              
              Changes
      in registrant’s certifying accountant, Letter of Madsen & Associates,
      CPA’s Inc. filed with Form 8-K on August 16, 2004, and incorporated herein
      by reference.16.2
              
              Changes
      in registrant’s certifying accountant, Letter of Deloitte & Touche LLP
      filed with Form 8-K on August 10, 2005, and incorporated herein by
      reference.21.1
              
              Subsidiaries
      of Registrant, filed herewith.31.1
              
              Certification
      of President and Chief Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith31.2
              
              Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002, filed herewith32.1
              
              Certification
      of President and Chief Executive Officer Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002, filed herewith32.2
              
              Certification
      of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002, filed herewith




69




ITEM 14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





The
following table is a summary of the fees billed to us by Sellers & Andersen,
LLC, Madsen & Associates and Deloitte & Touche LLP for professional
services for the fiscal years ended September 30, 2006 and September 30,
2005:





Fee Category
                  
                  Fiscal
                    2006 Fees
                  
                  
                  Fiscal
                    2005 FeesAudit
      Fees
                  
                  $
                  11,200
                  
                  
                  $
                  9,085Audit
      Related Fees
                  
                  Nil
                  
                  
                  NilTax
      Fees
                  
                  Nil
                  
                  
                  NilAll
      Other Fees
                  
                  
                  2,775
                  
                  
                  
                  –Total
      Fees
                  
                  $
                  13,995
                  
                  
                  $
                  9,085





Audit
Fees





Our board
of directors appointed Madsen & Associates, CPA’s Inc. as independent
auditors to audit our financial statements for the fiscal year ending September
30, 2006 and September 30, 2005.





Audit Related
Fees





The
aggregate fees billed for assurance and related services by the independent
auditors that are reasonably related to the performance of the audit or review
of our financial statements and are not reported above under “Audit Fees” are
for consultation regarding our correspondence with the SEC and other accounting
consulting.





Tax Fees





The taxes
are now done by the independent third party, chartered accounting firm stated
below.





All Other
Fees





For the
fiscal year ended September 2006, the fees billed by Madsen & Associates for
review of the quarterly financial statements was $2,775. For the fiscal years
ended September 30, 2006 and 2005, we paid an independent third party chartered
accounting firm fees of $84,395.85 Cdn and $91,942.81 Cdn respectively, relating
to the preparation of the annual financial statements  which were
audited by Madsen & Associates, CPA’s Inc.





Audit Committee Pre-Approval
Policies and Procedures





The
Securities and Exchange Commission has adopted rules that require that before
Madsen & Associates, CPA’s Inc. is engaged by us or our subsidiaries to
render any audit or permitted non-audit service, the engagement be:





·
            our
      board of directors acting as our audit committee approved;
    or


·
            entered
      into pursuant to pre-approval policies and procedures established by the
      audit committee, provided the policies and procedures are detailed as to
      the particular service, the audit committee is informed of each service,
      and such policies and procedures do not include delegation of the audit
      committee’s responsibilities to
management.





Our
Company has considered the nature and amount of the fees billed by Madsen &
Associates, CPA’s Inc., and believes that the provision of the services for
activities unrelated to the audit is compatible with maintaining Madsen &
Associates, CPA’s Inc. independence.




70




SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





DEEP
      WELL OIL & GAS, INC.By
              /s/ Horst A. SchmidDr.
      Horst A. SchmidChairman
      of the BoardDate
              December 15,
  2008





In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.





By
              /s/ Horst A. SchmidDr.
      Horst A. SchmidChief
      Executive Officer and President(Principal
      Executive Officer)Date
              December 15, 2008By
              /s/ Curtis J. SparrowMr.
      Curtis J. SparrowChief
      Financial Officer(Principal
      Financial and Accounting Officer)Date
              December 15,
2008





71