UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-K





(Mark One)þ
                                  
                                  ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended September 30, 2008oro
                                  
                                  TRANSITION
      REPORT PURSUANT TO 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.


(Exact
name of registrant as specified 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)





Registrant’s
telephone number, including area code:(780) 409-8144





Securities
registered under Section 12(b) of the Act:





Title
      of each class
            
            Name
      of each exchange on which registeredNone
            
            None





Securities
registered under Section 12(g) of the Act:





Common
      Stock, $0.001 par value per share(Title
      of class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes oNo þ





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes oNo þ





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


Yes oNo þ





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceeding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes oNo o





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





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer o
              Accelerated
      filer oNon-accelerated
      filer o (Do
      not check if a smaller reporting company)
              Smaller
      reporting company þ





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).         Yes oNo þ





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 March
29, 2008 was approximately $43.8 million.





Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.    Yes oNo þ





As of
September 30, 2009, the Issuer had approximately 106,774,258 shares of common
stock, $0.001 par value per share outstanding.







TABLE
OF CONTENTS




Page
                                            NumberGLOSSARY
      AND ABBREVIATIONS
                                          
                                          4CURRENCY
      EXCHANGE RATES
                                          
                                          6PART
      IITEM
      1.
                                          
                                          BUSINESS
                                          
                                          6Business
      Development
                                          
                                          6Principal
      Product
                                          
                                          9Market
      and Distribution of Product
                                          
                                          9Competitive
      Business Conditions
                                          
                                          10Customers
                                          
                                          10Royalty
      Agreements
                                          
                                          10Government
      Approval and Crown Royalties
                                          
                                          10Research
      and Development
                                          
                                          11Environmental
      Laws and Regulations
                                          
                                          11Employees
                                          
                                          12ITEM
      1A.
                                          
                                          RISK
      FACTORS
                                          
                                          12ITEM
      2.
                                          
                                          PROPERTIES
                                          
                                          15Office
      Leases
                                          
                                          15Oil
      & Gas Properties
                                          
                                          15Acreage
                                          
                                          15Reserves,
      Production and Delivery Commitments
                                          
                                          17Drilling
      Activity
                                          
                                          17Present
      Activities
                                          
                                          17Past
      Activities
                                          
                                          18ITEM
      3.
                                          
                                          LEGAL
      PROCEEDINGS
                                          
                                          19ITEM
      4.
                                          
                                          SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                                          
                                          19PART
      IIITEM
      5.
                                          
                                          MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS
      AND ISSUER PURCHASES OF EQUITY SECURITIES
                                          
                                          22Market
      Price Information for Common Stock
                                          
                                          22Holders
      of Record
                                          
                                          22Dividends
                                          
                                          22Equity
      Compensation Plan Information
                                          
                                          22Performance
      Graph
                                          
                                          23Sales
      of Unregistered Securities
                                          
                                          23ITEM
      6.
                                          
                                          SELECTED
      FINANCIAL DATA
                                          
                                          25ITEM
      7.
                                          
                                          MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                                          
                                          26


2





ITEM
      7A.
                          
                          QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                          
                          30REPORT
      OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
                          
                          31ITEM
      8.
                          
                          FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                          
                          31Consolidated
      Balance Sheets
                          
                          32Consolidated
      Statements of Operations
                          
                          33Consolidated
      Statements of Shareholders’ Equity
                          
                          34Consolidated
      Statements of Cash Flows
                          
                          37Notes
      to the Consolidated Financial Statements
                          
                          38ITEM
      9.
                          
                          CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                          
                          52ITEM
      9A.
                          
                          CONTROLS
      AND PROCEDURES
                          
                          52ITEM
      9B.
                          
                          OTHER
      INFORMATION
                          
                          52PART
      IIIITEM
      10.
                          
                          DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                          
                          53ITEM
      11.
                          
                          EXECUTIVE
      COMPENSATION
                          
                          57ITEM
      12.
                          
                          SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                          
                          61ITEM
      13.
                          
                          CERTAIN
      RELATIONSHIP AND RELATED TRANSACTIONS
                          
                          63ITEM
      14.
                          
                          PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                          
                          64ITEM
      15.
                          
                          EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
                          
                          65SIGNATURES
                          
                          69


3


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
(“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 (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.





Gross Acre/Hectare – a gross
acre is an acre in which a working interest is owned. 1 acre = 0.404685
hectares.


4


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.





License of Occupation (“LOC”)– is a surface crown agreement issued by the Alberta Department of
Sustainable Resources Development granting the mineral producer the right to
occupy public lands for an approved purpose, they are usually issued primarily
for access roads or to construct access roads, but may also be issued for other
purposes.





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).





Mineral Surface Lease (MSL) –
is a surface crown agreement issued by the Alberta Department of Sustainable
Resources Development granting the mineral producer the right to construct a
well site on publicly owned land.





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.


5


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
                    
                    
                    2005Rate
      at end of year
                    
                    $
                    1.0599
                    
                    
                    $
                    0.9963
                    
                    
                    $
                    1.1153
                    
                    
                    $
                    1.1611Average
      rate for the year
                    
                    $
                    1.0107
                    
                    
                    $
                    1.1132
                    
                    
                    $
                    1.1425
                    
                    
                    $
                    1.2231





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”.





PART
I





ITEM
1.              BUSINESS





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 oil sands 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 web site 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, 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 (hereinafter referred to as 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 (hereinafter referred to as
“Bankruptcy Order”). In conjunction with that Bankruptcy Order, Allied Devices
Corporation’s (hereinafter 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 April
26, 2004, Northern Alberta Oil Ltd. (formerly known as Mikwec Energy Canada,
Ltd., hereinafter referred to as “Northern” and later acquired by Deep Well)
signed a Joint Operating Agreement with Pan Orient Energy Corp. (formerly known
as Maxen Petroleum Inc. hereinafter referred to as “Pan Orient”) to provide for
the manner of conducting operations on 3 Peace River oil sands development
leases for a total of 32 sections covering 20,243 gross acres (8,192 gross
hectares). 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.


6





On August
18, 2004, Deep Well and 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 19,610 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
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
for a total of 31 sections, which Pan Orient acquired on April 23, 2004, 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”, a company approximately 53% owned by Pan Orient). 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 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.





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 June
7, 2005, Deep Well acquired 100% of the common shares of 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 24,355 gross acres (9,856 gross hectares). Through
this acquisition we have more than doubled our acreage position in the Peace
River oil sands to 43,965 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 encumbered by an injunction related to a court
proceeding involving Classic Energy Inc., (hereinafter referred to as “Classic”)
the company Northern acquired this acreage from. This permit and license have
now been released and as of November 15, 2005, were transferred to
Northern.





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 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 it acquired
on August 18, 2004, other than the oil sands leases already held by Northern. At
the time Deep Well owned 100% of the common shares of Northern but not the
preferred shares of Northern.





On
September 21, 2005, Signet was granted a permit by the Energy Resources
Conservation Board (hereinafter referred to as the “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 of our Sawn Lake
Project.


7


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 received 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 drilled were within less than one mile
(1.6 km) of the first test well that was 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 11, 2007, we exercised our dissenting rights at Signet’s special
meeting of shareholder's 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 their 755,000 and 6,795,000 common shares of Signet respectively into
224,156 and 2,017,402 common shares of Andora respectively.





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 March
18, 2008, the 6.5 section oil sands permit, which was originally scheduled to
expire on April 9, 2008, was extended for one year pursuant to an application
submitted to the Alberta Department of Energy by Northern.





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 covering 3,796
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.





On
September 10, 2008, the ERCB granted us well licenses to drill 6 wells on our
Sawn Lake oil sands properties.





On
December 1, 2008, in conjunction with our 2008/2009 winter drilling program, we
acquired existing road infrastructure from Paramount Resources Ltd.
(“Paramount”) through a transfer of title of 6 Paramount P&NG properties to
us.  These 6 P&NG properties, of which 2 were expected to
immediately expire and 4 are expected to expire within 7 months, cover 11,387
gross acres (4,608 gross hectares) of which 3,796 gross acres (1,536 gross
hectares) overlay our Sawn Lake oil sands leases. These properties included the
transfer of 7 mineral surface leases (proposed well sites or “MSLs”) and 4
licenses of occupation (access roads or “LOCs”) totalling 12 km of roads that
were transferred to us, along with 2 vertical wells 1 of which is located on our
Sawn Lake oil sands lease and the other located approximately 2.5 miles north of
our Sawn Lake oil sands lease.





On
December 4, 2008, we successfully spudded the first well of six wells to be
drilled in our 2008/2009 Sawn Lake winter drilling program in the Peace River
oil sands area of Alberta. By early February of 2009, we successfully drilled
all planned 6 wells of our Sawn Lake oil sands project


8





On
February 1, 2009, Northern acquired another existing access road on our Sawn
Lake properties from Penn West Petroleum Ltd. adding 8.7 km of roads to its Sawn
Lake infrastructure.





On April
30, 2009, the Alberta Department of Energy approved our application to convert 5
sections of our 5-year oil sands permit to a 15-year primary lease.





Currently,
Deep Well and its subsidiaries Northern and Deep Well Alberta have a 100%
working interest in 15 sections of petroleum and natural gas licenses
(hereinafter referred to as “P&NG”) in the Peace River area of Alberta,
Canada, an 80% working interest in 56 contiguous sections of oil sands
development leases, and a 40% working interest in an additional 12 contiguous
sections of oil sands development leases in the Peace River oil sands area of
Alberta, Canada. Our P&NG licenses and oil sands development leases cover
52,505 gross acres (21,248 gross hectares). After successfully completing our
winter drilling program and meeting our objectives by drilling 6 wells we are
now evaluating the many options for production now available to us to decide the
best course of action. Drilling on these 80% owned lands has opened new avenues
for testing and further development of the Sawn Lake project. On the 12 sections
of the jointly held lands, in which we have a 40% working interest, our Company
is exploring different plans of action with Andora Energy Corporation, the
operator of these 12 sections. The focus of our Company’s drilling program is to
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 and generate a cash flow.





Principal
Product





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 oil sands leases we hold in the
Peace River oil sands area. Our main objective is to develop our existing oil
sands 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.
Currently we have no production from our properties.





Market and Distribution of
Product





We
anticipate our principal target market 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. In such a case, if
our production was enough to justify our own pipeline facilities we would
consider building them.





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. At this time we have no
production and therefore no short-term or long-term contracts. We will adopt
specific sales and marketing plans once production is achieved.





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.





The price
of oil and, natural gas 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 government of Alberta
also regulates the volume of natural gas, which may be removed from the province
for consumption elsewhere based on such factors as reserve availability,
transportation arrangements and market considerations.


9





Competitive Business
Conditions





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.





Customers





As we
remain in the exploration stage, we have not yet generated any revenues from
production, nor do we have any customers at this time. We anticipate our
principal target customers to be refiners, remarketers and other
companies.





Royalty
Agreements





Through
the acquisition of Northern, our Company became a party to the following royalty
agreement:





On
December 12, 2003, Nearshore Petroleum Corporation (hereinafter referred to as
“Nearshore”) entered into a Royalty Agreement with Mikwec Energy Canada, Ltd.
(now known as Northern) that potentially encumbers 6 oil sands development
leases covering 23,406 gross acres (9,472 gross hectares) located within our
Sawn Lake properties (hereinafter the “Royalty Agreement”). Nearshore claimed a
6.5% gross overriding royalty from Northern on the leased substances on the land
interests in which Northern holds in the above 6 oil sands leases. Nearshore was
a private corporation incorporated in Alberta, Canada, and was owned and
controlled by Mr. Steven P. Gawne and his wife, Mrs. Rebekah J. Gawne, who each
owned 50% of Nearshore. Mr. Steven P. Gawne was formerly the President, Chief
Executive Officer and Director of Deep Well from February 6, 2004 to June 29,
2005. Part, or all, of this Royalty Agreement has been purportedly transferred
by Nearshore to other parties.





On
February 28, 2005, Deep Well, Northern and Surge agreed that Deep Well would be
responsible for the portion of the claimed 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 dated December 12, 2003.. 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 claimed portion of the royalty due, if any, on the portion of the
royalty acquired by Andora.





Government Approval and
Crown Royalties





Exploration and
Production. Our operations are subject to Canadian 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.





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.


10





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.





Crown 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 and Alberta have
established incentive programs such as royalty rate reductions, royalty
holidays, tax credits, and more recently drilling royalty credits and a new well
incentive program, which provides a maximum five percent royalty rate for all
new wells that begin producing conventional oil and natural gas between April 1,
2009 and March 31, 2011. These incentives are for the purpose of encouraging oil
and natural gas exploration or enhanced recovery projects. These incentives
generally increase cash flow.





Effective
January 1, 2009 oil sands royalties in Alberta are calculated using a sliding
scale for royalty rates ranging from 1% to 9% pre-payout and 25% to 40%
post-payout depending on the world oil price. Project “payout” refers to the
point in which we earn sufficient revenues to recover all of the allowed costs
for the project plus a return allowance. The base royalty starts at 1% and
increases for every dollar the world oil price, as reflected by the West Texas
Intermediate (hereinafter referred to as “WTI”), is priced above $55 per barrel,
to a maximum of 9% when oil is priced at $120 per barrel or greater. The net
royalty starts at 25% and increases for every dollar oil is priced above $55 per
barrel to 40% when oil is priced at $120 or higher.





Research and
Development





We had no
material research and development costs for the fiscal years ended September 30,
2009, 2008 and 2007.





Environmental Laws and
Regulations





The oil
and natural gas industry is subject to environmental laws and regulations
pursuant to Canadian 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. 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. Accordingly, we
could be liable, or could be required to cease production on properties if
environmental damage occurs. Although we maintain insurance coverage, 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. We maintain limited commercial property and general liability
insurance coverage on the properties we operate. We also maintain limited
operators extra expense insurance which provides limited coverage for well
control incidents specifically relating to regaining control of a well, seepage,
pollution, clean-up and containment. No coverage is maintained with respect to
any fine or penalty required to be paid due to a violation of the regulations
set out by the federal and provincial regulatory authorities. 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.





Alberta’s
new climate change regulation, effective July 1, 2007, requires Alberta
facilities that emit more than 100,000 tonnes of greenhouse gases a year to
reduce emissions intensity by 12 per cent. Companies have four choices to meet
their reductions: 1.) they can make operating improvements to their operations
that will result in greenhouse gas emission reductions; 2.) purchase Alberta
based offset credits; 3.) contribute to the Climate Change and Emissions
Management Fund; and 4.) purchase or use emission performance credits, also
called EPCs, these credits are generated by facilities that have gone beyond the
12% mandatory intensity reduction. EPCs can be banked for future use or sold to
other facilities that need to meet the reduction target.


11


On June
18, 2009 the Canadian government passed the new Environmental Enforcement Act
(“EEA”). The EEA was created to strengthen and amend nine existing Statutes that
relate to the environment and to enact provisions respecting the enforcement of
certain Statutes that relate to the environment. The EEA amends various
enforcement, offence, penalty and sentencing provisions to deter offenders from
committing offences under the EEA by setting minimum and maximum fines for
serious offences. The EEA also gives enforcement officers new powers to
investigate cases and grants courts new sentencing authorities that ensure
penalties reflect the seriousness of the pollution and wildlife offences. The
EEA also expands the authority to deal with environmental offenders by: 1.)
specifying aggravating factors such as causing damage to wildlife or wildlife
habitat, or causing damage that is extensive, persistent or irreparable; 2.)
providing fine ranges higher for corporate offenders than for individuals; 3.)
doubling fine ranges for repeat offenders; 4.) authorizing the suspension and
cancellation of licenses, permits or other authorizations upon conviction; 5.)
requiring corporate offenders to report convictions to shareholders; and 6.)
mandating the reporting of corporate offences on a public registry.





Employees





Our
Company currently has four prime subcontractors and three full-time employees.
For further information on our subcontractors see “Compensation Arrangements for
Executive Officers” under Item 11 “Executive Compensation”. We expect to hire
from time to time more employees, independent consultants, and contractors
during the stages of implementing our plans.





ITEM
1A.            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 Resources Will Be Subject To Crown Royalties.The royalty regime of Alberta is a
significant factor in the profitability of oil and natural gas production in
Alberta, Canada. 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 and Alberta have established incentive programs such as royalty rate
reductions, royalty holidays, tax credits, and more recently drilling royalty
credits and a new well incentive program, which provides a maximum five percent
royalty rate for all new wells that begin producing conventional oil and natural
gas between April 1, 2009 and March 31, 2011. These incentives are for the
purpose of encouraging oil and natural gas exploration or enhanced recovery
projects. These incentives generally increase cash flow. Penalties andinterest may be charged to
us if we fail to remit royalties on our production to the Crown as prescribed in
the regulation.





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, 2008 and 2007 we
reported net losses of $2,796,055 and $1,435,664 respectively. In addition, our
consolidated financial statements for the years ended September 30, 2006 and
2005 contained a “going concern” qualification and we cannot give any assurances
that we can achieve profits from any future operations.





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 spring-break up, heavy
rain, mud, rock slides and periods of high water, which can restrict access to
our well sites and potential 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.


12


We Rely On
Independent Experts And Technical Or Operational Service Providers Over Whom We
May Have Limited Control.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. Our limited control over
the activities and business practices of these third parties, any inability on
our part to maintain satisfactory commercial relationships with them or their
failure to provide quality services could materially and adversely affect our
business, results of operations and financial condition.





Our Interests Are
Held In The Form Of Leases That We May Be Unable To Retain.Our Swan Lake
property is held under leases and working interests in leases. These leases we
are a party to are for a fixed term of 15 years, but contain a provision that
allows us to extend the term of the lease so long as we meet the minimum level
of evaluation as set out by the Government of Alberta tenure guidelines. If we
or the holder of a lease fails to meet the specific requirements of the lease
regarding delay or non-payment of rental payments or we or the holder of the
lease fail to meet the minimum level of evaluation some or all of our leases may
terminate or expire. There can be no assurance that any of the obligations
required to maintain each lease will be met. The termination or expiration of
our leases or the working interests relating to leases may reduce our
opportunity to exploit a given prospect for oil production and thus have a
material adverse effect on our business, results of operation and financial
condition.





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.





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 currently operates 12 of our 68 oil
sections in which we have a working interest. Currently, our Company has a 100%
working interest in 15 sections of petroleum and natural gas licenses in the
Peace River area of Alberta, Canada, an 80% working interest in 56 contiguous
sections of oil sands development leases, and a 40% working interest in an
additional 12 contiguous sections of oil sands development leases in the Peace
River oil sands area of Alberta, Canada. Our P&NG licenses and oil sands
development leases cover 52,505 gross acres (21,248 gross hectares). Our lack of
control of the 12 sections Andora currently operates could result in the
following:





·
            Andora
      might initiate exploration or development on a faster or slower pace than
      we prefer;





·
            Andora
      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;





·
            If
      Andora refuses to initiate a project on these 12 sections, we might be
      unable to pursue the project.





Any of
these events could materially reduce the value of those properties
affected.


13





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-K 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. Since aboriginal peoples have filed a
claim claiming aboriginal title or rights to the lands on which some of our
properties are located, and if such a claim is successful, it could have a
material adverse effect on our operations.





The ERCB
governs our operations in Alberta, Canada and they 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.





Our Operations
Are Subject To A Wide Range of Environmental Legislation and Regulation From All
Levels Of Government Of Which We Have No Control.Environmental
legislation imposes, among other things, restrictions, liabilities and
obligations in connection with the generation, handling, storage,
transportation, treatment and disposal of hazardous substances and waste and in
connection with spills, releases and emissions of various substances to the
environment. As well, environmental regulations are imposed on the qualities and
compositions of the products sold and imported. Environmental legislation also
requires that wells, facility sites and other properties associated with our
operations be operated, maintained, abandoned and reclaimed to the satisfaction
of applicable regulatory authorities. In addition, certain types of operations,
including exploration and development projects and significant changes to
certain existing projects, may require the submission and approval of
environmental impact assessments. Compliance with environmental legislation can
require significant expenditures and failure to comply with environmental
legislation may result in the imposition of fines and penalties and liability
for clean up costs and damages. We cannot assure that the costs of complying
with environmental legislation in the future will not have a material adverse
effect on our financial condition or results of operations. We anticipate that
changes in environmental legislation may require, among other things, reductions
in emissions to the air from its operations and result in increased capital
expenditures. Future changes in environmental legislation could occur and result
in stricter standards and enforcement, larger fines and liability, and increased
capital expenditures and operating costs, which could have a material adverse
effect on our financial condition or results of operations.





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.


14





Since we
have not filed all reports required to be filed by us with the SEC, none of our
restricted shares of common stock are currently eligible to be resold pursuant
to Rule 144. 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.





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.





ITEM
2.              PROPERTIES





Office
Leases





We lease
and maintain office space in Edmonton, Alberta for corporate and administrative
operations, the lease expires on December 31, 2014. We also lease and maintain
office space in Calgary, Alberta for exploration operations, the lease expires
on November 30, 2012.





Oil and Gas
Properties





Acreage





Currently
we own an 80% working interest in 56 contiguous sections of oil sands
development leases, a 40% working interest in 12 sections of oil sands
development leases and a 100% working interest in 15 sections of petroleum and
natural gas licenses in the Peace River oil sands area in North Central Alberta.
The oil sands leases and petroleum and natural gas licenses cover 52,505 gross
acres (21,248 gross hectares). Of the 68 contiguous sections of oil sands
development leases, Andora is the operator of 12 sections where we have a 40%
working interest in and we are the operator on 56 sections where we have an 80%
working interest.





On April
2, 2008, we participated in a public offering of Crown Petroleum and Natural Gas
Rights held by the Alberta Department of Energy, in which we successfully bid on
1 petroleum and natural gas license covering 3,796 gross acres (1,536 gross
hectares) for a total of 6 sections in the Ochre area. We 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.


15





In
conjunction with our 2008/2009 winter drilling program, and effective December
1, 2008, we acquired existing road infrastructure from Paramount Resources Ltd.
(“Paramount”) through a transfer of title of 6 Paramount P&NG properties to
us.  These 6 P&NG properties, of which 2 were expected to
immediately expire and 4 are expected to expire within 7 months, cover 11,387
gross acres (4,608 gross hectares) of which 3,796 gross acres (1,536 gross
hectares) overlay our Sawn Lake oil sands leases. These properties included the
transfer of 7 mineral surface leases (proposed well sites or “MSLs”) and 4
licenses of occupation (access roads or “LOCs”) totalling 12 km of roads that
were transferred to us, along with 2 vertical wells 1 of which is located on our
Sawn Lake oil sands lease and the other located approximately 2.5 miles north of
our Sawn Lake oil sands lease.





Effective
February 1, 2009, we also acquired from Penn West Petroleum Ltd. an LOC that
totalled 8.7 km of an existing road on our Sawn Lake property.





On April
30, 2009, the Alberta Department of Energy approved our application to convert 5
sections of our oil sands permit to a 15-year primary lease. By drilling on
these lands, where the permits were set to expire, we have preserved title to 5
sections and now have a primary lease, which is valid for an additional 15
years.





The
following table summarizes our gross and net developed and undeveloped oil and
natural gas rights under lease as of September 30, 2009.




OIL AND NATURAL GAS RIGHTSas of September 30, 2009


Gross
                      Hectares
                    
                    
                    Net
                      Hectares
                    
                    
                    Gross
                      Acres
                    
                    
                    Net
                      AcresOil
      Sands Developed AcreageSawn
      Lake – Peace River oil sands area, Alberta, Canada
                    
                    None
                    
                    
                    None
                    
                    
                    None
                    
                    
                    NoneTotal
                    
                    None
                    
                    
                    None
                    
                    
                    None
                    
                    
                    NoneOil
      Sands Undeveloped AcreageSawn
      Lake – Peace River oil sands area, Alberta, Canada56
      sections (1)
                    
                    
                    14,336
                    
                    
                    
                    11,469
                    
                    
                    
                    35,425
                    
                    
                    
                    28,34012
      sections (2)
                    
                    
                    3,072
                    
                    
                    
                    1,229
                    
                    
                    
                    7,591
                    
                    
                    
                    3,036Total
                    
                    
                    17,408
                    
                    
                    
                    12,698
                    
                    
                    
                    43,016
                    
                    
                    
                    31,376Petroleum
      and Natural Gas License Developed AcreageAlberta,
      Canada
                    
                    None
                    
                    
                    None
                    
                    
                    None
                    
                    
                    NoneTotal
                    
                    None
                    
                    
                    None
                    
                    
                    None
                    
                    
                    NonePetroleum
      and Natural Gas License Undeveloped AcreageSawn
      Lake – within the Peace River oil sands, Alberta, Canada9
      sections (3)
                    
                    
                    2,304
                    
                    
                    
                    2,304
                    
                    
                    
                    5,693
                    
                    
                    
                    5,693Ochre
      – within the Peace River oil sands Area, Alberta, Canada6
      sections (3)
                    
                    
                    1,536
                    
                    
                    
                    1,536
                    
                    
                    
                    3,796
                    
                    
                    
                    3,796Total
                    
                    
                    3,840
                    
                    
                    
                    3,840
                    
                    
                    
                    9,489
                    
                    
                    
                    9,489TOTAL
      ACREAGE
                    
                    
                    21,248
                    
                    
                    
                    16,538
                    
                    
                    
                    52,505
                    
                    
                    
                    40,865




(1) 80%
working interest.
 (2) 40%
working interest.
 (3) 100%
working interest.





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 proven reserves, 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.


16





Reserves,
Production and Delivery Commitments





In August
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
sustained production activities during the years ending September 30, 2009,
2008, 2007, 2006 and 2005, 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, 2009, 2008, 2007, 2006 and 2005.





Exploratory
      Wells
                      
                      2009
                      
                      
                      2008
                      
                      
                      2007
                      
                      
                      2006
                      
                      
                      2005year ended September 30
                      
                      Gross
                      
                      
                      Net
                      
                      
                      Gross
                      
                      
                      Net
                      
                      
                      Gross
                      
                      
                      Net
                      
                      
                      Gross
                      
                      
                      Net
                      
                      
                      Gross
                      
                      
                      NetGas
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –Oil
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –Oil/Gas
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –Evaluating
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –Drilling at end of
      year
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –Suspended
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –Abandoned
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –Total
      Exploratory Wells
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –




Development
      Wells
                                                                    
                                                                    2009
                                                                    
                                                                    
                                                                    2008
                                                                    
                                                                    
                                                                    2007
                                                                    
                                                                    
                                                                    2006
                                                                    
                                                                    
                                                                    2005year ended September 30
                                                                    
                                                                    Gross
                                                                    
                                                                    
                                                                    Net
                                                                    
                                                                    
                                                                    Gross
                                                                    
                                                                    
                                                                    Net
                                                                    
                                                                    
                                                                    Gross
                                                                    
                                                                    
                                                                    Net
                                                                    
                                                                    
                                                                    Gross
                                                                    
                                                                    
                                                                    Net
                                                                    
                                                                    
                                                                    Gross
                                                                    
                                                                    
                                                                    NetGas
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –Oil
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –Oil/Gas
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –Evaluating
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –Drilling at end of
      year
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –Suspended
                                                                    
                                                                    
                                                                    7
                                                                    
                                                                    
                                                                    
                                                                    4.8
                                                                    **
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    2
                                                                    
                                                                    
                                                                    
                                                                    0.8
                                                                    *
                                                                    
                                                                    
                                                                    1
                                                                    
                                                                    
                                                                    
                                                                    0.4
                                                                    *Abandoned
                                                                    
                                                                    
                                                                    1
                                                                    
                                                                    
                                                                    
                                                                    0.8
                                                                    **
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –Total
      Development Wells
                                                                    
                                                                    
                                                                    8
                                                                    
                                                                    
                                                                    
                                                                    5.6
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    2
                                                                    
                                                                    
                                                                    
                                                                    0.8
                                                                    
                                                                    
                                                                    
                                                                    1
                                                                    
                                                                    
                                                                    
                                                                    0.4*40% working
      interest**80% working
      interest





Present
Activities





We
successfully completed our winter drilling program and met our objectives by
drilling 6 wells, 3 of which were drilled on our oil sands permit in order to
provide technical data to support the required Department of Energy regulation
to convert our 5-year oil sands permit into a 15-year primary lease. In
addition, three wells were drilled further to the North of the above-mentioned 3
wells and the 3 horizontal wells previously drilled by our former Farmout
partner, Signet. Signet subsequently merged with 1350826 Alberta Ltd. a wholly
owned subsidiary of Andora Energy Corporation (hereinafter referred to as
“Andora”). Andora is a private company approximately 53% owned by Pan Orient
Energy Corp. We own approximately 4% of Andora’s issued and outstanding shares.
These three northern wells, drilled by us, continued the delineation of the main
reservoir trend and confirmed that the main reservoir continues north. We are
evaluating the many options for production now available to us to decide the
best course of action. Drilling on these 80% owned lands has opened new avenues
for testing and further development of the Sawn Lake project. On the 12 sections
of the jointly held lands, in which we have a 40% working interest, our Company
is exploring different plans of action with Andora, the operator of these 12
sections. The focus of our Company’s drilling program is to 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
and generate a cash flow.


17





We are
currently in the process of evaluating various enhanced recovery technologies
for a test well project located on our Sawn Lake oil sands property, which is
subject to regulatory approval, Board of Directors approval, financing,
successful reservoir evaluation and modeling, and other risks associated with
the oil sands industry.





On
December 1, 2008, we acquired from Paramount 2 wells they previously drilled. Of
the 2 wells, one was drilled to a vertical depth of 737 meters on our existing
oil sands lease and was cased for bluesky heavy oil production. The casing of
this well was perforated at intervals from 681.5m to 684.5m and 684.5m to
685.0m. This well’s status is drilled and cased for future bitumen
production.





On
December 4, 2008, as operator, we successfully spudded the first well of six
wells to be drilled in our 2008/2009 winter drilling program. This well is
located at 12-14-092-13W5 in North Central Alberta and was drilled to a vertical
depth of 680 meters. The well was logged, cased, and completed for bluesky heavy
oil production, with perforated intervals from 644.5m to 649.5m. We have
recently submitted an application with the Energy Resources Conservation Board
for a commercial bitumen recovery scheme to evaluate the 12-14-092-13W5 well for
potential development using Cyclic Steam Stimulation. Currently this application
is pending.





On
December 15, 2008, as operator, we successfully spudded the second well of our
six well 2008/2009 winter drilling program. This well is located at
9-16-092-13W5 in North Central Alberta and was drilled to a vertical depth of
680 meters. The well was logged, cased, and completed for bluesky heavy oil
production, with perforated intervals from 638.5m to 643.5m. This well is
currently being tested.





On
January 8, 2009, as operator, we successfully spudded the third well of our six
well 2008/2009 winter drilling program. This well is located at 10-33-091-13W5
in North Central Alberta and was drilled to a vertical depth of 708 meters. This
well determined the south-western edge of the Bluesky reservoir of our Sawn Lake
Project. As a consequence, we have let 1.5 sections of our lands revert back to
the Alberta Government.





On
January 16, 2009, as operator, we successfully spudded the fourth well of our
six well 2008/2009 winter drilling program. This well is located at 7-5-092-13W5
in North Central Alberta and was drilled to a vertical depth of 718 meters. The
well was logged and cased for bluesky heavy oil production, and is pending
further evaluation and the development of an exploitation plan with our joint
interest partners.





On
January 25, 2009, as operator, we successfully spudded the fifth well of our six
well 2008/2009 winter drilling program. This well is located at 8-4-092-13W5 in
North Central Alberta and was drilled to a vertical depth of 725 meters. The
well was logged and cased for bluesky heavy oil production, and is pending
further evaluation and the development of an exploitation plan with our joint
interest partners.





On
February 2, 2009, as operator, we successfully spudded the sixth well of our six
well 2008/2009 winter drilling program. This well is located at 6-22-092-13W5 in
North Central Alberta and was drilled to a vertical depth of 660 meters. The
well was logged and cased for bluesky heavy oil production, and is pending
further evaluation and the development of an exploitation plan with our joint
interest partners.





Past
Activities





A total
of three horizontal wells were drilled by Signet, our former farmout partner, 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. Currently this well is
pending further evaluation and the development of an exploitation plan with our
joint interest partners.





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. Currently this well is pending further evaluation and the
development of an exploitation plan with our joint interest
partners.





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. Currently this well is
pending further evaluation and the development of an exploitation plan with our
joint interest partners.


18


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, our former farmout partner, 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.





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 Andora Energy Corporation and resolved our differences
on this and certain collateral matters. The settlement included, but was 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.





ITEM
3.               LEGAL
PROCEEDINGS





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 “IGM”) filed
against Classic Energy Inc., 979708 Alberta Ltd. (hereinafter referred to as
“979708”), Deep Well Oil & Gas, Inc., Nearshore Petroleum Corporation,
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 IGM against some of the other above-named
Defendants.





IGM 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 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 purchased some of 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 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, 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 IGM.





This
lawsuit has been stayed pending the outcome of the other litigation by IGM
against some of the above defendants other than Deep Well and Northern. The
Company believes the claims 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.





19




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
DISMISSED





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 alleged a breach of contract in which the Plaintiffs were 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 claimed he was the Chief Operating Officer until October
2005.





On
October 21, 2008, the District Court of Clark County, Nevada, filed an Order of
Dismissal without Prejudice, upon its own motion dismissing the
complaint.





Deep Well Oil & Gas,
Inc. vs. Tamm Oil and Gas Corp. et. al. - SETTLED





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, made public statements about our Company and
activities related to our Company and our operations that are false and
misleading, and made statements of purported ownership of our shares of common
stock that are false and misleading. On August 22, 2008, our Company filed a
First Amended Complaint in the lawsuit adding the following additional parties
as defendants: Garry Tighe, William Tighe, Craig Auringer, Sean Dickenson, John
Muzzin, Guido Hilekes, Peter Schriber, Olaf Herr, Arthur Sulzer, LB (Swiss)
Private Bank Ltd., and Rahn & Bodmer Banquiers. The First Amended Complaint
also added a civil conspiracy claim. The First Amended Complaint
seeks:





1.)
              injunctive
      relief to include and not be limited to a permanent
      injunction:





a.)
            that
      requires 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.)
            that
      prohibits 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.)
            that
      prohibits 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.)
            that
      prohibits 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.)
            that
      prohibits defendants from further conducting the tender offer alleged in
      the First Amended Complaint;


f.)
            that
      prohibits defendants from issuing any false, misleading or derogatory
      statements about Deep Well, relating to their investments in Deep Well,
      relating to their acquisition of Deep Well shares or relating to their
      control of any Deep Well assets;


g.)
            that
      requires 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.)
            that
      requires defendants to comply with legal requirements in the making of any
      future tender offer or otherwise acquiring Deep Well
    shares;





2.)
            damages
      and/or treble damages in an amount to be established at
    trial;





3.)
            attorneys’
      fees and costs; and





4.)
            all
      such other further relief as the Court deems just and
      equitable.





20




Effective
September 1, 2009, the parties entered into a settlement agreement that fully
and finally resolved their dispute and the lawsuit. On September 14, 2009 and
effective September 1, 2009, Deep Well and Tamm, Garry Tighe, William Tighe,
Sean Dickenson, John Muzzin, Guido Hilekes, Peter Schriber, Olaf Herr, Arthur
Sulzer, LB (Swiss) Private Bank, Ltd. and Rahn & Bodmer Co. (collectively,
the “TAMM Parties”) entered into a full settlement and release with all of the
defendants in Deep Well Oil
& Gas, Inc. v. Tamm Oil & Gas Corp., et. al.(D. Nev., Case No.
3:08-cv-00173-ECR-RAM) in the United States District Court, District of Nevada.
The settlement provides that we be granted an option (the “Option”) to purchase
Tamm’s interest in the Royalty Agreement between Mikwec Energy Canada, Ltd. and
Nearshore Petroleum Corporation. The Option price shall be determined by an
independent appraisal of the fair market value of Tamm’s interest in the Royalty
Agreement, and shall reflect a $400,000 reduction from the determined fair
market value. Further, if we decide to exercise this Option we can pay for part
of the Option by way of a promissory note, the terms of which will be
determined. The settlement also provides that for the term of the promissory
note Tamm may designate a director to our Company’s board of directors, and that
Tamm’s designee shall thereafter be included in our Company’s slate of director
nominees for any stockholder election of directors, until such time as our
Company repays the debt it owes on the promissory note related to the Option. A
Stipulated Judgment of Dismissal of the case was filed on September 15, 2009 and
entered by the court on the same day. We have subsequently added Mr. Donald
Hryhor to our Board of Directors.





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”). 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 2008 covered by this report to a vote
of security holders, through the solicitation of proxies or
otherwise.


21


PART
II





ITEM
      5.
            MARKET
      FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES





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.





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.
These quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual
transactions:





High
                    
                    
                    LowFiscal
      2006First
      Quarter
                    
                    $
                    1.31
                    
                    
                    $
                    0.37Second
      Quarter
                    
                    $
                    2.98
                    
                    
                    $
                    1.15Third
      Quarter
                    
                    $
                    2.85
                    
                    
                    $
                    1.45Fourth
      Quarter
                    
                    $
                    1.76
                    
                    
                    $
                    0.57Fiscal
      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
                    
                    $
                    0.58
                    
                    
                    $
                    0.20Fiscal
      2009First
      Quarter
                    
                    $
                    0.39
                    
                    
                    $
                    0.13Second
      Quarter
                    
                    $
                    0.29
                    
                    
                    $
                    0.14Third
      Quarter
                    
                    $
                    0.19
                    
                    
                    $
                    0.14Fourth
      Quarter
                    
                    $
                    0.20
                    
                    
                    $
                    0.13





Holders of
Record





As of
August 10, 2009, we had approximately 171 holders of record of our shares of
common stock. Our Company estimates that investment dealers and other nominees
are the record holders for approximately 2,815 beneficial holders.





Dividends





We have
not paid cash dividends since inception. We intend to retain all of our
earnings, if any, for use in our business and do 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 business activities,
capital requirements, the general financial condition and our future prospects,
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, 2008 with respect to
shares of Deep Well’s common stock that may be issued under our existing equity
compensation plans.




22




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
                      
                      
                      3,378,500
                      
                      
                      $
                      0.69
                      
                      
                      
                      6,048,926
                      *Total
                      
                      
                      3,378,500
                      
                      
                      $
                      0.69
                      
                      
                      
                      4,985,096
                      *





*
      Based on 94,274,258issued and outstanding shares as at September 30, 2008. 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.





Stock
Option Plan





On
November 28, 2005, our Board of Directors adopted the Deep Well Oil & Gas,
Inc. Stock Option Plan. The Stock Option Plan, which is administered by the
Board, permits options to acquire shares of Deep Well’s common stock to be
granted to our directors, senior officers and employees, 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 our
directors, officers and employees as well as consultants that we 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 issued and
outstanding common shares, subject to adjustment as contemplated by the Stock
Option Plan. On November 28, 2005, the Board granted 375,000 options to acquire
common shares vested over three years 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 vested over three years 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 a properly executed consent resolution of said
majority shareholders.





On
September 28, 2007, our Board of Directors 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, our Board of
Directors 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.




Performance
Graph





We are a
smaller reporting company as defined by Rule 12b-2 of the Exchange Act and
therefore are not required to provide the information required under this
item.





Sales of Unregistered
Securities





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 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.





23




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 warrants expired on January 13, 2009. The
units were issued pursuant to Regulation S under the 1933 Act. 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
warrants expired 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 Securities Act of 1933, as
amended.





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 Securities Act of 1933, as
amended.





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 Securities Act of 1933, as amended.





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) of the Securities Act of 1933, as
amended.





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 Securities Act of 1933, as amended.
As a result of this and other exercised option agreements, 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 Securities Act of 1933, as amended.





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,
resulting in total net proceeds to our Company from the private placement of
$1,850,000. 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, resulting in total net proceeds
to our Company from the private placement of $4,700,000. 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, resulting in total net proceeds to our Company from the private
placement of $184,300. The units were issued pursuant to Regulation S under the
1933 Act.





24




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 warrants. 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 to one investor, the first tranche being 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.





On
October 31, 2008, we completed the second tranche of the private placement
partially completed on August 14, 2008. In connection the second trance, we sold
to one subscriber 12,500,000 units at a price of $0.40 per unit, for total gross
proceeds of $5,000,000. Each unit is comprised of one (1) common share, one (1)
common share purchase warrant and 0.16 of one common share purchase warrant
(“Additional Fractional Warrant”). Each warrant entitles the holder to purchase
one (1) common share at a price of $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 $0.80 for a period of
three years from the date of closing. The 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.





ITEM
6. SELECTED
FINANCIAL DATA





We are a
smaller reporting company as defined by Rule 12b-2 of the Exchange Act and
therefore are not required to provide the information required under this
item.





25


ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





You
should read the following discussion and analysis in conjunction with our
Company’s consolidated financial statements and related notes. For the purpose
of this discussion, unless the context indicates another meaning, the terms:
“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 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 of Financial Condition and Results of Operations –
“Forward-Looking Statements” below and elsewhere in this report, and under the
heading “Risk Factors” and “Environmental Laws and Regulations” disclosed in
this report on Form 10-K for the fiscal year ended September 30,
2008.





Our consolidated financial
statements and information are reported in U.S. dollars and are prepared based
upon United States generally accepted accounting
principles.





General
Overview





Deep Well
Oil and Gas, Inc. (“Deep Well”), along with its subsidiaries, is 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 Alberta, Canada. Our principal office is located at Suite 700,
10150 - 100 Street, Edmonton, Alberta, Canada 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 web site at www.deepwelloil.com.





Results of Operations for
the Year Ended September 30, 2008





Our
Company is an exploration stage company and as such does not have commercial
production at any of its properties and, accordingly, it currently does not
generate cash from operations. Since the inception of our current business plan,
our operations have consisted primarily of various exploration and start-up
activities relating to our properties, which included acquiring lease holdings
by acquisitions and public offerings, seeking institutional investors, locating
joint venture partners, acquiring and analyzing seismic data, engaging various
firms to comply with leasehold conditions and environmental regulations as well
as project management, and developing our long term business strategies. For
year ended September 30, 2008, and for the comparable period, we generated no
revenues from operations.





Year
                            
                            
                            Year
                            
                            
                            September 10,Ended
                            
                            
                            Ended
                            
                            
                            2003 toSeptember 30,2008
                            
                            
                            September 30, 2007
                            
                            
                            September 30, 2008Revenue
                            
                            $
                            –
                            
                            
                            $
                            –
                            
                            
                            $
                            –ExpensesAdministrative
                            
                            $
                            2,769,379
                            
                            
                            $
                            1,451,538
                            
                            
                            $
                            7,328,332Amortization
                            
                            
                            13,706
                            
                            
                            
                            1,420
                            
                            
                            
                            16,040Share
      Based Compensation
                            
                            
                            111,815
                            
                            
                            
                            246,643
                            
                            
                            
                            917,340Net
      Loss from Operations
                            
                            
                            (2,894,900
                            )
                            
                            
                            (1,699,601
                            )
                            
                            
                            (8,261,712
                            )Other
      Income and ExpensesForgiveness
      of Loan Payable
                            
                            
                            –
                            
                            
                            
                            287,406
                            
                            
                            
                            287,406Interest
      Income
                            
                            
                            100,070
                            
                            
                            
                            50,183
                            
                            
                            
                            166,223Interest
      Expense
                            
                            
                            (715
                            )
                            
                            
                            (73,652
                            )
                            
                            
                            (208,577
                            )Settlement
      of Debt
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            24,866Loss
      on disposal of asset
                            
                            
                            (510
                            )
                            
                            
                            –
                            
                            
                            
                            (510
                            )Net
      Loss and Comprehensive Loss
                            
                            $
                            (2,796,055
                            )
                            
                            $
                            (1,435,664
                            )
                            
                            $
                            (7,992,304
                            )





Our net
loss and comprehensive loss for the year ended September 30, 2008, was
$2,796,055 compared to a net loss and comprehensive loss of $1,435,664 for the
year ended September 30, 2007. This difference was due primarily to an increase
of $1,317,841 in general and administrative costs related to start up operation
expenses incurred to prepare our six well sites for the 2008/2009 winter
drilling program.





26




For the
year ended September 30, 2008, interest income increased by $49,887, compared to
the year ended September 30, 2007, due primarily to interest from term deposits.
For the year ended September 30, 2008, interest expense decreased by $72,937,
compared to the year ended September 30, 2007, due primarily to a decrease in
interest payable as financing charges.





Operations





Our
Company successfully completed its 2008/2009 winter drilling program and met its
objectives by drilling 6 wells, 3 of which were drilled on our oil sands permit
in order to provide technical data to support the required Department of Energy
regulation to convert our oil sands permit into a 15-year primary lease. In
addition, three wells were drilled further to the north of the above-mentioned 3
wells and the 3 horizontal wells previously drilled by our former farmout
partner. These three northern wells continued the delineation of the main
reservoir trend and we believe confirmed that the main reservoir continues
north. We are evaluating the options for production available to us to decide on
a course of action. Drilling on these 80% owned lands has opened new avenues for
testing and further development of the Sawn Lake project. On the 12 sections of
the jointly held lands, in which we have a 40% working interest, our Company is
exploring different plans of action with Andora Energy Corporation, the operator
of these 12 sections. The focus of our Company’s drilling program is to 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 and generate cash flow.





We are
currently in the process of evaluating various enhanced recovery technologies
for a test well project, which is subject to regulatory approval, Board of
Directors approval, financing, successful reservoir evaluation and modeling, and
other risks associated with the oil sands industry.





Deep
Well, through its subsidiaries Northern Alberta Oil Ltd. which we refer to as
“Northern”, and Deep Well Oil & Gas (Alberta) Ltd., currently have a 100%
working interest in 15 sections of petroleum and natural gas licenses
(“P&NG”) in the Peace River area of Alberta, Canada, an 80% working interest
in 56 contiguous sections of oil sands development leases, and a 40% working
interest in an additional 12 contiguous sections of oil sands development leases
in the Peace River oil sands area of Alberta, Canada. Our P&NG licenses and
oil sands development leases cover 52,505 gross acres (21,248 gross
hectares).





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 we
successfully bid on 1 P&NG license covering 3,796 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 fourteen miles west of our Sawn Lake
properties.





On
December 4, 2008, as operator, we successfully spudded the first well of six
wells to be drilled in our 2008/2009 winter drilling program. This well is
located at 12-14-092-13W5 in North Central Alberta and was drilled to a vertical
depth of 680 meters. The well was logged, cased, and completed for bluesky heavy
oil production, with perforated intervals from 644.5m to 649.5m. We have
recently submitted an application with the Energy Resources Conservation Board
for a commercial bitumen recovery scheme to evaluate the 12-14-092-13W5 well for
potential development using Cyclic Steam Stimulation. Currently this application
is pending.





On
December 15, 2008, as operator, we successfully spudded the second well of our
six well 2008/2009 winter drilling program. This well is located at
9-16-092-13W5 in North Central Alberta and was drilled to a vertical depth of
680 meters. The well was logged, cased, and completed for bluesky heavy oil
production, with perforated intervals from 638.5m to 643.5m. This well is
currently being tested.





On
January 8, 2009, as operator, we successfully spudded the third well of our six
well 2008/2009 winter drilling program. This well is located at 10-33-091-13W5
in North Central Alberta and was drilled to a vertical depth of 708 meters. This
well determined the southern edge of the Bluesky reservoir of our Sawn Lake
Project.





On
January 16, 2009, as operator, we successfully spudded the fourth well of our
six well 2008/2009 winter drilling program. This well is located at 7-5-092-13W5
in North Central Alberta and was drilled to a vertical depth of 718 meters. The
well was logged and cased for bluesky heavy oil production, and is pending
further evaluation and the development of an exploitation plan with our joint
interest partners.





On
January 25, 2009, as operator, we successfully spudded the fifth well of our six
well 2008/2009 winter drilling program. This well is located at 8-4-092-13W5 in
North Central Alberta and was drilled to a vertical depth of 725 meters. The
well was logged and cased for bluesky heavy oil production, and is pending
further evaluation and the development of an exploitation plan with our joint
interest partners.





On
February 2, 2009, as operator, we successfully spudded the sixth well of our six
well 2008/2009 winter drilling program. This well is located at 6-22-092-13W5 in
North Central Alberta and was drilled to a vertical depth of 660 meters. The
well was logged and cased for bluesky heavy oil production, and is pending
further evaluation and the development of an exploitation plan with our joint
interest partners.





27




On
December 1, 2008, in conjunction with our 2008/2009 winter drilling program, we
acquired existing road infrastructure from Paramount Resources Ltd.
(“Paramount”) through a transfer of title of 6 Paramount P&NG properties to
us.  These 6 P&NG properties, of which 2 were expected to
immediately expire and 4 are expected to expire within 7 months, cover 11,387
gross acres (4,608 gross hectares) of which 3,796 gross acres (1,536 gross
hectares) overlay our Sawn Lake oil sands leases. These properties included the
transfer of 7 mineral surface leases (proposed well sites or “MSLs”) and 4
licenses of occupation (access roads or “LOCs”) totalling 12 km of
roads  that were transferred to us, along with 2 vertical wells, 1 of
which is located on our Sawn Lake oil sands lease and the other located
approximately 2.5 miles north of our Sawn Lake oil sands lease.  The
well located on our Sawn Lake oil sands lease was drilled to a vertical depth of
737 meters and was cased for bluesky heavy oil production. Perforated intervals
were from 681.5m to 684.5m and 684.5m to 685.0m. This well’s status is drilled
and cased for future bitumen production.





Effective
February 1, 2009, we also acquired from Penn West Petroleum Ltd. an LOC that
totalled 8.7 km of an existing road.





On May 5,
2009, our Company was informed by the Alberta Department of Energy that it had
approved our application to convert 5 sections of our oil sands permit to a
15-year primary lease. By drilling on these lands, where the permits were set to
expire, we have preserved title to 5 sections and now have a primary lease,
which is valid for an additional 15 years. As a consequence, we have let 1.5
sections of our lands revert back to the Alberta Government.





Liquidity and Capital
Resources





As of
September 30, 2008, our Company’s total assets were $12,815,676, compared to
$9,855,076 as of September 30, 2007, and our total liabilities as of September
30, 2008, were $963,246 compared with $318,406 as of September 30, 2007. The
increase in our total assets was due primarily to cash received from the sale of
securities. The increase in our total liabilities was due to an increase in our
accounts payable primarily due to the increase in operating expenses such as the
preparation for the 2008/2009 drilling season.





Our
working capital (current liabilities subtracted from current assets) is as
follows.





As of
                      
                      
                      As ofSeptember 30, 2008
                      
                      
                      September 30, 2007Current
      Assets
                      
                      $
                      6,825,548
                      
                      
                      $
                      5,497,687Current
      Liabilities
                      
                      
                      963,246
                      
                      
                      
                      318,406Working
      Capital
                      
                      $
                      5,862,302
                      
                      
                      $
                      5,179,281





As of
September 30, 2008, our Company had working capital of $5,862,302 compared to
our working capital of $5,179,281 as of September 30, 2007. Our working capital
increase was due primarily to the increase in cash from the sale of securities.
Currently we have no long-term debt and our estimated working capital surplus,
as of July 31, 2009, is approximately $1.4 million.





Our cash
and cash equivalents for the year ending September 30, 2008, was $6,212,892,
compared to $5,244,162 for the comparable year ending September 30, 2007. Our
Company has raised sufficient funds to conduct our operations during the fiscal
years 2005, 2006, 2007, 2008 and 2009. From March 10, 2005 till now, we have
financed our business operations through a loan, fees derived from the farmout
of some of our lands, private offerings of our common stock, and the exercise of
certain warrants, realizing gross proceeds of approximately $19.6 million. In
these offerings, we sold units comprised of common stock and warrants to
purchase additional common stock, and as a result of these offerings, we
currently have an aggregate of 42,818,138 warrants outstanding with exercise
prices ranging from $0.40 to $1.20. If all of these warrants are exercised we
may realize aggregate proceeds of approximately $30.9 million. 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.





For our
long term operations we anticipate that, among other alternatives, we may raise
funds during the next twenty-four months through sales of our common stock. 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 our Company, as we are an exploration stage Company and
due to the risky nature of our business.





Off-Balance Sheet
Arrangements





We do not
have any off-balance sheet arrangements.





28




Forward-Looking
Statements





This
report on Form 10-K, including all referenced exhibits, contains
“forward-looking statements” within the meaning of the United States federal
securities laws. 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. The words "may", "believe",
"intend", "will", "anticipate", "expect", "estimate", "project", "future",
"plan", "strategy", or "continue", 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 report on Form 10-K include, among others, statements with respect
to:





·
            our
      current business strategy;


·
            our
      future financial position and projected
costs;


·
            our
      projected sources and uses of cash;


·
            our
      plan for future development and
operations;


·
            our
      drilling and testing plans;


·
            our
      proposed enhanced oil recovery test well
  project;


·
            the
      sufficiency of our working capital in order to execute our business
      plan;


·
            resource
      estimates;


·
            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;


·
            the
      costs of environmental reclamation of our
lands;


·
            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;


·
            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
      additional risks and uncertainties, many of which are beyond our control,
      referred to elsewhere in this Form 10-K and in our other SEC
      filings.





The
preceding bullets outline some of the risks and uncertainties that may affect
our forward-looking statements. For a full description of risks and
uncertainties, see the sections elsewhere in this Form 10-K entitled “Risk
Factors” and “Environmental Laws and Regulations”. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, believed,
estimated or expected. 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-K, 10-KSB, 10-Q, 10-QSB,
8-K and any other SEC filing should be consulted.


29





ITEM
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





We are a
smaller reporting company as defined by Rule 12b-2 under the Exchange Act and
therefore are not required to provide the information required under this
item.


30


ITEM
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA





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





Board of
Directors


Deep Well
Oil & Gas, Inc. and Subsidiaries





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





We have
audited the accompanying consolidated balance sheets of Deep Well Oil & Gas,
Inc. and Subsidiaries at September 30, 2008 and 2007 and the consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended September 30, 2008 and 2007. 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 over all
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Deep Well Oil & Gas,
Inc. and Subsidiaries at September 30, 2008 and 2007 and the statements of
operations, and cash flows for the years ended September 30, 2008 and 2007 in
conformity with accounting principles generally accepted in the United States of
America.





Salt
      Lake City, UtahAugust
      27, 2009
              /s/ Madsen & Associates, CPA’s
      Inc.


31





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


(Exploration
Stage Company)


Consolidated
Balance Sheets


September
30, 2008 and 2007





2008
                      
                      
                      
                      2007ASSETSCurrent
      AssetsCash
      and cash equivalents
                      
                      $
                      6,212,892
                      
                      
                      $
                      5,244,162Accounts
      receivable
                      
                      
                      405,826
                      
                      
                      
                      80,082Prepaid
      expenses
                      
                      
                      206,830
                      
                      
                      
                      173,443Total
      Current Assets
                      
                      
                      6,825,548
                      
                      
                      
                      5,497,687Oil and gas properties
      (Note 3)
                      
                      
                      5,947,544
                      
                      
                      
                      4,353,826Equipment net of depreciation(Note 4)
                      
                      
                      42,584
                      
                      
                      
                      3,563TOTAL
      ASSETS
                      
                      $
                      12,815,676
                      
                      
                      $
                      9,855,076LIABILITIESCurrent
      LiabilitiesAccounts
      payable
                      
                      $
                      937,967
                      
                      
                      $
                      44,065Accounts
      payable – related parties (Note 6)
                      
                      
                      25,279
                      
                      
                      
                      263,091Note
      payable (Note 5)
                      
                      
                      –
                      
                      
                      
                      11,250Total
      Current Liabilities
                      
                      
                      963,246
                      
                      
                      
                      318,406SHAREHOLDERS’
      EQUITYCommon stock:(Note
      7)Authorized:
      300,000,000 shares at $0.001 par valueIssued
      and outstanding: 94,274,258 shares(September 2007 – 83,635,961)(Note 7)
                      
                      
                      94,273
                      
                      
                      
                      83,635Additional
      paid in capital
                      
                      
                      19,750,461
                      
                      
                      
                      14,649,284Deficit
      (dated September 10, 2003)
                      
                      
                      (7,992,304
                      )
                      
                      
                      (5,196,249
                      )Total
      Shareholders’ Equity
                      
                      
                      11,852,430
                      
                      
                      
                      9,536,670TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
                      
                      $
                      12,815,676
                      
                      
                      $
                      9,855,076





See
accompanying notes to the consolidated financial statements


32


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


(Exploration
Stage Company)


CONSOLIDATED
STATEMENTS OF OPERATIONS


For
the Years Ended September 30, 2008, 2007 and 2006 and the Period September 10,
2003


(Inception
of Exploration Stage) to September 30, 2008





2008
                      
                      
                      2007
                      
                      
                      2006
                      
                      
                      September 10,
                        2003 to
                        September 30,
                        2008Revenue
                      
                      $
                      –
                      
                      
                      $
                      –
                      
                      
                      $
                      –
                      
                      
                      $
                      –ExpensesAdministrative
                      
                      
                      2,769,379
                      
                      
                      
                      1,451,538
                      
                      
                      
                      1,340,799
                      
                      
                      
                      7,328,332Amortization
                      
                      
                      13,706
                      
                      
                      
                      1,420
                      
                      
                      
                      914
                      
                      
                      
                      16,040Share
      based compensation
                      
                      
                      111,815
                      
                      
                      
                      246,643
                      
                      
                      
                      558,882
                      
                      
                      
                      917,340Net
      loss from operations
                      
                      
                      (2,894,900
                      )
                      
                      
                      (1,699,601
                      )
                      
                      
                      (1,900,595
                      )
                      
                      
                      (8,261,712
                      )Other
      income and expensesForgiveness
      of loan payable
                      
                      
                      –
                      
                      
                      
                      287,406
                      
                      
                      
                      –
                      
                      
                      
                      287,406Interest
      income
                      
                      
                      100,070
                      
                      
                      
                      50,183
                      
                      
                      
                      2,492
                      
                      
                      
                      166,223Interest
      expense
                      
                      
                      (715
                      )
                      
                      
                      (73,652
                      )
                      
                      
                      (24,179
                      )
                      
                      
                      (208,577
                      )Settlement
      of debt
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      24,866Loss
      on disposal of asset
                      
                      
                      (510
                      )
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      (510
                      )Net
      loss and comprehensive loss
                      
                      $
                      (2,796,055
                      )
                      
                      $
                      (1,435,664
                      )
                      
                      $
                      (1,922,282
                      )
                      
                      $
                      (7,992,304
                      )Net
      loss per common shareBasic
      and diluted
                      
                      $
                      (0.03
                      )
                      
                      $
                      (0.02
                      )
                      
                      $
                      (0.03
                      )Weighted
      average outstanding shares–
      stated in 1,000’sBasic
      and diluted
                      
                      
                      85,002
                      
                      
                      
                      70,836
                      
                      
                      
                      58,839





See
accompanying notes to the consolidated financial statements


33


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


(Exploration
Stage Company)


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY


For
the Period September 10, 2003 (Inception of Exploration Stage) to September 30,
2008





Common
      Shares
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      CapitalAdditional
                                                      
                                                      
                                                      StockPaid
      in
                                                      
                                                      
                                                      Subscriptions
                                                      
                                                      
                                                      AccumulatedShares
                                                      
                                                      
                                                      Amount
                                                      
                                                      
                                                      Capital
                                                      
                                                      
                                                      Received
                                                      
                                                      
                                                      Deficit
                                                      
                                                      
                                                      TotalBalance
      atSeptember
      10,
      2003
                                                      
                                                      
                                                      991,918
                                                      
                                                      
                                                      $
                                                      992
                                                      
                                                      
                                                      $
                                                      (992
                                                      )
                                                      
                                                      $
                                                      –
                                                      
                                                      
                                                      $
                                                      –
                                                      
                                                      
                                                      $
                                                      –Issuance
      of common stockpursuant
      to bankruptcyagreement
      September 10, 2003
                                                      
                                                      
                                                      36,019,556
                                                      
                                                      
                                                      
                                                      36,019
                                                      
                                                      
                                                      
                                                      13,981
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      50,000Net
      operating loss forthe
      period September 10to
      September 30, 2003
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      (50,000
                                                      )
                                                      
                                                      
                                                      (50,000
                                                      )Balance
      at September 30, 2003
                                                      
                                                      
                                                      37,011,474
                                                      
                                                      
                                                      
                                                      37,011
                                                      
                                                      
                                                      
                                                      12,989
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      (50,000
                                                      )
                                                      
                                                      
                                                      –Return
      and cancellationof
      common shares
                                                      
                                                      
                                                      (5,775,000
                                                      )
                                                      
                                                      
                                                      (5,775
                                                      )
                                                      
                                                      
                                                      5,775
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –Net
      operating loss for theyear
      ended September 30, 2004
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      (525,754
                                                      )
                                                      
                                                      
                                                      (525,754
                                                      )Balance
      atSeptember
      30, 2004
                                                      
                                                      
                                                      31,236,474
                                                      
                                                      
                                                      
                                                      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)
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      205,185
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      205,185Share
      exchange June 7, 2005-
      Shares
                                                      
                                                      
                                                      18,208,875
                                                      
                                                      
                                                      
                                                      18,209
                                                      
                                                      
                                                      
                                                      2,476,497
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      2,494,706-
      Conversion rights of preferredshares
      of subsidiary
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      1,777,639
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      1,777,639Private
      placement August 12, 2005-
      Shares
                                                      
                                                      
                                                      710,946
                                                      
                                                      
                                                      
                                                      711
                                                      
                                                      
                                                      
                                                      151,638
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      152,349-
      Warrants (710,946)
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      132,030
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      132,030Common
      stock subscription received
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      250,000
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      250,000Net
      operating loss for theyear
      ended September 30, 2005
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      (1,262,549
                                                      )
                                                      
                                                      
                                                      (1,262,549
                                                      )Balance
      at September 30, 2005
                                                      
                                                      
                                                      52,031,295
                                                      
                                                      
                                                      
                                                      52,031
                                                      
                                                      
                                                      
                                                      3,512,054
                                                      
                                                      
                                                      
                                                      2,027,639
                                                      
                                                      
                                                      
                                                      (1,838,303
                                                      )
                                                      
                                                      
                                                      3,753,421





See
accompanying notes to the consolidated financial statements


34


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


(Exploration
Stage Company)


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY (Continued)


For
the Period September 10, 2003 (Inception of Exploration Stage) to September 30,
2008





Common
      Shares
                          
                          
                          
                          
                          
                          CapitalAdditional
                          
                          
                          StockPaid
      in
                          
                          
                          Subscriptions
                          
                          
                          AccumulatedShares
                          
                          
                          Amount
                          
                          
                          Capital
                          
                          
                          Received
                          
                          
                          Deficit
                          
                          
                          TotalBalance
      carried forwardAt
      September 30,
      2005
                          
                          
                          52,031,295
                          
                          
                          
                          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
                          )
                          
                          
                          3,555,841Settlement
      Agreement January 22, 2007-
      Shares
                          
                          
                          1,600,000
                          
                          
                          
                          1,600
                          
                          
                          
                          433,950
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          435,550Exercise
      option agreement April 4, 2007-
      Shares
                          
                          
                          5,400,000
                          
                          
                          
                          5,400
                          
                          
                          
                          734,427
                          
                          
                          
                          (739,827
                          )
                          
                          
                          –
                          
                          
                          
                          –Private
      placement May 25, 2007-
      Shares
                          
                          
                          5,000,000
                          
                          
                          
                          5,000
                          
                          
                          
                          1,086,348
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          1,091,348-
      Warrants (5,000,000)(Note
      7)
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          758,652
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          758,652Private
      placement June 22, 2007-
      Shares
                          
                          
                          8,333,333
                          
                          
                          
                          8,333
                          
                          
                          
                          2,731,300
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          2,739,633-
      Warrants (8,333,333)(Note
      7)
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          1,676,492
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          1,676,492-
      Special warrants (1,000,000)(Note
      7)
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          283,875
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          283,875Private
      placement July 11, 2007-
      Shares
                          
                          
                          323,333
                          
                          
                          
                          323
                          
                          
                          
                          106,559
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          106,882-
      Warrants (323,333)(Note
      7)
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          66,397
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          66,397-
      Special warrants (38,800)(Note
      7)
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          11,021
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          11,021Subtotal
      carried forward
                          
                          
                          83,635,961
                          
                          
                          
                          83,635
                          
                          
                          
                          14,402,641
                          
                          
                          
                          –
                          
                          
                          
                          (3,760,585
                          )
                          
                          
                          10,725,691





See
accompanying notes to the consolidated financial statements


35


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


(Exploration
Stage Company)


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY (Continued)


For
the Period September 10, 2003 (Inception of Exploration Stage) to September 30,
2008





Common
      SharesCapitalAdditional
                      
                      
                      StockPaid
      in
                      
                      
                      Subscriptions
                      
                      
                      AccumulatedShares
                      
                      
                      Amount
                      
                      
                      Capital
                      
                      
                      Received
                      
                      
                      Deficit
                      
                      
                      TotalSubtotal
      carried forwardfrom
      previous page
                      
                      
                      83,635,961
                      
                      
                      
                      83,635
                      
                      
                      
                      14,402,641
                      
                      
                      
                      –
                      
                      
                      
                      (3,760,585
                      )
                      
                      
                      10,725,691Warrant
      exchange September 4, 2007-
      Share value transferredfrom
      warrants
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      11,467
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      11,467- Warrants
      cancelled (500,000) (Note 7)
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      (130,276
                      )
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      (130,276
                      )- Warrants
      issued (625,000)(Note 7)
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      118,809
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      118,809Warrant
      exchange September 10, 2007-
      Share value transferredfrom
      warrants
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      7,237
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      7,237- Warrants
      cancelled (287,500)(Note 7)
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      (74,909
                      )
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      (74,909
                      )- Warrants
      issued (359,375)(Note 7)
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      67,672
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      67,672Options
      granted for services
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      246,643
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      246,643Net
      operating loss for the
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –year
      ended September 30, 2007
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      (1,435,664
                      )
                      
                      
                      (1,435,664
                      )Balance
      at September 30, 2007
                      
                      
                      83,635,961
                      
                      
                      
                      83,635
                      
                      
                      
                      14,649,284
                      
                      
                      
                      –
                      
                      
                      
                      (5,196,249
                      )
                      
                      
                      9,536,670August
      12, 2008- warrants
      expired (560,946)(Note 7)
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –Private
      Placement August 14, 2008-
      Shares
                      
                      
                      10,638,297
                      
                      
                      
                      10,638
                      
                      
                      
                      3,099,429
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      3,110,067- Warrants
      (10,638,297)(Note 7)
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      1,619,827
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      1,619,827- Special
      warrants (2,000,000)(Note 7)
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      270,106
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      270,106Options
      granted for services
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      111,815
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      111,815Net
      operating loss for theyear
      ended September 30, 2008
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      (2,796,055
                      )
                      
                      
                      (2,796,055
                      )Balance
      at September 30, 2008
                      
                      
                      94,274,258
                      
                      
                      $
                      94,273
                      
                      
                      $
                      19,750,461
                      
                      
                      $
                      –
                      
                      
                      $
                      (7,992,304
                      )
                      
                      $
                      11,852,430





See
accompanying notes to the consolidated financial statements


36


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


(Exploration
Stage Company)


CONSOLIDATED
STATEMENTS OF CASH FLOWS


For
the Years Ended September 30, 2008, 2007 and 2006 and the Period September 10,
2003


(Inception
of Exploration Stage) to September 30, 2008





2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  September
                    10,
      2003 to
                    September
                    30,
      2008CASH
      PROVIDED BY (USED IN):Operating
      ActivitiesNet
      loss
                  
                  $
                  (2,796,055
                  )
                  
                  $
                  (1,435,664
                  )
                  
                  $
                  (1,922,282
                  )
                  
                  $
                  (7,992,304
                  )Items
      not affecting cash:Stock
      based compensation
                  
                  
                  111,815
                  
                  
                  
                  246,643
                  
                  
                  
                  558,882
                  
                  
                  
                  917,340Bad
      debts
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  170,084Amortization
                  
                  
                  13,706
                  
                  
                  
                  1,420
                  
                  
                  
                  914
                  
                  
                  
                  16,040Forgiveness
      of loan payable
                  
                  
                  –
                  
                  
                  
                  (287,406
                  )
                  
                  
                  –
                  
                  
                  
                  (287,406
                  )Settlement
      of lawsuit
                  
                  
                  –
                  
                  
                  
                  435,550
                  
                  
                  
                  –
                  
                  
                  
                  435,550Commissions
      withheld from loans proceeds
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  121,000Loss
      on disposal of asset
                  
                  
                  510
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  510Net
      changes in non-cash working capital (Note 9)
                  
                  
                  296,959
                  
                  
                  
                  (499,347
                  )
                  
                  
                  193,643
                  
                  
                  
                  177,077(2,373,065
                  )
                  
                  
                  (1,538,804
                  )
                  
                  
                  (1,168,843
                  )
                  
                  
                  (6,442,109
                  )Investing
      ActivitiesPurchase
      of property and equipment
                  
                  
                  (53,237
                  )
                  
                  
                  (1,658
                  )
                  
                  
                  (3,637
                  )
                  
                  
                  (58,865
                  )Purchase
      of oil and gas properties
                  
                  
                  (1,593,718
                  )
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  (1,705,110
                  )Cash
      from acquisition of subsidiary
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  11,141Return
      of costs from farmout agreement
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  961,426
                  
                  
                  
                  961,426(1,646,955
                  )
                  
                  
                  (1,658
                  )
                  
                  
                  957,789
                  
                  
                  
                  (791,408
                  )Financing
      ActivitiesLoan
      payable
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  1,448
                  
                  
                  
                  275,852Loan
      advance – related parties
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  11,604
                  
                  
                  
                  (811,746
                  )Note
      payable repayment
                  
                  
                  (11,250
                  )
                  
                  
                  –
                  
                  
                  
                  (31,910
                  )
                  
                  
                  (111,306
                  )Debenture
      advance (repayment)
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  (1,021,463
                  )
                  
                  
                  (1,004,890
                  )Proceeds
      from issuance from common stock
                  
                  
                  5,000,000
                  
                  
                  
                  6,734,300
                  
                  
                  
                  1,165,820
                  
                  
                  
                  14,219,499Proceeds
      from debenture net of commissions
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  879,0004,988,750
                  
                  
                  
                  6,734,300
                  
                  
                  
                  125,499
                  
                  
                  
                  13,446,409Increase
      (decrease) in cash and cash equivalents
                  
                  
                  968,730
                  
                  
                  
                  5,193,838
                  
                  
                  
                  (85,555
                  )
                  
                  
                  6,212,892Cash
      and cash equivalents, beginning of year
                  
                  
                  5,244,162
                  
                  
                  
                  50,324
                  
                  
                  
                  135,879
                  
                  
                  
                  –Cash
      and cash equivalents, end of year
                  
                  $
                  6,212,892
                  
                  
                  $
                  5,244,162
                  
                  
                  $
                  50,324
                  
                  
                  $
                  6,212,892Supplemental
      Cash Flow Information:Interest
      Expense
                  
                  $
                  715
                  
                  
                  $
                  73,652
                  
                  
                  $
                  24,179





See
accompanying notes to the consolidated financial statements


37


DEEP
WELL OIL & GAS, INC. (AND SUBSIDIARIES)
 (Exploration
Stage Company)
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2008 and 2007
 
 1.
                NATURE
      OF BUSINESS
 
 Allied
Devices Corporation (“Allied”) 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, Allied 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.” (“Deep Well”); 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, 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). In connection with the adoption of
fresh-start reporting, a new entity was deemed created for financial reporting
purposes. For financial reporting purposes, Deep Well adopted the provisions of
fresh-start reporting effective September 10, 2003. 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. Deep Well 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 Deep
Well’s current operations and the predecessor company.
 
 This
report has been prepared showing the name “Deep Well Oil & Gas, Inc. (and
Subsidiaries)” (“the Company”) 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.
 
 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”).
 
 2.
              SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of
Consolidation
 
 These
consolidated financial statements include the accounts of two wholly owned
subsidiaries: (1) Northern Alberta Oil Ltd. (“Northern”), from the date of
acquisition, being June 7, 2005, incorporated under the Business Corporations
Act (Alberta), Canada; and (2) Deep Well Oil & Gas (Alberta) Ltd.,
incorporated under the Business Corporations Act (Alberta), Canada on September
15, 2005. As of September 30, 2008, Deep Well owned 100% (2007 – 100%) of the
Northern common shares and owns 100% (2007 – 100%) of the Northern preferred
shares. All inter-company balances and transactions have been eliminated. The
Company has received “Capital stock subscriptions” valued at $1,777,639 relating
to the Northern preferred shares for which Deep Well has exclusive rights to
call in the future. As of April 4, 2007, all of these rights have been
called.
 
 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. Cash also consists of
cash held in trust.
  38
 
 Property and
Equipment
 
 Property
and equipment are stated at cost less accumulated amortization. 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 life used
in computing amortization expense:
 
 Software
                      
                      
                      -
                      
                      
                      
                      100
                      %Office
      furniture and equipment
                      
                      
                      -
                      
                      
                      
                      20
                      %Computer
      equipment
                      
                      
                      -
                      
                      
                      
                      55
                      %
 
 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.
Leasehold improvements are amortized over the greater of five years or the
remaining life of the lease agreement.
 
 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
undiscounted future cash flows expected to result from the use of the asset and
its eventual disposition is less than its carrying amount.
 
 Asset Retirement
Obligations
 
 The
Company accounts for asset retirement obligations by recording the estimated
future cost of the Company’s plugging and abandonment obligations. The asset
retirement obligation is recorded when there is a legal obligation associated
with the retirement of a tangible long-lived asset and the fair value of the
liability can reasonably be estimated. Upon initial recognition of an asset
retirement obligation, the Company increases the carrying amount of the
long-lived asset by the same amount as the liability. Over time, the liabilities
are accreted for the change in their present value through charges to oil and
gas production and well operations costs. The initial capitalized costs are
depleted over the useful lives of the related assets through charges to
depreciation, depletion, and amortization. If the fair value of the estimated
asset retirement obligation changes, an adjustment is recorded to both the asset
retirement obligation and the asset retirement cost. Revisions in estimated
liabilities can result from revisions of estimated inflation rates, escalating
retirement costs, and changes in the estimated timing of settling asset
retirement obligations. As at September 30, 2008, no asset retirement
obligations exist.
 
 Foreign Currency
Translation
 
 The
functional currency of the Canadian subsidiaries is the United States dollar;
however, the Canadian subsidiaries transact in Canadian dollars. Consequently,
monetary assets and liabilities are remeasured into United States dollars at the
exchange rate on the balance sheet date and non-monetary items are remeasured at
the rate of exchange in effect when the assets are acquired or obligations
incurred. Revenues and expenses are remeasured at the average exchange rate
prevailing during the period. Foreign currency transaction gains and losses are
included in results of operations.
 
 Accounting
Methods
 
 The
Company recognizes income and expenses based on the accrual method of
accounting.
 
 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 CDN,
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.
  39
 
 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 cash and cash equivalents, accounts receivable,
accounts payable, accounts payable – related parties, and note payable and loan
payable approximate their carrying values due to the short-term nature of these
financial instruments.
 
 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.
 
 Share-Based
Compensation
 
 The
Company accounts for stock options granted to directors, officers, employees and
non-employees using the fair value method of accounting. The fair value of stock
options for directors, officers and employees are calculated at the date of
grant and is expensed over the vesting period of the options on a straight-line
basis. For non-employees, the fair value of the options is measured on the
earlier of the date at which the counterparty performance is complete or the
date at which the performance commitment is reached. The Company uses the
Black-Scholes model to calculate the fair value of stock options issued, which
requires certain assumptions to be made at the time the options are awarded,
including the expected life of the option, the expected number of granted
options that will vest and the expected future volatility of the stock. The
Company has not incorporated an estimated forfeiture rate for stock options that
will not vest; rather the Company accounts for actually forfeitures as they
occur.
 
 Recently Adopted Accounting
Standards
 
 Effective
October 1, 2007, the Company adopted FASB issued FASB Interpretation (“FIN”) No.
48, Accounting for Uncertainty
in Income Taxes – an
interpretation of FASB Statement 109,which prescribes a comprehensive
model for accounting for uncertainty in tax positions. FIN No. 48 provides that
the tax effects from an uncertain tax position can be recognized in the
financial statements based on the technical merits of the position, only if the
position is more likely than not of being sustained on audit by the Internal
Revenue Service (“IRS”). The adoption of FIN No. 48 did not have an effect on
the consolidated financial statements.
 
 Effective
October 1, 2007, the Company adopted FASB issued FASB Staff Position FIN No.
48-1, Definition of Settlement
in FASB Interpretation No. 48(“FIN No. 48-1”). FIN No. 48-1 amends FIN
No. 48 to provide guidance on how an entity should determine whether a tax
position is effectively settled for the purpose of recognizing previously
unrecognized tax benefits. The term “effectively settled” replaces the term
“ultimately settled” when used to describe recognition, and the terms
“settlement” or “Settled” replace the terms “ultimate settlement” or “ultimately
settled” when used to describe measurement of a tax position under FIN No.48-1
clarifies that a tax position can be effectively settled upon the completion of
an examination by a taxing authority without being legally extinguished. For tax
positions considered effectively settled, an entity would recognize the full
amount of tax benefit even if the tax position is not considered more likely
than not to be sustained based solely on the basis of its technical merits, and
the statute of limitations remains open. The adoption of FIN No.48-1 did not
have an effect on the consolidated financial statements.
  40
 
 Recently Issued Accounting
Standards
 
 In
September 2006, the FASB issued SFAS No. 157, Accounting for Fair Value
Measurements.SFAS No. 157 defines fair value, establishes a framework
for measuring fair value within generally accepted accounting principles, and
expands required disclosure about fair value measurements. SFAS No. 157 does not
expand the use of fair value in any new circumstances. SFAS No. 157 is effective
for financial statements issued for fiscal years beginning after November 15,
2007. However, on February 12, 2008, the FASB issued FASB Staff Position (“FSP”)
SFAS No 157-2, Effective Date
of FASB Statement No. 157,which delayed the effective date of SFAS No.
157 for all non-financial assets and non-financial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). This FSP partially defers the effective
date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and
interim periods within those fiscal years for items within the scope of the FSP.
Effective October 1, 2009, the Company will adopt SFAS No. 157 except as it
applies to those non-financial assets and non-financial liabilities as noted in
FSP FAS No. 157-b. The Company is evaluating the effect that these new standards
will have, if any, in the consolidated financial statements when
adopted.
 
 In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities.SFAS No. 159 permits entities to choose
to measure, at fair value, many financial instruments and certain other items
that are not currently required to be measured at fair value. The objective is
to improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS No. 159 establishes presentation and disclosure requirements
designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. The
statement will be effective as of the beginning of the entity’s first fiscal
year beginning after November 15, 2007. The Company is evaluating the effect
that SFAS No. 159 will have, if any, in the consolidated financial statements
when it is adopted in 2008.
 
 In May
2008, the FASB issued SFAS No.162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). SFAS 162 is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with GAAP for nongovernmental entities. The FASB
believes that the GAAP hierarchy should be directed to entities because it is
the entity (not its auditor) that is responsible for selecting accounting
principles for financial statements that are presented in conformity with GAAP.
This statement became effective on November 15, 2008 following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles.” The adoption of SFAS 162 is not expected to
have a material effect on our results of operations, financial position or cash
flows.
 
 FSP EITF
03-6-1, Determining Whether
Instruments Granted in Share-Based Payments Transactions Are Participating
Securities” (“FSP EITF 03-6-1”). In June 2008, the FASB issued FSP EITF
03-6-1. Under this FSP, unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividends equivalents, whether they are
paid or unpaid, are considered participating securities and should be included
in the computation of earnings per share pursuant to the two-class method. FSP
EITF 03-6-1 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those years. In
addition, all prior period earnings per share data presented should be adjusted
retrospectively and early application is not permitted. The adoption of FSP EITF
03-6-1 is not expected to have a material effect on the earnings per share
disclosures.
 
 On
December 31, 2008, the SEC issued the final rule, “Modernization of Oil and Gas
Reporting”(“Final Rule”). The Final Rule adopts revisions to the SEC’s
oil and gas reporting disclosure requirements and is effective for annual
reports on Forms 10-K for years ending on or after December 31, 2009. Early
adoption of the Final Rule is prohibited. The revisions are intended to provide
investors with a more meaningful and comprehensive understanding of oil and gas
reserves to help investors evaluate their investments in oil and gas companies.
The amendments are also designed to modernize the oil and gas disclosure
requirements to align them with current practices and changes in technology.
Revised requirements in the SEC’s Final Rule include, but are not limited
to:
 
 ·
              Oil
      and gas reserves must be reported using the average price over the prior
      12 month period, rather than year-end
prices;
  41
 
 ·
              Companies
      will be allowed to report, on an optional basis, probable and possible
      reserves;
 
 ·
              Non-traditional
      reserves, such as oil and gas extracted from coal and shales, will be
      included in the definition of “oil and gas producing
      activities”;
 
 ·
              Companies
      will be permitted to use new technologies to determine proved reserves, as
      long as those technologies have been demonstrated empirically to lead to
      reliable conclusions with respect to reserve
  volumes;
 
 ·
              Companies
      will be required to disclose, in narrative form, additional details on
      their proved undeveloped reserves (PUDs), including the total quantity of
      PUDs at year end, any material changes to PUDs that occurred during the
      year, investments and progress made to convert PUDs to developed oil and
      gas reserves and an explanation of the reasons why material concentrations
      of PUDs in individuals fields or countries have remained undeveloped for
      five years or more after disclosure as
PUDs;
 
 ·
              Companies
      will be required to report the qualifications and measures taken to assure
      the independence and objectivity of any business entity or employee
      primarily responsible for preparing or auditing the reserves
      estimates.
 
 The
company is currently evaluating the potential impact of the Final Rule. The SEC
is discussing the Final Rule with the FASB staff to align FASB accounting
standards with the new SEC rules. These discussions may delay the required
compliance date.
 
 In
October 2008, the FASB issued Staff Position (“FSP”) No157-3, “Determining the
Fair Value of a Financial Asset When the Market for That Asset is Not Active”
(“FSP 157-3”). FSP 157-3 applies to financial assets within the scope of
accounting pronouncements that require or permit fair value measurements in
accordance with SFAS No.157, “Fair Value Measurements” (“SFAS 157”) and
clarifies the application of SFAS 157 in a market that is not active. This FSP
also provides an example to illustrate key considerations in determining the
fair value of a financial asset when the market for that financial asset is not
active. This FSP was effective upon issuance, including prior periods for which
financial statements have not been issued. Revisions resulting from a change in
the valuation technique or its application are accounted for as a change in
accounting estimate according to SFAS No.154 “Accounting Changes and Error
Corrections”. The adoption of FSP 157-3 did not have a material effect on the
Company’s results of operations, financial position or cash flows.
 
 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.
 
 Significant
estimates by management include valuations of oil and gas properties including
future abandonment costs, valuation of accounts receivable, useful lives of
long-lived assets, asset retirement obligations, valuations of share-based
compensation, and the realizability of future income taxes.
 
 3.
              OIL
      AND GAS PROPERTIES
 
 The
Company has acquired interests in certain oil and gas properties, most of which
were subject to a farmout agreement entered into on February 25, 2005, (“Farmout
Agreement”). These properties are located in North Central Alberta, Canada. The
terms include certain commitments related to oil and gas leases that require the
payments of rents as long as the leases are non-producing. As of September 30,
2008, Northern’s net payments due in Canadian dollars under this commitment are
as follows:
 
 2009
                    
                    $
                    46,2332010
                    
                    $
                    41,5742011
                    
                    $
                    41,5742012
                    
                    $
                    41,5742013
                    
                    $
                    41,574Subsequent
                    
                    $
                    230,093
 
 The
Government of Alberta owns this land and the Company has acquired the rights to
perform oil and gas activities on these lands. If the Company meets the
conditions of the 15-year leases the Company 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 on its
primary oil sands leases:
  42
 
 a)
              drill
      68 wells throughout the 68 sections;
or
 
 b)
              drill
      41 wells within the 68 sections and  having acquired and
      processed 2 miles of seismic on each other undrilled
    section.
 
 The
Company plans to meet the second of these conditions. As at September 30, 2008,
three of these wells have been drilled.
 
 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,
non-producing and unproven properties are assessed annually, or more frequently
as economic events indicate, for potential impairment.
 
 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, 2008 (2007 - $nil).
 
 Capitalized
costs of proven 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 80% of an additional 6.5
sections of a five year oil sands permit rights, which were part of the
subsidiary’s original purchase agreement.
 
 On
November 15, 2005, the Company entered into an agreement to amend a Farmout
Agreement with Signet Energy Inc. (“Signet”), a private company owned by Surge
Global Energy, Inc. (“Surge”). Under this new amended farmout agreement
(“Amended Farmout Agreement”), Signet, as operator, assumed the farmout
obligations including completing, at its expense, the drilling of 10 wells to
earn up to a 40% working interest in the Sawn Lake oil sands
project.
 
 On
November 15, 2005, as part of the settlement of a legal action, the Company and
Surge agreed to amend a Farmout Agreement signed on February 25, 2005, between
the Company, and Surge that had previously been terminated by the Company
(disclosed on Form 8-K on September 29, 2005). The amendments to the agreement
provided that: (1) all conditions of the Farmout Agreement were deemed to have
been satisfied on September 25, 2005; (2) the earning period (i.e. the period
during which Signet has to drill 10 wells) under the agreement has been extended
until February 25, 2008; (3) Signet had until September 25, 2006, to drill an
option well; (4) an additional 6.5 sections of land were added to the land
subject to the agreement; (5) Signet paid the Company $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
were issued to the Company. Instead, the Company or its subsidiaries received
7,550,000 common shares of Signet.
 
 As of the
statement date of this report, the Company 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. The
Company has an additional 40% working interest in another 12 sections of oil
sands development leases of which Signet has earned 40% from the
Company.
 
 On
November 26, 2007, the Company entered into a settlement with Signet Energy Inc.
(“Signet” a 100% owned subsidiary company of Andora Energy Corporation) and
Andora Energy Corporation and resolved their differences and certain collateral
matters. The settlement included but is not limited to:
 
 a)
              The
      Farmout Agreement dated February 25, 2005, and the Amended Farmout
      Agreement being effectively terminated concurrently with the execution of
      the settlement;
 b)
              Signet
      being regarded as having earned a 40% working interest in a total of
      twelve sections;
 c)
              Signet
      transferring registered title to 57.5 unearned sections of the farmout
      lands, as defined in the Farmout Agreement, back to the
      Company;
 d)
              Signet
      having acknowledged that the Company is not responsible for any royalty
      assumed by the Company on behalf of Signet in the Farmout Agreement;
      and
  43
 
 e)
              A
      joint discontinuance of the remaining minor litigation issues amongst all
      the parties.
 
 On March
18, 2008, the 6.5 section oil sands permit which was originally scheduled to
expire on April 9, 2008, was extended for one year pursuant to an application
made by Northern.
 
 On April
2, 2008, Deep Well 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 six sections in the
Ochre area. Deep Well acquired an undivided 100% working interest in these six
sections located in the Peace River Oil Sands area approximately fourteen miles
west of the Sawn Lake properties.
 
 4.
              PROPERTY
      AND EQUIPMENT
 
 2008Accumulated
                    
                    
                    Net BookCost
                    
                    
                    Amortization
                    
                    
                    ValueComputer
      Equipment
                    
                    $
                    24,160
                    
                    
                    $
                    7,417
                    
                    
                    $
                    16,743Office
      furniture and equipment
                    
                    
                    26,695
                    
                    
                    
                    4,799
                    
                    
                    
                    21,896Software
                    
                    
                    5,826
                    
                    
                    
                    3,318
                    
                    
                    
                    2,508Leasehold
      improvements
                    
                    
                    1,597
                    
                    
                    
                    160
                    
                    
                    
                    1,437$
                    58,278
                    
                    
                    $
                    15,694
                    
                    
                    $
                    42,584
 
 2007Accumulated
                    
                    
                    Net BookCost
                    
                    
                    Amortization
                    
                    
                    ValueOffice
      furniture and equipment
                    
                    $
                    5,008
                    
                    
                    $
                    1,795
                    
                    
                    $
                    3,293Software
                    
                    
                    809
                    
                    
                    
                    539
                    
                    
                    
                    270$
                    5,897
                    
                    
                    $
                    2,334
                    
                    
                    $
                    3,563
 
 5.
              NOTE
      PAYABLE
 
 The
Company had a loan outstanding in 2007 of $11,250 which was due on demand, is
unsecured, and bears no interest. The loan was paid off during the year ended
September 30, 2008.
 
 6.
              SIGNIFICANT
      TRANSACTIONS WITH RELATED PARTIES
 
 Accounts
payable – related parties of $25,279 (2007 - $263,091) result from director fees
and other fees payable by the Company. Accounts payable – related parties are
unsecured, non-interest bearing, and have no fixed terms of
repayment.
 
 Officers,
directors, their families, and their controlled entities have acquired 44.21% of
the Company’s outstanding common capital stock.
 
 7.
              SHARE
      CAPITAL
 
 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 consisted 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 warrants expired 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 consisted 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 warrants expired 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 $1.50
per unit valued at $32,700. 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 the Company at a price of $2.25. The warrants expired on
January 13, 2009. In connection with the private placement, a finder’s fee of
$7,680 was paid.
  44
 
 On
February 23, 2006, pursuant to an exercise option agreement, the Company entered
into on June 7, 2005 (see Note 3), the Company issued 4,707,750 of its common
shares in exchange for 156,925 of the outstanding preferred shares of
Northern.
 
 On June
13, 2006, pursuant to an exercise option agreement, the Company entered into on
June 7, 2005 (see Note 3), the Company issued 2,867,250 common shares in
exchange for 95,575 of the outstanding preferred shares of
Northern.
 
 On July
28, 2006, a warrant holder of the Company exercised 100,000 warrants for 100,000
common shares at an exercise price of $0.60 per common share for a total gross
proceeds to the Company of $60,000.
 
 On
September 11, 2006, a warrant holder of the Company exercised 50,000 warrants
for 50,000 common shares at an exercise price of $0.60 per common share for a
total gross proceeds to the Company of $30,000.
 
 On
January 22, 2007, the Company reached a settlement and a release of all claims
with Grey K Fund LP, Grey K Offshore Fund Ltd., Provident Premier Master Fund
Ltd., Atlas Master Fund Ltd. and Gemini Master Fund, Ltd. for 1,600,000 units at
a price of approximately $0.27 per unit for $435,550. Each unit consisted of one
common share.
 
 On April
4, 2007, pursuant to an exercise option agreement the Company entered into on
June 7, 2005 (see Note 3), the Company issued 5,400,000 common shares in
exchange for 180,000 of the outstanding preferred shares of Northern. 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 consisted of one common share
and one common share purchase warrant, with each warrant entitling its holder to
acquire one share of the Company’s 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 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. 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 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. 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.
 
 On
September 4, 2007, pursuant to the warrant issuance on March 10, 2005, 500,000
common share warrants with an exercise price of $0.50 per common share were
exchanged for 625,000 common share warrants with an exercise price of $0.40 per
common share. The warrants were revalued as at September 4, 2007, to reflect the
new terms.
 
 On
September 10, 2007, pursuant to the warrant issuance on March 10, 2005, 287,500
common share warrants with an exercise price of $0.50 per common share were
exchanged for 359,375 common share warrants with an exercise price of $0.40 per
common share. The warrants were revalued as at September 10, 2007, to reflect
the new terms.
 
 On August
14, 2008, the Company completed a private placement of 10,638,297 units at a
price of $0.47 per unit for $5,000,000. Each unit consists of one common share,
one common share purchase warrant and a fractional warrant for an aggregate of
2,000,000 common shares. Each warrant entitled the holder to purchase one
additional common share at a price of $0.71 per common share for a period of
three years from the date of closing. Each of the 2,000,000 fractional warrants
entitles the holder to purchase one additional common share at a price of $0.95
per common share for a period of three years from the date of closing. The
warrants and fractional warrants expire on August 14, 2011.
  45
 
 The
warrants outstanding as of September 30, 2008, were 31,541,138 (2007 –
19,463,787) and are valued at $5,472,837 (2007 - $3,714,934)
 
 8.
              STOCK
      OPTIONS
 
 On
November 28, 2005, the Board of Directors (the “Board’) of Deep Well adopted the
Deep Well Oil & Gas, Inc. Stock Option Plan (the “Plan”). The Plan has not
yet been ratified by the shareholders, which it must be to become effective. 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
James 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, 2006, and one-half on February 6, 2007, 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
September 21, 2007, 130,000 of the remaining non-vested stock options were
terminated as Cyrus Spaulding resigned as the Chief Operating Officer of the
Company.
 
 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.
 
 On
October 25, 2006, the Company granted its director David Roff options to
purchase 375,000 shares of common stock at an exercise price of $0.71 per share,
75,000 vesting immediately and the remaining one-third on April 6, 2007,
one-third on April 6, 2008, and one-third on April 6, 2009 with a five-year
life.
 
 On
September 20, 2007, the Company granted R.N. Dell Energy Ltd., a corporation
providing consulting services to the Company or its subsidiary, options to
purchase 240,000 shares of common stock at an exercise price of $0.47 per share,
vesting at a rate of 20,000 per month commencing October 31, 2007, with a
five-year life.
 
 On
September 20, 2007, the Company granted one of its employees, Maureen Griffiths,
options to purchase 36,000 shares of common stock at an exercise price of $0.47
per share, 8,000 vesting immediately and the remainder vesting at a rate of
2,000 per month commencing September 30, 2007, with a five-year
life.
  46
 
 For the
year ended September 30, 2008, the Company recorded $111,815 (2007 - $246,643)
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, 2008, therefore, the intrinsic value of the
options exercised during 2007 is nil. As of September 30, 2007, there was a
total of $5,802 of unrecognized compensation cost related to the non-vested
portion of these unit option awards. At September 30, 2008, this cost was
expected to be recognized over a weighted-average period of 0.51 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 138% for 2008 based on the
trading history available.
 
 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$0.47
      at September 30, 2008
                    
                    
                    276,000
                    
                    
                    
                    3.97
                    
                    
                    $
                    0.47
                    
                    
                    
                    274,000
                    
                    
                    $
                    0.47$0.71
      at September 30, 2008
                    
                    
                    3,102,500
                    
                    
                    
                    2.27
                    
                    
                    
                    0.71
                    
                    
                    
                    3,002,500
                    
                    
                    
                    0.713,378,500
                    
                    
                    
                    2.41
                    
                    
                    $
                    0.69
                    
                    
                    
                    3,276,500
                    
                    
                    $
                    0.69
 
 The
aggregate intrinsic value of exercisable options as of September 30, 2008, was
$nil (2007 – $900).
 
 The
Company has used a weighted average risk free rate of 3.99% 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:
 
 2008
                      
                      
                      2007Average
      risk-free interest rates
                      
                      
                      3.99
                      %
                      
                      
                      4.27
                      %Average
      expected life (in years)
                      
                      
                      5
                      
                      
                      
                      5Volatility
                      
                      
                      139
                      %
                      
                      
                      158
                      %Dividend
 
 The
following is a summary of stock option activity for 2008:
 
 Number of
                      Shares
                    
                    
                    Weighted
                      Average
                      Exercise
                      Price
                    
                    
                    Weighted
                      Average Fair
                      Market
                      ValueBalance,
      September 30, 2005
                    
                    
                    –
                    
                    
                    $
                    –
                    
                    
                    $
                    –Options
      granted November 28, 2005
                    
                    
                    2,857,500
                    
                    
                    
                    0.71
                    
                    
                    
                    0.27Balance,
      September 30, 2006
                    
                    
                    2,857,500
                    
                    
                    
                    0.71
                    
                    
                    
                    0.27Options
      forfeited September 21, 2007
                    
                    
                    (130,000
                    )
                    
                    
                    0.71
                    
                    
                    
                    0.27Options
      granted October 25, 2006
                    
                    
                    375,000
                    
                    
                    
                    0.71
                    
                    
                    
                    0.38Options
      granted September 20, 2007
                    
                    
                    276,000
                    
                    
                    
                    0.47
                    
                    
                    
                    0.45Balance,
      September 30, 2007
                    
                    
                    3,378,500
                    
                    
                    $
                    0.69
                    
                    
                    $
                    0.30Balance,
      September 30, 2008
                    
                    
                    3,378,500
                    
                    
                    $
                    0.69
                    
                    
                    $
                    0.27Exercisable,
      September 30, 2008
                    
                    
                    3,276,500
                    
                    
                    $
                    0.69
                    
                    
                    $
                    0.27
  47
 
 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
                      )
                      
                      
                      0.71Non-vested
      at September 30, 2006
                      
                      
                      1,480,000
                      
                      
                      
                      0.71Forfeited
                      
                      
                      (130,000
                      )
                      
                      
                      0.71Granted
                      
                      
                      651,000
                      
                      
                      
                      0.61Vested
                      
                      
                      (1,025,000
                      )
                      
                      
                      0.71Non-vested
      at September 30, 2007
                      
                      
                      976,000
                      
                      
                      
                      0.64Vested
                      
                      
                      (874,000
                      )
                      
                      
                      0.64Non-Vested
      at September 30, 2008
                      
                      
                      102,000
                      
                      
                      $
                      0.47
 
 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.
 
 9.
              CHANGES
      IN NON-CASH WORKING CAPITAL
 
 2008
                        
                        
                        2007
                        
                        
                        2006Accounts
      receivable
                        
                        $
                        (325,744
                        )
                        
                        $
                        (20,809
                        )
                        
                        $
                        (10,546
                        )Prepaid
      expenses
                        
                        
                        (33,387
                        )
                        
                        
                        (112,067
                        )
                        
                        
                        (33,475
                        )Accounts
      payable
                        
                        
                        656,090
                        
                        
                        
                        (366,471
                        )
                        
                        
                        237,664$
                        296,959
                        
                        
                        $
                        (499,347
                        )
                        
                        $
                        193,643
 
 10.
              INCOME
      TAXES
 
 As of
September 30, 2008, the Company has approximately $2,884,771 (2007 – $1,731,922)
of net operating losses expiring through 2028 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, 2008, the Company had an unused Canadian net operating loss
carry-forward of approximately $6,859,024 (2007 – $5,087,469), expiring through
2028. These operating loss carry-forwards may result in future income tax
benefits of approximately $3,033,082; 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.
  48
 
 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, 2008
                    
                    
                    Year Ended
                      September
                      30, 2007Statutory
      and effective tax rateDomesticStatutory
      U.S. federal rate
                    
                    
                    35.00
                    %
                    
                    
                    35.00
                    %Foreign
                    
                    
                    29.50
                    %
                    
                    
                    32.12
                    %Income
      taxes recovered at the statutory and effective tax rateDomesticStatutory
      U.S. federal rate
                    
                    $
                    442,864
                    
                    
                    $
                    184,870Foreign
                    
                    
                    452,989
                    
                    
                    
                    291,476Timing
      differences:Non-deductible
      expenses
                    
                    
                    37,484
                    
                    
                    
                    (91,707
                    )Financing
      fees
                    
                    
                    62,251
                    
                    
                    
                    61,351Other
      deductible charges
                    
                    
                    7,883
                    
                    
                    
                    43,256Benefit
      of tax losses not recognized in the year
                    
                    
                    (1,003,471
                    )
                    
                    
                    (489,246
                    )Income
      tax recovery (expense) recognized in the year
                    
                    $
                    –
                    
                    
                    $
                    –
 
 The
approximate tax effects of each type of temporary difference that gives rise to
deferred tax assets are as follows:
 
 September 30,
                      2008
                    
                    
                    September 30,
                      2007Deferred
      income tax assets (liabilities)Net
      operating loss carry-forwards
                    
                    $
                    3,033,082
                    
                    
                    $
                    2,240,292Oil
      and gas properties
                    
                    
                    16,639
                    
                    
                    
                    108,731Finance
      fee deductible in future years
                    
                    
                    1,496
                    
                    
                    
                    70,246Equipment
                    
                    
                    4,496
                    
                    
                    
                    904Valuation
      allowance
                    
                    
                    (3,055,713
                    )
                    
                    
                    (2,420,173
                    )Net
      deferred income tax assets
                    
                    $
                    –
                    
                    
                    $
                    –
 
 11.
              COMMITMENTS
 
 Compensation to
Directors
 
 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:
 
 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 Mr. Curtis J. Sparrow, for providing
      services as Chief Financial Officer to the Company for $15,000 Cdn per
      month.
 
 3)
              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.
  49
 
 Compensation to
Contractor
 
 R.N. Dell
Energy Ltd. has been contracted to provide geological services to the Company
for $17,700 Cdn per month.
 
 12.
              SUBSEQUENT
      EVENTS
 
 On
October 31, 2008, the Company completed a private placement of 12,500,000 units
at a price of $0.40 per unit for $5,000,000. Each unit consists of one common
share, one common share purchase warrant and a fractional warrant for an
aggregate of 2,000,000 common shares. Each warrant entitles the holder to
purchase one additional common share at a price of $0.60 per common share for a
period of three years from the date of closing. Each of the 2,000,000 fractional
warrants entitles the holder to purchase one additional common share at a price
of $0.80 per common share for a period of three years from the date of closing.
The warrants and fractional warrants expire on October 31, 2011.
 
 13
              LEGAL
      ACTIONS
 
 Deep Well Oil & Gas,
Inc. vs. Tamm Oil and Gas Corp., et al
 
 On April
7, 2008, Deep Well announced that it has filed a complaint (the “Complaint”)
with the United States District Court for the District of Nevada alleging that
Tamm Oil and Gas Corp. (“Tamm”) has violated United States federal and Nevada
state law in connection with Tamm’s recent public statements and activities
related to Deep Well, its operations and the ownership of its common
shares.
 
 Since
December 2007, Tamm and its agents have issued multiple public statements with
respect to Tamm’s acquisition of a significant interest in Deep Well and the
Sawn Lake heavy oil region of North Central Alberta.
 
 Deep Well
is not, and has not been, a party to any of Tamm’s public statements or
purported acquisition of Deep Well common shares. Deep Well alleges that Tamm’s
recent public statements contain materially false or misleading statements about
Tamm’s ownership interests in Deep Well and Sawn Lake, and that such statements
and Tamm’s activities with respect to Deep Well and its common shares violate
United States federal and Nevada state law.
 
 In order
to assist in protecting Deep Well and its shareholders, Deep Well commenced the
Complaint, which alleges that:
 
 ·
              Tamm’s
      public statements about and purported acquisitions of Deep Well common
      shares constitute an illegal tender offer in violation of Section 14(d) of
      the United States Securities Exchange Act of 1934, as amended (the
      “Exchange Act”);
 ·
              Tamm’s
      public statements about Deep Well and the acquisition of Deep Well common
      shares contain materially false and/or misleading statements or omissions,
      in violation of United States federal securities laws and Nevada state
      law;
 ·
              Tamm
      failed to timely file with the Securities and Exchange Commission a
      required statement of beneficial ownership on Schedule 13D, and
      subsequently filed a materially deficient Schedule 13D;
  and
 ·
              Tamm
      has defamed Deep Well by making false statements concerning Deep Well and
      its interests in Sawn Lake that were published to the public and/or third
      parties without permission by Deep Well; and Tamm has violated the Lanham
      Act by making false and misleading representations of fact in connection
      with its and Deep Well’s business in the oil and gas industry and its
      tender offer for Deep Well shares or solicitation of shareholders in favor
      of its tender offer.
 
 Deep Well
is seeking injunctive relief and/or other damages in connection with the
Complaint. As at September 14, 2009, a settlement was reached with the
defendants. On September 14, 2009 and effective September 1, 2009, Deep Well and
Tamm, Garry Tighe, William Tighe, Sean Dickenson, John Muzzin, Guido Hilekes,
Peter Schriber, Olaf Herr, Arthur Sulzer, LB (Swiss) Private Bank, Ltd. and Rahn
& Bodmer Co. (collectively, the “TAMM Parties”) entered into a full
settlement and release with all of the defendants in Deep Well Oil & Gas, Inc. v.
Tamm Oil & Gas Corp., et. al.(D. Nev., Case No.
3:08-cv-00173-ECR-RAM) in the United States District Court, District of
Nevada.
 
 The
settlement provides that the Company will be granted an option (the “Option”) to
purchase Tamm’s interest in the Royalty Agreement between Mikwec Energy Canada,
Ltd. and Nearshore Petroleum Corporation, dated December 12, 2003 (hereinafter
the “Royalty Agreement”). The Option price shall be determined by an independent
appraisal of the fair market value of Tamm’s interest in the Royalty Agreement,
and shall reflect a $400,000 reduction from the determined fair market value.
Further, if the Company decides to exercise this Option they can pay for part of
the Option by way of a promissory note, the terms of which will be determined.
The settlement also provides that for the term of the promissory note Tamm may
designate a director to the Company’s board of directors, and that Tamm’s
designee shall thereafter be included on the Company’s slate of director
nominees for any stockholder election of directors, until such time as the
Company repays the debt it owes on the promissory note related to the Option. A
Stipulated Judgment of Dismissal of the case was filed on September 15, 2009 and
entered by the court on the same day.
  50
 
 I.G.M Resources Corp. vs.
Deep Well Oil & Gas, Inc., et al
 
 On March
10, 2005, I.G.M. Resources Corp. ("the Plaintiff") filed against Classic Energy
Inc., 979708 Alberta Ltd., Deep Well Oil & Gas, Inc., 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 (“the Defendant”) 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 the Plaintiff against some of the other above
defendants.
 
 The
Plaintiff 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. 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 Alberta Oil Ltd.,
purchased Classic Energy Inc.'s assets some of which 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.
 
 The
Plaintiff 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 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 out come of the other litigation by the
Plaintiff against some of the above defendants other than Deep Well and
Northern. The Company believes the claims are without merit and will vigorously
defend against them. As of September 30, 2008, no contingent liability has been
recorded as a successful outcome for the Plaintiff is unlikely.
 
 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 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. 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) 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.
 
 Deep
Well  Plans to vigorously defend itself against the Plaintiff’s
claims. As at September 30, 2008, no contingent liability has been recorded as a
successful outcome for the Plaintiff is unlikely.
  51
  ITEM
      9.
              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
  During
the fiscal years ended September 30, 2008 and 2007, there were no changes in, or
disagreements with, our independent accountant on accounting and financial
disclosure matters.
 
 ITEM
      9A.
              CONTROLS
      AND PROCEDURES
 
 Disclosure Controls and
Procedures
 
 As of the
end of our fiscal year ended September 30, 2008, 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 under the supervision and with the
participation of our principal executive officer and principal financial
officer. 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, 2008, 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
      9B.
              OTHER
      INFORMATION
 
 Deep Well
reported all information that was required to be disclosed on Form 8-K during
the fourth quarter of the fiscal year covered by this Form
10-K.
  52
 
 PART
III
 
 ITEM
      10.
              DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
 
 Directors and Executive
Officers
 
 The
directors and executive officers of Deep Well are as follows:
 
 As at September 30, 2008Name
                      
                      Age
                      
                      Position/OfficeDr.
      Horst A. Schmid
                      
                      75
                      
                      Director
      and Chairman of the Board, President and Chief Executive
      OfficerMr.
      Donald E. H. Jones
                      
                      55
                      
                      DirectorMr.
      David Roff
                      
                      37
                      
                      DirectorMr.
      Cyrus Spaulding
                      
                      52
                      
                      DirectorMr.
      Curtis James Sparrow
                      
                      51
                      
                      Director
      and Chief Financial Officer, Secretary and TreasurerMr.
      Malik Youyou
                      
                      55
                      
                      Director
 
 As at September 30, 2009Name
                      
                      Age
                      
                      Position/OfficeDr.
      Horst A. Schmid
                      
                      76
                      
                      Director
      and Chairman of the Board, President and Chief Executive
      OfficerMr.
      Christian Demoyen
                      
                      69
                      
                      DirectorMr.
      Donald W. Hryhor
                      
                      53
                      
                      DirectorMr.
      Donald E. H. Jones
                      
                      56
                      
                      DirectorMr.
      David Roff
                      
                      38
                      
                      DirectorMr.
      Cyrus Spaulding
                      
                      53
                      
                      DirectorMr.
      Curtis James Sparrow
                      
                      52
                      
                      Director
      and Chief Financial Officer, Secretary and TreasurerMr.
      Malik Youyou
                      
                      56
                      
                      Director
 
 Biographies of Directors and
Executive Officers
 
 Brief
biographies of the directors and executive officers 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, 2008
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. 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.
 
 Mr.
Curtis James 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 30 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. Mr. Sparrow is
also a registered Professional Engineer.
  53
  Mr. Cyrus
Spaulding has served as director of Deep Well 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. Mr. Spaulding was also employed as the manager of Williams Energy
Canada Inc. Mr. Spaulding currently holds no other directorships. 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 our 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 our 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 groundwork 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 March 2009. Mr. Roff has extensive experience working with small cap
public companies for more than 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 an officer and
director of Arkson Nutraceuticals and Hudson’s Grill International. Mr. Roff is
a Chartered Accountant with a B.A. degree from the University of Western
Ontario.
 
 Mr. Malik
Youyou has been a director of Deep Well from August 20, 2008 to present. Mr.
Youyou is an experienced international entrepreneur, investor and director of
several companies.
 
 Mr.
Christian Demoyen has been a director of since January 8, 2009 to present.Mr. Demoyen
is the Senior Partner of the law firm Demoyen & Associés. He is also a
visiting Professor at the Paris University of Law and the Conservatoire National
des Arts et Métiers. He received his Doctor in Law (PhD) degree from the
University of Paris. He also attended the School of Political Sciences in
Paris.
 
 Mr.
Donald Wayne Hryhor has been appointed to our board of directors as of September
16, 2009. Mr. Hryhor currently acts as President and Chief Executive Officer of
Thunder River Energy Inc. (and Thunder’s subsidiary, CIMA Holdings Inc. in New
Mexico), and operates privately as President and Chief Executive Officer of both
Canadian Wildcat Corporation and Western Crown Corporation. Mr. Hryhor is a
director of Thunder River Energy Inc., Canadian Wildcat Corporation and Western
Crown Corporation.
 
 Significant
Employees
 
 Other
than the current executive officers of our Company the following are expected to
make a significant contribution to our Company:
 
 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, for at least
until October 31, 2008, to assist our Company in the further exploitation and
development of our Company’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). 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 has 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.
 
 Family
Relationships
 
 There are
no family relationships among the directors and executive
officers.
  54
 
 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 subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any Federal or State authority
barring, suspending or otherwise limiting for more than 60 days the right of
such person to engage in any activity described in paragraph (f)(3)(i) of this
section, or to be associated with persons engaged in any such
activity.
 
 No
current director has been found by a court of competent jurisdiction in a civil
action or by the Commission to have violated a Federal or State securities law,
that has not been reversed, suspended, or vacated.
 
 No
current director has been found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have violated any
Federal commodities law that has not been subsequently reversed, suspended or
vacated.
 
 Section 16 (a) Beneficial
Ownership Reporting Compliance
 
 Section
16(a) of the Exchange Act requires our Company’s officers, directors and persons
who beneficially own more than 10% of a registered class of our Company’s equity
securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission, and to furnish to our Company copies of such
reports. Based solely on the review of copies of the forms received, by our
Company, during the September 30, 2008 fiscal year, as required under Section
16(a)(2) of the Securities Exchange Act of 1934 by Mr. Cyrus Spaulding, a
director and former officer of our Company, filed two Form 4s late; Mr. Donald
E. H. Jones, a director of our Company, filed one Form 4 late; Mr. Malik Youyou
a director and a 10% or more beneficial owner of our Company, filed four Form 4s
late. Based solely on the review of filed Form 4s with the Securities and
Exchange Commission, Tamm Oil & Gas Corp., a reported greater than 10%
beneficial owner of our common stock, was late in filing a Form 3 pursuant to
Section 16(a) of the Exchange Act.
 
 Code of
Ethics
 
 As of
September 30, 2009, our Company had not yet adopted a formal code of ethics
governing its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions and directors. We have not adopted a code of ethics because we have
limited 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.
  55
 
 Corporate
Governance
 
 Director
Independence
 
 We have
not adopted standards for director independence, but in making a determination
on director independence under the standards for independence set forth by the
NASDAQMarketplace
rules, we determined thatas of our September 30, 2008 fiscal year end,
our Board of Directors consisted of two independent and four non-independent
directors. As of September 30, 2009, our Board of Directors consisted of four
independent and four non-independent directors. The directors of our Company are
as follows:
 
 As at September 30, 2008Name
                  
                  Year When Appointed,
                    Elected or Re-Elected as
                    DirectorDr.
      Horst A. Schmid
                  
                  2004
                  
                  Non-independent
      directorMr.
      Donald E. H. Jones
                  
                  2005
                  
                  Independent
      directorMr.
      David Roff
                  
                  2006
                  
                  Non-independent
      directorMr.
      Cyrus Spaulding
                  
                  2005
                  
                  Non-independent
      directorMr.
      Curtis James Sparrow
                  
                  2005
                  
                  Non-independent
      directorMr.
      Malik Youyou
                  
                  2008
                  
                  Independent
      director
 
 As at September 30, 2009Name
                    
                    Year When Appointed,
                      Elected or Re-Elected as
                      DirectorDr.
      Horst A. Schmid
                    
                    2004
                    
                    Non-independent
      directorMr.
      Christian Demoyen
                    
                    2009
                    
                    Independent
      directorMr.
      Donald W. Hryhor
                    
                    2009
                    
                    Independent
      directorMr.
      Donald E. H. Jones
                    
                    2005
                    
                    Independent
      directorMr.
      David Roff
                    
                    2006
                    
                    Non-independent
      directorMr.
      Cyrus Spaulding
                    
                    2005
                    
                    Non-independent
      directorMr.
      Curtis James Sparrow
                    
                    2005
                    
                    Non-independent
      directorMr.
      Malik Youyou
                    
                    2008
                    
                    Independent
      director
 
 Board
Meetings, Committees and Annual Meeting Attendance
 
 In the
September 30, 2008 fiscal year our Board of Directors had six meetings or
written resolutions. Each director of our Company attended at least 75% of all
meetings held by the Board of Directors. We did not have an annual stockholders
meeting for the fiscal years ended September 30, 2008 or September 30,
2007.
 
 Our
Company currently does not have any Board committees. Our entire Board is
currently acting as Board committees but is reviewing this situation to
potentially adopt some committees.
 
 Nominating
Committee
 
 Our
Company currently does not have a standing nominating committee or a nominating
committee charter or policy due to the relatively small size of our Company. Our
Board believes that our entire Board of Directors can adequately perform the
functions of the committee, including considering potential director nominees,
therefore fulfilling the role of a nominating committee. It is anticipated that
in preparation for any annual meeting of stockholders our Board will review
stockholder proposals for nominations to the Board of Directors. Any such
stockholder proposal must comply with the proxy rules under the Exchange Act,
including Rule 14a-8.
 
 Audit
Committee
 
 We are
currently reviewing our audit committee to ensure its director independence and
its charter; therefore we do not have an active independent audit committee at
this time. Our management along with our independent third party chartered
accounting firm, Collins Barrow, performed all work relating to the preparation
of the audit of our financial statements for the 2008 fiscal
year.
  56


We do not
have an 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.





Compensation
Committee





Our
Company currently does not have a standing compensation committee, charter or a
committee performing similar functions due to the relatively small size of our
Company.





Shareholder
Communications





We
currently do not have a process for stockholders to send communications to our
Board of Directors, however all shareholder communications received by us are
forwarded to the Chairman of the Board. Our Board of Directors will address this
issue in the future to determine a process for stockholders to communicate
directly with the Board of Directors of our Company. We did not have an annual
stockholders meeting for the fiscal years ended September 30, 2008 or September
30, 2007.





ITEM
      11.
            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, 2008 and September
30, 2007 the executive officers listed below (the “Named Executive
Officers”).





Executive
Compensation Summary





Name and Principal Position
                                    
                                    Fiscal
                                      Year
                                      Sept. 30
                                    
                                    Salary
                                      $Cdn(1)(2)
                                    
                                    
                                    Bonus $
                                    
                                    
                                    Stock
                                      Awards $
                                    
                                    
                                    Option
                                      Awards $
                                      (If approved
                                      by the
                                      shareholders)
                                      (22)
                                    
                                    
                                    Non-Equity
                                      Incentive
                                      Plan
                                      Compen-
                                      sation $
                                    
                                    
                                    Non-
                                      qualified
                                      Deferred
                                      Compen-
                                      sation
                                      Earnings $
                                    
                                    
                                    All Other
                                      Compen-
                                      sation $
                                    
                                    
                                    Total $USDr. Horst A. Schmid (3)
                                    
                                    2008
                                    
                                    $
                                    150,000
                                    (4)
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    3,730
                                    (5)
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    6,000
                                    (6)
                                    
                                    $
                                    151,255
                                    (1)President
      and
                                    
                                    2007
                                    
                                    
                                    150,000
                                    ()
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –
                                    
                                    
                                    
                                    38,394
                                    (5)
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –
                                    
                                    
                                    
                                    16,000
                                    (6)
                                    
                                    
                                    204,949
                                    (2)Chief
      Executive OfficerMr. Curtis James Sparrow (7)
                                    
                                    2008
                                    
                                    $
                                    180,000
                                    (8)
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    3,730
                                    (9)
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    3,000
                                    (10)
                                    
                                    $
                                    176,560
                                    (1)Chief
      Financial Officer
                                    
                                    2007
                                    
                                    
                                    180,000
                                    (8)
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –
                                    
                                    
                                    
                                    38,394
                                    (9)
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –
                                    
                                    
                                    
                                    8,000
                                    (10)
                                    
                                    
                                    227,060
                                    (2)Mr. Cyrus Spaulding (11)
                                    
                                    2008
                                    
                                    $
                                    –
                                    (12)
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    7,862
                                    (13)
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    2,500
                                    (14)
                                    
                                    $
                                    10,362
                                    (1)Chief
      Operating Officer
                                    
                                    2007
                                    
                                    
                                    121,420
                                    (12)
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –
                                    
                                    
                                    
                                    54,283
                                    (13)
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –
                                    
                                    
                                    
                                    7,000
                                    (14)
                                    
                                    
                                    183,152
                                    (2)Mr. David Roff (15)
                                    
                                    2008
                                    
                                    $
                                    172,000
                                    (16)
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    20,828
                                    (17)
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    3,000
                                    (18)
                                    
                                    $
                                    186,110
                                    (1)Consultant
                                    
                                    2007
                                    
                                    
                                    96,000
                                    (16)
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –
                                    
                                    
                                    
                                    75,334
                                    (17)
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –
                                    
                                    
                                    
                                    8,000
                                    (18)
                                    
                                    
                                    179,689
                                    (2)Mr. Edward Howard (19)
                                    
                                    2008
                                    
                                    $
                                    219,637
                                    (20)
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    56,120
                                    (21)
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    263,348
                                    (1)Geologist
                                    
                                    2007
                                    
                                    
                                    6,638
                                    (20)
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –
                                    
                                    
                                    
                                    6,663
                                    (2)





(1) Cdn to
US dollar conversion is based on the exchange rate of $0.9435 at the end of the
2008 fiscal year.





(2) Cdn to
US dollar conversion is based on the exchange rate of $1.0037 at the end of the
2007 fiscal year





(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)
Portwest Investments Ltd., a company owned 100% by Dr. Horst A. Schmid, provided
services as Chief Executive Officer and President to our Company and was paid
Cdn $150,000 for the 2008 fiscal year and Cdn $150,000 for the 2007 fiscal
year.





(5) On
November 28, 2005, our Company granted Dr. Horst A. Schmid options to purchase
375,000 shares of our 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 2008 and 2007 was $0 and $8,062,
respectively. In addition to Dr. Schmid’s director’s options, Portwest
Investments Ltd., a company owned 100% by Dr. Schmid, was granted options to
purchase 390,000 shares of our 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 2008 and 2007 was $3,730 and $30,332,
respectively.


57


(6) Dr.
Horst A. Schmid was paid $6,000 for the fiscal year 2008 and $16,000 for the
fiscal year 2007, for director’s fees for his services on the Board of Directors
as Chairman of the Board of our Company.





(7) Mr.
Curtis James 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.





(8)Concorde Consulting, a company owned 100% by Mr. Curtis James Sparrow,
provided services as Chief Financial Officer to our Company and was paid Cdn
$180,000 for the 2008 fiscal year and Cdn $180,000 for the 2007 fiscal
year.





(9) On
November 28, 2005, our Company granted Mr. Curtis James Sparrow options to
purchase 375,000 shares of our 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 2008 and 2007 was $0
and $8,062, respectively. 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 our 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 2008 and 2007 was $3,730 and $30,332,
respectively.





(10) Mr.
Curtis James Sparrow was paid $3,000 for the fiscal year 2008 and $8,000 for the
fiscal year 2007 for director’s fees for his services on the Board of Directors
as director of our Company.





(11) Mr.
Cyrus Spaulding has served our Company as director since June 29, 2005 to
present. Mr. Spaulding also served as Chief Operating Officer of our Company
from September 1, 2005 until September 21, 2007.





(12)
Trebax Projects Ltd., a company owned 100% by Mr. Cyrus Spaulding, was paid Cdn
$0 and Cdn $121,420 for providing services as Chief Operating Officer to our
Company for the 2008 and 2007 fiscal years, respectively. Trebax Projects Ltd.
terminated its contract as of September 21, 2007.





(13) On
November 28, 2005, our Company granted Mr. Cyrus Spaulding options to purchase
375,000 shares of our 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 2008 and
2007 was $7,862 and $23,305, respectively. 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 our 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. terminated its contract as of September 21, 2007. Based on the
Black-Scholes valuation method Trebax Projects Ltd.’s estimated amortized value
vested in 2008 and 2007 was $0 and $30,978, respectively.





(14)
Mr. Cyrus Spaulding was paid $2,500 for the fiscal year 2008 and $7,000 for the
fiscal year 2007 for director’s fees for his services on the Board of Directors
as director of our Company.





(15) 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 a
director of our Company on April 3, 2006. Brave Consulting Corporation, a
company 50% owned by Mr. David Roff, has been a consultant to our Company since
July 15, 2005 to April 1, 2009. Brave Consulting Corporation, a private
corporation 50% owned by Mr. Roff and the other 50% is owned by a non-related
third party.





(16) Brave
Consulting Corporation, a company owned 50% by Mr. David Roff, and the other 50%
is owned by a non-related party, was paid Cdn $172,000 and Cdn $96,000 for
providing consulting services to our Company for the 2008 and 2007 fiscal years,
respectively.





(17) On
October 25, 2006, our Company granted Mr. David Roff options to purchase 375,000
shares of our 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 April 6, 2007, another 100,000 vested on April 6, 2009
and another 100,000 vested on April 6, 2009. Based on the Black-Scholes
valuation method Mr. Roff’s estimated amortized value vested in 2008 and 2007
was $20,828 and $75,334, respectively. Mr. Roff has not exercised any of his
stock options.





(18) Mr.
David Roff was paid $3,000 for the fiscal year 2008 and $8,000 for the fiscal
year 2007 for director’s fees for his services on the Board of Directors as
director of our Company.





(19) 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 our Sawn
Lake project. Under the terms of the Consulting Agreement, R.N. Dell Energy Ltd.
will be paid $17,700 Cdn per month.





(20) R.N.
Dell Energy, a company 100% owned by Mr. Edward Howard, was paid Cdn $219,637
and Cdn $6,638 for providing consulting services to our Company for the 2008 and
2007 fiscal years, respectively.





(21) On
September 20, 2007, the Company granted R.N. Dell Energy Ltd., a corporation
providing consulting services to the Company or its subsidiary, options to
purchase 240,000 shares of common stock at an exercise price of $0.47 per share,
vesting at a rate of 20,000 per month commencing October 31, 2007. Each option
will be exercisable for five years from the date of its issuance. Based on the
Black-Scholes valuation method R.N. Dell Energy Ltd.’s estimated amortized value
vested in 2008 was $56,120. R.N. Dell Energy Ltd. has not exercised any of his
stock options.





(22) 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 a properly executed
consent resolution of said majority shareholders. These estimated valuations
include the value of the options back until each executive officer first became
a director. No named director or executive officer, or contractor has exercised
any of his/its stock options because the Stock Option Plan has not yet been
ratified by our Company’s shareholders.


58


The Board
regularly reviews all compensation paid to officers 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 Cdn
      $12,500 per month.





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





3.
            Trebax
      Projects Ltd., a company 100% owned by Mr. Cyrus Spaulding for providing
      services as Chief Operating Officer for Cdn $130 per hour. On September
      21, 2007, Trebax Projects Ltd. terminated its
  contract.





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





Outstanding
Equity Awards Granted to Executive Officers at September 30, 2008





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)
                                
                                
                                390,000
                                
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                $
                                0.71
                                
                                11/28/2010
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                –Concorde Consulting
      (3)
                                
                                
                                390,000
                                
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                $
                                0.71
                                
                                11/28/2010
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                –
                                
                                
                                
                                –Trebax Projects Ltd.
      (4)
                                
                                
                                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 a properly executed
consent resolution of said majority shareholders. As of the date of this report
no executive officer or contractor has exercised his or its stock
options.





(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, and
as of July 1, 2008 all of Portwest Investment Ltd’s options to purchase common
stock of our Company are fully vested.. See the Executive Compensation table for
more disclosure.





(3)
Concorde Consulting, a company owned 100% by Mr. Curtis James Sparrow, was
granted options to purchase 390,000 shares of common stock for providing
consulting services as Chief Financial Officer of our Company, and as of July 1,
2008, all of Concorde Consulting’s options to purchase common stock of our
Company are fully vested. 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 , and as of September 1, 2007, 260,000
options to purchase common stock of our Company are fully vested, another
130,000 would have vested on September 1, 2008 but Trebax Projects Ltd.
terminated its contract as of September 21, 2007. See the Executive Compensation
table for more disclosure.





Compensation Arrangement for
Contractors





1.
            Brave
      Consulting, a company 50% owned by Mr. David Roff, for providing
      consulting services to our Company for Cdn $8,000 per month. As of August
      2007 the amount has increased to $12,000 per month. This contract ended
      on  April 1, 2009.


59


2.
            R.N.
      Dell Energy Ltd., a company 100% owned by Mr. Edward Howard has been
      contracted to provide geological services to our Company for Cdn $17,700
      per month. On September 28, 2007, under the terms of the Consulting
      Agreement, our Board of Directors 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. Each option will be
      exercisable for five years from the date of its
  issuance.





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 meeting 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
event as described above plus reimbursement for actual 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, 2008, the Company recorded $111,815 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 eligible to be exercised
during the year ended September 30, 2008, therefore, the intrinsic value of all
of the options vested during 2008 is nil. As of September 30, 2008, there was a
total of $5,802 of unrecognised compensation cost related to the non-vested
portion of these unit option awards. At September 30, 2008, this cost was
expected to recognize over a weighted-average period of 0.51 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 138% for 2008 based on the trading history
available. As of September 30, 2009, no stock options have been exercised by a
director.





Director
Compensation at September 30, 2008





Name
                          
                          Fees Earned or
                            Paidin Cash ($)
                          
                          
                          Stock Awards
                            ($)
                          
                          
                          Option Awards
                            (If approved by
                            the
                            shareholders)
                            ($)(1)
                          
                          
                          Non-Equity
                            Incentive Plan
                            Compensation
                            ($)
                          
                          
                          Nonqualified
                            Deferred
                            Compensation
                            Earnings ($)
                          
                          
                          All Other
                            Compensation ($)
                          
                          
                          Total ($)Dr.
      Horst A. Schmid
                          
                          Disclosed
      in the Executive Compensation Summary under Item 11.Mr. Donald E. H. Jones
      (2)
                          
                          $
                          3,000
                          (3)
                          
                          
                          –
                          
                          
                          $
                          7,862
                          (4)
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          $
                          10,862Mr.
      David Roff
                          
                          Disclosed
      in the Executive Compensation Summary under Item 11.Mr.
      Curtis James Sparrow
                          
                          Disclosed
      in the Executive Compensation Summary under Item 11.Mr.
      Cyrus Spaulding
                          
                          Disclosed
      in the Executive Compensation Summary under Item 11.Mr. Malik Youyou (5)
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –





(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 a properly executed
consent resolution of said majority shareholders. These estimated valuations
include the value of the options back until when each director first became a
director.





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





(3) Mr.
Donald E. H. Jones was paid $3,000 for director’s fees for his services on the
Board of Directors as director of our Company for the 2008 fiscal
year.





(4) On
November 28, 2005, our Company granted Mr. Donald E. H. Jones options to
purchase 375,000 shares of our common stock, on becoming a director of our
Company, at an exercise price of $0.71 per share, and as of June 29, 2008, all
375,000 option shares to purchase common stock of our Company are fully vested.
Based on the Black-Scholes valuation method Mr. Jones’ estimated amortized value
vested in 2008 was $7,862. Mr. Jones has not exercised any of his stock
options.





(5) Mr.
Malik Youyou has served our Company as Director since August 20,
2008.


60





ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS





Equity Compensation Plan
Information





As of
September 30, 2008 with respect to shares of Deep Well common stock that may be
issued under our existing equity compensation plan, see Item 5 “Equity
Compensation Plan Information” of this report on Form 10-K.





Security Ownership of
Certain Beneficial Owners and Management





The
following table sets forth the number and percentage of the beneficial ownership
of shares of our Company’s outstanding common stock as of September 30, 2009 by
each person or group known by us to be the beneficial owner of more than 5% and
all of our directors and executive officers individually and as a
group.





SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS


As
of September 30, 2009


Name and Address of Beneficial Owner
                
                Title of Class
                
                Number of Shares
                  Beneficially Owned
                  (1) (2)
                
                
                Percentage of Class
                  Beneficially Owned
                
                Nature of OwnershipMalik
      Youyou
                  Director
                  Sadovnicheskeya
      nab 69
                  Moscow
      115035, Russia
                
                Common
                
                
                75,776,883
                
                
                
                52.90
                % (3)
                DirectLB
      (Swiss) Private Bank Ltd.
                  Boersenstrasse
      16 Postfach
                  Zurich
      CH-8022, Switzerland
                
                Common
                
                
                10,000,000
                
                
                
                8.95
                (4)
                DirectDr.
      Horst A. Schmid
                  Director
      and Chairman of the Board
                  Suite
      700, 10150 - 100 Street
                  Edmonton,
      Alberta  T5J 0P6 Canada
                
                Common
                
                
                2,715,000
                
                
                
                2.52
                % (5)
                Direct
      and IndirectMr.
      Curtis James Sparrow
                  Director,
      Chief Financial Officer, Corporate Secretary and Treasurer
                  Suite
      700, 10150 - 100 Street
                  Edmonton,
      Alberta  T5J 0P6 Canada
                
                Common
                
                
                765,000
                
                
                
                *
                (6)
                Direct
      and IndirectMr.
      Cyrus Spaulding
                  Director
      and Chief Operating Officer
                  416
      Scenic View Bay
                  Calgary,
      Alberta  T3L 1Z4 Canada
                
                Common
                
                
                930,300
                
                
                
                *
                (7)
                Direct
      and IndirectMr.
      Donald E. H. Jones
                  Director
                  Calle
      113, Numero 7-21
                  Officina
      706, Edificio Teleport, Torre A
                  Bogota,
      Colombia
                
                Common
                
                
                505,000
                
                
                
                *
                (8)
                Direct
      and IndirectMr.
      David Roff
                  Director
                  27
      Chicora Avenue
                  Toronto,
      Ontario  M5R 1W7 Canada
                
                Common
                
                
                454,886
                
                
                
                *
                (9)
                DirectMr. Christian Demoyen (10)
                  Director
                  81
      Avenue Raymond Poincaré
                  Paris
      75116, France
                
                Common
                
                
                263,201
                
                
                
                *
                
                DirectMr. Donald W. Hryhor (11)
                  Director
                  P.O.
      Box 636 Station M
                  Calgary,
      Alberta  T2P 2J3 Canada
                
                Common
                
                
                –
                
                
                
                –
                
                –All
      Officers and Directors as a Group
                
                Common
                
                
                81,310,270
                
                
                
                55.78
                %
                Indirect


61


* Less
than 1%





(1) Under
the rules of the Securities and Exchange Commission, a person or entity,
beneficially owns stock of a company if such person or entity directly or
indirectly has or shares the power to vote or direct the voting, or the power to
dispose or direct the disposition of such stock, whether through any contract,
arrangement, understanding, relationship or otherwise. A person or entity is
also deemed to be the beneficial owner, of stock if such person or entity has
the right to acquire either of such powers at any time within 60 days through
the exercise of any option, warrant, right or conversion privilege or pursuant
to the power to revoke a trust, a discretionary account or similar arrangement
or pursuant to the automatic termination of a trust, discretionary account or
similar arrangement.





(2) Based
on 106,774,258 of our common shares issued and outstanding on September 30,
2009. For calculating the percentage of beneficial ownership separately for each
person, his or her options, warrants or both that can be acquired within 60 days
are included in both the numerator and the denominator. For the directors as a
group, their collective options and warrants that can be acquired within 60 days
are included in both the numerator and the denominator when calculating their
group percentage ownership.





(3) Mr.
Malik Youyou has served our Company as director from August 20, 2008 to present.
As of September 30, 2009, Mr. Malik Youyou beneficially owns 75,776,883 shares
of our common stock, 33,146,472 of which are held directly, 6,158,781 of which
are held by Westline Enterprises Limited, a corporation 100% owned by Mr.
Youyou, and 36,471,630 of which are issuable pursuant to presently exercisable
warrants held by Mr. Youyou.  Assuming the issuance of 36,471,630
shares of our common stock, pursuant to the exercise of Mr. Youyou’s presently
exercisable warrants, Mr. Youyou would beneficially own 52.9% of our Company’s
outstanding common stock. As of the date of this report, Mr. Youyou has not
exercised any warrants and without the exercise of Mr. Youyou’s warrants, Mr.
Youyou has a 36.8% ownership of our issued and outstanding common
stock.





(4) LB
(Swiss) Private Bank Ltd.’s ownership is based solely on a private placement
entered into with our Company on May 25, 2007. LB (Swiss) Private Bank Ltd.
beneficially owns 10,000,000 shares of our common stock. In connection with the
May 25, 2007 private placement, LB (Swiss) Private Bank Ltd., as principal,
acquired 5,000,000 shares and warrants to purchase up to 5,000,000 shares of
additional common stock of our Company. Assuming the issuance of 5,000,000
shares of our common stock pursuant to the exercise of LB (Swiss) Private Bank
Ltd.’s presently exercisable warrants, LB (Swiss) Private Bank Ltd. would
beneficially own 8.95% of our Company’s outstanding common stock. As of the date
of this report, LB (Swiss) Private Bank Ltd. has not exercised any warrants and
without the exercise of LB (Swiss) Private Bank Ltd.’s warrants, they have a
4.68% ownership of our issued and outstanding common stock. In addition to the
10,000,000 beneficial shares owned by LB (Swiss) Private Bank Ltd. an additional
7,115,276 shares are held of record by LB (Swiss) Private Bank Ltd., and it is
not known by us whether LB (Swiss) Private Bank Ltd. is the beneficial owner of
these additional shares.





(5)Dr.
Horst A. Schmid has served our Company as director and Chairman of the Board
since February 6, 2004 to present. Dr. Schmid has also served our Company as
President and Chief Executive Officer since June 29, 2005 to present. Dr.
Schmid’s beneficial ownership consists of Portwest Investment Ltd. owning
1,950,000 shares of our common stock. Portwest Investment Ltd. is a private
corporation registered in Alberta, Canada, which is 100% owned and controlled by
Dr. Schmid. On November 28, 2005, Dr. Schmid was granted options to purchase
375,000 options of common stock on becoming a director of our Company, and as of
February 6, 2007 all 375,000 shares to purchase common stock of our Company are
fully vested. Dr. Schmid also has an indirect beneficial ownership, which
consists of 390,000 stock options granted to Portwest Investment Ltd., and as of
July 1, 2008 all 390,000 options to purchase common stock of our Company are
fully vested. 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. As of the date of this report, Dr. Schmid has not exercised any of
his beneficially owned stock options.





(6)Mr.
Sparrow has served our Company as director and Chief Financial Officer since
February 9, 2004 to present. On November 28, 2005, Mr. Sparrow was granted
options to purchase 375,000 shares of common stock on becoming a director of our
Company, and as of February 6, 2007 all 375,000 options to purchase common stock
of our Company are fully vested. 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, and as of July 1, 2008 all
390,000 options to purchase common stock of our Company are fully vested. 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. As
of the date of this report, Mr. Sparrow has not exercised any of his
beneficially owned stock options.





(7)Mr.
Cyrus Spaulding has served our Company as director from June 29, 2005 to present
and Chief Operating Officer from September 1, 2005 to September 21, 2007. Mr.
Spaulding directly owns 45,300 shares of our Company stock. Mr. Spaulding’s
beneficial ownership consists of 250,000 common shares owned by his spouse. On
November 28, 2005, Mr. Spaulding was granted options to purchase 375,000 shares
of common stock on becoming a director of our Company, and as of June 29, 2008
all 375,000 options to purchase common stock of our Company are fully vested.
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, and as of September 1, 2007 260,000 of such options to
purchase common stock of our Company are fully vested. Another 130,000 would
have vested on September 1, 2008 but Trebax Projects Ltd. terminated its
contract 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. As of the date of this report, Mr. Spaulding has
not exercised any of beneficially owned stock options.





(8)Mr.
Donald E. H. Jones has served our Company as director from June 29, 2005 to
present. Mr. Jones’ beneficial ownership consists of 130,000 common shares owned
by his spouse. On November 28, 2005, Mr. Jones was granted options to purchase
375,000 shares of common stock on becoming a director of our Company and as of
June 29, 2008 all 375,000 options to purchase common stock of our Company are
fully vested. 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. As of the date of this report, Mr. Jones has not exercised any
of his beneficially owned stock options.





(9)Mr.
David Roff has served our Company as director from April 3, 2006 to present. Mr.
Roff’s beneficial ownership consists of 79,886 shares of our common stock. On
October 25, 2006, Mr. Roff was granted options to purchase 375,000 shares of
common stock of our Company and as of April 6, 2009 all 375,000 shares to
purchase common stock of our Company are fully vested. 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. As of the date of this
report, Mr. Roff has not exercised any of his beneficially owned stock
options.


62


(10)Mr.
Christian Demoyen has served our Company as director from January 8, 2009 to
present.





(11)Mr.
Donald W. Hryhor has been appointed to our board of directors as of September
16, 2009.





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. (hereinafter referred to as “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. On April 4, 2008, our Company commenced a lawsuit in
the United States District Court for the District of Nevada against 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, made public statements about our Company and activities related to
our Company and our operations that are false and misleading, and made
statements of purported ownership of our shares of common stock that are false
and misleading. On August 22, 2008, our Company filed a First Amended Complaint
in the lawsuit adding the following additional parties as defendants: Garry
Tighe, William Tighe, Craig Auringer, Sean Dickenson, John Muzzin, Guido
Hilekes, Peter Schriber, Olaf Herr, Arthur Sulzer, LB (Swiss) Private Bank Ltd.,
and Rahn & Bodmer Banquiers. The First Amended Complaint also added a civil
conspiracy claim. On March 6, 2009, the court granted in part and denied in part
Tamm’s motion for partial summary judgment. The defendants have filed motions to
dismiss the case that challenge the court’s jurisdiction and assert that the
First Amended Complaint fails to state a cause of action. Effective September
14, 2009 and effective September 1, 2009, the parties entered into a settlement
agreement that fully and finally resolved their dispute and the lawsuit. A
Stipulated Judgment of Dismissal of the case was filed on September 15, 2009 and
entered by the court on the same day.. For more information about the foregoing,
you should refer to “Item 3. Legal Proceedings” in this Form 10-K.





As of
April 30, 2009, and based solely on Mr. Malik Youyou’s filed Form 4s and Amended
Schedule 13Ds, Mr. Youyou, a director of our Company, beneficially owns
75,776,883 shares of common stock and warrants for common stock of our Company
of which 33,146,472 shares were directly acquired by Mr. Youyou through open
market transactions and 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 our common stock. In addition, Mr. Youyou indirectly owns 6,158,781
shares of our common stock through Westline Enterprises Limited, a company of
which Mr. Youyou is the sole shareholder. As of the date of this report on Form
10-K, Mr. Youyou has 36.8 percent of the issued and outstanding common stock of
our Company. If Mr. Youyou were to exercise all of his warrants to acquire an
additional 36,471,630 shares of our common stock, and if nobody else exercised
their warrants, Mr. Youyou would have 52.9 percent of our issued and outstanding
common stock. As of the date of this report Mr. Youyou has not exercised any of
his warrants. Mr. Malik Youyou became a director of our Company on August 20,
2008.





ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED
TRANSACTIONS





Pursuant
to a subscription agreement dated August 12, 2005, Mrs. Barbara Spaulding the
wife of Mr. Cyrus Spaulding our current director and former 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 Mrs. 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 Mrs. Spaulding directly owns
250,000 common shares of our Company.





As of
April 30, 2009, and based solely on Mr. Malik Youyou’s filed Form 4s and Amended
Schedule 13Ds, Mr. Youyou, a director of our Company since August 20, 2008,
beneficially owns 75,776,883 shares of common stock and warrants for common
stock of our Company of which 33,146,472 shares were directly acquired by Mr.
Youyou through open market transactions and 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 our common stock. In addition, Mr. Youyou
indirectly owns 6,158,781 shares of our common stock through Westline
Enterprises Limited, a company of which Mr. Youyou is the sole shareholder. As
of the date of this report on Form 10-K, Mr. Youyou has acquired 36.8 percent of
our issued and outstanding common stock. 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 52.9
percent of our issued and outstanding common stock. As of the date of this
report Mr. Youyou has not exercised any of his warrants.


63


ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





In the
fiscal years ended September 30, 2008 and September 30, 2007, we paid, Collins
Barrow, an independent third party, PCAOB registered, chartered accounting firm
fees of Cdn $44,000 and Cdn $49,382, respectively, relating to the preparation
of the annual consolidated financial statements which were audited by Madsen
& Associates, CPA’s Inc.





The
following table is a summary of the fees billed to us by Madsen &
Associates, CPA’s Inc. for professional services for the fiscal years ended
September 30, 2008 and September 30, 2007:





Fee Category
                            
                            Fiscal
                              2008
                              Fees
                            
                            
                            Fiscal
                              2007
                              FeesAudit
      Fees
                            
                            $
                            9,950
                            
                            
                            $
                            9,200Audit
      Related Fees
                            
                            
                            2,850
                            
                            
                            
                            2,750Tax
      Fees
                            
                            Nil
                            
                            
                            NilAll
      Other Fees
                            
                            Nil
                            
                            
                            NilTotal
      Fees
                            
                            $
                            12,800
                            
                            
                            $
                            11,950





Audit
Fees





Our board
of directors appointed Madsen & Associates, CPA’s Inc. as independent
auditors to audit our consolidated financial statements for the fiscal years
ending September 30, 2008 and September 30, 2007. The aggregate fees billed by
Madsen & Associates, CPA’s Inc. for the audit of our annual consolidated
financial statements for the years ended September 30, 2008 and September 30,
2007 was $9,950 and $9,200, respectively.





Audit Related
Fees





For the
fiscal years ended September 30, 2008 and September 30, 2007, audit related fees
billed by Madsen & Associates, CPA’s Inc. were for the review of the
quarterly financial statements.





Audit Committee Pre-Approval
Policies and Procedures





The audit
and audit related services and permitted non-audit services were pre-approved by
the Board.





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





·
            approved
      by our Board of Directors acting as our audit committee, as specified
      under section 3(a)(58)(B) of the Exchange Act;
  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 Board
of Directors pre-approves all services provided by Madsen & Associates,
CPA’s Inc. and 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.


64


ITEM
      15.
            EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES





Financial Statements filed
with this report on Form 10-K





The
following listed financial statements and report of independent registered
public accounting firm are filed as part of this Annual Report on Form 10-K (see
“Item 8 - Consolidated Financial Statements” of this report on Form
10-K):





1.
            Consolidated
      Balance Sheets for September 30, 2008 and
2007


2.
            Consolidated
      Statements of Operations For the Years Ended September 30, 2008 and 2007
      and 2006 and the Period September 10, 2003 (Inception of Exploration
      Stage) to September 30, 2008


3.
            Consolidated
      Statements of Shareholders’ Equity For the Period September 10, 2003
      (Inception of Exploration Stage) to September 30,
  2008.


4.
            Consolidated
      Statements of Cash Flows For the Years Ended September 30, 2008, 2007 and
      2006 and the Period September 10,2003 (Inception of Exploration Stage) to
      September 30, 2008.


5.
            Notes
      to the Consolidated Financial
Statements.


6.
            Madsen
      & Associates, CPA’s Inc.’s Report of Independent Registered Public
      Accounting Firm.





Financial Statement
Schedules filed with this report on Form 10-K





None.





Exhibits





The
following exhibits have been or are being filed herewith and are numbered in
accordance with Item 601 of Regulation S-K:





Exhibit
      No.
                    
                    Description2.1
                    
                    
                    Liquidating
      Plan of Reorganization of Allied Devices Corporation, now known as Deep
      Well Oil & Gas, Inc., (incorporated by reference to exhibit 2.1 to our
      Form 10-K/A filed on January 28, 2004).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, (incorporated by
      reference to exhibit 2.2 to our Form 10-K/A filed on January 28,
      2004).3.1
                    
                    
                    Restated
      and Amended Articles of Incorporation filed with and accepted by the
      Secretary of State of Nevada on October 22, 2003, changing the name to
      “Deep Well Oil and Gas, Inc.” and otherwise implementing the Plan,
      (incorporated by reference to exhibit 3.1 to our Form 10-K/A filed on
      January 28, 2004).3.2
                    
                    
                    Amended
      Articles of Incorporation filed with the State of Nevada on February 27,
      2004, reflecting our two (2) shares for one (1) share forward stock split,
      (incorporated by reference to exhibit 3.1 to our Form 8-K filed on March
      5, 2004).3.3
                    
                    
                    Amended
      Articles of Incorporation filed with the State of Nevada on May 5, 2004,
      2004, reflecting our three (3) shares for one (1) share forward stock
      split, (incorporated by reference to exhibit 3.2 to our Form 8-K filed on
      May 7, 2004).3.4
                    
                    
                    Registrant’s
      By-laws, filed with Form 10-KSB on February 23, 2007, (incorporated by
      reference to exhibit 3.4 to our Form 10-KSB filed on February 23,
      2007).3.5
                    
                    
                    Registrant’s
      Amended and Restated By-laws, filed with Form 8-K on September 3, 2009,
      (incorporated by reference to exhibit 3.1 to our Form 8-K filed on
      September 3, 2009).4.1
                    
                    
                    Form
      of Warrant issued pursuant to the Securities Purchase Agreement and
      Registration Rights Agreement dated March 10, 2005, (incorporated by
      reference to exhibit 4.3 to our Form 8-K filed on March 14,
      2005).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, (incorporated by
      reference to exhibit 4.3 to our Form 8-K filed on August 17,
      2005).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, (incorporated by reference to exhibit 4.2 to our Form
      8-K filed on October 19, 2005).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, (incorporated by
      reference to exhibit 4.2 to our Form 8-K filed on March 6,
      2006).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, (incorporated by reference to exhibit 4.2 to our Form
      8-K filed on June 13,
2007).


65





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, (incorporated by reference to exhibit 4.2 to our Form
      8-K filed on July 5, 2007).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, (incorporated by reference to exhibit 4.3 to
      our Form 8-K filed on July 5, 2007).4.8
              
              
              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, (incorporated by reference to exhibit 4.1 to our Form
      10-QSB filed on October 30, 2007).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, (incorporated by reference to exhibit 4.2 to
      our Form 10-QSB filed on October 30, 2007).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, (incorporated by reference to exhibit 4.3 to our Form 10-QSB
      filed on October 30, 2007).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, (incorporated by reference to exhibit 4.2 to our Form
      8-K filed on August 15, 2008).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, (incorporated by reference to exhibit 4.3 to
      our Form 8-K filed on August 15, 2008).4.13
              
              
              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, (incorporated by reference to exhibit 4.2 to
      our Form 8-K filed on November 7, 2008).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, (incorporated by reference to exhibit 4.3 to
      our Form 8-K filed on November 7, 2008).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, (incorporated by reference to exhibit 10.2 to our
      Form 10-KSB filed on February 23, 2007).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.), (incorporated by reference to
      exhibit 10.3 to our Form 10-KSB filed on February 23,
    2007).10.3
              
              
              Exchange
      Agreement between our Company and Mikwec Energy Canada Limited (now known
      as Northern Alberta Oil Ltd.) dated as of July 8, 2004, (incorporated by
      reference to exhibit 10.1 to our Form 8-K filed on November 5,
      2004).10.4
              
              
              Joint
      Operating Agreement dated December 9, 2004 between our Company and 1132559
      Alberta Ltd., (incorporated by reference to exhibit 10.7 to our Form
      10-KSB filed on February 23, 2007).10.5
              
              
              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.), (incorporated by reference to
      exhibit 10.8 to our Form 10-KSB filed on February 23,
    2007).10.6
              
              
              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.), (incorporated by reference to
      exhibit 10.9 to our Form 10-KSB filed on February 23,
    2007).10.7
              
              
              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.), (incorporated by reference to exhibit 10.10 to our Form
      10-KSB filed on February 23, 2007).10.8
              
              
              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), (incorporated by
      reference to exhibit 10.11 to our Form 10-KSB filed on February 23,
      2007).10.9
              
              
              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),
      (incorporated by reference to exhibit 10.12 to our Form 10-KSB filed on
      February 23, 2007).




66





10.10
              
              
              Form
      of Amending Agreement dated as of April 25, 2005, (incorporated by
      reference to exhibit 10.2 to our Form 8-K filed on June 10,
      2005).10.11
              
              
              Form
      of Termination, Option and Put Agreement, (incorporated by reference to
      exhibit 10.3 to our Form 8-K filed on June 10, 2005).10.12*
              
              
              Consulting
      agreement by and between Northern and Portwest Investments Ltd., dated
      July 1, 2005, (incorporated by reference to exhibit 10.16 to our Form
      10-KSB filed on February 23, 2007)10.13*
              
              
              Consulting
      agreement by and between Northern and Concorde Consulting, dated July 1,
      2005, (incorporated by reference to exhibit 10.17 to our Form 10-KSB filed
      on February 23, 2007)10.14
              
              
              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.), (incorporated by reference to exhibit 10.18 to our Form
      10-KSB filed on February 23, 2007)10.15
              
              
              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, (incorporated by reference to exhibit 4.2 and 4.3 to
      our Form 8-K filed on August 17, 200510.16
              
              
              Consulting
      agreement by and between the Northern and Trebax Projects Ltd., effective
      September 1, 2005, (incorporated by reference to exhibit 10.20 to our Form
      10-KSB filed on February 23, 2007).10.17*
              
              
              Form
      of Subscription Agreement dated October 11, 2005, by and among our Company
      with three investors related to the Private Placement offering,
      (incorporated by reference to exhibit 4.1 to our Form 8-K filed on October
      19, 2005).10.18
              
              
              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.), (incorporated by reference to exhibit 10.22 to our Form
      10-KSB filed on February 23, 2007).10.19
              
              
              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.), (incorporated by reference to exhibit 10.23
      to our Form 10-KSB filed on February 23, 2007).10.20
              
              
              Deep
      Well Oil & Gas, Inc. Stock Option Plan (“The Plan”), effective
      November 28, 2005, (Form 8-K filed on March 3, 2006).10.21*
              
              
              Sample
      Stock Option Agreements with all Directors, (incorporated by reference to
      exhibit 10.25 to our Form 10-KSB filed on February 23,
    2007).10.22*
              
              
              Sample
      Stock Option Agreements with all Contractors, (incorporated by reference
      to exhibit 10.26 to our Form 10-KSB filed on February 23,
      2007).10.23
              
              
              Sample
      Indemnity Agreement with all Directors, (incorporated by reference to
      exhibit 10.27 to our Form 10-KSB filed on February 23,
    2007).10.24
              
              
              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, (incorporated by reference to exhibit 4.1 to our
      Form 8-K filed on March 6, 2006).10.25
              
              
              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., (incorporated by reference to exhibit 10.1 to our Form
      8-K filed on January 31, 2007).10.26*
              
              
              Form
      of Non-Qualified Stock Option Agreement issued to director on April 3,
      2006, (incorporated by reference to exhibit 10.25 to our Form 10-KSB filed
      on February 23, 2007).10.27
              
              
              Form
      of Subscription Agreement dated May 25, 2007 by and among our Company with
      one investor, (incorporated by reference to exhibit 4.1 to our Form 8-K
      filed on June 13, 2007).10.28
              
              
              Form
      of Subscription Agreement dated June 22, 2007 by and among our Company
      with one investor, (incorporated by reference to exhibit 4.1 to our Form
      8-K filed on July 5, 2007).10.29
              
              
              Form
      of Subscription Agreement dated July 11, 2007 by and among our Company
      with two investors, (incorporated by reference to exhibit 10.7 to our Form
      10-QSB filed on October 30, 2007).10.30
              
              
              Order
      granted by the court dated September 7, 2007 between our Company and Star
      Capital Inc., (incorporated by reference to exhibit 10.33 to our Form
      10-KSB filed on April 22, 2008).10.31
              
              
              Form
      of Agreement dated as of September 10, 2007 between our Company and Star
      Capital Inc., (incorporated by reference to exhibit 10.34 to our Form
      10-KSB filed on April 22,
2008).




67





10.32
              
              
              Form
      of Amending Agreement dated as of September 10, 2007, between our Company
      and Star Capital Inc., (incorporated by reference to exhibit 10.35 to our
      Form 10-KSB filed on April 22, 2008).10.33
              
              
              Consulting
      agreement by and between our Company and R.N. Dell Energy Ltd., effective
      September 20, 2007, (incorporated by reference to exhibit 10.8 to our Form
      10-QSB filed on October 30, 2007).10.34
              
              
              Non-Qualified
      Stock Option Agreement issued to R.N. Dell Energy Ltd. effective September
      20, 2007, (incorporated by reference to exhibit 10.9 to our Form 10-QSB
      filed on October 30, 2007).10.35
              
              
              Non-Qualified
      Stock Option Agreement issued to Employee, effective September 20,
      2007,(incorporated by reference to exhibit 10.10 to our Form 10-QSB filed
      on October 30, 2007).10.36
              
              
              Consulting
      agreement by and between our Company and Picoplat Consulting Inc.,
      effective October 15, 2007, (incorporated by reference to exhibit 10.39 to
      our Form 10-KSB filed on April 22, 2008).10.37
              
              
              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, (incorporated by reference to exhibit 10.1 to our Form 8-K
      filed on December 14, 2007).10.38
              
              
              Form
      of Subscription Agreement dated August 14, 2008 by and among our Company
      with one investor, (incorporated by reference to exhibit 4.1 to our Form
      8-K filed on August 15, 2008).10.39
              
              
              Form
      of Subscription Agreement dated October 31, 2008 by and among our Company
      with one investor, (incorporated by reference to exhibit 4.4 to our Form
      8-K filed on August 15, 2008).10.40
              
              
              Settlement
      Agreement effective September 1, 2009, by and among our Company and Tamm
      Oil & Gas Corp et al, (incorporated by reference to exhibit 10.1 to
      our Form 8-K filed on September 17, 2009).21.1
              
              
              Subsidiaries
      of Registrant, filed herewith.31.1
              
              
              Certification
      of President and Chief Executive Officer pursuant to Rule 13a-14(a), filed
      herewith.31.2
              
              
              Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a), filed
      herewith.32.1
              
              
              Certification
      of President and Chief Executive Officer pursuant to 18 U.S.C. Section
      1350, filed herewith.32.2
              
              
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, filed
      herewith.





*
Management contract or compensatory plan or arrangement.


68


SIGNATURES





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





DEEP
      WELL OIL & GAS, INC.By
              
              /s/ Horst A. SchmidDr.
      Horst A. SchmidChairman
      of the BoardDate
              
              November 23,
2009





Pursuant
to the requirements of the Securities Exchange Act of 1934, 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
              
              November 23, 2009By
              
              /s/ Curtis James SparrowMr.
      Curtis James SparrowChief
      Financial Officer(Principal
      Financial and Accounting Officer)Date
              
              November 23,
2009


69