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, 2010oro
              
              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  o      No  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   o      No  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  þNo o





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
31, 2010 was approximately $4.8 million.





As of
November 26, 2010, the Issuer had approximately 136,059,971 shares of common
stock, $0.001 par value per share outstanding.










TABLE
      OF CONTENTSPage
      NumberGLOSSARY
      AND ABBREVIATIONS
                          4CURRENCY
      EXCHANGE RATES
                          6PART
      IITEM
      1.
                          BUSINESS
                          6Business
      DevelopmentPrincipal
      ProductMarket
      and Distribution of ProductCompetitive
      Business ConditionsCustomersRoyalty
      AgreementsGovernment
      Approval and Crown RoyaltiesResearch
      and DevelopmentEnvironmental
      Laws and RegulationsEmployeesITEM
      1A.
                          RISK
      FACTORS
                          12ITEM
      1B
                          UNRESOLVED
      STAFF COMMENTS
                          15ITEM
      2.
                          PROPERTIES
                          15Office
      LeasesOil
      & Gas PropertiesAcreageReserves,
      Production and Delivery CommitmentsDrilling
      ActivityPresent
      ActivitiesPast
      ActivitiesITEM
      3.
                          LEGAL
      PROCEEDINGS
                          18ITEM
      4.
                          (REMOVED
      AND RESERVED)
                          19PART
      IIITEM
      5.
                          MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
      AND ISSUER PURCHASES OF EQUITY SECURITIES
                          20Market
      Price Information for Common StockHolders
      of RecordDividendsEquity
      Compensation Plan InformationPerformance
      GraphSales
      of Unregistered SecuritiesITEM
      6.
                          SELECTED
      FINANCIAL DATA
                          22ITEM
      7.
                          MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                          23




2





ITEM
      7A.
                  QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                  27REPORT
      OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
                  28ITEM
      8.
                  FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                  28Consolidated
      Balance SheetsConsolidated
      Statements of OperationsConsolidated
      Statements of Shareholders’ EquityConsolidated
      Statements of Cash FlowsNotes
      to the Consolidated Financial StatementsITEM
      9.
                  CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                  48ITEM
      9A.
                  CONTROLS
      AND PROCEDURES
                  48ITEM
      9B.
                  OTHER
      INFORMATION
                  48PART
      IIIITEM
      10.
                  DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                  49ITEM
      11.
                  EXECUTIVE
      COMPENSATION
                  52ITEM
      12.
                  SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                  55ITEM
      13.
                  CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                  56ITEM
      14.
                  PRINCIPAL
      ACCOUNTING FEES AND SERVICES
                  57PART
      IVITEM
      15.
                  EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES
                  58SIGNATURES
                  60


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 – 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 – 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”) – 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 – 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 – 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.





Heavy Oil – oil having an API
gravity less than 22.3 degrees.


4





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 means
“in place” in Latin), In
situ methods 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”)– 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, 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, it has an API gravity of at least 22 degrees and a
viscosity less than 100 centipoise (cP).





Mineral Surface Lease (MSL) –
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 – 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% 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 brought 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 – 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 dollars (“Cdn”). As a result, all dollar
amounts herein are stated in United States dollars except where otherwise
indicated.





The
following table sets forth the rates of exchange for the Canadian dollar,
expressed in US dollars, in effect at the end of the following periods and the
average rates of exchange during such periods, based on the noon rates of
exchange for such periods as reported by the Bank of Canada.





Year ending September 30,
                  
                  2010
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  2007Rate
      at end of year
                  
                  $
                  1.0298
                  
                  
                  $
                  1.0722
                  
                  
                  $
                  1.0599
                  
                  
                  $
                  0.9963Average
      rate for the year
                  
                  $
                  1.0407
                  
                  
                  $
                  1.1804
                  
                  
                  $
                  1.0092
                  
                  
                  $
                  1.1132





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 our common stock trades on the OTCQB
marketplace under the symbol DWOG. We maintain a web site at www.deepwelloil.com.
The contents of our website are not part of this form 10-K.





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, and
subsequently 1350826 Alberta Ltd. amalgamated with 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 an amending agreement
to extend the payment date 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 an 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 an 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 our Company has more than doubled its 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 reserved 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 by Northern to the Alberta Department of Energy .
 
 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 2 vertical wells and existing road infrastructure from Paramount
Resources Ltd. (“Paramount”) through a transfer of title. These existing roads
total 12km of access on our Sawn Lake property and 1 of the wells was
subsequently transferred to our 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.
 
 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.
  8
 
 In
September of 2009, we submitted an application (hereinafter referred to as the
“CSS Application”) to the ERCB for a commercial bitumen recovery scheme to
evaluate the 12-14-092-13W5 well for potential development using Cyclic Steam
Stimulation (“CSS”), and later we added the 6-22-092-13W5 well to the
application.
 
 On
October 14, 2010, our CSS Application was approved by the ERCB to conduct one
CSS production test on one of the wells to evaluate the oil sands resource using
this secondary recovery technology. The Company has appointed Asher Engineering
Ltd. to manage the CSS project and construction, including procurement of all
required equipment.The
CSS process involves steam injection into a well for a period of up to 30 days,
potentially a ”soaking” period, followed by production of heavy oil for up to 50
days or more. This CSS production test is not only for the production of heavy
oil from the Blue Sky zone of the Sawn Lake project but it will also aid in
quantifying proven reserves of oil.
 
 On
November 9, 2010 we secured two private placement financings for $2,050,000. The
Company intends to use the majority of the net proceeds from the private
placements to conduct engineering, construction and other operations for its
recently approved CSS production test.
 
 Currently,
Deep Well and its subsidiaries, Northern and Deep Well Alberta, have 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 oil
sands leases cover 43,015 gross acres (17,408 gross hectares). The focus of our
Company’s operations 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 inintervals
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.
  9
  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.
 
 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 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 the Company 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 it was agreed that the Company 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.
  10
 
 The North
American Free Trade Agreement. The North American Free Trade Agreement
(hereinafter referred to as “NAFTA”) grants Canada the freedom to determine
whether exports to the United States or Mexico will be allowed. In making this
determination, Canada must ensure that any export restrictions do not (i) reduce
the proportion of energy exported relative to the supply of the energy resource;
(ii) impose an export price higher than the domestic price; or (iii) disrupt
normal channels of supply. All parties to NAFTA are also prohibited from
imposing minimum export or import price requirements.
 
 Investment Canada
Act. TheInvestment Canada Act
requires notification and/or review by the Government of Canada in certain
cases, including but not limited to, the acquisition of control of a Canadian
Business by a non-Canadian. In certain circumstances, the acquisition of a
working interest in a property which contains recoverable reserves will be
treated as the acquisition of an interest in a “business” and may be subject to
either notification or review, depending on the size of the interest being
acquired and the asset size of the business.
 
 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,
2010, 2009 and 2008.
 
 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 commercial property and general liability insurance
coverage on the properties we operate. We also maintain operators extra expense
insurance which provides 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 that are 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 two 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, 2010, 2009 and 2008
we reported net losses of $1,331,552, $2,167,343 and $2,796,055
respectively.
 
 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 operations 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
our business plan, take advantage of future opportunities or respond to
competitive pressures or unanticipated requirements. This may seriously harm our
business, results of operations and financial condition..
 
 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 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 oil
sands leases cover 43,015 gross acres (17,408 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.
  13
 
 Any of
these events could materially reduce the value of those properties
affected.
 
 We Are Party To
Some Lawsuits And Will Be Adversely Affected If We Are Found To Be Liable In
Connection With Any Legal Proceedings.We are party to some
lawsuits described in this Form 10-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 results of operations and financial condition..
 
 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.
  14
  Our Stock Price
Could Decline. Our common stock is traded on the OTCQB marketplace. 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.
 
 We Could Be
Subject to SEC Penalties If We Do Not File All Of Our SEC Reports.
Although we are presently up to date in our filings, in the past we have not
filed all of our annual and quarterly reports required to be filed by us with
the SEC, in a timely manner. It is possible that the SEC could take enforcement
action against us, including potentially the de-registration of our securities,
if we fail to file our annual and quarterly reports in a timely manner as
required by the SEC. 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 of “penny stock” 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 SEC 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, SEC 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 alternatively dispose of them in the market or otherwise.
 
 ITEM
      1B.
              UNRESOLVED
      STAFF COMMENTS
 
 None.
 
 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, 2013. We also lease and maintain
office space in Calgary, Alberta; this 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 and a 40% working interest in 12 sections of oil sands leases
in the Peace River oil sands area in North Central Alberta. The oil sands leases
cover 43,015 gross acres (17,408 gross hectares). Of the 68 contiguous sections
of oil sands leases, Andora is the operator of 12 sections in which we have a
40% working interest, and we are the operator on 56 sections where we have an
80% working interest.
  15
 
 In
conjunction with our 2008/2009 winter drilling program, and effective December
1, 2008, we acquired 12 km of existing road infrastructure from Paramount
Resources Ltd. (hereinafter referred to as “Paramount”) through a transfer of
title.  Along with this transfer of title we acquired 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, 2010.
 
 OIL SANDS RIGHTSas of September 30, 2010Gross
                                      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
                                    
                                    
                                    
                                    43,015
                                    
                                    
                                    
                                    31,376TOTAL
      HECTARES/ACRES
                                    
                                    
                                    17,408
                                    
                                    
                                    
                                    12,698
                                    
                                    
                                    
                                    43,015
                                    
                                    
                                    
                                    31,376(1)
      80% working interest.(2)
      40% 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.
 
 Reserves,
Production and Delivery Commitments
 
 We did
not engage in any sustained production activities during the years ending
September 30, 2010, 2009 and 2008 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.
  16
  Drilling
Activity
 
 The
following tables summarize the results of our drilling activities in the Sawn
Lake area of Alberta during the years ended September 30, 2010, 2009 and
2008.
 
 Exploratory
      Wells
                        
                        2010
                        
                        
                        2009
                        
                        
                        2008year ended September 30
                        
                        Gross
                        
                        
                        Net
                        
                        
                        Gross
                        
                        
                        Net
                        
                        
                        Gross
                        
                        
                        NetGas
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Oil
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Oil/Gas
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Evaluating
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Drilling
      at end of year
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Suspended
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Abandoned
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Total
      Exploratory Wells
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
 
 Development
      Wells
                                                                        
                                                                        2010
                                                                        
                                                                        
                                                                        2009
                                                                        
                                                                        
                                                                        2008year ended September 30
                                                                        
                                                                        Gross
                                                                        
                                                                        
                                                                        Net
                                                                        
                                                                        
                                                                        Gross
                                                                        
                                                                        
                                                                        Net
                                                                        
                                                                        
                                                                        Gross
                                                                        
                                                                        
                                                                        NetGas
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –Oil
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –Oil/Gas
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –Evaluating
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        –Drilling
      at end of year
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –Suspended
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        7
                                                                        
                                                                        
                                                                        
                                                                        4.8
                                                                        **
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –Abandoned
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        1
                                                                        
                                                                        
                                                                        
                                                                        0.8
                                                                        **
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –Total
      Development Wells
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        8
                                                                        
                                                                        
                                                                        
                                                                        5.6
                                                                        
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        
                                                                        
                                                                        –*40% working
      interest
                                                                          **80% working
      interest
 
 Present
Activities
 
 In
September 2009, we submitted an application to the ERCB for a commercial bitumen
recovery scheme to evaluate the 12-14-092-13W5 well for potential development
using CSS and later we added the 6-22-092-13W5 well to the
application.
 
 On
October 14, 2010, our CSS Application was approved by the ERCB to conduct one
CSS production test on one of the wells to evaluate the oil sands resource using
this secondary recovery technology. The Company has appointed Asher Engineering
Ltd. to manage the CSS project and construction, including procurement of all
required equipment.The
CSS process involves steam injection into a well for a period of up to 30 days,
potentially a ”soaking” period, followed by production of heavy oil for up to 50
days or more. This CSS production test is not only for the production of heavy
oil from the Blue Sky zone of the Sawn Lake project but it will also aid in
quantifying proven reserves of oil.
 
 Past
Activities
 
 A total
of three horizontal wells were successfully drilled and cased by Signet (now
known as Andora Energy Corporation), our former farmout partner, on the Sawn
Lake Property during 2005 and 2006, and a fourth location was prepared for
drilling. These wells are pending further evaluation and the development of an
exploitation plan with our joint interest Andora Energy
Corporation.
 
 We
successfully completed our 2008/2009 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. 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. The focus of our Company’s operations 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
 
 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 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. This well is suspended pending the
results of testing.
 
 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
suspended pending the results of testing.
 
 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.
 
 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.
 
 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.
 
 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. We also added the
6-22-092-13W5 well to the CSS Application.
 
 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 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. As of September 30, 2010, no contingent liability has been recorded, as a
successful outcome for the Plaintiff is unlikely.
  18
 
 Hardie & Kelly vs.
Brown, et al
 
 On June
2, 2006, Hardie and Kelly (the “Plaintiff”), Trustee of the Estate of John
Forbes Brown, filed against John Forbes Brown, a bankrupt, Diane Lynn McClaflin,
1089144 Alberta Ltd., and Deep Well (the “Defendants”) an Amended Statement of
Claim filed in the Court of Queen’s Bench of Alberta Judicial District of
Calgary. John Forbes Brown was a former officer and then sub-contractor of Deep
Well before and at the time he was assigned into bankruptcy on July 12, 2004.
The Plaintiff claims, in addition to other issues unrelated to Deep Well, that
John Forbes Brown received 4,812,500 Deep Well shares as a result of his
employment in Deep Well and that John Forbes Brown improperly assigned these
shares to the numbered company as a ruse entered into on the eve of insolvency
by John Forbes Brown in order to facilitate the hiding of assets from his
creditors and the trustee of his bankruptcy. The Plaintiff further claims that
on August 23, 2004, John Forbes Brown advised the Plaintiff that he in fact
owned the above shares and did not disclose this ownership in his filed
bankruptcy statement of affairs.
 
 The
Plaintiff further claims that John Forbes Brown would lodge the said shares with
his lawyer until such time as these shares could be transferred to the
Plaintiff. The Plaintiff further claims that unbeknownst to them John Forbes
Brown surreptitiously removed the shares from his lawyer’s office and delivered
them to Deep Well so that Deep Well could cancel them. The Plaintiff claims that
Deep Well conspired with John Forbes Brown to defraud the creditors of John
Forbes Brown by taking receipt and canceling the said shares. The Plaintiff
claims that consideration paid by Deep Well for the said shares was invested in
the home owned by John Forbes Brown and his wife. The Plaintiff seeks: 1.) An
accounting of the proceeds and benefits derived by the dealings of the shares;
2.) The home owned by John Forbes Brown and his wife, to be held in trust on
behalf of the Plaintiff, and an accounting of proceeds related to this trust;
3.) Damages from the Defendants because of their actions; 4.) A judgment for
$15,612,645 Cdn; 5.) An order to sell John Forbes Brown’s home; and 6.) Interest
and costs.
 
 We plan
to vigorously defend ourselves against the Plaintiff’s claims. As at September
30, 2010, no contingent liability has been recorded, as a successful outcome for
the Plaintiff is unlikely.
 
 Northern Alberta Oil Ltd.
vs. 1132559 Alberta Ltd.
 
 On June
27, 2008, our subsidiary, Northern Alberta Oil Ltd. (hereinafter referred to as
“Northern”), 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”). Northern claims that 113 has not paid their share of the incurred
operating costs for the Sawn Lake project. Northern further claims that they
paid the operating expenses required on behalf of 113 and invoiced 113 for the
amounts and that 113 refused or neglected to reimburse their proportionate share
of the operating costs. Northern seeks: 1.) Payment in full in the amount of
$74,470.71 in Canadian funds for the amounts invoiced to 113; 2.) Interest
pursuant to section 106 of the PASC (“Petroleum Accountants Society of Canada”)
1996 Accounting Procedure; and 3.) Costs of the action.
 
 On August
30, 2010, our subsidiary, Northern, filed an additional Statement of Claim in
the Court of Queen’s Bench of Alberta Judicial District of Edmonton against 113.
Northern claims that 113 has neglected and refused to pay the cash calls
pursuant to two AFEs (“Authority for Expenditure”) that were approved and signed
by 113. Northern seeks: 1.) Payment in full in the amount of $70,584.50 in
Canadian funds being the balance owing, exclusive of interest, for 113’s
proportionate share of the cash calls. 2.) Interest pursuant to section
505(b)(i) of the 1990 CAPL Operating Agreement; and 3.) Costs of the
action.
 
 ITEM
      4.
              (REMOVED
      AND RESERVED)
 
  19
  PART
II
 
 ITEM
      5.
              MARKET
      FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
 
 Market Price Information for
Common Stock
 
 Deep
Well’s stock is currently quoted on the OTCQB marketplace 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 OTCQB marketplace for the periods
indicated below since April 4, 2010, all other prior sales prices are quoted on
the pink sheets. These quotations reflect inter-dealer prices, without retail
mark-up, markdown or commission and may not necessarily represent actual
transactions:
 
 High
                            
                            
                            LowFiscal
      September 30, 2006First
      Quarter
                            
                            $
                            1.31
                            
                            
                            $
                            0.37Second
      Quarter
                            
                            $
                            2.98
                            
                            
                            $
                            1.15Third
      Quarter
                            
                            $
                            2.85
                            
                            
                            $
                            1.45Fourth
      Quarter
                            
                            $
                            1.76
                            
                            
                            $
                            0.57Fiscal
      September 30, 2007First
      Quarter
                            
                            $
                            0.66
                            
                            
                            $
                            0.33Second
      Quarter
                            
                            $
                            0.56
                            
                            
                            $
                            0.23Third
      Quarter
                            
                            $
                            1.05
                            
                            
                            $
                            0.35Fourth
      Quarter
                            
                            $
                            0.84
                            
                            
                            $
                            0.45Fiscal
      September 30, 2008First
      Quarter
                            
                            $
                            0.58
                            
                            
                            $
                            0.45Second
      Quarter
                            
                            $
                            0.63
                            
                            
                            $
                            0.31Third
      Quarter
                            
                            $
                            0.73
                            
                            
                            $
                            0.42Fourth
      Quarter
                            
                            $
                            0.58
                            
                            
                            $
                            0.20Fiscal
      September 30, 2009First
      Quarter
                            
                            $
                            0.39
                            
                            
                            $
                            0.13Second
      Quarter
                            
                            $
                            0.29
                            
                            
                            $
                            0.14Third
      Quarter
                            
                            $
                            0.19
                            
                            
                            $
                            0.14Fourth
      Quarter
                            
                            $
                            0.20
                            
                            
                            $
                            0.13Fiscal
      September 30, 2010First
      Quarter
                            
                            $
                            0.18
                            
                            
                            $
                            0.11Second
      Quarter
                            
                            $
                            0.17
                            
                            
                            $
                            0.08Third
      Quarter
                            
                            $
                            0.12
                            
                            
                            $
                            0.03Fourth
      Quarter
                            
                            $
                            0.07
                            
                            
                            $
                            0.03
 
 Holders of
Record
 
 As of
November 26, 2010, we had approximately 172 holders of record of our shares of
common stock. Our Company estimates that investment dealers and other nominees
are the record holders for approximately 2,553 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.
 
 Securities Authorized for
Issuance Under Equity Compensation Plan
 
 The
following table provides information as of September 30, 2010 with respect to
shares of Deep Well’s common stock that may be issued under our existing equity
compensation plans.
  20
  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
                  
                  
                  3,378,500
                  
                  
                  $
                  0.69
                  
                  
                  
                  7,298,926
                  *Equity
      compensation plans not approved by security holders
                  
                  None
                  
                  
                  None
                  
                  
                  NoneTotal
                  
                  
                  3,378,500
                  
                  
                  $
                  0.69
                  
                  
                  
                  7,298,926
                  *
 
 * Based
on 106,774,258issued and
outstanding shares as at September 30, 2010. 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”). 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
consultant firms 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. These options were set to terminate
at the close of business five years from the date of grant, and are therefore
expired. The Plan was approved by a majority of shareholders at the February 24,
2010 general meeting of stockholders. The Stock Option Plan is administered by
the Board and permits options to acquire shares of the Deep Well’s 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.
 
 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.
  21
 
 Recent Sales of Unregistered
Securities
 
 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 with 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.
 
 On
November 9, 2010, pursuant to two subscription agreements, our Company completed
two private placements to two investors (the “Subscribers”) of an aggregate of
29,285,713 units (“Units”) at a price of $0.07 per Unit, for total gross
proceeds of $2,050,000. Each Unit is comprised of one (1) common share and one
(1) common share purchase warrant. Each warrant entitles the holder to purchase
one (1) common share at a price of $0.105 for a period of three years from the
date of closing, provided that if the closing price of the common shares of the
Company on the principal market on which our shares trade is equal to or exceeds
$1.00 for thirty consecutive trading days, the warrant term shall automatically
accelerate to the date which is thirty calendar days following the date that
written notice has been given to the warrantholder. No commission or finder’s
fees were payable in connection with these private placements. The Units were
issued pursuant to Regulation S under the Securities Act of 1933, as amended.
The Company intends to use the majority of the net proceeds from the private
placements to conduct engineering, construction and other operations for its
recently approved CSS production test.
 
 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.
  22
  ITEM
      7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
 
 The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and related notes. For the purpose of this
discussion, unless the context indicates another meaning, the terms: “Deep
Well,” “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, 2010.
 
 Our consolidated financial
statements and information are reported in U.S. dollars and are prepared based
upon United States generally accepted accounting
principles (“US GAAP”).
 
 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 we presently control 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 OTCQB marketplace under the
symbol DWOG. We maintain a web site at www.deepwelloil.com.
 
 On April
21, 2010, we announced our quotation on the OTCQB marketplace. This graduation
from the “Pink Sheets – Current Information” tier recognizes the progress that
we have made in meeting our reporting requirements under the Securities Exchange
Act of 1934. The OTCQB is a new market that requires companies to be up to date
in their filing requirements under the Securities Exchange Act of
1934.
 
 Results of Operations for
the Year Ended September 30, 2010
 
 Deep Well
is an exploration stage company and as such does not have commercial production
on 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 investors, locating joint venture
partners, acquiring and analyzing seismic data, engaging various firms to comply
with leasehold conditions, environmental regulations as well as project
management, and developing our long term business strategies. For the year ended
September 30, 2010, and for the comparable period, we generated no revenues from
operations.
 
 September 10, 2003Year Ended
                        
                        
                        Year Ended
                        
                        
                        toSeptember 30, 2010
                        
                        
                        September30,2009
                        
                        
                        September30,2010Revenue
                        
                        $
                        –
                        
                        
                        $
                        –
                        
                        
                        $
                        –ExpensesGeneral
      and Administrative
                        
                        $
                        1,119,130
                        
                        
                        $
                        2,068,176
                        
                        
                        $
                        10,515,638Amortization
      and Accretion
                        
                        
                        217,605
                        
                        
                        
                        146,261
                        
                        
                        
                        379,906Share
      Based Compensation
                        
                        
                        –
                        
                        
                        
                        5,802
                        
                        
                        
                        923,142Net
      Loss from Operations
                        
                        
                        (1,336,735
                        )
                        
                        
                        (2,220,239
                        )
                        
                        
                        (11,818,686
                        )Other
      Income and ExpensesRental
      and Other Income
                        
                        
                        160
                        
                        
                        
                        18,073
                        
                        
                        
                        18,233Interest
      Income
                        
                        
                        5,023
                        
                        
                        
                        34,826
                        
                        
                        
                        206,072Interest
      Expense
                        
                        
                        –
                        
                        
                        
                        (3
                        )
                        
                        
                        (208,580
                        )Forgiveness
      of Loan Payable
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        287,406Settlement
      of Debt
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        24,866Loss
      on Disposal of Asset
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        (510
                        )Net
      Loss and Comprehensive Loss
                        
                        $
                        (1,331,552
                        )
                        
                        $
                        (2,167,343
                        )
                        
                        $
                        (11,491,199
                        )
  23
 
 Our net
loss and comprehensive loss for the year ended September 30, 2010 was $1,331,552
compared to a net loss and comprehensive loss of $2,167,343 for the year ended
September 30, 2009. This difference was due primarily to a decrease of $949,046
in general and administrative costs relating to a decrease in operating
expenses.
 
 For the
year ended September 30, 2010, interest income decreased by $29,803, compared to
the year ended September 30, 2009, due primarily to not receiving interest from
term deposits the Company had in the prior year.
 
 Operations
 
 Deep
Well, through its subsidiaries Northern Alberta Oil Ltd. (“Northern”) and Deep
Well Oil & Gas (Alberta) Ltd., currently has an 80% working interest in 56
contiguous sections of oil sands leases and a 40% working interest in an
additional 12 contiguous sections of oil sands leases in the Peace River oil
sands area of Alberta, Canada. Our oil sands leases cover 43,015 gross acres
(17,408 gross hectares) of land.
 
 Previously,
we successfully completed a drilling program and drilled 6 wells. In addition,
we have an interest in 3 horizontal wells, which were previously drilled by our
former farmout partner, and an interest in two wells the Company acquired. Since
then we have been evaluating the options for production available to us to
determine the best course of action. Drilling on 80% owned lands has opened new
avenues for testing and further development of the Sawn Lake project. The focus
of our drilling program was 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.
 
 In
September 2009, we submitted an application to the Energy Resources Conservation
Board (“ERCB”) for a commercial bitumen recovery scheme to evaluate the
12-14-092-13W5 well for potential development using Cyclic Steam Stimulation
(“CSS”) and later added the 6-22-092-13W5 well to the application. On October
14, 2010 this application was approved by the ERCB to conduct one CSS production
test one of the wells to evaluate the oil sands resource using this secondary
recovery technology. The Company has appointed Asher Engineering Ltd. to manage
the CSS project and construction, including procurement of all required
equipment.The
CSS process involves steam injection into a well for a period of up to 30 days,
potentially a ”soaking” period, followed by production of heavy oil for up to 50
days or more. This CSS production test is not only for the production of heavy
oil from the Blue Sky zone of the Sawn Lake project but it will also aid in
quantifying the Company’s oil reserves.
 
 In July
2010, Chapman Petroleum Engineering Ltd. performed an independent technical
evaluation of the heavy oil properties on some of our Sawn Lake properties. The
report confirmed the suitability for thermal recovery methods. In addition,
Chapman Petroleum Engineering Ltd. identified a new hydrocarbon bearing zone
up-hole from the Bluesky zone presently being concentrated on by the Company.
This secondary heavy oil zone is in the Peace River formation. It is a clastic
unit of Lower Cretaceous age found at a shallower depth than the Bluesky. It is
approximately 35 meters thick and is a massive, very fine to medium grain
sandstone conformably deposited on the Harmon shale. The Company will continue
the development of the Bluesky reservoir and at the same time will evaluate this
newly discovered reservoir by coring future wells.
 
 On
November 9, 2010 we secured two private placement financings for $2,050,000. The
Company intends to use the majority of the net proceeds from the private
placements to conduct engineering, construction and other operations for its
recently approved CSS production test.
 
 The
Company has also appointed Pioneer Land and Environmental to proceed immediately
with the environmental studies mandated by Alberta Regulations before the
Company can embark on a five to seven well production pilot project as an
interim step toward full scale commercial production. The Company’s geological
studies lead it to conclude that its working interest can support full
commercial production. The Company is fully committed to best practices in
environmental stewardship to assure sustainable development of its in-situ heavy
oil holdings.
 
 Liquidity and Capital
Resources
 
 As of
September 30, 2010, our Company’s total assets were $13,923,747 compared to
$15,083,173 as of September 30, 2009, and our total liabilities as of September
30, 2010, were $564,410 compared with $392,284 as of September 30, 2009. The
decrease in our total assets was due primarily to a decrease in cash and
accounts receivable, including an $188,138.54 Cdn allowance for the money owed
to the Company by one of its joint venture co-owners. The Company is continuing
to pursue its remedies to collect these monies. The increase in our total
liabilities was primarily due to an increase in our asset retirement obligations
and accounts payable.Our working capital
(current liabilities subtracted from current assets) is as follows.
 
 September 30, 2010
                    
                    
                    September 30, 2009Current
      Assets
                    
                    $
                    386,018
                    
                    
                    $
                    2,032,025Current
      Liabilities
                    
                    
                    177,476
                    
                    
                    
                    34,049Working
      Capital
                    
                    $
                    208,542
                    
                    
                    $
                    1,997,976
  24
 
 As of
September 30, 2010, our Company had working capital of $208,542 compared to our
working capital of $1,997,976 as of September 30, 2009. Our working capital
decrease was due primarily to engineering expenses incurred for operations and
general corporate expenditures. Currently we have no long-term
debt.
 
 Our cash
and cash equivalents for the year ending September 30, 2010 were $103,550
compared to $945,835 for the comparable year ending September 30, 2009. Since
March 10, 2005, 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 $21.6 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 57,462,810 warrants
outstanding with exercise prices ranging from $0.105 to $1.20. These warrants’
expiration dates range from August 14, 2011 to November 9, 2013. If all of these
warrants are exercised we may realize aggregate proceeds of approximately $22.9
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 operations, 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.
 
 Cautionary Statements for
Purposes of the Safe Harbor Provisions of the Private Securities Litigation
Reform Act
 
 This
annual 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. For these statements,
Deep Well claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
The forward-looking statements in this annual 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;
 ·
              our
      ability to receive approvals from the ERCB for additional tests to further
      evaluate or produce the wells on our
lands;
 ·
              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;
  25
 
 ·
              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; and
 ·
              the
      additional risks and uncertainties, many of which are beyond our control,
      referred to elsewhere in this annual report on 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 annual report on 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. Any forward-looking statement
speaks only as of the date on which it was made and, except as required by law,
we disclaim any 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-Q, 8-K and any other SEC filing should be consulted.
  26
 
 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.
  27
  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
 
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Board of Directors and
 Stockholders
of Deep Well Oil & Gas, Inc. and Subsidiaries (an Exploration Stage
Company)
 
 To the
Board of Directors and Stockholders of Deep Well Oil & Gas, Inc. and
Subsidiaries (an Exploration Stage Company) We have audited the accompanying
consolidated balance sheets of Deep Well Oil & Gas, Inc. and Subsidiaries
(an Exploration Stage Company) (the Company) as of September 30, 2010 and 2009,
and the related consolidated statements of operations, stockholders’ equity, and
cash flows for each of the years in the three-year period ended September 30,
2010, and for the period from September 10, 2003 (date of inception) to
September 30, 2010. The Company’s management is responsible for these
consolidated financial statements. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We conducted our
audits 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
have, 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 of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the
consolidated financial position of Deep Well Oil & Gas, Inc. and
Subsidiaries (an Exploration Stage Company) as of September 30, 2010 and 2009,
and the consolidated results of its operations and its cash flows for each of
the years in the three-year period ended September 30, 2010, and for the period
from September 10, 2003 (date of inception) to September 30, 2010 in conformity
with accounting principles generally accepted in the United States of
America.
 
 Madsen
& Associates CPA’s, Inc.
 Murray,
UT
 December
23, 2010
  28
 
 DEEP
WELL OIL & GAS, INC. (AND SUBSIDIARIES)
 (Exploration
Stage Company)
 Consolidated
Balance Sheets
 September
30, 2010 and September 30, 2009
 
 September30,
                          2010
                        
                        
                        September30,
                          2009ASSETSCurrent
      AssetsCash
      and cash equivalents
                        
                        $
                        103,550
                        
                        
                        $
                        945,835Accounts
      receivable
                        
                        
                        195,751
                        
                        
                        
                        990,239Prepaid
      expenses
                        
                        
                        86,717
                        
                        
                        
                        95,951Total
      Current Assets
                        
                        
                        386,018
                        
                        
                        
                        2,032,025Long Term Investments
      (Note 5)
                        
                        
                        247,473
                        
                        
                        
                        77,036Oil and gas properties
      (Note 3)
                        
                        
                        12,726,396
                        
                        
                        
                        12,221,352Property & equipment net of
      depreciation(Note 4)
                        
                        
                        563,860
                        
                        
                        
                        752,760TOTAL
      ASSETS
                        
                        $
                        13,923,747
                        
                        
                        $
                        15,083,173LIABILITIESCurrent
      LiabilitiesAccounts
      payable
                        
                        $
                        42,147
                        
                        
                        $
                        34,049Accounts
      payable – related parties (Note 6)
                        
                        
                        86,774
                        
                        
                        
                        –Deposits
      on stock subscription (Note 7)
                        
                        
                        48,555Total
      Current Liabilities
                        
                        
                        177,476
                        
                        
                        
                        34,049Asset retirement
      obligations (Note 8)
                        
                        
                        386,934
                        
                        
                        
                        358,235TOTAL
      LIABILITIES
                        
                        
                        564,410
                        
                        
                        
                        392,284SHAREHOLDERS’
      EQUITYCommon stock:(Note
      9)Authorized:
      300,000,000 shares at $0.001 par valueIssued
      and outstanding: 106,774,258 shares(September 2009 – 106,774,258
      shares)(Note 9)
                        
                        
                        106,773
                        
                        
                        
                        106,773Additional
      paid in capital
                        
                        
                        24,743,763
                        
                        
                        
                        24,743,763Deficit
      accumulated during exploration stage
                        
                        
                        (11,491,199
                        )
                        
                        
                        (10,159,647
                        )Total
      Shareholders’ Equity
                        
                        
                        13,359,337
                        
                        
                        
                        14,690,889TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
                        
                        $
                        13,923,747
                        
                        
                        $
                        15,083,173
 
 See
accompanying notes to the consolidated financial statements
  29
  DEEP
WELL OIL & GAS, INC. (AND SUBSIDIARIES)
 (Exploration
Stage Company)
 CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 For
the Years Ended September 30, 2010, 2009 and 2008 and the Period from September
10, 2003
 (Inception
of Exploration Stage) to September 30, 2010
  2010
                      
                      
                      2009
                      
                      
                      2008
                      
                      
                      September 10,
                        2003 to
                        September 30,
                        2010Revenue
                      
                      $
                      –
                      
                      
                      $
                      –
                      
                      
                      $
                      –
                      
                      
                      $
                      –ExpensesGeneral
      and Administrative
                      
                      
                      1,119,130
                      
                      
                      
                      2,068,176
                      
                      
                      
                      2,769,379
                      
                      
                      
                      10,515,638Depreciation
      and accretion
                      
                      
                      217,605
                      
                      
                      
                      146,261
                      
                      
                      
                      13,706
                      
                      
                      
                      379,906Share
      based compensation
                      
                      
                      –
                      
                      
                      
                      5,802
                      
                      
                      
                      111,815
                      
                      
                      
                      923,142Net
      loss from operations
                      
                      
                      (1,336,735
                      )
                      
                      
                      (2,220,239
                      )
                      
                      
                      (2,894,900
                      )
                      
                      
                      (11,818,686
                      )Other
      income and expensesRental
      and other income
                      
                      
                      160
                      
                      
                      
                      18,073
                      
                      
                      
                      –
                      
                      
                      
                      18,233Interest
      income
                      
                      
                      5,023
                      
                      
                      
                      34,826
                      
                      
                      
                      100,070
                      
                      
                      
                      206,072Interest
      expense
                      
                      
                      –
                      
                      
                      
                      (3
                      )
                      
                      
                      (715
                      )
                      
                      
                      (208,580
                      )Forgiveness
      of loan payable
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      287,406Settlement
      of debt
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      24,866Loss
      on disposal of asset
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      (510
                      )
                      
                      
                      (510
                      )Net
      loss and comprehensive loss
                      
                      $
                      (1,331,552
                      )
                      
                      $
                      (2,167,343
                      )
                      
                      $
                      (2,796,055
                      )
                      
                      $
                      (11,491,199
                      )Net
      loss per common shareBasic
      and Diluted
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.02
                      )
                      
                      $
                      (0.03
                      )Weighted
      Average Outstanding Shares (in thousands)Basic
      and Diluted
                      
                      
                      106,774
                      
                      
                      
                      105,713
                      
                      
                      
                      85,002
  See
accompanying notes to the consolidated financial statements
  30
  DEEP
WELL OIL & GAS, INC. (AND SUBSIDIARIES)
 (Exploration
Stage Company)
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
 For
the Period from September 10, 2003 (Inception of Exploration Stage) to September
30, 2010
 
 CapitalAdditional
                  
                  
                  StockCommon Shares
                  
                  
                  Paid in
                  
                  
                  Subscriptions
                  
                  
                  AccumulatedShares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Received
                  
                  
                  Deficit
                  
                  
                  TotalBalance
      at September 10, 2003
                  
                  
                  991,918
                  
                  
                  $
                  992
                  
                  
                  $
                  (992
                  )
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –Issuance
      of common stock pursuant to bankruptcy agreement September 10,
      2003
                  
                  
                  36,019,556
                  
                  
                  
                  36,019
                  
                  
                  
                  13,981
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  50,000Net
      operating loss for the period September 10 to September 30,
      2003
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  (50,000
                  )
                  
                  
                  (50,000
                  )Balance
      at September 30, 2003
                  
                  
                  37,011,474
                  
                  
                  
                  37,011
                  
                  
                  
                  12,989
                  
                  
                  
                  –
                  
                  
                  
                  (50,000
                  )
                  
                  
                  –Return
      and cancellation of common shares
                  
                  
                  (5,775,000
                  )
                  
                  
                  (5,775
                  )
                  
                  
                  5,775
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Net
      operating loss for the year ended September 30, 2004
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  (525,754
                  )
                  
                  
                  (525,754
                  )Balance
      at September 30, 2004
                  
                  
                  31,236,474
                  
                  
                  
                  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 preferred shares of subsidiary
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  1,777,639
                  
                  
                  
                  –
                  
                  
                  
                  1,777,639Private
      placement August 12, 2005-
      Shares
                  
                  
                  710,946
                  
                  
                  
                  711
                  
                  
                  
                  151,638
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  152,349-
      Warrants (710,946)
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  132,030
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  132,030Common
      stock subscription received
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  250,000
                  
                  
                  
                  –
                  
                  
                  
                  250,000Net
      operating loss for the year ended September 30, 2005
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  (1,262,549
                  )
                  
                  
                  (1,262,549
                  )Balance
      at September 30, 2005
                  
                  
                  52,031,295
                  
                  
                  
                  52,031
                  
                  
                  
                  3,512,054
                  
                  
                  
                  2,027,639
                  
                  
                  
                  (1,838,303
                  )
                  
                  
                  3,753,421
 
 See
accompanying notes to the consolidated financial statements
  31
  DEEP
WELL OIL & GAS, INC. (AND SUBSIDIARIES)
 (Exploration
Stage Company)
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY (Continued)
 For
the Period from September 10, 2003 (Inception of Exploration Stage) to September
30, 2010
 
 CapitalAdditional
                                        
                                        
                                        StockCommon Shares
                                        
                                        
                                        Paid in
                                        
                                        
                                        Subscriptions
                                        
                                        
                                        AccumulatedShares
                                        
                                        
                                        Amount
                                        
                                        
                                        Capital
                                        
                                        
                                        Received
                                        
                                        
                                        Deficit
                                        
                                        
                                        TotalBalance
      carried forward at 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
                                        
                                        
                                        62,979,295
                                        
                                        
                                        
                                        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)
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        758,652
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        758,652Private
      placement June 22, 2007-
      Shares
                                        
                                        
                                        8,333,333
                                        
                                        
                                        
                                        8,333
                                        
                                        
                                        
                                        2,731,300
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        2,739,633-
      Warrants (8,333,333)
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        1,676,492
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        1,676,492-
      Special warrants (1,000,000)
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        283,875
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        283,875Private
      placement July 11, 2007-
      Shares
                                        
                                        
                                        323,333
                                        
                                        
                                        
                                        323
                                        
                                        
                                        
                                        106,559
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        106,882-
      Warrants (323,333)
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        66,397
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        66,397-
      Special warrants (38,800)
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        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
  32
  DEEP
WELL OIL & GAS, INC. (AND SUBSIDIARIES)
 (Exploration
Stage Company)
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY (Continued)
 For
the Period from September 10, 2003 (Inception of Exploration Stage) to September
30, 2010
 
 CapitalAdditional
                                                    
                                                    
                                                    StockCommon Shares
                                                    
                                                    
                                                    Paid in
                                                    
                                                    
                                                    Subscriptions
                                                    
                                                    
                                                    AccumulatedShares
                                                    
                                                    
                                                    Amount
                                                    
                                                    
                                                    Capital
                                                    
                                                    
                                                    Received
                                                    
                                                    
                                                    Deficit
                                                    
                                                    
                                                    TotalSubtotal
      carried forward from 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)
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    (130,276
                                                    )
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    (130,276
                                                    )-
      Warrants issued (625,000)
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    118,809
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    118,809Warrant
      exchange September 10, 2007-
      Share value transferredfrom
      warrants
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    7,237
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    7,237-
      Warrants cancelled (287,500)
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    (74,909
                                                    )
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    (74,909
                                                    )-
      Warrants issued (359,375)
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    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 8)
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –Private
      Placement August 14, 2008-
      Shares
                                                    
                                                    
                                                    10,638,297
                                                    
                                                    
                                                    
                                                    10,638
                                                    
                                                    
                                                    
                                                    3,099,429
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    3,110,067-
      Warrants (10,638,297) (Note 8)
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    1,619,827
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    1,619,827-
      Special warrants (2,000,000) (Note 8)
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    270,106
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    270,106Options
      granted for services
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    111,815
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    111,815Net
      operating loss for the year 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
                                                    )
                                                    
                                                    
                                                    11,852,430October
      11, 2008-
      Warrants expired (3,150,000)(Note 8)
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –Private
      Placement October 31, 2008-
      Shares
                                                    
                                                    
                                                    12,500,000
                                                    
                                                    
                                                    
                                                    12,500
                                                    
                                                    
                                                    
                                                    3,247,870
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    3,260,370-
      Warrants (12,500,000)(Note 8)
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    1,559,307
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    1,559,307-
      Special warrants (2,000,000)(Note 8)
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    180,323
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    180,323January
      13, 2009-
      Warrants expired (73,000)(Note 8)
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –Options
      granted for services
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    5,802
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    5,802Net
      operating loss for theyear
      ended September 30, 2009
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    (2,167,343
                                                    )
                                                    
                                                    
                                                    (2,167,343
                                                    )Balance
      at September 30, 2009
                                                    
                                                    
                                                    106,774,258
                                                    
                                                    
                                                    
                                                    106,773
                                                    
                                                    
                                                    
                                                    24,743,763
                                                    
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    (10,159,647
                                                    )
                                                    
                                                    
                                                    14,690,889
 
 See
accompanying notes to the consolidated financial statements
  33
  DEEP
WELL OIL & GAS, INC. (AND SUBSIDIARIES)
 (Exploration
Stage Company)
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY (Continued)
 For
the Period from September 10, 2003 (Inception of Exploration Stage) to September
30, 2010
 
 CapitalAdditional
                                  
                                  
                                  StockCommon
      Shares
                                  
                                  
                                  Paid
      in
                                  
                                  
                                  Subscriptions
                                  
                                  
                                  AccumulatedShares
                                  
                                  
                                  Amount
                                  
                                  
                                  Capital
                                  
                                  
                                  Received
                                  
                                  
                                  Deficit
                                  
                                  
                                  TotalBalance
      carried forward at September 30, 2009
                                  
                                  
                                  106,774,258
                                  
                                  
                                  
                                  106,773
                                  
                                  
                                  
                                  24,743,763
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  (10,159,647
                                  )
                                  
                                  
                                  14,690,889March
      9, 2010- Warrants
      expired (984,375)(Note
      8)
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –May
      25, 2010- Warrants
      expired (5,000,000)(Note
      8)
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –June
      22, 2010- Warrants
      expired (8,333,333)(Note
      8)
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –July
      11, 2010- Warrants
      expired (323,333)(Note
      8)
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –Net
      operating loss for theyear
      ended September 30, 2010
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  (1,331,552
                                  )
                                  
                                  
                                  (1,331,552
                                  )Balance
      at September 30, 2010
                                  
                                  
                                  106,774,258
                                  
                                  
                                  $
                                  106,773
                                  
                                  
                                  $
                                  24,743,763
                                  
                                  
                                  $
                                  –
                                  
                                  
                                  $
                                  (11,491,199
                                  )
                                  
                                  $
                                  13,359,337
 
 See
accompanying notes to the consolidated financial statements
  34
  DEEP
WELL OIL & GAS, INC. (AND SUBSIDIARIES)
 (Exploration
Stage Company)
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 For
the Years Ended September 30, 2010, 2009 and 2008 and the Period from September
10, 2003
 (Inception
of Exploration Stage) to September 30, 2010
 
 2010
                    
                    
                    2009
                    
                    
                    2008
                    
                    
                    September
                      10, 2003 to
                      September
                      30, 2010CASH
      PROVIDED BY (USED IN):Operating
      ActivitiesNet
      loss
                    
                    $
                    (1,331,552
                    )
                    
                    $
                    (2,167,343
                    )
                    
                    $
                    (2,796,055
                    )
                    
                    $
                    (11,491,199
                    )Items
      not affecting cash:Stock
      based compensation
                    
                    
                    –
                    
                    
                    
                    5,802
                    
                    
                    
                    111,815
                    
                    
                    
                    923,142Bad
      debts
                    
                    
                    182,110
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    352,194Depreciation
      and accretion
                    
                    
                    217,606
                    
                    
                    
                    146,261
                    
                    
                    
                    13,706
                    
                    
                    
                    379,907Forgiveness
      of loan payable
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (287,406
                    )Settlement
      of lawsuit
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    435,550Commissions
      withheld from loans proceeds
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    121,000Loss
      on disposal of asset
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    510
                    
                    
                    
                    510Net
      changes in non-cash working capital (Note 11)
                    
                    
                    716,484
                    
                    
                    
                    (1,402,731
                    )
                    
                    
                    296,959
                    
                    
                    
                    (509,170
                    )(215,352
                    )
                    
                    
                    (3,418,011
                    )
                    
                    
                    (2,373,065
                    )
                    
                    
                    (10,075,472
                    )Investing
      ActivitiesPurchase
      of property and equipment
                    
                    
                    (6,362
                    )
                    
                    
                    (835,128
                    )
                    
                    
                    (53,237
                    )
                    
                    
                    (900,355
                    )Investment
      in oil and gas properties
                    
                    
                    (498,689
                    )
                    
                    
                    (5,936,882
                    )
                    
                    
                    (1,593,718
                    )
                    
                    
                    (8,140,681
                    )Long
      Term Investments
                    
                    
                    (170,437
                    )
                    
                    
                    (77,036
                    )
                    
                    
                    –
                    
                    
                    
                    (247,473
                    )Cash
      from acquisition of subsidiary
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    11,141Return
      of costs from farmout agreement
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    961,426(675,488
                    )
                    
                    
                    (6,849,046
                    )
                    
                    
                    (1,646,955
                    )
                    
                    
                    (8,315,942
                    )Financing
      ActivitiesLoan
      payable
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    275,852Loan
      advance – related parties
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (811,746
                    )Note
      payable repayment
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (11,250
                    )
                    
                    
                    (111,306
                    )Debenture
      repayment
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (1,004,890
                    )Deposits
      on stock subscription
                    
                    
                    48,555
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    48,555Proceeds
      from issuance of common stock
                    
                    
                    –
                    
                    
                    
                    5,000,000
                    
                    
                    
                    5,000,000
                    
                    
                    
                    19,219,499Proceeds
      from debenture net of commissions
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    879,00048,555
                    
                    
                    
                    5,000,000
                    
                    
                    
                    4,988,750
                    
                    
                    
                    18,494,964Increase
      (decrease) in cash and cash equivalents
                    
                    
                    (842,285
                    )
                    
                    
                    (5,267,057
                    )
                    
                    
                    968,730
                    
                    
                    
                    103,550Cash
      and cash equivalents, beginning of year
                    
                    
                    945,835
                    
                    
                    
                    6,212,892
                    
                    
                    
                    5,244,162
                    
                    
                    
                    –Cash
      and cash equivalents, end of year
                    
                    $
                    103,550
                    
                    
                    $
                    945,835
                    
                    
                    $
                    6,212,892
                    
                    
                    $
                    103,550Supplemental
      Cash Flow Information:Interest
      expense
                    
                    $
                    –
                    
                    
                    $
                    3
                    
                    
                    $
                    715
 
 See
accompanying notes to the consolidated financial statements
  35
  DEEP
WELL OIL & GAS, INC. (AND SUBSIDIARIES)
 (Exploration
Stage Company)
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010 and 2009
 
 
 
 1.
                NATURE
      OF BUSINESS AND BASIS OF
PRESENTATION
 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 and the company name was changed from
“Allied Devices Corporation” to “Deep Well Oil & Gas, Inc.” (“Deep
Well”).
 
 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. All inter-company balances and transactions have been
eliminated.
 
 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.
 
 Property and
Equipment
 
 Property
and equipment are stated at cost less accumulated depreciation. Depreciation
expense is computed using the declining balance method over the estimated useful
life of the asset. Only half of the depreciation rate is taken in the year of
acquisition. The following is a summary of the depreciation rates used in
computing depreciation expense:
 
 Software
                      
                      
                      -
      100
                      %Computer
      equipment
                      
                      
                      -
      55
                      %Portable
      work camp
                      
                      
                      -
      30
                      %Vehicles
                      
                      
                      -
      30
                      %Road
      Mats
                      
                      
                      -
      30
                      %Office
      furniture and equipment
                      
                      
                      -
      20
                      %Oilfield
      Equipment
                      
                      
                      -
      20
                      %Tanks
                      
                      
                      -
      10
                      %
  36
 
 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. Impairment is
measured as the amount by which the assets’ carrying value exceeds its fair
value.
 
 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 be reasonably 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, 2010, asset retirement obligations
amount to $386,934. The Company has posted bonds, where required, with the
Government of Alberta based on the amount the government estimates the costs of
abandonment and reclamation to be.
 
 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, Concentration and
Credit Risk
 
 The
Company does not have any concentration or related financial credit risk as most
of the Company’s funds are maintained in a financial institution which has its
deposits fully guaranteed by the Government of Alberta and the accounts
receivable are considered to be fully collectible.
 
 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.
  37
 
 Due to
the uncertainty regarding the Company’s profitability, a valuation allowance has
been recorded against the future tax benefits of its losses and no net benefit
has been recorded in the consolidated 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 anti-dilutive
and then only the basic per share amounts are shown in the report.
 
 Financial
Instruments
 
 Fair
Values
 
 The fair
values of the Company’s cash and cash equivalents, accounts receivable, accounts
payable and accounts payable – related parties 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 oil and gas properties
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 reflects estimates of award forfeitures at the time of grant and revises
in subsequent periods, if necessary, when forfeiture rates are expected to
change.
 
 Recently Adopted Accounting
Standards
 
 In June
2009, the FASB approved the FASB Accounting Standards Codification (“ASC”),
which after its effective date of July 1, 2009 is the single source of
authoritative, nongovernmental U.S. Generally Accepted Accounting Principles
(GAAP). The Codification reorganizes all previous U.S. GAAP pronouncements into
roughly 90 accounting topics and displays all topics using consistent structure.
All existing standards that were used to create the Codification are now
superseded, replacing the previous references to specific Statements of
Financial Accounting Standards (“SFAS”) with numbers used in the Codification’s
structural organization. The adoption of this guidance did not have a material
impact on the Company’s financial statements. The Company has updated the
disclosures accordingly.
 
 Recent
changes to SEC Regulation S-K and S-X pertaining to Modernization of Oil and Gas
Reporting include changes to the price used to compute reserves, the definition
of reserves, the use of technology and the optional disclosure of probable and
possible reserves. The new regulations are effective for years ending after
December 15, 2009. The adoption of the new regulations did not have a material
impact on the Company’s financial statements.
  38
 
 In
January 2010, the FASB issued Accounting Standards Update No. 2010-03,
“Extractive Activities—Oil and Gas—Oil and Gas Reserve Estimation and
Disclosures.” This ASU amends the “Extractive Industries—Oil and Gas” Topic of
the Codification to align the oil and gas reserve estimation and disclosure
requirements in this Topic with the SEC’s Release No. 33-8995, “Modernization of
Oil and Gas Reporting Requirements (Final Rule),” discussed below. The
amendments are effective for annual reporting periods ending on or after
December 31, 2009, and the adoption of these provisions for the Company’s fiscal
year ended September 30, 2010, did not have a material impact on the financial
statements.
 
 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 fiscal 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;
 
 ·
              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 individual fields or countries have remained undeveloped for
      five years or more after disclosure as PUDs;
and
 
 ·
              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 reserve
      estimates.
 
 The
adoption of the final rule has not had a material effect on the financial
statements.
 
 On
February 24, 2010, the FASB issued Accounting Standards Update ("ASU") 2010-09,
effective immediately, which amended ASC Topic 855, Subsequent Events (formerly
SFAS No. 165). The amendment was made to address concerns about conflicts with
SEC guidance and other practice issues. Among the provisions of the amendment,
the FASB defined a new type of entity, termed an "SEC filer," which is an entity
required to file with or furnish its financial statements to the SEC. Entities
other than registrants whose financial statements are included in SEC filings
(e.g., businesses or real estate operations acquired or to be acquired, equity
method investees, and entities whose securities collateralize registered
securities) are not SEC filers. While an SEC filer is still required by U.S.
GAAP to evaluate subsequent events through the date its financial statements are
issued, it is no longer required to disclose in the financial statements that it
has done so or the date through which subsequent events have been evaluated. The
adoption of ASU 2010-09 has not had a material effect on the results of
operations or financial position.
 
 Recently Issued Accounting
Standards
 
 In
January 2010, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and
Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements.”
This ASU requires some new disclosures and clarifies some existing disclosure
requirements about fair value measurement as set forth in Accounting Standards
Codification (“ASC”) 820 (formerly SFAS No. 157). ASU 2010-06 amends ASC 820
(formerly SFAS No. 157) to now require: (1) a reporting entity should disclose
separately the amounts of significant transfers in and out of Level 1 and Level
2 fair value measurements and describe the reasons for the transfers; and (2) in
the reconciliation for fair value measurements using significant unobservable
inputs, a reporting entity should present separately information about
purchases, sales, issuances, and settlements. In addition, ASU 2010-06 clarifies
the requirements of existing disclosures. ASU 2010-06 is effective for interim
and annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. Early application is permitted. The Company
will comply with the additional disclosures required by this guidance upon its
adoption in October 2010.
  39
  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 used in preparing these
consolidated financial statements.
 
 Significant
estimates by management include valuations of oil and gas properties, valuation
of accounts receivable, useful lives of long-lived assets, asset retirement
obligations, valuation of share-based compensation, and the realizability of
future income taxes.
 
 3.
              OIL
      AND GAS PROPERTIES
 
 The
Company has acquired interests in certain oil sands properties located in North
Central Alberta, Canada. The terms include certain commitments related to oil
sands properties that require the payments of rents as long as the leases are
non-producing. As of September 30, 2010, Northern’s net payments due in Canadian
dollars under this commitment are as follows:
 
 2011
                    
                    $
                    45,1582012
                    
                    $
                    45,1582013
                    
                    $
                    45,1582014
                    
                    $
                    45,1582015
                    
                    $
                    45,1582016
                    
                    $
                    45,158Subsequent
                    
                    $
                    134,042
 
 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:
 
 a)
              drill
      68 wells throughout the 68 sections;
or
 
 b)
              drill
      44 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, 2010,
the Company has an interest in ten wells, which can be counted toward this
obligation.
 
 The
Company has identified 2 other wells drilled on these leases, which may be
included in the satisfaction of this requirement. The Company has also acquired
and processed 25 miles of seismic on the leases.
 
 The
Company follows the successful efforts method of accounting for costs of oil and
gas properties. Under this method, only those explorations and development costs
that relate directly to specific oil and gas reserves are capitalized; costs
that do not relate directly to specific reserves are charged to expense.
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. No impairment losses were recognized for
the period ended September 30, 2010 (September 30, 2009 - $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.
  40
 
 On
November 26, 2007, the Company entered into a settlement agreement with Signet
Energy Inc. and Andora Energy Corporation (at the time “Signet” was a 100% owned
subsidiary company of Andora Energy Corporation) and resolved their differences
and certain collateral matters. The settlement includes but is not limited
to:
 
 a)
              The
      Farmout Agreement dated February 25, 2005, 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
 e)
              A
      joint discontinuance of the remaining minor litigation issues amongst all
      the parties.
 
 As of
November 19, 2008, the Company converted its Signet shares into 2,241,558 shares
of Andora, which represents an equity interest in Andora of approximately 4.05%.
Since these shares represent a beneficial ownership in additional Sawn Lake oil
sands properties and were acquired as a result of a Farmout Agreement related to
those properties, their value is included under oil and gas
properties.
 
 On April
30, 2009, 1.5 sections of previously owned leases reverted back to the
provincial government.
 
 4.
              PROPERTY
      AND EQUIPMENT
 
 September 30, 2010Accumulated
                        
                        
                        Net BookCost
                        
                        
                        Depreciation
                        
                        
                        ValueComputer
      Equipment
                        
                        $
                        31,460
                        
                        
                        $
                        25,607
                        
                        
                        $
                        5,853Office
      furniture and equipment
                        
                        
                        33,476
                        
                        
                        
                        14,580
                        
                        
                        
                        18,896Software
                        
                        
                        5,826
                        
                        
                        
                        5,826
                        
                        
                        
                        –Leasehold
      improvements
                        
                        
                        4,935
                        
                        
                        
                        1,612
                        
                        
                        
                        3,323Portable
      work camp
                        
                        
                        170,580
                        
                        
                        
                        69,085
                        
                        
                        
                        101,495Vehicles
                        
                        
                        38,077
                        
                        
                        
                        15,421
                        
                        
                        
                        22,656Oilfield
      equipment
                        
                        
                        154,713
                        
                        
                        
                        42,175
                        
                        
                        
                        112,538Road
      Mats
                        
                        
                        364,614
                        
                        
                        
                        147,669
                        
                        
                        
                        216,945Tanks
                        
                        
                        96,085
                        
                        
                        
                        13,931
                        
                        
                        
                        82,154$
                        899,766
                        
                        
                        $
                        335,906
                        
                        
                        $
                        563,860
 
 September 30, 2009Accumulated
                        
                        
                        Net BookCost
                        
                        
                        Depreciation
                        
                        
                        ValueComputer
      Equipment
                        
                        $
                        31,460
                        
                        
                        $
                        18,552
                        
                        
                        $
                        12,908Office
      furniture and equipment
                        
                        
                        33,476
                        
                        
                        
                        9,856
                        
                        
                        
                        23,620Software
                        
                        
                        5,826
                        
                        
                        
                        5,826
                        
                        
                        
                        –Leasehold
      improvements
                        
                        
                        4,935
                        
                        
                        
                        781
                        
                        
                        
                        4,154Portable
      work camp
                        
                        
                        170,580
                        
                        
                        
                        25,587
                        
                        
                        
                        144,993Vehicles
                        
                        
                        38,077
                        
                        
                        
                        5,712
                        
                        
                        
                        32,365Oilfield
      equipment
                        
                        
                        148,352
                        
                        
                        
                        14,835
                        
                        
                        
                        133,517Road
      Mats
                        
                        
                        364,614
                        
                        
                        
                        54,692
                        
                        
                        
                        309,922Tanks
                        
                        
                        96,085
                        
                        
                        
                        4,804
                        
                        
                        
                        91,281$
                        893,405
                        
                        
                        $
                        140,645
                        
                        
                        $
                        752,760
 
 There was
$217,605 of depreciation and accretion expenses for the year ended September 30,
2010 (September 30, 2009 - $146,261).
 
 5.
              LONG
      TERM INVESTMENTS
 
 Long term
investments consist of cash held in trust by the Energy Resources Conservation
Board which bears a interest at a rate of prime minus 0.375% and has no stated
date of maturity.
  41
  6.
              SIGNIFICANT
      TRANSACTIONS WITH RELATED PARTIES
 
 Accounts
payable – related parties was $86,774 for the year ended September 30, 2010
(September 30, 2009 - $nil) resulted from fees payable to corporations owned by
directors. This amount is unsecured, non-interest bearing, and has no fixed
terms of repayment.
 
 As of
September 30, 2010, officers, directors, their families, and their controlled
entities have acquired 38.71% of the Company’s outstanding common capital stock.
This percentage does not include unexercised warrants or stock
options.
 
 The
Company made payments totalling $246,347 to two related parties for professional
fees and consulting services during the year ended September 30,
2010.
 
 7.
              DEPOSITS
      ON STOCK SUBSCRIPTION
 
 The
Company received $48,555 in deposits for stock, for which the Company received
subsequent subscription agreements.
 
 8.
              ASSET
      RETIREMENT OBLIGATIONS
 
 The total
future asset retirement obligation is estimated by management based on the
Company’s net working interests in all wells and facilities, estimated costs to
reclaim and abandon wells and facilities and the estimated timing of the costs
to be incurred in future periods. At September 30, 2010, the Company estimates
the undiscounted cash flows related to asset retirement obligation to total
approximately $531,055. The fair value of the liability at September 30, 2010 is
estimated to be $386,934 using a risk free rate of 3.74% and an inflation rate
of 2%. The actual costs to settle the obligation are expected to occur in
approximately 35 years.
 
 Changes
to the asset retirement obligation were as follows:
 
 September 30,
                        2010
                      
                      
                      September 30,
                        2009Balance,
      beginning of year
                      
                      $
                      358,235
                      
                      
                      $
                      –Liabilities
      incurred
                      
                      
                      –
                      
                      
                      
                      345,320Effect
      of foreign exchange
                      
                      
                      14,749
                      
                      
                      
                      –Accretion
      Expense
                      
                      
                      13,950
                      
                      
                      
                      12,915Balance,
      end of year
                      
                      $
                      386,934
                      
                      
                      $
                      358,235
 
 9.
              SHARE
      CAPITAL
 
 On
October 11, 2008, 3,150,000 warrants previously granted on October 11, 2005
expired.
 
 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.
 
 On
January 13, 2009, 73,000 warrants previously granted on January 13, 2006
expired.
 
 On March
9, 2010, 984,375 warrants previously granted on March 10, 2005
expired.
 
 On May
25, 2010, 5,000,000 warrants previously granted on May 25, 2007
expired.
 
 On June
22, 2010, 8,333,333 warrants previously granted on June 22, 2007
expired.
 
 On July
11, 2010, 323,333 warrants previously granted on July 11, 2007
expired.
 
 There
were 28,177,097 warrants outstanding as of September 30, 2010 (September 30,
2009 – 42,818,138), which were valued at $3,924,459 (September 30, 2009 -
$6,612,481) as of September 30, 2010.
  42
 
 10.
              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 was
approved by the majority of shareholders at the February 24, 2010 general
meeting of shareholders. The Plan is 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 vested 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.
 
 For the
period ended September 30, 2010, the Company recorded no share based
compensation expense (September 30, 2009 - $5,802) as no new stock options have
been issued and the fair value of the outstanding stock options has been
previously expensed. No options were exercised during the period ended September
30, 2010, therefore, the intrinsic value of the options exercised during the
period ended September 30, 2010 is $nil. As of September 30, 2010, there was no
remaining unrecognized compensation cost related to the non-vested portion of
these unit option awards. Compensation expense is based upon straight-line
amortization of the grant-date fair value over the vesting period of the
underlying unit option.
 
 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, 2010
                        
                        
                        276,000
                        
                        
                        
                        1.97
                        
                        
                        $
                        0.47
                        
                        
                        
                        276,000
                        
                        
                        $
                        0.47$0.71
      at September 30, 2010
                        
                        
                        3,102,500
                        
                        
                        
                        0.27
                        
                        
                        
                        0.71
                        
                        
                        
                        3,102,500
                        
                        
                        
                        0.713,378,500
                        
                        
                        
                        0.41
                        
                        
                        $
                        0.69
                        
                        
                        
                        3,378,500
                        
                        
                        $
                        0.69
 
 The
aggregate intrinsic value of exercisable options as of September 30, 2010, was
$nil (September 30, 2009 – $nil).
 
 The
following is a summary of stock option activity as at September 30,
2010:
 
 Number of
                                  Shares
                                
                                
                                Weighted
                                  Average
                                  Exercise
                                  Price
                                
                                
                                Weighted
                                  Average Fair
                                  Market
                                  ValueBalance,
      September 30, 2008, 2009 and 2010
                                
                                
                                3,378,500
                                
                                
                                $
                                0.69
                                
                                
                                $
                                0.27Exercisable,
      September 30, 2010
                                
                                
                                3,378,500
                                
                                
                                $
                                0.69
                                
                                
                                $
                                0.27
  43
 
 The
following table summarizes the activity of the Company’s non-vested stock
options since September 30, 2008:
 
 Non-Vested OptionsNumber of
                          Shares
                        
                        
                        Weighted
                          Average
                          Exercise
                          PriceNon-Vested
      at September 30, 2008
                        
                        
                        102,000
                        
                        
                        $
                        0.70Vested
                        
                        
                        (102,000
                        )
                        
                        
                        0.70Non-vested
      at September 30, 2009 and 2010
                        
                        
                        –
                        
                        
                        $
                        –
 
 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.
 
 11.
              CHANGES
      IN NON-CASH WORKING CAPITAL
 
 2010
                      
                      
                      2009
                      
                      
                      2008Accounts
      receivable
                      
                      $
                      612,378
                      
                      
                      $
                      (584,413
                      )
                      
                      $
                      (325,744
                      )Prepaid
      expenses
                      
                      
                      9,234
                      
                      
                      
                      110,879
                      
                      
                      
                      (33,387
                      )Accounts
      payable
                      
                      
                      94,872
                      
                      
                      
                      (929,197
                      )
                      
                      
                      656,090$
                      716,484
                      
                      
                      $
                      (1,402,731
                      )
                      
                      $
                      296,959
 
 12.
              INCOME
      TAXES
 
 As of
September 30, 2010, the Company has approximately $3,875,711 (2009 – $3,706,111)
of net operating losses expiring through 2029 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, 2010, the Company had an unused Canadian net operating loss
carry-forward of approximately $8,844,649 (2009 – $7,013,826), expiring through
2029. These operating loss carry-forwards may result in future income tax
benefits of approximately $3,921,447. 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.
  44
 
 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, 2010
                            
                            
                            Year Ended
                              September
                              30, 2009Statutory
      and effective tax rateDomesticStatutory
      U.S. federal rate
                            
                            
                            35.00
                            %
                            
                            
                            35.00
                            %Foreign
                            
                            
                            29.00
                            %
                            
                            
                            29.00
                            %Income
      taxes recovered at the statutory and effective tax rateDomesticStatutory
      U.S. federal rate
                            
                            $
                            59,360
                            
                            
                            $
                            289,500Foreign
                            
                            
                            336,966
                            
                            
                            
                            388,658Timing
      differences:Non-deductible
      expenses
                            
                            
                            (62,102
                            )
                            
                            
                            (115,775
                            )Financing
      fees
                            
                            
                            497
                            
                            
                            
                            801Other
      deductible charges
                            
                            
                            2,474
                            
                            
                            
                            2,067Benefit
      of tax losses not recognized in the year
                            
                            
                            (337,195
                            )
                            
                            
                            (565,251
                            )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,
                          2010
                        
                        
                        September 30,
                          2009Deferred
      income tax assets (liabilities)Net
      operating loss carry-forwards
                        
                        $
                        3,921,448
                        
                        
                        $
                        3,331,148Oil
      and gas properties
                        
                        
                        160,227
                        
                        
                        
                        79,732Finance
      fee deductible in future years
                        
                        
                        64
                        
                        
                        
                        498Equipment
                        
                        
                        104,249
                        
                        
                        
                        36,665Valuation
      allowance
                        
                        
                        (4,185,988
                        )
                        
                        
                        (3,448,043
                        )Net
      deferred income tax assets
                        
                        $
                        –
                        
                        
                        $
                        –
 
 13.
              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.
  45
 
 Rental
Agreement
 
 On
November 20, 2007 and December 1, 2008, the Company entered into two office
lease agreements commencing December 1, 2007 and January 1, 2009 and expiring on
November 30, 2012 and December 31, 2013, respectively. The annual payments are
as follows:
 
 2011
                    
                    $
                    71,5462012
                    
                    $
                    73,3802013
                    
                    $
                    47,6472014
                    
                    $
                    10,625
 
 14.
              SUBSEQUENT
      EVENTS
 
 On
November 9, 2010, the Company completed two private placements for an aggregate
of 29,285,713 units at a price of $0.07 per unit for an aggregate of $2,050,000
(including the Deposit received prior to September 30, 2010 of $48,555). Each
unit consists of one common share and one common share purchase warrant. Each
warrant entitles the holder to purchase one additional common share at a price
of $0.105 per common share for a period of three years from the date of closing,
provided that if the closing price of the Common Shares of the Company on the
principal market on which the shares trade is equal to or exceeds US$1.00 for 30
consecutive trading days, the warrant term shall automatically accelerate to the
date which is 30 calendar days following the date that written notice has been
given to the warrantholders. The warrants expire on November 9,
2013.
 
 15.
              LEGAL
      ACTIONS
 
 I.G.M Resources Corp. vs.
Deep Well Oil & Gas, Inc., et al
 
 On March
10, 2005, I.G.M. Resources Corp. ("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
in which 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 at September 30, 2010, no contingent liability has been
recorded, as the Company believes that 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 4,812,500 Deep Well
shares as a result of his employment at 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.
  46
 
 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, 2010, no contingent liability has been recorded, as the Company
believes that a successful outcome for the Plaintiff is unlikely.
  47
  ITEM
      9.
              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
  During
the fiscal years ended September 30, 2010 and 2009, 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, 2010, 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 Exchange Act of 1934) 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 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.
 
 It should
be noted that while our principal executive officer and principal financial
officer believe that our disclosure controls and procedures provide a reasonable
level of assurance that they are effective, they do not expect that our
disclosure controls and procedures or internal control over financial reporting
will prevent all errors and fraud. A control system, no matter how well
conceived or operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met.
 
 Changes in Internal Control
Over Financial Reporting
 
 During
the fiscal year ended September 30, 2010 there were no changes in our internal
control over financial reporting that would have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
 
 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.
  48
  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, 2010Name
                      
                      Age
                      
                      Position/OfficeDr.
      Horst A. Schmid
                      
                      77
                      
                      Director
      and Chairman of the Board, President and Chief Executive
      OfficerMr.
      David Roff
                      
                      39
                      
                      DirectorMr.
      Curtis James Sparrow
                      
                      53
                      
                      Director
      and Chief Financial Officer, Secretary and TreasurerMr. Malik Youyou
                      
                      57
                      
                      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, 2010
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.
 
 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 and
provided services to our Company 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.
 
 Family
Relationships
 
 There are
no family relationships among the directors and executive
officers.
  49
  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, 2010 fiscal year, as required under Section
16(a)(2) of the Securities Exchange Act of 1934, Mr. Malik Youyou, a director
and a 10% or more beneficial owner of our Company, filed one Form 4
late.
 
 Code of
Ethics
 
 As of
September 30, 2010, 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.
 
 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 September 30, 2010, our Board of
Directors consisted of one independent and three non-independent directors. The
directors of our Company are as follows:
 
 As at September 30, 2010Name
                                            
                                            Year When First
                                              Appointed asDirectorDr.
      Horst A. Schmid
                                            
                                            2004
                                            
                                            Non-independent
      directorMr.
      David Roff
                                            
                                            2006
                                            
                                            Non-independent
      directorMr.
      Curtis James Sparrow
                                            
                                            2004
                                            
                                            Non-independent
      directorMr.
      Malik Youyou
                                            
                                            2008
                                            
                                            Independent
      director
 
 Board
Meetings, Committees and Annual Meeting Attendance
 
 In the
September 30, 2010 fiscal year our Board of Directors had four meetings. Each
director of our Company attended 100% of all meetings held by the Board of
Directors except one director who attended 50% of all meetings held by the Board
of Directors. 100% of all directors attended the general meeting of stockholders
held on Febuary 24, 2010. We did not have a general meeting of stockholders
during the fiscal years ended September 30, 2009 or September 30,
2008.
  50
  Our
Company currently does not have any Board committees. Our entire Board is
currently acting as Board committee but is reviewing this situation to
potentially adopt various 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.
 
 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 September 30, 2010 fiscal
year.
 
 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
recognize the investment in our Company that stockholders of our common stock
have made and accordingly, we are committed to the open exchange of ideas,
concerns and suggestions with our stockholders. Stockholders desiring to
communicate with the Board of Directors of the Company can do so bymailing a letter to the
attention of the Chairman of the Board of Directors addressed to our Company’s
corporate office at Suite 700, 10150 – 100 Street, Edmonton, Alberta, T5J 0P6.
We held our general meeting of stockholders on February 24, 2010 for the fiscal
year ending September 30, 2010. We did not have a general meeting of
stockholders during the fiscal years ended September 30, 2009 or September 30,
2008.
  51
  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, 2010 and September
30, 2009, by the executive officers listed below (the “Named Executive
Officers”).
 
 Executive Compensation SummaryName and Principal Position
                                                
                                                Fiscal
                                                  Year
                                                  Sept. 30
                                                
                                                Fee
                                                  ($Cdn)
                                                
                                                
                                                Bonus $
                                                
                                                
                                                Stock
                                                  Awards $
                                                
                                                
                                                Option
                                                  Awards $
                                                
                                                
                                                Non-Equity
                                                  Incentive
                                                  Plan
                                                  Compen-
                                                  sation $
                                                
                                                
                                                Non-
                                                  qualified
                                                  Deferred
                                                  Compen-
                                                  sation
                                                  Earnings $
                                                
                                                
                                                All Other
                                                  Compen-
                                                  sation $
                                                
                                                
                                                Total ($US)Dr. Horst A. Schmid (1)
                                                
                                                2010
                                                
                                                $
                                                150,000
                                                (2)
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                
                                                (3)
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                4,000
                                                (4)
                                                
                                                $
                                                149,665President
      and
                                                
                                                2009
                                                
                                                
                                                150,000
                                                (2)
                                                
                                                
                                                –
                                                
                                                
                                                
                                                –
                                                
                                                
                                                
                                                –
                                                
                                                
                                                
                                                –
                                                
                                                
                                                
                                                –
                                                
                                                
                                                
                                                3,000
                                                (4)
                                                
                                                
                                                142,905Chief
      Executive OfficerMr. Curtis James Sparrow (5)
                                                
                                                2010
                                                
                                                $
                                                180,000
                                                (6)
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                
                                                (7)
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                2,000
                                                (8)
                                                
                                                $
                                                176,798Chief
      Financial Officer
                                                
                                                2009
                                                
                                                
                                                180,000
                                                (6)
                                                
                                                
                                                –
                                                
                                                
                                                
                                                –
                                                
                                                
                                                
                                                –
                                                
                                                
                                                
                                                –
                                                
                                                
                                                
                                                –
                                                
                                                
                                                
                                                1,500
                                                (8)
                                                
                                                
                                                169,386Mr. David Roff (9)
                                                
                                                2010
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                2,000
                                                (12)
                                                
                                                $
                                                2,000Consultant
                                                
                                                2009
                                                
                                                
                                                144,000
                                                (10)
                                                
                                                
                                                –
                                                
                                                
                                                
                                                –
                                                
                                                
                                                
                                                5,713
                                                (11)
                                                
                                                
                                                –
                                                
                                                
                                                
                                                –
                                                
                                                
                                                
                                                1,500
                                                (12)
                                                
                                                
                                                141,522Mr. Edward Howard (13)
                                                
                                                2010
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                –
                                                (15)
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                –
                                                
                                                
                                                $
                                                –Geologist
                                                
                                                2009
                                                
                                                
                                                194,700
                                                (14)
                                                
                                                
                                                –
                                                
                                                
                                                
                                                –
                                                
                                                
                                                
                                                –
                                                
                                                
                                                
                                                –
                                                
                                                
                                                
                                                –
                                                
                                                
                                                
                                                –
                                                
                                                
                                                
                                                181,597
 
 (1) 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.
 
 (2)
Portwest Investments Ltd., a company owned 100% by Dr. Horst A. Schmid, provided
services as Chief Executive Officer and President to our Company and invoiced us
Cdn $150,000 for the 2010 fiscal year and Cdn $150,000 for the 2009 fiscal year.
For the 2010 fiscal year Portwest Investments Ltd. accrued Cdn $37,500 of the
above fees for Dr. Schmid’s services provided to our Company.
 
 (3) On
November 28, 2010, all stock options granted to Dr. Horst A. Schmid and Portwest
Investments Ltd. expired unexercised.
 
 (4) Dr.
Horst A. Schmid was paid $4,000 for the fiscal year 2010 and $3,000 for the
fiscal year 2009, for director’s fees for his services on the Board of Directors
as Chairman of the Board of our Company.
 
 (5) 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.
 
 (6)Concorde Consulting, a company owned 100% by Mr. Curtis James Sparrow,
provided services as Chief Financial Officer to our Company and invoiced us Cdn
$180,000 for the 2010 fiscal year and Cdn $180,000 for the 2009 fiscal year. For
the 2010 fiscal year Concorde Consulting accrued Cdn $45,000 of the above fees
for Mr. Sparrow’s services provided to our Company.
 
 (7) On
November 28, 2010, all stock options granted to Mr. Curtis James Sparrow and
Concorde Consulting expired unexercised..
 
 (8) Mr.
Curtis James Sparrow was paid $2,000 for the fiscal year 2010 and $1,500 for the
fiscal year 2009, for director’s fees for his services on the Board of Directors
as director of our Company.
 
 (9) 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, 50% owned by a non-related third party, has
been a consultant to our Company since July 15, 2005 to April 1,
2009.
 
 (10) Brave
Consulting Corporation, a company owned 50% by Mr. David Roff,50% owned by a
non-related party, was paid Cdn $0 for the 2010 fiscal year and Cdn $144,000 for
the 2009 fiscal year, for providing consulting services to our Company for the
2010, 2009 and 2008 fiscal years, respectively.
 
 (11) 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 2010 and 2009
and 2008 was $0 and $5,713, respectively. Mr. Roff has not exercised any of his
stock options and these options are expected to expire on October 25,
2011.
 
 (12) Mr.
David Roff was paid $2,000 for the fiscal year 2010 and $1,500 for the fiscal
year 2009, for director’s fees for his services on the Board of Directors as
director of our Company.
  52
 
 (13) 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.
was to be paid $17,700 Cdn per month.
 
 (14) R.N.
Dell Energy, a company 100% owned by Mr. Edward Howard, was paid Cdn $0 and Cdn
$194,700 for providing consulting services to our Company for the 2010 and 2009
fiscal years, respectively.
 
 (15) 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. This stock
option will be exercisable for five years from the date of its issuance and is
expected to expire on September 20, 2012. 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 its stock
options.
 
 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.
 
 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 and on November 28, 2010 these options expired
unexercised.
 
 Outstanding Equity Awards Granted to Executive Officers at September 30, 2010Options 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. (1)
                        
                        
                        390,000
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        $
                        0.71
                        
                        11/28/2010
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Concorde Consulting (2)
                        
                        
                        390,000
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        $
                        0.71
                        
                        11/28/2010
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
 
 (1)
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. On November 28, 2010, all stock options granted to Dr. Horst A.
Schmid and Portwest Investments Ltd. expired unexercised.
 
 (2)
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. On November 28, 2010, all stock options granted to Mr. Curtis James
Sparrow and Concorde Consulting expired unexercised.
 
 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.
  53
 
 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 was approved by the
majority of shareholders at the February 24, 2010 general meeting of
shareholders. The Stock Option Plan is administered by the Board and 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. On November 28, 2010,
stock options granted directly and indirectly to Dr. Horst A. Schmid and Mr.
Curtis James Sparrow expired unexercised. Mr. David Roff, a director of our
Company, has stock options that are expected to expire on October 25, 2011. As
of the date of this report Mr. David Roff has not exercised any of his stock
options.
 
 For the
period ended September 30, 2010, the Company recorded no share based
compensation expense (September 30, 2009 - $5,802) as no new stock options have
been issued and the fair value of the outstanding stock options has been
previously expensed. No options were exercised during the period ended September
30, 2010, therefore the intrinsic value of the options exercised during the
period ended September 30, 2010 is $nil. As of September 30, 2010, there was no
remaining unrecognized compensation cost related to the non-vested portion of
these unit option awards. Compensation expense is based upon straight-line
amortization of the grant-date fair value over the vesting period of the
underlying unit option.
 
 Director Compensation at September 30, 2010Name
                    
                    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.
      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. Malik Youyou(2)
                    
                    $
                    1,000
                    (3)
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    $
                    1,000
 (1)  These
estimated valuations include the value of the options back until when each
director first became a director.
 
 (2) Mr.
Malik Youyou has served our Company as Director since August 20,
2008.
 
 (3) Mr.
Malik Youyou accrued  $1,000 for director’s fees for his services on
the Board of Directors as director of our Company for the 2010 fiscal
year.
  54
 
 ITEM
      12.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
 
 Equity Compensation Plan
Information
 
 As of
September 30, 2010, 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, 2010 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, 2010Name 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
                                        
                                        
                                        67,443,550
                                        
                                        
                                        
                                        49.99
                                        % (3)
                                        Direct
      and IndirectDr.
      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
                                        % (4)
                                        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
                                        
                                        
                                        
                                        *
                                        (5)
                                        Direct
      and IndirectMr.
      David Roff
                                          Director
                                          27
      Chicora Avenue
                                          Toronto,
      Ontario  M5R 1W7 Canada
                                        
                                        Common
                                        
                                        
                                        454,886
                                        
                                        
                                        
                                        *
                                        (6)
                                        DirectAll
      Officers and Directors as a Group
                                        
                                        Common
                                        
                                        
                                        71,378,436
                                        
                                        
                                        
                                        52.17
                                        %
                                        Indirect*
      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,
2010. 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, 2010, Mr. Malik Youyou beneficially owns 67,443,550 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 28,138,297 of which are issuable pursuant to presently exercisable
warrants held by Mr. Youyou.  Assuming the issuance of 28,138,297
shares of our common stock, pursuant to the exercise of Mr. Youyou’s presently
exercisable warrants, Mr. Youyou would beneficially own 49.99% of our Company’s
outstanding common stock. As September 30, 2010, Mr. Youyou has not exercised
any warrants and without the exercise of Mr. Youyou’s warrants, Mr. Youyou has a
36.81% ownership of our issued and outstanding common stock.
  55
 
 (4)Dr.
Horst A. Schmid has served our Company as director and Chairman of the Board
from February 6, 2004 to present. Dr. Schmid has also served our Company as
President and Chief Executive Officer from 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. As of the date of this report, Dr. Schmid has not exercised any of
his beneficially owned stock options. These options were set to terminate at the
close of business five years from the date of grant, and are therefore
expired.
 
 (5)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. As of
the date of this report, Mr. Sparrow has not exercised any of his beneficially
owned stock options. These options were set to terminate at the close of
business five years from the date of grant, and are therefore
expired.
 
 (6)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. As of the date of this
report, Mr. Roff has not exercised any of his beneficially owned stock options
and these options are expected to expire on October 25, 2011.
 
 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.
 
 As of
November 9, 2010, and based solely on Mr. Malik Youyou’s filed Form 4 and
Amended Schedule 13D filed November 23, 2010, Mr. Youyou, a director of our
Company, beneficially owns 124,586,406 shares of common stock and warrants for
common stock of our Company of which 61,717,900 shares were directly acquired by
Mr. Youyou through open market transactions and pursuant to four subscription
agreements dated June 22, 2007, August 14, 2008, October 31, 2008 and November
9, 2010 for a total aggregate price of $17,000,000 for all four private
placement transactions. Pursuant to these four private placements, Mr. Youyou
also received warrants to acquire 56,709,725 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 November 23, 2010, Mr. Youyou has 49.9 % of the issued and
outstanding common stock of our Company. If Mr. Youyou were to exercise all of
his warrants to acquire an additional 56,709,725 shares of our common stock, and
if nobody else exercised their warrants, Mr. Youyou would beneficially own 64.6
% of our issued and outstanding common stock. As of November 23, 2010, 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, AND DIRECTOR
      INDEPENDENCE
 
 Based
solely on Mr. Malik Youyou’s filed Form 4 and Amended Schedule 13D filed on
November 23, 2010, Mr. Youyou, a director of our Company since August 20, 2008,
beneficially owns 124,586,406 shares of common stock and warrants for common
stock of our Company of which 61,717,900 shares were directly acquired by Mr.
Youyou through open market transactions and pursuant to four subscription
agreements dated June 22, 2007, August 14, 2008, October 31, 2008 and November
9, 2010 for a total aggregate price of $17,000,000 for all four private
placement transactions. Pursuant to these four private placements Mr. Youyou has
warrants to acquire 56,709,725 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 November 23, 2010, Mr. Youyou has acquired 49.9% of our issued and
outstanding common stock. If Mr. Youyou were to exercise all of his warrants to
acquire an additional 56,709,725 shares of Deep Well’s common stock, and if
nobody else exercised their warrants, Mr. Youyou would beneficially own 64.6% of
our issued and outstanding common stock. As of November 23, 2010, Mr. Youyou has
not exercised any of his warrants.
  56
 
 ITEM
      14.
              PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
 
 In the
fiscal years ended September 30, 2010 and September 30, 2009, we paid, Collins
Barrow, an independent third party, PCAOB registered, chartered accounting firm
fees of Cdn $29,100 and Cdn $26,300, 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, 2010 and September 30, 2009:
 
 Fee Category
                    
                    Fiscal
                      2010
                      Fees
                    
                    
                    Fiscal
                      2009
                      FeesAudit
      Fees
                    
                    $
                    13,300
                    
                    
                    $
                    10,950Audit
      Related Fees
                    
                    
                    5,775
                    
                    
                    
                    5,550Tax
      Fees
                    
                    Nil
                    
                    
                    NilAll
      Other Fees
                    
                    Nil
                    
                    
                    NilTotal
      Fees
                    
                    $
                    19,075
                    
                    
                    $
                    16,500
 
 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, 2010 and September 30, 2009. 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, 2010 and September 30,
2009 was $13,300 and $10,950, respectively.
 
 Audit Related
Fees
 
 For the
fiscal years ended September 30, 2010 and September 30, 2009, 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.
  57
 
 PART
IV
 
 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, 2010 and
2009.
 2.
              Consolidated
      Statements of Operations For the Years Ended September 30, 2010 and 2009
      and 2008 and the Period From September 10, 2003 (Inception of Exploration
      Stage) to September 30, 2010.
 3.
              Consolidated
      Statements of Shareholders’ Equity For the Period From September 10, 2003
      (Inception of Exploration Stage) to September 30,
  2010.
 4.
              Consolidated
      Statements of Cash Flows For the Years Ended September 30, 2010, 2009 and
      2008 and the Period From September 10, 2003 (Inception of Exploration
      Stage) to September 30, 2010.
 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,  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 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).4.2
                      
                      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).4.3
                      
                      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).4.4
                      
                      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).
  58
 
 4.5
                
                Form
      of Warrant issued pursuant to two Subscription Agreements dated November
      9, 2010 by and among our Company with two investors related to two Private
      Placement offerings, (incorporated by reference to exhibit 4.2 to our Form
      8-K filed on November 15, 2010).10.1*
                
                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).10.2*
                
                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).10.3
                
                Deep
      Well Oil & Gas, Inc. Stock Option Plan (“The Plan”), effective
      November 28, 2005, (Form 8-K filed on March 3, 2006).10.4*
                
                Sample
      Stock Option Agreements with all Directors, (incorporated by reference to
      exhibit 10.25 to our Form 10-KSB filed on February 23,
    2007).10.5*
                
                Sample
      Stock Option Agreements with all Contractors, (incorporated by reference
      to exhibit 10.26 to our Form 10-KSB filed on February 23,
      2007).10.6
                
                Sample
      Indemnity Agreement with all Directors, (incorporated by reference to
      exhibit 10.27 to our Form 10-KSB filed on February 23,
    2007).10.7
                
                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).10.8
                
                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).10.9
                
                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).10.10
                
                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).10.11
                
                Form
      of Subscription Agreement dated November 9, 2010 by and among our Company
      with two investors, (incorporated by reference to exhibit 4.1 to our Form
      8-K filed on November 15, 2010).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.
  59
  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
                    December 23,
2010
 
 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
                    December 23, 2010By
                    /s/ Curtis James SparrowMr.
      Curtis James SparrowChief
      Financial Officer(Principal
      Financial and Accounting Officer)Date
                    December 23,
2010
  60