SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   Form 10-QSB



(Mark one)

[X]  Quarterly  Report Under Section 13 or 15(d) of The Securities  Exchange Act
     of 1934

               For the quarterly period ending September 30, 2005

[v]  Transition Report Under Section 13 or 15(d) of The Securities  Exchange Act
     of 1934

         For the transition period from ______________ to _____________



                         Commission File Number: 0-29613

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

          Nevada                                               66-0549380
-------------------------                              -------------------------
(State of incorporation)                                (IRS Employer ID Number)

                  1862 West Bitters Rd., San Antonio, TX 78248
                  --------------------------------------------
                    (Address of principal executive offices)

                                 (210) 764-8642
                           (Issuer's telephone number)



      Securities registered under Section 12 (b) of the Exchange Act: None

 Securities registered under Section 12(g) of the Exchange Act: Common Stock -
                                $0.001 par value



Check  whether  the issuer  has (1) filed all  reports  required  to be files by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period the Company was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes X No

APPLICABLE  ONLY TO  ISSUERS  INVOLVED  IN  BANKRUPTCY  PROCEEDINGS  DURING  THE
PRECEDING  FIVE YEARS  Check  whether the  registrant  filed all  documents  and
reports  required  to be filed by Section  12, 13 or 15(d) of the  Exchange  Act
after the distribution of securities  under a plan confirmed by a court.  Yes___
No ___

                      APPLICABLE ONLY TO CORPORATE ISSUERS

As of September 30, 2005,  there were  77,156,341  shares of Common Stock issued
and outstanding.

Transitional Small Business Disclosure Format : Yes      No   X
                                                   -----    -----

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                                   FORM 10-QSB


                                      INDEX

                                                                            Page
                                                                            ----
PART I - Financial Information

Item 1 - Financial Statements
         Condensed Consolidated Balance Sheets as of
         September 30, 2005 and December 31, 2004..............................3

         Condensed Consolidated Statements of Operations
         For the Three Months Ended September 30, 2005 and 2004................4

         Condensed Consolidated Statements of Operations
         For the Nine Months Ended September 30, 2005 and 2004.................5

         Condensed Consolidated Statements of Cash Flows
         For the Nine Months Ended September 30, 2005 and 2004...............6-7

         Notes to Condensed Consolidated Financial Statements...............8-13

Item 2 - Management's Discussion and Analysis or Plan of Operation.........14-20

Item 3 - Controls and Procedures...........................................20-21

PART II - Other Information

Item 1 - Legal Proceedings.................................................21-24

Item 2 - Changes in Securities and Use of Proceeds............................24

Item 3 - Defaults Upon Senior Securities......................................25

Item 4 - Submission of Matters to a Vote of Security Holdings.................25

Item 5 - Other Information....................................................25

Item 6 - Exhibits and Reports on Form 8K .....................................26

Signature.....................................................................27



                                       -2-


<PAGE>
<TABLE>
<CAPTION>

                         PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements

                         TIDELANDS OIL & GAS CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                    (ASSETS)
                                    --------
                                                             September 30,     December 31,
                                                                  2005             2004
                                                             -------------    -------------
                                                              (Unaudited)
<S>                                                          <C>              <C>
Current Assets:
   Cash                                                      $   2,336,430    $   5,459,054
   Cash Restricted                                                 101,471           25,000
   Accounts and Loans Receivable                                   208,668          516,387
   Inventory                                                        90,332           82,523
   Prepaid Expenses                                                208,879          487,488
                                                             -------------    -------------
      Total Current Assets                                       2,945,780        6,570,452
                                                             -------------    -------------

Property Plant and Equipment, Net                               10,097,779        9,086,313
                                                             -------------    -------------

Other Assets:
   Deposits                                                          6,708            4,108
   Deferred Charges                                                      0          116,250
   Note Receivable                                                 284,944          286,606
   Goodwill                                                      1,158,937        1,158,937
                                                             -------------    -------------
   Total Other Assets                                            1,450,589        1,565,901
                                                             -------------    -------------
      Total Assets                                           $  14,494,148    $  17,222,666
                                                             =============    =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

Current Liabilities:
   Accounts Payable and Accrued Expenses                     $     642,457    $     574,224
   Convertible Debentures Payable                                  980,000                0
                                                             -------------    -------------

      Total Current Liabilities                                  1,622,457          574,224

Long-Term Debt                                                   4,421,054       11,731,883
                                                             -------------    -------------

      Total Liabilities                                          6,043,511       12,306,107
                                                             -------------    -------------

Commitments and Contingencies                                         --               --

Stockholders' Equity:
   Common Stock, $.001 Par Value Per Share,
     100,000,000 Shares Authorized, 77,156,341
     and 61,603,359 Shares Issued and
     Outstanding at September 30, 2005
     and December 31, 2004 Respectively                             77,157           61,604
   Paid-in Capital in Excess of Par Value                       30,369,493       22,537,340
   Subscriptions Receivable                                       (550,000)        (550,000)
   Accumulated (Deficit)                                       (21,446,013)     (17,132,385)
                                                             -------------    -------------
      Total Stockholders' Equity                                 8,450,637        4,916,559
                                                             -------------    -------------

      Total Liabilities and Stockholders' Equity             $  14,494,148    $  17,222,666
                                                             =============    =============
</TABLE>



      See Accompanying Notes to Condensed Consolidated Financial Statements
                                       -3-


<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)




                                       Three Months Ended    Three Months Ended
                                       September 30, 2005    September 30, 2004
                                       ------------------    ------------------
Revenues:
   Gas Sales and Pipeline Fees         $          248,015    $          824,848
   Construction Services                                0                     0
                                       ------------------    ------------------
      Total Revenues                              248,015               824,848
                                       ------------------    ------------------

Expenses:
   Cost of Sales                                  219,865               801,698
   Operating Expenses                              81,408                15,800
   Depreciation                                   124,422                88,611
   Interest                                       110,090               100,981
   Sales, General and Administrative              923,701             1,130,918
                                       ------------------    ------------------
      Total Expenses                            1,459,486             2,138,008
                                       ------------------    ------------------

(Loss) From Operations                         (1,211,471)           (1,313,160)
Interest and Dividend Income                       26,589                 5,667
Income - Litigation Settlement                    109,369                     0
                                       ------------------    ------------------

Net (Loss)                             $       (1,075,513)   $       (1,307,493)
                                       ==================    ==================

Net (Loss) Per Common Share:
   Basic and Diluted                   $            (0.01)   $            (0.02)
                                       ==================    ==================

Weighted Average Number of Common
   Shares Outstanding                          75,717,742            54,778,647
                                       ==================    ==================









      See Accompanying Notes to Condensed Consolidated Financial Statements
                                       -4-

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)




                                       Nine Months Ended     Nine Months Ended
                                       September 30, 2005    September 30, 2004
                                       ------------------    ------------------
Revenues:
   Gas Sales and Pipeline Fees         $        1,097,505    $        1,332,560
   Construction Services                          119,121                     0
                                       ------------------    ------------------

        Total Revenues                          1,216,626             1,332,560
                                       ------------------    ------------------

Expenses:
   Cost of Sales                                  635,113             1,299,518
   Operating Expenses                             210,545                18,416
   Depreciation                                   360,817               136,529
   Interest                                       503,950               149,418
   Sales, General and Administrative            4,022,271             4,837,296
                                       ------------------    ------------------
      Total Expenses                            5,732,696             6,441,177
                                       ------------------    ------------------

(Loss) From Operations                         (4,516,070)           (5,108,617)
(Loss) on Sale of Asset                            (3,167)                    0
Interest and Dividend Income                       96,240                16,740
Income Litigation Settlement                      109,369                     0
                                       ------------------    ------------------

Net (Loss)                             $       (4,313,628)   $       (5,091,877)
                                       ==================    ==================

Net (Loss) Per Common Share:
   Basic and Diluted                   $            (0.06)   $            (0.10)
                                       ==================    ==================

Weighted Average Number of Common
   Shares Outstanding                          69,378,850            51,926,974
                                       ==================    ==================









      See Accompanying Notes to Condensed Consolidated Financial Statements
                                       -5-


<PAGE>
<TABLE>
<CAPTION>

                         TIDELANDS OIL & GAS CORPORATION
                 STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
                                   (UNAUDITED)




                                             Nine Months Ended     Nine Months Ended
                                            September 30, 2005    September 30, 2004
                                            ------------------    ------------------
<S>                                         <C>                   <C>
Cash Flows Provided (Required) By
  Operating Activities:
    Net (Loss)                              $       (4,313,628)   $       (5,091,877)
    Adjustments to Reconcile Net (Loss)
       to Net Cash Provided (Required) By
       Operating Activities:

    Depreciation                                       360,817               136,529
    Write-Off of Subscription Receivable                     0                18,000
    Loss on Disposal of Equipment                        3,167                     0
    Return of Issued Stock -
      Litigation Settlement                           (109,369)                    0
    Issuance of Common Stock:
      For Services Provided                          1,424,575             3,747,066
          Changes in:
           Accounts Receivable                         307,719               (39,662)
           Inventory                                    (7,809)                    0
           Prepaid Expenses                            278,609              (116,682)
           Deferred  Charges                           116,250              (245,600)
           Deposits                                     (2,600)                 (308)
           Accounts Payable and
             Accrued Expenses                           68,233              (387,031)
                                            ------------------    ------------------
Net Cash (Required)
   By Operating Activities                          (1,874,036)           (1,979,565)
                                            ------------------    ------------------

Cash Flows Provided (Required)
  By Investing Activities:
     Increase in Investments                                 0                98,629
     Acquisitions of Property, Plant
       and Equipment                                (1,376,250)             (692,597)
     Disposals of Equipment                                800                     0
                                            ------------------    ------------------

         Net Cash (Required)
            By Investing Activities                 (1,375,450)             (593,968)
                                            ------------------    ------------------
</TABLE>








      See Accompanying Notes to Condensed Consolidated Financial Statements
                                       -6-

<PAGE>
<TABLE>
<CAPTION>

                         TIDELANDS OIL & GAS CORPORATION
                 STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
                                   (CONTINUED)

                                   (UNAUDITED)



                                                   Nine Months Ended     Nine Months Ended
                                                  September 30, 2005    September 30, 2004
                                                  ------------------    ------------------
<S>                                               <C>                   <C>
Cash Flows Provided (Required)
   by Financing Activities:
 Proceeds from Issuance of Common Stock                            0             4,088,317
 Proceeds From Long-Term Loans                               201,671                     0
 Repayment of Short-Term Loans                                     0              (100,000)
 Repayment of Loan by Related Party                            1,662                     0
                                                  ------------------    ------------------

Net Cash Provided by
  Financing Activities                                       203,333             3,988,317
                                                  ------------------    ------------------

Net Increase (Decrease) in Cash                           (3,046,153)            1,414,784
Cash at Beginning of Period                                5,484,054               894,457
                                                  ------------------    ------------------
Cash at End of Period                             $        2,437,901    $        2,309,241
                                                  ==================    ==================

Supplemental Disclosures of
   Cash Flow Information:
     Cash Payments for Interest                   $          307,319    $           22,011
                                                  ==================    ==================

     Cash Payments for Income Taxes               $                0    $                0
                                                  ==================    ==================

Non-Cash Investing & Financing Activities:
   Return of Issued Stock for
      Litigation Settlements                      $         (109,369)   $                0
   Issuance of Common Stock:
      Operating Activities                                 1,424,575             3,747,066
      Repayment of Note and Loan                           2,512,500                75,000
      Repayment of Convertible Debentures                  4,020,000                     0
      Payment of Account Payable                                   0                38,311
      Acquisition of Property, Plant, Equipment
         and Goodwill for Note Payable                             0             6,523,773
      Prepayment of Legal Fees                                     0                86,000
                                                  ------------------    ------------------

          Total Non-Cash Financing Activities     $        7,847,706    $       10,470,150
                                                  ==================    ==================
</TABLE>


      See Accompanying Notes to Condensed Consolidated Financial Statements
                                       -7-

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005



NOTE 1 - BASIS OF PRESENTATION
------   ---------------------

         The accompanying  unaudited condensed consolidated financial statements
         for the nine month periods ended  September 30, 2005 and 2004 have been
         prepared in conformity with accounting principles generally accepted in
         the United States of America for interim financial information and with
         the  instructions  to Form 10-QSB and  Regulation  S-B.  The  financial
         information  as of December 31, 2004 is derived  from the  registrant's
         Form 10-KSB for the year ended December 31, 2004.  Certain  information
         or  footnote  disclosures  normally  included in  financial  statements
         prepared in accordance with accounting principles generally accepted in
         the United States of America have been condensed or omitted pursuant to
         the rules and regulations of the Securities and Exchange Commission.

         The  preparation  of condensed  consolidated  financial  statements  in
         conformity with accounting  principles generally accepted in the United
         States of America requires management to make estimates and assumptions
         that affect the reported  amounts of assets and liabilities at the date
         of the financial  statements  and the reported  amounts of revenues and
         expenses during the reporting period.  Actual results could differ from
         those  estimates.  In  the  opinion  of  management,  the  accompanying
         financial statements include all adjustments  necessary (which are of a
         normal and recurring  nature) for the fair  presentation of the results
         of the interim periods  presented.  While the registrant  believes that
         the  disclosures  presented are adequate to keep the  information  from
         being  misleading,  it is suggested that these  accompanying  financial
         statements  be  read  in  conjunction  with  the  registrant's  audited
         consolidated financial statements and notes for the year ended December
         31, 2004,  included in the registrant's  Form 10-KSB for the year ended
         December 31, 2004.

         Operating  results for the nine-month  periods ended September 30, 2005
         are not necessarily  indicative of the results that may be expected for
         the  remainder  of the  fiscal  year  ending  December  31,  2005.  The
         accompanying  unaudited  condensed  consolidated  financial  statements
         include the accounts of the registrant,  its wholly-owned subsidiaries,
         Rio Bravo Energy, LLC, Sonora Pipeline, LLC, Arrecefe Management,  LLC,
         Marea Associates,  L.P., Reef Ventures, L.P., Reef International,  LLC,
         Reef  Marketing,  LLC, and  Terranova  Energia S. de R. L. de C. V. All
         significant   inter-company   accounts  and   transactions   have  been
         eliminated in consolidation.









                                       -8-

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005

NOTE 2 - LONG-TERM DEBT
------   --------------

         A summary of long-term debt at September 30, 2005 and December 31, 2004
         is as follows:

                                                   September 30,    December 31,
                                                        2005            2004
                                                   -------------   -------------
         Note Payable, Secured, Interest Bearing
           at 2% Over Prime Rate, Maturing
              May 25, 2008                         $   4,421,054   $   6,731,883

         Convertible Debentures, Unsecured,
            7% Interest Bearing,
               Maturing May 17, 2006                     980,000       5,000,000
                                                   -------------   -------------
                                                       5,401,054      11,731,883

         Less:  Current Maturities                       980,000               0
                                                   -------------   -------------

                   Total Long-Term Debt            $   4,421,054   $  11,731,883
                                                   =============   =============

NOTE 3 - LITIGATION
------   ----------

         On January 6, 2003,  we were  served as a third  party  defendant  in a
         lawsuit titled  Northern  Natural Gas Company vs. Betty Lou Sheerin vs.
         Tidelands Oil & Gas Corporation, ZG Gathering, Ltd. and Ken Lay, in the
         150th  Judicial  District  Court,  Bexar  county,  Texas,  Cause Number
         2002-C1-16421.  The lawsuit was initiated by Northern  Natural Gas when
         it sued Betty Lou Sheerin  for her  failure to make  payments on a note
         she executed  payable to Northern in the original  principal  amount of
         $1,950,000.  Northern's  suit was filed on November 13,  2002.  Sheerin
         answered  Northern's  lawsuit  on January  6,  2003.  Sheerin's  answer
         generally denied Northern's claims and raised the affirmative  defenses
         of fraudulent inducement by Northern,  estoppel, waiver and the further
         claim that the note does not comport with the legal  requirements  of a
         negotiable instrument. Sheerin seeks a judicial ruling that Northern be
         denied  any  recovery  on  the  note.   Sheerin's   answer  included  a
         counterclaim  against  Northern,  ZG  Gathering,  and Ken Lay generally
         alleging, among other things, that Northern, ZG Gathering, Ltd. and Ken
         Lay, fraudulently induced her execution of the note. Northern has filed
         a general denial of Sheerin's counterclaims.  Sheerin's answer included
         a third party cross claim against Tidelands. She alleges that Tidelands
         entered into an agreement to purchase the Zavala  Gathering System from
         ZG  Gathering  Ltd.  and that,  as a part of the  agreement,  Tidelands
         agreed to satisfy  all of the  obligations  due and owing to  Northern,
         thereby relieving Sheerin of all obligations she had to Northern on the
         $1,950,000 promissory note in question. Tidelands and Sheerin agreed to
         delay the  Tideland's  answer date in order to allow time for mediation
         of the case. Tideland's  participated in a mediation on March 11, 2003.
         The case was not settled at that time.  Tideland's answered the Sheerin
         suit on March 26,  2003.  Tideland's  answer  denies  all of  Sheerin's
         allegations.


                                       -9-

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005


NOTE 3 - LITIGATION (CONTINUED)
------   ----------------------

         On May 24 and June 16, 2004  respectively,  Betty Lou Sheerin filed her
         first and second amended original answer, affirmative defenses, special
         exceptions and second  amended  original  counterclaim,  second amended
         original  third party  cross-actions  and requests for  disclosure.  In
         these amended  pleadings,  she sued Michael Ward,  Royis Ward, James B.
         Smith, Carl Hessel and Ahmed Karim in their individual capacities.  Her
         claims  against these  individuals  are for fraud,  breach of contract,
         breach of the Uniform Commercial Code, breach of duty of good faith and
         fair  dealing and  conversion.  Sheerin has now  non-suited  her claims
         against Michael Ward, Royis Ward, and James B. Smith.

         In September  2002, as a pre-closing  deposit to the purchase of the ZG
         pipelines,  the Company executed a $300,000 promissory note to Betty L.
         Sheerin,  a partner of ZG  Gathering,  Ltd.  In  addition,  the Company
         issued  1,000,000  shares of its common stock to various partners of ZG
         Gathering,  Ltd. On December 3, 2003,  Sheerin filed a separate lawsuit
         against Tidelands in the 150th District Court of Bexar County, Texas on
         this  promissory  note  seeking a judgment  against  Tidelands  for the
         principle  amount of the note, plus interest.  On December 29th,  2003,
         Tidelands answered this lawsuit denying liability on the note. On April
         1,  2004,  Tidelands  filed a plea in  abatement  asking  the  court to
         dismiss or abate Sheerin's  lawsuit on the $300,000  promissory note as
         it was related to and its outcome was  dependent  on the outcome of the
         Sheerin  third party cross  action  against  Tidelands  in Cause Number
         2002-C1-16421. The Company believes that the promissory note and shares
         of common  stock  should be  cancelled  based  upon the  outcome of the
         litigation  described  above.  Accordingly,  our  financial  statements
         reflect this belief.

         On  September  15,  2004 and again on October  15,  2004  respectively,
         Sheerin  amended her  pleadings  to include a third and fourth  amended
         third  party  cross  action  against  Tidelands  adding a claim for the
         $300,000  promissory  note.  In these amended  pleadings,  Sheerin also
         deleted her claims against Carl Hessel and Ahmed Karim.

         Sheerin  seeks  damages  against  Tidelands  for indemnity for any sums
         found to be due from her to Northern  Natural Gas Company,  unspecified
         amounts of actual damages,  statutory damages,  unspecified  amounts of
         exemplary  damages,  attorneys fees, costs of suit, and prejudgment and
         post judgment interest.

         On August 5,  2005,  Northern  Natural  Gas  Company  filed its  Fourth
         Amended Original Petition which, for the first time, named Tidelands as
         a  defendant  to  Northern.  Northern  seeks  to  impose  liability  on
         Tidelands  for  $1,950,000  promissory  note  signed  by  McDay  Energy
         Partners, Ltd. (the predecessor to ZG Gathering,  Ltd.) and Sheerin and
         the $1,700,000 promissory note signed by


                                      -10-

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005


NOTE 3 - LITIGATION (CONTINUED)
------   ----------------------

         McDay only. Northern contends that Tidelands is alternatively liable to
         Northern for payment of both such promissory notes totaling  $3,709,914
         plus interest  because  Northern is a third-party  beneficiary  under a
         December 3, 2001 purchase and sale  agreement  between ZG and Tidelands
         claiming that in such agreement  Tidelands agreed to assume and satisfy
         all  indebtedness  due and owing  Northern by Sheerin and ZG.  Northern
         also claims that it is  entitled  to  foreclosure  of a lien on the gas
         gathering  system and pipeline  that was the subject of the  promissory
         notes in question.

         Some  discovery  has been  completed  at this  time.  Based on  initial
         investigation,  and  discovery  to date,  Tidelands  appears  to have a
         number of  potential  defenses to the claims of Sheerin  and  Northern.
         Tideland's intends to aggressively defend the lawsuit. At this stage in
         the  litigation,  and in  light  of our  continuing  investigation  and
         incomplete  discovery,  we cannot give a more definitive  evaluation of
         the extent of Tideland's liability exposure.

         During April and May, 2005, three separate legal actions were initiated
         against  Sonterra  Energy   Corporation   (Sonterra),   a  wholly-owned
         subsidiary of the Company.  Two of the actions  concern  claims made by
         developers  against Sonterra for their failure to pay rent and easement
         use fees as a  result  of  their  asset  purchase  from  Oneok  Propane
         Distribution  Company on November 1, 2004. The third action  involves a
         claim made by a builder that Sonterra  does not have a proper  easement
         for the current use of certain property.  The Company believes that the
         three actions  filed are without merit and intend to vigorously  defend
         itself.  Litigation  regarding  these three  actions are still in their
         early stages, therefore, potential financial impacts, if any, cannot be
         determined at this time.

NOTE 4 - COMMON STOCK TRANSACTIONS
------   --------------------------

         On July 1, 2005, the Company issued  1,000,000 shares of its restricted
         common stock valued at $307,500 pursuant to an employment contract with
         an officer of the Company.

         On July 1, 2005,  the Company  issued 50,000  shares of its  restricted
         common stock valued at $15,375 pursuant to an employment  contract with
         an officer of the Company.

         On July 1, 2005,  the Company  issued 10,000  shares of its  restricted
         common stock valued at $3,075 to an officer of the Company.


                                      -11-

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005



NOTE 4 - COMMON STOCK TRANSACTIONS (CONTINUED)
------   -------------------------------------

         On August 18,  2005,  Tidelands  settled the legal  dispute  with L. L.
         Capital Group,  LLC whereby L. L. Capital Group,  LLC canceled  285,000
         shares of the 1,000,000 shares of the Company's restricted common stock
         which it had  received  for a one  year  consulting  contract  executed
         August 4, 2004. The 285,000 shares canceled were valued at $109,369.

         On July 5, 2005,  September 19, 2005 and  September 29, 2005,  Mercator
         Momentum Fund III,  L.P.,  Monarch  Pointe Fund,  Ltd (the "Funds") and
         Robinson  Reed,  Inc. (a managed  account of the "Funds")  notified the
         Company  of their  intent to convert  portions  of their  remaining  7%
         convertible  debentures  into  common  stock  which were  converted  as
         follows:

                                                                       Number of
                   Entity                       Amount   Price/Share     Shares
                   ------                       ------   -----------     ------

         July 5, 2005
         ------------
         Robinson Reed, Inc.                 $  200,000     $0.76       263,158

         September 19, 2005
         ------------------
         Mercator Momentum Fund, L.P.            92,000      0.70       131,429
         Mercator Momentum Fund III, L.P.        60,000      0.70        85,714
         Monarch Pointe Fund, Ltd.              196,000      0.70       280,000
         Robinson Reed, Inc.                     52,000      0.70        74,286

         September 29, 2005
         ------------------
         Mercator Momentum Fund, L.P.           207,000      0.71       291,549
         Mercator Momentum Fund, III, L.P.      144,000      0.71       202,817
         Mercator Momentum Fund, Ltd.           459,000      0.71       646,479
         Robinson Reed, Inc.                     90,000      0.71       126,761
                                             ----------              ----------
                   Total                     $1,500,000              $2,102,193
                                             ==========              ==========

         The  "Funds"   shares   issued  were  all  included  in  the  Company's
         registration  statement filed on Form SB-2 which was declared effective
         by the Securities & Exchange Commission on May 27, 2005.

NOTE 5 - CONVERTIBLE DEBENTURES
------   ----------------------

         After  taking  into  account  all  of  the  7%  convertible  debentures
         converted  during the current  quarter,  $980,000 of  principal  amount
         remains.  All  of  these  remaining  7%  convertible   debentures  were
         converted  on  November  2,  2005 at the  "Ceiling  Price" of $0.76 per
         share.




                                      -12-

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEFPTEMBER 30, 2005




NOTE 6 - RELATED PARTY TRANSACTION
------   -------------------------

         The Company  executed an agreement in January 2004 with a related party
         to provide charter air transportation for its employees,  customers and
         contractors to job sites and other  business  related  destinations.  A
         prepayment of $300,000 5% interest bearing loan due in January 2007 was
         made by the Company  regarding  the  transaction.  The loan  balance is
         credited  by  airtime  charges at  standard  industry  rates  offset by
         interest charges computed on the average monthly balance.  At September
         30, 2005, the loan balance was $284,944.

























                                      -13-
<PAGE>

Item 2.     Management's Discussion and Analysis or Plan of Operation

Item 2.     Management's Discussion and Analysis or Plan of Operation

Business Overview

Our products and services are primarily  focused on development and operation of
transportation,  processing,  distribution  and storage projects for natural gas
and  natural  gas  liquids  in the  northeastern  states of  Mexico  (Chihuahua,
Coahuila, Nuevo Leon and Tamaulipas) and the state of Texas in the United States
of America.

We derive our revenue from  transportation  fees from delivery of natural gas to
Conagas, the local distribution company in Piedras Negras, Coahuila, through the
pipeline owned by Reef Ventures, L.P. and the sale of propane gas to residential
customers through the assets owned by Sonterra Energy Corporation.  This company
also  designs  and  constructs  residential  propane  delivery  systems  for new
residential  developments in Central Texas. We derive revenue from this activity
in two ways, the first being from construction  revenue for yard lines and meter
sets installed to a homeowner's lot, and the second being the sale of LPG gas to
customers in the residential subdivisions.

With respect to our pipeline system owned by Reef Ventures,  L.P., management is
evaluating  an expansion of the pipeline in Coahuila to serve new markets  along
the state  highway No. 57 corridor to Monclova,  Coahuila.  We currently  expect
that this project will not be activated  until the fourth  quarter of 2005.  The
planned  natural gas liquid line between Eagle Pass,  Texas and Piedras  Negras,
Coahuila is being  re-evaluated in light of new supply sources emerging in Texas
and  Mexico.  We are  evaluating  the utility of the project as either a tolling
business  model for existing  demand in Coahuila or as a merchant  facility in a
direct  contract with the propane  importation  arm of PEMEX.  We expect further
development of the project to be announced by the fourth quarter of 2005.

Sonterra Energy Corporation, a wholly owned subsidiary of Tidelands entered into
the  residential  propane  distribution  business  on  November 1, 2004 with its
acquisition of 850 existing customers located in 15 subdivisions in the vicinity
of Austin,  Texas.  Sonterra's  existing and future market area includes several
central  Texas  locations  that do not have  access to natural gas as a fuel for
home heating and appliance usage.  Current expansion of over 400 lots within the
existing  subdivisions  is  possible.  Sonterra  has  also  entered  into  a new
agreement  with the  developer  of  Northshore  on Lake  Travis  to  expand  the
currently  serviced lots by an additional  1,000 units.  Up to 2,625  additional
lots may be  available  for  installation  of  residential  propane  delivery in
developments  currently  in the  planning  stages in the  nearly  central  Texas
vicinity. Management is actively seeking new subdivision installation of propane


                                      -14-
<PAGE>

systems in the Central Texas and has recently  identified 4 new  subdivisions in
the  San  Antonio/Austin   Hill  Country  corridor  as  prospective  for  system
installation.


Rio Bravo  Energy,  LLC was formed on August 10, 1998 to operate the Chittim Gas
Processing  Plant which was  purchased  in 1999 and was  processing  natural gas
primarily from Conoco Oil's Sacatosa  Field. In October 2002, the plant was shut
down due to the declining economics  associated with low volume operation of the
plant.  We plan to either reopen the plant in 2005 when adequate  volumes of LPG
feedstock from third parties makes plant operations  economically  attractive or
sell the assets to a third party.  As noted  above,  Rio Bravo Energy LLC owns a
general partner interest in Marea Associates,  L.P. and the minority interest in
Terranova Energia, S. de R.L. de C.V.

Sonora  Pipeline,  LLC was formed in January 1998 to operate the Sonora pipeline
network which has the capability of delivering  adequate  volumes of natural gas
for economic operation of the Chittim Gas Processing Plant. The pipeline network
consists of approximately 80 miles of gas pipeline.  Presently,  the line is not
in use. The pipeline was acquired in conjunction with the Chittim Gas Processing
Plant   acquisition.   When   operational,   it  would  generate   revenue  from
transportation fees charged to third party gas producers shipping natural gas to
the Chittim Gas Plant owned by Rio Bravo Energy LLC.  Management  is  evaluating
whether to sell or utilize these assets and a decision is expected by the fourth
quarter of 2005.

Sonora Pipeline LLC will also own and operate the U.S. (Texas) pipeline segments
to be constructed in connection with the Mexican  pipeline,  LNG  regasification
terminal and gas storage  projects which will  interconnect  to the U.S. via two
international  pipeline  crossings  near McAllen,  Texas.  Management  expects a
filing with the Federal  Energy  Regulatory  Commission in the fourth quarter of
2005  for  permission  to  operate  these  new  pipelines  and the  granting  of
presidential permits for the international  crossings near Penitas and Progreso,
Texas for delivery of natural gas into the state of Tamaulipas and the pipelines
owned by our Mexican subsidiary, Terranova Energia S. de R.L. de C.V.

The Company is focusing on the development of  infrastructure  projects  through
its Mexican  entity,  Terranova  Energia S.de R.L. de C.V., in the nation of the
United Mexican States (Mexico).

         Terranova Energia is focused on project  development and implementation
of a natural  gas  storage  and  transportation  infrastructure  to support  the
integration  of  Northeastern  Mexico and South Texas and the  related  economic
growth of the border regions.

         Tidelands and Terranova Energia have hired project development advisors
in the United States and Mexico.  The  Terranova  Energia  advisors  include ALB
Energia,  Rich,  Heather Muller,  Abogados and Miriam  Grunstein,  Abogada.  The
Tidelands advisors include Netherland Sewell & Associates,  CenterPoint  Energy,


                                      -15-
<PAGE>

LLC, Mayer Brown Rowe & Maw, LLP, BNC Engineering,  LLC, HSBC  Securities,  USA,
Inc. and R.W. Beck, Inc.

         The Terranova  Energia project was inspired by the fact that PEMEX, the
Mexican national oil company,  needs to manage its natural gas production in the
Burgos Basin and the CFE, the Mexican federal electricity  commission,  needs to
support a natural  gas policy  which  encourages  reliability,  flexibility  and
competitive  pricing for natural gas in northern Mexico. The region's forecasted
growth will require additional natural gas for power generation in the region.

         Our project  area is called the  Northeast  Hub. Our medium term goals,
subject to a variety of  factors,  including,  but not  limited  to,  regulatory
permitting,   engineering   design,   financing,   construction   and  operating
agreements,  are  focused  on the Brasil  storage  field and  Terranova  Energia
pipeline.

         The pipelines  proposed are (A) the Occidente Section comprised of: (1)
a  pipeline  from  the  Brasil  Storage  field  to  Nuevo  Progresso,   proposed
international  pipeline  crossing  into the U.S.,  (2) a  pipeline  from  Brasil
storage to Station 19 up to Arguelles  which is another  proposed  international
pipeline  crossing  into U.S.;  and (B) the Oriente  Section  from the  offshore
regasification  station  to Norte  Puerto  Mezquital  proceeding  to the  Brazil
storage field. The Occidente  Section will include  approximately 323 kilometers
of pipeline and the Oriente Section will contain approximately 149 kilometers of
pipeline.  Our long term goal  includes  the  construction  of the  offshore LNG
regasification station.

         The proposed  international pipeline crossings into South Texas are the
Donna Station and Arguelles and VGP station.  At the Donna station our potential
interconnects  into Texas are with TETCO,  TGPL and Texas Gas  Services.  At the
Arguelles and VGP station our potential  interconnects are with HPL, Calpine and
Kinder Morgan. The Terranova pipeline capacity is estimated at 1.2 BCFD (billion
cubic feet per day).

         The Terranova  pipelines have been designed for 30 and 36 inch diameter
with  bi-directional  flow.  The pipeline  from the proposed LNG  regasification
terminal to the Brasil field is a 36 inch diameter  pipeline and from the Brasil
field to Monterey and international crossings are 30 inch diameter pipelines.

         We  submitted  the permits for the  Terranova  pipeline  Occidente  and
Oriente sections to the CRE, the Mexican energy regulatory  entity, on March 18,
2005 and they were accepted for full review on June 14, 2005.

         The proposed  underground  natural gas storage facility will be located
in the  depleted  reservoir  at the B1  Horizon-Brasil  Field and include  above
ground facilities. Our design proposal for the use of this depleted reservoir as
a storage facility was prepared by Netherland Sewell.  Netherland Sewell,  after
geological and mechanical modeling,  reported the reservoir at the B1 horizon as
suitable  for  natural gas  storage.  The design  capacity of the storage  field
contemplates  incremental  increases in capacity over three  seasons.  The first


                                      -16-
<PAGE>

season capacity is 25 BCF (billion cubic feet), second season capacity is 40 BCF
and third  season  onward is 50 BCF.  The design  proposes  that  natural gas be
injected  into  the  reservoir  at 350  MMCFD(million  cubic  feet  per  day) at
pressures from 2,400 psi up to 3,200 psi.  Extraction  flows of natural gas will
be kept at 500 MMCFD to maintain  structural  integrity  of the  reservoir.  The
storage  facility  plans call for 22 injection and extraction  wells.  The above
ground facilities will include compression stations.

         We submitted the storage permit to the CRE on August 5, 2005 and it was
accepted for full review on October 14, 2005.

         The  proposed  Offshore  LNG  Regasification  Station  will be based on
technology developed by the Norwegian company Remora Technology.  It utilizes an
unmanned  floating  station called a HiLoad.  It has a peak capacity of 1.4 BCFD
(billion cubic feet per day). This technology  permits any LNG carrier vessel to
connect   and  carry  out   regasification   operations   without   any   vessel
modifications.  It utilizes LNG vaporizers of the shell and tube type,  with sea
water as the heating  medium.  The LNG  station  will be located no less than 40
nautical  miles from the coast at a depth of 450 feet. A support  station with a
power  generation  system and central control will be located  on-shore.  A buoy
will support the mooring of the LNG carrier  vessels.  Electrical  power cables,
control umbilicals and pipelines will connect the HiLoad to the on-shore support
station.

         There are  significant  challenges  for the  natural  gas supply to the
power generation industry in Northeastern Mexico. We believe the CFE has taken a
proactive  role  in  this  region  with a view to  substantially  improving  the
reliability, flexibility and pricing of the natural gas supply. Presently, there
are three LNG  regasification  projects  permitted  in this region at  Altamira,
Rosarito and Manzanillo.  Additionally,  there new electrical  generation plants
and associated pipelines under construction.  The CFE has forecasted natural gas
demand  growth in the region from 2004 through year 2013.  The CFE forecasts gas
demand  will  increase  from 1.7 BCFD in 2004 to 4.2 BCFD in 2013.  Natural  gas
storage  facilities  in northern  Mexico will  provide a reliable,  flexible gas
supplies while creating conditions for competitive natural gas pricing.

Forward Looking Statements:

         We have included  forward-looking  statements in this report.  For this
purpose,  any  statements  contained in this report that are not  statements  of
historical fact may be deemed to be forward looking statements. Without limiting
the foregoing, words such as "may", "will", "expect",  "believe",  "anticipate",
"estimate",  "plan"  "propose" or "continue" or the negative or other variations
thereof or  comparable  terminology  are  intended to  identify  forward-looking
statements.  These  statements  by their nature  involve  substantial  risks and
uncertainties,  and actual results may differ materially  depending on a variety
of  factors.  Factors  that might  cause  forward-looking  statements  to differ
materially from actual results include, among other things, overall economic and
business conditions,  demand for the Company's products,  competitive factors in


                                      -17-
<PAGE>

the  industries  in  which  we  compete  or  intend  to  compete,   natural  gas
availability and cost and timing,  impact and other  uncertainties of our future
acquisition plans.

Results of Operations

REVENUES:  The Company reported revenues of $1,216,626 for the nine months ended
September  30, 2005 as compared  with  revenues  from  continuing  operations of
$1,332,560 for the nine months ended  September 30, 2004.  The revenue  decrease
occurred as a result of the conversion of the Reef Ventures, L.P. revenue stream
from  sale  of  natural  gas to the  collection  of  transportation  fees  only.
Offsetting  this  decrease  is the  inclusion  of  sales of  propane  gas to the
customers  of  Sonterra  Energy  Corporation,  and this  revenue  source was not
present in the revenue  for the period  ended  September  30,  2004.  Management
expects that revenues from Reef Ventures,  L.P. will increase  substantially  in
the 2006  fiscal  year due to  anticipated  increases  in volumes of natural gas
transported  through the  international  pipeline  crossing into Piedras Negras,
Coahuila, MX.

TOTAL COSTS AND EXPENSES:  Total costs and expenses from  continuing  operations
decreased  from  $6,441,177  for the nine  months  ended  September  30, 2004 to
$5,732,696 for the nine months ended September 30, 2005.

COST OF SALES: Total Cost of Sales decreased from $1,299,518 for the nine months
ended  September  30, 2004 to $635,113 for the nine months ended  September  30,
2005.  This  decrease  resulted  due to the  change  in  operations  of the Reef
Ventures,  L.P.  pipeline  from gas  marketing  to  transportations  fees as the
operating  model for this  business  segment.  The entire cost of sales  expense
category now represents cost of propane and directly related  expenses  incurred
by Sonterra Energy Corporation.

OPERATING EXPENSES: Operating expenses from continuing operations increased from
$18,416 for the nine months  ended  September  30, 2004 to $210,545 for the nine
months ended  September 30, 2005.  This increase was primarily due to additional
operating expenses incurred by Sonterra Energy Corporation in its operations for
the period  which  were not  present in the  comparative  nine  months for 2004.
Depreciation  expense  increased by $224,288 for the period ended  September 30,
2005  versus  the  nine  months  ended  September  30,  2004  due to  additional
depreciation  related to the  acquisition  of the natural gas pipeline  owned by
Reef  Ventures,  L.P. and the  depreciable  assets  acquired by Sonterra  Energy
Corporation for the operation of the residential propane distribution systems in
Austin,  Texas.  Interest  expense  increased by $354,532 during the nine months
ended  September 30, 2005 versus the nine months period ended September 30, 2004
due to the debt  incurred  to acquire the  natural  gas  pipeline  owned by Reef
Ventures,  L.P. and the issuance of convertible debt to entities associated with
the Mercator Advisory Group, LLC, now known as MAG Capital, LLC.

SALES,  GENERAL AND  ADMINISTRATIVE:  Sales,  General & Administrative  Expenses
decreased  by  $815,025  during the nine  months  ended  September  30,  2005 as
compared with the period ended September 30, 2004.  Consulting fees decreased by


                                      -18-
<PAGE>

over  $2,630,000  for the  comparative  periods  but were  partially  offset  by
increases in employee and director  compensation of $816,000,  selling,  general
and  administrative   expenses  from  the  new  operations  of  Sonterra  Energy
Corporation in the amount of $463,000,  increased  travel and  entertainment  of
$192,000,  and  increases  in several  other  general  and  administrative  cost
categories aggregating approximately $344,000.

NET LOSS FROM OPERATIONS:  Net loss from operations of ($5,108,617) for the nine
months ended  September 30, 2004 decreased to  ($4,516,070)  for the nine months
ended September 30, 2005, a decrease in the amount of loss of $592,547. Included
in the net loss from  operations is  $1,424,575  of expenses for employee  stock
bonuses,  director fees,  financing costs, public relations fees, and legal fees
paid by issuance of common stock.

LIQUIDITY AND CAPITAL  RESOURCES:  Direct capital  expenditures  during the nine
months ended  September 30, 2005 totaled  $1,376,250.  The capital  expenditures
were composed of increased office furniture,  equipment and leasehold costs plus
pre-construction costs regarding potential  international pipeline crossings and
storage facilities in Mexico, and additional machinery, equipment, trucks, autos
and  trailers  for the  operation of the  Sonterra  Energy  Corporation  propane
systems.  Total  debt  decreased  from  $12,306,107  at  December  31,  2004  to
$6,043,511 at September 30, 2005. The decrease in total debt is due primarily to
conversion of  debentures  to common stock in the amount of  $4,020,000  and the
exercise of warrants which reduced an outstanding  note payable in the amount of
$2,512,500.  Net  loss  for  the  nine  months  ended  September  30,  2005  was
($4,313,628) a decrease in net loss of 15% from the net loss of ($5,091,877) for
the nine months ended September 30, 2004.  Basic and diluted net loss per common
share decreased 40% to ($0.06).  The net loss per share calculation for the nine
months ended  September 30, 2005  included an increase in actual and  equivalent
shares outstanding.

FORWARD-LOOKING STATEMENTS:

We have included  forward-looking  statements in this report.  For this purpose,
any  statements  contained in this report that are not  statements of historical
fact may be  deemed to be  forward  looking  statements.  Without  limiting  the
foregoing,  words  such as "may",  "will",  "expect",  "believe",  "anticipate",
"estimate",  "plan" or "continue" or the negative or other variations thereof or
comparable  terminology  are  intended to identify  forward-looking  statements.
These statements by their nature involve  substantial  risks and  uncertainties,
and actual  results  may differ  materially  depending  on a variety of factors.
Factors that might cause  forward-looking  statements to differ  materially from
actual  results  include,  among other  things,  overall  economic  and business
conditions,  demand  for the  Company's  products,  competitive  factors  in the
industries  in which we compete or intend to compete,  natural gas  availability
and cost and timing,  impact and other  uncertainties of our future  acquisition
plans.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

The  Company  does  not  issue  or  invest  in  financial  instruments  or their
derivatives for trading or speculative  purposes.  The operations of the Company
are conducted  primarily in the United States,  and, are not subject to material


                                      -19-
<PAGE>

foreign  currency  exchange risk.  Although the Company has outstanding debt and
related  interest  expense,  market risk of interest rate exposure in the United
States is currently not material.

Item 3.     Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

As of the end of the  reporting  period,  September  30, 2005, we carried out an
evaluation,  under the supervision and with the participation of our management,
including  the  Company's  Chairman  and Chief  Executive  Officer and the Chief
Financial  Officer,  of the  effectiveness  of the design and  operation  of our
disclosure  controls and procedures pursuant to Rule 13a-15(e) of the Securities
Exchange  Act of 1934  (the  "Exchange  Act"),  which  disclosure  controls  and
procedures are designed to insure that information required to be disclosed by a
company  in the  reports  that it files  under  the  Exchange  Act is  recorded,
processed, summarized and reported within required time periods specified by the
SEC's rules and forms.  Based upon that  evaluation,  the Chairman and the Chief
Financial  Officer  concluded  that our  disclosure  controls and procedures are
effective  in timely  alerting  them to  material  information  relating  to the
Company required to be included in the Company's period SEC filings.

(b) Changes in Internal Control.

         Subsequent   to  the  date  of  such   evaluation   as   described   in
subparagraph(a)above,  there were no changes in our  internal  controls or other
factors that could significantly affect these controls, including any corrective
action with regard to significant deficiencies and material weaknesses.

(c) Limitations.

         Our management, including our Principal Executive Officer and Principal
Financial  Officer,  does not expect  that our  disclosure  controls or internal
controls over  financial  reporting  will prevent all errors or all instances of
fraud. A control system,  no matter how well designed and operated,  can provide
only reasonable,  not absolute,  assurance that the control system's  objectives
will be met. Further,  the design of a control system must reflect the fact that
there are resource constraints,  and the benefits of controls must be considered
relative to their  costs.  Because of the  inherent  limitations  in all control
systems,  no  evaluation  of controls can provide  absolute  assurance  that all
control  issues and  instances  of fraud,  if any,  within our company have been
detected.  These  inherent  limitations  include the realities that judgments in
decision-making  can be faulty,  and that breakdowns can occur because of simple
error or mistake.  Controls can also be  circumvented  by the individual acts of
some persons,  by collusion of two or more people, or by management  override of
the controls. The design of any system of controls is based in part upon certain
assumptions  about the  likelihood  of future  events,  and any  design  may not
succeed in achieving  its stated goals under all  potential  future  conditions.


                                      -20-
<PAGE>

Over time,  controls may become  inadequate  because of changes in conditions or
deterioration  in the degree of compliance with policies or procedures.  Because
of the inherent limitation of a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.

                           PART II - OTHER INFORMATION

Item 1.     Legal Proceedings

Matter No. 1:

         On January 6, 2003,  we were  served as a third  party  defendant  in a
lawsuit titled Northern  Natural Gas Company vs. Betty Lou Sheerin vs. Tidelands
Oil & Gas  Corporation,  ZG Gathering,  Ltd. and Ken Lay, in the 150th  Judicial
District Court, Bexar County, Texas, Cause Number 2002-C1-16421. The lawsuit was
initiated by Northern Natural Gas when it sued Betty Lou Sheerin for her failure
to make  payments on a note she  executed  payable to  Northern in the  original
principal amount of $1,950,000.  Northern's suit was filed on November 13, 2002.
Sheerin  answered  Northern's  lawsuit  on January  6,  2003.  Sheerin's  answer
generally  denied  Northern's  claims  and raised the  affirmative  defenses  of
fraudulent inducement by Northern,  estoppel,  waiver and the further claim that
the  note  does  not  comport  with  the  legal  requirements  of  a  negotiable
instrument. Sheerin seeks a judicial ruling that Northern be denied any recovery
on the note.  Sheerin's  answer  included a counterclaim  against  Northern,  ZG
Gathering, and Ken Lay generally alleging, among other things, that Northern, ZG
Gathering,  Ltd. and Ken Lay,  fraudulently  induced her  execution of the note.
Northern has filed a general denial of Sheerin's counterclaims. Sheerin's answer
included a third party cross claim against Tidelands. She alleges that Tidelands
entered  into an  agreement  to  purchase  the Zavala  Gathering  System from ZG
Gathering Ltd. and that, as a part of the agreement, Tidelands agreed to satisfy
all of the obligations due and owing to Northern,  thereby  relieving Sheerin of
all  obligations  she  had to  Northern  on the  $1,950,000  promissory  note in
question.  Tidelands and Sheerin agreed to delay the  Tideland's  answer date in
order to  allow  time for  mediation  of the  case.  Tidelands  participated  in
mediation on March 11, 2003.  The case was not settled at that time.  Tideland's
answered  the Sheerin suit on March 26, 2003.  Tideland's  answer  denies all of
Sheerin's allegations.

         On May 24 and June 16, 2004  respectively,  Betty Lou Sheerin filed her
first  and  second  amended  original  answer,   affirmative  defenses,  special
exceptions and second amended  original  counterclaim,  second amended  original
third  party  cross-actions  and  requests  for  disclosure.  In  these  amended
pleadings,  she sued Michael Ward, Royis Ward, James B. Smith,  Carl Hessell and
Ahmed Karim in their individual capacities. Her claims against these individuals
are for fraud, breach of contract, breach of the Uniform Commercial Code, breach
of  duty of  good  faith  and  fair  dealing  and  conversion.  Sheerin  has now
non-suited her claims against Michael Ward, Royis Ward, and James B. Smith.


                                      -21-
<PAGE>

         In September  2002, as a pre-closing  deposit to the purchase of the ZG
pipelines,  the Company executed a $300,000 promissory note to Betty L. Sheerin,
a partner of ZG Gathering, Ltd. In addition, the Company issued 1,000,000 shares
of its common  stock to various  partners of ZG  Gathering,  Ltd. On December 3,
2003,  Sheerin filed a separate lawsuit against  Tidelands in the 150th District
Court of Bexar County,  Texas on this promissory note seeking a judgment against
Tidelands for the principle amount of the note, plus interest. On December 29th,
2003, Tidelands answered this lawsuit denying liability on the note. On April 1,
2004,  Tidelands filed a plea in abatement  asking the court to dismiss or abate
Sheerin's  lawsuit on the $300,000  promissory note as it was related to and its
outcome was  dependent  on the outcome of the Sheerin  third party cross  action
against Tidelands in Cause Number  2002-C1-16421.  The company believes that the
promissory  note and shares of common stock  should be cancelled  based upon the
outcome of the litigation described above. Accordingly, our financial statements
reflect this belief.

         On  September  15,  2004 and again on October  15,  2004  respectively,
Sheerin  amended her pleadings to include a third and fourth amended third party
cross action against Tidelands adding a claim for the $300,000  promissory note.
In these amended pleadings, Sheerin also deleted her claims against Carl Hessell
and Ahmed Karim.  After adding the claim on the $300,000  promissory note to the
third party  claims of Sheerin  against  Tidelands  in Cause No.  2002-C1-16421,
Sheerin dismissed Cause Number 2002-C1-16421.

         Sheerin  seeks  damages  against  Tidelands  for indemnity for any sums
found to be due from her to Northern Natural Gas Company, unspecified amounts of
actual damages,  statutory  damages,  unspecified  amounts of exemplary damages,
attorneys fees, costs of suit, and prejudgment and post judgment interest.

         On August 5,  2005,  Northern  Natural  Gas  Company  filed its  Fourth
Amended  Original  Petition  which,  for the first time,  named  Tidelands  as a
defendant  to Northern.  Northern  seeks to impose  liability  on Tidelands  for
$1,950.000   promissory  note  signed  by  McDay  Energy  Partners,   Ltd.  (the
predecessor  to ZG Gathering,  Ltd.) and Sheerin and the  $1,700,000  promissory
note signed by McDay only.  Northern  contends that  Tidelands is  alternatively
liable to Northern for payment of both such promissory notes totaling $3,709,914
plus interest because Northern is a third party  beneficiary under a December 3,
2001 purchase and sale agreement between ZG and Tidelands  claiming that in such
agreement  Tidelands agreed to assume and satisfy all indebtedness due and owing
Northern  by  Sheerin  and ZG.  Northern  also  claims  that it is  entitled  to
foreclosure  of a lien on the gas  gathering  system and  pipeline  that was the
subject of the promissory notes in question.

         Some  discovery  has been  completed  at this  time.  Based on  initial
investigation,  and  discovery  to date,  Tidelands  appears to have a number of
potential defenses to the claims of Sheerin and Northern.  Tideland's intends to
aggressively  defend these  lawsuits.  At this stage in the  litigation,  and in


                                      -22-
<PAGE>

light of our continuing investigation and incomplete discovery, we cannot give a
more definitive evaluation of the extent of Tideland's liability exposure.

Matter No. 2:

         On May 4, 2005, HBH  Development  Company,  LLC initiated  legal action
against  Sonterra  Energy  Corporation  in the District  Court of Travis County,
Texas,  98th  Judicial  District.  This action  involves  the  developer  of the
Austin's Colony Subdivision in Travis County, Texas and the propane distribution
system originally constructed by Southern Union Company.  Southern Union entered
into a letter  agreement with HBH concerning the construction and operation of a
propane  distribution  system in the  subdivision  to be owned and  operated  by
Southern Union.  Southern Union assigned the letter  agreement and its interests
in the  propane  system to Oneok,  Inc.,  the parent  company  of Oneok  Propane
Company. Sonterra acquired its interest in the propane system from Oneok Propane
Distribution Company. HBH is claiming that Sonterra has failed or refused to pay
HBH rent and  easement  use fees  under the terms of the letter  agreement.  HBH
alleges that  Sonterra's  actions cause a failure of the  assignment  whereby it
acquired  rights in the propane  system or  alternatively,  if the assignment is
effective,  for  breach  of  contract.  HBH  seeks to have the  court  terminate
Sonterra's rights in the propane distribution system, award unspecified monetary
damages,  cancellation  of the contract and rights  associated  with the propane
distribution system, issue to HBH a writ of possession for the property, and for
attorneys fees.

         Sonterra is  defending  the legal  action.  It believes  that under the
terms of the letter agreement between HBH Development Company and Southern Union
Company,  that the easement use fees terminated when Southern Union conveyed its
interest in the propane distribution system to Oneok Propane Company.

Matter No. 3:

         On May 4, 2005,  Senna  Hills,  Ltd.  initiated  legal  action  against
Sonterra Energy Corporation in the District Court of Travis County,  Texas, 53rd
Judicial  District.  This  action  involves  the  developer  of the Senna  Hills
Subdivision  in  Travis  County,  Texas  and  the  propane  distribution  system
originally constructed by Southern Union Company.  Southern Union entered into a
letter agreement with Senna Hills concerning the construction and operation of a
propane  distribution  system in the  subdivision  to be owned and  operated  by
Southern Union.  Southern Union assigned the letter  agreement and its interests
in the  propane  system to Oneok,  Inc.,  the parent  company  of Oneok  Propane
Company. Sonterra acquired its interest in the propane system from Oneok Propane
Distribution  Company.  Senna  Hills is  claiming  that  Sonterra  has failed or
refused  to pay Senna  Hills rent and  easement  use fees under the terms of the
letter agreement. Senna Hills alleges that Sonterra's actions cause a failure of
the   assignment   whereby  it  acquired   rights  in  the  propane   system  or
alternatively,  if the  assignment is effective,  for breach of contract.  Senna
Hills  seeks  to have the  court  terminate  Sonterra's  rights  in the  propane
distribution system, award unspecified monetary damages, and cancellation of the


                                      -23-
<PAGE>

contract and rights associated with the propane  distribution  system,  issue to
Senna Hills a writ of possession for the property, and attorneys fees.

         Senna  Hills  sold   certain   undeveloped   sections  of  Senna  Hills
Subdivision  to a new owner.  Sonterra  believes that it has the right to expand
its  distribution  system into such  undeveloped  sections  of the  subdivision.
Sonterra  plans to expand the  distribution  system into these sections under an
agreement  with the new owner.  Senna Hills has stated  that  although it is not
presently  objecting to  Sonterra's  expansion of the system at this time, it is
reserving  its claim that  Sonterra does not have the right to do so and that it
intends to ask the court to cancel Sonterra's right to use and possession of the
propane  distribution  system,  including  the system in the new sections of the
subdivision.

         Sonterra is  defending  the legal  action.  It believes  that under the
terms of the letter  agreement  between Senna Hills and Southern  Union Company,
that the easement use fees  terminated when Southern Union conveyed its interest
in the propane distribution system to Oneok Propane Company.

Matter No. 4:

         On  April  of  2005,  Goodson  Builders,  Ltd.  named  Sonterra  Energy
Corporation in a legal action titled,  Goodson Builders,  Ltd, Plaintiff vs. Jim
Blackwell  and BNC  Engineering,  LLC,  Defendants.  The legal  action is in the
District  Court of Travis  County,  Texas 345th  Judicial  District.  This legal
action  arises  from a claim  that  an  underground  propane  storage  tank  and
underground  distribution  lines is situated on the Plaintiff's lot in the Hills
of Lakeway subdivision, Travis County, Texas. Plaintiff alleges that there is no
recorded  easement  setting forth the rights and  obligations of the parties for
use of the propane  tank and lines.  However,  there is reference to a "suburban
propane  easement" on the plat document.  Plaintiff alleges that the property is
being used without  permission  and the use  constitutes  an on-going  trespass.
Plaintiff asks the court to determine that his lot is not subject to a "suburban
propane  easement",  declare the propane  equipment  the property of  plaintiff,
enjoin Sonterra from use of Plaintiff's  land, and award damages.  The Plaintiff
seeks  damages of $165,000  based on a market rental rate he claims to be $5,000
per  month,  $50,000  damages  for  depreciation  of the  value of the  lot,  an
unspecified  amount of  exemplary  damages,  and  attorneys'  fees.  Sonterra is
defending the claims.

Matter No. 5:

On August 18, 2005, Tidelands settled the legal dispute with L.L. Capital Group,
LLC.  Tidelands and L.L.  Capital Group agreed to cancel  285,000  shares of the
1,000,000 share consulting fee. L.L. Capital Group, LLC retained 715,000 shares.

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

On July 1, 2005,  we issued  10,000  common  shares to Jason  Jones,  a Sonterra
Energy employee for services rendered valued at $3,075.00.


                                      -24-
<PAGE>

On July 1, 2005,  we issued Robert  Dowies,  a company  employee,  50,000 common
shares  associated  with his  employment  agreement.  The shares  were valued at
$15,375.

On July 1,  2005,  we  issued  Michael  Ward,  our  company  President  and CEO,
1,000,000 common shares associated with his employment contract. The shares were
valued at $307,500.

We relied on Section 4(2) as the securities  transaction  exemption  afforded by
the Securities Act of 1933, as amended.

Item 3.     Defaults Upon Senior Securities

         None.

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

         No matter was submitted to a vote of the security holders,  through the
solicitation  of proxies or  otherwise,  during the  quarter of the fiscal  year
covered by this report.

Item 5.     Other Information

During  the  third  quarter  the  Mercator  group of  companies,  converted  the
following debentures into common stock:

July 5 Conversion:

         o        Robinson  Reed  converted   $200,000  of  the  7%  Convertible
                  Debentures into common shares at $0.76 per share.

September 19 Conversions:

         o        Robinson  Reed   converted   $52,000  of  the  7%  Convertible
                  Debentures into 74,286 common shares at $0.70 per share.

         o        Monarch Pointe Fund  converted  $196,000 of the 7% Convertible
                  Debentures into 280,000 common shares at $0.70 per share.

         o        Mercator  Momentum  Fund,  LP  converted  $92,000  of  the  7%
                  Convertible Debentures into 131,429 common shares at $0.70 per
                  share.

         o        Mercator  Momentum  Fund  III  converted  $60,000  of  the  7%
                  Convertible  Debentures into 85,714 common shares at $0.70 per
                  share.

September 29 Conversions:

         o        Robinson  Reed   converted   $90,000  of  the  7%  Convertible
                  Debentures into 126,761 common shares at $0.71 per share.

         o        Monarch Pointe Fund  converted  $459,000 of the 7% Convertible
                  Debentures into 646,479 common shares at $0.71 per share.


                                      -25-
<PAGE>

         o        Mercator  Momentum  Fund,  LP  converted  $207,000  of  the 7%
                  Convertible Debentures into 291,549 common shares at $0.71 per
                  share.

         o        Mercator  Momentum  Fund  III  converted  $144,000  of  the 7%
                  Convertible Debentures into 202,817 common shares at $0.71 per
                  share.

On November 2, 2005,  the Mercator  group of companies  converted the balance of
the outstanding 7% Convertible Debentures into common stock as follows:

         o        Robinson  Reed  converted   $158,000  of  the  7%  Convertible
                  Debentures  into 207,895 common shares at the "Ceiling  Price"
                  of $0.76 per share.

         o        Monarch Pointe Fund  converted  $473,100 of the 7% Convertible
                  Debentures  into 622,500 common shares at the "Ceiling  Price"
                  of $0.76 per share.

         o        Mercator  Momentum  Fund,  LP  converted  $214,000  of  the 7%
                  Convertible  Debentures  into  281,579  common  shares  at the
                  "Ceiling Price" of $0.76 per share.

         o        Mercator  Momentum  Fund  III  converted  $134,900  of  the 7%
                  Convertible  Debentures  into  177,500  common  shares  at the
                  "Ceiling Price" of $0.76 per share.

Item 6.     Exhibits

a)       Exhibits

      Exhibit No.                Exhibit Name

         31.1              Chief  Executive  Officer-Section  302  Certification
                           pursuant to Sarbanes-Oxley Act.

         31.2              Chief Financial  Officer-  Section 302  Certification
                           pursuant to Sarbanes-Oxley Act.

         32.1              Chief  Executive  and Financial  Officer-Section  906
                           Certification pursuant to Sarbanes-Oxley Act.





                                      -26-
<PAGE>

                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

                                                       TIDELANDS OIL & GAS CORP.


Dated: November 14, 2005                           By:  /s/ Michael Ward
                                                       -------------------------
                                                       Michael Ward
                                                       Title: President, CEO



Dated: November 14, 2005                           By:  /s/ James B. Smith
                                                       -------------------------
                                                       James B. Smith
                                                       Title: CFO












                                      -27-