**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        DC 20549**
  Form
        10-Q
 (MARK
                    ONE)**x**
                **QUARTERLY REPORT UNDER
                    SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                    1934****For
                    the quarterly period ended September 30,
                    2007****OR****o**
                **TRANSITION
                    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                    ACT****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 filed 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 Noo
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definitions of "accelerated
        filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
        one):
 Large
        accelerated filer o Accelerated
        filer o Non-accelerated
        filer x
   Indicate
        by check mark whether the registrant is a shell company (as defined by Rule
        12b-2of the Exchange Act. Yes o  No x
  **APPLICABLE
        ONLY TO CORPORATE ISSUERS**
  As
        of November 14, 2007, there were107,941,748shares
        of Common Stock issued and
        outstanding.
  Transitional
        Small Business Disclosure Format: Yes o     No
x






Table
          of Contents






**TIDELANDS
      OIL & GAS CORPORATION**


**FORM
      10-Q**




**Table
      of Contents**





****


**Page****PART
                  I  Financial Information**Item
                    1
                Financial
                  Statements (Unaudited)
                3Condensed
                    Consolidated Balance Sheets as of September
                    30, 2007 and December 31, 2006
                3Condensed
                    Consolidated Statements of Operations For
                    the Three Months Ended September 30, 2007 and
                    2006
                4Condensed
                    Consolidated Statements of Operations For
                    the Nine Months Ended September 30, 2007 (Restated) and
                    2006
                5Condensed
                    Consolidated Statements of Cash Flows For
                    the Nine Months Ended September 30, 2007 (Restated) and
                    2006
                6Notes
                    to Condensed Consolidated Financial
                    Statements
                8Item
                    2
                Management’s
                  Discussion and Analysis of
                  Financial Condition and Results of Operations
                20Item
                    3
                Quantitative
                  and Qualitative Disclosures About Market
                  Risk
                25Item
                    4
                Controls
                    and Procedures
                25**PART
                  II   Other Information**Item
                    1
                Legal
                  Proceedings
                26Item
                  1A
                Risk
                  Factors
                27Item
                    2
                Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
                28Item
                    3
                Defaults
                  Upon Senior Securities
                28Item
                    4
                Submission
                  of Matters to a Vote of Security
                  Holders
                28Item
                    5
                Other
                  Information
                28Item
                    6
                Exhibits
                28Signature
                
                29






Table
              of Contents
  
 **PART
          I – FINANCIAL INFORMATION**
 **Item
          1. Financial Statements**
  **TIDELANDS
                    OIL & GAS CORPORATION****CONDENSED
                    CONSOLIDATED BALANCE SHEETS****ASSETS****September
                    30,**
                
                
                **December
                    31,****2007**
                
                
                **2006****(Unaudited)**Current
                    Assets:Cash
                
                $
                818,173
                
                
                $
                367,437Accounts
                    and Other Receivable
                
                
                422,462
                
                
                
                388,754Inventory
                
                
                102,315
                
                
                
                84,030Prepaid
                    Expenses
                
                
                329,608
                
                
                
                148,551Total
                    Current Assets
                
                
                1,672,558
                
                
                
                988,772Property
                    Plant and Equipment, Net
                
                
                9,718,681
                
                
                
                12,364,359Investment
                    in Affiliate
                
                
                210,980
                
                
                
                -Other
                    Assets:Deposits
                
                
                252,762
                
                
                
                56,708Cash
                    Restricted
                
                
                54,120
                
                
                
                52,642Deferred
                    Charges
                
                
                -
                
                
                
                565,221Goodwill
                
                
                1,158,937
                
                
                
                1,158,937Total
                    Other Assets
                
                
                1,465,819
                
                
                
                1,833,508Total
                    Assets
                
                $
                13,068,038
                
                
                $
                15,186,639**LIABILITIES
                    AND STOCKHOLDERS' EQUITY**Current
                    Liabilities:Current
                    Maturities - Note Payable
                
                $
                7,410,514
                
                
                $
                225,000Accounts
                    Payable and Accrued Expenses
                
                
                2,554,299
                
                
                
                1,624,752Customer
                    Deposits
                
                
                10,350
                
                
                
                -Reserve
                    for Litigation
                
                
                2,250,000
                
                
                
                2,250,000Total
                    Current Liabilities
                
                
                12,225,163
                
                
                
                4,099,752Long-Term
                    Debt
                
                
                -
                
                
                
                8,934,294Total
                    Liabilities
                
                
                12,225,163
                
                
                
                13,034,046Commitments
                    and Contingencies
                
                
                -
                
                
                
                -Stockholders’
                    Equity:Common
                    Stock, $.001 Par Value per Share,250,000,000
                    Shares Authorized, 107,941,748and
                    86,457,922 Shares Issued and Outstanding atSeptember
                    30, 2007 and December 31, 2006, Respectively
                
                
                107,942
                
                
                
                86,459Additional
                    Paid-in Capital
                
                
                55,814,216
                
                
                
                46,703,202Subscriptions
                    Receivable
                
                
                -
                
                
                
                (220,000
                )Minority
                    Interest
                
                
                -
                
                
                
                -Accumulated
                    Deficit
                
                
                (55,079,283
                )
                
                
                (44,417,068
                )Total
                    Stockholders’ Equity
                
                
                842,875
                
                
                
                2,152,593Total
                    Liabilities and Stockholders’ Equity
                
                $
                13,068,038
                
                
                $
                15,186,639See
                    Accompanying Notes to Consolidated Financial Statements
 3
 Table
              of Contents
 
 **TIDELANDS
                    OIL & GAS CORPORATION****CONDENSED
                    CONSOLIDATED STATEMENTS OF OPERATIONS****(UNAUDITED)****Three
                    Months Ended**
                
                
                **Three
                    Months Ended****September
                    30, 2007**
                
                
                **September
                    30, 2006**Revenues:Gas
                    Sales and Pipeline Fees
                
                $
                332,693
                
                
                $
                355,937Construction
                    Services
                
                
                59,903
                
                
                
                13,289Total
                    Revenues
                
                
                392,596
                
                
                
                369,226Costs
                    and Expenses:Cost
                    of Sales
                
                
                272,083
                
                
                
                272,631Operating
                    Expenses
                
                
                85,144
                
                
                
                102,010Depreciation
                
                
                24,564
                
                
                
                18,129Impairment
                    Loss
                
                
                -
                
                
                
                -Stock-Based
                    Compensation – Related Parties
                
                
                139,265
                
                
                
                348,000Selling,
                    General and Administrative
                
                
                586,053
                
                
                
                881,528Total
                    Costs and Expenses
                
                
                1,107,109
                
                
                
                1,622,298Loss
                    From Operations
                
                
                (714,513
                )
                
                
                (1,253,072
                )Other
                    Income (Expenses)Loss
                    on Sale of Assets
                
                
                (172,555
                )
                
                
                (4,500
                )Interest
                    Expense
                
                
                (245,749
                )
                
                
                (2,572,249
                )Interest
                    and Dividend Income
                
                
                3,077
                
                
                
                53,500Gain
                    on Sale of Subsidiary
                
                
                156,480
                
                
                
                -Miscellaneous
                
                
                95,485
                
                
                
                (743
                )Total
                    Other Income (Expenses)
                
                
                (163,262
                )
                
                
                (2,523,992
                )Net
                    Loss
                
                $
                (877,775
                )
                
                $
                (3,777,064
                )Net
                    Loss Per Common Share:Basic
                    and Diluted
                
                $
                (0.01
                )
                
                $
                (0.05
                )Weighted
                    Average Number of CommonShares
                    Outstanding
                
                
                106,425,048
                
                
                
                82,551,543See
                    Accompanying Notes to Condensed Consolidated Financial
                    Statements
   4
 Table
              of Contents
 
 **TIDELANDS
                    OIL & GAS CORPORATION****CONDENSED
                    CONSOLIDATED STATEMENTS OF OPERATIONS****(UNAUDITED)****Nine
                    Months Ended**
                
                
                **Nine
                    Months Ended****September
                    30, 2007**
                
                
                **September
                    30, 2006****(Restated
                    - Note 8)**Revenues:Gas
                    Sales and Pipeline Fees
                
                $
                1,739,947
                
                
                $
                1,420,551Construction
                    Services
                
                
                240,619
                
                
                
                157,693Total
                    Revenues
                
                
                1,980,566
                
                
                
                1,578,244Costs
                    and Expenses:Cost
                    of Sales
                
                
                1,237,620
                
                
                
                1,047,377Operating
                    Expenses
                
                
                261,247
                
                
                
                286,128Depreciation
                
                
                79,368
                
                
                
                58,464Impairment
                    Loss
                
                
                2,605,061
                
                
                
                -Stock-Based
                    Compensation – Related Parties
                
                
                5,011,763
                
                
                
                1,535,400Selling,
                    General and Administrative
                
                
                2,757,058
                
                
                
                3,136,873Total
                    Costs and Expenses
                
                
                11,952,117
                
                
                
                6,064,242Loss
                    From Operations
                
                
                (9,971,551
                )
                
                
                (4,485,998
                )Other
                    Income (Expenses)Loss
                    on Sale of Assets
                
                
                (179,443
                )
                
                
                (4,500
                )Interest
                    Expense
                
                
                (774,175
                )
                
                
                (3,057,258
                )Interest
                    and Dividend Income
                
                
                10,951
                
                
                
                115,239Gain
                    on Sale of Subsidiary
                
                
                156,480
                
                
                
                -Miscellaneous
                
                
                95,523
                
                
                
                (743
                )Total
                    Other Income (Expenses)
                
                
                (690,664
                )
                
                
                (2,947,262
                )Net
                    Loss
                
                $
                (10,662,215
                )
                
                $
                (7,433,260
                )Net
                    Loss Per Common Share:Basic and Diluted
                
                $
                (0.11
                )
                
                $
                (0.09
                )Weighted
                    Average Number of CommonShares
                    Outstanding
                
                
                97,199,835
                
                
                
                81,516,543See
                    Accompanying Notes to Condensed Consolidated Financial
                    Statements
  5
 Table
              of Contents
 **TIDELANDS
                      OIL & GAS CORPORATION****CONDENSED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS****(UNAUDITED)****Nine
                      Months Ended**
                  
                  
                  **Nine
                      Months Ended****September
                      30, 2007**
                  
                  
                  **September
                      30, 2006****(Restated)**Cash
                      Flows Provided FromOperating
                      Activities:Net
                      Loss
                  
                  $
                  (10,662,215
                  )
                  
                  $
                  (7,433,260
                  )Adjustments
                      to Reconcile Net LossTo
                      Net Cash Used InOperating Activities:Depreciation
                  
                  
                  333,214
                  
                  
                  
                  345,887Loss
                      on Disposal of Equipment
                  
                  
                  179,443
                  
                  
                  
                  4,500Gain
                      on Sale of Affiliate
                  
                  
                  (156,480
                  )
                  
                  
                  -Impairment
                      Loss
                  
                  
                  2,605,061
                  
                  
                  
                  -Issuance
                      of Common Stock:For
                      Services Provided – Related Parties
                  
                  
                  5,011,763
                  
                  
                  
                  1,535,400For
                      Services Provided – Other
                  
                  
                  1,049,791
                  
                  
                  
                  375,400For
                      Payment of Interest
                  
                  
                  -
                  
                  
                  
                  1,696,982Changes
                      in:Accounts Receivable
                  
                  
                  (33,708
                  )
                  
                  
                  177,490Inventory
                  
                  
                  (18,285
                  )
                  
                  
                  67,615Prepaid Expenses
                  
                  
                  (153,974
                  )
                  
                  
                  (128,980
                  )Deferred Charges
                  
                  
                  565,221
                  
                  
                  
                  (880,256
                  )Deposits
                  
                  
                  (65,438
                  )
                  
                  
                  (50,000
                  )Accounts
                      Payable and Accrued Expenses
                  
                  
                  1,272,791
                  
                  
                  
                  219,622Customer
                      Deposits
                  
                  
                  10,350
                  
                  
                  
                  -Net
                      Cash Used In Operating Activities
                  
                  
                  (62,466
                  )
                  
                  
                  (4,069,600
                  )Cash
                      Flows FromInvesting
                      Activities:Investment
                      in Affiliate
                  
                  
                  (62,601
                  )
                  
                  
                  -(Increase)
                      Decrease in Restricted Cash
                  
                  
                  (1,478
                  )
                  
                  
                  24,644Proceeds
                      from Sale of Assets
                  
                  
                  1,310,236
                  
                  
                  
                  21,500Acquisitions
                      of Property, Plant and Equipment
                  
                  
                  (1,774,175
                  )
                  
                  
                  (2,556,439
                  )Net
                      Cash Used In Investing Activities
                  
                  
                  (528,018
                  )
                  
                  
                  (2,510,295
                  )See
                      Accompanying Notes to Condensed Consolidated Financial
                      Statements
   6
 Table
                of Contents
  **TIDELANDS
                      OIL & GAS CORPORATION****CONDENSED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS****(CONTINUED)****(UNAUDITED)****Nine
                      Months Ended**
                  
                  
                  **Nine
                      Months Ended****September
                      30, 2007**
                  
                  
                  **September
                      30, 2006****(Restated)**Cash
                      Flows FromFinancing
                      Activities:Proceeds
                      from Stock Subscriptions Receivable
                  
                  
                  -
                  
                  
                  
                  220,000Proceeds
                      from Exercise of Stock Options
                  
                  
                  790,000
                  
                  
                  
                  -Proceeds
                      from Long-Term Loans
                  
                  
                  -
                  
                  
                  
                  6,737,276Proceeds
                      from Short-Term Loans
                  
                  
                  251,220
                  
                  
                  
                  -Repayment
                      of Long-Term Loans
                  
                  
                  -
                  
                  
                  
                  (608,750
                  )Proceeds
                      from Repayment of Loan by Related Party
                  
                  
                  -
                  
                  
                  
                  4,652Net
                      Cash Provided by Financing Activities
                  
                  
                  1,041,220
                  
                  
                  
                  6,353,178Net
                      Increase (Decrease) in Cash
                  
                  
                  450,736
                  
                  
                  
                  (226,717
                  )Cash
                      at Beginning of Period
                  
                  
                  367,437
                  
                  
                  
                  1,113,911Cash
                      at End of Period
                  
                  $
                  818,173
                  
                  
                  $
                  887,194Supplemental
                      Disclosures of Cash Flow Information:Cash
                      Payments for Interest
                  
                  $
                  125,817
                  
                  
                  $
                  1,153,116Cash
                      Payments for Income Taxes
                  
                  $
                  -
                  
                  
                  $
                  -Non-Cash
                      Operating, Investing and Financing Activities:Issuance of Common Stock:Payments of Accrued Expenses & Accounts Payable
                  
                  $
                  343,244
                  
                  
                  $
                  445,000Conversion of Debentures
                  
                  
                  2,000,000
                  
                  
                  
                  -Legal Fee – Retainer
                  
                  
                  130,616
                  
                  
                  
                  385,542Prepaid Legal Fees
                  
                  
                  27,083
                  
                  
                  
                  -Cancellation of Common Stock:In Settlement of Stock Subscriptions
                  
                  
                  (220,000
                  )
                  
                  
                  -Total
                      Non-Cash Operating, Investing and Financing Activities
                  
                  $
                  2,280,943
                  
                  
                  $
                  830,542See
                      Accompanying Notes to Condensed Consolidated Financial
                      Statements
   7
 Table
              of Contents
  **TIDELANDS
          OIL & GAS CORPORATION**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2007**
 **(UNAUDITED)**
 
 
 NOTE
          1–BASIS OF PRESENTATION
 
 The
          accompanying unaudited condensed consolidated financial statements for
          the
          three-month and nine-month periods ended September 30, 2007, and 2006,
          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-Q and Regulation S-X.  Please note that the
          prior year’s presentations for the Condensed Consolidated Statement of
          Operations and the Condensed Consolidated Statements of Cash Flows were
          changed
          to conform to current year’s presentation.  The financial information
          as of December 31, 2006, is derived from the registrant’s Form 10-K for the year
          ended December 31, 2006.  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, 2006, included in the registrant’s Form 10-K for the
          year ended December 31, 2006.
 
 Operating
          results for the three-month and nine-month periods ended September 30,
          2007, are
          not necessarily indicative of the results that may be expected for the
          remainder
          of the fiscal year ending December 31, 2007.  The accompanying
          unaudited condensed consolidated financial statements include the accounts
          of
          the registrant, its wholly-owned subsidiaries, Rio Bravo Energy, LLC, Sonterra
          Energy Corporation, Arrecefe Management, LLC, Reef Ventures, LP, Reef
          International, LLC, Reef Marketing, LLC, Terranova Energia S. de R. L.
          de C. V.,
          Esperanza Energy, LLC, and Tidelands Exploration & Production
          Corporation.  All significant inter-company accounts and transactions
          have been eliminated in consolidation.  The accounts of Tidelands
          Exploration and Production Corporation and Sonora Pipeline LLC are shown
          up
          through the date of sale of the assets or the subsidiary.
  
 NOTE
          2– GOING CONCERN
 
 The
          Company has sustained recurring losses and negative cash flows from
          operations.  Over 2006, the Company’s growth had been funded through
          issuance of convertible debentures.  As of September 30, 2007, the
          Company had approximately $818,173 of unrestricted cash.  However, the
          Company has experienced and continues to experience negative cash flows
          from
          operations, as well as an ongoing requirement for substantial additional
          capital
          investment.  The Company needs to raise substantial additional capital
          to accomplish its business plan this year and over the next several
          years.  The Company is seeking to obtain such additional funding
          through private equity sources, from financial partners for some of its
          projects
          and the possible sale of certain operating assets along with a continued
          reduction of operating expenses.  There can be no assurance as to the
          availability or terms upon which such financing and capital might be available
          or that asset sales will be possible at suitable pricing.
 
 The
          Company’s ability to continue as a going concern will depend on management’s
          ability to successfully implement a business plan which will increase revenues,
          control costs, and obtain additional forms of debt and/or equity financing
          or
          financial partners.  These financial statements do not include any
          adjustments that might be necessary if the Company is unable to continue
          as a
          going concern.
 8
 Table
                of Contents
 
 **TIDELANDS
            OIL & GAS CORPORATION**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
            30, 2007**
 **(UNAUDITED)**
 
 NOTE
          3– IMPAIRMENT CHARGE
 
 The
          Company incurred a non-cash impairment charge as of September 30, 2007,
          to
          reflect the difference between the carrying value and the market value
          of the
          affected asset which is its natural gas pipeline between Eagle Pass, Texas
          and
          Mexico.  The charge taken was $2,605,061 which reduced the gross value
          of the Company’s cost basis to $3,501,194 from $6,106,255 before taking
          accumulated depreciation into account.
 
  NOTE
          4– SALE OF 80% INTEREST IN THE BURGOS HUB IMPORT/EXPORT PROJECT
 
 On
          September 28, 2007, Tidelands Oil & Gas Corporation (the "Company") and its
          subsidiary, Terranova Energia S. de R.L. de C.V., entered into an Equity
          Purchase Agreement (the "Purchase Agreement") with Grand Cheniere Pipeline,
          LLC,
          ("Cheniere") pursuant to which the Company has sold an 80% interest in
          the
          Company's "Burgos Hub Project", which, as described in greater detail in
          the
          Company's annual report filed on Form 10-K, involves the development and
          construction of an integrated pipeline project traversing the United States
          and
          Mexico border and the construction of a related subterranean storage facility
          in
          Mexico.
 
 In
          connection with the Purchase Agreement, the Company formed a new subsidiary,
          Frontera Pipeline, LLC, a Delaware limited liability company ("Frontera"),
          and
          agreed, upon approval of applicable governmental authorities, to transfer
          all
          rights, permits and assets of the Burgos Hub Project to Frontera. The Company
          then sold 80% of the equity interest in Frontera to Cheniere, effectively
          providing Cheniere with an 80% ownership stake in the Burgos Hub
          Project.
 
 At
          the
          closing of the transaction, the Company contributed 100% of the ownership
          of its
          subsidiary, Sonora Pipeline, LLC, (“Sonora”) to Frontera.  Sonora has
          been engaged in obtaining Federal Energy Regulatory Commission (“FERC”) permits
          for two pipelines to be located between the US and Mexico which would be
          part of
          the Burgos Hub Project.
 
 Pursuant
          to the sale of the 80% equity interest in Frontera, the Company (i) received
          an
          up-front payment of $1 Million and (ii) is eligible to earn three additional,
          separate earn-out payments of $4.8 Million, $1.2 Million, and $2.0 Million.
          The
          Company is also entitled to receive royalty payments based on the capacity
          of
          transportation or storage service subscribed with the Burgos Hub Project,
          ranging from $0.008 per Mmbtu/d for Phase I to $0.002 per Mmbtu/d for Phase
          II
          to $0.02 per Mmbtu/year for Phase III, subject to certain caps. The earn-out
          payments are dependent upon Cheniere electing to proceed with development
          of the
          Burgos Hub Project, which is divided into three phases, as set forth in
          Frontera's Limited Liability Company Agreement (the "Operating Agreement"),
          which is filed as an exhibit to Form 8-K filed on October 4, 2007.
  Concurrently
          with the execution of the Purchase Agreement, Frontera executed an Independent
          Consulting Agreement (the "Consulting Agreement") with the Company, pursuant
          to
          which the Company will be paid $25,000 per month for 24 months for consulting
          services in connection with the Burgos Hub Project. The Consulting Agreement
          also provides that the Company will not compete with the Burgos Hub Project
          for
          a period of three years after termination or expiration of the Consulting
          Agreement.
 
 9
 Table
                of Contents
 
 **TIDELANDS
            OIL & GAS CORPORATION**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
            30, 2007**
 **(UNAUDITED)**
 
 NOTE
          5– PROPERTY, PLANT AND EQUIPMENT
 
 A
          summary
          of property, plant and equipment at September 30, 2007 and December 31,
          2006 is
          as follows:
  ****
                  ****
                  ****
                  ****
                  ****Estimated********
                  ****
                  **September
                      30,**
                  ****
                  ****
                  **December
                      31,**
                  ****
                  **Economic******
                  ****
                  **2007**
                  ****
                  ****
                  **2006**
                  ****
                  **Life**Pre-Construction
                      Costs:International
                      Crossings to Mexico
                  
                  $
                  -
                  
                  
                  $
                  818,271
                  
                  N/AMexican Gas Storage Facilityand Related Pipelines
                  
                  
                  2,761,829
                  
                  
                  
                  2,359,451
                  
                  N/ADomestic LNG System
                  
                  
                  2,709,313
                  
                  
                  
                  1,567,642
                  
                  N/ATotal
                  
                  
                  5,471,142
                  
                  
                  
                  4,745,364Office
                      Furniture, Equipment andLeasehold
                      Improvements
                  
                  
                  182,799
                  
                  
                  
                  185,174
                  
                  5
                      YearsPipeline
                      – Eagle Pass, TX to PiedrasNegras,
                      Mexico
                  
                  
                  3,501,194
                  
                  
                  
                  6,106,255
                  
                  20
                      YearsTanks
                      & Lines – Propane DistributionSystem
                  
                  
                  1,939,750
                  
                  
                  
                  1,908,247
                  
                  5
                      YearsMachinery
                      and Equipment
                  
                  
                  75,185
                  
                  
                  
                  67,357
                  
                  5
                      YearsTrucks,
                      Autos and Trailers
                  
                  
                  126,464
                  
                  
                  
                  126,464
                  
                  5
                      YearsPipeline
                      – South TX Gas Production
                  
                  
                  -
                  
                  
                  
                  490,000
                  
                  15
                      YearsWell
                      Equipment
                  
                  
                  -
                  
                  
                  
                  2,060
                  
                  5
                      YearsLeaseholds
                  
                  
                  -
                  
                  
                  
                  10,000
                  
                  N/ATotal
                  
                  
                  11,296,534
                  
                  
                  
                  13,640,921Less:
                      Accumulated Depreciation
                  
                  
                  1,577,853
                  
                  
                  
                  1,276,562Net Property, Plant and Equipment
                  
                  $
                  9,718,681
                  
                  
                  $
                  12,364,359
 Depreciation
          expense for the nine months ended September 30, 2007 and 2006 was $333,214
          and
          $345,887, respectively.  Depreciation expense for the three months
          ended September 30, 2007 and 2006 was $87,470 and $114,085,
          respectively.
 
 
 10
 Table
              of Contents
  **TIDELANDS
          OIL & GAS CORPORATION**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2007**
 **(UNAUDITED)**
 
 
 NOTE
          6– LONG-TERM DEBT
 
 A
          summary
          of long-term debt at September 30, 2007 and December 31, 2006 is as
          follows:
   **September
                      30,**
                  
                  
                  **December
                      31,****2007**
                  
                  
                  **2006**Note
                      Payable, Secured by Reef InternationalPipeline,
                      Interest Bearing at 2% Over PrimeRate
                      Per Annum, Maturing May 25, 2008
                  
                  $
                  5,036,223
                  
                  
                  $
                  4,785,003Convertible
                      Debentures, Unsecured, IncludingPrepaid
                      Interest at 9% Per Annum, MaturingJanuary
                      20, 2008
                  
                  
                  2,374,291
                  
                  
                  
                  4,374,2917,410,514
                  
                  
                  
                  9,159,294Less:
                      Current Maturities
                  
                  
                  7,410,514
                  
                  
                  
                  225,000Total
                      Long-Term Debt
                  
                  $
                  -
                  
                  
                  $
                  8,934,294
  NOTE
          7– COMMON STOCK TRANSACTIONS
 
 A
          summary
          of common stock transactions for the nine months ended  September 30,
          2007 is as follows:
 
 The
          Company issued 500,000 shares of its common stock valued at $135,000 to
          the
          former President in accordance with the terms of his Severance
          Agreement.
 
 The
          Company issued 7,436,618 shares of its common stock valued at $1,274,620
          to four
          law firms for legal services related to securities law matters, various
          litigation and other Company legal needs.
 
 The
          Company cancelled 1,000,000 shares of its common stock valued at $220,000
          held
          by the President and a former officer which were offset against stock
          subscriptions due from them to the Company.
 
 The
          Company issued a total of 2,298,848 shares of its common stock to a holder
          of
          its Convertible Debentures for conversion of $2,000,000.
 
 The
          Company issued 345,000 shares of its restricted common stock valued at
          $70,000
          for 2006 and 2007 investor public relations services.
 
 11
 Table
              of Contents
  **TIDELANDS
          OIL & GAS CORPORATION**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2007**
 **(UNAUDITED)**
 
 
 NOTE
          7– COMMON STOCK TRANSACTIONS (CONTINUED)
 
 The
          Company issued 2,642,858 shares of its common stock valued at $550,000
          to each
          of two Directors for a total of 5,285,716 shares valued at
          $1,100,000.  In addition to their customary duties as directors, these
          board members provided regular and ongoing management services to the
          Company.  This compensation to the two Directors represents their
          compensation for 2007.
 
 The
          Company issued 69,000 shares of its restricted common stock valued at $14,490
          for preparation of a Research Report.
 
 The
          Company issued 4,619,047 shares to a Director for $790,000 as a result
          of his
          exercise of 2,619,047 stock options at $0.21 per share and 2,000,000 stock
          options at $0.12 per share.
 
 The
          Company issued 376,819 shares of its common stock valued at $54,873 to
          a
          Director for Corporate Secretary services and related costs.
 
 The
          Company issued 527,778 shares of its common stock valued at $100,139 to
          two
          Officer/employees in accordance with their employment contracts.
 
 The
          Company issued 312,500 shares of its restricted common stock valued at
          $62,313
          to three employees as stock bonuses.
 
 The
          Company issued 112,500 shares of its common stock valued at $20,813 to
          two
          employees as stock bonuses.
 
 The
          Company issued a total of 550,000 shares of its restricted common stock
          valued
          at $84,250 to two of its Officers as stock bonuses.
 
 The
          Company issued a total of 50,000 shares of its common stock valued at $8,000
          to
          Officers as a stock bonus.
 
  
 12
 Table
              of Contents
 
  **TIDELANDS
          OIL & GAS CORPORATION**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2007**
 **(UNAUDITED)**
 
 
 NOTE
          8– SUMMARY OF RESTATED INTERIM REPORTS
 
 On
          November 14, 2007, the Board of Directors of the Company determined that
          the
          accounting treatment of certain options issued to its directors (the “Options”)
          originally reported on its (i) Quarterly Report of Form 10-Q for the three
          months ended March 31, 2007, and (ii) Quarterly Report for the three and
          six
          months ended June 30, 2007 (the “Prior Reports”), was incorrect and required
          revision.  Therefore, the Board of Directors has determined that the
          financial statements in the Company’s Prior Reports should not be relied upon
          and should be restated.
  The
            adjustments to the Prior Reports listed below correct the accounting
            treatment
            of the Options to comply with the provisions of Financial Accounting
            Standards
            Board Statement No. 123 Share Based Payment (FAS 123(R)).  FAS 123(R) was
            adopted by the Company on January 1, 2006; however, with respect to the
            Options,
            the Company inadvertently failed to record the appropriate expense for
            such
            Options in accordance with FAS 123(R).
 
 The
          Company uses the Black-Scholes option pricing model to compute the fair
          value of
          stock options, which requires the Company to make the following
          assumptions:
 
 §
                The
                    risk-free interest rate is based on the short-term Treasury bond
                    at date
                    of grant.
 §
                The
                    dividend yield on the Company’s common stock is assumed to be zero since
                    the Company does not pay dividends and has no current plans to
                    do
                    so.
 §
                The
                    market price volatility of the Company’s common stock is based on daily
                    historical prices for the twelve months previous to the grant
                    date.
 §
                The
                    term of the grants is the current year since all grants are vested
                    at the
                    time of the grants; therefore, the entire fair value of stock-based
                    compensation was recorded in 2007.
 
 The
          Company has now recognized the fair value stock option compensation expense
          as
          follows:
 
 Quarterly
                      Report of 10-Q for the Three MonthsEnded
                      March 31, 2007
                  
                  $
                  2,667,000Quarterly
                      Report of 10-Q for the Three MonthsEnded
                      June 30, 2007
                  
                  
                  971,000Total
                      for the Six Months Ended June 30, 2007
                  
                  $
                  3,638,000
 
 13
 Table
              of Contents
  **TIDELANDS
          OIL & GAS CORPORATION**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2007**
 **(UNAUDITED)**
 
 
 NOTE
          8– SUMMARY OF RESTATED INTERIM REPORTS (CONTINUED)
 
 The
          transactions referred to above relate to non-cash charges and did not affect
          the
          Company’s revenues, cash flows from operations, liquidity, assets, liabilities
          or total stockholders’ equity.
  **Three
                      Months Ended March 31, 2007****Previously**
                  
                  
                  
                  
                  **Restatement**
                  
                  
                  **Restated****Reported**
                  
                  
                  
                  
                  **Adjustment**
                  
                  
                  **Amount**Consolidated
                      Balance Sheets:Total
                      Assets
                  
                  $
                  15,475,483
                  
                  
                  
                  
                  $
                  -
                  
                  
                  $
                  15,475,483Total
                      Liabilities
                  
                  
                  11,531,967
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  11,531,967Stockholders’
                      EquityCommon Stock
                  
                  
                  98,690
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  98,690Additional Paid-in Capital
                  
                  
                  50,823,250
                  
                  (1)
                  
                  
                  
                  2,667,000
                  
                  
                  
                  53,490,250Subscriptions Receivable
                  
                  
                  (110,000
                  )
                  
                  
                  
                  
                  -
                  
                  
                  
                  (110,000
                  )Accumulated Deficit
                  
                  
                  (46,868,424
                  )
                  (3)
                  
                  
                  
                  (2,667,000
                  )
                  
                  
                  (49,535,424
                  )Total
                      Stockholders’ Equity
                  
                  $
                  3,943,516
                  
                  
                  
                  
                  $
                  -
                  
                  
                  $
                  3,943,516Consolidated
                      Statement of Operations:Revenues
                  
                  $
                  1,103,971
                  
                  
                  
                  
                  $
                  -
                  
                  
                  $
                  1,103,971Expenses
                  
                  
                  3,555,952
                  
                  (2)
                  
                  
                  
                  2,667,000
                  
                  
                  
                  6,222,952Net
                      (Loss) from Operations
                  
                  
                  (2,451,981
                  )
                  
                  
                  
                  
                  (2,667,000
                  )
                  
                  
                  (5,118,981
                  )Other
                      Income
                  
                  
                  625
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  625Net
                      (Loss)
                  
                  $
                  (2,451,356
                  )
                  
                  
                  
                  $
                  (2,667,000
                  )
                  
                  $
                  (5,118,356
                  )Net
                      (Loss) per Common Share:Basic
                      and Diluted
                  
                  $
                  (0.03
                  )
                  
                  
                  
                  
                  
                  
                  
                  $
                  (0.06
                  )Weighted
                      Average Number of Common Shares Outstanding:Basic
                      and Diluted
                  
                  
                  92,573,416
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  92,573,416
  (1)
                    Adjust
                        additional paid-in capital to record fair value of stock
                        options
                        issued.(2)
                    Adjust
                        expenses to reflect fair value of stock-based
                        compensation.(3)
                    Adjust
                        accumulated deficit to reflect additional losses as a result
                        of
                        stock-based compensation expense.
 
    14
 Table
              of Contents
  **TIDELANDS
          OIL & GAS CORPORATION**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2007**
 **(UNAUDITED)**
 
 
 NOTE
          8– SUMMARY OF RESTATED INTERIM REPORTS (CONTINUED)
  **Six
                          Months Ended June 30, 2007****Previously**
                      
                      
                      
                      
                      **Restatement**
                      
                      
                      **Restated****Reported**
                      
                      
                      
                      
                      **Adjustment**
                      
                      
                      **Amount**Consolidated
                          Balance Sheets:Total
                          Assets
                      
                      $
                      13,171,782
                      
                      
                      
                      
                      $
                      -
                      
                      
                      $
                      13,171,782Total
                          Liabilities
                      
                      
                      11,944,188
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      11,944,188Stockholders’ EquityCommon Stock
                      
                      
                      104,909
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      104,909Additional Paid-in Capital
                      
                      
                      51,796,193
                      
                      (1)
                      
                      
                      
                      
                      3,638,000
                      
                      
                      
                      55,434,193Subscriptions Receivable
                      
                      
                      (110,000
                      )
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      (110,000
                      )Accumulated Deficit
                      
                      
                      (50,563,508
                      )
                      (3)
                      
                      
                      
                      
                      (3,638,000
                      )
                      
                      
                      (54,201,508
                      )Total
                          Stockholders’ Equity
                      
                      $
                      1,227,594
                      
                      
                      
                      
                      
                      $
                      -
                      
                      
                      $
                      1,227,594Consolidated
                          Statement of Operations:Revenues
                      
                      $
                      1,587,970
                      
                      
                      
                      
                      
                      $
                      -
                      
                      
                      $
                      1,587,970Expenses
                      
                      
                      7,735,434
                      
                      (2)
                      
                      
                      
                      
                      3,638,000
                      
                      
                      
                      11,373,434Net
                          (Loss) from Operations
                      
                      
                      (6,147,464
                      )
                      
                      
                      
                      
                      
                      (3,638,000
                      )
                      
                      
                      (9,785,464
                      )Other Income
                      
                      
                      1,024
                      
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      1,024Net
                          (Loss)
                      
                      $
                      (6,146,440
                      )
                      
                      
                      
                      
                      $
                      (3,638,000
                      )
                      
                      $
                      (9,784,440
                      )Net
                          (Loss) per Common Share:Basic
                          and Diluted
                      
                      $
                      (0.06
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      (0.10
                      )Weighted
                          Average Number of Common Shares Outstanding:Basic
                          and Diluted
                      
                      
                      95,683,133
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      95,683,133
  (1)
                    Adjust
                        additional paid-in capital to record fair value of stock
                        options
                        issued.(2)
                    Adjust
                        expenses to reflect fair value of stock-based
                        compensation.(3)
                    Adjust
                        accumulated deficit to reflect additional losses as a result
                        of
                        stock-based compensation expense.
 
 15
 Table
              of Contents
 **TIDELANDS
          OIL & GAS CORPORATION**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2007**
 **(UNAUDITED)**
  
 NOTE
            9– STOCK OPTIONS, STOCK WARRANTS AND SHARES RESERVED FOR CONVERTIBLE
            DEBENTURES
  The
          following table presents the activity for options, warrants and shares
          reserved
          for issuance upon conversion of outstanding convertible debentures for
          the nine
          months ending September 30, 2007.
 
 ****
                ****
                **Shares
                    Reserved**
                ****
                ****
                
                ****
                ****
                **Weighted******
                ****
                **Stock**
                ****
                ****
                **Stock**
                ****
                ****
                **for
                    Convertible**
                ****
                ****
                **Total**
                ****
                ****
                **Average******
                ****
                **Options**
                ****
                ****
                **Warrants**
                ****
                ****
                **Debentures**
                ****
                ****
                **Shares**
                ****
                ****
                **Exercise
                    Price**Outstanding
                    – December 31, 2006
                
                
                250,000
                
                
                
                18,138,051
                
                
                
                5,027,916
                
                
                
                23,415,967
                
                
                $
                1.070First
                    QuarterGranted
                    / Issued
                
                
                15,000,000
                
                
                
                -
                
                
                
                -
                
                
                
                15,000,000
                
                
                
                0.210Exercised/Converted
                
                
                (952,381
                )
                
                
                -
                
                
                
                (2,298,848
                )
                
                
                (3,251,229
                )
                
                
                0.677Expired
                
                
                -
                
                
                
                (7,551,432
                )
                
                
                -
                
                
                
                (7,551,432
                )
                
                
                1.275Cancelled
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Outstanding
                    – March 31, 2007
                
                
                14,297,619
                
                
                
                10,586,619
                
                
                
                2,729,068
                
                
                
                27,613,306
                
                
                
                0.598Second
                    QuarterGranted
                    / Issued
                
                
                10,000,000
                
                
                
                -
                
                
                
                -
                
                
                
                10,000,000
                
                
                
                0.120Exercised/Converted
                
                
                (1,666,666
                )
                
                
                -
                
                
                
                -
                
                
                
                (1,666,666
                )
                
                
                0.210Expired
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Cancelled
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Outstanding
                    – June 30, 2007
                
                
                22,630,953
                
                
                
                10,586,619
                
                
                
                2,729,068
                
                
                
                35,946,640
                
                
                
                0.483Third
                    QuarterGranted
                    / Issued
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Exercised/Converted
                
                
                (2,000,000
                )
                
                
                -
                
                
                
                -
                
                
                
                (2,000,000
                )
                
                
                0.120Expired
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Cancelled
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Outstanding
                    – September 30, 2007
                
                
                20,630,953
                
                
                
                10,586,619
                
                
                
                2,729,068
                
                
                
                33,946,640
                
                
                $
                0.504
  16
 Table
                of Contents
 
 **TIDELANDS
            OIL & GAS CORPORATION**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
            30, 2007**
 **(UNAUDITED)**
 
 
 NOTE
          10– SEGMENT REPORTING
 
 The
          following tables are summaries of the results of operations and other financial
          information by major segment for the three months and nine months ended
          September 30, 2007 and 2006:
 
 **Third
                    Quarter 2007**
                
                **Propane
                    Sales**
                ****
                ****
                **Pipeline**
                ****
                ****
                **All
                    Other**
                ****
                ****
                
                ********
                ****
                **and
                    Related**
                ****
                ****
                **Transportation**
                ****
                ****
                **and**
                ****
                ****
                ****
                ********
                ****
                **Services**
                ****
                ****
                **Fees**
                ****
                ****
                **Corporate**
                
                
                **Total**Revenue
                
                $
                366,356
                
                
                $
                17,848
                
                
                $
                8,392
                
                
                $
                392,596Depreciation
                
                $
                31,877
                
                
                $
                43,765
                
                
                $
                11,828
                
                
                $
                87,470Interest
                
                $
                392
                
                
                $
                -
                
                
                $
                245,357
                
                
                $
                245,749Net
                    (Loss)
                
                $
                (16,654
                )
                
                $
                (41,883
                )
                
                $
                (819,238
                )
                
                $
                (877,775
                )Total
                    Assets
                
                $
                2,475,818
                
                
                $
                2,399,878
                
                
                $
                8,192,342
                
                
                $
                13,068,038
  **2007
                    Year to Date**
                
                **Propane
                    Sales**
                ****
                ****
                **Pipeline**
                ****
                ****
                **All
                    Other**
                ****
                ****
                
                ********
                ****
                **and
                    Related**
                ****
                ****
                **Transportation**
                ****
                ****
                **and**
                ****
                ****
                ****
                ********
                ****
                **Services**
                ****
                ****
                **Fees**
                ****
                ****
                **Corporate**
                
                
                **Total**Revenue
                
                $
                1,838,848
                
                
                $
                96,381
                
                
                $
                45,337
                
                
                $
                1,980,566Depreciation
                
                $
                95,630
                
                
                $
                196,421
                
                
                $
                41,163
                
                
                $
                333,214Interest
                
                $
                1,871
                
                
                $
                -
                
                
                $
                772,304
                
                
                $
                774,175Net
                    Income (Loss)
                
                $
                266,154
                
                
                $
                (2,799,833
                )
                
                $
                (8,128,536
                )
                
                $
                (10,662,215
                )Total
                    Assets
                
                $
                2,475,818
                
                
                $
                2,399,878
                
                
                $
                8,192,342
                
                
                $
                13,068,038**Third
                    Quarter 2006**
                
                **Propane
                    Sales**
                ****
                ****
                **Pipeline**
                ****
                ****
                **All
                    Other**
                ****
                ****
                
                ********
                ****
                **and
                    Related**
                ****
                ****
                **Transportation**
                ****
                ****
                **and**
                ****
                ****
                ****
                ****
                ********
                ****
                **Services**
                ****
                ****
                **Fees**
                ****
                ****
                **Corporate**
                ****
                ****
                ****
                **Total**Revenue
                
                $
                288,664
                
                
                $
                80,562
                
                
                $
                -
                
                
                $
                369,226Depreciation
                
                $
                31,221
                
                
                $
                76,329
                
                
                $
                6,535
                
                
                $
                114,085Interest
                
                $
                312
                
                
                $
                -
                
                
                $
                2,571,937
                
                
                $
                2,572,249Net
                    (Loss)
                
                $
                (153,478
                )
                
                $
                (5,748
                )
                
                $
                (3,617,838
                )
                
                $
                (3,777,064
                )Total
                    Assets
                
                $
                2,922,274
                
                
                $
                5,386,091
                
                
                $
                7,923,154
                
                
                $
                16,231,519**2006
                    Year to Date**
                
                **Propane
                    Sales**
                ****
                ****
                **Pipeline**
                ****
                ****
                **All
                    Other**
                ****
                ****
                
                ********
                ****
                **and
                    Related**
                ****
                ****
                **Transportation**
                ****
                ****
                **and**
                ****
                ****
                ****
                ****
                ********
                ****
                **Services**
                ****
                ****
                **Fees**
                ****
                ****
                **Corporate**
                ****
                ****
                ****
                **Total**Revenue
                
                $
                1,374,606
                
                
                $
                203,638
                
                
                $
                -
                
                
                $
                1,578,244Depreciation
                
                $
                97,551
                
                
                $
                228,985
                
                
                $
                19,351
                
                
                $
                345,887Interest
                
                $
                1,402
                
                
                $
                -
                
                
                $
                3,055,856
                
                
                $
                3,057,258Net
                    (Loss)
                
                $
                (142,543
                )
                
                $
                (56,068
                )
                
                $
                (7,234,649
                )
                
                $
                (7,433,260
                )Total
                    Assets
                
                $
                2,922,274
                
                
                $
                5,386,091
                
                
                $
                7,923,154
                
                
                $
                16,231,519
 17
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                  of Contents
 
 **TIDELANDS
              OIL & GAS CORPORATION**
 **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
              30, 2007**
 **(UNAUDITED)**
 
 NOTE
          11– RELATED PARTY TRANSACTION
  During
          the nine months ended September 30, 2007, the Company issued 376,819 shares
          of
          its common stock valued at $54,874 to a Director for Corporate Secretary
          services and related costs.
  NOTE
          12– LITIGATION
 
 **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 (“Northern”) when it sued Betty Lou Sheerin
          (“Sheerin”) for her failure to make payments on a note she executed payable to
          Northern in the original principal amount of $1,950,000.
  This
          matter is further described in Tidelands’ Form 10-K for the year ended December
          31, 2006 and the Form 10-Q for the three and six months ended June 30,
          2007.
 
 No****major
          developments took place in the quarter ended September 30, 2007, and settlement
          negotiations have not been successful to date. A trial date has been set
          for January 7, 2008. Based on prior negotiations, the Company has reserved
          $2,250,000 as an estimated litigation settlement and that amount has been
          included in this report. However, if the matter proceeds to trial,
          such reserve may or may not be adequate.
 
 **Matter
          No. 2:**
 Cause
          No.
          GN 500948, Goodson Builders, Ltd., Plaintiff, vs. Jim Blackwell, BNC
          Engineering, Et. Al, Defendants, was filed April 7, 2005, in the 345th
          District
          Court of Travis County, Texas.  This case involves a claim that
          Defendant Toll Brothers Property, LP (“Toll Brothers”) sold Plaintiff Goodson
          Builder, Ltd. (“Plaintiff” or “Goodson”) property without disclosing a propane
          easement.  Plaintiff sued Sonterra Energy Corp. (“Sonterra”) for
          trespassing through the use of the easement.  Goodson’s primary claim
          is against the seller for fraud and non-disclosure.  Toll Brothers has
          responded with a claim for sanctions because the claim is
          frivolous.  Toll Brothers offers a witness who is Plaintiff’s former
          employee and took pictures of the propane tank prior to the Plaintiff’s
          purchase.  Goodson seeks damages in the hundreds of thousands of
          dollars.  Insurance would not cover these damages.
 
 On
          May 9,
          2007, the trial court found summary judgment against Plaintiff and in favor
          of
          all Defendants as to the existence of an easement.  The judgment
          explicitly states that there is an easement for the propane tank and for
          our
          maintenance of the tank.  Plaintiff has now amended his petition to
          include a claimed violation of setback requirements for the tank.  Jim
          Blackwell is in contact with the Texas Railroad Commission regarding the
          tank’s
          compliance with the setback requirements.  At this time, both
          Blackwell and Toll Brothers have pending motions for sanctions. On July 5,
          2007,  Blackwell had a partial hearing on his motion and the trial court
          indicated that it would grant sanctions if Plaintiff did not adequately
          address
          the motion in its pleadings.  The matter is ripe for another hearing
          on the sanctions motion, but Plaintiff has made a settlement offer to Toll
          Brothers that may settle the case.  The Company is contesting the case
          vigorously.
  **Matter
          No. 3:**
 Cause
          No.
          GM 501625, Senna Hills, Ltd., Plaintiff, vs. Sonterra Energy Corp., Defendant,
          was filed in the 53rd Judicial District of Travis County, Texas and Cause
          No. GN
          501626, HBH Development Co., LLC, Plaintiff, vs. Sonterra Energy Corp.,
          Defendant, was filed in the 98th Judicial
          District
          Court of Travis County, Texas.  The above matters were each filed
          against Sonterra in May 2005 and involve the same claims arising from the
          same
          propane service agreement.  In each case, the plaintiff initially
          brought claims against Sonterra arising from Sonterra’s failure, as an assignee
          of the agreement, to pay easement use fees to the plaintiff.  Sonterra
          obtained summary judgment as to the plaintiffs’ respective breach of contract
          and failure of assignment claims arising from the failure to pay easement
          use
          fees.  The cases were not, however, fully dismissed because the
          plaintiffs added new causes of action for failure to pay easement use fees,
          claims for unpaid developer bonus, reformation of the agreements to require
          payment of easement use fees and alleged failure of assignment.  These
          separate lawsuits have since been consolidated into one suit for purposes
          of
          pretrial and trial.  The trial date will likely be reset in March
          2008; however, the Company expects to file a motion for summary judgment
          prior
          to December 1, 2007.
  
 18
 Table
              of Contents
  **TIDELANDS
          OIL & GAS CORPORATION**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2007**
 **(UNAUDITED)**
 
 
 NOTE
          12– LITIGATION (CONTINUED)
   **Matter
            No. 4:**
 Cause
            No.
            2007-CI-07451, Michael R. Ward vs. Tidelands Oil & Gas Corporation, was
            filed on May 17, 2007 in the 224th District
            Court of
            Bexar County, Texas. This case involves two claims by the Plaintiff,
            Michael R.
            Ward, the former President and CEO of Tidelands Oil & Gas Corporation
            against the Company. The first claim is for a breach of the Letter Agreement
            dated December 8, 2006 alleging a failure to pay Ward’s salary for the months of
            March through June 2007 pursuant to the terms of said Letter Agreement.
            The
            second claim involves an allegation by Ward that the Company prevented
            Ward from
            selling 1,650,000 shares of the Company’s stock during the period of February
            20, 2007 through April 4, 2007 and that Ward suffered economic damages
            as a
            result of a decline in share price during the relevant time periods.
            The Company
            filed a general denial on June 27, 2007. On July 18, 2007, Plaintiff
            Ward filed
            a Motion for Partial Summary Judgment with respect to the first claim
            for breach
            of the Letter Agreement, a Motion setting the case for trial on the second
            claim
            for September 28, 2007, and discovery notices. On August 7, 2007, the
            Company
            filed an abatement request requesting Court ordered mediation pursuant
            to the
            Letter Agreement of December 8, 2006. The Company expected that its request
            for
            mediation will be honored by the Court; in fact, the case was set for
            mediation
            in September 2007 (see below).
 
 **Matter
          No. 5:**
 Cause
          No.
          2007-CI 11661, Bentley Energy Corp. vs. Tidelands Exploration & Production,
          Inc. *(Please note that the suit was filed with incorrect corporate
          name.  It should be Tidelands Exploration & Production Corp.)*
          was filed on August 7, 2007 in the 407th District
          Court of
          Bexar County, Texas.  This case involves a claim for breach of the
          Joint Operating Agreement and Participation Agreement between Tidelands
          Exploration & Production Corp. (“TEP”) and Bentley Energy Corp. (“Bentley”),
          as Assignee of Regency Energy, Inc. (“Regency”).  Bentley is majority
          owned by Michael R. Ward, the former President and CEO of Tidelands Oil
&
Gas Corporation, which is the parent company for TEP. Regency is majority
          owned
          by Royis Ward, a former director of Tidelands Oil & Gas Corporation and the
          father of Michael R. Ward.  Pursuant to the terms of the Joint
          Operating Agreement, TEP, as non-operator, granted Regency a lien or security
          interest in all the oil and gas leases and pipelines covered by the Joint
          Operating Agreement.  Bentley seeks foreclosure of these interests due
          to TEP’s failure to pay joint interest billings under the Joint Operating
          Agreement.
 
 Both
          Matter No. 4 and Matter No. 5 were settled on September 11, 2007, as a
          result of
          mediation held during September 2007.
 
 Bentley
          Energy Corp. purchased a natural gas pipeline interest, working interests
          in
          operating natural gas wells and a related leasehold with a net book value
          of
          $480,590 from the Company’s wholly-owned subsidiary, Tidelands Exploration and
          Production Corp., for $280,000 and assumption of the $28,036 joint interest
          billing owed.
 
 Michael
          R. Ward waived unpaid severance salary of $88,116 and all other claims
          described
          in Matter No. 4 above.  Full releases by all parties were included in
          the settlement.  A copy of the Final Settlement and Release Agreement
          was filed as an exhibit to Form 8-K filed with the SEC on October 5,
          2007.
 
 In
          accordance with Statement of Financial Accounting Standards No. 5, “Accounting
          for Contingencies,” management has reached the conclusion that there is a remote
          possibility that the claims enumerated in Matters No. 2 and 3 above would
          be
          upheld at trial and has also determined that the amount of the claims cannot
          be
          reasonably estimated.  Accordingly, the Company’s financial statements
          reflect no accrual of a loss contingency with respect to these legal
          matters.
  19
 Table
            of Contents
  **Item
            2. Management's Discussion and Analysis of Financial
            Condition and Results of Operations**
  **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.
  **Business
            Overview**
  Our
            products and services are primarily focused on development and operation
            of
            transportation, processing, distribution and storage projects of natural
            gas and
            natural gas liquids in the northeastern states of Mexico (Coahuila, Nuevo
            Leon
            and Tamaulipas) and the states of Texas and California 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, LP and the sale of propane gas to residential
            customers
            through the assets owned by Sonterra Energy Corporation (“Sonterra”). Sonterra
            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. Sonterra Energy Corporation
            has
            recently begun performing construction services for third-party utility
            companies in order to more efficiently utilize its existing expertise
            and
            assets.
  **Recent
            Developments**
  Port
            Esperanza
 
 On
            March
            7, 2007, Esperanza Energy, LLC (“Esperanza”), a wholly owned subsidiary of the
            Company, announced plans to file applications with state and federal
            agencies to
            build a floating liquefied natural gas (“LNG”) receiving facility 15 miles off
            the Port of Long Beach, California. The project, named Port Esperanza,
            is
            intended to bring natural gas to the Southern California marketplace.
            The
            project was designed from inception to address the primary concerns that
            have
            created public and regulatory stakeholder opposition to other proposed
            California LNG import projects. The project has been now been thoroughly
            vetted
            with the key stakeholders in California, including the environmental
            community.
            Esperanza plans to formally file its application for a permit to construct,
            own
            and operate the facilities under the Deep Water Port Act in 2008. The
            LNG
            receiving facility has attracted the commercial interest of several parties
            who
            could participate as a gas suppliers or gas purchasers. The Company has
            commenced active negotiations with several potential joint venture partners
            to
            fund the development of the permit application process for the required
            Maritime
            Administration (“MARAD”) and California state permits. Further progress on this
            project is dependent upon the Company securing such additional funding
            from
            third parties. The anticipated development timeline for the project would
            be to
            file the MARAD application within six months of receipt of funding for
            the
            permit application process, followed by approximately eighteen months
            for MARAD
            permit processing, and then the commencement of construction upon receipt
            of the
            MARAD permit with targeted commissioning of the project eighteen months
            later.
            More information is available at www.esperanza-energy.com
 
 Burgos
            Hub Authorizations
 
 On
            July
            12, 2007, Sonora Pipeline, LLC (“Sonora”), a wholly-owned subsidiary of the
            Company, announced that it had received the following authorizations
            from the
            Federal Energy Regulatory Commission (“FERC”), with respect to the Mission and
            Progreso International Pipelines:
  (1)
            A
            Presidential Permit and authorization to site, construct, operate and
            maintain
            two bi-directional border crossing natural gas facilities at the international
            boundary between the United States and Mexico; and
  (2)
            A
            Certificate of public convenience and necessity to site, construct, operate
            and
            maintain the United States portion of a pipeline system consisting of
            approximately 29 miles of 30-inch diameter pipeline and appurtenant facilities
            that will extend into Mexico via two border crossings, all to be located
            in
            Hidalgo County, Texas.
  20
 Table
              of Contents
  These
            natural gas pipelines in the United States will interconnect with the
            pipeline
            system being developed by another wholly-owned subsidiary of the Company,
            Terranova Energia, S. de R.L. de C.V. (“Terranova”). Terranova previously
            received approval from the Comision Reguladora de Energia (“CRE”) for the
            interconnecting pipeline segments in Mexico on May 23, 2006.
  The
            pipeline systems in the United States and Mexico are known as the Burgos
            Hub
            Export/Import Project which is being developed to serve the demand for
            importation of natural gas into Mexico, which is expected to increase
            dramatically beginning in the year 2010. The pipelines will also be
            interconnected with a proposed underground natural gas storage facility
            being
            developed by Terranova to serve Mexican power generation and industrial
            customer
            needs for management of swings in demand and seasonal spread in natural
            gas
            prices. Terranova has previously applied for a permit to construct and
            operate
            the storage facility with the CRE and is expecting a decision on the
            application
            in the first quarter of 2008.  The current catalog of FERC
            correspondence for Sonora’s activities is located at www.ferc.gov under
            Docket No. PF07-74 et sequence. See below for additional developments
            regarding
            the sale of an 80% interest in the Burgos Hub Project.
 
 Ward
            Settlement
 
 On
            September 11, 2007, the Company settled litigation with Michael R. Ward
            and
            Bentley Energy Corporation, which resulted in the conveyance of substantially
            all the assets of Tidelands Exploration and Production Corporation to
            Bentley
            Energy Corporation and ended the participation of the Company in an exploration,
            production and gas gathering project with Regency Energy, Inc., an entity
            owned
            by Royis Ward, the father of Michael R. Ward. As a result of the settlement
            agreement, the Company received a cash settlement from Mr. Ward in the
            amount of
            $280,000 on October 1, 2007, the relief of the Company’s liability for joint
            interest billings in the amount of $28,036, plus the relief of the Company’s
            liability for severance payments to Michael R. Ward in the amount of
            $88,116,
            which totals to a recovery amount for the Company of $396,152 pursuant
            to the
            settlement agreement.
  BurgosHub Project –Saleof 80% Interest
 
 On
            September 28, 2007, the Company and its subsidiary, Terranova Energia
            S. de R.L.
            de C.V., entered into an Equity Purchase Agreement (the "Purchase Agreement")
            with Grand Cheniere Pipeline, LLC, ("Cheniere") pursuant to which the
            Company
            has sold an 80% interest in the Company's "Burgos Hub Project", which,
            as
            described in greater detail in the Company's annual report filed on Form
            10-K,
            involves the development and construction of an integrated pipeline project
            traversing the United States and Mexico border and the construction of
            a related
            subterranean storage facility in Mexico.
  In
            connection with the Purchase Agreement, the Company formed a new subsidiary,
            Frontera Pipeline, LLC, a Delaware limited liability company ("Frontera"),
            and
            agreed, upon approval of applicable governmental authorities, to transfer
            all
            rights, permits and assets of the Burgos Hub Project to Frontera. The
            Company
            then sold 80% of the equity interest in Frontera to Cheniere, effectively
            providing Cheniere with an 80% ownership stake in the Burgos Hub
            Project.
  At
            the
            closing of the transaction, the Company contributed 100% of the ownership
            of its
            subsidiary, Sonora Pipeline, LLC, (“Sonora”) to Frontera.  Sonora has
            been engaged in obtaining FERC permits for two pipelines to be located
            between
            the US and Mexico which would be part of the Burgos Hub Project.
  Pursuant
            to the sale of the 80% equity interest in Frontera, the Company (i) received
            an
            up-front payment of $1 Million and (ii) is eligible to earn three additional,
            separate earn-out payments of $4.8 Million, $1.2 Million, and $2.0 Million.
            The
            Company is also entitled to receive royalty payments based on the capacity
            of
            transportation or storage service subscribed with the Burgos Hub Project,
            ranging from $0.008 per Mmbtu/d for Phase I to $0.002 per Mmbtu/d for
            Phase II
            to $0.02 per Mmbtu/year for Phase III, subject to certain caps. The earn-out
            payments are dependent upon Cheniere electing to proceed with development
            of the
            Burgos Hub Project, which is divided into three phases, as set forth
            in
            Frontera's Limited Liability Company Agreement (the "Operating Agreement"),
            which is filed as an exhibit to Form 8-K filed on October 4, 2007.
  Concurrently
            with the execution of the Purchase Agreement, Frontera executed an Independent
            Consulting Agreement (the "Consulting Agreement") with the Company, pursuant
            to
            which the Company will be paid $25,000 per month for 24 months, subject
            to
            certain conditions, for consulting services in connection with the Burgos
            Hub
            Project. The Consulting Agreement also provides that the Company will
            not
            compete with the Burgos Hub Project for a period of three years after
            termination or expiration of the Consulting Agreement.  The Consulting
            Agreement is also filed as an exhibit to Form 8-K filed on October 4,
            2007.
  21
 Table
              of Contents
  As
            a
            result of the transactions with Cheniere Energy, Inc, as noted above,
            effective
            as of September 28, 2007, the Company now owns a 20% interest in the
            Burgos Hub
            project which will be held through its ownership in Frontera Pipeline,
            LLC.
  The
            Company believes that significant regulatory changes are likely to occur
            within
            the next year in connection with the ability of customers in Mexico to
            obtain
            firm capacity rights for transportation of natural gas on both the National
            Pipeline System (operated by PEMEX Gas) and private party owned pipelines.
            The
            Company believes that these changes would likely result in an increase
            in demand
            for the reservation of firm capacity rights beyond the current capacities
            available in the market area for the Burgos Hub project. If this unbundling
            of
            pipeline services occurs and customers are then required to pay for firm
            capacity rights in order to assure adequate flow of natural gas to their
            power
            plants, local distribution companies and manufacturing facilities, the
            Company
            would expect an acceleration of the commercial development opportunity
            for the
            Burgos Hub pipeline project phases. The Company expects that as part
            of this
            commercial opportunity, the current pipeline permit in Mexico would be
            amended
            to include a new segment running from the area near Station 19 of the
            National
            Pipeline System (southwest of Reynosa, Tamaulipas) to a central distribution
            point in Monterrey, Nuevo Leon. This new segment would be constructed
            to serve
            the power generation, local distribution company and industrial demand
            sectors
            in the Monterrey area.
  The
            Company expects that prior to final review of the storage permit filing
            for the
            Burgos Hub project in 2008, the regulatory scheme for the use of depleted
            hydrocarbon reservoirs as gas storage facilities will need to be designed
            and
            implemented. The Company believes that the outcome of such regulation
            could
            result in the opportunity for multiple storage facilities to be constructed
            in
            Mexico. Given the advanced stage of the Burgos Hub storage facility design
            and
            the already permitted pipelines to and from the proposed Burgos Hub gas
            storage
            facility, the Company believes that the Burgos Hub project could have
            a
            significant first-mover advantage over other potentially competitive
            proposals
            to enlist significant capacity reservation in the storage facility which,
            in
            turn, would assist in commercial development of the facility.
  As
            described in greater detail in the Operating Agreement, Cheniere now
            has sole
            management and control over the Burgos Hub Project.  Decisions
            regarding whether to proceed with any additional development of the Burgos
            Hub
            Project are in Cheniere’s sole discretion, although the Company intends to
            continue to offer strategic advice and recommendations to Cheniere in
            accordance
            with the Consulting Agreement.
  **Results
            of Operations**
 
 THREE
            MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THREE MONTHS ENDED SEPTEMBER
            30,
            2006
 
 REVENUES:
            The Company reported revenues of $392,596 for the three months ended
            September
            30, 2007 compared to revenues of $369,226 for the three months ended
            September
            30, 2006 which is an improvement of 6.3 percent for the three months
            ended
            September 30, 2007 versus the three months ended September 30, 2006.
            The revenue
            increase resulted from increasing volumes of propane sold by our Sonterra
            Energy
            Corporation subsidiary to residential customers plus related construction
            service increases and initial revenues from the Company’s natural gas wells of
            $8,392, which offset a decline in transportation revenue from the Reef
            Ventures,
            L.P. pipeline crossing into Piedras Negras, Coahuila, Mexico.
 
 TOTAL
            EXPENSES: Total Expenses for the three months ended September 30, 2007
            were
            $1,107,109 versus $1,622,298 for the three months ended September 30,
            2006 which
            is an improvement of 31.7% for the three months ended September 30, 2007
            versus
            the three months ended September 30, 2006. The primary reason for the
            decrease
            in Total Expenses was decreases in operating expenses, stock-based compensation
            for related parties and selling, general and administrative expenses
            during the
            three months ended September 30, 2007 versus these same expense categories
            for
            the three months ended September 30, 2006.
 
 COST
            OF
            SALES: Cost of Sales for the three months ended September 30, 2007 were
            $272,083
            compared to $272,631 for the three months ended September 30, 2006. The
            decrease
            in cost of sales for Sonterra Energy Corporation was offset by an increase
            in
            cost of sales from Tidelands Exploration & Production Corporation during the
            three months ended September 30, 2007.
 
 OPERATING
            EXPENSES: Operating Expenses for the three months ended September 30,
            2007 were
            $85,144 compared to $102,010 for the three months ended September 30,
            2006. The
            decrease is attributable to operating efficiencies gained in Sonterra
            Energy
            Corporation.
 
 DEPRECIATION
            EXPENSE: Depreciation Expense for the three months ended September 30,
            2007 was
            $24,564 compared to $18,129 for the three months ended September 30,
            2006. The
            increased depreciation expense is attributable to depreciation of additional
            depreciable assets held by Tidelands Exploration & Production Corporation
            for the three months ended September 30, 2007 as compared with the three
            months
            ended September 30, 2006.
 
 STOCK-BASED
            COMPENSATION – RELATED PARTIES: Stock-Based Compensation – Related Parties for
            the three months ended September 30, 2007 was $139,265 compared to $348,000
            for
            the three months ended September 30, 2006. The decrease was due to reduced
            payment of director and officer salaries and fees in the form of stock
            options
            for the three months ended September 30, 2007 as compared to the three
            months
            ended September 30, 2006.
 22
 Table
              of Contents
  SELLING,
            GENERAL AND ADMINISTRATIVE: Selling, General and Administrative costs
            for the
            three months ended September 30, 2007 were $586,053 compared to $881,528
            for the
            three months ended September 30, 2006. Most of the reduction in these
            expenses
            was derived from reductions in staff and related overhead costs for the
            three
            months ended September 30, 2007 versus the three months ended September
            30,
            2006.
 
 OTHER
            INCOME (EXPENSE): Total Other Expenses for the three months ended September
            30,
            2007 were ($163,262) versus ($2,523,992) for the three months ended September
            30, 2006. The primary reason for the substantial decrease in Other Expenses
            was
            the lack of default interest charges associated with the convertible
            debentures
            in the three months ended September 30, 2007 versus the three months
            ended
            September 30, 2006. These default interest charges were a nonrecurring
            charge
            and were related to a specific nonrecurring event of default on the convertible
            debentures.
 
 NET
            LOSS:
            Net Loss for the three months ended September 30, 2007 was $877,775 versus
            the
            Net Loss of $3,777,064 for the three months ended September 30, 2006.
            The
            primary reason for the substantial reduction in loss for the three months
            ended
            September 30, 2007 versus the three months ended September 30, 2006 was
            the
            reduction of interest expense from the convertible debentures in combination
            with improved operating margins.
 
 NINE
            MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO NINE MONTHS ENDED SEPTEMBER
            30,
            2006
 
 REVENUES:  The
            Company reported revenues of $1,980,566 for the nine months ended September
            30,
            2007 as compared with revenues of $1,578,244 for the nine months ended
            September
            30, 2006, which is a 25.5% increase in revenue for the nine months ended
            September 30, 2007 compared to the nine months ended September 30, 2006.
            Revenues from Reef Ventures, LP decreased to $96,381 for the nine months
            ended
            September 30, 2007 compared to $203,638 for the nine months ended September
            30,
            2006. The decrease was due to lower volumes of gas transported in Mexico
            through
            the 12-inch natural gas pipeline owned by Reef Ventures, LP. Revenues
            from
            Sonterra Energy Corporation increased to $1,838,848 for the nine months
            ended
            September 30, 2007 compared to $1,374,606 for the nine months ended September
            30, 2006. Gas sales at Sonterra increased to $1,598,229 for the nine
            months
            ended September 30, 2007 compared to $1,216,913 for the nine months ended
            September 30, 2006. The increase in gas sales was primarily due to an
            increase
            in total customers served by Sonterra Energy Corporation. Construction
            services
            revenues at Sonterra increased to $240,619 for the nine months ended
            September
            30, 2007 compared to $157,693 for the nine months ended September 30,
            2006.  Revenues from Tidelands Exploration and Production Corp. sales
            of natural gas from the Company's working interest in gas wells for the
            nine
            months ended September 30, 2007, increased to $45,337 as compared to
            zero for
            the nine months ended September 30, 2006.
 
 TOTAL
            EXPENSES:  Total expenses increased to $11,952,117 for the nine months
            ended September 30, 2007 compared to $6,064,242 for the nine months ended
            September 30, 2006. The most significant increases in costs were due
            to an
            impairment loss of $2,605,061 incurred with respect to the natural gas
            pipeline
            owned by Reef Ventures, LP and increased in stock-based compensation
            paid to
            related parties in the amount of $5,011,763 in the form of stock options
            for the
            nine months ended September 30, 2007 compared to $1,535,400 for the nine
            months
            ended September 30, 2006.
 
 COST
            OF
            SALES:  Cost of sales increased to $1,237,620 for the nine months
            ended September 30, 2007 compared to $1,047,377 for the nine months ended
            September 30, 2006. The increase was due primarily to increased volume
            of
            propane sold through our Sonterra Energy Corporation subsidiary.
 
 OPERATING
            EXPENSES:  Operating expenses decreased to $261,247 for the nine
            months ended September 30, 2007 compared to $286,128 for the nine months
            ended
            September 30, 2006. This decrease was primarily attributable to reduced
            operating costs from Sonterra Energy Corporation attributable to more
            efficient
            operation of facilities by personnel of Sonterra.
 
 DEPRECIATION
            EXPENSE: Depreciation Expense increased to $79,368 for the nine months
            ended
            September 30, 2007 compared to $58,464 for the nine months ended September
            30,
            2006. The increase in depreciation expense is primarily from the addition
            of
            depreciable property in the Tidelands Exploration & Production Corporation
            subsidiary.
 
 IMPAIRMENT
            LOSS: Impairment Loss increased to $2,605,061 for the nine months ended
            September 30, 2007 as compared to $0 for the nine months ended September
            30,
            2006. The increase in loss resulted from a non-cash impairment charge
            to reflect
            the difference between the carrying value and the fair value of the natural
            gas
            pipeline assets owned by the Company’s subsidiary operations of Reef Ventures,
            LP. The amount of impairment charge was derived by reference to a third
            party
            valuation of the assets based upon current and expected future cash flows
            from
            the operation of the assets.
 
 STOCK-BASED
            COMPENSATION – RELATED PARTIES: Stock-based compensation to related parties
            increased to $5,011,763 for the nine months ended September 30, 2007
            compared to
            $1,535,400 for the nine months ended September 30, 2006 which is an increase
            of
            $3,476,363. The increase resulted primarily from an increase in stock-based
            compensation in the form of stock options granted to the Company
            directors.
  23
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  SELLING,
            GENERAL AND ADMINISTRATIVE:  Selling, General and Administrative Costs
            decreased to $2,757,058 for the nine months ended September 30, 2007
            compared to
            $3,136,873 for the nine months ended September 30, 2006. This decrease
            resulted
            from cumulative cost reductions across many categories of expenses partially
            offset by an increase in legal fees for the nine months ended September
            30, 2007
            as compared with the nine months ended September 30, 2006. Of the total
            Selling,
            General and Administrative Costs of $2,757,058 for the nine months ended
            September 30, 2007, $1,049,791 of these costs were paid by issuance of
            common
            stock and the remaining $1,707,267 of costs were paid with cash or incurred
            through reliance on trade credit.
 
 OTHER
            INCOME (EXPENSE): Total Other Income (Expenses) decreased to ($690,664)
            for the
            nine months ended September 30, 2007 compared to ($2,947,262) for the
            nine
            months ended September 30, 2006. Interest Expense decreased to ($774,175)
            for
            the nine months ended September 30, 2007 compared to ($3,057,258) for
            the nine
            months ended September 30, 2006 which is a decrease of $2,283,083 in
            Interest
            Expense for the nine months ended September 30, 2007 as compared to the
            nine
            months ended September 30, 2006. This decrease resulted primarily from
            the
            elimination of default interest charges associated with the convertible
            debentures issued in a 2006 financing transaction. (Loss) on Sale of
            Assets
            increased to ($179,443) for the nine months ended September 30, 2007
            compared to
            ($4,500) for the nine months ended September 30, 2006 due to the disposition
            of
            the assets of Tidelands Exploration & Production Corp in a legal settlement.
            Miscellaneous Income of $95,523, consisting for the most part of the
            waiver of
            severance salary and related costs by Michael R. Ward pursuant to the
            Settlement
            Agreement completed with the Company, and Gain on Sale of Subsidiary of $156,480
            for the nine months ended September 30, 2007 resulted from the conveyance
            of
            Sonora Pipeline LLC to Frontera Pipeline LLC as part of the Burgos Hub
            Sale with
            Cheniere Energy, Inc. and the adjustment of liabilities related to the
            assets
            sold. Interest and Dividend income decreased to $10,951 for the nine
            months
            ended September 30, 2007 as compared to $115,239 for the nine months
            ended
            September 30, 2006 due to lower cash balances held in interest-bearing
            accounts
            during the nine months ended September 30, 2007 as compared to the nine
            months
            ended September 30, 2006.
  NET
            LOSS:  Net loss of $10,662,215 for the nine months ended September 30,
            2007 represents an increase in loss of $3,228,955 as compared to net
            loss of
            $7,433,260 for the nine months ended September 30, 2006. This increased
            loss was
            primarily due to the impairment loss of $2,605,061 and the increase in
            stock-based compensation paid to related parties in the amount of $3,476,363
            for
            the nine months ended September 30, 2007. These increases in costs and
            expenses
            were partially offset by a reduction in financing costs and interest
            expense in
            the amount of $2,283,083 and increased operating margins obtained by
            the Company
            which were, in turn, the result of staff and overhead cost reductions
            throughout
            the various subsidiaries of the Company and in the parent company, Tidelands
            Oil
& Gas Corporation.
 
 LIQUIDITY
            AND CAPITAL RESOURCES: The Notes on our financial statements in this
            Form 10-Q
            state that our difficulty in generating sufficient cash flow to meet
            our
            obligations and sustain operations raises substantial doubts about our
            ability
            to continue as a going concern.
  With
            regard to liquidity and adequacy of capital resources, the Company will
            need
            additional equity or debt financing during the fourth quarter of 2007.
            In
            addition to funds required for operating expenses, the Company will need
            to
            raise funds to pay off the convertible debentures that are due in full
            in
            January 2008, as well as the notes payable that are due and payable in
            full in
            May 2008.  Management will seek to raise additional capital through
            debt and common stock offerings and to pursue all available financing
            alternatives in this regard. Management may also consider a variety of
            potential
            partnership or strategic alliances to strengthen its financial position.
            Additional funding for the permit process for the offshore LNG regas
            terminal in
            Southern California will be needed by the fourth quarter of 2007. Furthermore,
            the Company will need to raise additional capital to fund operating overhead
            at
            the parent company level and the possible cost of a litigation settlement
            or
            adverse verdict if a case goes to trial. New issuance of common stock
            and debt
            sufficient to retire the outstanding debentures and to provide additional
            required capital is being actively pursued by the Company. No assurance
            can be
            made that such capital can be acquired in a timely fashion or at all.
            Furthermore, if capital is available through these sources, it may be
            at terms
            that are disadvantageous to the Company and its shareholders.
  In
            light
            of these possible outcomes and the current cash resources available for
            the
            sustenance of corporate operations, management has taken action to reduce
            overhead costs and otherwise obtain cash resources for the Company including
            the
            use of stock issuances, when feasible, to pay for services rendered to
            the
            Company.
 
 Direct
            capital expenditures during the nine months ended September 30, 2007,
            totaled
            $1,774,175. The capital expenditures were composed of increased pre-construction
            costs regarding potential international pipeline crossings and storage
            facilities in Mexico, pre-construction costs regarding an offshore LNG
            terminal
            in Southern California, and additional machinery and equipment for the
            operation
            of the Sonterra Energy Corporation propane systems. Total liabilities
            decreased
            from $13,034,046 at December 31, 2006, to $12,225,163 at September 30,
            2007. The
            decrease in total liabilities is due primarily to the conversion of $2,000,000
            of convertible debentures into common stock and was offset by an increase
            in
            accounts payable. Net loss for the nine months ended September 30, 2007,
            was
            ($10,662,215), an increase in net loss of 43.4% from the net loss of
            ($7,433,260) for the nine months ended September 30, 2006. Basic and
            diluted net
            loss per common share increased to ($0.11) for the nine months ended
            September
            30, 2007, as compared to ($0.09) for the nine months ended September
            30,
            2006.
 24
 Table
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  **Item3.
        Quantitative and Qualitative Disclosures About Market
        Risk**
  **Cash
        and Cash Equivalents**
 
 We
        have
        historically invested our cash and cash equivalents in short-term, fixed
        rate,
        highly rated and highly liquid instruments which are reinvested when they
        mature
        throughout the year. Although our existing investments are not considered
        at
        risk with respect to changes in interest rates or markets for these instruments,
        our rate of return on short-term investments could be affected at the time
        of
        reinvestment as a result of intervening events. As of September 30, 2007,
        we had
        cash and cash equivalents of $818,173 as compared to $367,437 as of December
        31,
        2006.
  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 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.
  **Debt**
 
 The
        interest rate on our Impact International debt obligation is generally
        determined based on the prime interest rate plus two percent per annum and
        may
        be subject to market fluctuation as the prime rate changes.
 **Item
          4. Controls and Procedures**
 
 Evaluation
          of Disclosure Controls and Procedures.
 
 The
          Company maintains disclosure controls and procedures (as defined in Rule
          13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934,
          as
          amended) that are designed to ensure that information required to be disclosed
          in our periodic reports filed under the Exchange Act is recorded, processed,
          summarized and reported within the time periods specified in the SEC's
          rules and
          forms, and that such information is accumulated and communicated to our
          management, including our principal executive/financial officer, to allow
          timely
          decisions regarding required disclosure.
 
 As
          described in Note 8 to our accompanying consolidated financial statements,
          there
          were certain errors in accounting for equity-based compensation for the
          three
          month period ended March 31, 2007 and six month period ended June 30,
          2007.  The errors were discovered in connection with the preparation
          of the Company’s September 30, 2007 unaudited financial statements. Upon
          reviewing and updating our accounting and disclosures related to equity-based
          compensation for the nine months ended September 30, 2007, the Company
          discovered its errors. Upon this determination, management and the Board
          of
          Directors were alerted to the facts and circumstances regarding the errors
          in
          accounting for the equity-based compensation.
 
 As
          a
          result, we have determined that our disclosure controls were not
          effective.
 
 Based
          on
          the impact of the aforementioned accounting error, we determined to restate
          our
          consolidated financial statements as of three month period ended March
          31, 2007
          and six month period ended June 30, 2007.
 
 Subsequent
          of the date of the financial statements, we implemented the following remedial
          measures to address the identified material weaknesses.
 
 ·
                We
                    reviewed all equity-based compensation agreements to assure the
                    issuance
                    of the equity instruments have been properly accounted for and
                    disclosed
                    in our financial statements in accordance with generally accepted
                    accounting principles
 
 ·
                We
                    have improved the supervision and training of our accounting
                    staff to
                    understand and implement accounting requirements, policies and
                    procedures
                    applicable to the accounting and disclosure of equity based
                    instruments.
 
 
 Changes
          in Disclosure Controls and Procedures.
 
 There
          were no changes in our internal controls over financial reporting that
          occurred
          during the quarter ended September 30, 2006 that have materially affected,
          or
          are reasonably likely to materially affect, our internal control over financial
          reporting.
 
 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.
          However,
          we believe that our disclosure controls and procedures are designed to
          provide
          reasonable assurance of achieving this objective. 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. 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.
  25
 Table
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  **PART
        II - OTHER INFORMATION**
  **Item1.
        Legal Proceedings**
  Except
        as
        set forth below, there have been no material changes to the legal proceeding
        or
        investigations reported in Part I, Item 3 - "Legal Proceedings" in the Company's
        Form 10-K filed with the SEC on April 17, 2007 and the 10-Qs filed with the
        SEC
        on May 18, 2007 and August 20, 2007 (the "Prior Reports"). Other than as
        set
        forth below and in the Prior Reports, the Company is not a party to any material
        pending legal proceeding.
  Matter
        No. 1
  As
        described in the Prior Reports, the Company is a party to a pending 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.  No
        major developments took place in the quarter ended September 30, 2007, and
        settlement negotiations have not been successful to date. A trial date has
        been
        set for January 7, 2008. Based on prior negotiations, the Company has reserved
        $2,250,000 as an estimated litigation settlement and that amount has been
        included in this report. However, if the matter proceeds to trial, such reserve
        may or may not be adequate.
  Matter
        No. 2
  Cause
        No.
        GN 500948, Goodson Builders, Ltd., Plaintiff, vs. Jim Blackwell, BNC
        Engineering, Et. Al, Defendants, was filed April 7, 2005, in the 345th District
        Court of Travis County, Texas.  This case involves a claim that
        Defendant Toll Brothers Property, LP (“Toll Brothers”) sold Plaintiff Goodson
        Builder, Ltd. (“Plaintiff” or “Goodson”) property without disclosing a propane
        easement.  Plaintiff sued Sonterra Energy Corp. (“Sonterra”) for
        trespassing through the use of the easement.  Goodson’s primary claim
        is against the seller for fraud and non-disclosure.  Toll Brothers has
        responded with a claim for sanctions because the claim is
        frivolous.  Toll Brothers offers a witness who is Plaintiff’s former
        employee and took pictures of the propane tank prior to the Plaintiff’s
        purchase.  Goodson seeks damages in the hundreds of thousands of
        dollars.  Insurance would not cover these damages.
 
 On
        May 9,
        2007, the trial court ruled in favor of the summary judgment motion filed
        against Plaintiff and in favor of all Defendants as to the existence of an
        easement.  Orders to this effect were issued on July 3, 2007. The
        judgment explicitly states that there is an easement for the propane tank
        and
        for our maintenance of the tank.  Plaintiff has now amended his
        petition to include a claimed violation of setback requirements for the
        tank.  Blackwell is in contact with the Texas Railroad Commission
        regarding the tank’s compliance with the setback requirements.  At
        this time, both Blackwell and Toll Brothers have pending motions for
        sanctions.  On July 5, 2007, Blackwell had a partial hearing on his
        motion and the trial court indicated that it would grant sanctions if Plaintiff
        did not adequately address the motion in its pleadings.  The matter is
        ripe for another hearing on the sanctions motion, but Plaintiff has made
        a
        settlement offer to Toll Brothers that may settle the case.  The
        Company is contesting the case vigorously.
  Matter
        No. 3
  Cause
        No.
        GM 501625, Senna Hills, Ltd., Plaintiff, vs. Sonterra Energy Corp., Defendant,
        was filed in the 53rd Judicial District of Travis County, Texas and Cause
        No. GN
        501626, HBH Development Co., LLC, Plaintiff, vs. Sonterra Energy Corp.,
        Defendant, was filed in the 98th Judicial
        District
        Court of Travis County, Texas.  The above matters were each filed
        against Sonterra in May 2005 and involve the same claims arising from the
        same
        propane service agreement.  In each case, the plaintiff initially
        brought claims against Sonterra arising from Sonterra’s failure, as an assignee
        of the agreement, to pay easement use fees to the plaintiff.  Sonterra
        obtained summary judgment as to the plaintiffs’ respective breach of contract
        and failure of assignment claims arising from the failure to pay easement
        use
        fees.  The cases were not, however, fully dismissed because the
        plaintiffs added new causes of action for failure to pay easement use fees,
        claims for unpaid developer bonus, reformation of the agreements to require
        payment of easement use fees and alleged failure of assignment.  These
        separate lawsuits have since been consolidated into one suit for purposes
        of
        pretrial and trial.  The trial date will likely be reset in March
        2008; however, the Company expects to file a motion for summary judgment
        prior
        to December 1, 2007.
  26
 Table
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  Matter
        Nos. 4 and 5
  Cause
        No.
        2007-CI-07451, Michael R. Ward vs. Tidelands Oil & Gas Corporation, was
        filed on May 17, 2007 in the 224th District
        Court of
        Bexar County, Texas. This case involves two claims by the Plaintiff, Michael
        R.
        Ward, the former President and CEO of Tidelands Oil & Gas Corporation
        against the Company. The first claim is for a breach of the Letter Agreement
        dated December 8, 2006 alleging a failure to pay Ward’s salary for the months of
        March through June 2007 pursuant to the terms of said Letter Agreement. The
        second claim involves an allegation by Ward that the Company prevented Ward
        from
        selling 1,650,000 shares of the Company’s common stock during the period of
        February 20, 2007 through April 4, 2007 and that Ward suffered economic damages
        as a result of a decline in share price during the relevant time periods.
        The
        Company filed a general denial on June 27, 2007. On July 18, 2007, Plaintiff
        Ward filed a Motion for Partial Summary Judgment with respect to the first
        claim
        for breach of the Letter Agreement, a Motion setting the case for trial on
        the
        second claim for September 28, 2007, and discovery notices. On August 7,
        2007,
        the Company filed an abatement request requesting Court ordered mediation
        pursuant to the Letter Agreement of December 8, 2006.
  Cause
        No.
        2007-CI 11661, Bentley Energy Corp. vs. Tidelands Exploration & Production,
        Inc. *(Please note that the suit was filed with incorrect corporate
        name.  It should be Tidelands Exploration & Production Corp.)*
        was filed on August 7, 2007 in the 407th District
        Court of
        Bexar County, Texas.  This case involves a claim for breach of the
        Joint Operating Agreement and Participation Agreement between Tidelands
        Exploration & Production Corp. (“TEP”) and Bentley Energy Corp. (“Bentley”),
        as assignee of Regency Energy, Inc. (“Regency”).  Bentley is majority
        owned by Michael R. Ward, the former President and CEO of Tidelands Oil &
Gas Corporation, which is the parent company for TEP. Regency is majority
        owned
        by Royis Ward, a former director of Tidelands Oil & Gas Corporation and the
        father of Michael R. Ward.  Pursuant to the terms of the Joint
        Operating Agreement, TEP, as non-operator, granted Regency a lien or security
        interest in all the oil and gas leases and pipelines covered by the Joint
        Operating Agreement.  Bentley seeks foreclosure of these interests due
        to TEP’s failure to pay joint interest billings under the Joint Operating
        Agreement.
  Both
        Matter No. 4 and Matter No. 5 were settled as a result of mediation held
        during
        September 2007.
  Pursuant
        to a written Final Settlement and Release Agreement dated September 11, 2007,
        Bentley Energy Corp. purchased a natural gas pipeline interest, working
        interests in operating natural gas wells and a related leasehold with a net
        book
        value of $480,590 from the Company’s wholly-owned subsidiary, Tidelands
        Exploration and Production Corp., for $280,000 and assumption of the $28,036
        joint interest billing owed. In addition, Michael R. Ward waived unpaid
        severance salary of $88,116 and all other claims described
        above.  Full releases by all parties related to the matters described
        above were included in the settlement. A copy of the Final Settlement and
        Release Agreement is filed as an exhibit to Form 8-K filed with the SEC on
        October 5, 2007.
  **Item1A.
        Risk Factors**
  During
        the three and nine months ended September 30, 2007, there were no material
        changes to the risk factors described in Part I, Item 1A “Risk Factors” of the
        Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
        2006.
  **Item
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds**
 
 The
        Company made the following issuances of unregistered securities during the
        quarter ended September 30, 2007 (not previously reported in a Form
        8-K):
 
 On
        September 6, 2007, the Company issued 100,000 shares of its restricted common
        stock valued at $18,000 for public relations services.
 
 On
        September 25, 2007, the Company issued 50,000 shares of its restricted common
        stock valued at $9,250 as additional compensation to an employee in accordance
        with his employment agreement.
 
 On
        September 28, 2007, the Company issued 112,500 shares of its restricted common
        stock valued at $20,813 as additional compensation to two employees as stock
        bonuses.
  27
 Table
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  No
        commissions were paid in connection with any of these issuances. We did not
        employ any form of general solicitation or advertising in connection with
        the
        offer and sale of the securities described below. Except as otherwise noted
        above, the offer and sale of the securities listed above were made in reliance
        on the exemption from registration provided by Section 4(2) of the Securities
        Act and/or Regulation D promulgated by the Securities and Exchange Commission
        as
        transactions by an issuer not involving any public offering.
 
 The
        Company did not purchase or repurchase any securities during the quarter
        ended
        September 30, 2007.  However, on July 19, 2007, the Company did permit
        Royis Ward, a former Board member, to pay $110,000 owed to the Company for
        a
        stock subscription through the delivery to the Company for cancellation of
        500,000 shares of Company common stock owed by Mr. Ward.
  **Item
        3.Defaults Upon Senior Securities**
  None.
 
 **Item
        4. Submissionof Matters to a Vote of Security
        Holders**
  No
        matters were submitted to a vote of security holders during the quarter covered
        by this report.
  **Item
        5. OtherInformation**
  None.
  **Item
        6.Exhibits**
  **Exhibit**
              
              **Description**
              
              **Location
                  of Exhibit**10.1
              
              Equity
                  Purchase Agreement
              
              Exhibit
                  10.1 to Form 8-K filed on October 4, 200710.2
              
              Frontera
                  Pipeline Limited Liability Company Operating Agreement
              
              Exhibit
                  10.2 to Form 8-K filed on October 4, 200710.3
              
              Independent
                  Consulting Agreement
              
              Exhibit
                  10.3 to Form 8-K filed on October 4, 200710.4
              
              Final
                  Settlement and Release Agreement
              
              Exhibit
                  10.1 to Form 8-K filed on October 5, 200710.5
              
              Employment
                  Agreement – Robert Dowies
              
              Exhibit
                  10.1 to Form 8-K filed on October 2, 200710.6
              
              Employment
                  Agreement – Julio Bastarrachea
              
              Exhibit
                  10.2 to Form 8-K filed on October 2, 200731.1
              
              Chief
                  Executive Officer and Chief Financial Officer Section 302 Certification
                  pursuant to Sarbanes - Oxley Act.
              
              Included
                  with this filing32.1
              
              Chief
                  Executive Officer-Section 906 Certification pursuant to Sarbanes-Oxley
                  Act
              
              Furnished
                  herewith
 
  28
 Table
            of Contents
  **SIGNATURES**
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, the Company has
        duly
        caused this report to be signed on its behalf by the undersigned thereunto
        duly
        authorized.
 
 **TIDELANDS
                  OIL & GAS CORPORATION**Date: November
                  19, 2007
              By:
              /s/  James
                  B. SmithJames
                  B. Smith
                President
                  and Chief Executive Officer








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