UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   Form 10-QSB



(Mark one)

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

                 For the quarterly period ending March 31, 2005

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

             For the transition period from __________ to _________



                         Commission File Number: 0-29613

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

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

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

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



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

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



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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

As of March 31, 2005,  there were  62,363,359  shares of Common Stock issued and
outstanding.

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

<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements


                         TIDELANDS OIL & GAS CORPORATION
                                   FORM 10-QSB


                                      INDEX

                                                                            Page
                                                                            ----
PART I - Financial Information

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

         Condensed Consolidated Statements of Operations
         For the Three Months Ended March 31, 2005 and 2004.................   4

         Condensed Consolidated Statements of Cash Flows
         For the Three Months Ended March 31, 2005 and 2004................. 5-6

         Notes to Condensed Consolidated Financial Statements...............7-11

Item 2 - Management's Discussion and Analysis or Plan of Operation..........  12

Item 3 - Controls and Procedures............................................  13

PART II - Other Information

Item 1 - Legal Proceedings .................................................  14

Item 2 - Changes in Securities and Use of Proceeds..........................  14

Item 3 - Defaults Upon Senior Securities....................................  14

Item 4 - Submission of Matters to a Vote of Security Holdings...............  14

Item 5 - Other Information..................................................  14

Item 6 - Exhibits and Reports on Form 8K ...................................  14

Signature...................................................................  15





                                      -2-
<PAGE>
<TABLE>
<CAPTION>

                         TIDELANDS OIL & GAS CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                    (ASSETS)
                                                               March 31,     December 31,
                                                                 2005            2004
                                                             ------------    ------------
                                                              (Unaudited)
<S>                                                          <C>             <C>
Current Assets:
   Cash                                                      $  4,623,198    $  5,459,054
   Cash Restricted                                                 75,000          25,000
   Accounts and Loans Receivable                                  404,488         516,387
   Inventory                                                       60,159          82,523
   Prepaid Expenses                                               418,362         487,488
                                                             ------------    ------------
      Total Current Assets                                      5,581,207       6,570,452
                                                             ------------    ------------

Property Plant and Equipment, Net                               9,245,326       9,086,313
                                                             ------------    ------------

Other Assets:
   Deposits                                                         6,608           4,108
   Deferred Charges                                                38,750         116,250
   Note Receivable                                                287,170         286,606
   Goodwill                                                     1,158,937       1,158,937
                                                             ------------    ------------
   Total Other Assets                                           1,491,465       1,565,901
                                                             ------------    ------------
      Total Assets                                           $ 16,317,998    $ 17,222,666
                                                             ============    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Accounts Payable and Accrued Expenses                     $    438,830    $    574,224
   Notes Payable                                                        0               0
                                                             ------------    ------------

      Total Current Liabilities                                   438,830         574,224

Long-Term Debt                                                 11,817,301      11,731,883
                                                             ------------    ------------

      Total Liabilities                                        12,256,131      12,306,107
                                                             ------------    ------------

Commitments and Contingencies                                        --              --

Stockholders' Equity:
   Common Stock, $.001 Par Value Per Share,
     100,000,000 Shares Authorized, 62,363,359
     and 61,603,359 Shares Issued and
     Outstanding at March 31, 2005
     and December 31, 2004 Respectively                            62,364          61,604
   Paid-in Capital in Excess of Par Value                      22,918,580      22,537,340
   Subscriptions Receivable                                      (550,000)       (550,000)
   Accumulated (Deficit)                                      (18,369,077)    (17,132,385)
                                                             ------------    ------------
      Total Stockholders' Equity                                4,061,867       4,916,559
                                                             ------------    ------------

      Total Liabilities and Stockholders' Equity             $ 16,317,998    $ 17,222,666
                                                             ============    ============
</TABLE>


      See Accompanying Notes to Condensed Consolidated Financial Statements


                                      -3-
<PAGE>

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




                                       Three Months Ended    Three Months Ended
                                         March 31, 2005        March 31, 2004
                                       ------------------    ------------------
Revenues:
   Gas Sales and Pipeline Fees         $          586,949    $                0
   Construction Services                           41,126                     0
                                       ------------------    ------------------
      Total Revenues                              628,075                     0
                                       ------------------    ------------------


Expenses:
   Cost of Sales                                  284,679                     0
   Operating Expenses                              66,774                     0
   Depreciation                                   115,441                11,280
   Interest                                       209,787                 4,719
   Sales, General and Administrative            1,220,911             1,522,209
                                       ------------------    ------------------
      Total Expenses                            1,897,592             1,538,208
                                       ------------------    ------------------

(Loss) From Operations                         (1,269,517)           (1,538,208)
(Loss) on Sale of Asset                            (3,167)                    0
Interest and Dividend Income                       35,992                 3,867
                                       ------------------    ------------------

Net (Loss)                             $       (1,236,692)   $       (1,534,341)
                                       ==================    ==================

Net (Loss) Per Common Share:
      Basic and Diluted                $            (0.02)   $            (0.03)
                                       ==================    ==================

Weighted Average Number of Common
       Shares Outstanding                      61,983,359            46,850,314
                                       ==================    ==================









      See Accompanying Notes to Condensed Consolidated Financial Statements

                                      -4-
<PAGE>
<TABLE>
<CAPTION>


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




                                           Three Months Ended    Three Months Ended
                                             March 31, 2005        March 31, 2004
                                           ------------------    --------------------
<S>                                        <C>                   <C>
Cash Flows Provided (Required) By
  Operating Activities:
    Net (Loss)                             $       (1,236,692)   $         (1,534,341)
   Adjustments to Reconcile Net (Loss)
      to Net Cash Provided (Required) By
      Operating Activities:

   Depreciation                                       115,441                  11,280
   Loss on Disposal of Equipment                        3,167                       0
   Issuance of Common Stock:
     For Services Provided                            382,000               1,226,816
        Changes in:
          Accounts Receivable                         111,899                    (517)
          Inventory                                    22,364                       0
          Prepaid Expenses                             69,126                (300,499)
          Deferred Charges                             77,500                       0
          Deposits                                     (2,500)                      0
          Accounts Payable and
            Accrued Expenses                         (135,394)               (591,783)
                                           ------------------    --------------------
Net Cash (Required)
   By Operating Activities                           (593,089)             (1,189,044)
                                           ------------------    --------------------

Cash Flows Provided (Required)
  By Investing Activities:
      Acquisitions of Property, Plant
        and Equipment                                (278,421)               (140,258)
      Disposals of Equipment                              800                       0
                                           ------------------    --------------------

         Net Cash (Required)
           By Investing Activities                   (277,621)               (140,258)
                                           ------------------    --------------------
</TABLE>







      See Accompanying Notes to Condensed Consolidated Financial Statements

                                      -5-
<PAGE>
<TABLE>
<CAPTION>

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



                                            Three Months Ended    Three Months Ended
                                              March 31, 2005        March 31, 2004
                                            ------------------    ------------------
<S>                                         <C>                   <C>
Cash Flows (Required) Provided
   by Financing Activities:
Proceeds from Issuance of Common Stock                       0             4,083,334
Proceeds From Long-Term Loans                           85,418                     0
Repayment of Short-Term Loans                                0              (100,000)
Loan to Related Party                                     (564)                    0
                                            ------------------    ------------------

Net Cash Provided by
  Financing Activities                                  84,854             3,983,334
                                            ------------------    ------------------

Net Increase (Decrease) in Cash                       (785,856)            2,654,032
Cash at Beginning of Period                          5,484,054               894,457
                                            ------------------    ------------------
Cash at End of Period                       $        4,698,198    $        3,548,489
                                            ==================    ==================

Supplemental Disclosures of
   Cash Flow Information:
     Cash Payments for Interest             $          115,994    $            4,719
                                            ==================    ==================

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

Non-Cash Financing Activities:
   Issuance of Common Stock:
   Operating Activities                     $          382,000    $        1,226,816
    Repayment of Loans                                       0                75,000
    Payment of Accounts Payable                              0                38,311
    Prepayment of Legal Fees                                 0               258,000
                                            ------------------    ------------------

      Total Non-Cash Financing Activities   $          382,000    $        1,598,127
                                            ==================    ==================
</TABLE>





      See Accompanying Notes to Condensed Consolidated Financial Statements

                                      -6-
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005



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

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

         The  preparation  of condensed  consolidated  financial  statements  in
         conformity with accounting  principles generally accepted in the United
         States of America requires management to make estimates and assumptions
         that affect the reported  amounts of assets and liabilities at the date
         of the financial  statements  and the reported  amounts of revenues and
         expenses during the reporting period.  Actual results could differ from
         those  estimates.  In  the  opinion  of  management,  the  accompanying
         financial statements include all adjustments  necessary (which are of a
         normal and recurring  nature) for the fair  presentation of the results
         of the interim periods  presented.  While the registrant  believes that
         the  disclosures  presented are adequate to keep the  information  from
         being  misleading,  it is suggested that these  accompanying  financial
         statements  be  read  in  conjunction  with  the  registrant's  audited
         consolidated financial statements and notes for the year ended December
         31, 2003,  included in the registrant's  Form 10-KSB for the year ended
         December 31, 2003.

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






                                      -7-
<PAGE>
<TABLE>
<CAPTION>

                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


NOTE 2 - RESTRICTED CASH
------   ----------------

         Restricted  cash  consists of  certificates  of deposit to secure three
         letters of credit issued to the Railroad  Commission of Texas regarding
         our gas processing plant and two pipeline systems.

NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
------   -----------------------------

         A summary  of  property,  plant  and  equipment  at March 31,  2005 and
         December 31, 2004 is as follows:


             Estimated
                                                   March 31,    December 31,     Economic
                                                     2005           2004          Life
                                                 ------------   ------------   ------------
<S>                                              <C>            <C>
         Pre Construction Costs:
             International Crossings to Mexico   $     27,601   $     27,601       N/A
                Mexican Gas Storage Facility
                    and Related Pipelines           1,096,703        928,232       N/A
                Propane Distribution Systems          207,415        207,415       N/A
                                                 ------------   ------------
                      Total                         1,331,719      1,163,248
         Office Furniture, Equipment and
           Leasehold Improvements                      87,217         46,141     5 Years
         Pipelines - Domestic                         431,560        431,560    15 Years
         Pipeline - Eagle Pass, TX to Piedras
           Negras, Mexico                           6,106,255      6,106,255    20 Years
         Gas Processing Plant                         186,410        186,910    15 Years
         Tanks & Lines - Propane Distribution
           System                                   1,596,439      1,596,439     5 Years
         Machinery and Equipment                       57,180         57,180
         Trucks, Autos and Trailers                   127,798         63,175
                                                 ------------   ------------

                     Total                          9,924,578      9,650,408
         Less:  Accumulated Depreciation              679,252        564,095
                                                 ------------   ------------

                    Net Property,
                      Plant and Equipment        $  9,245,326   $  9,086,313
                                                 ============   ============
</TABLE>

         Depreciation  expense  for the three  months  ended  March 31, 2005 and
         March 31, 2004 was $115,441 and $11,280 respectively.








                                      -8-
<PAGE>


                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005

NOTE 4 - LONG-TERM DEBT
------   --------------

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

                                                     March 31,   December 31,
                                                       2005           2004
                                                   ------------   ------------
         Note Payable, Secured, Interest Bearing
           at 2% Over Prime Rate, Maturing
              May 25, 2008                         $  6,817,301   $  6,731,883

         Convertible Debentures, Unsecured,
            7% Interest Bearing,
               Maturing May 17, 2006                  5,000,000      5,000,000
                                                   ------------   ------------
                                                     11,817,301     11,731,883
         Less:  Current Maturities                            0              0
                                                   ------------   ------------

                   Total Long-Term Debt            $ 11,817,301   $ 11,731,883
                                                   ============   ============

NOTE 5 - LITIGATION
------   ----------

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


                                      -9-
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005

NOTE 5 - LITIGATION (CONTINUED)
------   ---------------------

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

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

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

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

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

NOTE 6 - COMMON STOCK TRANSACTIONS
------   -------------------------

         On January 3, 2005,  the Company  issued  200,000  shares of its common
         stock for 2005 legal fees valued at $100,000 under the 2004 Stock Grant
         and Option Plan.

         On  February  1,  2005,  the  Company  issued  500,000  shares  of  its
         restricted common stock valued at $200,000 to Impact International, LLC
         pursuant to the terms of the purchase of Reef Ventures, L.P.

         On February  25,  2005,  the Company  approved  the  issuance of 60,000
         shares of its  restricted  common  stock valued at $82,000 for investor
         public  relations  services.  These shares are to be issued  during the
         second quarter of 2005.

NOTE 7 - SUMMARY OF TERMS OF CONVERTIBLE DEBENTURE AND WARRANTS
------   ------------------------------------------------------

         On November 18, 2004,  the Company  entered into a Securities  Purchase
         Agreement with Mercator  Momentum Fund, LP, Mercator Momentum Fund III,
         LP, Monarch Pointe Fund, LP,  (collectively,  "the Funds") and Mercator
         Advisory  Group,  LLC  ("Mercator").  In exchange for  $5,000,000,  the
         Company  issued  to  the  "Funds"  and  Mercator   Advisory  Group,  7%
         convertible  debentures with a maturity date of May 18, 2006. Under the
         terms of the  agreement,  the  Company  is  obligated  to make  monthly
         interest payments until maturity of $29,166,67.




                                      -10-
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


NOTE 7 - SUMMARY OF TERMS OF CONVERTIBLE DEBENTURE AND WARRANTS (CONTINUED)
------   ------------------------------------------------------


         The 7% Convertible Debentures are convertible into the Company's common
         stock at a 15% discount to the market price at the time of  conversion,
         subject to a $0.45 floor and a $0.76 ceiling.

         The Company has granted the Funds and Mercator  registration  rights on
         these  securities.  If the  company  does  not  have  its  registration
         statement  effective  within 90 days from  filing,  or extend  its best
         efforts to do so, the  discount  will be increased to 25% of the market
         price at the time of conversion.

         In connection with this financing the Company issued  6,578,948  common
         stock  warrants  which  expire  November  18,  2007.  The  warrants are
         exercisable at prices ranging from $.80 to $.87.


NOTE 8 - COMMITMENT FOR SUITE LICENSE AGREEMENT
------   --------------------------------------

         On June 4, 2004,  the Company  entered into a Suite  License  Agreement
         with the San Antonio Spurs, L.C.C. commencing July 1, 2004 for a period
         of five  years.  The annual  license fee for the first year is $159,000
         and is  subject  to a 6% per annum  price  escalation  thereafter.  The
         annual fee is payable in installments as indicated in the agreement.

         The future annual license fee commitments are as follows:

                          2005                   $  168,540
                          2006                      178,652
                          2007                      189,371
                          2008                      200,733
                                                 ----------
                                                 $  737,296
                                                 ==========

NOTE 9 - RELATED PARTY TRANSACTION
------   -------------------------

         The Company  executed an agreement in January 2004 with a related party
         to provide charter air transportation for its employees,  customers and
         contractors to job sites and other  business  related  destinations.  A
         prepayment of $300,000 5% interest bearing loan due in January 2007 was
         made by the Company  regarding  the  transaction.  The loan  balance is
         credited  by  airtime  charges at  standard  industry  rates  offset by
         interest charges computed on the average monthly balance.  At March 31,
         2005, the loan balance was $287,170.


NOTE 10 - SUBSEQUENT EVENTS
-------   -----------------

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


                                      -11-
<PAGE>

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

Business Overview

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

We  derive  our  revenue  from  sales  of  natural  gas to  Conagas,  the  local
distribution company in Piedras Negras, Coahuila,  through the pipeline owned by
Reef Ventures, L.P. and the sale of propane gas to residential customers through
the assets owned by Sonterra  Energy  Corporation.  We also design and construct
residential propane delivery systems for new residential developments in Central
Texas. .

With respect to our pipeline system owned by Reef Ventures,  L.P., management is
evaluating  an expansion of the pipeline in Coahuila to serve new markets  along
the state  highway No. 57 corridor to Monclova,  Coahuila.  We currently  expect
that this project will not be activated  until the fourth  quarter of 2005.  The
planned  natural gas liquid line between Eagle Pass,  Texas and Piedras  Negras,
Coahuila is being  re-evaluated in light of new supply sources emerging in Texas
and  Mexico.  We are  evaluating  the utility of the project as either a tolling
business  model for existing  demand in Coahuila or as a merchant  facility in a
direct  contract with the propane  importation  arm of PEMEX.  We expect further
development  of the  project  to be  announced  by the  fourth  quarter of 2005.
Sonterra Energy Corporation, a wholly owned subsidiary of Tidelands entered into
the  residential  propane  distribution  business  on  November 1, 2004 with its
acquisition of 850 existing customers located in 15 subdivisions in the vicinity
of Austin,  Texas.  Sonterra's  existing and future market area includes several
central  Texas  locations  that do not have  access to natural gas as a fuel for
home heating and appliance usage.  Current expansion of over 400 lots within the
existing  subdivisions  is  possible.  Sonterra  has  also  entered  into  a new
agreement  with the  developer  of  Northshore  on Lake  Travis  to  expand  the
currently  serviced lots by an additional  1,000 units.  Up to 2,625  additional
lots may be  available  for  installation  of  residential  propane  delivery in
developments  currently  in the  planning  stages in the  nearly  central  Texas
vicinity. Management is actively seeking new subdivision installation of propane
systems in the Central Texas and has recently  identified 4 new  subdivisions in
the  San  Antonio/Austin   Hill  Country  corridor  as  prospective  for  system
installation.



                                      -12-
<PAGE>

Rio Bravo  Energy,  LLC was formed on August 10, 1998 to operate the Chittim Gas
Processing  Plant which was  purchased  in 1999 and was  processing  natural gas
primarily from Conoco Oil's Sacatosa Field.  The Sacatosa Field was primarily an
oilfield  which  produced  high BTU  casinghead  gas from  which gas  processing
operations would yield valuable hydrocarbon  components such as propane,  butane
and natural  gasolines.  As the field  depleted  lower volumes of casinghead gas
were being  delivered by Conoco and other gas producers  could not be contracted
with for  processing of additional  replacement  volumes of gas.  Therefore,  in
October 2002, the plant was temporarily shut down due to the declining economics
associated  with low volume  operation of the plant. We plan to reopen the plant
in 2005 when adequate  volumes of LPG  feedstock  from third parties makes plant
operations economically attractive. We are evaluating the feasibility of opening
the gas plant for LPG production for our Sonterra LPG business in Austin, Texas.
Additionally,  the market for the products of the Chittim plant  operation could
include our future propane/butane terminal and pipeline crossing into Mexico. As
noted  above,  Rio Bravo  Energy LLC owns a general  partner  interest  in Marea
Associates,  L.P. and the minority interest in Terranova Energia,  S. de R.L. de
C.V.

Sonora  Pipeline,  LLC was formed in January 1998 to operate the Sonora pipeline
network which has the capability of delivering  adequate  volumes of natural gas
for economic operation of the Chittim Gas Processing Plant. The pipeline network
consists of approximately 80 miles of gas pipeline.  Presently,  the line is not
in use. The pipeline was acquired in conjunction with the Chittim Gas Processing
Plant   acquisition.   When   operational,   it  would  generate   revenue  from
transportation fees charged to third party gas producers shipping natural gas to
the Chittim Gas Plant owned by Rio Bravo  Energy LLC.  Sonora  Pipeline LLC will
also own and operate the U.S.  (Texas)  pipeline  segments to be  constructed in
connection  with the  Mexican  pipeline,  LNG  regasification  terminal  and gas
storage  projects  which will  interconnect  to the U.S.  via two  international
pipeline crossings near McAllen, Texas. The estimated capital cost of these U.S.
segments is approximately $60 million USD.  Management expects a filing with the
Federal  Energy  Regulatory  Commission  in  the  second  quarter  of  2005  for
permission  to operate  these new  pipelines  and the  granting of  presidential
permits for the  international  crossings  near Penitas and Progreso,  Texas for
delivery of natural gas into the state of Tamaulipas and the pipelines  owned by
our Mexican subsidiary, Terranova Energia S. de R.L. de C.V.

In  October  2003,  we  entered  into a  confidentiality  agreement  with  Pemex
Exploration and Production  ("PEP") to facilitate the exclusive exchange of well
control  and seismic  data for the purpose of  evaluating  the  feasibility  and
design of one or more underground  natural gas storage  facilities in the Burgos
Basin of Northeast  Mexico.  In December  2003,  we entered into a Memorandum of
Understanding  (MOU)  with  PEMEX to design,  build and  operate an  underground
natural gas storage facility in the vicinity of Reynosa, Tamaulipas,  Mexico, in
the  Burgos  Basin area and  eventually  at other  regions  in  Mexico.  The MOU
provides  for  exclusivity  in the  development  of the projects and the related
transportation and interconnecting pipelines to and from the storage facilities.

We have  completed  the  initial  study of the  Burgos  facility  and  expect to
complete final contract  negotiations with the Secretary of Energy and PEMEX for
the construction and operation of the facility in the second or third quarter of
2005. A system of two interconnecting  pipelines is also proposed to enhance the



                                      -13-
<PAGE>

overall  pipeline grid in Mexico and the  operational  efficiency of the storage
facility.  Permit applications for all these projects will be filed in 2005 with
the Mexican Energy Regulatory Commission.  The capital budget for these projects
exceeds  $700  Million  Dollars.  We  anticipate  funding  these  projects  with
additional equity of the Company,  the addition of joint venture partners and/or
debt  financing.  Marea  Associates,  L.P. was formed during the fiscal  quarter
ended June 30, 2004 to own the  majority  interest in Terranova  Energia,  S. de
R.L. de C.V., a Mexican  company  which will  conduct all  business  dealings in
Mexico on behalf of the  Tidelands.  Rio Bravo  Energy LLC,  an existing  wholly
owned subsidiary owns the general partner interest in Marea Associates, L.P. and
a minority interest in Terranova Energia, S. de R.L. de C.V.

We are in the preliminary design phase for an LNG regasification  terminal to be
located  in  offshore  Mexican  waters  of the Gulf of  Mexico  near  Matamoros,
Tamaulipas.  The  Dorado  LNG  Terminal  would  provide  additional  supply  for
Northeast Mexico natural gas markets which are currently importing approximately
1.0 BCF per day  from the U.S.  The  capital  cost to  build  the  terminal  and
interconnecting  pipeline to the planned storage facility is expected to be over
$200  million  USD.  Management  estimates a cumulative  capital  investment  of
approximately $1 billion USD for the LNG regasification  terminal, the pipelines
in the U.S.  and Mexico and the Mexican  storage  facility.  These  projects are
targeted to address the  critical  infrastructure  needs for the natural gas and
power  markets  in  Northeast   Mexico  through  the  year  2013.  A  collateral
opportunity  to import  natural gas into the U.S.  via the  project's  route and
facilities is also  contemplated.  Management is in active  negotiations for LNG
supply,  U.S.  supply  and off take gas  contracts  in Mexico  and the U.S.  The
projects  will be developed and operated  with a tolling  business  model as the
revenue premise,  however, joint venture or contractual relationships with third
parties  may allow the Company to  participate  in  merchant  operations  in the
energy supply business for Mexican and U.S. customers.

The  Company has engaged  Sanders  Morris  Harris,  Inc.,  an energy  investment
banking firm in Houston, Texas, as its primary financial advisor with respect to
the  capital  raise  requirements  for the  above  projects.  We have  also  had
substantive and ongoing  discussions  with interested  third parties for private
equity and debt and will  continue  those  discussions  in the upcoming  year as
further development of the projects occurs.



Results of Operations

REVENUES:  The Company reported revenues of $ 628,075 for the three months ended
March 31, 2005 as compared with revenues from  continuing  operations of $ 0 for
the three months ended March 31, 2004.  The revenue  increase  resulted from the
acquisition of an additional 73% interest in Reef Ventures,  L.P. which owns and
operates a natural gas pipeline serving the Piedras Negras,  Coahuila market and
the  acquisition  of residential  propane  delivery  pipeline  assets from ONEOK


                                      -14-
<PAGE>

Propane  Company in the fourth  quarter of 2004  Transportation  fees  ($74,211)
charged  from the Reef  Ventures,  L.P.  operations  plus  sales of  propane  by
Sonterra  Energy  Corporation to its  residential  customer base ($ 512,738) and
construction  service  income of $41,126  resulted in Total Revenues of $628,075
for the three months ended March 31, 2005.

TOTAL COSTS AND EXPENSES:  Total costs and expenses from  continuing  operations
increased  from $  1,538,208  for the  three  months  ended  March  31,  2004 to
$1,897,592  for the three months ended March 31, 2005.  Cost of Sales  increased
from $0 for the three  months  ended March 31,  2004 to  $284,679  for the three
months ended March 31, 2005 Operating  Expenses  increased from $0 for the three
months  ended  March 31, 2004 to $66,774  for the three  months  ended March 31,
2005.  Depreciation  Expense  increased from $ 11,280 for the three months ended
March 31, 2004 to $115,441 for the three  months ended March 31, 2005.  Interest
Expense  increased  from  $4,719  for the three  months  ended  March 1, 2004 to
$209,787  for the three months  ended March 31,  2005.  Each of these  increases
resulted  primarily  from  growth  related  to  the  acquisition  of  98% of the
partnership  interest  in  the  Reef  Ventures,   L.P.   international  pipeline
operations and the  acquisition of the  residential  propane sales business near
Austin, Texas by Sonterra Energy Corporation.  Sales, General and Administrative
Expenses decreased from $ 1,522,209 for the three months ended March 31, 2004 to
$1,220,911 for the three months ended March 31, 2005.

COST OF SALES:  Total Cost of Sales increased from $0 for the three months ended
March 31, 2004 to $284,679  for the three months ended March 31, 2005 due to the
purchase cost of propane and the installation  cost of new meter hookups for the
assets owned by Sonterra Energy Corporation.

OPERATING EXPENSES: Operating expenses from continuing operations increased from
$0 for the three  months  ended March 31,  2004 to $66,774 for the three  months
ended March 31, 2005. This increase was primarily due to the operating  expenses
incurred by Sonterra  Energy  Corporation.  Depreciation  expense  increased  by
$104,161  during the three onths ended March 31, 2005 due to the  acquisition of
the natural gas pipeline owned by Reef Ventures, L.P. and the depreciable assets
acquired by Sonterra  Energy  Corporation  for the operation of the  residential
propane distribution systems in Austin,  Texas.  Interest expense increased by $
205,068 during the three months ended March 31, 2005 when compared to the period
ended  March 31,  2004 due to the debt  incurred  to  acquire  the  natural  gas
pipeline  owned by Reef Ventures,  L.P. and the issuance of convertible  debt to
entities  associated  with the Mercator  Advisory  Group,  LLC, now known as MAG
Capital,  LLC.  ENERAL AND  ADMINISTRATIVE:  General &  Administrative  Expenses
decreased by $ 301,298  during the three months ended March 31, 2005 as compared
with the period ended March 31, 2004.  Decreased  consulting fees were primarily
responsible for the difference between the respective periods.

NET LOSS FROM  OPERATIONS:  Net loss of ($1,534,341)  for the three months ended
March 31, 2004  decreased to  ($1,236,692)  for the three months ended March 31,
2005,  a decrease  in the amount of loss of  $297,649.  Included in the net loss
from operations is $382,000 of expenses for financing  costs,  consulting  fees,
and legal fees paid by issuance of common stock.



                                      -15-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES:  Direct capital  expenditures  during the three
months  ended March 31, 2005 totaled  $278,421.  The capital  expenditures  were
composed of increased office furniture, equipment and leasehold costs ($41,076),
pre-construction costs regarding potential  international pipeline crossings and
storage facilities in Mexico ($168,471),  and additional  machinery,  equipment,
trucks,  autos and trailers for the operation of the Sonterra Energy Corporation
propane systems ($68,878). Total debt decreased from $12,306,107 at December 31,
2004 to $  12,256,131  at  December  31,  2005.  The  decrease  in total debt is
primarily due to payment of accounts payable and accrued expenses.  Net loss for
the three months ended March 31, 2005 was ($1,236,692) a decrease in net loss of
19% from the net loss of ($1,534,341) for the three months ended March 31, 2004.
Basic and diluted net loss per common share  decreased  33% to ($0.02).  The net
loss per share calculation for the three months ended March 31, 2005 included an
increase in actual and equivalent shares outstanding.


FORWARD-LOOKING STATEMENTS:

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

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



                                      -16-
<PAGE>

Item 3.     Controls and Procedures

(a)      Evaluation of Disclosure Controls and Procedures.

As of the end of the  reporting  period,  March  31,  2005,  we  carried  out an
evaluation,  under the supervision and with the participation of our management,
including  the  Company's  Chairman  and Chief  Executive  Officer and the Chief
Financial  Officer,  of the  effectiveness  of the design and  operation  of our
disclosure  controls and procedures pursuant to Rule 13a-15(e) of the Securities
Exchange  Act of 1934  (the  "Exchange  Act"),  which  disclosure  controls  and
procedures are designed to insure that information required to be disclosed by a
company  in the  reports  that it files  under  the  Exchange  Act is  recorded,
processed, summarized and reported within required time periods specified by the
SEC's rules and forms.  Based upon that  evaluation,  the Chairman and the Chief
Financial  Officer  concluded  that our  disclosure  controls and procedures are
effective  in timely  alerting  them to  material  information  relating  to the
Company required to be included in the Company's period SEC filings.

(b) Changes in Internal Control.

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

(c)      Limitations.

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

Item 1.      Legal Proceedings




                                      -17-
<PAGE>

Matter No. 1:

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

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

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



                                      -18-
<PAGE>

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

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

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

Matter No. 2:

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

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

Matter No. 3:

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

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


                                      -19-
<PAGE>

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

Matter No. 4:

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

Matter No. 5:

On April 20th, 2005,  Tidelands filed suit against L.L. Capital Group, L.L.C. in
Bexar County,  Texas,  224th  Judicial  District  Court.  On August 11th,  2004,
Tidelands entered into a consulting  services  agreement with L.L. Capital.  The
agreement  provided for L.L. Capital to provide  advisory  services to Tidelands
regarding certain business  opportunities,  including various types of financial
arrangements.  As compensation  for the services that were to be provided,  L.L.
Capital was to receive  $500,000 of  unrestricted  common  stock and $550,000 of
restricted  common stock,  and $500,000 of Warrants Shares  exercisable at $1.45
per share.

L. L. failed to perform the required  services for which  Tidelands  has sued to
rescind the agreement and have all stock and warrants returned to Tidelands, for
discharge  from any obligation  under the agreement,  and for its attorneys fees
and costs.

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

During the first  quarter of 2005 the Company  authorized,  offered and sold the
following  securities pursuant to exemptions from the registration  requirements
of the Securities Act of 1933, as amended (the "Securities Act").

On February 25, 2005, we authorized  the issuance  60,000 common shares to Barry
Gross for public relations services valued at $82,000.

On May 9, we authorized the issuance of 500,000 shares of common stock to Impact
International, LLC valued at $202,500 in a cashless exercise.

         We believe the shares issued above were issued in private  transactions
pursuant  to  Section  4(2) of the  Securities  Act of 1933,  as  amended,  (the
"Securities Act"). These shares are considered restricted securities and may not
be publicly resold unless  registered for resale with  appropriate  governmental
agencies or unless exempt from any applicable registration requirements.

Item 3.   Defaults Upon Senior Securities

         None.

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

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

Item 5.  Other Information

         None.



                                      -20-
<PAGE>

Item 6.  Exhibits

a)       Exhibits

      Exhibit No.          Exhibit Name

         31.1              Chief  Executive  Officer-Section  302  Certification
                           pursuant to Sarbane-Oxley Act.
         31.2              Chief Financial  Officer-  Section 302  Certification
                           pursuant to Sarbane-Oxley Act.
         32.1              Chief  Executive  and Financial  Officer-Section  906
                           Certification pursuant to Sarbane-Oxley Act.


                                   SIGNATURES

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

                                                       TIDELANDS OIL & GAS CORP.

                                                        /s/ Michael Ward
Dated: May 13, 2005                                    -------------------------
                                                       By: Michael Ward
                                                       Title: President, CEO


                                                        /s/ James B. Smith
Dated: May 13, 2005                                    -------------------------
                                                       By: James B. Smith
                                                       Title: CFO