UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   Form 10-QSB



(Mark one)

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

               For the quarterly period ending September 30, 2004

[_]      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 78410
                  --------------------------------------------
                    (Address of principal executive offices)

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



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

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



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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

As of September 30, 2004, there were  59,028,0647  shares of Common Stock issued
and outstanding.

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



<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                                   FORM 10-QSB


                                      INDEX
                                      -----

                                                                            Page
PART I - Financial Information

Item 1 - Financial Statements
         Condensed Consolidated Balance Sheets as of
         September 30, 2004 and December 31, 2003.........................   3-4

         Condensed Consolidated Statements of Operations
         For the Three Months Ended September 30, 2004 and 2003...........     5

         Condensed Consolidated Statements of Operations
         For the Nine Months Ended September 30, 2004 and 2003............     6

         Condensed Consolidated Statements of Cash Flows
         For the Nine Months Ended September 30, 2004 and 2003............   7-8

         Notes to Condensed Consolidated Financial Statements.............  9-17

Item 2 - Management's Discussion and Analysis or Plan of Operation........ 18-20

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

PART II - Other Information

Item 1 - Legal Proceedings ...............................................    22

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

Item 3 - Defaults Upon Senior Securities..................................    22

Item 4 - Submission of Matters to a Vote of Security Holdings.............    22

Item 5 - Other Information................................................    22

Item 6 - Exhibits and Reports on Form 8K .................................    22

Signature.................................................................    23








                                       2
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS





                                     ASSETS
                                     ------



                                         September 30, 2004    December 31, 2003
                                         ------------------   ------------------
                                            (Unaudited)

Current Assets:
      Cash                               $        1,284,241   $          894,457
      Cash - Restricted                           1,025,000                    0
      Accounts Receivable                            39,890                  228
      Stock Subscriptions Receivable              2,000,000                    0
      Prepaid Expenses                              144,891               22,209
                                         ------------------   ------------------
         Total Current Assets                     4,494,022              916,894
                                         ------------------   ------------------

Property Plant and Equipment, Net                 7,004,041              604,192
                                         ------------------   ------------------

Investment - Reef Ventures, L.P.                          0               98,629
                                         ------------------   ------------------

Other Assets:
        Goodwill                                    673,992                    0
       Deposits                                       4,108                3,800
       Deferred Charges                             245,600                    0
                                         ------------------   ------------------

            Total Other Assets                      923,700                3,800
                                         ------------------   ------------------

         Total Assets                    $       12,421,763   $        1,623,515
                                         ==================   ==================














      See Accompanying Notes to Condensed Consolidated Financial Statements


                                       3
<PAGE>
<TABLE>
<CAPTION>

                         TIDELANDS OIL & GAS CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (CONTINUED)



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


                                                   September 30, 2004     December 31, 2003
                                                   ------------------    ------------------
                                                      (Unaudited)
<S>                                                <C>                   <C>
Current Liabilities:
      Accounts Payable and
         Accrued Expenses                          $          388,563    $          813,905
         Current Maturities of Long-Term Debt                 150,000               325,000
                                                   ------------------    ------------------

         Total Current Liabilities                            538,563             1,138,905
                                                   ------------------    ------------------

Long-Term Debt                                              6,523,773                     0
                                                   ------------------    ------------------

         Total Liabilities                                  7,062,336             1,138,905
                                                   ------------------    ------------------

Commitments and Contingencies                                    --                    --

Stockholders' Equity:
      Common Stock, $.001 par value per share,
        100,000,000 shares authorized;
        59,028,647 shares issued and outstanding
        September 30, 2004, 44,825,302 shares
        Issued and outstanding December 31, 2003               59,029                44,826
Additional Paid-in Capital                                 21,557,478            11,072,987
Subscriptions Receivable                                     (550,000)              (18,000)
Accumulated (Deficit)                                     (15,707,080)          (10,615,203)
                                                   ------------------    ------------------

         Total Stockholders' Equity                         5,359,427               484,610
                                                   ------------------    ------------------

         Total Liabilities and
              Stockholders' Equity                 $       12,421,763    $        1,623,515
                                                   ==================    ==================
</TABLE>












      See Accompanying Notes to Condensed Consolidated Financial Statements


                                       4
<PAGE>
<TABLE>
<CAPTION>

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



                                             Three Months Ended    Three Months Ended
                                             September 30, 2004    September 30, 2003
                                             ------------------    ------------------
<S>                                          <C>                   <C>
Revenues:
      Gas Sales                              $          815,747    $                0
      Pipeline Fees                                       9,101                     0
      Management Fees                                         0               103,830
                                             ------------------    ------------------
         Total Revenues                                 824,848               103,830
                                             ------------------    ------------------

Expenses:
      Purchases                                         801,698                     0
      Operating Expenses                                 15,800                11,791
      Depreciation                                       88,611                11,153
      Interest                                          100,981                 9,675
      Officers & Directors Salaries & Fees              177,625                69,000
      General and Administrative                        953,293               284,780
                                             ------------------    ------------------
      Total Expenses                                  2,138,008               386,399
                                             ------------------    ------------------

(Loss) From Operations                               (1,313,160)             (282,569)
      Loss From Asset Abandonment                             0                  (850)
       Interest Income                                    5,667                     0
                                             ------------------    ------------------
Net Income (Loss)                            $       (1,307,493)   $         (283,419)
                                             ==================    ==================

Net Income (Loss) Per Common Share:

        Basic and Diluted                    $            (0.02)   $            (0.01)
        -----------------                    ==================    ==================

Weighted Average Number of Common
      Shares Outstanding, Basic                      54,778,647            41,390,507
                                             ==================    ==================
</TABLE>









      See Accompanying Notes to Condensed Consolidated Financial Statements


                                       5
<PAGE>
<TABLE>
<CAPTION>

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



                                                    Nine Months Ended     Nine Months Ended
                                                   September 30, 2004    September 30, 2003
                                                   ------------------    ------------------
<S>                                                <C>                   <C>
Revenues:
      Gas Sales                                    $        1,323,459    $                0
      Pipeline Fees                                             9,101                     0
      Management Fees                                               0               123,922
                                                   ------------------    ------------------
         Total Revenues                                     1,332,560               123,922
                                                   ------------------    ------------------

Expenses:
      Purchases                                             1,299,518                     0
      Pipeline Operating Expenses                              18,416                26,484
      Depreciation                                            136,529                32,473
      Interest                                                149,418                43,316
      Officers & Directors Salaries & Fees                    513,983               219,000
      General and Administrative                            4,323,313               660,447
         Total Expenses                                     6,441,177               981,720
                                                   ------------------    ------------------

(Loss) From Operations                                     (5,108,617)             (857,798)
      Extraordinary Item - Gain on Partial Sale
        Of Subsidiary                                               0             1,533,731
      Loss From Asset Abandonment                                   0                  (850)
        Interest Income                                        16,740                     0
                                                   ------------------    ------------------
Net Income (Loss)                                  $       (5,091,877)   $          675,083
                                                   ==================    ==================

Net Income (Loss) Per Common Share:

      Basic and Diluted
      -----------------

      (Loss)  From Operations                      $            (0.10)   $            (0.02)
       Gain - Extraordinary Item                                 0.00                  0.04
                                                   ------------------    ------------------
           Total                                   $            (0.10)   $             0.02
                                                   ==================    ==================

Weighted Average Number of Common
      Shares Outstanding, Basic                            51,926,974            38,040,218
                                                   ==================    ==================
</TABLE>









      See Accompanying Notes to Condensed Consolidated Financial Statements


                                       6
<PAGE>
<TABLE>
<CAPTION>

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


                                                      Nine Months Ended     Nine Months Ended
                                                     September 30, 2004    September 30, 2003
                                                     ------------------    ------------------
<S>                                                  <C>                   <C>
Cash Flows Provided (Required) By
  Operating Activities:
    Net Income (Loss)                                $       (5,091,877)   $          675,083
    Adjustments to Reconcile Net (Loss)
           to Net Cash Provided (Required) By
          Operating Activities:

    Depreciation                                                136,529                32,473
    Write Off of Subscription Receivable                         18,000                     0
    Issuance of Common Stock
      for Services Provided                                   3,747,066               317,814
    Officers' Salaries Accrual                                        0               100,000
      Changes in:
        Accounts Receivable                                     (39,662)               15,419
        Prepaid Expenses                                       (116,682)               15,124
        Deposits                                                   (308)               (1,805)
        Deferred Charges                                       (245,600)                    0
        Accounts Payable and
          Accrued Expenses                                     (387,031)             (552,191)
                                                     ------------------    ------------------

Net Cash Provided (Required)
   by Operating Activities                                   (1,979,565)              601,917
                                                     ------------------    ------------------

Cash Flows Provided (Required)
  By Investing Activities:
      Increase (Decrease) in Investments                         98,629               (98,629)
      Acquisitions of Property, Plant & Equipment              (692,597)              (98,360)
      Proceeds From Disposals of Property, Plant
        and Equipment                                                 0               697,285
                                                     ------------------    ------------------

        Net Cash Provided (Required)
          by Investing Activities                              (593,968)              500,296
                                                     ------------------    ------------------
</TABLE>







      See Accompanying Notes to Condensed Consolidated Financial Statements


                                       7
<PAGE>
<TABLE>
<CAPTION>

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

                                   (CONTINUED)


                                                    Nine Months Ended     Nine Months Ended
                                                   September 30, 2004    September 30, 2003
                                                   ------------------    ------------------
<S>                                                <C>                   <C>
Cash Flows Provided (Required)
   by Financing Activities:
      Proceeds from Issuance of Common Stock
         Net of Subscriptions Receivable                    4,088,317                50,000
      Repayment of Short-Term Loans                          (100,000)             (302,924)
      Proceeds of Loans from Related Parties                        0                19,300
      Repayment of Loans Fees and Accrued
        Salaries Due Related Parties                                0              (848,597)
                                                   ------------------    ------------------

Net Cash Provided (Required)
  by Financing Activities                                   3,988,317            (1,082,221)
                                                   ------------------    ------------------

Net Increase in Cash                                        1,414,784                19,992
Cash at Beginning of Period                                   894,457               193,669
                                                   ------------------    ------------------

Cash at End of Period                              $        2,309,241    $          213,661
                                                   ==================    ==================

Supplemental Disclosures of
   Cash Flow Information:
      Cash Payments for Interest                   $           22,011    $           33,143
                                                   ==================    ==================

      Cash Payments for Income Taxes               $                0    $                0
                                                   ==================    ==================
Non-Cash Financing Activities:
   Issuance of Common Stock:
     Operating Activities                            $      3,747,066    $          317,814
     Payment of Accounts Payable                               38,311                62,500
     Repayment of Loans                                        75,000               198,767
     Prepayment of Legal Fees                                  86,000                18,750
     Repayment of Loans and Accrued
     Salaries From Related Parties                                  0               866,157
   Acquisition of Property, Plant, Equip-
    ment, and Goodwill For Note Payable                     6,523,773                     0
                                                   ------------------    ------------------

      Total Non-Cash Financing Activities          $       10,470,150    $        1,493,988
                                                   ==================    ==================
</TABLE>





      See Accompanying Notes to Condensed Consolidated Financial Statements

                                       8
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2004


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

         The accompanying  unaudited condensed consolidated financial statements
         for the nine month periods ended  September 30, 2004 and 2003 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, 2003 is derived  from the  registrant's
         Form 10-KSB for the year ended December 31, 2003.  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 nine-month  period ended  September 30, 2004
         are not necessarily  indicative of the results that may be expected for
         the  remainder  of the  fiscal  year  ending  December  31,  2004.  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.











                                       9
<PAGE>
<TABLE>
<CAPTION>

                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2004

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

         Restricted cash consists of a certificate of deposit to secure a letter
         of credit  issued  to a vendor.  The  letter  of credit  terminated  on
         October 4, 2004 which cancelled the cash restriction.

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

         Summaries of property,  plant and  equipment at September  30, 2004 and
         December 31, 2003 are as follows:

                                                                                     Estimated
                                                     September 30,    December 31,    Economic
                                                          2004            2003          Life
                                                     -------------   -------------   ----------
         <S>                                         <C>             <C>             <C>
         Pre-Construction Costs-
           International Crossing to Mexico          $      20,600   $     133,308
         Pre-Construction Costs - Mexican
           Storage Facility and Related Pipelines          669,225               0
         Equipment and Leasehold
           Improvements                                     38,802          19,449   3-10 Years
         Pipelines - Domestic                              431,560         431,560    15 years
         Pipeline - Eagle Pass, Tx to Piedras
           Negras, Mexico                                6,113,255               0    20 Years
         Processing Plant                                  186,410         166,410    15 Years
                                                     -------------   -------------
              Total                                  $   7,459,852         750,727
         Less Accumulated Depreciation                     455,811         146,535
                                                     -------------   -------------
              Total                                  $   7,004,041   $     604,192
                                                     =============   =============
         </TABLE>

Depreciation  expense for the nine months ended September 30, 2004 and September
30, 2003 amounted to $136,529 and $32,473.

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

         Maturities  of long-term  debt are as follows,  provided cash flows are
         sufficient.  According to provisions in note, any deficiencies  will be
         paid at maturity of note as described in footnote 6.

                    Period Ending
                    September 30,
                        2005                 $       27,182
                        2006                        326,188
                        2007                        326,188
                        2008                      5,844,215
                                             --------------
                                             $    6,523,773
                                             ==============










                                       10
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2004


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

         On January 6, 2003,  the Company was 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 others, 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 others  generally
         alleging,  among other things,  that Northern,  ZG Gathering,  Ltd. and
         others,  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 promissory note in question. She alleges that Tidelands
         is liable to her for all of her actual  damages,  costs of the  lawsuit
         and other unstated  relief.  Tidelands  participated  in a mediation on
         March  11,  2003.  The case was not  settled  at that  time.  Tidelands
         answered the Sheerin suit on March 26, 2003 and denied all of Sheerin's
         allegations.  No discovery  has been  completed at this time.  Based on
         initial investigations,  however, Tidelands appears to have a number of
         potential  defenses to Sheerin's  claims,  and intends to  aggressively
         defend the lawsuit.

         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  restricted  common  stock to  various
         partners  of  ZG  Gathering,   Ltd.  The  company   believes  that  the
         aforementioned  promissory  note and shares of restricted  common stock
         will be cancelled  based upon the outcome of the  litigation  described
         above.  Accordingly,  the Company's  financial  statements reflect that
         position.









                                       11
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2004



NOTE 6 - ACQUISITION
------   ---------------

         On May 25, 2004, the Company entered into a Purchase and Sale Agreement
         for Reef  Ventures,  L.P.  by and  between  Impact  International,  LLC
         ("Impact") and Coahuila Pipeline, LLC. ("Coahuila"), (jointly "Seller")
         and  Tidelands  Oil  &  Gas  Corporation   ("Tidelands")  and  Arrecefe
         Management,  LLC ("Arrecefe"),  (jointly "Buyer"). Impact is considered
         an affiliate of  Tidelands  because it possessed  warrants to acquire a
         19% interest in Tidelands  common  stock.  The closing  documents  were
         executed and placed into trust  pending  receipt of proof of insurance.
         Tideland's  received an insurance  commitment  regarding  the purchased
         assets that was  accepted  by Impact on June 18,  2004,  the  effective
         closing date.

         Purchase and Sale Agreement - Background

         Reef  Ventures,  L.P. was formed in Texas on April 16,  2003.  Coahuila
         owned one  percent  (1%) of Reef  Ventures,  L.P.  Impact was a limited
         partner of Reef  Ventures and owned  seventy-two  percent (72%) of Reef
         Ventures.  L.P. Tidelands formed Arrecefe  Management,  L.L.C., a Texas
         limited  liability  company,  to act as the  general  partner  for Reef
         Ventures, L.P. Tidelands had already owned twenty-five percent (25%) of
         Reef Ventures, L.P.

         Summary of Purchase and Sale Agreement

         The Company and Arrecefe  purchased  Impact's and  Coahuila's  units of
         interest in Reef Ventures, L.P., respectively. Impact financed the sale
         of the Reef interests for $6,523,773 payable as follows:

         (a) Tidelands  executed a Promissory Note to Impact for $6,523,773 (the
         "Tidelands  Note"). The Tidelands Note bears interest at the prime rate
         of interest  plus two (2%)  percent.  The note would call for quarterly
         interest  payments  the first  fifteen  (15)  months,  and  thereafter,
         principal  and interest  would be due quarterly  amortized  over twenty
         (20) years,  but not to exceed an amount  equal to One  Hundred  (100%)
         percent of Reef's net cash flow.  The unpaid  balance of the note would
         be due at the end of the fourth year.

         (b) The Tideland's note is secured by (i) a deed of trust (the "Deed of
         Trust")  from the  Partnership  to Impact,  covering  the  pipeline and
         related  facilities,  easements,  rights-of-way  and the Gas  Contracts
         which  comprise the project,  being that 12-inch  pipeline  Project for
         transporting  natural  gas from Eagle  Pass  Texas to  Piedras  Negras,
         Mexico, defined in the Partnership Agreement. The





                                       12
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2004


NOTE 6 - ACQUISITION (CONTINUED
------   ----------------------

         Summary of Purchase and Sale Agreement (Continued)

         Deed of Trust would  include a present  assignment  of Reef's rights to
         receive cash flow from the Gas Project  which would be  exercisable  by
         Impact only upon default under the Tidelands Note,  Reef guarantee,  or
         Reef Deed of Trust. (ii) a guaranty of payment and performance from the
         Partnership (the "Partnership Guaranty"),  and (iii) a pledge agreement
         whereby the Partnership  pledges to Impact its 98% membership  interest
         in Reef.

         Summary of Amendment to Warrant and Registration Rights Agreements

         The Stock Purchase Warrant  Agreement dated April 16, 2003 was amended.
         The  amended  Agreement  states that the total  number of shares  which
         Impact  is  entitled  to  receive  under  the  warrant  is Ten  Million
         (10,000,000)  shares of Tideland's  common stock,  plus such additional
         shares of common  stock which may be issued upon the  occurrence  of an
         untimely  registration  event, less the 500,000 shares issued to Impact
         on April  13,  2004.  The  exercise  price is  $0.335  per  share.  The
         expiration date of the warrant is extended to April 16, 2006.

         The Company has agreed to use its best  efforts to register  the shares
         under the warrant with the Securities  and Exchange  Commission so that
         Impact  will  be  permitted  to  publicly  resell  the  common  shares.
         Tidelands  agreed  to use its best  efforts  to keep  the  registration
         statement  effective as long as it is necessary  for Impact to sell the
         shares.

         If the  registration  statement is declared  effective  (i) by April 7,
         2005, if the  registration is on Form S-3, or (ii) July 7, 2005, if the
         registration  statement is on Form SB-2 or any other registration form,
         the   registration   statement   will  be  deemed   timely  (a  "Timely
         Registration").  In the  event of a Timely  Registration,  Impact  will
         exercise the warrant for all of the remaining  shares under the warrant
         on a cash basis payable by Impact through the execution of a promissory
         note payable to Tidelands (the "Impact Note"), as of the effective date
         of the registration  statement.  In the event that the Company does not
         accomplish a Timely Registration,  then Impact may exercise the warrant
         at  anytime  after  the  date  which  is the  last  date  for a  Timely
         Registration,  at its option on a cash basis or pursuant to Section 1.2
         of the warrant  agreement on a net exercise  cashless basis for all the
         remaining  shares under the warrant.  If Impact  elects to exercise the
         warrants on a net exercise  cashless basis, we will increase the number
         of shares  available  for  issuance  under the warrant,  regardless  of
         whether issued for cash or on a net exercise  basis,  so that the total
         number of shares issued would total 10,000,000 shares.




                                       13
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2004

NOTE 6 - ACQUISITION (CONTINUED
------   ----------------------

         If the registration  statement is not filed or declared effective on or
         before July 14, 2004,  the Company  will be obligated to issue  500,000
         common  shares under the cashless  exercise  provisions  of the amended
         Stock Purchase  Warrant.  For each 90 day period that the  registration
         statement  was not  filed or  declared  effective,  the  Company  would
         continue to issue 500,000 share blocks of common stock,  until declared
         effective.  Accordingly,  the Company issued 500,000  restricted common
         shares  during July since the  registration  statement was not filed by
         July 14, 2004.

         The unaudited pro-forma condensed consolidated results of operations of
         the  Company  have  been  prepared  as  if  the   acquisition   of  the
         seventy-three percent (73%) of Reef Ventures, L.P. had occurred January
         1, 2004:

                         Tidelands Oil & Gas Corporation
                 Condensed Consolidated Statement of Operations
                      Nine Months Ended September 30, 2004
                                   "Proforma"
                                   (Unaudited)


         Revenues                                                  $  3,975,062
         Net (Loss)                                                $ (5,152,407)
         Net (Loss) Per Common Share - Basic                       $      (0.10)
         Weighted Average Shares Outstanding - Basic                 51,926,974
         Net (Loss) Per Common Shares - Diluted                    $      (0.08)
         Weighted Average Shares Outstanding - Diluted               63,310,378

NOTE 7 - COMMON STOCK TRANSACTIONS
------   -------------------------

         During January and February 2004, the Company issued  2,722,223  shares
         of its restricted common stock for $4,083,335.

         On January 8, 2004,  the  Company  authorized  the  issuance of 200,000
         shares of its common stock for 2004 legal fees valued at $344,000 under
         the Stock Grant and Option Plan.

         On January 8, 2004, the Company issued 300,000 shares of its restricted
         common  stock for  services  valued at $450,000  regarding  the private
         placement of the Company's common stock.

         On January 8, 2004,  the Company  authorized the issuance of 700,000 of
         its  restricted   common  stock  for  consulting   services  valued  at
         $1,050,000. These shares were issued during January and February 2004.





                                       14
<PAGE>
                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2004


NOTE 7 - COMMON STOCK TRANSACTIONS (CONTINUED)
------   -------------------------------------

         On January 8, 2004,  the  Company  issued  52,800  shares of its common
         stock valued at $90,816 to a Company  officer under the Stock Grant and
         Option Plan.

         On January 8, 2004, the Company  approved the issuance of 75,000 shares
         of its restricted common stock in payment of a $75,000  promissory note
         and $38,311 of accrued  interest.  These shares were issued February 3,
         2004.

         During the quarter,  the Company  issued 3,322 shares of its restricted
         common stock for $4,983.

         On April 12, 2004,  the Company issued 500,000 shares of its restricted
         common stock valued at $497,000 to Impact International,  Inc. pursuant
         to the terms of the purchase of Reef Venture, L.P. described above.

         On April 15, 2004,  the Company issued 700,000 shares of its restricted
         common stock for consulting services valued at $728,000.

         On April 15, 2004,  the Company issued 450,000 shares of its restricted
         common stock for consulting services valued at $468,000.

         On July 2, 2004,  the Company  issued  500,000 shares of its restricted
         common stock valued at $250,625 to Impact International,  Inc. pursuant
         to the terms of purchase of Reef Ventures, L.P. described above.

         On  August  1,  2004,  the  Company  issued  1,000,000  shares  of  its
         restricted  common  stock  valued at  $383,750  pursuant  to a one-year
         contract  to provide  consulting  services.  In  addition,  the Company
         issued  warrants to purchase  500,000 shares of common stock at a price
         of $1.45 per share. These warrants expire August 10, 2006.

         On  September  14, 2004,  the Company  issued  4,000,000  shares of its
         restricted  common  stock  for  $2,000,000  which was  received  during
         October,  2004. In addition,  the Company  issued  warrants to purchase
         1,000,000 shares of common stock at a price of fifty-cents  ($0.50) per
         share. These warrants expire August 14, 2006.

         On  September  14,  2004,  the  Company  issued  500,000  shares of its
         restricted  common stock valued at $106,875  pursuant to an  employment
         contract with an officer of the Company.





                                       15
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2004

NOTE 7- COMMON STOCK TRANSACTIONS (CONTINUED)
------  -------------------------------------

         On September 14, 2004,  three current  officers and directors,  a prior
         officer/director  and an  employee  of the  Company  each  exercised  a
         warrant  to  acquire  500,000  shares of  restricted  common  stock for
         $110,000.  The parties also executed a one-year promissory note bearing
         5% per annum interest in favor of the Company and a security  agreement
         against the newly issued stock until full payment has been remitted.

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                         $  161,385
                    2006                            171,068
                    2007                            181,332
                    2008                            192,212
                    2009                            101,872
                                                 ----------
                                                 $  807,869
                                                 ==========

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 was made to secure a block of six hundred hours
         of airtime based on standard  industry  rates,  and as at September 30,
         2004, there remains unused airtime in the amount of $275,600.

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

         On October 1, 2004, the Company  formed  Sonterra  Energy  Corporation,
         ("Sonterra"),  a Texas  Corporation.  Sonterra  immediately  issued 500
         shares  each to the  Company  and James  Blackwell,  PE.  Sonterra  was
         organized  for the  purpose of  acquiring  the assets of Oneok  Propane
         Distribution   Company,  a  division  of  Oneok  Propane  Company.   In
         connection with the purchase of the Oneok assets,  James Blackwell sold
         his 500 Sonterra shares to Tidelands in exchange for 574,712 Tidelands'
         shares; thereby causing Sonterra to become a wholly owned subsidiary of
         Tidelands.






                                       16
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2004


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

         On November 1, 2004,  Sonterra  entered into an Asset Purchase and Sale
         Agreement  with Oneok  Propane  Distribution  Company to  purchase  its
         assets for two million  dollars,  ($2,000,000).  The assets  consist of
         propane distribution  systems;  including gas mains, yard lines, meters
         and storage  tanks  serving  various  residential  subdivisions  in the
         Austin,  Texas area.  The  purchase  price was funded by  Tidelands  on
         behalf of Sonterra  from  proceeds of the  previous  sale of  4,000,000
         shares of its restricted common stock received during October 2004.






























                                       17

<PAGE>

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

Business Overview

Tidelands  Oil  &  Gas  Corporation  (the  "Company"),   formerly  known  as  C2
Technologies,  Inc., was  incorporated  under the laws of the State of Nevada on
February 25, 1997. C2 Technologies, Inc. changed its name to Tidelands Oil & Gas
Corporation   on  November  19,   1998.   The  Company  has  five  wholly  owned
subsidiaries,  Rio Bravo Energy LLC,  Sonora Pipeline LLC,  Arrecefe  Management
LLC,  Marea  Associates,  L.P.,  and  Terranova  Energia,  S.de R.L. de C.V. The
Company  also owns a 97% limited  partnership  interest in Reef  Ventures,  L.P.
Arrecefe  Management  LLC owns a 1% general  partner  interest in Reef Ventures,
L.P. Reef Ventures,  L.P. owns 100% of the member interest in Reef International
LLC and Reef Marketing LLC.

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

The  Company  derived  its  revenue  from  sales  of  natural  gas to the  local
distribution  company in Piedras Negras,  Coahuila through the pipeline owned by
Reef  Ventures,  L.P.  during the months of July and August  2004.  The  revenue
source from these  operations for the month of September 2004 was converted to a
transportation  fee based  upon  volumes  metered.  It is  anticipated  that the
conversion of the revenue  source to a  transporation  fee basis will enable the
Company  to realize a  doubling  of net  revenues  based  upon  current  volumes
committed for delivery to the customer in Piedras Negras,  Coahuila.  Management
is  evaluating  an  expansion  of the  pipeline in Coahuila to serve new markets
along the state  highway No. 57 corridor to  Monclova,  Coahuila  including  the
brewery and bottling  operation  planned for that area. The volume increase from
this  expanded  pipeline  network is  estimated  to be 4 to 7 times the  current
average  throughput  to  the  local  distribution  company  in  Piedras  Negras,
Coahuila.  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 Nuevo Laredo and Reynosa,  Tamaulipas. A decision to proceed, modify
or abandon the LPG project at this  location is under  evaluation.  The existing
natural gas and natural gas liquid projects were acquired in connection with the
buyout of the Impact general and limited partnership interests in Reef Ventures,
L.P.  which is  described  in  further  detail in  Footnote  6 to the  Condensed
Consolidated Financial Statements above.

In December 2003, the Company  entered into a Memorandum of  Understanding  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.



                                       18
<PAGE>

The Company has completed  its initial study of the Burgos  facility and expects
to complete final contract  negotiations  with PEMEX and third party vendors for
the  construction  and  operation  of the  facility  shortly.  A  system  of two
interconnecting  pipelines is also proposed to enhance the overall pipeline grid
and the  efficiency of operation of the storage  facility.  Permit  applications
will be  filed  for all  these  projects  with  the  Mexican  Energy  Regulatory
Commission in the fourth  quarter of 2004. The capital budget for these projects
exceeds $300 million USD and is expected to be funded through  additional equity
and debt issuances by the Company. 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  enter  into all
contracts  for business  dealings in Mexico on behalf of the Company.  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.


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  processing  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.  Subsequent to September 30, 2004,  the
Company closed a $2,000,000  Regulation S equity  financing with ACH Securities,
S.A.  The  proceeds  of this  financing  were  used to fund the  acquisition  of
residential propane distribution systems in western Travis County, Texas via the
Company's new wholly owned corporate subsidiary,  Sonterra Energy Corporation as
of November 1, 2004.  Management is evaluating the re-opening of the Chittim gas
plant in order to provide lower cost  feedstock  fuel for sale through  Sonterra
Energy  Corporation  operations.  Management  is also  evaluating  two different
supply sources for the reopening of the Chittim gas plant.  As noted above,  Rio
Bravo Energy LLC also 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.  The assets of this company
were acquired in conjunction with the Chittim Gas Processing  Plant  acquisition
and, when  operational,  would generate revenue from  transportation  fees to be
charged to third party gas producers shipping natural gas to the gas plant owned
by Rio Bravo Energy LLC.



                                       19
<PAGE>

RESULTS OF OPERATIONS

REVENUES:  The Company reported revenues of $1,332,560 for the nine months ended
September  30, 2004 as compared  with  revenues  from  continuing  operations of
$123,922 for the nine months ended  September  30,  2003.  The revenue  increase
resulted from the  acquisition  of a 98% interest in Reef  Ventures,  L.P. which
owns and operates a natural gas pipeline  serving the Piedras  Negras,  Coahuila
market.

TOTAL COSTS AND EXPENSES:  Total costs and expenses from  continuing  operations
increased  from  $981,720  for the  nine  months  ended  September  30,  2003 to
$6,441,177 for the nine months ended September 30, 2004.

COST OF  SALES:  The  cost  of  sales  (purchases)  from  continuing  operations
increased  from -0- for the nine months ended  September  30, 2003 to $1,299,518
for the nine months  ended  September  30,  2004.  The  increase  was due to the
purchase  cost of natural gas resold  through the natural gas pipeline  owned by
Reef Ventures, L.P.

OPERATING  EXPENSES:   Other  operating  expenses  from  continuing   operations
increased  from  $981,720  for the  nine  months  ended  September  30,  2003 to
$5,141,659 for the nine months ended  September 30, 2004 which is total increase
of $4,159,939.  Depreciation increased by $104,056 due to the acquisition of the
natural gas pipeline owned by Reef Ventures,  L.P. Interest expense increased by
$106,102 due to the debt  incurred to acquire the natural gas pipeline  owned by
Reef  Ventures,  L.P.  Pipeline  operating  expenses  decreased by $8,068 due to
different operating  requirements of the assets owned during the respective nine
month periods.  Officers and Directors Salaries & Fees increased by $294,983 for
the nine months ended  September 30, 2004 versus the nine months ended September
30,  2003 due to hiring of  additional  officers  and  directors.  The  non-cash
component  of this  increase  was  $197,691  due to issuance of common  stock to
officers   and   directors.   General  &   Administrative   expenses   increased
substantially as detailed below.

SELLING GENERAL AND ADMINISTRATIVE:  General & Administrative Expenses increased
by  $3,662,866  for the nine  months  ended  September  30, 2004 versus the nine
months  ended  September  30, 2003 due to an increase in the  issuance of common
stock for consulting  fees,  legal fees, and financing fees by $3,231,561  which
are non-cash expenses accounting for all but $431,305 of the increase in general
and administrative expenses. The remaining increase in G & A costs was primarily
from cash paid for travel costs, insurance premiums,  entertainment,  accounting
fees and legal fees.


NET LOSS  FROM  OPERATIONS:Net  loss of  ($857,798)  for the nine  months  ended
September 30, 2003 increased to ($5,108,617) for the nine months ended September
30,  2004,  an  increase  in the  amount  of loss of  $4,250,819.  The  non-cash
component of the increase in loss was $3,747,066.



                                       20
<PAGE>

LIQUIDITY AND CAPITAL  RESOURCES:  Capital  expenditures  during the nine months
ended  September  30, 2004 totaled  $6,829,125  as compared with $95,360 for the
nine months ended  September  30, 2003.  The increase of  $6,733,765  was due to
acquisition  of the Reef  Ventures,  L.P.  natural  gas  pipeline  ($6,113,255),
increased equipment and leasehold cost of $19,946, higher pre-construction costs
regarding potential  international  pipeline crossings and storage facilities in
Mexico  ($580,564),  and  additional  equipment  for  our gas  processing  plant
($20,000).

Total debt  increased  from  $1,138,905  at December 31, 2003 to  $7,062,336  at
September  30,  2004.  The  increase  in  total  debt is due to the  acquisition
indebtedness  created in the acquisition of the Reef Ventures,  L.P. partnership
interests from Coahuila  Pipeline LLC and Impact  International LLC as described
in Note 6 to the  Condensed  Consolidated  Financial  Statements  for the period
ended  September 30, 2004.  Total debt as of September 30, 2004 and December 31,
2003 expressed as a percentage of the sum of total debt and shareholders' equity
was 56.85% and 70.15% respectively.

Net loss  for the nine  months  ended  September  30,  2004 was  ($5,091,877)  a
decrease  of 854% from the net  income of  $675,083  for the nine  months  ended
September 30, 2003. Diluted net loss per common share increased 500% to ($0.10).
The net loss per share  calculation for the nine months ended September 30, 2004
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.

Item 3.     Controls and Procedures



                                       21
<PAGE>

(a)      Evaluation of Disclosure Controls and Procedures.

         Within the 90 days prior to the date of this  Quarterly  Report for the
period  ended  September  30,  2004,  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-14 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 significant  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.

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         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 not 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



                                       22
<PAGE>

obligations she had to Northern on the promissory note in question.  She alleges
that  Tidelands  is liable to her for all of her  actual  damages,  costs of the
lawsuit and other  unstated  relief.  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.  No discovery has been
completed  at this time.  Based on  initial  investigation,  however,  Tidelands
appears to have a number of potential  defenses to Sheerin's claims.  Tideland's
intends  to  aggressively  defend  the  lawsuit.  At  this  early  stage  in the
litigation,  and in light of our continuing  investigation  of the facts and the
issues in the case,  we cannot give a more  definitive  evaluation of the extent
Tideland's liability exposure.

         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 the Uniform  Commercial  Code,  breach of duty of good
faith and fair  dealing  and  conversion.  These  claims  are  being  vigorously
defended.

         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.  The  company
believes that the  promissory  note and shares of common stock will be cancelled
based upon the  outcome of the  litigation  described  above.  Accordingly,  our
financial statements reflect this belief.

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

During the third  quarter of 2004 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  July  2,  2004,  we  issued   500,000  shares  of  common  stock  to  Impact
International,  LLC.  valued at $250,625 in a cashless  exercise of their common
stock warrants.

On August 1, 2004, we issued  1,000,000  shares of common stock to L.L.  Capital
Group,  LLC pursuant to a Consulting  Services  Agreement.  The  transaction was
valued at $383,750.

On September 14, 2004, the following individuals exercised common stock options:

         (1)      Michael Ward, the Company's President and Director,  exercised
                  his common stock option to purchase  500,000 common shares for
                  $110,000  payable on a promissory note bearing interest at the
                  rate of 5% payable in full on, or before  September  14, 2005.
                  The shares are subject to a security agreement.



                                       23
<PAGE>

         (2)      Ahmed  Karim,  the  Company's  Vice  President  and  Director,
                  exercised his common stock option to purchase  500,000  common
                  shares for  $110,000  payable  on a  promissory  note  bearing
                  interest  at the  rate of 5%  payable  in full on,  or  before
                  September  14,  2005.  The  shares  are  subject to a security
                  agreement.

         (3)      James Smith, the Company's Chief Financial Officer,  exercised
                  his common stock option to purchase  500,000 common shares for
                  $110,000  payable on a promissory note bearing interest at the
                  rate of 5% payable in full on, or before  September  14, 2005.
                  The shares are subject to a security agreement.

         (4)      Samuel  Simon  exercised  his common  stock option to purchase
                  500,000  common  shares for  $110,000  payable on a promissory
                  note bearing interest at the rate of 5% payable in full on, or
                  before  September  14,  2005.  The  shares  are  subject  to a
                  security agreement.

On September 14, 2004, we issued  500,000 shares of common stock to Michael Ward
as a stock  grant  under his  employment  agreement.  The shares  were valued at
$106,875.

         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.

Item 6.  Exhibits and Reports on Form 8-K

a) Exhibits



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<PAGE>

      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  Officer-Section  906  Certification
                           pursuant to Sarbane-Oxley Act.

         32.2              Chief Financial  Officer-  Section 906  Certification
                           pursuant to Sarbane-Oxley Act.

(b) Reports on Form 8-K.  During the third  quarter of 2004 we filed two Current
Reports on Form 8-K:  August 13, 2004 reporting under Item 7, September 20, 2004
reporting under Item 3.02.


                                   SIGNATURES

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

                                                       TIDELANDS OIL & GAS CORP.


Dated: November 15, 2004                                /s/ Michael Ward
---------------------------                            -------------------------
                                                       By: Michael Ward
                                                       Title: President, CEO



Dated: November 15, 2004                                /s/ James B. Smith
---------------------------                            -------------------------
                                                       By: James B. Smith
                                                       Title: CFO