Exhibit 10.1

                          SECURITIES PURCHASE AGREEMENT


         SECURITIES PURCHASE AGREEMENT (this "Agreement"),  dated as of November
18, 2004, by and among Tidelands Oil & Gas Corporation,  a corporation organized
under the laws of the  State of Nevada  (the  "Company"),  on the one hand,  and
MERCATOR  MOMENTUM FUND, LP ("Momentum  Fund"),  MERCATOR  MOMENTUM FUND III, LP
("Momentum Fund III") , and MONARCH POINTE FUND, LP, ("Monarch")  (collectively,
the "Funds") and MERCATOR ADVISORY GROUP, LLC ("Mercator") on the other hand.

         WHEREAS:

         A.  The  Company  and the  Funds  are  executing  and  delivering  this
Agreement in reliance upon the exemption from securities  registration  afforded
by the  provisions  of  Section  4(2) and  Regulation  D  ("Regulation  D"),  as
promulgated by the United States Securities and Exchange  Commission (the "SEC")
under the Securities Act of 1933, as amended (the "Securities Act").

         B. The Company is issuing (i) 7.0%  Convertible  Debentures in the form
attached  hereto as  Exhibit A (the  "Debentures")  in the  aggregate  principal
amount of  $5,000,000,  pursuant to which shares of the  Company's  common stock
("Common  Stock")  may be issued  upon the  conversion  of the  Debentures  (the
"Debenture Shares");  and (ii) warrants in the form attached hereto as Exhibit B
(the "Warrants") to acquire shares of Common Stock ("Warrant Shares").

         C. The Funds are purchasing,  severally and not jointly, subject to the
terms and  conditions  in this  Agreement,  the  Debentures.  For no  additional
consideration, the Warrants are being issued to the Funds and Mercator.

         D.  Contemporaneous  with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration  Rights Agreement
in the form attached hereto as Exhibit C (the "Registration  Rights Agreement"),
pursuant to which the Company has agreed to provide certain  registration rights
under the Securities Act and the rules and regulations  promulgated  thereunder,
and applicable state securities laws.

         NOW, THEREFORE, the Company and the Funds hereby agree as follows:

         1. CERTAIN DEFINITIONS.

         For  purposes of this  Agreement,  the  following  terms shall have the
meanings ascribed to them as provided below:

         "Business Day" shall mean any day except  Saturday,  Sunday and any day
which shall be a federal  legal  holiday in the United  States or a day on which
banking  institutions  are  authorized  or required  by law or other  government
action to close.

         "Investment  Amount"  shall  mean the dollar  amount of the  Debentures
purchased by Momentum Fund, Momentum Fund III or Monarch at the Closing pursuant
to this Agreement, as set forth in Section 2 hereto.



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<PAGE>

         "Material Adverse Effect" shall mean any material adverse effect on (i)
the  Securities,  (ii) the  ability of the  Company to perform  its  obligations
hereunder (including the issuance of the Debentures and the Warrants), under the
Debentures  and Warrants  (including  the issuance of the  Debenture  Shares and
Warrant  Shares)  or under  the  Registration  Rights  Agreement  or  (iii)  the
business,  operations,  properties,  prospects  or  financial  condition  of the
Company and its subsidiaries taken as a whole.

         "Pro  Rata  Percentage"  shall  mean,  with  respect  to  any  Fund,  a
percentage  computed by dividing such Fund's  Investment Amount by the aggregate
Investment Amounts of all Funds.

         "Securities"  shall mean the  Debentures,  the Warrants,  the Debenture
Shares and the Warrant Shares.

         "Shares"  means  the  shares  of  Common  Stock to be  issued  upon the
conversion of the Debentures or exercise of the Warrants.

         2. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.

         (a)  Generally.  Except as  otherwise  provided  in this  Section 2 and
subject to the satisfaction (or waiver) of the conditions set forth in Section 6
and Section 7 below,  each Fund shall  purchase the number of Debentures for the
Investment  Amountas  provided in this Section 2 and the Company  shall issue to
the Funds and Mercator the number of Debentures and Warrants as provided in this
Section 2.

         (b) Purchase of Debentures and Warrants; Form of Payment; Closing Date.

         (i) On the Closing Date (as defined below),  (A) the Company shall sell
and the Funds will  purchase  Debentures in the  aggregate  principal  amount of
$5,000,000,  and (B) the Company shall issue to the Funds and Mercator  Warrants
exercisable in the aggregate for Six Million Five Hundred Seventy-Eight Thousand
Nine Hundred  Forty-Seven  (6,578,947)  Shares. The allocation of the Debentures
and Warrants is set forth below.  On the Closing  Date,  each Fund shall pay the
Company an amount  equal to  sixty-five  (65%)  percent  such Fund's  Investment
Amount.  The  balance  of the  Investment  Amount  shall be paid  within two (2)
trading days after the Company files the Registration Statement (as that term is
defined in the Registration Rights Agreement).


----------------- ------------ ----------- ------------ ----------- ------------
                   Momentum     Momentum    Monarch      Mercator      Total
                     Fund       Fund III
----------------- ------------ ----------- ------------ ----------- ------------
Debentures         $1,270,000    $ 875,000   $2,855,000   $    --     $5,000,000
----------------- ------------ ----------- ------------ ----------- ------------

Warrants @ $0.80      417,763     287,829      939,145   1,644,737    3,289,474
----------------- ------------ ----------- ------------ ----------- ------------

Warrants @ $0.87      417,763     287,829      939,145   1,644,737    3,289,474
----------------- ------------ ----------- ------------ ----------- ------------


         (ii) On the Closing Date, each Fund shall pay sixty-five  (65%) percent
its  Investment  Amount to the Company  against  delivery by the Company of duly
executed  Debentures and Warrants being  purchased by such Fund,  Warrants being
issued to Mercator and all other items required to be delivered as conditions to
the closing under Section 7 below.



                                       2
<PAGE>

         (iii) Subject to the satisfaction (or waiver) of the conditions thereto
set forth in Section 6 and Section 7 below, the date and time of the sale of the
Debentures and the Warrants  pursuant to this Agreement (the "Closing") shall be
no later than 5:00 p.m.10:00 a.m.  California  time on November 18, 2004 or such
other date or time as  Mercator  and the Company may  mutually  agree  ("Closing
Date").  The Closing shall occur at the Los Angeles  offices of Mercator,  or at
such other place as Mercator and the Company may otherwise mutually agree.

         3. THE FUNDS' REPRESENTATIONS AND WARRANTIES.

         Each Fund  severally  and not jointly  represents  and  warrants to the
Company as follows:

         (a) Organization, Good Standing and Qualification. Each of the Momentum
Fund and Momentum  Fund III is a limited  partnership  duly  organized,  validly
existing and in good standing  under the laws of the State of California and has
all the requisite  power and authority to carry on its business as now conducted
and as proposed to be conducted.  Monarch is a  international  business  company
organized under the laws of the British Virgin Islands and has all the requisite
power and authority to carry on its business as now conducted and as proposed to
be conducted.

         (b) Purchase for Own Account. The Fund is purchasing the Securities for
the Fund's own account  and not with a present  view  towards  the  distribution
thereof.  The Fund understands that the Fund must bear the economic risk of this
investment  indefinitely,  unless the Securities are registered  pursuant to the
Securities  Act and any  applicable  state  securities  or blue  sky  laws or an
exemption  from such  registration  is  available,  and that the  Company has no
present  intention of registering any such Securities other than as contemplated
by the Registration Rights Agreement.  Notwithstanding  anything in this Section
3(b) to the contrary, by making the foregoing representation,  the Fund does not
agree to hold the Securities for any minimum or other specific term and reserves
the  right  to  dispose  of the  Securities  at any time in  accordance  with or
pursuant to a registration statement or an exemption from registration under the
Securities Act and any applicable state securities laws.

         (c) Information.  The Fund has been furnished all materials relating to
the business,  finances and operations of the Company and its  subsidiaries  and
materials  relating  to the offer and sale of the  Securities,  which  have been
requested  by the  Fund.  The Fund  has been  afforded  the  opportunity  to ask
questions  of the  Company  and  has  received  what  the  Fund  believes  to be
satisfactory  answers  to any  such  inquiries.  The Fund  understands  that its
investment  in the  Securities  involves  a high  degree of risk.  Neither  such
inquiries nor any other due diligence investigation conducted by the Fund or its
counsel or any of its representatives  shall modify,  amend or affect the Fund's
right to rely on the  Company's  representations  and  warranties  contained  in
Section 4 below.

         (d)  Governmental  Review.  The Fund  understands that no United States
federal  or state  agency or any other  government  or  governmental  agency has
passed upon or made any recommendation or endorsement of the Securities.



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<PAGE>

         (e) Accredited Investor Status. The Fund is an "Accredited Investor" as
that term is defined in Rule 501(a) of Regulation D.

         (f)  Authorization;  Enforcement.  The Fund has the requisite power and
authority to enter into and perform its obligations  under this Agreement and to
purchase the  Debentures  and the Warrants in accordance  with the terms hereof.
This Agreement has been duly and validly  authorized,  executed and delivered on
behalf of the Fund and is a valid and binding  agreement of the Fund enforceable
against the Fund in accordance with its terms, subject to applicable bankruptcy,
insolvency,  reorganization,  moratorium,  fraudulent  transfer  and other  laws
affecting  creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity).

         (g) Restrictions on Transfer. The Funds understand and acknowledge that
neither the  Debentures,  the  Warrants,  the  Debenture  Shares nor the Warrant
Shares have been registered under the Securities Act. Unless and until otherwise
permitted,  the Debentures and Warrants and each  certificate and other document
evidencing any of the Debenture Shares and Warrant Shares shall be endorsed with
the legend substantially in the following form:

"THESE  SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED,  AND MAY NOT BE SOLD,  PLEDGED  OR  OTHERWISE  TRANSFERRED  UNLESS  (A)
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, (B) IN COMPLIANCE
WITH RULE 144 UNDER SUCH ACT,  OR (C) THE  COMPANY  HAS BEEN  FURNISHED  WITH AN
OPINION OF COUNSEL  REASONABLY  ACCEPTABLE  TO THE COMPANY TO THE EFFECT THAT NO
REGISTRATION IS REQUIRED FOR SUCH TRANSFER."

         (h) Covenants of Funds Not to Short Stock; Volume Limitation. The Funds
and Mercator, on behalf of themselves and their affiliates,  hereby covenant and
agree not to, directly or indirectly,  offer to "short sell", contract to "short
sell" or  otherwise  "short  sell" the  securities  of the  Company,  including,
without limitation,  shares of Common Stock that will be received as a result of
the  conversion  of the  Debentures.  The  Funds  and  Mercator,  on  behalf  of
themselves and their  affiliates,  hereby covenant and agree not to, directly or
indirectly,  sell in the aggregate during any trading day shares of Common Stock
totaling more than 20% of the total shares of Common Stock traded on such day.

         4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY .

         The Company  represents and warrants to each Fund as follows and except
as set forth in the Company's  public  filings with the  Securities and Exchange
Commission:

         (a) Organization and  Qualification.  The Company is a corporation duly
organized  and  existing  under  the  laws of the  State of  Nevada  and has the
requisite  corporate power to own its properties and to carry on its business as
now being conducted.  The Company is duly qualified as a foreign  corporation to
do business and is in good standing in every jurisdiction in which the nature of
the business  conducted by it makes such  qualification  necessary and where the
failure so to qualify would have a Material  Adverse Effect.  Schedule 4(a) sets
forth  the  name of each  subsidiary  of the  Company  and its  jurisdiction  of
incorporation. The Company is the sole record and beneficial owner of all of the
outstanding equity securities of each such subsidiary.


                                       4
<PAGE>

         (b) Authorization; Enforcement. The Company has the requisite corporate
power and  authority  to enter  into and  perform  its  obligations  under  this
Agreement,  the Debentures,  the Warrants and the Registration Rights Agreement;
to issue the Debenture  Shares upon  conversion of the  Debentures in accordance
with the terms of the Debentures;  and to issue and sell the Warrant Shares upon
exercise  of the  Warrants in  accordance  with the terms of the  Warrants,  and
receipt of the exercise price.  The execution,  delivery and performance of this
Agreement, the Debentures, the Warrants and the Registration Rights Agreement by
the Company and the consummation by it of the transactions  contemplated  hereby
and thereby  (including,  without  limitation,  the reservation for issuance and
issuance of the Debenture  Shares and the  reservation for issuance and issuance
of the Warrant  Shares)  have been duly  authorized  by the  Company's  Board of
Directors and no further consent or authorization  of the Company,  its Board of
Directors or its shareholders is required. This Agreement has been duly executed
and delivered by the Company.  This Agreement  constitutes,  and, upon execution
and  delivery by the  Company and the other  parties  thereto,  the  Debentures,
Registration  Rights  Agreement  and the  Warrants  will  constitute,  valid and
binding obligations of the Company enforceable against the Company in accordance
with their  respective  terms,  subject to  applicable  bankruptcy,  insolvency,
reorganization,   moratorium,  fraudulent  transfer  and  other  laws  affecting
creditors' rights and remedies generally and to general principles of equity.

         (c)  Capitalization.  The capitalization of the Company and each of its
subsidiaries as of the date hereof is set forth on Schedule 4(c),  including the
authorized  capital  stock,  the number of shares  issued and  outstanding,  the
number of shares  issuable and reserved for issuance  pursuant to the  Company's
stock  option  plans,  the number of shares  issuable  and reserved for issuance
pursuant to securities  exercisable for, or convertible into or exchangeable for
any shares of capital stock. All of such outstanding shares of the capital stock
of the Company have been, or upon issuance will be, validly  issued,  fully paid
and  nonassessable.  Except as set forth on Schedule  4(c), no shares of capital
stock of the Company  (including the Debenture Shares and the Warrant Shares) or
any of the  subsidiaries  are subject to preemptive  rights or any other similar
rights of the shareholders of the Company or any liens or  encumbrances.  Except
for the  Securities  and as disclosed in Schedule  4(c),  as of the date of this
Agreement,  there  are  no  outstanding  options,  warrants,  scrip,  rights  to
subscribe  to, calls or  commitments  of any  character  whatsoever to which the
Company or any of the  subsidiaries  is a party  relating to the issuance by the
Company or any of its  subsidiaries of securities or rights  convertible into or
exercisable or  exchangeable  for, any shares of capital stock of the Company or
any of its  subsidiaries,  or  arrangements  by which the  Company or any of its
subsidiaries is or may become bound to issue additional  shares of capital stock
of the Company or such subsidiaries.  Except for piggyback  registration  rights
granted  pursuant to transactions  with prior investors (which includes the Form
SB-2  being  filed  in  connection  with the  Company's  February  2004  private
placement),  there are no agreements or arrangements  under which the Company or
any of its subsidiaries is obligated to register the sale of any of its or their
securities under the Securities Act (except the Registration  Rights Agreement).
Except as set forth on Schedule  4(c),  there are no securities  or  instruments
containing  antidilution  or similar  provisions  that may be  triggered  by the
issuance of the Securities in accordance with the terms of this  Agreement,  the
Debentures,  the Warrants or the Registration Rights Agreement.  (d) Issuance of
Shares.  The Debenture Shares are duly authorized and upon the conversion of the


                                       5
<PAGE>

Debentures in accordance with the terms thereof,  will be validly issued,  fully
paid and non-assessable, and free from all taxes, liens, claims and encumbrances
(other than those imposed through acts or omissions of the Funds),  and will not
be subject to preemptive  rights or other similar rights of  shareholders of the
Company and will not impose  personal  liability  upon the holder  thereof.  The
Warrant Shares are duly authorized and reserved for issuance, and, upon exercise
of the  Warrants  in  accordance  with the terms  thereof  and  receipts  of the
exercise price, will be validly issued,  fully paid and  non-assessable and free
from all taxes and liens,  claims and  encumbrances  (other  than those  imposed
through  acts or  omissions  of the Funds  thereof),  and will not be subject to
preemptive  rights or other similar  rights of  shareholders  of the Company and
will not impose personal liability upon the holder thereof.

         (e) No  Conflicts.  The  execution,  delivery and  performance  of this
Agreement, the Debentures, the Registration Rights Agreement and the Warrants by
the  Company,   and  the   consummation  by  the  Company  of  the  transactions
contemplated hereby and thereby (including,  without limitation, the reservation
for issuance and issuance of the Debenture Shares and the Warrant Shares and the
issuance of the Warrants) will not (i) conflict with or result in a violation of
the Articles of  Incorporation or By-laws or (ii) conflict with, or constitute a
default (or an event which, with notice or lapse of time or both, would become a
default)  under,  or  give to  others  any  rights  of  termination,  amendment,
acceleration or cancellation of any agreement,  indenture or instrument to which
the Company or any of its  subsidiaries  is a party, or result in a violation of
any law, rule,  regulation,  order,  judgment or decree (including (assuming the
accuracy of the  representations  and warranties of the Funds) the United States
federal and state securities laws and regulations)  applicable to the Company or
any of its  subsidiaries or by which any property or asset of the Company or any
of its subsidiaries is bound or affected  (except,  with respect to clause (ii),
for  such  conflicts,   defaults,   terminations,   amendments,   accelerations,
cancellations  and  violations as would not,  individually  or in the aggregate,
have a Material Adverse Effect). Neither the Company nor any of its subsidiaries
is  in  violation  of  its   Articles  of   Incorporation,   By-laws  and  other
organizational  documents and neither the Company nor any of its subsidiaries is
in default  (and no event has  occurred  which,  with notice or lapse of time or
both,  would put the Company or any of its  subsidiaries in default) under,  nor
has there  occurred  any event  giving  others  (with notice or lapse of time or
both) any rights of termination, amendment, acceleration or cancellation of, any
agreement,  indenture  or  instrument  to  which  the  Company  or  any  of  its
subsidiaries is a party, except for actual or possible  violations,  defaults or
rights as would not,  individually or in the aggregate,  have a Material Adverse
Effect.  The  businesses  of the  Company  and its  subsidiaries  are not  being
conducted in violation of any law,  ordinance or regulation of any  governmental
entity,  except for actual or possible  violations,  if any, the  sanctions  for
which  either  singly  or in the  aggregate  would not have a  Material  Adverse
Effect.  Except as  specifically  contemplated by this Agreement and as required
under the Securities Act and any applicable  state  securities laws, the Company
is not required to obtain any consent,  approval,  authorization or order of, or
make any filing or registration  with, any court or  governmental  agency or any
regulatory  or self  regulatory  agency in order for it to  execute,  deliver or
perform any of its obligations under this Agreement including without limitation
the  issuance  and  sale of the  Debentures  and  Warrants  as  provided  hereby
(including  without  limitation the issuance of the Debenture Shares and Warrant
Shares) or the Registration Rights Agreement.

         (f) SEC  Documents;  Financial  Statements.  Since January 1, 2001, the
Company has timely filed (subject to extensions permissible under Rule 12b-25 of
the Exchange Act) all reports,  schedules, forms, statements and other documents


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<PAGE>

required to be filed by it with the SEC pursuant to the  Securities and Exchange
Act of 1934,  as  amended  ("Exchange  Act"),  and has  filed  all  registration
statements and other documents  required to be filed by it with the SEC pursuant
to the 1933 Act (all of the  foregoing  filed prior to the date hereof,  and all
exhibits  included  therein and financial  statements and schedules  thereto and
documents  incorporated  by reference  therein,  being  hereinafter  referred to
herein as the "SEC Documents"). The Company has made available to each Fund true
and complete copies of the SEC Documents,  except for the exhibits and schedules
thereto and the documents  incorporated  therein.  As of their respective dates,
the SEC Documents complied in all material respects with the requirements of the
Exchange  Act or the  Securities  Act,  as the case may be,  and the  rules  and
regulations of the SEC promulgated  thereunder  applicable to the SEC Documents,
and  none of the SEC  Documents,  at the  time  they  were  filed  with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated  therein or necessary in order to make the statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading.  Any  statements  made in any  such SEC  Documents  that are or were
required to be updated or amended under  applicable  law have been so updated or
amended.  As of their respective dates, the financial  statements of the Company
included in the SEC Documents  complied in all material respects with applicable
accounting  requirements  and the  published  rules and  regulations  of the SEC
applicable with respect thereto. Such financial statements have been prepared in
accordance  with  United  States  generally  accepted   accounting   principles,
consistently  applied,  during  the  periods  involved  (except  (i)  as  may be
otherwise  indicated in such financial  statements or the notes thereto, or (ii)
in the case of unaudited interim statements,  to the extent they may not include
footnotes or may be condensed or summary  statements)  and fairly present in all
material  respects the  consolidated  financial  position of the Company and its
subsidiaries  as of the dates  thereof and the results of their  operations  and
cash  flows  for the  periods  then  ended  (subject,  in the case of  unaudited
statements,  to normal and recurring year-end audit adjustments).  Except as set
forth in the SEC  Documents,  the  Company  has no  liabilities,  contingent  or
otherwise,  other  than (i)  liabilities  incurred  in the  ordinary  course  of
business subsequent to the date of such SEC Documents and (ii) obligations under
contracts and  commitments  incurred in the ordinary  course of business and not
required under generally accepted accounting  principles to be reflected in such
SEC Documents,  which liabilities and obligations referred to in clauses (i) and
(ii),  individually  or in the  aggregate,  would  not have a  Material  Adverse
Effect.

         (g)  Absence  of  Certain  Changes.  Except  as  disclosed  in the  SEC
Documents,  there has been no change or development,  which,  individually or in
the aggregate, has had or could have a Material Adverse Effect on the Company.

         (h) Absence of  Litigation.  Except as disclosed in the SEC  Documents,
there is no action, suit, proceeding,  inquiry or investigation before or by any
court,  public board,  government agency,  self-regulatory  organization or body
pending or, to the knowledge of the Company, threatened against or affecting the
Company,  or any of its  subsidiaries,  or any of their directors or officers in
their capacities as such which would have a Material Adverse Effect.

         (i)  Intellectual  Property.  The Company and each of its  subsidiaries
owns  or is  licensed  to use  all  patents,  patent  applications,  trademarks,
trademark  applications,  trade  names,  service  marks,  copyrights,  copyright
applications,  licenses,  permits,  know-how  (including trade secrets and other


                                       7
<PAGE>

unpatented and/or unpatentable proprietary or confidential information,  systems
or procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles")  necessary for the conduct of its business as now being conducted
and as proposed to be conducted. Neither the Company nor any of its subsidiaries
has received  written notice that it is infringing  upon or in conflict with any
third party  Intangibles.  Neither the Company nor any of its  subsidiaries  has
entered  into any consent,  indemnification,  forbearance  to sue or  settlement
agreements  with respect to the validity of the  Company's or such  subsidiary's
ownership  or  right to use its  Intangibles.  The  Intangibles  are  valid  and
enforceable,  and no registration  relating thereto has lapsed,  expired or been
abandoned  or canceled or is the subject of  cancellation  or other  adversarial
proceedings, and all applications therefor are pending and in good standing. The
Company and its subsidiaries  have complied with their  contractual  obligations
relating to the protection of the Intangibles used pursuant to licenses.  To the
knowledge  of  the  Company,  no  person  is  infringing  on  or  violating  the
Intangibles owned or used by the Company or any of its subsidiaries.

         (j) Environment.  Except as disclosed in the SEC Documents (i) there is
no environmental liability, nor factors likely to give rise to any environmental
liability,  affecting  any  of  the  properties  of  the  Company  or any of its
subsidiaries  that  individually  or in the  aggregate,  would  have a  Material
Adverse  Effect and (ii)  neither the Company  nor any of the  subsidiaries  has
violated any  environmental  law  applicable  to it now or previously in effect,
other  than  such  violations  or  infringements  that,  individually  or in the
aggregate, have not had and will not have a Material Adverse Effect.

         (k) Title.  The Company and each of its  subsidiaries has good title in
fee  simple  to any and all real  property  that it owns  and good  title to all
personal property owned by it which is material to its business,  free and clear
of all liens,  encumbrances  and defects  except for such defects in title that,
individually or in the aggregate,  would not have a Material Adverse Effect. Any
real  property  and  facilities  held under  lease by the  Company or any of its
subsidiaries are held by the Company or such subsidiary under valid,  subsisting
and  enforceable  leases with such  exceptions,  which have not had and will not
have a Material Adverse Effect.

         (l) Insurance. The Company and its subsidiaries maintain such insurance
relating to their business,  operations,  assets, key-employees and officers and
directors as is appropriate to their business,  assets and  operations,  in such
amounts and against such risks as are customarily carried and insured against by
owners of  comparable  businesses,  assets and  operations,  and such  insurance
coverages  will be  continued  in full  force and  effect to and  including  the
Closing  Date  other  than  those  insurance  coverages  in respect of which the
failure to continue in full force and effect could not reasonably be expected to
have a Material Adverse Effect.

         (m) Acknowledgment Regarding the Fund's Purchase of the Securities. The
Company  acknowledges  and agrees  that  neither  Fund is acting as a  financial
advisor or is acting as a fiduciary of the Company (or in any similar  capacity)
with respect to this Agreement or the transactions  contemplated hereby, and the
relationship  between the  Company  and the Funds is "arms  length" and that any
statement made by any Fund or any of its representatives or agents in connection
with this Agreement and the transactions  contemplated hereby is not advice or a
recommendation  and is merely  incidental to such Fund's  purchase of Securities
and has not been relied upon by the  Company,  its  officers or directors in any
way. The Company further represents to the Funds that its decision to enter into
this  Agreement  has been  based  solely  on an  independent  evaluation  by the
Company.



                                       8
<PAGE>

         (n)  Brokers.  Except for a broker fee equal to 5.0% of the  Investment
Amount  and  450,000  Warrants  owed to KMR  Capital,  LLC,  and as set forth on
Schedule  4(n),  the  Company  has not  engaged  any  person to which or to whom
brokerage  commissions,  finder's  fees,  financial  advisory  fees  or  similar
payments  are or will  become  due in  connection  with  this  Agreement  or the
transactions  contemplated hereby except for Mercator,  whose administrative fee
will be paid by the Company.

         (o) Tax Status.  The Company and each of its  subsidiaries  has made or
filed all  material  federal,  state and local income and all other tax returns,
reports and  declarations  required by any  jurisdiction  to which it is subject
(unless and only to the extent that the Company or the applicable subsidiary has
set aside on its books  provisions  adequate  for the  payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental  assessments and
charges  that are  material  in amount,  shown or  determined  to be due on such
returns,  reports and  declarations,  except those being contested in good faith
and has set aside on its books provisions  adequate for the payment of all taxes
for  periods  subsequent  to the  periods  to which  such  returns,  reports  or
declarations  apply. There are no material unpaid taxes claimed to be due by the
taxing authority of any jurisdiction. The Company has not executed a waiver with
respect to any statute of  limitations  relating to the assessment or collection
of any federal,  state or local tax. None of the tax returns of the Company have
been or is being audited by any taxing authority.

         (p) No  General  Solicitation.  Neither  the  Company  nor  any  person
participating  on  its  behalf  in  the  transactions  contemplated  hereby  has
conducted any "general  solicitation" or "general advertising" as such terms are
used in  Regulation  D, with  respect  to any of the  Securities  being  offered
hereby.

         (q) Securities Laws. Neither the Company nor any of its affiliates, nor
any person acting on their behalf, has, directly or indirectly,  made any offers
or sales of any  security  or  solicited  any offers to buy any  security  under
circumstances  that would require  registration of the Securities  being offered
hereby  under the  Securities  Act or cause this  offering of  Securities  to be
integrated  with any prior offering of securities of the Company for purposes of
the Securities Act or any applicable stockholder approval provisions, including,
without  limitation,  Rule 4350(i) of the  National  Association  of  Securities
Dealers ("NASD") or any similar rule. The offer,  sale and delivery of shares of
Common Stock upon the  conversion of the  Debentures or exercise of the Warrants
will be exempt from the registration requirements of Section 5 of the Securities
Act.

         (r) SB-2 Eligibility. The Company is currently eligible to register the
resale of its Common  Stock on a  registration  statement on Form SB-2 under the
Securities  Act.  There  exist  no  facts or  circumstances  (including  without
limitation any required approvals or waivers of any circumstances that may delay
or prevent the obtaining of accountant's  consents) that would prohibit or delay
the preparation and filing of a registration statement on Form SB-2 with respect
to the Registrable Securities (as defined in the Registration Rights Agreement).

         (s) Disclosure.  All information  relating to or concerning the Company
and its  subsidiaries  set forth in this Agreement or otherwise  provided to the
Funds  in  connection  with the  transactions  contemplated  hereby  is true and
correct in all  material  respects  and the  Company and  subsidiaries  have not
omitted to state any material  fact  necessary  in order to make the  statements
made  herein or  therein,  in light of the  circumstances  under which they were
made, not misleading.



                                       9
<PAGE>

         (t)  Except as set forth on  Schedule  4(t),  none of the  officers  or
directors of the Company (i) has been convicted of any crime (other than traffic
violations  or  misdemeanors   not  involving   fraud)  or  is  currently  under
investigation  or indictment for any such crime,  (ii) has been found by a court
or governmental  agency to have violated any securities or commodities law or to
have  committed  fraud or is currently a party to any legal  proceeding in which
either  is  alleged,  (iii)  has been the  subject  of a  proceeding  under  the
bankruptcy  laws or any  similar  state  laws,  or  (iv)  has  been an  officer,
director,  general  partner,  or managing member of an entity which has been the
subject of such a proceeding.

         5. COVENANTS.

         (a)  Satisfaction  of  Conditions.  The  parties  shall use their  best
efforts  to  satisfy  in a timely  manner  each of the  conditions  set forth in
Section 6 and Section 7 of this Agreement.

         (b) Form D; Blue Sky  Laws.  The  Company  agrees to file a Form D with
respect to the Securities as required  under  Regulation D and to provide a copy
thereof to Mercator promptly after such filing.  The Company shall, on or before
the Closing Date, take such action as the Company shall reasonably  determine is
necessary to qualify the Securities for sale to the Funds and Mercator  pursuant
to  this  Agreement  under  applicable  securities  or  "blue  sky"  laws of the
applicable states of the United States or obtain exemption therefrom,  and shall
provide  evidence  of any such  action so taken to  Mercator  on or prior to the
Closing Date.

         (c)  Reporting  Status.  So  long  as  a  Fund  beneficially  owns  any
Securities  or has  the  right  to  acquire  any  Securities  pursuant  to  this
Agreement,  the Company shall timely file all reports  required to be filed with
the SEC pursuant to the Exchange  Act, and shall not  terminate its status as an
issuer  required to file reports under the Exchange Act even if the Exchange Act
or the rules and regulations thereunder would permit such termination.

         (d) Use of Proceeds.  The Company  shall use the net proceeds  from the
sale of the  Debentures  and the Warrants for the purposes set forth on Schedule
5(d);  and no portion of the net proceeds  shall be used to repay any promissory
notes due to officers or directors of the Company.

         (e) Due Diligence Fee and Expenses.  At the Closing,  the Company shall
(i) pay to Mercator a due diligence fee of $200,000; and (ii) reimburse Mercator
for $15,000 in legal expenses reasonably incurred by Mercator and its affiliates
in connection with the negotiation,  preparation, execution and delivery of this
Agreement,  the Debenture,  the Registration Rights Agreement,  the Warrants and
the other agreements to be executed in connection herewith,  including,  without
limitation,   in  conducting   Mercator's  and  its  affiliates'  and  advisors'
reasonable  due  diligence  and  Mercator's  and  its   affiliates'   reasonable
attorneys' fees and expenses (the "Expenses").

         (f) Reserved.

         (g) Reservation of Shares.  The Company has and shall at all times have
authorized  and  reserved  for the  purpose of issuance a  sufficient  number of
shares of Common  Stock to provide for the issuance of the Shares as provided in
Section 2 hereof,  and the full conversion of the Debentures and the issuance of
the Warrant Shares in connection  therewith and as otherwise required hereby and


                                       10
<PAGE>

by the  Warrants in  accordance  with the  Registration  Rights  Agreement.  The
Company  shall not  reduce  the number of shares of Common  Stock  reserved  for
issuance under this Agreement, the Debentures,  the Warrants (except as a result
of the issuance of the Warrant  Shares upon the exercise of the Warrants) or the
Registration Rights Agreement without the consent of the Funds and Mercator.

         (h) Listing.  On the Closing  Date,  the  Company's  Common Stock shall
trade on the NASD Over-the-Counter Bulletin Board ("OTC"). The Company shall use
its best  efforts  to  continue  trading  of its  Common  Stock  on the OTC,  or
alternatively,  the Nasdaq National Market System,  Nasdaq Small Cap Market, the
New York Stock Exchange ("NYSE") or the American Stock Exchange ("AMEX") (each a
"Subsequent  Market")  and  will  comply  in all  respects  with  the  Company's
reporting,  filing and other obligations under the bylaws or rules of the OTC or
a Subsequent Market, as applicable.

         (i)  Additional  Financing.   Within  one  hundred  twenty  (120)  days
following the Closing Date, the investment  committee for the Funds and Mercator
will consider making an additional equity or debt investment in the Company. For
one hundred  twenty (120) day following the Closing Date, the Funds and Mercator
shall have a right of first refusal on any financing in which the Company is the
issuer of debt or equity securities.

         (j) No Integrated  Offerings.  The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
Securities Act under the Registration  Statement being filed with respect to the
transaction  contemplated  hereby or cause this  offering  of  Securities  to be
integrated  with any other  offering  of  securities  by the  Company  under the
Registration Statement being filed with respect to the transaction  contemplated
hereby.

         6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

         The  obligation  of the Company  hereunder to issue and sell Shares and
Warrants to a Fund at the Closing hereunder is subject to the  satisfaction,  at
or  before  the  Closing  Date,  of each of the  following  conditions  thereto;
provided,  however, that these conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion.

         (a) The applicable  Fund shall have executed the signature page to this
Agreement and the Registration  Rights Agreement,  and delivered the same to the
Company.

         (b) The applicable Fund shall have delivered  sixty-five  (65%) percent
of such Fund's Investment  Amount in accordance with Section 2(b) above.  Within
two (2) trading days after the Registration Statement is filed with the SEC, the
Funds shall deliver to the Company the balance of the Investment Amount.

         (c) The  representations and warranties of the applicable Fund shall be
true and correct as of the date when made and as of the  Closing  Date as though
made at that time (except for  representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct as
of such date),  and the  applicable  Fund shall have  performed,  satisfied  and



                                       11
<PAGE>

complied in all material respects with the covenants,  agreements and conditions
required by this  Agreement to be  performed,  satisfied or complied with by the
applicable Fund at or prior to the Closing Date.

         (d) No statute,  rule,  regulation,  executive order,  decree,  ruling,
injunction;  action,  proceeding  or  interpretation  shall  have been  enacted,
entered, promulgated, endorsed or adopted by any court or governmental authority
of competent jurisdiction or any self-regulatory  organization,  or the staff of
any  thereof,  having  authority  over the  matters  contemplated  hereby  which
questions the validity of, or challenges or prohibits the  consummation  of, any
of the transactions contemplated by this Agreement.

         7.  CONDITIONS  TO EACH FUND'S  OBLIGATION TO PURCHASE  DEBENTURES  AND
WARRANTS.

         The  obligation  of each Fund  hereunder  to  purchase  Debentures  and
Warrants to be purchased by it hereunder is subject to the  satisfaction,  at or
before the Closing  Date,  of each of the  following  conditions,  provided that
these conditions are for such Fund's sole benefit and may be waived by such Fund
at any time in such Fund's sole discretion:

         (a) The  Company  shall  have  executed  the  signature  pages  to this
Agreement, the Debentures,  and delivered the same to Mercator on its own behalf
and on behalf of the Funds.

         (b) The Company shall have executed the signature pages of the Warrants
and the Registration Rights Agreement, and delivered the same to Mercator on its
own behalf and on behalf of the Funds.

         (c) The Shares shall be quoted on the OTC or  authorized  for quotation
or trading on a  Subsequent  Exchange  and shall not have been  suspended  or be
under threat of suspension by the SEC or the NASD.

         (d) The representations and warranties of the Company shall be true and
correct as of the date when made and as of the  Closing  Date as though  made at
that time (except for representations and warranties that speak as of a specific
date, which  representations and warranties shall be true and correct as of such
date) and the  Company  shall have  performed,  satisfied  and  complied  in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing Date.  Mercator  shall have  received a  certificate  executed on
behalf of the Company by its Chief  Financial  Officer,  dated as of the Closing
Date,  to the  foregoing  effect and  attaching  true and correct  copies of the
resolutions  adopted by the Board of  Directors of the Company  authorizing  the
execution, delivery and performance by the Company of its obligations under this
Agreement, the Debentures, the Warrants and the Registration Rights Agreement.

         (e) No statute,  rule,  regulation,  executive order,  decree,  ruling,
injunction,  action,  proceeding  or  interpretation  shall  have been  enacted,
entered, promulgated, endorsed or adopted by any court or governmental authority
of competent jurisdiction or any self-regulatory  organization,  or the staff of
any  thereof,  having  authority  over the  matters  contemplated  hereby  which
questions the validity of, or challenges or prohibits the  consummation  of, any
of the transactions contemplated by this Agreement.



                                       12
<PAGE>

         (f) From the date of this  Agreement  through the Closing  Date,  there
shall not have occurred any Material Adverse Effect.

         8. GOVERNING LAW MISCELLANEOUS.

         (a) Governing Law;  Jurisdiction.  This Agreement  shall be governed by
and construed in accordance with the laws of the State of California  applicable
to contracts  made and to be performed in the State of  California.  Each of the
parties  irrevocably  consents to the  jurisdiction of the United States federal
courts and the state courts  located in the State of  California  in any suit or
proceeding based on or arising under this Agreement and irrevocably  agrees that
all claims in  respect  of such suit or  proceeding  may be  determined  in such
courts.  Each of the parties  irrevocably  waives the defense of an inconvenient
forum to the maintenance of such suit or proceeding. Each of the parties further
agrees that service of process upon such party mailed by first class mail to the
address  set forth in Section  8(f) shall be deemed in every  respect  effective
service  of  process  upon such  party in any such suit or  proceeding.  Nothing
herein  shall  affect the right of a Fund or  Mercator  to serve  process in any
other  manner  permitted  by  law.  Each  of the  parties  agrees  that a  final
non-appealable  judgment in any such suit or proceeding  shall be conclusive and
may be enforced in other  jurisdictions by suit on such judgment or in any other
lawful manner.

         (b)  Counterparts.  This  Agreement  may be  executed  in  two or  more
counterparts,  all of which shall be considered  one and the same  agreement and
shall  become  effective  when  counterparts  have been signed by each party and
delivered to the other party.  This Agreement,  once executed by a party, may be
delivered to the other  parties  hereto by facsimile  transmission  of a copy of
this Agreement  bearing the signature of the party so delivering this Agreement.
In the event any  signature is delivered  by facsimile  transmission,  the party
using such means of delivery shall cause the manually executed Execution Page(s)
hereof to be physically delivered to the other party within five (5) days of the
execution hereof.

         (c) Headings.  The headings of this  Agreement are for  convenience  of
reference  and shall not form part of, or affect  the  interpretation  of,  this
Agreement.

         (d)  Severability.  If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction,  such invalidity or unenforceability shall
not affect the validity or  enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.

         (e)  Entire  Agreement;  Amendments;  Waiver.  This  Agreement  and the
instruments  referenced  herein contain the entire  understanding of the parties
with  respect  to  the  matters  covered  herein  and  therein  and,  except  as
specifically set forth herein or therein, neither the Company nor the Funds make
any  representation,  warranty,  covenant or  undertaking  with  respect to such
matters.  No provision of this  Agreement may be waived or amended other than by
an instrument in writing  signed by the Company and by the Funds.  Any waiver by
the Funds,  on the one hand,  or the Company,  on the other hand, of a breach of
any  provision  of this  Agreement  shall not operate as or be construed to be a
waiver  of any  other  breach of such  provision  of or any  breach of any other
provision of this  Agreement.  The failure of the Funds, on the one hand, or the
Company,  on the other hand to insist upon strict  adherence to any term of this
Agreement on one or more  occasions  shall not be considered a waiver or deprive
that party of the right  thereafter to insist upon strict adherence to that term
or any other term of this Agreement.



                                       13
<PAGE>

         (f)  Notices.  Any notices  required or permitted to be given under the
terms of this  Agreement  shall be sent by certified or registered  mail (return
receipt  requested)  or  delivered  personally  or by  courier  or by  confirmed
telecopy,  and shall be effective  five days after being placed in the mail,  if
mailed,  or upon receipt or refusal of receipt,  if delivered  personally  or by
courier or confirmed telecopy,  in each case addressed to a party. The addresses
for such communications shall be:

If to the Company

         Tidlands Oil & Gas Corporation
         1862 West Bitters, Building #1
         San Antonio, Texas 78248
         Attention: President
         Telephone: (210) 764-8642
         Fax: 210-764-2809

With a copy to
         Greg Wilson
         18610 East 32nd Ave.
         Greenacres, Washington 99016
         Telephone: 509-891-8373
         Fax: _________________

If to a Fund or Mercator

Mercator Advisory Group, LLC
         555 South Flower Street
         Suite 4500
         Los Angeles, CA 90071
         Telephone No.: (213) 533-8288
         Facsimile No.: (213) 533-8285
         Attention: David Firestone

With a copy to

Sheppard Mullin Richter & Hampton LLP
         333 South Hope Street
         48th Floor
         Los Angeles, CA 90071-1448
         Telephone No.: (213) 620-1780
         Facsimile No.: (213) 620-1398
         Attention:  David C. Ulich

Each party hereto may from time to time change its address or  facsimile  number
for notices under this Section 8 by giving at least ten (10) days' prior written
notice of such changed address or facsimile  number, in the case of the Funds to
the Company, and in the case of the Company to all of the Funds and Mercator.



                                       14
<PAGE>

         (g)  Successors and Assigns.  This Agreement  shall be binding upon and
inure to the  benefit of the  parties  and their  successors  and  assigns.  The
Company shall not assign this Agreement or any rights or  obligations  hereunder
without the prior written consent of each of the Funds.

         (h) Third Party  Beneficiaries.  This  Agreement  is  intended  for the
benefit of the parties  hereto and their  respective  permitted  successors  and
assigns,  and is not for the benefit of nor may any provision hereof be enforced
by any other person.

         (i) Survival. The representations and warranties of the Company and the
agreements   and   covenants   of  the   Company   shall   survive  the  Closing
notwithstanding any due diligence investigation conducted by or on behalf of the
Funds and Mercator. Moreover, none of the representations and warranties made by
the  Company  herein  shall act as a waiver of any rights or  remedies a Fund or
Mercator may have under applicable federal or state securities laws. The Company
agrees to indemnify  and hold  harmless each Fund and Mercator and each of their
managers,  officers,  directors,   employees,   partners,  members,  agents  and
affiliates  for loss or damage  relating to the Securities  purchased  hereunder
arising as a result of or  related  to any  breach by the  Company or any of its
representations or covenants set forth herein, including advancement of expenses
as they are incurred.

         (j) Further Assurances. Each party shall do and perform, or cause to be
done and  performed,  all such  further acts and things,  and shall  execute and
deliver all such other agreements,  certificates,  instruments and documents, as
the other  party may  reasonably  request  in order to carry out the  intent and
accomplish  the  purposes  of  this  Agreement  and  the   consummation  of  the
transactions contemplated hereby.

         (k)  Termination.  In the event  that the  Closing  Date shall not have
occurred on or before  November 29, 2004,  unless the parties  agree  otherwise,
this  Agreement  shall  terminate  at  the  close  of  business  on  such  date.
Notwithstanding  any termination of this  Agreement,  any party not in breach of
this  Agreement  shall  preserve  all rights and  remedies  it may have  against
another party hereto for a breach of this Agreement  prior to or relating to the
termination hereof.

         (l) Joint  Participation in Drafting.  Each party to this Agreement has
participated in the negotiation and drafting of this Agreement,  the Debentures,
the Registration Rights Agreement,  and the Warrants. As such, the language used
herein and  therein  shall be deemed to be the  language  chosen by the  parties
hereto to express their mutual intent,  and no rule of strict  construction will
be applied against any party to this Agreement, the Debentures, the Registration
Rights Agreement, or the Warrants.

         (m) Equitable  Relief.  Each party  acknowledges that a breach by it of
its obligations  hereunder will cause  irreparable  harm to the other parties by
vitiating  the  intent  and  purpose of the  transactions  contemplated  hereby.
Accordingly,  each party acknowledges that the remedy at law for a breach of its
obligations hereunder will be inadequate and agrees, in the event of a breach or
threatened  breach by such party of the provisions of this  Agreement,  that the
other parties shall be entitled, in addition to all other available remedies, to
an  injunction  restraining  any breach and  requiring  immediate  issuance  and
transfer, without the necessity of showing economic loss and without any bond or
other security being required.



                                       15
<PAGE>

         (n) Determinations.  Except as otherwise expressly provided herein, all
consents, approvals and other determinations to be made by the Funds pursuant to
this  Agreement and all waivers and  amendments to or of any  provisions in this
Agreement  prior to the Closing  Date to be binding upon a Fund shall be made by
such Fund and except as  otherwise  expressly  provided  herein,  all  consents,
approvals  and other  determinations  (other  than  amendments  to the terms and
provisions of this Agreement) to be made by the Funds pursuant to this Agreement
and all waivers and amendments to or of any  provisions in this Agreement  after
the Closing Date shall be made by the Funds.

         (o) Costs and  Attorneys'  Fees.  If any  action at law or in equity is
necessary to enforce or interpret the terms of this Agreement,  the Registration
Rights  Agreement or any of the Debentures or Warrants,  the prevailing party or
parties shall be entitled to receive from the other party or parties  reasonable
attorneys'  fees,  costs and  necessary  disbursements  in addition to any other
relief to which the prevailing party or parties may be entitled.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]























                                       16
<PAGE>

         IN WITNESS  WHEREOF,  the parties have caused this Agreement to be duly
executed as of the date first above written.

Company:

Tidelands Oil & Gas Corporation

By:
Name:
Title:

The Funds:                                          Mercator:
Mercator Momentum Fund LP                        Momentum Advisory Group, LLC
Mercator Advisory Group, LLC,
General Partner:
By:                                              By:
   -----------------------------                    ----------------------------
Name:    David Firestone                         Name:    David Firestone
Title:   Managing Member                         Title:   Managing Member




Mercator Momentum Fund III                       Monarch Pointe Fund, Ltd.
Mercator Advisory Group, LLC,
General Partner:
By:                                              By:
   -----------------------------                    ----------------------------
Name:    David Firestone                         Name:   David Firestone
Title:   Managing Member                         Title:  President













                                       17
<PAGE>

                              DISCLOSURE SCHEDULES