**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      DC 20549





**FORM
      10-QSB**





[X]
            Quarterly
                Report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934For
                the quarterly period endedMarch
                31, 2006[]
            Transition
                Report pursuant to 13 or 15(d) of the Securities Exchange Act of
                1934For
                the transition period _________ to __________Commission
                file number333-82636





Delta
      Oil & Gas, Inc.


(Exact
      name of small business issuer as specified in its charter)





Colorado
            91-2102350(State
                or other jurisdiction of incorporation or organization)
            (IRS
                Employer Identification No.)





1122
                6thAvenue North
              Seattle,
                Washington 98109(Address
                of principal executive offices)





(866)
                355 - 3644(Issuer’s
                telephone number)__________________________________________________________________(Former
                name, former address and former fiscal year, if changed since last
                report)





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
      (or
      for such shorter period that the issuer was required to file such reports),
      and
      (2) has been subject to such filing requirements for the past 90 days [X] Yes
      [
      ] No





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). [ ] Yes [X] No





State
      the
      number of shares outstanding of each of the issuer’s classes of common stock, as
      of the latest practicable date: 45,070,506 common shares as of May 1,
      2006





Transitional
      Small Business Disclosure Format (check one): Yes [ ] No [X]




Table
          of Contents





TABLE
                OF CONTENTS
            PagePART
                I - FINANCIAL INFORMATIONItem
                1.
            Financial
                Statements
            3Item
                2.
            Management’s
                Discussion and Analysis
            4Item
                3.
            Controls
                and Procedures
            11PART
                II - OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            12Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            12Item
                3.
            Defaults
                Upon Senior Securities
            12Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            12Item
                5.
            Other
                Information
            12Item
                6.
            Exhibits
            13







2
 Table
          of Contents


**PART
      I - FINANCIAL INFORMATION**




**Item
      1. Financial Statements**




Our
                unaudited financial statements included in this Form 10-QSB are as
                follows:F-1
            Unaudited
                Consolidated Balance Sheets for the three months
                ended March 31, 2006;F-2
            Unaudited
                Consolidated Statements of Operations for the three
                months ended March 31, 2006;F-3
            Unaudited
                Consolidated Statements of Cash Flows for the three
                months ended March 31, 2006;F-4
            Notes
                to Unaudited Consolidated Financial
                Statements








These
      unaudited consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of America
      for interim financial information and the SEC instructions to Form 10-QSB.
      In
      the opinion of management, all adjustments considered necessary for a fair
      presentation have been included. Operating results for the interim period ended
      March 31, 2006 are not necessarily indicative of the results that can be
      expected for the full year.




3
 Table
          of Contents






**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**CONSOLIDATED
      BALANCE SHEETS**


**(Unaudited)**


**(Stated
      in U.S. Dollars)**


**MARCH
                  31**
              DECEMBER
                  31**2006**
              2005**ASSETS****Current**Cashand cash equivalents
              **$**
              **1,843,650**
              $
              343,004Accounts
                  receivable
              
              **8,102**
              
              10,068Prepaid
                  expenses
              
              **7,414**
              
              1,615**1,859,166**
              
              354,687**Natural
                  Gas And Oil Properties**Proved
                  property
              
              **1,272**
              
              1,272Unproved
                  properties
              
              **2,590,816**
              
              2,040,700**2,592,088**
              
              2,041,972**Other
                  Equipment**Computer
                  equipment
              
              **3,492**
              
              3,492Less:
                  Accumulated depreciation
              
              **(2,186)**
              
              (2,033)**1,306**
              
              1,459**$**
              **4,452,560**
              $
              2,398,118**LIABILITIES****Current**Accounts
                  payableand accrued liabilities
              **$**
              **40,072**
              $
              93,318Promissory
                  note payable
              
              **39,933**
              
              39,397**80,005**
              
              132,715**Commitment
                  And Contractual Obligations**(Note 11)**STOCKHOLDERS’
                  EQUITY****Share
                  Capital**Authorized:100,000,000
                  common voting shares, par value $0.001 per share25,000,000
                  preferred shares, par value $0.001 per shareIssued
                  and outstanding:44,343,235
                  common shares at March 31, 2006 and
                44,025,735
                  common shares at December 31, 2005
              
              **44,343**
              
              44,026Additional
                  paid-in capital
              
              **3,372,765**
              
              3,110,591Share
                  subscriptions received
              
              **1,999,995**
              
              -Share
                  subscriptions receivable
              
              **-**
              
              (16,000)**Deficit
                  Accumulated During The Development Stage**
              
              **(1,044,548)**
              
              (873,214)**4,372,555**
              
              2,265,403**$**
              **4,452,560**
              $
              2,398,118




The
      accompanying notes are an integral part of these consolidated financial
      statements.






F-1
 Table
          of Contents




**DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **CONSOLIDATED
          STATEMENTS OF OPERATIONS**
 **(Unaudited)**
 **(Stated
          in U.S. Dollars)**
 CUMULATIVEPERIOD
                      FROMINCEPTIONJANUARY
                      9**THREE
                      MONTHS ENDED**
                  
                  
                  2001
                      TO**MARCH
                      31**
                  
                  
                  MARCH
                      31**2006**
                  
                  
                  2005
                  
                  
                  2006**Revenue**Natural
                      gas and oil sales
                  **$**
                  **2,188**
                  
                  $
                  1,936
                  
                  $
                  96,318**Costs
                      And Expenses**Natural
                      gas and oil operating
                    expenses
                  
                  **761**
                  
                  
                  1,322
                  
                  
                  35,530General
                      and administration
                  
                  **170,581**
                  
                  
                  34,826
                  
                  
                  511,092Depreciation
                      and depletion
                  
                  **153**
                  
                  
                  -
                  
                  
                  37,757Impairment
                      ofnatural
                      gas and gas
                    properties
                  
                  **-**
                  
                  
                  -
                  
                  
                  65,503Dry
                      well costs written off
                  
                  **-**
                  
                  
                  -
                  
                  
                  118,690Stock-based
                      compensation
                  
                  **5,991**
                  
                  
                  -
                  
                  
                  376,258**177,486**
                  
                  
                  36,148
                  
                  
                  1,144,830Less:
                      Interestincome
                  
                  **(3,964)**
                  
                  
                  -
                  
                  
                  (3,964)**173,522**
                  
                  
                  36,148
                  
                  
                  1,140,866**Net
                      Loss For The Period**
                  **$**
                  **(171,334)**
                  
                  $
                  (34,212)
                  
                  $
                  (1,044,548)**Basic
                      And Diluted Loss Per Common Share**
                  **$**
                  **(0.00)**
                  
                  $
                  (0.00)**Weighted
                      Average Number Of Outstanding Common Shares**
                  
                  **44,269,263**
                  
                  
                  41,296,750
  The
        accompanying notes are an integral part of these consolidated financial
        statements.








F-2
 Table
          of Contents




**DELTA
        OIL & GAS, INC.**
 **(A
        Development Stage Company)**
 
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(Unaudited)**
 **(Stated
        in U.S. Dollars)**




CUMULATIVEPERIOD
                  FROMINCEPTIONJANUARY
                  9**THREE
                  MONTHS ENDED**
              2001
                  TO**MARCH
                  31**
              MARCH
                  31**2006**
              2005
              2006**Cash
                  Flows****(Used
                  By) Operating Activities**Net
                  loss for the period
              **$**
              **(171,334)**
              $
              (34,212)
              $
              (1,044,548)Items
                  not involving cash:Depreciation
                  and depletion
              
              **153**
              
              -
              
              37,757Impairment
                  of natural gas and oil properties
              
              **-**
              
              -
              
              65,503Dry
                  well costs written off
              
              **-**
              
              -
              
              118,690Stock-based
                  compensation
              
              **5,991**
              
              -
              
              376,258**(165,190)**
              
              (34,212)
              
              (446,340)Changes
                  in non-cash operating working capital items:Accounts
                  receivable
              
              **(1,966)**
              
              (369)
              
              (8,102)Accounts
                  payableand accrued liabilities
              
              **(53,246)**
              
              10,579
              
              40,072Accrued
                  interest payable
              
              **-**
              
              (17,362)
              
              (11,396)Prepaid
                  expenses
              
              **(5,799)**
              
              (1,071)
              
              (7,414)**(57,079)**
              
              (8,223)
              
              13,160**Net
                  Cash****(Used
                  By) Operating Activities**
              
              **(222,269)**
              
              (42,435)
              
              (433,180)**Cash
                  Flows****(Used
                  By) Investing Activities**Purchase
                  of natural gas and oil properties
              
              **(550,116)**
              
              (962,038)
              
              (2,811,852)Purchase
                  of other equipment
              
              **-**
              
              (1,751)
              
              (3,492)**Net
                  Cash****(Used
                  By) Investing Activities**
              
              **(550,116)**
              
              (963,789)
              
              (2,815,344)**Cash
                  Flows From Financing Activities**Issue
                  of common stockand units, net
              
              **256,500**
              
              -
              
              3,040,850Share
                  subscriptions received
              
              **1,999,995**
              
              1,140,000
              
              1,999,995Share
                  subscriptions receivable
              
              **16,000**
              
              -
              
              -Due
                  to related party
              
              **-**
              
              (13,122)
              
              2,919Advances
                  payable
              
              **-**
              
              (7,974)
              
              8,477Promissory
                  note payable
              
              **536**
              
              529
              
              39,933**Net
                  Cash From Financing Activities**
              
              **2,273,031**
              
              1,119,433
              
              5,092,174**Increase
                  (Decrease) In Cash****And Cash Equivalents**
              
              **1,500,646**
              
              113,209
              
              1,843,650**Cash****And
                  Cash Equivalents (Excess Of Checks Issued Over Funds On Deposit),
                  Beginning Of Period**
              
              **343,004**
              
              (5,283)
              
              -**Cash****And
                  Cash Equivalents (Excess Of Checks Issued Over Funds On Deposit),
                  End Of
                  Period**
              **$**
              **1,843,650**
              $
              107,926
              $
              1,843,650**Supplemental
                  disclosure of cash flow information:**Cash
                  paid during the period for:Interest
              **$**
              **-**
              $
              -
              $
              -Income
                  taxes
              **$**
              **-**
              $
              -
              $
              -




The
      accompanying notes are an integral part of these consolidated financial
      statements.






F-3
 Table
          of Contents




**DELTA
            OIL & GAS, INC.**
 **(A
            Development Stage Company)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
            31, 2006**
 **(Unaudited)**
 **(Stated
            in U.S. Dollars)**
 
 
 
 **1.**
                  **BASIS
                      OF PRESENTATION**
 
 The
            unaudited consolidated financial statements as of March 31, 2006 included
            herein
            have been prepared without audit pursuant to the rules and regulations
            of the
            Securities and Exchange Commission. Certain information and footnote
            disclosures
            normally included in financial statements prepared in accordance with
            United
            States generally accepted accounting principles have been condensed or
            omitted
            pursuant to such rules and regulations. In the opinion of management,
            all
            adjustments (consisting of normal recurring accruals) considered necessary
            for a
            fair presentation have been included. It is suggested that these consolidated
            financial statements be read in conjunction with the December 31, 2005
            audited
            financial statements and notes thereto.
 
 
 **2.**
                  **OPERATIONS**
 
 a)
                  Organization
 
 Delta
            Oil
& Gas, Inc. (“the Company”) was incorporated as a Colorado corporation on
            January 9, 2001.
 
 The
            Company is a development stage, independent natural gas and oil company
            engaged
            in the exploration, development and acquisition of natural gas and oil
            properties in the United States. The Company’s entry into the natural gas and
            oil business began on February 8, 2001.
 
 During
            the year ended December 31, 2004, the Company completed a forward stock
            split on
            the basis of 5 1⁄2 common shares for every one previously held common share,
            common shares outstanding have been adjusted retroactively.
 
 b)
                  Development
                      Stage Activities
 
 The
            Company is a development stage enterprise engaged in the exploration
            for and
            production of natural gas and oil in the United States. Since January
            9, 2001,
            the Company has acquired an 8.9% working interest in a well which commenced
            production in February 2001.
  F-4
 Table
              of Contents
  **DELTA
            OIL & GAS, INC.**
 **(A
            Development Stage Company)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
            31, 2006**
 **(Unaudited)**
 **(Stated
            in U.S. Dollars)**
 
 
 
 **2.**
                  **OPERATIONS**(Continued)
 
 b)
                  Development
                      Stage Activities (Continued)
 
 The
            Company is subject to several categories of risk associated with its
            development
            stage activities. Natural gas and oil exploration and production is a
            speculative business, and involves a high degree of risk. Among the factors
            that
            have a direct bearing on the Company’s prospects are uncertainties inherent in
            estimating natural gas and oil reserves, future hydrocarbon production,
            and cash
            flows, particularly with respect to wells that have not been fully tested
            and
            with wells having limited production histories; access to additional
            capital;
            changes in the price of natural gas and oil; availability and cost of
            services
            and equipment; and the presence of competitors with greater financial
            resources
            and capacity.
 
 c)
                  Going
                      Concern
 
 The
            accompanying financial statements have been prepared assuming that the
            Company
            will continue as a going concern.
 
 As
            shown
            in the accompanying financial statements, the Company has incurred a
            net loss of
            $1,044,548 since inception. To achieve profitable operations, the Company
            requires additional capital for obtaining producing oil and gas properties
            through either the purchase of producing wells or successful exploration
            activity. Management believes that sufficient funding will be available
            to meet
            its business objectives including anticipated cash needs for working
            capital and
            is currently evaluating several financing options. However, there can
            be no
            assurance that the Company will be able to obtain sufficient funds to
            continue
            the development of and, if successful, to commence the sale of its products
            under development. As a result of the foregoing, there exists substantial
            doubt
            about the Company’s ability to continue as a going concern. These financial
            statements do not include any adjustments that might result from the
            outcome of
            this uncertainty.
  **3.**
                  **SUMMARY
                      OF SIGNIFICANT ACCOUNTING
                      POLICIES**
 
 a)
                  Basis
                      of Consolidation
 
 The
            consolidated financial statements include the financial statements of
            the
            Company and its wholly-owned subsidiary, Delta Oil & Gas (Canada) Inc. All
            significant inter-company transactions have been eliminated.
  F-5
 Table
              of Contents
  **DELTA
            OIL & GAS, INC.**
 **(A
            Development Stage Company)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
            31, 2006**
 **(Unaudited)**
 **(Stated
            in U.S. Dollars)**
 
 
 
 **3.**
                  **SUMMARY
                      OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)
 
 b)
                  Use
                      of Estimates
 
 The
            preparation of financial statements in conformity with accounting principles
            generally accepted in the United States requires management to make estimates
            and assumptions that affect the reported amounts of assets and liabilities,
            and
            disclosure of contingent assets and liabilities at the date of the financial
            statements, and the reported amounts of revenues and expenses during
            the
            reporting periods. Actual results could differ from those estimates.
            Significant
            estimates with regard to these financial statements include the estimate
            of
            proved natural gas and oil reserve quantities and the related present
            value of
            estimated future net cash flows therefrom (see “Supplemental Oil and Gas
            Disclosures - Unaudited”).
 
 c)
                  Natural
                      Gas and Oil Properties
 
 The
            Company accounts for its oil and gas producing activities using the full
            cost
            method of accounting as prescribed by the United States Securities and
            Exchange
            Commission (“SEC”). Accordingly, all costs associated with the acquisition of
            properties and exploration with the intent of finding proved oil and
            gas
            reserves contribute to the discovery of proved reserves, including the
            costs of
            abandoned properties, dry holes, geophysical costs, and annual lease
            rentals are
            capitalized. All general corporate costs are expensed as incurred. In
            general,
            sales or other dispositions of oil and gas properties are accounted for
            as
            adjustments to capitalized costs, with no gain or loss recorded. Amortization
            of
            evaluated oil and gas properties is computed on the units of production
            method
            based on all proved reserves on a country-by-country basis. Unevaluated
            oil and
            gas properties are assessed at least annually for impairment either individually
            or on an aggregate basis. The net capitalized costs of evaluated oil
            and gas
            properties (full cost ceiling limitation) are not to exceed their related
            estimated future net revenues discounted at 10%, and the lower of cost
            or
            estimated fair value of unproved properties, net of tax
            considerations.
  F-6
 Table
              of Contents
  **DELTA
            OIL & GAS, INC.**
 **(A
            Development Stage Company)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
            31, 2006**
 **(Unaudited)**
 **(Stated
            in U.S. Dollars)**
 
 
 
 **3.**
                  **SUMMARY
                      OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)
 
 d)
                Asset
                    Retirement Obligations 
 The
            Company has adopted Statement of Financial Accounting Standards No. 143
            (“SFAS
            143”), “Accounting for Asset Retirement Obligations”, which requires that asset
            retirement obligations (“ARO”) associated with the retirement of a tangible
            long-lived asset, including natural gas and oil properties, be recognized
            as
            liabilities in the period in which it is incurred and becomes determinable,
            with
            an offsetting increase in the carrying amount of the associated assets.
            The cost
            of tangible long-lived assets, including the initially recognized ARO,
            is
            depleted, such that the cost of the ARO is recognized over the useful
            life of
            the assets. The ARO is recorded at fair value, and accretion expense
            is
            recognized over time as the discounted are accreted to the expected settlement
            value. The fair value of the ARO is measured using expected future cash
            flow,
            discounted at the Company’s credit-adjusted risk-free interest rate. To date,
            insufficient information has been available for management to determine
            the
            Company’s asset retirement obligations, which primarily relates to the plugging
            and abandonment of its wells. Accordingly, no liabilities have been
            recorded.
 
 e)
                  Joint
                      Ventures
 
 All
            exploration and production activities are conducted jointly with others
            and,
            accordingly, the accounts reflect only the Company’s proportionate interest in
            such activities.
 
 f)
                  Revenue
                      Recognition
 
 The
            Company uses the sales method of accounting for natural gas and oil revenues.
            Under this method, revenues are recognized upon the passage of title,
            net of
            royalties. Revenues from natural gas production are recorded using the
            sales
            method. When sales volumes exceed the Company’s entitled share, an overproduced
            imbalance occurs. To the extent the overproduced imbalance exceeds the
            Company’s
            share of the remaining estimated proved natural gas reserves for a given
            property, the Company records a liability. At March 31, 2006, the Company
            had no
            overproduced imbalances.
 
 g)
                  Cash
                      and Cash Equivalent
 
 Cash
            consists of cash on deposit with high quality major financial institutions,
            and
            to date has not experienced losses on any of its balances. The carrying
            amounts
            approximated fair market value due to the liquidity of these
            deposits.
  F-7
 Table
              of Contents
  **DELTA
            OIL & GAS, INC.**
 **(A
            Development Stage Company)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
            31, 2006**
 **(Unaudited)**
 **(Stated
            in U.S. Dollars)**
 
 
 
 **3.**
                  **SUMMARY
                      OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)
 
 h)  Environmental
            Protection and Reclamation Costs
 
 The
            operations of the Company have been, and may be in the future be affected
            from
            time to time in varying degrees by changes in environmental regulations,
            including those for future removal and site restorations costs. Both
            the
            likelihood of new regulations and their overall effect upon the Company
            may vary
            from region to region and are not predictable.
 
 The
            Company’s policy is to meet or, if possible, surpass standards set by relevant
            legislation, by application of technically proven and economically feasible
            measures. Environmental expenditures that relate to ongoing environmental
            and
            reclamation programs will be charged against statements of operations
            as
            incurred or capitalized and amortized depending upon their future economic
            benefits. The Company does not currently anticipate any material capital
            expenditures for environmental control facilities because all property
            holdings
            are at early stages of exploration. Therefore, estimated future removal
            and site
            restoration costs are presently considered minimal.
 
 i)  Foreign
            Currency Translation
 
 United
            States funds are considered the Company’s functional currency. Transaction
            amounts denominated in foreign currencies are translated into their United
            States dollar equivalents at exchange rates prevailing at the transaction
            date.
            Monetary assets and liabilities are adjusted at each balance sheet date
            to
            reflect exchange rates prevailing at that date, and non-monetary assets
            and
            liabilities are translated at the historical rate of exchange. Gains
            and losses
            arising from restatement of foreign currency monetary assets and liabilities
            at
            each year-end are included in statements of operations.
 
 j)
                  Other
                      Equipment
 
 Computer
            equipment is stated at cost. Provision for depreciation on computer equipment
            is
            calculated using the straight-line method over the estimated useful life
            of
            three years.
 
 k)
                  Impairment
                      of Long-Lived Assets
 
 In
            the
            event that facts and circumstances indicate that the costs of long-lived
            assets,
            other than oil and gas properties, may be impaired, and evaluation of
            recoverability would be performed. If an evaluation is required, the
            estimated
            future undiscounted cash flows associated with the asset would be compared
            to
            the asset’s carrying amount to determine if a write-down to market value or
            discounted cash flow value is required. Impairment of oil and gas properties
            is
            evaluated subject to the full cost ceiling as described under Oil and
            Gas
            Properties.
  F-8
 Table
              of Contents
  **DELTA
            OIL & GAS, INC.**
 **(A
            Development Stage Company)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
            31, 2006**
 **(Unaudited)**
 **(Stated
            in U.S. Dollars)**
 
 
 
 **3.**
                  **SUMMARY
                      OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)
 
 l)
                  Loss
                      Per Share
 
 In
            February 1997, the Financial Accounting Standards Board (“FASB”) issued
            Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
            ("SFAS
            128"). Under SFAS 128, basic and diluted earnings per share are to be
            presented.
            Basic earnings per share is computed by dividing income available to
            common
            shareholders by the weighted average number of common shares outstanding
            in the
            period. Diluted earnings per share takes into consideration common shares
            outstanding (computed under basic earnings per share) and potentially
            dilutive
            common shares.
 
 m)
                  Income
                      Taxes
 
 The
            Company follows the liability method of accounting for income taxes under
            which
            deferred tax assets and liabilities are recognized for the future tax
            consequences of (i) temporary differences between the tax bases of assets
            and
            liabilities, and their reported amounts in the financial statements,
            and (ii)
            operating loss and tax credit carryforwards for tax purposes. Deferred
            tax
            assets are reduced by a valuation allowance when, based upon management’s
            estimates, it is more likely than not that a portion of the deferred
            tax assets
            will not be realized in a future period.
 
 n)
                  Financial
                      Instruments
 
 The
            Company’s financial instruments consist of cash and cash equivalent, accounts
            receivable, prepaid expenses, accounts payable and accrued liabilities,
            and
            promissory note payable.
 
 It
            is
            management’s opinion that the Company is not exposed to significant interest or
            credit risks arising from these financial instruments. The fair value
            of these
            financial instruments approximate their carrying values.
 
 o)
                  Stock-Based
                      Compensation
 
 The
            Company accounts for employee stock-based compensation using the intrinsic
            value
            method prescribed in Accounting Principles Board Opinion No. 25 - “Accounting
            for Stock Issued to Employees”, and related interpretations. Accordingly,
            compensation cost for stock options is measured as the excess, if any,
            of the
            fair value of the Company’s common stock at the date of the grant over the
            amount an employee must pay to acquire the common stock. Non-employee
            stock-based compensation is accounted for using the fair value method
            in
            accordance with SFAS No. 123 - “Accounting for Stock-Based
            Compensation”.
  F-9
 Table
              of Contents
  
 **DELTA
            OIL & GAS, INC.**
 **(A
            Development Stage Company)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
            31, 2006**
 **(Unaudited)**
 **(Stated
            in U.S. Dollars)**
 
 
 
 **4.**
                  **NATURAL
                      GAS AND OIL PROPERTIES**
 
 a)
                  Proved
                      Property
 
 In
            February 2001, the Company acquired an 8.9% working interest in a gas
            well
            located in California at a cost of $90,000. The well commenced production
            in
            February 2001 following a redrill.
 **MARCH
                    31**
                DECEMBER
                    31**2006**
                2005Proved
                    property
                **$**
                **102,346**
                $
                102,346Less:
                    Accumulated depletion
                
                **(101,074)**
                
                (101,074)**$**
                **1,272**
                $
                1,272
 
 b)
                Unproved
                    Properties
 
 **MARCH
                    31**
                DECEMBER
                    31**2006**
                2005Todd
                    CreekAcquisition
                    cost
                **$**
                **597,263**
                $
                597,263Cash
                    call
                
                **590,925**
                
                519,990HillspringAcquisition
                    cost
                
                **414,766**
                
                414,766Cache
                    SloughCash
                    call
                
                **301,387**
                
                301,387StrachanAcquisition
                    cost
                
                **261,475**
                
                207,294Palmetto
                    PointAcquisition
                    cost
                
                **425,000**
                
                -**$**
                **2,590,816**
                $
                2,040,700
  F-10
 Table
              of Contents
  **DELTA
            OIL & GAS, INC.**
 **(A
            Development Stage Company)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
            31, 2006**
 **(Unaudited)**
 **(Stated
            in U.S. Dollars)**
 
 
 
 **4.**
                  **NATURAL
                      GAS AND OIL PROPERTIES**(Continued)
 
 b)
                  Unproved
                      Properties (Continued)
 
 i)
                  Todd
                      Creek, Alberta, Canada
 
 In
            January 2005, the Company acquired a 20% working interest in 13.75 sections
            (8,800 acres) of land in Todd Creek, Alberta, Canada, at a cost of $597,263.
            The
            Company also has an option to acquire an additional 15% interest in 7
            additional
            sections of land by participating in 20% of the drilling cost by December
            31,
            2006. As at March 31, 2006, a cash call of $590,925 has been paid as
            share of
            costs for a proposed drilling program.
 
 ii)
                  Hillspring,
                      Alberta, Canada
 
 In
            January 2005, the Company acquired a 10% working interest in 1 section
            (64
            acres) of land in Hillspring, Alberta, Canada, at a cost of $414,766.
            The
            Company also had an option to acquire an additional 10% working interest
            in an
            additional 1.25 sections by paying $207,833 by July 1, 2005. Later the
            Company
            elected not to exercise this option and the option expired.
 
 Hillspring
            Prospect
 
 This
            option expired on July 1, 2005, but was later extended to December 29,
            2006.
 
 iii)
                  Cache
                      Slough Prospect, California, USA
 
 In
            May
            2005, the Company entered into a participation agreement with Production
            Specialties Company (“PSC”) where the Company has been granted the right to earn
            a 68% working interest in a test well and a 12.50% working interest in
            certain
            lands located in Solano County, California, by paying 18.75% of the test
            well
            operations. As at March 31, 2006, a cash call of $301,387 has been paid
            as share
            of costs for a proposed drilling program.
 
 Following
            these payments, the Company will be responsible for 12.5% of all additional
            expenditures for drilling and production on the property and be entitled
            to
            receive 8.5% of all revenue generated by the property, which is 12.5%
            of this
            California company’s 68% interest.
  F-11
 Table
              of Contents
  **DELTA
            OIL & GAS, INC.**
 **(A
            Development Stage Company)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
            31, 2006**
 **(Unaudited)**
 **(Stated
            in U.S. Dollars)**
 
 
 
 **4.**
                  **NATURAL
                      GAS AND OIL PROPERTIES**(Continued)
 
 b)
                  Unproved
                      Properties (Continued)
 
 iv)  Strachan
            Prospect, Alberta, Canada
 
 In
            September 2005, the Company entered into a participation and farmout
            agreement
            with Odin Capital Inc. (“Odin”) where the Company will participate for 4% share
            of the costs of drilling a test well in certain lands located in the
            Leduc
            formation, Alberta, Canada. In exchange for the participation costs,
            the Company
            will earn interests in certain petroleum and natural gas wells ranging
            from
            1.289% to 4.0%. As at March 31, 2006, the Company has advanced $261,475
            as its
            share of the costs in the Leduc formation property.
 
 A
            director of the Company maintains a 50% ownership interest in Odin.
 
 v)
                  Palmetto
                      Point Prospect, Mississippi
 
 On
            February 21, 2006, the Company entered into an agreement (the “Agreement”) with
            0743608 B.C. Ltd., (“Assignor”) a British Columbia based oil and gas exploration
            company, in order to accept an assignment of the Assignor’s ten percent (10%)
            gross working and revenue interest in a ten-well drilling program (the
“Drilling
            Program”) to be undertaken by Griffin & Griffin Exploration L.L.C.,
            (“Griffin”) a Mississippi based exploration company.  Under the terms of
            the Agreement, the Company paid the Assignor $425,000 as payment for
            the
            assignment of the Assignor’s 10% gross working and revenue interest in the
            Drilling Program.  The Company also entered into a Joint Operating
            Agreement directly with Griffin on February 24, 2006.
 
 The
            Drilling Program on the acquired property interests is anticipated to
            be
            initiated by Griffin on or about May 1, 2006 and to be completed by Griffin
            within approximately 10 months.  The anticipated commencement date for the
            drilling program was extended due to flooding of the road accessing the
            well
            sites attributable to the melting snow.  The prospect area owned or
            controlled by Griffin on which the ten wells will be drilled, is comprised
            of
            approximately 1273 acres in Palmetto Point, Mississippi.  The exact
            locations of the ten wells in which the Company will participate are
            yet to be
            determined.
  F-12
 Table
              of Contents
  **DELTA
            OIL & GAS, INC.**
 **(A
            Development Stage Company)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
            31, 2006**
 **(Unaudited)**
 **(Stated
            in U.S. Dollars)**
 
 
 **5.**
                    **ADVANCES
                        PAYABLE**
 
 Advances
              payable are repayable on demand, unsecured and bear interest at 6.5%
              per annum.
 **6.**  **PROMISSORY
            NOTE PAYABLE**
 
 **MARCH
                    31**
                DECEMBER
                    31**2006**
                2005Unsecured
                    loan, repayable January 4, 2006, together with accrued interest
                    at a rate
                    of 6.5% per annum. As at March 31, 2006, the promissory note
                    was under
                    negotiations and the terms were not amended. Interest continues
                    to accrue
                    at 6.5% per annum.
                **$**
                **39,933**
                $
                39,397
  **7.**
                  **SHARE
                      CAPITAL**
 
 a)
                  On
                      January 11, 2006, the Company issued 75,000 common shares for
                      exercise of
                      stock options at $0.80 per share.
 
 On
            January 24, 2006, the Company issued 230,000 common shares for exercise
            of stock
            options at $0.80 per share.
 
 On
            January 25, 2006, the Company issued 12,500 common shares for exercise
            of stock
            options at $1.00 per share.
 
 b)
                  Stock
                      Options
 
 Compensation
            expense related to stock options granted is recorded at their fair value
            as
            calculated by the Black-Scholes option pricing model. Compensation expense
            of
            $5,991 was recorded during the three months ended March 31, 2006 (March
            31, 2005
            - $Nil) related to options granted during the year ended December 31,
            2005 but
            vested during the three months ended March 31, 2006.
 
 The
            changes in stock options are as follows:
 
 **NUMBER**
                **WEIGHTED**
                  **AVERAGE**
                  **EXERCISE**
                  **PRICE**Balance
                    outstanding, December 31, 2005
                330,000
                $
                0.81Exercised
                (317,500)
                
                (0.81)Balance
                    outstanding, March 31, 2006
                12,500
                $
                1.00
  F-13
 Table
              of Contents
  **DELTA
            OIL & GAS, INC.**
 **(A
            Development Stage Company)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
            31, 2006**
 **(Unaudited)**
 **(Stated
            in U.S. Dollars)**
 
 
 
 **7.**
                  **SHARE
                      CAPITAL**(Continued)
 
 b)
                  Stock
                      Options (Continued)
 
 The
            following table summarized information about the stock options outstanding
            at
            March 31, 2006:
 
 **OPTIONS
                    OUTSTANDING**
                
                **OPTIONS
                    EXERCISABLE****REMAINING****EXERCISE**
                **NUMBER
                    OF**
                **CONTRACTUAL**
                
                **NUMBER
                    OF****PRICE**
                **SHARES**
                **LIFE
                    (YEARS)**
                
                **SHARES**$
                1.00
                12,500
                2.75
                
                6,250
 
 c)
                  Common
                      Stock Share Purchase Warrants
 
 As
            at
            March 31, 2006, share purchase warrants outstanding for the purchase
            of common
            shares as follows:
 
 **WARRANTS
                    OUTSTANDING****EXERCISE**
                  **PRICE**
                **NUMBER
                    OF**
                  **SHARES**
                **EXPIRY**
                  **DATE**$
                1.50
                1,200,000
                May
                    2, 2010$
                1.50
                383,985
                August
                    29, 2010$
                1.50
                900,000
                December
                    19, 2010
  **8.**
                  **RELATED
                      PARTIES**
 
 During
            the period ended March 31, 2006, the Company paid $5,197 (March 31, 2005
            - $Nil)
            for management fees to a director of the Company.
 
 An
            amount
            of $933 at March 31, 2006 (December 31, 2005 - $805) is due to a director
            of the
            Company.
 
 
 **9.**
                  **COMMITMENT
                      AND CONTRACTUAL
                      OBLIGATIONS**
 
 A
            lease
            agreement for the Vancouver office commenced March 1, 2005 and terminates
            on
            February 28, 2006, and will subsequently be paid on a month-to-month
            basis. The
            lease agreement includes a fixed rental fee of $1,295 per month plus
            additional
            charges for services supplied by the landlord or incurred on behalf of
            the
            client in the previous month.
 
  F-14
 Table
              of Contents
  **DELTA
            OIL & GAS, INC.**
 **(A
            Development Stage Company)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
            31, 2006**
 **(Unaudited)**
 **(Stated
            in U.S. Dollars)**
 
 
 
 **9.**
                  **COMMITMENT
                      AND CONTRACTUAL OBLIGATIONS**(Continued)
 
 On
            March
            1, 2005, the Company also rented an office on a month to month basis
            for $243
            per month.
 
 
 **10.**
                  **SUBSEQUENT
                      EVENTS**
 
 a)
                  Private
                      Placement
 
 On February
            24, 2006, the Company sold 727,272 units at $2.75 per Unit to a total
            of three
            (3) investors. Each unit consisted of one (1) share of common stock,
            par value
            $0.001, and one (1) warrant (the "warrant") to purchase one (1) share
            of common
            stock, exercisable for three (3) years from the closing of the offering.
            The
            exercise price for the warrant was priced at $3.00. The total gross proceeds
            the
            Company received from this sale of securities was $1,999,995 during the
            period
            ended March 31, 2006.  The Company paid $150,000 in commissions on this
            private equity offering.  Assuming that all of the warrants are exercised
            by the investors, the gross proceeds received from the warrants will
            equal
            $2,181,816.
  b)
                    Wordsworth
                        Prospect
 Subsequent
                to the reporting period on April 20, 2006, the Company entered into
                a farmout,
                option and participation letter agreement (“FOP Agreement”) where it acquired
                15% of a working interest in certain leasehold interests located
                in southeast
                Saskatchewan, Canada referred to as the Wordsworth area for the purchase
                price
                of $152,724. The Company is responsible for its proportionate share
                of the costs
                associated with drilling, testing, and completing the first test
                well on the
                property. In exchange for the Company paying its proportionate share
                of the
                costs associated with drilling, testing, and completing the first
                test well on
                the property, the Company will have earned 7.5% of the total payout
                on the
                Wordsworth prospect and an option to participate and acquire a working
                interest
                in a vertical test well drilled to 1200 meters to test the Mississippian
                (Alida)
                formation in LSD 13 of section 24, township 7, range 3 W2.
 
 On
                or
                before July 1, 2006, the first test well is anticipated to be drilled.
                There can
                be no assurance that any of the wells drilled in this prospect will
                be
                productive or that the Company will recover all or any portion of
                its investment
                in such wells.
  F-15
 Table
              of Contents




**Item
        2.     Management’s Discussion and
        Analysis**
 
 **Forward-Looking
        Statements**
 
 Historical
        results and trends should not be taken as indicative of future operations.
        Management’s statements contained in this report that are not historical facts
        are forward-looking statements within the meaning of Section 27A of the
        Securities Act of 1933, as amended, and Section 21E of the Securities and
        Exchange Act of 1934 (the “Exchange Act”), as amended. Actual results may differ
        materially from those included in the forward-looking statements. The Company
        intends such forward-looking statements to be covered by the safe-harbor
        provisions for forward-looking statements contained in the Private Securities
        Litigation Reform Act of 1995, and is including this statement for purposes
        of
        complying with those safe-harbor provisions. Forward-looking statements,
        which
        are based on certain assumptions and describe future plans, strategies and
        expectations of the Company, are generally identifiable by use of the
        words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,”
“prospects,” or similar expressions. The Company’s ability to predict results or
        the actual effect of future plans or strategies is inherently uncertain.
        Factors
        which could have a material adverse affect on the operations and future
        prospects of the Company on a consolidated basis include, but are not limited
        to: changes in economic conditions, legislative/regulatory changes, availability
        of capital, interest rates, competition, and generally accepted accounting
        principles. These risks and uncertainties should be considered in evaluating
        forward-looking statements and undue reliance should not be placed on such
        statements. Further information concerning the Company and its business,
        including additional factors that could materially affect the Company’s
        financial results, is included herein and in the Company’s other filings with
        the SEC.
  **Business
        Development**
  We
        are
        engaged in the exploration, development, acquisition and operation of oil
        and
        gas properties. We participate in the oil and gas industry through the purchase
        of small interests in either producing wells or oil and gas exploration and
        development projects. Our current focus is on the exploration of our land
        portfolio comprised of working interests in highly prospective acreage in
        the
        Northern California, Palmetto Point, Mississippi, Southern Saskatchewan,
        Canada,
        and the Southern Alberta Foothills area in Canada.
 
 The
        disclosure that follows relates to each property for which we have an
        interest.
 
 Liberty
        Valance Well ****
 
 On
        February 7, 2001, we acquired an 8.9% working interest in a production gas
        well
        styled the Liberty Valance RD1 Gas Unit (“Liberty Valance” or the “well”). The
        well is located in the Rancho Capay Gas Field in Glenn County, California.
        We
        acquired this well for $90,000. The well is operated by Production Specialties
        Company (the “operator”). Based upon a reserve report, reserves in the Liberty
        Valance Well were estimated at 2443 (MCF) on December 31, 2005 translating
        in an
        estimate of $9,823 for the standardized measure of discounted cash flows
        remaining from reserves as of December 31, 2005.
  4
 Table
            of Contents
  Todd
        Creek **** Prospect
        and Hillspring
        Prospect
 
 On
        November 26, 2004, through our wholly owned Canadian subsidiary, Delta Oil
&
Gas (Canada), Inc., we entered into two agreements (the "Agreements") with
        Win
        Energy Corporation, ("Win"), an Alberta based Oil & Gas Exploration Company,
        in order to acquire an interest in lands and leases owned by Win. On or about
        January 25, 2005, we paid Win the full purchase price set forth in the
        Agreements and acquired a working interest in two prospective properties
        known
        as Todd Creek and Hillspring. Both properties are located approximately 90
        miles
        south of Calgary, Alberta in the Southern Alberta Foothills belt.
 
 *Todd
        Creek*
 
 On
        January 25, 2005, we acquired a 20% working interest in 13.75 sections of
        land
        (8800 acres) in Todd Creek for the purchase price of $597,263 (US dollars).
        We
        also have an option to acquire an additional 15% interest in 7 additional
        sections of land (4,480 acres) which will terminate on December 31, 2006.
        Included in the acquisition of the Todd Creek prospect is a test well that
        has
        been drilled and cased. The Agreements with Win provide that they shall assume
        all costs of drilling and completing or abandoning the test well up to gross
        costs of $1,330,000. Thereafter, we will assume responsibility for 20% of
        all
        costs, risks, and expenses relating to the test well.
 
 During
        the second quarter of 2005, a well located in 13−28−9−2W5 in Alberta, Canada was
        drilled to a specifically targeted depth, evaluated, and tested. The operator
        encountered gas reservoirs and concluded that this well is a potential gas
        well.
        Based upon these results, several development wells are anticipated to be
        drilled in the fourth quarter of 2006.
 
 During
        the third quarter of 2005, another well was drilled located in 7−16−9−2W5 in
        Alberta, Canada and was previously drilled in October 2004. Following subsequent
        evaluation, the operator recommended that additional drilling take place
        on the
        7−16 well to increased depths. The operator conducted further testing and
        evaluation and concluded that it was not drilled deep enough and is currently
        suspended with no reserves assigned.
 
 *Hillspring*
 
 On
        January 25, 2005, we acquired a 10% working interest in one section of land
        (640
        acres) in Hillspring for the purchase price of $414,766 (US dollars). The
        operator drilled 4 test wells on the property adjacent to our interest and
        is
        currently reviewing the data from these wells. It is anticipated that a test
        well will be drilled on our property interest during the year ended 2006.
        Our
        acquisition of an interest in Hillspring Prospect included an option to acquire
        an additional 10% working interest in 1.25 sections in the immediate area
        for
        the sum of $207,833 (US dollars). This option expired on July 1, 2005, but
        was
        later extended to December 29, 2006.
 
 Cache
        Slough Prospect
 
 On
        May
        25, 2005, we entered into a Farmout Agreement (“Agreement”) with a California
        based oil and gas company. This California company has the right to acquire
        an
        oil and gas leasehold interest in certain lands located in Section 6, 7,
&
18, Township 4 North, Range 3 East,
  5
 Table
            of Contents
  M.D.B.M.,
        Solano County, California upon incurring expenditures for drilling and testing
        on the said property. This California company agreed to grant us a right
        to
        acquire 12.5% of their 68% interest upon us paying 18.75% of all costs
        associated with drilling, testing, and completing the first test well on
        the
        property. Following these payments, we will be responsible for 12.5% of all
        additional expenditures for drilling and production on the property and be
        entitled to receive 8.5% of all revenue generated by the property, which
        is
        12.5% of this California company's 68% interest.
 
 Drilling
        of the first well on this property commenced in July 2005. Preliminary drill
        logs indicated that this is a potential gas well and the operator then completed
        the well for testing. Further testing resulted in the discovery of natural
        gas
        with flow rates suitable for commercial production. The anticipated date
        to
        commence production was extended due to flooding in the area from higher
        than
        average rainfalls. We now expect to commence commercial production in June
        2006.
        We anticipate that our plans for future drilling on this property will be
        completed in the second quarter of the 2006.
 
 Strachan
        Prospect ****
 
 On
        September 23, 2005, we entered into a Farmout Agreement (“Agreement”) with Odin
        Capital Inc. (“Odin”), a Calgary, Alberta corporation. **** A
        former
        member of our board of directors, Mr. Philipchuk, maintains a 50% ownership
        interest in Odin. Odin has the right to acquire an oil and gas leasehold
        interests in certain lands located in Section 9, Township 38, Range 9, West
        of
        the 5 th Meridian,
        Alberta, Canada (“Section 9”) upon incurring expenditures for drilling and
        testing on the property. In exchange for us paying 4.0000% of all costs
        associated with drilling, testing, and completing the test well on the property,
        which we also refer to as the Leduc formation test well, we will have
        earned:
  1.
            in
                the Spacing Unit for the Earning Well:  i.
            a
                2.000% interest in the petroleum and natural gas below the base of
                the
                Mannville excluding natural gas in the Leduc formation;
                and  ii.
            a
                4.000% interest in the natural gas in the Leduc formation before
                payout
                subject to payment of the Overriding Royalty which is convertible
                upon
                payout at royalty owners option to 50% of our Interest;
                and  2.
            a
                1.600% interest in the rights below the base of the Shunda formation
                in
                Section 10, Township 38, Range 9W5M.  3.
            a
                1.289% interest in the rights below the base of the Shunda formation
                in
                Section 15 and 16, Township 38, Range 9W5M, down to the base of the
                deepest formation penetrated. 
 On
        October 6, 2005, drilling commenced Leduc formation test well. Under the
        terms
        of the Agreement, we advanced 110% of the anticipated costs prior to drilling.
        The total costs advanced by us prior to drilling were $253,977. The well
        was
        drilled to the targeted depth of 13,650 feet. Based on positive results
        indicating the presence of a potential gas well, the operator inserted casing
        into the total depth of the well and will perform a full testing program.
        If the
  6
 Table
            of Contents
  additional
        testing returns positive results, this well will be tied a nearby pipeline
        to
        accommodate the natural gas production. We anticipate receiving results from
        further testing in May 2006.
 
 Palmetto
        Point Prospect ****
 
 On
        February 21, 2006, we entered into an agreement (the “Agreement”) with 0743608
        B.C. Ltd., (“Assignor”), a British Columbia based oil and gas exploration
        company, in order to accept an assignment of the Assignor's ten percent (10%)
        gross working and revenue interest in a ten−well drilling program (the “Drilling
        Program”) to be undertaken by Griffin & Griffin Exploration L.L.C.,
        (“Griffin”), a Mississippi based exploration company. Under the terms of the
        Agreement, we paid the Assignor $425,000 Dollars as payment for the assignment
        of the Assignor's 10% gross working and revenue interest in the Drilling
        Program. We also entered into a Joint Operating Agreement directly with Griffin
        on February 24, 2006.
 
 The
        Drilling Program on the acquired property interests was initiated by Griffin
        on
        May 12, 2006 and is anticipated to be completed by Griffin within approximately
        the next 10 months. The anticipated commencement date for the drilling program
        was extended due to flooding of the road accessing the well sites attributable
        to the melting snow. The prospect area on which the ten wells will be drilled
        consists of approximately 1273 acres in Palmetto Point, Mississippi. The
        exact
        locations of the ten wells in which we will participate are yet to be
        determined. There can be no assurance that any of the wells drilled will
        be
        productive or that we will recover all or any portion of our investment in
        such
        wells.
 
 Wordsworth
        Prospect
 
 Subsequent
        to the reporting period on April 20, 2006, we entered into a farmout, option
        and
        participation letter agreement (“FOP Agreement”) where we acquired 15% of a
        working interest in certain leasehold interests located in southeast
        Saskatchewan, Canada referred to as the Wordsworth area for the purchase
        price
        of $152,724. We are responsible for our proportionate share of the costs
        associated with drilling, testing, and completing the first test well on
        the
        property. In exchange for us paying our proportionate share of the costs
        associated with drilling, testing, and completing the first test well on
        the
        property, we will have earned 7.5% of the total payout on the Wordsworth
        prospect and an option to participate and acquire a working interest in a
        vertical test well drilled to 1200 meters to test the Mississippian (Alida)
        formation in LSD 13 of section 24, township 7, range 3 W2.
 
 On
        or
        before July 1, 2006, the first test well is anticipated to be drilled. There
        can
        be no assurance that any of the wells drilled in this prospect will be
        productive or that we will recover all or any portion of our investment in
        such
        wells.
  **Results
        of Operations for the three months ended March 31, 2006 and
        2005**
  For
        the
        three month period ended March 31, 2006, our revenues generated from natural
        gas
        and oil sales increased to $2,188 compared to revenue of $1,936 for the same
        three month period in 2005. All revenue generated during the three month
        periods
        ended March 31, 2006 and 2005 was attributable to the Liberty Valance Well,
        our
        only producing property during this reporting period.
  7
 Table
            of Contents
 
 We
        anticipate that our revenues will increase based upon the discovery of natural
        gas with flow rates suitable for commercial production in the first well
        drilled
        on the Cache Slough Prospect.
 
 We
        incurred costs and expenses in the amount of $177,486 for the three month
        period
        ended March 31, 2006 compared to costs and expenses of $36,148 for the same
        three month period in 2005. Our expenses for the months ended March 31, 2006
        consisted of primarily of general and administrative expenses in the amount
        of
        $170,581and stock based compensation of $5,991. Our expense during the three
        months ended March 31, 2005 primarily consisted of general and administrative
        expenses in the amount of $34,826.
 
 The
        significant increase in costs and expenses is attributable to the issuance
        of
        stock-based compensation during the three months ended March 31, 2006 and
        an
        increase in general and administrative fees consisting primarily of professional
        fees associated with the acquisition of the additional interests in oil and
        gas
        properties during the reporting period. As a result of the acquisition of
        additional oil and gas interests during and subsequent to the reporting period,
        we anticipate that our operating expenses will continue to increase in
        2006.
 
 Our
        net
        loss for the three months ended March 31, 2006 was $171,334, compared to
        a net
        loss of $34,212 in the prior three month period ended March 31,
        2005.
  **Liquidity
        and Capital Resources**
  As
        of
        March 31, 2006, we had current assets of $1,859,166, including cash on hand
        in
        the amount of $1,843,650. Our total current liabilities as of March 31, 2006
        were $80,005. As a result, we had a working capital of $1,779,161on March
        31,
        2006.
 
 The
        revenue we currently generate does not exceed our operating expenses. As
        a
        result, we needed additional financing in order to sustain our business
        operations and acquire additional properties. We primarily relied on financing
        activities including issuance of common stocks and units as well as share
        subscription receipts to fund our operations during the three months ended
        March
        31, 2006. During the months ended March 31, 2006, we received gross proceeds
        in
        the amount of $2,000,000 from the sale of our equity securities. Our management
        anticipates that we have sufficient capital to finance our operations at
        the
        current level for the remainder of the fiscal year ended December 31, 2006.
 
 Operating
        activities used $222,269 in cash for the three months ended March 31, 2006.
        Our
        net loss of $171,334 was the primary component of our negative operating
        cash
        flow. Investing activities during the months ended March 31, 2006 consisted
        of
        $550,116 for the purchase of natural gas and oil properties. Cash flows provided
        by financing activities during the three months ended March 31, 2006 primarily
        consisted of $1,999,995 related to the issuance of common stock.
 
 The
        underlying drivers that resulted in material changes and the specific inflows
        and outflows of cash in the months ended March 31, 2006 are as
        follows:
  a.
            Property
                acquisition costs, and  b.
            Financing
                from the issuance of common stock.  8
 Table
            of Contents
  **Off
        Balance Sheet Arrangements**
  As
        of
        March 31, 2006, there were no off balance sheet arrangements.
  **Going
        Concern**
  The
        accompanying financial statements have been prepared assuming that we will
        continue as a going concern. As shown in the accompanying financial statements,
        we have incurred a net loss of $1,044,548 since inception. These financial
        statements do not include any adjustments that might result from the outcome
        of
        this uncertainty.
 
 **Critical
        Accounting Policies**
 
 In
        December 2001, the SEC requested that all registrants list their most “critical
        accounting polices” in the Management Discussion and Analysis. The SEC indicated
        that a “critical accounting policy” is one which is both important to the
        portrayal of a company’s financial condition and results, and requires
        management’s most difficult, subjective or complex judgments, often as a result
        of the need to make estimates about the effect of matters that are inherently
        uncertain. We believe that the following accounting policies fit this
        definition.
 
 **Joint
        Ventures**
 
 All
        exploration and production activities are conducted jointly with others and,
        accordingly, the accounts reflect only our proportionate interest in such
        activities.
 
 **Natural
        Gas and Oil Properties**
 
 We
        account for our oil and gas producing activities using the full cost method
        of
        accounting as prescribed by the United States Securities and Exchange Commission
        (“SEC”). Accordingly, all costs associated with the acquisition of properties
        and exploration with the intent of finding proved oil and gas reserves
        contribute to the discovery of proved reserves, including the costs of abandoned
        properties, dry holes, geophysical costs, and annual lease rentals are
        capitalized. All general corporate costs are expensed as incurred. In general,
        sales or other dispositions of oil and gas properties are accounted for as
        adjustments to capitalized costs, with no gain or loss recorded. Amortization
        of
        evaluated oil and gas properties is computed on the units of production method
        based on all proved reserves on a country-by-country basis. Unevaluated oil
        and
        gas properties are assessed at least annually for impairment either individually
        or on an aggregate basis. The net capitalized costs of evaluated oil and
        gas
        properties (full cost ceiling limitation) are not to exceed their related
        estimated future net revenues discounted at 10%, and the lower of cost or
        estimated fair value of unproved properties, net of tax
        considerations.
  **R** **evenue
        Recognition**
  We
        use
        the sales method of accounting for natural gas and oil revenues. Under this
        method, revenues are recognized upon the passage of title, net of royalties.
        Revenues from natural gas production are recorded using the sales method.
        When
        sales volumes exceed our entitled share, an overproduced imbalance occurs.
        To
        the extent the overproduced imbalance exceeds our share
  9
 Table
            of Contents
  of
        the
        remaining estimated proved natural gas reserves for a given property, we
        record
        a liability. At March 31, 2006, we had no overproduced imbalances.
  **Recently
        Issued Accounting Pronouncements** ****
  FASB
        Interpretation No. (“FIN”) 47 -
“Accounting for Conditional Asset Retirement Obligations” issued by FASB in
        March 2005. FIN 47 clarifies that an entity must record a liability for a
        conditional asset retirement obligation if the fair value of the obligation
        can
        be reasonably estimated. This Interpretation also clarifies the circumstances
        under which an entity would have sufficient information to reasonably estimate
        the fair value of an asset retirement obligation. This Interpretation is
        effective no later than the end of fiscal years ending after December 15,
        2005.
        We do not expect this guidance to have a material impact on its financial
        statements.
  Staff
        Position No. FAS 115-1 - “The
        Meeting of Other-Than-Temporary Impairment and Its Application to Certain
        Investments” (“FSP 115-1”) issued by FASB in November 2005. FSP 115-1 provides
        accounting guidance for identifying and recognizing other-than-temporary
        impairments of debt and equity securities, as well as cost method investments
        in
        addition to disclosure requirements. FSP 115-1 is effective for reporting
        periods beginning after December 15, 2005, and earlier application is permitted.
        We have determined that the adoption of FSP 115-1 does not have an impact
        on our
        result of operations or financial position.
 
 Statement
        of Financial Accounting Standards No. 123 (revised
        2004) (“SFAS 123 (revised 2004)”) - “Share-Based Payment” issued by FASB in
        December 2004. This Statement requires that the cost resulting from all
        share-based transactions be recorded in the financial statements. The Statement
        establishes fair value as the measurement objective in accounting for
        share-based payment arrangements and requires all entities to apply a
        fair-value-based measurement in accounting for share-based payment transactions
        with employees. The Statement also establishes fair value as the measurement
        objective for transactions in which an entity acquires goods or services
        from
        non-employees in share-based payment transactions. The Statement replaces
        FASB
        Statement No. 123 “Accounting for Stock-Based Compensation” and supersedes APB
        Opinion No. 25 “Accounting for Stock Issued to Employees”. The provisions of
        this Statement will be effective for us beginning with its fiscal year ending
        2007. We have determined that the adoption of SFAS 123 (revised 2004) does
        not
        have an impact on our results of operations or financial position.
 
 Statement
        of Financial Accounting Standards No. 151 (“SFAS
        151”) - “Inventory Costs” issued by FASB on November 30, 2004. The adoption of
        SFAS 151 does not have an impact on our results of operations or financial
        position.
 
 Statement
        of Financial Accounting Standards No. 153 (“SFAS
        153”) - “Exchanges of Non-monetary Assets - an amendment of APB Opinion No. 29”
- issued by FASB in December 2004. We have determined that the adoption of
        SFAS
        153 does not have an impact on our results of operations or financial
        position.
  10
 Table
            of Contents
  **Item
        3.     Controls and
        Procedures**
  We
        carried out an evaluation of the effectiveness of the design and operation
        of
        our disclosure controls and procedures (as defined in Exchange Act Rules
        13a−15(e) and 15d−15(e)) as of March 31, 2006. This evaluation was carried out
        under the supervision and with the participation of our Chief Executive Officer
        and Chief Financial Officer, Mr. Douglas Bolen. Based upon that evaluation,
        our
        Chief Executive Officer and Chief Financial Officer concluded that, as of
        March
        31, 2006, our disclosure controls and procedures are effective. There have
        been
        no significant changes in our internal controls over financial reporting
        during
        the quarter ended March 31, 2006 that have materially affected or are reasonably
        likely to materially affect such controls.
 
 Disclosure
        controls and procedures are controls and other procedures that are designed
        to
        ensure that information required to be disclosed in our reports filed or
        submitted under the Exchange Act are recorded, processed, summarized and
        reported, within the time periods specified in the SEC's rules and forms.
        Disclosure controls and procedures include, without limitation, controls
        and
        procedures designed to ensure that information required to be disclosed in
        our
        reports filed under the Exchange Act is accumulated and communicated to
        management, including our Chief Executive Officer and Chief Financial Officer,
        to allow timely decisions regarding required disclosure.
  **Limitations
        on the Effectiveness of Internal Controls**
  Our
        management does not expect that our disclosure controls and procedures or
        our
        internal control over financial reporting will necessarily prevent all fraud
        and
        material error. Our disclosure controls and procedures are designed to provide
        reasonable assurance of achieving our objectives and our Chief Executive
        Officer
        and Chief Financial Officer concluded that our disclosure controls and
        procedures are effective at that reasonable assurance level. Further, the
        design
        of a control system must reflect the fact that there are resource constraints,
        and the benefits of controls must be considered relative to their costs.
        Because
        of the inherent limitations in all control systems, no evaluation of controls
        can provide absolute assurance that all control issues and instances of fraud,
        if any, within the Company have been detected. These inherent limitations
        include the realities that judgments in decision-making can be faulty, and
        that
        breakdowns can occur because of simple error or mistake. Additionally, controls
        can be circumvented by the individual acts of some persons, by collusion
        of two
        or more people, or by management override of the internal control. The design
        of
        any system of controls also is based in part upon certain assumptions about
        the
        likelihood of future events, and there can be no assurance that any design
        will
        succeed in achieving its stated goals under all potential future conditions.
        Over time, control may become inadequate because of changes in conditions,
        or
        the degree of compliance with the policies or procedures may
        deteriorate.
  11
 Table
            of Contents
  **PART
        II - OTHER INFORMATION**
  **Item
        1.     Legal
        Proceedings**
  We
        are
        not a party to any pending legal proceeding. We are not aware of any pending
        legal proceeding to which any of our officers, directors, or any beneficial
        holders of 5% or more of our voting securities are adverse to us or have
        a
        material interest adverse to us.
  **Item
        2.     Unregistered Sales of Equity
        Securities and Use of Proceeds**
  The
        information set forth below relates to our issuances of securities without
        registration under the Securities Act during the reporting period which were
        not
        previously included in a Current Report on Form 8-K.
 
 On
        February 24, 2006, we sold 727,272 Units at $2.75 per Unit to a total of
        three
        (3) investors. Each Unit consisted of one (1) share of common stock, par
        value
        $0.001, and one (1) Warrant (the "Warrant") to purchase one (1) share of
        common
        stock, exercisable for three (3) years from the closing of the offering.
        The
        exercise price for the Warrant was priced at $3.00. The total gross proceeds
        we
        received from this sale of securities was $1,999,995. We paid $150,000 in
        commissions on this private equity offering. Assuming that all of the warrants
        are exercised by the investors, the gross proceeds received from the exercise
        of
        the warrants will equal $2,181,816.
 
 We
        completed these sales of unregistered securities pursuant to Regulation S
        of the
        Securities Act. Each purchaser represented to us that he was a non−US person as
        defined in Regulation S. We did not engage in a distribution of this offering
        in
        the United States. Each purchaser represented his intention to acquire the
        securities for investment only and not with a view toward distribution. We
        requested our stock transfer agent to affix appropriate legends to the stock
        certificate issued to each purchaser in accordance with Regulation S and
        the
        transfer agent affixed the appropriate legends. Each investor was given adequate
        access to sufficient information about us to make an informed investment
        decision. None of the securities were sold through an underwriter and
        accordingly, there were no underwriting discounts or commissions involved.
        No
        registration rights were granted to any of the purchasers.
  **Item
        3.     Defaults upon Senior
        Securities**
  None.
  **Item
        4.     Submission of Matters to a Vote of
        Security Holders**
  No
        matters have been submitted to our security holders for a vote, through the
        solicitation of proxies or otherwise, during the quarterly period ended March
        31, 2006.
  **Item
        5.     Other
        Information**
  None
  12
 Table
            of Contents
  **Item
        6.      Exhibits**
  Exhibit
                  Number
              Description3.1
              Articles
                  of Incorporation, as amended13.2
              By-laws,
                  as amended110.1
              Agreement
                  to Acquire Interest in Todd Creek210.2
              Agreement
                  to Acquire Interest in Hillspring210.3
              Amendment
                  to Todd Creek and Hillspring Agreements210.4
              Farmout
                  Agreement relating to Cache Slough Prospect310.5
              Farmout
                  Agreement with Odin Capital Inc. relating to Leduc formation test
                  well410.6
              Drilling
                  Program Agreement between Griffin & Griffin Exploration L.L.C. and
                  0743608 B.C. Ltd.510.7
              Assignment
                  Agreement between Delta Oil & Gas, Inc. and 0743608 B.C. Ltd510.8
              Farmout,
                  Option & Participation Agreement related to Wordsworth Prospect631.1
              Certification
                  of Chief Executive Officer pursuant to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 200231.2
              Certification
                  of Chief Financial Officer pursuant to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 200232.1
              Certification
                  of Chief Executive Officer and Chief
                  Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant
                  to Section 906 of the Sarbanes-Oxley Act of
                  2002
 
 1 Incorporated
        by reference to Registration Statement on Form SB-2 filed on February 13,
        2002
 2 Incorporated
        by reference to current report on Form 8-K filed on February 15,
        2005
 3 Incorporated
        by reference to current report on Form 8-K filed on September 29,
        2005
 4 Incorporated
        by reference to current report on Form 8-K filed on May 26, 2005
 5 Incorporated
        by reference to current report on Form 8-K filed on February 27,
        2006
 6 Incorporated
        by reference to registration statement on Form 10-SB filed on May 12, 2006
  13
 Table
            of Contents
  **SIGNATURES**
 
 In
        accordance with the requirements of the Securities and Exchange Act of 1934,
        the
        Registrant has duly caused this report to be signed on its behalf by the
        undersigned, thereunto duly authorized.
 
 **Delta
                  Oil & Gas, Inc.**Date:
              May
                  15, 2006By:     
                  /s/ Douglas Bolen
                Douglas
                  Bolen
                Title:**Chief
                  Executive Officer & Chief Financial
                  Officer**