**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        DC 20549
 
 **FORM
          10-QSB/A**
 
 [X]
              Quarterly
                  Report pursuant to Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934For
                  the quarterly period endedJune
                  30, 2006[
                  ]
              Transition
                  Report pursuant to 13 or 15(d) of the Securities Exchange Act of
                  1934For
                  the transition period __________to__________Commission
                  File Number:333-82636
 
 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
                  6th Avenue 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 July 26,
        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
              12PART
                  II - OTHER INFORMATIONItem
                  1.
              Legal
                  Proceedings
              14Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              14Item
                  3.
              Defaults
                  Upon Senior Securities
              14Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              14Item
                  5.
              Other
                  Information
              14Item
                  6.
              Exhibits
              14
 
  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 Sheet as of June 30,
                  2006F-2
              Unaudited
                  Consolidated Statements of Operations for the three
                  and six months ended June 30, 2006 and 2005and from Inception on
                  January
                  9, 2001 through June 30, 2006F-3
              Unaudited
                  Consolidated Statements of Cash Flows for the six
                  months ended June 30, 2006 and 2005 and from Inception on January
                  9, 2001
                  through June 30, 2006F-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
        June 30, 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
  June
                    30,
                    2006
                
                December
                    31,
                    2005ASSETSCURRENTCash
                    and cash equivalents
                $
                1,149,725
                
                $
                343,004Accounts
                    receivable
                
                10,815
                
                
                10,068Prepaid
                    expenses
                
                7,619
                
                
                1,6151,168,159
                
                
                354,687NATURAL
                    GAS AND OIL PROPERTIESProved
                    property
                
                1,272
                
                
                1,272Unproved
                    property
                
                3,160,459
                
                
                2,040,7003,161,731
                
                
                2,041,972OTHER
                    EQUIPMENTComputer
                    equipment
                
                3,492
                
                
                3,492Less:
                    accumulated depreciation
                
                (2,347)
                
                
                (2,033)1,145
                
                
                1,459$
                4,331,035
                
                $
                2,398,118LIABILITIES
                    AND STOCKHOLDERS' EQUITYCURRENTAccounts
                    payable
                $
                35,753
                
                $
                93,318Note
                    payable
                
                -
                
                
                39,39735,753
                
                
                132,715STOCKHOLDERS'
                  EQUITYCommon
                      stock, 100,000,000 shares authorized of $0.001
                      par
                        value, 45,070,506 and 44,027,735 shares issued
                        and
                          outstanding, respectively
                
                45,071
                
                
                44,026Additional
                    paid in capital
                
                5,277,142
                
                
                3,110,591Share
                    subscriptions receivable
                
                -
                
                
                (16,000)Deficit
                    accumulated during the development stage
                
                (1,026,931)
                
                
                (873,214)4,295,282
                
                
                2,265,403$
                4,331,035
                
                $
                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
  For
                        the
                      Three
                        Months Ended
                      June
                        30,
                    
                    For
                        the
                      Six
                        Months Ended
                      June
                        30,
                    
                    From
                        Inception
                          on
                          January
                            9, 2001
                            Through
                              June
                                30,2006
                    
                    2005
                    
                    2006
                    
                    2005
                    
                    2006REVENUERoyalties
                        received
                    $
                    1,226
                    
                    $
                    1,852
                    
                    $
                    3,414
                    
                    $
                    3,788
                    
                    $
                    97,544COSTS
                        AND EXPENSESNatural
                        gas and oil operating costs
                    
                    924
                    
                    
                    1,346
                    
                    
                    1,685
                    
                    
                    2,668
                    
                    
                    36,454General
                        and administrative
                    
                    37,699
                    
                    
                    47,250
                    
                    
                    203,963
                    
                    
                    82,076
                    
                    
                    544,474Depreciation
                        and depletion
                    
                    161
                    
                    
                    71
                    
                    
                    314
                    
                    
                    71
                    
                    
                    37,918Stock
                        based compensation
                    
                    -
                    
                    
                    -
                    
                    
                    5,991
                    
                    
                    -
                    
                    
                    376,258Impairment
                        of natural gas and oil properties
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    65,503Dry
                        well costs written off
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    118,69038,784
                    
                    
                    48,667
                    
                    
                    211,953
                    
                    
                    84,815
                    
                    
                    1,179,297NET
                        OPERATING (LOSS)
                    
                    (37,558)
                    
                    
                    (46,815)
                    
                    
                    (208,539)
                    
                    
                    (81,027)
                    
                    
                    (1,081,753)OTHER
                        INCOMEForgiveness
                        of debt
                    
                    39,933
                    
                    
                    -
                    
                    
                    39,933
                    
                    
                    -
                    
                    
                    39,933Interest
                      income
                    
                    10,925
                    
                    
                    -
                    
                    
                    14,889
                    
                    
                    -
                    
                    
                    14,88950,858
                    
                    
                    -
                    
                    
                    54,822
                    
                    
                    -
                    
                    
                    54,822NET
                        PROFIT/(LOSS)
                    
                    13,300
                    
                    
                    (46,815)
                    
                    
                    (153,716)
                    
                    
                    (81,027)
                    
                    
                    (1,026,931)BASIC
                        INCOME/(LOSS) PER COMMON SHARE
                    $
                    0.00
                    
                    $
                    (0.01)
                    
                    $
                    (0.00)
                    
                    $
                    (0.01)WEIGHTED
                          AVERAGE NUMBER OFCOMMON SHARES OUTSTANDING
                    
                    44,870,706
                    
                    
                    42,074,772
                    
                    
                    44,571,646
                    
                    
                    41,687,910
 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
 For
                            the Six months Ended
                          June
                            30,
                        
                        From
                                  Inception
                                    onJanuary
                                9, 2001ThroughJune
                            30,2006
                        
                        2005
                        
                        2006CASH
                            FLOWS FROM OPERATING ACTIVITIES:Net
                            loss
                        $
                        (153,715)
                        
                        $
                        (81,027)
                        
                        $
                        (1,026,931)Adjustments
                            to reconcile net loss to net cash
                            used
                              in operating activities:Depreciation
                            and depletion
                        
                        314
                        
                        
                        71
                        
                        
                        37,918Impairment
                            of natural gas and oil properties
                        
                        -
                        
                        
                        -
                        
                        
                        65,503Dry
                            well costs writtenoff
                        
                        -
                        
                        
                        -
                        
                        
                        118,690Stock
                            based compensation
                        
                        -
                        
                        
                        -
                        
                        
                        370,267Changes
                            in operating assets and liabilities:(Decrease)
                            in accounts receivable
                        
                        (747)
                        
                        
                        (817)
                        
                        
                        (10,815)Increase
                            (Decrease) in accounts payable
                        
                        (57,565)
                        
                        
                        2,767
                        
                        
                        35,753Accrued
                            Interest payable
                        
                        (39,397)
                        
                        
                        (17,362)
                        
                        
                        (30,001)Prepaid
                            expenses
                        
                        (6,006)
                        
                        
                        (1,057)
                        
                        
                        (7,619)Net
                            Cash Used in Operating Activities
                        
                        (257,116)
                        
                        
                        (97,425)
                        
                        
                        (447,235)CASH
                            FLOWS FROM INVESTING ACTIVITIES:Purchase
                            of other equipment
                        
                        -
                        
                        
                        (1,751)
                        
                        
                        (3,492)Investment
                            in natural gas and oil working interests
                        
                        (1,119,759)
                        
                        
                        (1,171,975)
                        
                        
                        (3,351,495)Net
                            Cash Used in Investing Activities
                        
                        (1,119,759)
                        
                        
                        (1,173,726)
                        
                        
                        (3,354,987)CASH
                            FLOWS FROM FINANCING ACTIVITIES:Proceeds
                            from issuance of common stock
                        
                        2,167,596
                        
                        
                        1,139,740
                        
                        
                        4,951,947Shares
                            subscription received
                        
                        -
                        
                        
                        283,985
                        
                        
                        -Shares
                            subscription receivable
                        
                        16,000
                        
                        
                        -
                        
                        
                        -Due
                            to related party
                        
                        -
                        
                        
                        (13,122)
                        
                        
                        -Advances
                            (repaid)
                        
                        -
                        
                        
                        (7,974)
                        
                        
                        -Promissory
                            note payable
                        
                        -
                        
                        
                        1,064
                        
                        
                        -Net
                            Cash Provided by Financing Activities
                        
                        2,183,596
                        
                        
                        1,403,693
                        
                        
                        4,951,947NET
                            INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                        
                        806,721
                        
                        
                        132,542
                        
                        
                        1,149,725CASH
                            AND CASH EQUIVALENTS AT BEGINNING OF PERIOD(EXCESS
                            OFCHECKS ISSUED OVER FUNDS ON DEPOSIT)
                        
                        343,004
                        
                        
                        -
                        
                        
                        -CASH
                            AND CASH EQUIVALENTS AT END OF PERIOD
                        $
                        1,149,725
                        
                        $
                        132,542
                        
                        $
                        1,149,725
   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**
 
 **JUNE
                  30, 2006**
 **(Unaudited)**
 **(Stated
                  in U.S. Dollars)**
 
  **1.**
                        **BASIS
                            OF PRESENTATION**
  The
                  unaudited consolidated financial statements as of June 30, 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. The Company has subsequently acquired
                  other working
                  interests in wells in North America.
  F-4
 Table
                      of Contents
 **DELTA
                  OIL & GAS, INC.**
 **(A
                  Development Stage Company)**
 
 **NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
                  30, 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
                  $1,026,931 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**
 
 **JUNE
                        30, 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
                            oil and gas properties
                            (full cost ceiling limitation) are not to exceed the
                            sum of the related
                            estimated future net revenues from proved reserves discounted
                            at 10%, the lower
                            of cost or estimated fair value of unproved properties
                            included in the costs
                            being amortized, if any, and the cost of unevaluated
                            and unproved properties not
                            being amortized, if any, net of tax considerations. These
                            properties are
                            included in the amortization pool immediately upon the
                            determination that the
                            well is dry.
 
 Unproved
                          properties consist of lease acquisition costs and costs
                          on wells currently being
                          drilled on the properties. The recorded costs of the investment
                          in unproved
                          properties is not amortized until proved reserves associated
                          with the projects
                          can be determined or until they are impaired.
  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.
 
 The
                          Company determined that, pursuant to SFAS 143, the net
                          effect of the ARO
                          calculation to the Company’s income statement would be immaterial
                          to record in its financial statements for the year ended
                          December 31, 2005.
 F-6
 Table
                      of Contents
 **DELTA
                  OIL & GAS, INC.**
 **(A
                  Development Stage Company)**
 
 **NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
                  30, 2006**
 **(Unaudited)**
 **(Stated
                  in U.S. Dollars)**
 
  **3.**
                        **SUMMARY
                            OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)
  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 June 30, 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.
 
 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.
 
 F-7
 Table
                      of Contents
 **DELTA
                  OIL & GAS, INC.**
 **(A
                  Development Stage Company)**
 
 **NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
                  30, 2006**
 **(Unaudited)**
 **(Stated
                  in U.S. Dollars)**
 
 
 **3.**
                        **SUMMARY
                            OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)
  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.
 
 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 carry forwards for tax purposes.
                  Deferred tax
                  assets are reduced by a valuation allowance when,
 
 F-8
 Table
                      of Contents
 **DELTA
                  OIL & GAS, INC.**
 **(A
                  Development Stage Company)**
 
 **NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
                  30, 2006**
 **(Unaudited)**
 **(Stated
                  in U.S. Dollars)**
 
 
 **3.**
                        **SUMMARY
                            OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)
 
 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**
 
 **JUNE
                  30, 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.
 
 **JUNE
                            30**
                          **2006**
                        
                        DECEMBER
                            31
                          2005Proved
                            property
                        **$**
                        **102,346**
                        
                        $
                        102,346Less:
                            Accumulated depletion
                        
                        **(101,074)**
                        
                        
                        (101,074)**$**
                        **1,272**
                        
                        $
                        1,272
 
 
 b)
                        Unproved
                            Properties
 
 **JUNE
                            30**
                          **2006**
                        
                        DECEMBER
                            31
                          2005Todd
                            CreekAcquisition
                            cost
                        **$**
                        **597,263**
                        
                        $
                        597,263Cash
                            call
                        
                        **550,085**
                        
                        
                        519,990HillspringAcquisition
                            cost
                        
                        **414,766**
                        
                        
                        414,766Cache
                            SloughCash
                            call
                        
                        **301,387**
                        
                        
                        301,387StrachanAcquisition
                            cost
                        
                        **328,349**
                        
                        
                        207,294Texalta
                        
                        **181,422**
                        
                        
                        -Brinx
                        
                        **362,187**
                        
                        
                        -Palmetto
                            PointAcquisition
                            cost
                        
                        **425,000**
                        
                        
                        -**$**
                        **3,160,459**
                        
                        $
                        2,040,700
 
 
 F-10
 Table
                      of Contents
 **DELTA
                  OIL & GAS, INC.**
 **(A
                  Development Stage Company)**
 
 **NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
                  30, 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 June 30, 2006, a cash call of $550,085 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**
 
 **JUNE
                  30, 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, USA
 
 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.
 
 vi).
                  Wordsworth Prospect, Saskatchewan, Canada
 
 On
                  April
                  10, 2006, the Company entered into an agreement (the “Agreement”) with Petrex
                  Energy Ltd., for a participation and Farmout agreement where the
                  Company will
                  participate for 15% gross working interest before payout (BPO)
                  and 7.5% gross
                  working interest after pay out (APO) in a proposed four well horizontal
                  drilling
                  program in the Wordsworth area in Southeast Saskatchewan, Canada.
                  As at June
 
 F-12
 Table
                      of Contents
 **DELTA
                  OIL & GAS, INC.**
 **(A
                  Development Stage Company)**
 
 **NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
                  30, 2006**
 **(Unaudited)**
 **(Stated
                  in U.S. Dollars)**
 
 
 **4.**
                        **NATURAL
                            GAS AND OIL PROPERTIES**(Continued)
  30,
                  2006,
                  the Company had advanced CDN$200,889 as its share of the costs
                  in this
                  Agreement.
 
 vii)
                  Owl
                  Creek Prospect, Oklahoma, USA
 
 In
                  June
                  2006, Delta Oil & Gas entered into an agreement to accept the assignment of
                  an undivided 20% working interest in a potential oil well known
                  as the Powell #2
                  and an option to purchase a 20% interest in all future  wells
                  drilled on the land surrounding Powell #2. In addition, Delta has
                  an option to
                  participate in any lands of mutual interest that may be acquired
                  in the future
                  by the Owl Creek participating partners. The cost to Delta  for
                  this
                  assignment was $300,000.
 
 **5.**
                        **NATURAL
                            GAS AND OIL EXPLORATION RISK**
  a)  Exploration
                  Risk
 
 The
                  Company’s future financial condition and results of operations will depend
                  upon
                  prices received for its natural gas and oil production and the
                  cost of finding,
                  acquiring, developing and producing reserves. Substantially all
                  of its
                  production is sold under various terms and arrangements at prevailing
                  market
                  prices. Prices for natural gas and oil are subject to fluctuations
                  in response
                  to changes in supply, market uncertainty and a variety of other
                  factors beyond
                  its control. Other factors that have a direct bearing on the Company’s prospects
                  are uncertainties inherent in estimating natural gas and oil reserves
                  and 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.
 
 b)  Distribution
                  Risk
 
 The
                  Company is dependent on the operator to market any oil production
                  from its wells
                  and any subsequent production which may be received from other
                  wells which may
                  be successfully drilled on the Prospect.  It relies on the operator’s
                  ability and expertise in the industry to successfully market the
                  same. Prices at
                  which the operator sells gas/oil both in intrastate and interstate
                  commerce,
                  will be subject to the availability of pipe lines, demand and other
                  factors
                  beyond the control of the operator. The Company and the operator
                  believe any oil
                  produced can be readily sold to a number of buyers.
 
 F-13
 Table
                      of Contents
 **DELTA
                      OIL & GAS, INC.**
 **(A
                      Development Stage Company)**
 
 **NOTES
                      TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
                      30, 2006**
 **(Unaudited)**
 **(Stated
                      in U.S. Dollars)**
 
  **6.**
                            **NOTE
                                PAYABLE**
 
 **JUNE
                                  30**
                                **2006**
                              
                              DECEMBER
                                  31
                                2005Unsecured
                                  loan, repayable January 4, 2006, together with
                                  accrued interest at a rate
                                  of 6.5% per annum. As at June 30, 2006, the note was forgiven and the
                                  Company was released from all obligations under
                                  the promissory
                                  note.
                              **$**
                              **Nil**
                              
                              $
                              39,397
 
  During
                        the quarter ended June 30, 2006, the Company was released
                        from all obligations
                        under the note payable by the note holder, which amounted
                        to $39,933 including
                        principle and interest accrued before and after maturity.
                        The Company provided
                        no consideration in exchange for this release
 
 **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.
 
 On
                        February 24, 2006, the Company sold 727,272 common shares
                        pursuant to a private
                        placement at $2.75 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
                      $55,109 was recorded during the three months ended June 30,
                      2006 (June 30, 2005
                      - $Nil) related to options granted during the year ended December
                      31, 2005 and
                      the three months ended June 30, 2006, but vested during the
                      three months ended
                      June 30, 2006.
 
 The
                      changes in stock options are as follows:
 
 **NUMBER**
                            
                            **WEIGHTED**
                              **AVERAGE**
                              **EXERCISE**
                              **PRICE**Balance
                                outstanding, December 31, 2005
                            570,000
                            
                            $
                            0.95Exercised
                            (317,500)
                            
                            
                            (0.95)Balance
                                outstanding, June 30, 2006
                            252,500
                            
                            $
                            1.00
 F-14
 Table
                      of Contents
 **DELTA
                  OIL & GAS, INC.**
 **(A
                  Development Stage Company)**
 
 **NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
                  30, 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
                  June 30, 2006:
 
 **OPTIONS
                            OUTSTANDING**
                        
                        **OPTIONS
                            EXERCISABLE****EXERCISE**
                          **PRICE**
                        **NUMBER
                            OF**
                          **SHARES**
                        **REMAINING**
                          **CONTRACTUAL**
                          **LIFE
                            (YEARS)**
                        
                        **NUMBER
                            OF**
                          **SHARES**$
                        1.00
                        12,500
                        2.75
                        
                        12,500$
                        1.15
                        240,000
                        1.25
                        
                        32,000
 
 c)
                        Common
                            Stock Share Purchase Warrants
 
 As
                  at
                  June 30, 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 June 30, 2006, the Company paid $15,197 (June
                  30, 2005 - $Nil)
                  for management fees to a director of the Company.
 
 An
                  amount
                  of $880 at June 30, 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
                  terminated on
                  February 28, 2006, and is currently 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-15
 Table
                      of Contents
 **DELTA
                  OIL & GAS, INC.**
 **(A
                  Development Stage Company)**
 
 **NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
                  30, 2006**
 **(Unaudited)**
 **(Stated
                  in U.S. Dollars)**
 
 
 **9.**
                        **COMMITMENT
                            AND CONTRACTUAL OBLIGATIONS**(Continued)
 
 From
                  March 1, 2005, the Company commenced renting an office on a month
                  to month basis
                  for $243 per month.
 F-16
 Table
            of Contents
  **Item
        2. Management’s Discussion and Analysis**
 
 **Forward-Looking
        Statements**
 
 Certain
        statements, other than purely historical information, including estimates,
        projections, statements relating to our business plans, objectives, and expected
        operating results, and the assumptions upon which those statements are based,
        are “forward-looking statements” within the meaning of the Private Securities
        Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933
        and Section 21E of the Securities Exchange Act of 1934. These
        forward-looking statements generally are identified by the words “believes,”
“project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,”
“may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and
        similar expressions. We
        intend
        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 are including this statement for purposes of complying with
        those safe-harbor provisions. Forward-looking
        statements are based on current expectations and assumptions that are subject
        to
        risks and uncertainties which may cause actual results to differ materially
        from
        the forward-looking statements. Our
        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 our
        operations and future prospects 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 also be considered
        in evaluating forward-looking statements and undue reliance should not be
        placed
        on such statements. We
        undertake no obligation to update or revise publicly any forward-looking
        statements, whether as a result of new information, future events or otherwise.
        Further information concerning our business, including additional factors
        that
        could materially affect our financial results, is included herein and in our
        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 producing wells, 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; the
        Southern Alberta Foothills area in Canada; and Garvin and McClain counties
        in
        Oklahoma.
 
 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
        called 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. 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
  4
 Table
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  discounted
        cash flows remaining from reserves as of December 31, 2005. The operator
        of the
        well markets each non−operator's share of gas production from the well and
        deducts all royalty burdens and operating expenses prior to the distribution
        of
        revenues.
 
 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 Prospect
 
 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). This option terminates on December 31, 2006.
 
 Included
        in the acquisition is a test well that has been drilled and cased. Under
        the
        terms of this agreement, Win 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 Todd Creek property was drilled
        to
        a specifically targeted depth. This well is located in 13-28-9-2W5 in Alberta,
        Canada and we will refer to this well as the “13-28 well.” The 13-28 well was
        evaluated and tested. The operator encountered gas reservoirs and concluded
        that
        this well is a potential gas well. This well is anticipated to be tied into
        a
        newly constructed gas processing plant with production commencing in August
        2006. We and Win Energy Corporation intend to drill a number of development
        wells in this prospect in the fourth quarter of 2006.
 
 During
        the third quarter of 2005, another well was drilled on the Todd Creek property.
        This well is located in 7-16-9-2W5 in Alberta, Canada and we will refer to
        this
        well as the “7-16 well.” The 7-16 well 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
        Prospect
 
 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
  5
 Table
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  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, M.D.B.M., Solano County, California upon
        incurring expenditures for drilling and testing on the said property. We
        refer
        to this property as the “Cache Slough Prospect.” Based upon an agreement with
        the property owner, this California company will be responsible for all costs
        and receive 68% of the revenue generated from the wells drilled on the property.
        The property owner will receive the remaining 32% of revenue. 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 of 2005. Preliminary
        drill
        logs indicated that this is a potential gas well and the operator then completed
        the well for testing. Preliminary testing resulted in the potential discovery
        of
        natural gas and the operator elected to complete the well. The well is currently
        being tied in to a nearby pipeline to accommodate any potential natural gas
        production. Flow rates and reserve size may be announced after the well has
        commenced 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 September 2006.
 
 Based
        on
        the positive results from the first well drilled on this property, a second
        well
        has been drilled on this property to a targeted depth of 5,500 feet. We have
        not
        received any preliminary results from testing on this second well. We anticipate
        that additional wells will be drilled on this property and these plans are
        currently being prepared.
 
 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,
  6
 Table
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  and
        completing the test well on the property which we refer to as the Leduc
        formation test well, we will have earned:
 
 a)
              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
 
 b)
              a
                  1.600% interest in the rights below the base of the Shunda formation
                  in
                  Section 10, Township 38, Range
                  9W5M.
 
 c)
              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
        additional testing returns positive results, this well will be tied a nearby
        pipeline to accommodate the natural gas production. We anticipate receiving
        result from further testing in the third quarter of the current fiscal
        year.
 
 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 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
        the
        first week of May 2006 and anticipated to be completed by Griffin within
        approximately 10 months. The prospect area owned or controlled by Griffin
        on
        which the initial ten wells will be drilled, is comprised of approximately
        1273
        acres in Palmetto Point, Mississippi. To date, seven wells have been drilled.
        Two of the wells have encountered zones of natural gas and oil zones, 3 of
        the
        wells have encountered only gas zones, and the other two wells were dry and
        have
        been plugged and abandoned. The five wells with zones of natural gas and/or
        oil
        are being hooked up to a natural gas pipeline and we expect to commence
        production in August 2006. Flow rates for
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  these
        wells will not be known until the pipeline connections are complete and
        production has commenced.
 
 Wordsworth
        Prospect
 
 On
        April
        20, 2006, we entered into a farmout, option and participation letter agreement
        (“FOP Agreement”) where we acquired a 15% 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 earned a 15%working interest
        before payout and a 7.5% working interest after payout on the Wordsworth
        prospect. Payout refers to the return of our initial investment in the property.
        In addition, we also acquired 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.
 
 During
        June 2006, the first well was drilled to a horizontal depth of 2033 meters
        in
        the Wordsworth prospect. The initial drilling of this well and subsequent
        testing revealed that this well contains oil reserves suitable for commercial
        production. In June 2006, this initial well was producing as a flowing oil
        well.
        As of June 30, 2006, this well had produced 4,339 barrels of oil. This well
        is
        also currently producing natural gas, but we have been forced to burn off
        the
        initial gas production until such time that it can be connected to a pipeline.
        Since this time, the flow rates of the well have fluctuated significantly.
        At
        the present time, we have not estimated the reserves of this well and can
        provide no assurance that this well will continue to produce any reserves
        in the
        future.
 
 Owl
        Creek Prospect
 
 On
        June
        1, 2006, we entered into an Assignment Agreement with Brinx Resources, Ltd.,
        (“Brinx”) a Nevada Oil & Gas Exploration Company, in order to acquire a
        working interest in lands and leases owned by Brinx. The purchase price of
        $300,000 for the assignment and options to acquire future interests has been
        paid in full. The lands are located in Garvin & McClain Counties, Oklahoma
        and we refer to the lands as the “Owl Creek Prospect.”
 
 Pursuant
        to the terms of the Assignment Agreement, we acquired a 20% working interest
        in
        an oil well drilled at the Owl Creek Prospect and we refer to the “Powell #2.”
The Powell #2 was drilled to total depth of 5,617 feet on May 18, 2006 and
        underwent testing. Based upon the positive result of the testing on the Powell
        #2 well, this well was completed and commercial production has commenced.
        Under
        the terms of the Assignment Agreement, we are responsible for our proportionate
        share of the costs of completion and tie-in for production of the Powell
        #2
        well. Initially after the well was completed, the Powell #2 well began flowing
        natural oil and gas under its own pressure without the assistance of a pump.
        The
        flow rates of the Powell #2 well have fluctuated significantly. As of July
        20,
        2006, the Powell #2 well had produced 5,346 barrels of oil. At the present
        time,
        we have not estimated the reserves of the Powell #2 well and can provide
        no
        assurance that this well will continue to produce any reserves in the future.
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  We
        were
        also granted an option to earn a 20% working interest in any future wells
        to be
        drilled on the 1,120 acres of land in Garvin & McClain Counties, USA which
        make up the Owl Creek Prospect. Lastly, we received an option to earn a 20%
        working interest in any future wells to be drilled on any land of mutual
        interest acquired by the Owl Creek participants in and around the same area.
        The
        working interest in future wells is earned by paying 20% of the costs of
        drilling and completing each additional well.
 
 Based
        upon the positive results of the Powell #2 well, an additional well is
        anticipated to be drilled in the area as early as August 2006. We exercised
        our
        option to acquire a 20% working interest in this well which we will refer
        to as
        the “Isbill #1-36” we are responsible for 20% of the costs of drilling and
        completing the well.
  **Results
        of Operations for the three and six months ended June 30, 2006 and
        2005**
  For
        the
        three months ended June 30, 2006, our revenues generated from natural gas
        and
        oil sales decreased to $1,226 from revenue of $1,852 for the three months
        ended
        June 30, 2006. For the six months ended June 30, 2006, our revenues generated
        from natural gas and oil sales decreased to $3,414 from revenue of $3,788
        for
        the six months ended June 30, 2006. All revenue generated during the three
        and
        six months ended June 30, 2006 and 2005 was attributable to the Liberty Valance
        Well, our only producing property during this reporting period. The decrease
        in
        revenue is attributable to the depletion of the reserves in the Liberty Valance
        Well.
 
 We
        incurred costs and expenses in the amount of $44,775 for the three months
        ended
        June 30, 2006, compared to costs and expenses of $48,667 for the same three
        month period in the prior year. Our costs and expenses for the three months
        ended June 30, 2006 consisted of general and administrative expenses of $43,690,
        natural gas and oil operating costs of $924, and depreciation and depletion
        of
        $161. Our costs and expenses for the three months ended June 30, 2005 consisted
        of general and administrative expenses of $47,250, natural gas and oil operating
        costs of $1,346, and depreciation and depletion of $71.
 
 We
        incurred costs and expenses in the amount of $211,953 for the six months
        ended
        June 30, 2006, compared to costs and expenses of $84,815 for the six months
        ended June 30, 2005. Our costs and expenses for the six months ended June
        30,
        2006 consisted of general and administrative expenses of $203,963, natural
        gas
        and oil operating costs of $1,685, depreciation and depletion of $314, and
        stock
        based compensation of $5,991. Our costs and expenses for the six months ended
        June 30, 2005 consisted of general and administrative expenses of $82,076,
        natural gas and oil operating costs of $2,668, and depreciation and depletion
        of
        $71. This increase in costs and expenses for the six month ended June 30,
        2006
        from the same period in the prior year is attributable to increased general
        and
        administrative fees consisting primarily of professional fees associated
        with
        the acquisition of the additional interests in oil and gas
        properties.
 
 During
        the three and six months ended June 30, 2006, we reported other income of
        $50,858. We did not record any other income in the three or six months ended
        June 30, 2005. Other income
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  during
        the reporting period consisted of $39,933 relating to the forgiveness of
        debt on
        a promissory note and $10,925 as interest income earned on short-term
        investments.
 
 Net
        profit for the three months ended June 30, 2006 was $7,309, compared to a
        net
        loss of $46,815 for the three months ended June 30, 2005. Net loss for the
        six
        months ended June 30, 2006 was $153,716, compared to a net loss of $81,027
        for
        the six months ended June 30, 2005.
 
 There
        are
        material events and uncertainties which could cause our reported
        financial information to not to
        be
        indicative of future operating results or financial condition . Our
        inability to successfully identify, execute or effectively integrate future
        acquisitions may negatively affect our results of operations. The success
        of any
        acquisition depends on a number of factors beyond our control, including
        the
        ability to estimate accurately the recoverable volumes of reserves, rates
        of
        future production and future net revenues attainable from the reserves and
        to
        assess possible environmental liabilities. Drilling for oil and natural gas
        may
        also involve unprofitable efforts, not only from dry wells but also from
        wells
        that are productive but do not produce sufficient net reserves to return
        a
        profit after deducting operating and other costs. In addition, wells that
        are
        profitable may not achieve our targeted rate of return. Our ability to achieve
        our target results are also dependent upon the current and future market
        prices
        for crude oil and natural gas, costs associated with producing oil and natural
        gas and our ability to add reserves at an acceptable cost. We do not operate
        the
        properties in which we have an interest and we have limited ability to exercise
        influence over operations for these properties or their associated costs.
        Our
        dependence on the operator and other working interest owners for these projects
        and our limited ability to influence operations and associated costs could
        materially adversely affect the realization of our returns on capital in
        drilling or acquisition activities and our targeted production growth rate.
        As a
        result, our historical results should not be indicative of future operations.
 
 **Liquidity
        and Capital Resources**
 
 As
        of
        June 30, 2006, we had total current assets of $1,168,159 and total current
        liabilities in the amount of $35,753. As a result, we had working capital
        of
        $1,132,406 as of June 30, 2006.
 
 The
        revenue we currently generate natural gas and oil sales does not exceed our
        operating expenses. We primarily relied on financing activities including
        issuance of common stocks and units as well as share subscription receipts
        to
        fund our operations for the six months ended June 30, 2006. During the six
        months ended June 30, 2006, we received gross proceeds in the amount of
        $2,183,596 from the sale of our equity securities.
 
 We
        will
        require additional funds to expand our acquisition, exploration and production
        of natural oil and gas properties. Our management anticipates that current
        cash
        on hand is sufficient to fund our continued operations at the current level
        for the remainder of the fiscal year ended December 31, 2006. Additional
        capital
        will be required to effectively expand our operations and implement our overall
        business strategy. It is uncertain whether we will be able to obtain financing
        when sought. If we are unable to obtain additional financing, the full
        implementation of our ability to expand our operations will be impaired.
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  Operating
        activities used $257,116 in cash for the six months ended June 30, 2006.
        Our net
        loss of $153,715 was the primary component of our negative operating cash
        flow.
        Investing activities during the six months ended June 30, 2006 consisted
        of
        $1,119,759 for the purchase or natural gas and oil properties. Cash flows
        provided by financing activities during the six months ended June 30, 2006
        primarily consisted of $2,167,596 related to the issuance of common
        stock.
 
 The
        underlying drivers that resulted in material changes and the specific inflows
        and outflows of cash for the six months ended June 30, 2006 are as
        follows:
 
 a.
              Property
                  acquisition costs, and
 b.
              Financing
                  from the issuance of common stock.
 
 **Off
        Balance Sheet Arrangements**
 
 As
        of
        June 30, 2006, there were no off balance sheet arrangements.
 
 **Going
        Concern**
 
 As
        shown
        in the accompanying financial statements, we have incurred a net loss of
        $1,026,931 since inception. To achieve profitable operations, we require
        additional capital for obtaining producing oil and gas properties through
        either
        the purchase of producing wells or successful exploration activity. Our
        management believes that sufficient funding will be available to meet our
        business objectives including anticipated cash needs for working capital
        and is
        currently evaluating several financing options. However, there can be no
        assurance that we will be able to obtain sufficient funds to continue the
        development of and, if successful, to commence the sale of our products under
        development. As a result of the foregoing, there exists substantial doubt
        about
        our ability to continue as a going concern.
 
 **Critical
        Accounting Policies**
 
 In
        December 2001, the SEC requested that all registrants list their most “critical
        accounting polices” in the Management’s 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.
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  **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 oil and gas properties
            (full cost ceiling limitation) are not to exceed the sum of the related
            estimated future net revenues from proved reserves discounted at 10%,
            the lower
            of cost or estimated fair value of unproved properties included in the
            costs
            being amortized, if any, and the cost of unevaluated and unproved properties
            not
            being amortized, if any, net of tax considerations. These properties
            are
            included in the amortization pool immediately upon the determination
            that the
            well is dry.
  Unproved
            properties consist of lease acquisition costs and costs on wells currently
            being
            drilled on the properties. The recorded costs of the investment in unproved
            properties is not amortized until proved reserves associated with the
            projects
            can be determined or until they are impaired.
 **Revenue
        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 of the remaining
        estimated proved natural gas reserves for a given property, we record a
        liability. At June 30, 2006, we had no overproduced imbalances.
 
 **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 June 30, 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
        June
        30, 2006, our disclosure controls and procedures are effective. There have
        been
        no changes in our internal controls over financial reporting during the quarter
        ended June 30, 2006.
 
 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.
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  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.
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  **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**
  None
  **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 June
        30,
        2006.
  **Item
        5. Other Information**
  None
  **Item
        6. Exhibits**
  **Exhibit****Number**
              **Description
                  of Exhibit**3.1
              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 Prospect610.9
              Agreement
                  to Acquire Interest in Owl Creek731.1
              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 2002
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  32.1
              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
 7.
              Incorporated
                  by reference to current report on Form 8−K filed on June 2,
                  2006
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  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:
                January
                    8, 2007By:/s/
                    Douglas Bolen
                  Douglas Bolen
                  Title:**Chief
                    Executive Officer and
                    Director**