**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      DC 20549





**FORM
      10-QSB**





[X]
            Quarterly
                Report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934For
                the quarterly period 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, 2001
                      Through
                        June
                          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)
                  
                  
                  8,050
                  
                  
                  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)
                  
                  
                  (92,142)
                  
                  
                  (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
                  
                  
                  137,825
                  
                  
                  1,149,725CASH
                        AND CASH EQUIVALENTS AT BEGINNING OF PERIOD(EXCESS OFCHECKS
                      ISSUED OVER FUNDS ON DEPOSIT)
                  
                  343,004
                  
                  
                  (5,283)
                  
                  
                  -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 evaluated oil and
        gas
        properties (full cost ceiling limitation) are not to exceed their related
        estimated future net revenues discounted at 10%, and the lower of cost or
        estimated fair value of unproved properties, net of tax
        considerations.
 
 
 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
  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) 
 the
        Company’s credit-adjusted risk-free interest rate. To date, insufficient
        information has been available for management to determine the Company’s asset
        retirement obligations, which primarily relates to the plugging and abandonment
        of its wells. Accordingly, no liabilities have been recorded.
 
 e)
              Joint
                  Ventures
 
 All
        exploration and production activities are conducted jointly with others and,
        accordingly, the accounts reflect only the Company’s proportionate interest in
        such activities.
 
 f)
              Revenue
                  Recognition
 
 The
        Company uses the sales method of accounting for natural gas and oil revenues.
        Under this method, revenues are recognized upon the passage of title, net
        of
        royalties. Revenues from natural gas production are recorded using the sales
        method. When sales volumes exceed the Company’s entitled share, an overproduced
        imbalance occurs. To the extent the overproduced imbalance exceeds the Company’s
        share of the remaining estimated proved natural gas reserves for a given
        property, the Company records a liability. At 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
                    312005Proved
                  property
              **$**
              **102,346**
              
              $
              102,346Less:
                  Accumulated depletion
              
              **(101,074)**
              
              
              (101,074)**$**
              **1,272**
              
              $
              1,272
 
 b)
              Unproved
                  Properties
 
 **JUNE
                    30****2006**
              
              DECEMBER
                    312005Todd
                  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
                    312005Unsecured
                  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
 
 **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
        April
        25, 2006, the Company issued 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


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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,


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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 evaluated oil and gas
      properties (full cost ceiling limitation) are not to exceed their related
      estimated future net revenues discounted at 10%, and the lower of cost or
      estimated fair value of unproved properties, net of tax
      considerations.





**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:
            August
                17, 2006By:/s/
                Douglas Bolen
              Douglas Bolen
              Title:**Chief
                Executive Officer and
                Director**