UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549





FORM
10-Q





x
                  Quarterly
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended:  June 30,
      2009o
                  Transition
      Report pursuant to 13 or 15(d) of the Securities Exchange Act of
      1934For
      the transition period _________
      to__________Commission
      File Number:  000-52001





Delta Oil & Gas,
Inc.


(Exact
name of registrant as specified in its charter)





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





Suite 604 – 700 West Pender Street, Vancouver,
      British Columbia, Canada V6C 1G8(Address
      of principal executive
offices)





866-355-3644(Registrant’s
      telephone number, including area code)_______________________________________________________________(Former
      name, former address and former fiscal year, if changed since last
      report)


Indicate by check mark whether the
registrant (1) has 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.  xYes  o No





Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files).   ý
Yes    ̈ No




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer,” “non-accelerated filer,” and “a smaller reporting company”
in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer  o
            Accelerated
      filer   oNon-accelerated
      filer    o
            Smaller
      reporting company  x





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





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:


Class
                  
                  Outstanding
      at July 31, 2009Common
      Stock, $0.001 par value
                  
                  67,785,532
   Table of Contents
  
  TABLE OF
      CONTENTS
                        PagePART I – FINANCIAL
      INFORMATIONItem
      1.
                        Financial Statements
                        3Item
      2.
                        Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
                        4Item
      3.
                        Quantitative and Qualitative Disclosures About Market
      Risk
                        16Item
      4T.
                        Controls and Procedures
                        16PART II – OTHER
      INFORMATIONItem
      1.
                        Legal Proceedings
                        18Item
      1A.
                        Risk Factors
                        18Item
      2.
                        Unregistered Sales of Equity Securities and Use of
      Proceeds
                        18Item
      3.
                        Defaults Upon Senior Securities
                        18Item
      4.
                        Submission of Matters to a Vote of Security
      Holders
                        18Item
      5.
                        Other Information
                        18Item
      6.
                        Exhibits
                        19SignaturesExhibitsCertifications


- 2
-
 Table of Contents


PART
I - FINANCIAL INFORMATION





Item 1.  Financial
Statements





Our
      unaudited consolidated financial statements included in this Form 10-Q for
      the three and six months ended June 30, 2009 are as follows:F-1
            Unaudited
      Consolidated Balance Sheet as of June 30, 2009;F-2
            Unaudited
      Consolidated Statements of Operations for the three and six months ended
      June 30, 2009 and 2008 and from inception on January 9, 2001 to June 30,
      2009;F-3
            Unaudited
      Consolidated Statements of Cash Flows for the six months ended June 30,
      2009 and 2008 and from inception on January 9, 2001 to June 30,
      2009;F-4
            Unaudited Consolidated Statement of Changes in
      Stockholders' Equity from inception on January 9, 2001 to June 30,
      2009;F-5
            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-Q.  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, 2009 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(Stated
      in U.S. Dollars)June
      30,
                                      
                                      
                                      December
      31,2009
                                      
                                      
                                      2008ASSETS
                                      
                                      (Unaudited)
                                      
                                      
                                      (Audited)CurrentCash
      and cash equivalents
                                      
                                      $
                                      893,424
                                      
                                      
                                      $
                                      980,562Accounts
      receivable
                                      
                                      
                                      38,730
                                      
                                      
                                      
                                      65,614Franchise
      tax prepaid
                                      
                                      
                                      1,004
                                      
                                      
                                      
                                      -Prepaid
      expenses
                                      
                                      
                                      7,681
                                      
                                      
                                      
                                      11,193940,839
                                      
                                      
                                      
                                      1,057,369Natural
      Gas And Oil PropertiesProved
      property
                                      
                                      
                                      1,168,206
                                      
                                      
                                      
                                      892,096Unproved
      property
                                      
                                      
                                      412,540
                                      
                                      
                                      
                                      630,3761,580,746
                                      
                                      
                                      
                                      1,522,472Capital
      Assets, Net
                                      
                                      
                                      4,169
                                      
                                      
                                      
                                      172TOTAL
      ASSETS
                                      
                                      $
                                      2,525,754
                                      
                                      
                                      $
                                      2,580,013LIABILITIES AND STOCKHOLDERS'
      EQUITYLIABILITIESCurrentAccounts
      payable and accrued liabilities
                                      
                                      $
                                      24,364
                                      
                                      
                                      $
                                      26,553Long
      TermAsset
      retirement obligation
                                      
                                      
                                      21,881
                                      
                                      
                                      
                                      23,604TOTAL
      LIABILITIES
                                      
                                      
                                      46,245
                                      
                                      
                                      
                                      50,157STOCKHOLDERS'
      EQUITYShare
      CapitalPreferred
      Shares, 25,000,000 shares authorized of $0.001par
      value of which none have been issuedCommon
      stock, 100,000,000 shares authorized of $0.001par
      value, 67,785,532 and 46,840,506 shares issuedand
      outstanding, respectively
                                      
                                      
                                      67,786
                                      
                                      
                                      
                                      46,841Additional
      paid-in capital
                                      
                                      
                                      6,917,084
                                      
                                      
                                      
                                      6,050,799Cumulative
      Other Comprehensive Income/(loss)
                                      
                                      
                                      38,172
                                      
                                      
                                      
                                      5,978Deficit
      Accumulated During The Development Stage
                                      
                                      
                                      (4,639,843
                                      )
                                      
                                      
                                      (3,573,762
                                      )2,383,199
                                      
                                      
                                      
                                      2,529,856Noncontrolling
      Interest
                                      
                                      
                                      96,310
                                      
                                      
                                      
                                      -TOTAL
      STOCKHOLDERS' EQUITY
                                      
                                      
                                      2,479,509
                                      
                                      
                                      
                                      2,529,856TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                      
                                      $
                                      2,525,754
                                      
                                      
                                      $
                                      2,580,013The
      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(Stated
      in U.S. Dollars)(Unaudited)CUMULATIVE
      PERIODFROM
      INCEPTIONJANUARY
      9, 2001THREE
      MONTHS ENDED
                                            
                                            
                                            SIX
      MONTHS ENDED
                                            
                                            
                                            TOJUNE
      30,
                                            
                                            
                                            JUNE
      30,
                                            
                                            
                                            JUNE
      30,2009
                                            
                                            
                                            2008
                                            
                                            
                                            2009
                                            
                                            
                                            2008
                                            
                                            
                                            2009RevenueNatural
      gas and oil sales
                                            
                                            $
                                            64,040
                                            
                                            
                                            $
                                            305,850
                                            
                                            
                                            $
                                            132,091
                                            
                                            
                                            $
                                            583,140
                                            
                                            
                                            $
                                            2,517,121Gain
      on sale of natural gas and oil properties
                                            
                                            
                                            142,481
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            142,481
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            2,271,087206,521
                                            
                                            
                                            
                                            305,850
                                            
                                            
                                            
                                            274,572
                                            
                                            
                                            
                                            583,140
                                            
                                            
                                            
                                            4,788,208Costs
      And ExpensesNatural
      gas and oil operating costs
                                            
                                            
                                            36,403
                                            
                                            
                                            
                                            67,705
                                            
                                            
                                            
                                            73,176
                                            
                                            
                                            
                                            131,110
                                            
                                            
                                            
                                            630,557General
      and administrative
                                            
                                            
                                            199,897
                                            
                                            
                                            
                                            99,340
                                            
                                            
                                            
                                            292,222
                                            
                                            
                                            
                                            185,633
                                            
                                            
                                            
                                            3,332,899Accretion
                                            
                                            
                                            813
                                            
                                            
                                            
                                            3,354
                                            
                                            
                                            
                                            1,548
                                            
                                            
                                            
                                            6,708
                                            
                                            
                                            
                                            8,953Depreciation
      and depletion
                                            
                                            
                                            4,941
                                            
                                            
                                            
                                            62,510
                                            
                                            
                                            
                                            25,704
                                            
                                            
                                            
                                            160,947
                                            
                                            
                                            
                                            1,464,662Impairment
      of natural gas and oil properties
                                            
                                            
                                            71,794
                                            
                                            
                                            
                                            25,332
                                            
                                            
                                            
                                            202,486
                                            
                                            
                                            
                                            388,702
                                            
                                            
                                            
                                            3,209,638Dry
      well costs written off
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            119,961Loss
      on sale of natural gas and oil properties
                                            
                                            
                                            750,305
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            750,305
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            750,3051,064,153
                                            
                                            
                                            
                                            258,241
                                            
                                            
                                            
                                            1,345,441
                                            
                                            
                                            
                                            873,100
                                            
                                            
                                            
                                            9,516,975Net
      Operating Loss
                                            
                                            
                                            (857,632
                                            )
                                            
                                            
                                            47,609
                                            
                                            
                                            
                                            (1,070,869
                                            )
                                            
                                            
                                            (289,960
                                            )
                                            
                                            
                                            (4,728,767
                                            )Other
      Income And ExpenseForgiveness
      of debt
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            39,933Interest
      income
                                            
                                            
                                            2,713
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            5,672
                                            
                                            
                                            
                                            252
                                            
                                            
                                            
                                            73,866Interest
      expense
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (3,418
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (3,418
                                            )
                                            
                                            
                                            (5,016
                                            )2,713
                                            
                                            
                                            
                                            (3,418
                                            )
                                            
                                            
                                            5,672
                                            
                                            
                                            
                                            (3,166
                                            )
                                            
                                            
                                            108,783Loss
      Before Income Taxes
                                            
                                            
                                            (854,919
                                            )
                                            
                                            
                                            44,191
                                            
                                            
                                            
                                            (1,065,197
                                            )
                                            
                                            
                                            (293,126
                                            )
                                            
                                            
                                            (4,619,984
                                            )Income
      taxes
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            5,205
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            24,180Net
      Loss
                                            
                                            
                                            (854,918
                                            )
                                            
                                            
                                            44,191
                                            
                                            
                                            
                                            (1,070,402
                                            )
                                            
                                            
                                            (293,126
                                            )
                                            
                                            
                                            (4,644,164
                                            )Less:
      Net loss attributable to the noncontrolling interest
                                            
                                            
                                            4,175
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            4,321
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            4,321Net
      Loss Attributable to Delta Oil and Gas, Inc.
                                            
                                            $
                                            (850,744
                                            )
                                            
                                            $
                                            44,191
                                            
                                            
                                            $
                                            (1,066,081
                                            )
                                            
                                            $
                                            (293,126
                                            )
                                            
                                            $
                                            (4,639,843
                                            )Basic
      And Diluted Loss Per Common Share
                                            
                                            $
                                            (0.01
                                            )
                                            
                                            
                                            (0.00
                                            )
                                            
                                            $
                                            (0.02
                                            )
                                            
                                            $
                                            (0.01
                                            )Weighted
      Average Number OfCommon
      Shares Outstanding
                                            
                                            
                                            67,693,224
                                            
                                            
                                            
                                            45,940,506
                                            
                                            
                                            
                                            57,864,387
                                            
                                            
                                            
                                            45,940,506Consolidated
      Statement of Comprehensive Income/(Loss)Comprehensive
      (Loss)Net
      Loss
                                            
                                            $
                                            (854,918
                                            )
                                            
                                            $
                                            (18,319
                                            )
                                            
                                            $
                                            (1,070,402
                                            )
                                            
                                            $
                                            (770,833
                                            )
                                            
                                            $
                                            (4,644,164
                                            )Other
      Comprehensive LossForeign
      Currency Translation
                                            
                                            
                                            67,250
                                            
                                            
                                            
                                            (704
                                            )
                                            
                                            
                                            31,924
                                            
                                            
                                            
                                            (11,529
                                            )
                                            
                                            
                                            37,902Comprehensive
      (Loss)
                                            
                                            $
                                            (787,668
                                            )
                                            
                                            $
                                            (19,023
                                            )
                                            
                                            $
                                            (1,038,478
                                            )
                                            
                                            $
                                            (782,362
                                            )
                                            
                                            $
                                            (4,606,262
                                            )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(Stated
      in U.S. Dollars)(Unaudited)CUMULATIVE
      PERIODFROM
      INCEPTIONJANUARY
      9, 2001SIX
      MONTHS ENDED
                                    
                                    
                                    TOJUNE
      30,
                                    
                                    
                                    JUNE
      30,2009
                                    
                                    
                                    2008
                                    
                                    
                                    2009Cash
      Flows From Operating Activities:Net
      loss for the period
                                    
                                    $
                                    (1,066,081
                                    )
                                    
                                    $
                                    (770,833
                                    )
                                    
                                    $
                                    (4,639,843
                                    )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Accretion
                                    
                                    
                                    1,548
                                    
                                    
                                    
                                    8,217
                                    
                                    
                                    
                                    8,953Depreciation
      and depletion
                                    
                                    
                                    25,704
                                    
                                    
                                    
                                    287,688
                                    
                                    
                                    
                                    1,464,662Impairment
      of natural gas and oil properties
                                    
                                    
                                    202,486
                                    
                                    
                                    
                                    678,904
                                    
                                    
                                    
                                    3,209,638Dry
      well costs written off
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    119,961Loss
      on sale of natural gas and oil properties
                                    
                                    
                                    750,305
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    750,305Stock-based
      compensation expense
                                    
                                    
                                    13,750
                                    
                                    
                                    
                                    103,024
                                    
                                    
                                    
                                    621,833Shares
      issued to President & CEO for servicess rendered
                                    
                                    
                                    30,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    516,500Shares
      issued to CFO for services rendered
                                    
                                    
                                    12,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    170,700Shares
      issued to Investor Relations Services Inc for services
      rendered
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    40,800Realized
      foreign exchange loss
                                    
                                    
                                    32,194
                                    
                                    
                                    
                                    (1,363
                                    )
                                    
                                    
                                    34,960Net
      loss attributable to the noncontrolling interest
                                    
                                    
                                    (4,321
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (4,321
                                    )Gain
      on sale of natural gas and oil properties
                                    
                                    
                                    (142,481
                                    )
                                    
                                    
                                    
                                    
                                    
                                    
                                    (2,271,087
                                    )Changes
      in operating assets and liabilities:GIC
                                    
                                    
                                    -
                                    
                                    
                                    
                                    236,112
                                    
                                    
                                    
                                    -Accounts
      receivable
                                    
                                    
                                    26,884
                                    
                                    
                                    
                                    (108,155
                                    )
                                    
                                    
                                    (38,730
                                    )Accounts
      payable and accrued liabilities
                                    
                                    
                                    (2,189
                                    )
                                    
                                    
                                    (154,698
                                    )
                                    
                                    
                                    (91,659
                                    )Interest
      on loan payable
                                    
                                    
                                    -
                                    
                                    
                                    
                                    3,418
                                    
                                    
                                    
                                    -Due
      to related party
                                    
                                    
                                    -
                                    
                                    
                                    
                                    10,496
                                    
                                    
                                    
                                    -Franchise
      tax prepaid
                                    
                                    
                                    (1,004
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (1,004
                                    )Prepaid
      expenses
                                    
                                    
                                    3,512
                                    
                                    
                                    
                                    (8,112
                                    )
                                    
                                    
                                    (7,681
                                    )Net
      Cash Generated/(Used) In Operating Activities
                                    
                                    
                                    (117,692
                                    )
                                    
                                    
                                    284,698
                                    
                                    
                                    
                                    (116,013
                                    )Cash
      Flows From Investing Activities:Purchase
      of other equipment
                                    
                                    
                                    (4,886
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (9,369
                                    )Sale
      proceeds of natural gas and oil working interests
                                    
                                    
                                    407,629
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    3,217,455Investment
      in natural gas and oil working interests
                                    
                                    
                                    (324,143
                                    )
                                    
                                    
                                    (479,145
                                    )
                                    
                                    
                                    (6,954,162
                                    )Net
      Cash Generated /(Used) In Investing Activities
                                    
                                    
                                    78,600
                                    
                                    
                                    
                                    (479,145
                                    )
                                    
                                    
                                    (3,746,076
                                    )Cash
      Flows From Financing Activities:Proceeds
      from loan payable
                                    
                                    
                                    -
                                    
                                    
                                    
                                    90,000
                                    
                                    
                                    
                                    -Share
      issue expenses
                                    
                                    
                                    (48,045
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (180,334
                                    )Proceeds
      from issuance of common stock
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    4,935,847Net
      Cash Provided/(Used) By Financing Activities
                                    
                                    
                                    (48,045
                                    )
                                    
                                    
                                    90,000
                                    
                                    
                                    
                                    4,755,513Net
      Increase/(Decrease) In Cash And Cash Equivalents
                                    
                                    
                                    (87,138
                                    )
                                    
                                    
                                    (104,447
                                    )
                                    
                                    
                                    893,424Cash
      And Cash Equivalents At Beginning Of Period(Excess
      Of Deposits Over Checks Issued)
                                    
                                    
                                    980,562
                                    
                                    
                                    
                                    238,351
                                    
                                    
                                    
                                    -Cash
      And Cash Equivalents At End Of Period
                                    
                                    $
                                    893,424
                                    
                                    
                                    $
                                    133,904
                                    
                                    
                                    $
                                    893,424Supplemental
      Disclosures Of Non-Cash Financing Activities1,000,000
      shares issued to the President & CEO as part of their
                                    
                                    $
                                    30,000
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    516,500compensation
      package400,000
      shares issued to the CFO for services rendered
                                    
                                    $
                                    12,000
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    170,70060,000
      shares issued to Investor Relations Services Inc.,for
      services rendered.
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    40,80019,545,026
      shares issued for the acquisition of Oil and Gas
properties
                                    
                                    $
                                    879,526
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    879,526Supplemental
      Disclosures Of Non-Cash TransactionsIncome
      taxes paid
                                    
                                    $
                                    5,205
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    24,180Investment
      in natural gas and oil working interests included in
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    116,023accounts
      payableThe
      accompanying notes are an integral part of these consolidated financial
      statements




F -
3
 Table of Contents





DELTA
      OIL & GAS INC.(A
      Development Stage Company)Consolidated
      Statement Of Changes In Stockholders' EquityPeriod
      From Inception, January 9, 2001, to June 30, 2009(Stated
      in U.S. Dollars)(Unaudited)DEFICITCOMMON
      STOCK
                                      
                                      
                                      ACCUMULATEDNUMBER
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      SHARE
                                      
                                      
                                      SHARE
                                      
                                      
                                      DURING
      THE
                                      
                                      
                                      CUMULATIVEOF
      COMMON
                                      
                                      PAR
                                      
                                      
                                      ADDITIONAL
                                      
                                      
                                      SUBSCRIPTIONS
                                      
                                      
                                      SUBSCRIPTIONS
                                      
                                      
                                      DEVELOPMENT
                                      
                                      
                                      COMPREHENSIVE
                                      
                                      
                                      NONCONTROLLINGSHARES
      VALUE
                                      
                                      VALUE
                                      
                                      
                                      PAID-IN
      CAPITAL
                                      
                                      
                                      RECEIVED
                                      
                                      
                                      RECEIVABLE
                                      
                                      
                                      STAGE
                                      
                                      
                                      INCOME/(LOSS)
                                      
                                      
                                      INTEREST
                                      
                                      
                                      TOTALShares
      issued for cash at $0.00018
                                      
                                      
                                      13,750,000
                                      
                                      
                                      $
                                      13,750
                                      
                                      
                                      $
                                      (11,250
                                      )
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      2,500Shares
      issued for cash at $0.0036
                                      
                                      
                                      27,500,000
                                      
                                      
                                      
                                      27,500
                                      
                                      
                                      
                                      72,500
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      100,000Shares
      issued for cash at $0.045
                                      
                                      
                                      46,750
                                      
                                      
                                      
                                      47
                                      
                                      
                                      
                                      2,078
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,125Net
      (loss) for the period ended
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (184,407
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (184,407
                                      )Balance,
      December 31, 2001
                                      
                                      
                                      41,296,750
                                      
                                      
                                      
                                      41,297
                                      
                                      
                                      
                                      63,328
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (184,407
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (79,782
                                      )Net
      (loss) for the year
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (62,760
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (62,760
                                      )Balance,
      December 31, 2002
                                      
                                      
                                      41,296,750
                                      
                                      
                                      
                                      41,297
                                      
                                      
                                      
                                      63,328
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (247,167
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (142,542
                                      )Net
      (loss) for the year
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (24,423
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (24,423
                                      )Balance,
      December 31, 2003
                                      
                                      
                                      41,296,750
                                      
                                      
                                      
                                      41,297
                                      
                                      
                                      
                                      63,328
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (271,590
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (166,965
                                      )Share
      subscriptions received
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      160,000
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      160,000Net
      (loss) for the year
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (31,574
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (31,574
                                      )Balance,
      December 31, 2004
                                      
                                      
                                      41,296,750
                                      
                                      
                                      
                                      41,297
                                      
                                      
                                      
                                      63,328
                                      
                                      
                                      
                                      160,000
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (303,164
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (38,539
                                      )Units
      issued for cash at $1.00,
                                      
                                      
                                      2,483,985
                                      
                                      
                                      
                                      2,484
                                      
                                      
                                      
                                      2,481,241
                                      
                                      
                                      
                                      (160,000
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,323,725net
      of share issuance costOptions
      exercised for cash at $0.8
                                      
                                      
                                      245,000
                                      
                                      
                                      
                                      245
                                      
                                      
                                      
                                      195,755
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (16,000
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      180,000Stock-based
      compensation
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      370,267
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      370,267Net
      (loss) for the year
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (570,050
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (570,050
                                      )Balance,
      December 31, 2005
                                      
                                      
                                      44,025,735
                                      
                                      
                                      
                                      44,026
                                      
                                      
                                      
                                      3,110,591
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (16,000
                                      )
                                      
                                      
                                      (873,214
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,265,403Subscriptions
      receivable
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      16,000
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      16,000Options
      exercised for cash at $0.8
                                      
                                      
                                      305,000
                                      
                                      
                                      
                                      305
                                      
                                      
                                      
                                      243,695
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      244,000Options
      exercised for cash at $1.00
                                      
                                      
                                      12,500
                                      
                                      
                                      
                                      13
                                      
                                      
                                      
                                      12,488
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      12,501Shares
      issued for cash at $2.75,
                                      
                                      
                                      727,271
                                      
                                      
                                      
                                      727
                                      
                                      
                                      
                                      1,849,268
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,849,995net
      of finders feeStock-based
      compensation
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      195,719
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      195,719Net
      (loss) for the year
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (234,763
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (234,763
                                      )Balance,
      December 31, 2006
                                      
                                      
                                      45,070,506
                                      
                                      
                                      
                                      45,071
                                      
                                      
                                      
                                      5,411,761
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (1,107,977
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      4,348,855Options
      exercised for cash at $0.75
                                      
                                      
                                      60,000
                                      
                                      
                                      
                                      60
                                      
                                      
                                      
                                      44,940
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      45,000Shares
      issued to President & CEO as
                                      
                                      
                                      500,000
                                      
                                      
                                      
                                      500
                                      
                                      
                                      
                                      459,500
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      460,000part
      of his compensation package at $0.92Shares
      issued to Investor Relations
                                      
                                      
                                      60,000
                                      
                                      
                                      
                                      60
                                      
                                      
                                      
                                      40,740
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      40,800Services,
      Inc. as part of the agreementShares
      issued to CFO for services rendered
                                      
                                      
                                      250,000
                                      
                                      
                                      
                                      250
                                      
                                      
                                      
                                      137,250
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      137,500Stock-based
      compensation
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      42,097
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      42,097Comprehensive
      Income/(loss):Cumulative
      translation adjustment
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      187,348
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      187,348Net
      (loss) for the year
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (2,249,959
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (2,249,959
                                      )Comprehensive
      (loss)
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (2,062,611
                                      )Balance,
      December 31, 2007
                                      
                                      
                                      45,940,506
                                      
                                      
                                      
                                      45,941
                                      
                                      
                                      
                                      6,136,288
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (3,357,936
                                      )
                                      
                                      
                                      187,348
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      3,011,641Shares
      issued to President & CEO & CFO as
                                      
                                      
                                      900,000
                                      
                                      
                                      
                                      900
                                      
                                      
                                      
                                      46,800
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      47,700part
      of their compensation package at $0.053Registration
      of shares under Form S-4
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (132,289
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (132,289
                                      )Comprehensive
      Income/(Loss):Cumulative
      translation adjustment
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (181,370
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (181,370
                                      )Net
      loss for the year
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (215,826
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (215,826
                                      )Comprehensive
      loss
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (397,196
                                      )Balance,
      December 31, 2008
                                      
                                      
                                      46,840,506
                                      
                                      
                                      
                                      46,841
                                      
                                      
                                      
                                      6,050,799
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (3,573,762
                                      )
                                      
                                      
                                      5,978
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,529,856Shares
      issued for acquisition of oil & gas
                                      
                                      
                                      19,545,026
                                      
                                      
                                      
                                      19,545
                                      
                                      
                                      
                                      859,980
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      879,525propertiesShare
      issue costs
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (48,045
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (48,045
                                      )Noncontrolling
      interest in subsidiary
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      100,631
                                      
                                      
                                      
                                      100,631Shares
      issued to President, CEO & CFO as
                                      
                                      
                                      1,400,000
                                      
                                      
                                      
                                      1,400
                                      
                                      
                                      
                                      40,600
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      42,000part
      of his compensation package at $0.03Options
      issued to CEO
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      13,750
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      13,750Comprehensive
      Income/(Loss):Cumulative
      translation adjustment
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      32,194
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      32,194Net
      loss for the period
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (1,066,081
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (4,321
                                      )
                                      
                                      
                                      (1,070,402
                                      )Comprehensive
      loss
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (1,038,208
                                      )Balance,
      June 30, 2009
                                      
                                      
                                      67,785,532
                                      
                                      
                                      $
                                      67,786
                                      
                                      
                                      $
                                      6,917,084
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      (4,639,843
                                      )
                                      
                                      $
                                      38,172
                                      
                                      
                                      $
                                      96,310
                                      
                                      
                                      $
                                      2,479,509The
      accompanying notes are an integral part of these consolidated financial
      statements




F -
4
 Table of Contents
  Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (Stated
in U.S. Dollars)
 
 1.           
BASIS OF PRESENTATION
  The
unaudited consolidated financial statements as of June 30, 2009 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, 2008 audited financial statements and notes thereto.  The
results of the operations for the six months ended June 30, 2009 are not
indicative of the results that may be expected for the year.
  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 and Canada.  The Company’s entry into
the natural gas and oil business began on February 8, 2001.
 
 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.
 
 The oil
and gas industry is subject, by its nature, to environmental hazards and
clean-up costs.  At this time, management knows of no substantial
costs from environmental accidents or events for which the Company may be
currently liable.  In addition, the Company’s oil and gas business
makes it vulnerable to changes in prices of crude oil and natural
gas.  Such prices have been volatile in the past and can be expected
to be volatile in the future.  By definition, proved reserves are
based on current oil and gas prices and estimated reserves.  Price
declines reduce the estimated quantity of proved reserves and increase annual
depletion expense (which is based on proved reserves).
 
 b) Business
acquisition
 
 On March
26, 2009, the Company acquired 80.31% of The Stallion Group (“Stallion”), a
Nevada corporation, whose principal business is in the identification,
acquisition and exploration of oil and gas properties. To fund the acquisition
of the Common Stock, the Company issued 19,545,026 shares of common stock and
paid $46,908 in cash to the holders of the Stallion’s common stock that was
tendered for a value of $0.04.  Each common share of Stallion was
exchangeable for 0.333333 of the Company’s common shares and $0.0008 in
cash.  As of March 26, 2009, the Company owned 58,635,139 shares of
Common Stock, which represents approximately 80.31% of the shares of Common
Stock issued and outstanding.  Following is a summary of purchase
price allocation:
 
  F -
5
 Table of Contents
  Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (Stated
in U.S. Dollars)
  2.           
OPERATIONS (continued)
 
 b) Business
acquisition
 March
      26, 2009Purchase
      price:Share
      consideration – issued 19,545,026 common shares at $0.045 per
      share
                      
                      $
                      879,526Cash
      payment - $0.0008 for 58,653,139 common shares
                      
                      
                      46,908Fair
      value of Non-Controlling Interests
                      
                      
                      100,631Total
                      
                      $
                      1,027,065Represented
      By:
                        Net
      assets purchased
                      
                      
                      (45,399
                      )Increase
      in Oil and Gas Properties
                      
                      
                      (970,535
                      )Net
      Assets attributable to Non-Controlling Interests
                      
                      
                      (11,131
                      )$                         NilPurchase
      Price Allocation:Share
      capital
                      
                      $
                      3,495,046Accumulated
      deficit
                      
                      
                      (3,452,287
                      )Cumulative
      translation adjustment
                      
                      
                      13,771Total
                      
                      $
                      56,530Investment
      in Subsidiary – 80.31%
                      
                      $
                      45,399Non-Controlling
      Interest – 19.69%
                      
                      $
                      11,131
 
 As the
acquisition was completed on March 26, 2009, the net loss of $17,623 of Stallion
was included in the consolidated financial statements as of June 30,
2009.
 
 The
following table summarizes the net assets acquired upon the acquisition of The
Stallion Group:
 
 Cash
      & cash Equivalents
                    
                    $
                    565Accounts
      receivable
                    
                    
                    13,712Prepaid
      Expenses
                    
                    
                    3,001Natural
      gas and oil properties
                    
                    
                    194,670Capital
      Assets, Net
                      Total
      Assets
                    
                    
                    4,190$
                    216,138Current
      Liabilities
                    
                    $
                    (144,144
                    )Asset
      Retirement Obligation
                      Total
      Net Assets
                      
                      Total
      Net Assets purchased – 80.31%
                    
                    
                    (15,464
                    )$
                    56,530$
                    45,399
 
 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 consolidated financial statements, the Company has incurred
a net loss of $4,639,843 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
  F -
6
 Table of Contents
  Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (Stated
in U.S. Dollars)
 
 options.  However,
there can be no assurance that the Company will be able to obtain sufficient
funds to continue the development of its properties and, if successful, to
commence the sale of its projects under development.  As a result of
the foregoing, there exists substantial doubt the Company’s ability to continue
as a going concern.  These consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
 
 3.          
  SIGNIFICANT ACCOUNTING POLICIES
 
 a) Basis of
Consolidation
 
 The
consolidated financial statements are presented in accordance with accounting
principles generally accepted in the United States and include the financial
statements of the Company and its wholly-owned subsidiaries, Delta Oil & Gas
(Canada) Inc. and 80.31% of The Stallion Group.  All significant
inter-company balances and transactions have been eliminated.
 
 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 there
from.
 
 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.  The net capitalized costs of evaluated oil
and gas properties (full cost ceiling limitation) are not to exceed their
related estimated future net revenues from proved reserves discounted at 10%,
and the lower of cost or estimated fair value of unproved properties, net of tax
considerations.  These properties are included in the amortization
pool immediately upon the determination that the well is dry.
 
 Unproved
properties consist of lease acquisition costs and costs on wells currently being
drilled on the properties.  The recorded costs of the investment in
unproved properties are not amortized until proved reserves associated with the
projects can be determined or until they are impaired.  Unevaluated
oil and gas properties are assessed at least annually for impairment either
individually or on an aggregate basis.
 
 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 cash flows are accreted to the expected
settlement value. The fair value of the ARO is measured using expected future
cash flow, discounted at the Company’s credit-adjusted risk-free interest
rate.
  F -
7
 Table of Contents
  Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (Stated
in U.S. Dollars)
 
 3. SIGNIFICANT
ACCOUNTING POLICIES (Continued)
 
 e) Joint
Ventures
 
 All
exploration and production activities are conducted jointly with others and,
accordingly, the accounts reflect only the Company’s proportionate interest in
such activities.
 
 f) Revenue
Recognition
 
 Revenue
from sales of crude oil, natural gas and refined petroleum products are recorded
when deliveries have occurred and legal ownership of the commodity transfers to
the customers.  Title transfers for crude oil, natural gas and bulk
refined products generally occur at pipeline custody points or when a tanker
lifting has occurred.  Revenues from the production of oil and natural
gas properties in which the Company shares an undivided interest with other
producers are recognized based on the actual volumes sold by the Company during
the period.  Gas imbalances occur when the Company’s actual sales
differ from its entitlement under existing working interests.  The
Company records a liability for gas imbalances when it has sold more than its
working interest of gas production and the estimated remaining reserves make it
doubtful that the partners can recoup their share of production from the field.
At June 30, 2009 and 2008, 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.  For purposes of the balance sheet and statements of cash
flows, the Company considers all highly liquid instruments with maturity of
three months or less at the time of issuance to be cash
equivalents.
 
 h)    Concentration
of Credit Risk
 
 Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and
cash equivalents and accounts receivable.  The Company
maintains cash at one financial institution.  The Company periodically
evaluates the credit worthiness of financial institutions, and maintains cash
accounts only in large high quality financial institutions, thereby minimizing
exposure for deposits in excess of federally insured amounts.  The
Company believes credit risk associated with cash and cash equivalents to be
minimal.  Deposits are insured up to $85,985, the amount that may be
subject to credit risk for the six months ended June 30, 2009 is
$636,850.
 
 The
Company has recorded trade accounts receivable from the business operations.
Management periodically evaluates the collectability of the trade receivables
and believes that the Company’s receivables are fully collectable and that the
risk of loss is minimal.
 
 i) 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.
 
  F -
8
 Table of Contents
  Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (Stated
in U.S. Dollars)
 
 3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 j) Environmental
Protection and Reclamation Costs (Continued)
 
 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.
 
 k) 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 other comprehensive income.
 
 l) 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.
 
 m) 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 Natural Oil and Gas Properties.
 
 n) 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.
 
 o) Income
Taxes
 
 The
Company follows the liability method of accounting for income taxes under which
deferred tax assets and liabilities are recognized for the future tax
consequences of (i) temporary differences between the tax bases of assets and
liabilities, and their reported amounts in the financial statements, and (ii)
operating loss and tax credit carryforwards for tax
purposes.  Deferred tax assets are reduced by a valuation allowance
when, based upon management’s estimates, it is more likely than not that a
portion of the deferred tax assets will not be realized in a future
period.
  F -
9
 Table of Contents
  Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (Stated
in U.S. Dollars)
 
 3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 p) Financial
Instruments
 
 The
Company’s financial instruments consist of cash and cash equivalent, accounts
receivable, accounts payable and accrued liabilities.
 
 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 is approximated to their carrying
values.
 
 q)     Comprehensive
Loss
 
 SFAS No.
130, “Reporting Comprehensive Income,” establishes standards for the reporting
and display of comprehensive loss and its components in the financial
statements. The Company is disclosing this information on its Consolidated
Statements of Changes in Stockholders’ Equity and Consolidated Statement of
Operations.
 
 r)      Stock-Based
Compensation
 
 The
Company records stock-based compensation in accordance with SFAS 123(R), “Share-Based Payments,” which
requires the measurement and recognition of compensation expense based on
estimated fair values for all share-based awards made to employees and
directors, including stock options. In March 2005, the Securities and Exchange
Commission issued SAB 107 relating to SFAS 123(R). The Company applied the
provisions of SAB 107 in its adoption of SFAS 123(R).
  SFAS
123(R) requires companies to estimate the fair value of share-based awards on
the date of grant using an option-pricing model. The Company uses the
Black-Scholes option-pricing model as its method of determining fair value. This
model is affected by the Company’s stock price as well as assumptions regarding
a number of subjective variables. These subjective variables include, but are
not limited to the Company’s expected stock price volatility over the term of
the awards, and actual and projected employee stock option exercise behaviors.
The value of the portion of the award that is ultimately expected to vest is
recognized as an expense in the statement of operations over the requisite
service period.
  All
transactions in which goods or services are the consideration received for the
issuance of equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable.
 
 4.   
 NATURAL GAS AND OIL
PROPERTIES
 
 a) Proved
Properties
 
 Properties
                    
                    December
      31, 2008
                    
                    
                    Additions
                    
                    
                    Disposals
                    
                    
                    Depletion
      for the year
                    
                    
                    Impairment
                    
                    
                    June
      30, 2009USA
      properties
                    
                    $
                    866,781
                    
                    
                    $
                    1,319,587
                    
                    
                    $
                    (808,861
                    )
                    
                    $
                    (20,777
                    )
                    
                    $
                    (202,486
                    )
                    
                    $
                    1,154,244Canada
      properties
                    
                    
                    25,315
                    
                    
                    
                    410
                    
                    
                    
                    (7,725
                    )
                    
                    
                    (4,038
                    )
                    
                    
                    -
                    
                    
                    
                    13,962Total
                    
                    $
                    892,096
                    
                    
                    $
                    1,319,997
                    
                    
                    $
                    (816,586
                    )
                    
                    $
                    (24,815
                    )
                    
                    $
                    (202,486
                    )
                    
                    $
                    1,168,206
 
  F -
10
 Table of Contents
  Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (Stated
in U.S. Dollars)
 
 4.    
NATURAL GAS AND OIL PROPERTIES
(Continued)
 
 a)     
Proved Properties – Descriptions
 
 Properties
in U.S.A.
 
 i. Oklahoma,
USA
 
 In April
2007, the Company entered into the 2006-3 Drilling Program for a buy-in cost of
$113,700 which will provide 12.5% Before Casing Point (“BCP”) working interest
and After Casing Point (“ACP”) working interest of 10%.  In September
2007, Wolf#1-7 was abandoned. Its costs amount to $68,118 was moved to the
proven cost pool for depletion.  In October 2007, Ruggles #1-15 was
also abandoned and the cost of $84,328 was moved to the proven cost pool for
depletion.
 
 In the
2006-3 Drilling Program, Elizabeth #1-25 was plugged abandoned on February 7,
2008.  Its cost amounted to $127,421 was moved to the proven cost pool
for depletion.  Plaster #1-11 and Dale #1-15 started producing in
January and February 2008, respectively, total cost of $205,064 was moved to the
proven cost pool.
 
 In the
2007-1 Drilling Program, Pollack #1-35 was plugged and abandoned on January 19,
2008.  Its cost amounted to $150,841 was moved to the proven cost pool
for depletion.  Hulsey #1-8 started producing in February 2008; the
cost of $161,039 was moved to the proven cost pool.  River #1-28
started producing in June 2008; the cost of $150,582 was moved to the proven
cost pool. Hulsey #2-8 started producing in January 2009; its cost amounted to
$139,674 was moved to the proven cost pool for depletion.
  ii.    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, Canada 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 was initiated by Griffin in
May 2006 and was substantially completed by Griffin by December 31,
2006.  The prospect area owned or controlled by Griffin on which the
ten wells were drilled, is comprised of approximately 1,273 acres in Palmetto
Point, Mississippi.
 
 During
the year ended of December 31, 2007, eight wells were found to be proved wells,
and two wells, PP F-7 and PP F-121 were abandoned due to no apparent gas or oil
shows present.  The costs of abandon properties were added to the
capitalized cost in determination of the depletion expense.
  On August
4, 2006, the Company elected to participate in additional two wells program in
Mississippi owned by Griffin & Griffin Exploration and paid
$70,000.  These wells were found to be proved in December
2008.
   F -
11
 Table of Contents
  Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (Stated
in U.S. Dollars)
 
 4.     
   NATURAL GAS AND
OIL PROPERTIES (Continued)
 
 a)      
Proved Properties - Descriptions
 
 Properties
in U.S.A.
 
 ii.    Palmetto
Point Prospect, Mississippi, USA (Continued)
  On
October 10, 2007, the Company elected to participate in the drilling of PP F-12
and PP F-12-3 in Mississippi operated by Griffin & Griffin
Exploration.  The Company’s 10% of the estimated drilling costs was
$88,783. PP F-12 started production from October 2007, and PP F-12-3 started
production from November 2007.  Additional AFE in the amount of
$36,498 for workovers on the PP F-12, PP F-12-3 was paid on January 31,
2008.
  On
January 11, 2008, the Company paid $11,030 for PP F-41salt water disposal
well.
  iii. Mississippi
II, Mississippi, USA
 
 In August
2006, the Company entered into a joint venture agreement with Griffin &
Griffin Exploration, LLC. to acquire an interest in a drilling program comprised
of up to 50 natural gas and/or oil wells.  The area in which the wells are
to be drilled is comprised of approximately 300,000 gross acres of land located
between Southwest Mississippi and North East Louisiana. The wells are targeting
the Frio and Wilcox Geological formations. The Company has agreed to pay
10% of all prospect fees, mineral leases, surface leases and drilling and
completion costs to earn a net 8% share of all production zones to the base of
the Frio formation and 7.5% of all production to the base of the Wilcox
formation.  In January 2007, the well CMR USA 39-14 was found to be
proved.  The cost of $35,126 was added to the proven cost
pool.  Dixon#1 was abandoned in January 2007, its costs amounted to
$40,605 was moved to the proven cost pool for depletion.  Randall#1
was abandoned in June 2007, its costs amounted to $26,918 was moved to the
proven cost pool for depletion.  BR F-24 was abandoned and its cost
amounted to $41,999 was moved to the proven cost pool for
depletion.  Faust #1, USA 1-37 and BR F-33 were found to be proven and
the total cost of $129,360 was added to the proven cost pool.
 
 In
connection with the acquisition of Stallion, the Company acquired an additional
30% of the drilling programs.
 
 iv.    Mississippi
III, Mississippi, USA
 
 During
August to December 2007, five additional wells, PP F-90, PP F-100, PP F-111, PP
F-6A, and PP F-83 were drilled in the area.  These wells were
abandoned due to modest gas shows and a total drilling cost of $110,729 was
added to the capitalized costs in determination of depletion
expense.
 
 On April
3, 2009, the Company sold its Working Interest in the Mississippi project and
the surrounding lands for $200,367 plus a monthly $500 payment for 48 months of
production.
 
 v. Willows
Gas Field, California, U.S.A
 
 Through
the Company’s subsidiary, Stallion, the Company acquired a well working interest
in California, U.S.A.  On October 15, 2007, Stallion agreed to
participate in the drilling program to be conducted by Production Specialties
Company (“PSC”).  Stallion shall pay for the initial test well, 12.5%
of 100% of all costs and expenses of drilling, completing, testing and equipping
the Wilson Creek #1-27, to earn 6.25% working interest.  As of March
31, 2009, Stallion has expended $195,971 for the costs of Wilson Creek #1-27 and
$60,000 for 3D seismic in the prospect area.  Wilson Creek #1-27
started producing gas from April 2008.
  F -
12
 Table of Contents
  Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (Stated
in U.S. Dollars)
 
 4.          
  NATURAL GAS AND OIL
PROPERTIES (Continued)
 
 a)       
Proved Properties - Descriptions
  Properties
in Canada
 
 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. The well, HZ
1C2-23 was drilled in September 2008 also started production from November
2008.  As at March 31, 2009, the Company had advanced $338,967 as its
share of the costs in this Agreement.  Currently, there are two
producing wells on this prospect.
 
 On June
1, 2009, the Company sold 2.5% of its 7.5% Working Interest for
CAD$250,000.
 
 vii.    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.  One of the well 13-28-9-2W5M has had production since
October 2006.
 
 The
Company paid $314,959 (CDN$352,376) on October 27, 2006 for well
13-33-8-2W5M.  It was abandoned and the cost was moved to the proved
properties cost pool for depletion.  During the year ended of December
31, 2007, the remaining wells at Todd Creek were abandoned and the cost was
moved to proven cost pool for depletion.
 
 viii.  
 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.   During the year ended of December 31, 2007, it was
abandoned and the cost was moved to proven cost pool for depletion.
 
 ix. 
 Strachan Prospect, Alberta, Canada
 
 In
September 2005, the Company entered into a participation and farm-out 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%.  The Company has advanced $388,662 as its
share of the costs in the Leduc formation property.  The well was
abandoned in the three month ended of March 31, 2008; the cost of $388,662 was
moved to the proven cost pool for depletion.
 
  F -
13
 Table of Contents
  Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (Stated
in U.S. Dollars)
 
 4.  
    NATURAL GAS
AND OIL PROPERTIES (continued)
 
 b)     
Unproved Properties
 
 Properties
                      
                      December
      31, 2008
                      
                      
                      Addition
                      
                      
                      Disposals
                      
                      
                      Transfer
      to proved properties
                      
                      
                      June
      30, 2009USA
      properties
                      
                      $
                      430,311
                      
                      
                      $
                      105,524
                      
                      
                      $
                      (154,671
                      )
                      
                      $
                      (139,673
                      )
                      
                      $
                      241,491Canada
      properties
                      
                      
                      200,065
                      
                      
                      
                      34,950
                      
                      
                      
                      (63,966
                      )
                      
                      
                      -
                      
                      
                      
                      171,049Total
                      
                      $
                      630,376
                      
                      
                      $
                      140,474
                      
                      
                      
                      (218,637
                      )
                      
                      $
                      (139,673
                      )
                      
                      $
                      412,540
 
 Unproved
Properties - Descriptions
 
 Properties
in U.S.A.
 i.
 Oklahoma, USA
 
 In April
2007, the Company entered into the 2006-3 Drilling Program for a buy-in cost of
$113,700 which will provide 12.5% Before Casing Point (“BCP”) working interest
and After Casing Point (“ACP”) working interest of 10%.
 
 In
September 2007, the Company entered into the 2007-1 Drilling Program for a
buy-in cost of $77,100 which will provide 25% Before Casing Point (“BCP”)
working interest and 20% After Casing Point (“ACP”) working
interest.  During August to September 2008, the Company paid estimated
drilling costs of $82,830 and estimated completion costs of $80,905 for the
well, Hulsey #2-8.  Hulsey #2-8 started producing in January 2009; its
cost amounted to $139,674 was moved to the proven cost pool for
depletion.
  ii.    
Mississippi II, Mississippi, USA
 
 In
August, 2006, the Company entered into a joint venture agreement with
Griffin & Griffin Exploration, LLC. to acquire an interest in a drilling
program comprised of up to 50 natural gas and/or oil wells.  The area in
which the wells are to be drilled is comprised of approximately 300,000 gross
acres of land located between Southwest Mississippi and North East Louisiana.
The wells are targeting the Frio and Wilcox Geological formations. The
Company has agreed to pay 10% of all prospect fees, mineral leases, surface
leases and drilling and completion costs to earn a net 8% share of all
production zones to the base of the Frio formation and 7.5% of all production to
the base of the Wilcox formation.
 
 On April
3, 2009, the Company sold its Working Interest in the Mississippi project and
the surrounding lands for $200,367.
 
 iii. King
City, California, USA
 
 On May
25, 2009, the Company entered into a Farm-out agreement with Sunset Exploration
(“Sunset”) to participate in a drilling and exploration of lands located in
California, USA.  The Company paid $100,000 to Sunset towards the
permitting and processing of lands and the costs of a gravity survey and a 2D
seismic program.  The Company shall pay 66.67% pro rata share of 100%
of all costs associated in the initial test well.  If the test well is
capable of producing hydrocarbons, then the Company shall pay its working
interest pro rata share of all completion costs.  The Company’s
working interest is 40% of 100% in the Area of Mutual Interest.
  F -
14
 Table of Contents
  Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (Stated
in U.S. Dollars)
 
 Properties
in Canada
  iii.   
Wordsworth Prospect, Saskatchewan, Canada
 
 In April
2007, 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 March 31, 2009, the Company had expended $162,996 of the well
3B9-23/3A11.  In March 2008, the Company joined the drilling of a new
well, 2 HZ 3B9 LEG.  In March 2009, $9,106 was refunded to the
Company.  In June 2009, the Company joined the drilling of a new well,
HZ 1B1-23/3B8, and paid CAD$49,826 for 5% working interest.
 
 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.
 
 c) Credit
Risk
 
 A
substantial portion of the Company’s accounts receivable is with joint venture
partners in the oil and gas industry and is subject to normal industry credit
risks.
 
 d) Foreign
Operations Risk
 
 The
Company is exposed to foreign currency fluctuations, political risks, price
controls and varying forms of fiscal regimes or changes thereto which may impair
its ability to conduct profitable operations as it operates internationally and
holds foreign denominated cash and other assets.
 
  F -
15
 Table of Contents
  Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (Stated
in U.S. Dollars)
 
 6. ASSET
RETIREMENT OBLIGATIONS
 
 The
Company follows SFAS 143 “Accounting for asset retirement
obligations”.  SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs.  SFAS 143 requires recognition
of the present value of obligations associated with the retirement of tangible
long-lived assets in the period in which it is incurred.  As of June
30, 2009 and December 31, 2008, the Company recognized the future cost to
plug and abandon the gas wells over the estimated useful lives of the wells in
accordance with SFAS No. 143.  The liability for the fair value of an
asset retirement obligation with a corresponding increase in the carrying value
of the related long-lived asset is recorded at the time a well is completed and
ready for production.  The Company amortizes the amount added to the
oil and gas properties and recognizes accretion expense in connection with the
discounted liability over the remaining life of the respective
well.  The estimated liability is based on historical experience in
plugging and abandoning wells, estimated useful lives based on engineering
studies, external estimates as to the cost to plug and abandon wells in the
future and federal and state regulatory requirements.  The liability
is a discounted liability using a credit-adjusted risk-free rate of
12%.
 
 Revisions
to the liability could occur due to changes in plugging and abandonment costs,
well useful lives or if federal or state regulators enact new guidance on the
plugging and abandonment of wells.
 
 6. ASSET
RETIREMENT OBLIGATIONS (continued)
 
 The
information below reflects the change in the asset retirement obligations during
the six months period ended June 30, 2009 and year ended December 31,
2008:
  June
      30, 2009
                      
                      
                      December
      31, 2008Balance,
      beginning of the period
                      
                      $
                      23,604
                      
                      
                      $
                      111,803Liabilities
      assumed
                      
                      
                      -
                      
                      
                      
                      8,898Revisions
                      
                      
                      (3,271
                      )
                      
                      
                      (99,626
                      )Accretion
      expense
                      
                      
                      1,548
                      
                      
                      
                      2,529Balance,
      end of the period
                      
                      $
                      21,881
                      
                      
                      $
                      23,604
 
 7.            
SHARE CAPITAL
  i. Common
Stock
 
 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 727,271 common shares pursuant to a private
placement at $2.75 per share.
 
 On
January 23, 2007, the Company issued 60,000 common shares for exercise of stock
options at $0.75 per share.
 
 On March
1, 2007, the Company issued 500,000 common shares to the President and CEO as
part of his compensation package.  The price of the share as of March
1, 2007 was $0.92.
  F -
16
 Table of Contents
  Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (Stated
in U.S. Dollars)
 
 7.            
SHARE CAPITAL (Continued)
 
 On May 1,
2007, the Company issued 60,000 common shares to Investor Relations Services,
Inc. as part of the investor relation services and consulting
agreement.  The price of the share as of May 1, 2007 was
$0.68.
 
 On July
8, 2007, the Company issued 250,000 common shares to its Chief Financial Officer
as part of his services rendered and in lieu of cancellation of stock
options.  The price of the share was $0.55.  It was the
average of the share price of July 6 and July 9, 2007.
 
 On August
13, 2008, the Company issued 900,000 common shares to the Officers of the
Company as part of their compensation package.  The price of the share
as of August 13, 2008 was $0.053.
 
 On March
26, 2009, the Company issued 19,545,026 common shares for the acquisition of
80.31% for oil and gas properties.
 
 On April
6, 2009, the Company issued 1,400,000 common shares to the Officers of the
Company as part of their compensation package.  The price of the share
as of April 6, 2009 was $0.03.
 
 Preferred
Stock
 
 The
Company did not issue any preferred stock during the six months period ended
June 30, 2009 (December 31, 2008 - Nil).
 
 ii. Stock
Options
 
 Compensation
expense related to incentive stock options granted is recorded at their fair
value as calculated by the Black-Scholes option pricing
model.  Compensation expense of $13,750 was recorded during the six
months ended June 30, 2009 (June 30, 2008 - nil) related to options granted
during the six months ended June 30, 2009 and 2008.  The changes in
stock options are as follows:
 
 NUMBER
                WEIGHTED
      AVERAGE
                  EXERCISE
      PRICEBalance
      outstanding, December 31, 2008
                  Granted
                  Expired
                  Exercised
                  Balance
      outstanding, June 30, 2009
                240,000
                  500,000
                  (240,000)
                  -
                $                      0.75
                  0.03
                  -
                  -500,000
                $                      0.26
  The
weighted average assumptions used in calculating the fair value of stock options
granted and vested     using the Black-Scholes option
pricing model are as follows:
  June
      30, 2009
                          
                          
                          June
      30, 2008Risk-fee
      interest rate
                          
                          
                          3.00
                          %
                          
                          
                          0.00
                          %Expected
      life of the option
                          
                          3
      years
                          
                          0
      yearExpected
      volatility
                          
                          
                          199.13
                          %
                          
                          
                          0.00
                          %Expected
      dividend yield
                          
                          
                          -
                          
                          
                          
                          -
 
  F -
17
 Table of Contents
  Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (Stated
in U.S. Dollars)
 7.            
SHARE CAPITAL (Continued)
 
 The
following table summarized information about the stock options outstanding as at
June 30, 2009:
 
 Options
      outstanding
                  
                  Options
      exercisableExercise
      price
                  Number
      of shares
                  Remaining
      contractual life (years)
                  
                  Number
      of shares$0.03
                  500,000
                  2.77
                  
                  500,000
 
 iii.   Common
Stock Share Purchase Warrants
 
 As at
June 30, 2009, share purchase warrants outstanding for the purchase of common
shares as follows:
 
 Warrants
outstanding
 Exercise
      price
                Number
      of shares
                Expiry
      date$
      1.50
                2,483,985
                February
      1, 2010
 
 No
warrants were issued during the six months period ended June 30,
2009.
 
 8. RELATED
PARTIES
 
 During
the six months period ended June 30, 2009, the Company paid $89,952 (June 30,
2008 - $83,414) for consulting fees and $18,032(June 30, 2008 - $20,594) for
accounting services to Companies controlled by directors and officers of the
Company.  Amounts paid to related parties are based on exchange
amounts agreed upon by those related parties.
 
 On April
3, 2009, the Company issued 1,400,000 shares of common stock in consideration
for services rendered to Officers of the Company.  The price of the
share as of April 3, 2009 was $0.03.  The total cost of $42,000 was
recorded in the compensation expense for shares granted and was included in the
general and administration expense.
 
 On April
3, 2009, the Company granted 500,000 stock options in consideration for services
rendered to the Officer of the Company.  The price of the share as of
April 3, 2009 was $0.03.  The total cost of $13,750 was recorded in
the compensation expense for options granted and was included in the general and
administration expense.
 
 These
shares were issued pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
 
 9. COMMITMENT
AND CONTRACTURAL OBLIGATIONS
 
 The
Company rented an office in Calgary, Canada on a month to month basis for $295
per month.
 
 10. SUBSEQUENT
EVENTS
 
 On July
15, 2009, the Company successfully obtained the leases on certain lands in
Texas, USA.  These leases will provide the Company with the ability to
drill up to 3 exploration wells.  The costs of the leases was
$169,566.
 
 On July
27, 2009, the Company decided to participate in a 2009-1 drilling program in
Oklahoma, USA.  The Company elected to participate in a 5% working
interest for a five well drilling program.  The Company’s buy-in costs
for each well will be $2,625 plus drilling and completion
costs.
  F -
18
 Table of Contents
  Item 2.     Management’s
Discussion and Analysis of Financial Condition and Results of Operations.




This
Quarterly Report on Form 10-Q contains forward-looking statements regarding our
business, financial condition, results of operations and
prospects.  Words such as “expects,” “anticipates,” “intends,”
“plans,” “believes,” “seeks,” “estimates” and similar expressions or variations
of such words are intended to identify forward-looking statements, but are not
deemed to represent an all-inclusive means of identifying forward-looking
statements as denoted in this Quarterly Report on Form
10-Q.  Additionally, statements concerning future matters are
forward-looking statements.




Although
forward-looking statements in this Quarterly Report on Form 10-Q reflect the
good faith judgment of our management, such statements can only be based on
facts and factors currently known by us. Consequently, forward-looking
statements are inherently subject to risks and uncertainties and actual results
and outcomes may differ materially from the results and outcomes discussed in or
anticipated by the forward-looking statements.  We caution the reader
that numerous important factors, including those factors discussed in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2008, which
are incorporated herein by reference, could affect our actual results and could
cause our actual consolidated results to differ materially from those expressed
in any forward-looking statement made by, or on behalf of, Delta
Oil.  Readers are urged not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Quarterly
Report on Form 10-Q.  We file reports with the Securities and Exchange
Commission (the “SEC” or “Commission”).  We make available on our
website under "Investors/SEC Filings,” free of charge, our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports as soon as reasonably practicable after we
electronically file such materials with or furnish them to the SEC. Our website
address is www.deltaoilandgas.com.  You
can also read and copy any materials we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You can obtain
additional information about the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330.  In addition, the SEC maintains an
internet site (www.sec.gov) that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC, including us.




We
undertake no obligation to revise or update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this
Quarterly Report on Form 10-Q. Readers are urged to carefully review and
consider the various disclosures made throughout the entirety of this Quarterly
Report, which attempt to advise interested parties of the risks and factors that
may affect our business, financial condition, results of operations and
prospects.




As used
in this Quarterly Report, the terms “we,” “us,” “our,” and “Delta Oil” mean
Delta Oil & Gas, Inc. and our subsidiaries unless otherwise
indicated.







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Business
of Delta Oil




We are an
exploration company focused on developing North American oil and natural gas
reserves.  Our current focus is on the exploration of our land
portfolio comprised of working interests in acreage in King City, California;
Southern Saskatchewan, Canada; the Southern Alberta Foothills area in Canada;
and South Central, Oklahoma.  As a result of our acquisition of a
controlling interest in The Stallion Group, a Nevada corporation, which is
discussed below, we expanded our property interests to include acreage in the
North Sacramento Valley, California.




Acquisition of Controlling
Interest in The Stallion Group




On
October 7, 2008, we announced the commencement of our offer to purchase (the
“Offer”) all of the outstanding common shares of The Stallion Group, a Nevada
corporation (“Stallion”), in exchange for 0.333333 shares of our common stock
and $0.0008 in cash per share of Stallion, upon the terms and subject to the
conditions set forth in the prospectus accompanying the Offer.




The Offer
expired on March 26, 2009 and thereafter we notified the depository to take and
pay for all of the shares of Stallion that were validly tendered in connection
with our previously-announced Offer.  The depository advised us that,
as of the expiration of the Offer, 58,635,139 shares of Stallion common
stock had been validly tendered, representing 80.31% of the issued and
outstanding common shares of Stallion.




All
validly tendered common shares of Stallion were accepted for payment in
accordance with the terms of the Offer, pursuant to which each validly tendered
common share of Stallion was exchanged for 0.333333 of a share of our common
stock and $0.0008 in cash.




Based on
the number of common shares validly tendered in the Offer and the exchange ratio
set forth above, we issued 19,545,026sharesof
our common stock and paid $46,908 in cash pursuant to the Offer.




Hillspring
Prospect




On
November 26, 2004, through our wholly-owned Canadian subsidiary, Delta Oil &
Gas (Canada), Inc., we entered into an agreement (the "Agreement") with Win
Energy Corporation, ("Win Energy"), an Alberta based oil & gas exploration
company, in order to acquire an interest in leases owned by Win
Energy.  On or about January 25, 2005, we paid Win Energy $414,766 in
exchange for a 10% working interest in one section of land (640 acres) in
Hillspring located approximately 90 miles south of Calgary, Alberta in the
Southern Alberta Foothills belt.  During the three months ended March
31, 2009, management reassessed its participation in this project and determined
to abandon this project due to concerns regarding its
profitability.  We did not incur any costs in connection with our
abandonment of this project and do not anticipate incurring any future
costs.




Strachan
Prospect




On
September 23, 2005, we entered into the Farmout Agreement with Odin Capital Inc.
(“Odin Capital”), a Calgary, Alberta corporation.  A former member of
our board of directors, Mr. Philipchuk, maintains a 50% ownership interest in
Odin Capital.  Odin Capital had the right to acquire an oil and gas
leasehold interests in certain lands located in Section 9, Township 38, Range 9,
West of the 5th Meridian, Alberta, Canada (“Section 9”) upon incurring
expenditures for drilling and testing on the property.




In
exchange for us paying 4.0% of all costs associated with drilling, testing, and
completing the test well on the property which we refer to as the Leduc
formation test well, we will have earned:







- 5
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 Table of Contents




1.
            in
      the Spacing Unit for the Earning Well:(a)
            a
      2.0% interest in the petroleum and natural gas below the base of the
      Mannville, excluding natural gas in the Leduc formation;
    and(b)
            a
      4.0% 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;2.
            a
      1.6% interest in the rights below the base of the Shunda formation in
      Section 10, Township 38, Range 9W5M; and3.
            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 on the Leduc formation test
well.  Under the terms of the Farmout Agreement, we advanced 110% of
the anticipated costs prior to drilling.  The total costs advanced by
us prior to drilling were $347,431.  The well was drilled to the
targeted depth of 13,650 feet.  During the three month period ended
September 30, 2007, we paid additional drilling costs of $41,231 and have since
incurred no additional drilling costs.




Based on
results indicating the presence of a potential gas well, the operator inserted
casing into the total depth of the well in July 2006 and we committed to perform
a full testing program.  During the three months ended March 31, 2008,
testing showed that no economic hydrocarbons were present, the well was
abandoned and the costs of $388,662 was transferred to the proven cost pool for
depletion.




Palmetto Point Prospect - 12
Wells Phase - I




On
February 21, 2006, we entered into an 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 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 Exploration”), 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 Exploration on February
24, 2006.




The
initial Drilling Program on ten wells on the acquired property interest was
completed by Griffin Exploration.  On August 4, 2006, we paid $70,000
to Griffin Exploration in exchange for our participation in an additional two
well program, which has also been completed.  The prospect area owned
or controlled by Griffin Exploration on which the wells were drilled is
comprised of approximately 1,273 acres in Palmetto Point,
Mississippi.  Twelve wells had been drilled resulting in seven
producing wells.  We anticipated that three additional wells would be
producing subsequent to being tied into the pipeline and two wells were not
commercially viable and were plugged and abandoned.  We refer to this
drilling program as Palmetto Point Phase I.






- 6
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In
October 2007, as part of Palmetto Point Phase I, we drilled a well (the "PP
F-12") on the prospect.  Subsequent testing revealed that the PP F-12
well contained oil reserves suitable for commercial production.  The
PP F-12 well began producing on October 2, 2007.  This well is
situated in what is known as the Belmont Lake Oil Field.  Based on the
positive results from the PP F-12 well, the operator suggested drilling an
additional two development wells in the immediate vicinity in which we would
participate.  In November 2007, we participated in the drilling of a
step-out well from the PP F-12 (the “PP F-12 #2”).  This well was
drilled to total depth, logged, tested and cased.  The PP F-12 #2
encountered approximately three feet of hydrocarbon showings and as such the
operator recommended re-entering the well and directionally drilling on an angle
toward the PP F-12.  Upon completion and testing of this re-entry (the
“PP F-12 #2-3”), the operator encountered approximately 32 feet of hydrocarbon
pay and the well was connected to a nearby pipeline to commence oil
production.




During
the reporting period, we disposed of our interests in the Palmetto Point
Prospect - 12 Wells Phase - I project described above.  These
interests were disposed of together with the interests in the Palmetto Point
Prospect – 50 Wells Phase II project described below.  Although our
disposition of these interests occurred during the reporting period, we did not
report any revenue or expenses attributable to these interests in the Palmetto
Point Prospect - 12 Wells Phase - I project during the three months ended March
31, 2009 because this disposition was determined by the parties to be effective
as of February 1, 2009.




Palmetto Point Prospect - 50
wells – Phase II




During
the fiscal quarter ended September 30, 2006, we entered into a joint venture
agreement to acquire an interest in a drilling program comprised of up to fifty
natural gas and/or oil wells.  The area in which the wells are being
drilled is approximately 300,000 gross acres located between Southwest
Mississippi and Northeastern Louisiana.  Drilling commenced in
September 2006.  The site of the first twenty wells is located within
range to tie into existing pipeline infrastructure should the wells be suitable
for commercial production.  The drilling program was conducted by
Griffin Exploration in its capacity as operator.  We agreed to pay 10%
of all prospect fees, mineral leases, surface leases, and drilling and
completion costs to earn a net 8.0% share of all production zones to the base of
a geological formation referred to as the Frio formation and 7.5% of all
production to the base of a geological formation referred to as the Wilcox
formation.  The cost during the quarter ending September 30, 2006
amounted to $100,000.  During the fourth quarter of fiscal 2006, we
made additional payments of $300,000 that was employed in the further
development of prospects on lands in Mississippi and Louisiana in accordance
with the terms of the operating agreement.




We
acquired through our acquisition of a controlling interest of The Stallion Group
(‘Stallion”) an additional interest in this same drilling
program.  Pursuant to the agreement entered into by Stallion on August
2, 2006, Stallion agreed to pay 30% of all prospect fees, mineral leases,
surface leases, and drilling and completion costs to earn a net 19.2% share of
all production zones to the base of a geological formation referred to as the
Frio formation and 17.25% of all production to the base of a geological
formation referred to as the Wilcox formation.  Stallion’s cost during
the quarter ending September 30, 2006 amounted to $300,000.  During
the fourth quarter of fiscal 2006, Stallion made additional payments of $600,000
that was employed in the further development of prospects on lands in
Mississippi and Louisiana in accordance with the terms of the operating
agreement.  As a result of our acquisition of a controlling interest
of Stallion in 2009 pursuant to our tender offer, we became obligated to pay 40%
of all prospect fees, mineral leases, surface leases, and drilling and
completion costs to earn a net 27.2% share of all production zones to the base
of a geological formation referred to as the Frio formation and 24.75% of all
production to the base of a geological formation referred to as the Wilcox
formation




Neither
we nor Stallion incurred any additional payments other than drilling costs for
these prospects in 2008 or 2007.




During
the reporting period, we disposed of our interests in the Palmetto Point
Prospect - 50 Wells Phase - II project described above.  These
interests were disposed of together with the interests in the Palmetto Point
Prospect – 12 Wells Phase I for consideration of $200,367.  Although
our disposition of these interests occurred during the reporting period, we did
not report any revenue or expenses attributable to these interests in the
Palmetto Point Prospect - 50 Wells Phase - II project during the three months
ended June 30, 2009 because this disposition was determined by the parties to be
effective as of February 1, 2009.




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Wordsworth
Prospect




On April
10, 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.  Our total costs as at December 31, 2007 was
$222,649.




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 contained oil reserves suitable for
commercial production.  In June 2006, this initial well began
producing as an oil well.  In December 2008, a second well was drilled
and completed which started production in January 2009.




The
revenue received from these wells for the three months ended June 30, 2009 was
$37,301, as compared to $26,085 for the three months ended June 30,
2008.  The revenue received from these wells for the six months ended
June 30, 2009 was $77,116, as compared to $55,515 for the six months ended June
30, 2008.  The increase in revenue was attributable the production of
a second well on this prospect beginning in January 2009, but we generated less
revenue than we anticipated as a result of a decline in oil prices during the
reporting period ended June 30, 2009.




The
second horizontal well was drilled in May 2007 at a cost of
$198,152.  Initial logs indicated hydrocarbon showings in an
oil-bearing zone estimated to be approximately 770 feet in the horizontal
section.  However, due to the high water content in fluid removed from
this well, the operator determined that it was not commercially productive and
it was plugged and abandoned.




In April
2008, the operator recommended re-entering the second horizontal well with a
view to drilling horizontally in a different direction starting at the base of
the vertical portion of that well. We elected to participate in this re-entry on
the same terms and conditions as the previous wells.  This well was
drilled at a cost of $33,812.  No economic hydrocarbons were found and
this well was plugged and abandoned.




Effective
June 1, 2009, we disposed of 2.5% of our interest in the Wordsworth prospect for
total proceeds of CDN $250,000, which equates to approximately $214,961
USD.  We will continue to hold a 5% working interest in our existing
wells on the Wordsworth prospect and any future wells which we elect to
participate.




Owl Creek
Prospect




On June
1, 2006, we entered into an Assignment Agreement with Brinx Resources, Ltd.,
(“Brinx Resources”), a Nevada oil & gas exploration company, in order to
acquire a working interest in lands and leases owned by Brinx
Resources.  The purchase price of $300,000 for the assignment and
options to acquire future interests has been paid in full.  We paid a
further $68,987 for our proportion of costs associated with the completion of
the first well.  The lands are located in Garvin and McClain counties
in Oklahoma and we refer to the lands as the “Owl Creek Prospect.”




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Pursuant
to the terms of the Assignment Agreement, we acquired a 20% working interest in
an oil well drilled at the Owl Creek Prospect (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 of the Powell
#2, this well was completed and commercial production commenced in August
2006.  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 which was $68,987.  Initially, the Powell #2 began
flowing oil and natural gas under its own pressure without the assistance of a
pump.  In July 2008, the Company disposed of its holdings in Powell #2
and the surrounding area for aggregate consideration of $760,438.




As part
of the Assignment Agreement, we were granted an option to earn a 20% working
interest in any future wells drilled on the 1,120 acres of land, 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.  Prior to
drilling, we are provided an invoice for the anticipated costs of each proposed
well and given the option to participate.




Based
upon the positive results of the Powell #2, an additional well (the “Isbill
#1-36”) was drilled and reached targeted depth in September
2006.  However, test results showed that the well was not commercially
viable and it was plugged and abandoned in September 2006.  Costs of
$80,738 were transferred to proved reserves and subsequently depleted in
accordance with our accounting policy.




In
January 2007, we commenced drilling of another well (the “Isbill
#2-36”).  Our 20% working interest in the Isbill #2-36 cost $157,437
for both drilling and completion.  The Isbill #2-36 was drilled to
approximately 5,900 feet and encountered two potential pay zones and is a direct
offset well to the Powell #2 which is currently producing.  In July
2008, the Company disposed of its holdings in Isbill #2-36 and the surrounding
area for aggregate consideration of $549,388.




In July,
2008, we sold both the Powell #2 and Isbill #2-36 wells and all interest in the
Owl Creek Prospect for gross proceeds of $1,309,826.  We realized a
gain on sale of the property of $1,067,447.  We decided to dispose of
the property based on the declining rates of production experienced by the
operator and the reasonable offer for both wells and the surrounding lands of
1,120 acres.




2006-3 Drilling
Program




On April
17, 2007, we entered into an agreement with Ranken Energy Corporation (“Ranken
Energy”) to participate in a five well drilling program in Garvin and Murray
counties in Oklahoma (the “2006-3 drilling Program”).  The leases
secured and/or lands to be pooled for this drilling program total approximately
820 net acres.  We agreed to take a 10% working interest in this
program.  To date, we have paid Ranken the sum of
$514,619.




Three
wells drilled (the "Wolf #1-7", the "Loretta #1-22" and the “Ruggles #1-15")
were deemed by the operator to not be commercially viable and as such, were
plugged and abandoned.  The proportionate costs associated with these
abandoned wells amounted to $244,989, which were moved to the proved properties
cost pool for depletion.






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Three
other wells drilled (the “Elizabeth #1-25”, the “Plaster #1-1” and the “Dale #1
re-entry”) were deemed by the operator to be commercially viable and production
casing was set in each.  The Elizabeth #1-25 located in the Meridian
Prospect cost $99,129, the Plaster #1-1 located in the Plaster Prospect cost
$116,581, and re-entry into the Dale #1 located in the Dale Prospect cost
$18,150.  Subsequent to the completion of these wells, two remain
economically viable at this time.  The Plaster #1 encountered
hydrocarbon showings and is producing natural gas with amounts of associated oil
as of January, 2008.  The Dale #1 re-entry has been producing in the
range of 2 to 3 barrels of oil per day.  The Elizabeth #1-25 has been
plugged and abandoned.




Total
revenue received from these wells for the three months ended June 30, 2009 was
$2,066, as compared to $14,695 for the three months ended June 30,
2008.   Total revenue received from these wells for the six
months ended June 30, 2009 was $2,887, as compared to $45,792 for the six months
ended June 30, 2008.  The reduction in revenue
was caused by a suspension of production in the Dale #1 and a decline in oil
prices in the reporting period ended June 30, 2009 as compared to the reporting
period ended June 30, 2008.




The
operator, Ranken Energy, is reviewing the productivity levels from these wells
and may propose the drilling of additional wells in the Dale Prospect and the
Crazy Horse Prospect.  We anticipate that we would participate in
these wells to the same extent as in the original drilling program, which is a
10% working interest.




2007-1 Drilling Program - 3
Wells




On
September 10, 2007, we entered into an agreement with Ranken Energy to
participate in a three well drilling program in Garvin County, Oklahoma (the
“2007-1 Drilling Program”).  We purchased a 20% working interest in
the 2007-1 Drilling Program for $77,100. Drilling of the first and second wells
(the “Pollock #1-35” and the “Hulsey #1”) has been completed in the N.E. Anitoch
Prospect and the Washington Creek Prospect respectively.  The Pollock
#1-35 did not prove to be commercially viable, but the Hulsey #1 has been
producing in the range of 50 to 60 barrels of oil per day with approximately 50
Mcf of natural gas per day.




Hulsey
#1-8 started producing during the first quarter of 2008 and the total revenue
received from the Hulsey #1-8 for the three months ended June 30, 2009 was $550,
as compared to $51,577 for the three months ended June 30, 2008.  The
total revenue received from the Hulsey #1-8 for the six months ended June 30,
2009 was $1,244, as compared to $57,178 for the six months ended June 30, 2008.
The significant decrease in revenue received from the Hulsey #1-8 is
attributable to a decline in hydrocarbons recovered from the well and the
reduction in natural gas and oil commodity prices.




Drilling
of the third well in this drilling program (the “River #1”) was completed during
the three months ended September 30, 2008.  The total revenue received
from the River #1 for the three months ended June 30, 2009 was $8,897 and
$21,305 for the six months ended June 30, 2009.




Hulsey
#2-8 commenced production during the three months ended March 31, 2009 and
produced $4,933 in oil revenues for the three months ended June 30, 2009 and
$8,256 for the six months ended June 30, 2009.




2009-1 Drilling Program - 5
Wells




On July
27, 2009, we entered into an agreement with Ranken Energy to participate in a
five well drilling program in Garvin County, Oklahoma (the “2009-1 Drilling
Program”).  We agreed to take a 5.0% working interest in the 2009-1
Drilling Program in exchange for our payment of a total of $13,125 in buy-in
costs, which equates to $2,625 in buy-in costs for each well, plus our
proportionate shares of the drilling and completion costs.  The 2009-1
Drilling Program has already commenced and anticipate that we will have the
results prior to the end of the fiscal year.







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Willows Gas
Field




On
February 15, 2008, Stallion entered into a Farm Out Agreement with Production
Specialties Company (“Production Specialties”) for participation in a natural
gas prospect area located in the North Sacramento Valley, California.
 Stallion has participated in the drilling of the first well on the
prospect area and encountered a number of prospective pay zones.  Testing
has been completed and stabilized flow rates exceeded a combined 1.5 million
cubic feet per day of sweet high quality gas, the well was connected to a nearby
pipeline and begun producing natural gas in April 2008.




Stallion
drilled its first prospect well paying 12.5% of the costs of the first well to
earn a 6.5% Working Interest.  Thereafter, Stallion will pay 6.5% of
the costs of future wells to earn 6.5% Working Interest.  Total costs for
this prospect for the end of the quarter ended November 30, 2008 is
$255,887.  In light of the current natural gas commodity prices, we
reviewed the future economic viability of this well during the reporting period
and decided to suspend production until further notice in order to determine
whether production of this well will be profitable.




King City,
California




On May
25, 2009, we entered into a Farm-out agreement with Sunset Exploration
(“Sunset”), a California corporation, to participate in the drilling and
exploration of lands located in Monterey County, California.  The
prospect area where the drilling and exploration will take place is comprised of
approximately 10,000 acres.  We are obligated to pay 66.67% of the
costs of the initial test well up to casing point, in order to earn a 40.0%
working interest.  Thereafter, we will be obligated to pay 40.0% of
the costs of any future wells which we elect to participate in order to earn a
40.0% working interest.  We paid Sunset $100,000 as an advance towards
the permitting and processing of lands and the costs of a gravity survey and a
2D seismic program.  We anticipate that the gravity survey and a 2D
seismic program will commence in August 2009.  Following receipt of
the results from the gravity survey and 2D seismic program, we will be able to
determine the location of the first test well and the associated costs of
drilling the initial test well.




For the Three Months Ended
June 30, 2009 and 2008




Revenues




Our
revenues generated during the three and six months ended June 30, 2009 were
attributable to natural gas and oil sales and a gain on the disposition of 2.5%
of our interest in the Wordsworth Prospect.  During the three and six
months ended June 30, 2008, our revenue generated was entirely attributable to
natural gas and oil sales.  We generated total revenue of $206,521 for
the three months ended June 30, 2009, a decrease of approximately 32% from
revenues of $305,850 for the three months ended June 30, 2008.  We
generated total revenue of $274,572 for the six months ended June 30, 2009, a
decrease of approximately 53% from revenues of $583,140 for the six months ended
June 30, 2008.  The decrease in revenues for the three and six months
ended June 30, 2009, when compared to the three and six months ended June 30,
2008, was attributable to the disposal of the Company’s interest in the Owl
Creek Prospect and the Palmetto Point Prospect 12 Wells Phase - I and 50 wells –
Phase II projects which was effective February 1, 2009 as wells as a decline in
natural gas and oil prices.  This decline in revenue was partially
offset by a gain of $142,481 on the sale of 2.5% of our interest in the
Wordsworth Prospect during the reporting period.




Costs
and Expenses




We
incurred costs and expenses in the amount of $1,064,153 for the three months
ended June 30, 2009, an 312% increase from costs and expenses of $258,241 for
three months ended June 30, 2008.  The increase in total costs was
primarily attributable to a loss of $750,305 on the sale of natural oil and gas
properties.  Excluding these one time costs attributable to the sale
of natural oil and gas properties, we incurred costs and expenses in the amount
of $313,848 for the three months ended June 30, 2009, an 22% increase from costs
and expenses of $258,241 for three months ended June 30, 2008.  The
increase in costs and expenses for the three months ended June 30, 2009, when
compared the three months ended June 30, 2008, is primarily attributable to the
following factors:




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·
            General
      and administrative costs for the three months ended June 30, 2009
      increased to $199,897 from $99,340 for the three months ended June 30,
      2008, an increase of 101%. The increase was
      caused as a result of the inclusion of costs associated with an increase
      in personnel resulting from our acquisition of a majority interest in the
      Stallion Group,an
      increase in stock based compensation and an increase in audit and
      accounting fees.




·
            We
      incurred a loss of $750,305 on the sale of natural oil and gas properties
      during the three months ended June 30, 2009.




We
incurred costs and expenses in the amount of $1,345,441 for the six months ended
June 30, 2009, a 54% increase from costs and expenses of $873,100 for six months
ended June 30, 2008.  The increase in costs and expenses for the six
months ended June 30, 2009, when compared the six months ended June 30, 2008, is
primarily attributable to the following factors:




·
            General
      and administrative costs for the six months ended June 30, 2009 increased
      to $292,222 from $185,633 for the six months ended June 30, 2008, an
      increase of 57%.  The increase in general and
      administrative costs was caused by a reduction in stock based compensation
      expense attributable to the issuances of stock options and shares of
      common stock.  Stock based compensation expense for the six
      months ended June 30, 2009 was $55,750, as compared to $103,024 for the
      six months ended June 30, 2008.  This was offset by increases in
      foreign exchange losses increasing to $31,924, from a foreign exchange
      gains of $1,363 for the six months ended June 30, 2008, resulting from the
      strengthening of the Canadian dollar against the U.S. dollar, an increase
      in personnel resulting from our acquisition of a majority interest in the
      Stallion Group and an increase in audit and accounting
    fees.




·
            Natural
      gas and oil operating costs for the six months ended June 30, 2009
      decreased to $73,176 from $131,110 for the six months ended June 30, 2008,
      a decrease of 44%. The decrease in natural gas and oil operating costs is
      attributable to lower costs resulting from disposal of our interests in
      the Owl Creek Prospect and Palmetto Point Prospect 12 Wells Phase - I and
      50 wells – Phase II projects during the six months ended June 30,
      2009.




·
            Depreciation
      and depletion expensefor the six months
      ended June 30, 2009 decreased to $25,704 from $160,947 for the six months
      ended June 30, 2008, a decrease of 84%.  The decrease in
      depreciation and depletion expense is attributable to the disposal of our
      interests in the Owl Creek Prospect and Palmetto Point Prospect 12 Wells
      Phase - I and 50 wells – Phase II projects, which was partially offset by
      additional uneconomic wells that were moved to the proved property pool
      for depletion.




·
            Impairment
      of natural gas and oil properties expense for the six months ended June
      30, 2009 decreased to $202,486 from $388,702 for the six months ended June
      30, 2008, an decrease of 48%.  The decrease in impairment of
      natural gas and oil properties expense for the six months ended June 30,
      2009, as compared to the six months ended June 30, 2008, is attributable
      to a decline in natural gas and oil prices, which adversely impacts the
      third party valuation of our properties resulting in a reduction in
      carrying value of reserves; and






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·
            We
      experienced a loss on sale of natural gas and oil properties for the six
      months ended June 30, 2009 of $750,305 from the disposal of Palmetto Point
      Prospect 12 Wells Phase - I and 50 wells – Phase II
    projects.




Net
Operating Loss




The net
operating loss for the three months ended June 30, 2009 was $857,632, compared
to a net operating profit of $47,609 for the three months ended June 30, 2008
due to the factors described above.  The net operating loss for the
six months ended June 30, 2009 was $1,070,869, compared to a net operating loss
of $289,960 for the six months ended June 30, 2008 due to the factors described
above.




Other
Income and Expense




We
reported other net income of $2,713 for the three months ended June
30, 2009, as compared to other income of $0 in the three months ended June 30,
2008.  We reported other net income of $5,672 for the six
months ended June 30, 2009, as compared to other income of $252 in the six
months ended June 30, 2008.  Other income was attributable to interest
received on bank deposits.




Net
Loss




Net loss
for the three months ended June 30, 2009 was $850,744, compared to a net profit
of $44,191 for the three months ended June 30, 2008.  Net loss for the
six months ended June 30, 2009 was $1,066,081, compared to a net loss of
$293,126 for the six months ended June 30, 2008.  The increase in net
loss for the three and six months ended June 30, 2009 was attributable to the
loss on sale of natural oil and gas properties.




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, 2009, we had total current assets of $940,839 and total current
liabilities in the amount of $24,364.  As a result, we had working
capital of $916,475 as of June 30, 2009.




The
revenue we currently generate from natural gas and oil sales does not exceed our
operating expenses.  As such, we anticipate that we will require
additional financing activities including issuance of our equity or debt
securities to fund our operations and proposed drilling activities beyond the
year ended December 31, 2009.  During the six months June 30, 2009, we
received $0 from financing activities involving loan issuance, as compared to
$90,000 during the six months ended June 30, 2008.   We incurred
$48,045 from a S-4 registration of shares in connection with the Offer to
acquire shares of The Stallion Group, for the six months June 30, 2009, compared
to $0 for the six months June 30, 2008.




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We will
require additional funds to expand our acquisition, exploration and production
of natural oil and gas properties.  Our management also anticipates
that the current cash on hand may not be sufficient to fund our continued
operations at the current level for the next twelve
months.  Additional capital will be required to effectively expand our
operations through the acquisition and drilling of new prospects and to
implement our overall business strategy.  It is uncertain whether we
will be able to obtain financing when sought or obtain it on terms acceptable to
us.  If we are unable to obtain additional financing, the full
implementation of our ability to expand our operations will be
impaired.  Any additional equity financing may involve substantial
dilution to our then existing shareholders.




Cash
Used in Operating Activities




Operating
activities used $117,692 in cash for the six months June 30, 2009, compared to
$284,698 in cash generated from operating activities for the six months ended
June 30, 2008.  Our negative cash flow for the six months June 30,
2009 was caused by a decline in revenues earned during such period.




Cash
Used in / Provided by Investing Activities




Cash
flows generated by investing activities for the six months ended June 30, 2009
was $78,600, compared to $479,145 cash used by investing activities for the six
months ended June 30, 2008.  All cash used in investment activities
during the six months ended June 30, 2009 and 2008 related to investments in
natural gas and oil working interests.  The increase in net cash
generated was caused by the partial sale of 2.5% of our interest in the
Wordsworth prospect.




Cash
from Financing Activities




Cash
flows used by financing activities for the six months June 30, 2009 primarily
consisted of $48,045 related to the cost of registration of shares under the
Form S-4 in relation to the Offer to acquire shares of The Stallion Group,
compared to $90,000 in cash provided from financing activities for the six
months ended June 30, 2008.




Off-Balance
Sheet Arrangements




We do not
have any off-balance sheet debt nor did we have any transactions, arrangements,
obligations (including contingent obligations) or other relationships with any
unconsolidated entities or other persons that may have material current or
future effect on financial conditions, changes in the financial conditions,
results of operations, liquidity, capital expenditures, capital resources, or
significant components of revenue or expenses.




Going
Concern




As shown
in the accompanying financial statements, we have incurred a net loss of
$4,639,843 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.  We believe that we will be able to obtain sufficient
funding to meet our business objectives, including anticipated cash needs for
working capital and are currently evaluating several financing
options.  However, there can be no assurances offered in this
regard.  As a result of the foregoing, there exists substantial doubt
about our ability to continue as a going concern.







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Critical
Accounting Policies




In
December 2001, the SEC requested that all registrants list their most “critical
accounting polices” in the Management Discussion and Analysis.  The
SEC indicated that a “critical accounting policy” is one which is both important
to the portrayal of a company’s financial condition and results, and requires
management’s most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain. We believe that the following accounting policies fit this
definition.




Oil and
Gas Joint Ventures




All
exploration and production activities are conducted jointly with others and,
accordingly, the accounts reflect only our proportionate interest in such
activities.




Natural
Gas and Oil Properties




We
account for our oil and gas producing activities using the full cost method of
accounting as prescribed by the United States Securities and Exchange Commission
(“SEC”).  Accordingly, all costs associated with the acquisition of
properties and exploration with the intent of finding proved oil and gas
reserves contribute to the discovery of proved reserves, including the costs of
abandoned properties, dry holes, geophysical costs, and annual lease rentals are
capitalized.  All general corporate costs are expensed as incurred. In
general, sales or other dispositions of oil and gas properties are accounted for
as adjustments to capitalized costs, with no gain or loss
recorded.  Amortization of evaluated oil and gas properties is
computed on the units of production method based on all proved reserves on a
country-by-country basis.  Unevaluated oil and gas properties are
assessed at least annually for impairment either individually or on an aggregate
basis.  The net capitalized costs of evaluated oil and gas properties
(full cost ceiling limitation) are not to exceed their related estimated future
net revenues from proved reserves discounted at 10%, and the lower of cost or
estimated fair value of unproved properties, net of tax
considerations.  These properties are included in the amortization
pool immediately upon the determination that the well is dry.




Unproved
properties consist of lease acquisition costs and costs on well currently being
drilled on the properties.  The recorded costs of the investment in
unproved properties are not amortized until proved reserves associated with the
projects can be determined or until they are impaired.




Revenue
Recognition




Revenue
from sales of crude oil, natural gas and refined petroleum products are recorded
when deliveries have occurred and legal ownership of the commodity transfers to
the customers. Title transfers for crude oil, natural gas and bulk refined
products generally occur at pipeline custody points or when a tanker lifting has
occurred.  Revenues from the production of oil and natural gas
properties in which we share an undivided interest with other producers are
recognized based on the actual volumes sold by us during the
period.  Gas imbalances occur when our actual sales differ from its
entitlement under existing working interests.  We record a liability
for gas imbalances when we have sold more than our working interest of gas
production and the estimated remaining reserves make it doubtful that the
partners can recoup their share of production from the field.  At June
30, 2009 and 2008, we had no overproduced imbalances.




Item 3.   Quantitative and
Qualitative Disclosures About Market Risk.




(Not
Applicable).







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Item 4T. Controls and
Procedures.




Evaluation
of Disclosure 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, 2009.  This evaluation was
carried out under the supervision and with the participation of our Chief
Executive Officer, Mr. Christopher Paton-Gay, and our Chief Financial Officer,
Mr. Kulwant Sandher.  Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that, as of June 30, 2009, our
disclosure controls and procedures are effective.




Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and
forms.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed in our reports filed under the Exchange Act is accumulated and
communicated to management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required
disclosure.




Limitations on the
Effectiveness of Internal Controls




Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will necessarily prevent all fraud and
material error.  Our disclosure controls and procedures are designed
to provide reasonable assurance of achieving our objectives and our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective at that reasonable assurance
level.  Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs.  Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within our 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.




Changes in Internal Control
Over Financial Reporting




There
have been no changes in our internal controls over financial reporting during
the quarter ended June 30, 2009 that have materially affected or are reasonably
likely to materially affect such controls.







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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
1A.   Risk Factors.




(Not
Applicable).




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




On March
1, 2006, we entered into a consulting agreement with Last Mountain Management,
Inc. (“LMM”) to provide consulting services to us (the “LMM Consulting
Agreement”).  Douglas Bolen, our current President and former Chief
Executive Officer, is the sole shareholder, officer, and director of
LMM.  Pursuant to the LMM Consulting Agreement, we issued to Mr. Bolen
500,000 shares of our common stock on April 1, 2009.  These shares
were issued pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the “Securities Act”).  We did not engage in any general solicitation
or advertising.  The stock certificate was issued with the appropriate
legends affixed to the restricted stock.




On
January 1, 2008, we entered into a consulting agreement with Hurricane Corporate
Services Ltd.  (“Hurricane”) to provide consulting services to us (the
“Hurricane Consulting Agreement”).  Kulwant Sandher, our Chief
Financial Officer, is the sole shareholder, officer, and director of
Hurricane.  Pursuant to the Hurricane Consulting Agreement, we issued
to Mr. Sandher 400,000 shares of our common stock on April 1,
2009.  These shares were issued pursuant to Section 4(2) of the
Securities Act.  We did not engage in any general solicitation or
advertising.  The stock certificate was issued with the appropriate
legends affixed to the restricted stock.




On April
6, 2009, we granted Christopher Paton-Gay options to purchase 500,000 shares of
our common stock, exercisable at $0.03 per share, and issued Mr. Paton-Gay
500,000 shares of restricted common stock in connection with his appointment as
Chief Executive Officer and as a member of our board of
directors.  These options are fully vested and exercisable through the
expiration date of April 6, 2012.  These securities were issued
pursuant to Section 4(2) of the Securities Act.  We did not engage in
any general solicitation or advertising.  The stock certificate was
issued with the appropriate legends affixed to the restricted
stock.




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,
2009.




Item 5. Other Information.




None.




Item 6.    Exhibits.




See the
Exhibit Index following the signatures page of this report, which is
incorporated herein by reference.





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SIGNATURES





Pursuant
to the requirements of the Securities 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
      18, 2009By: /s/ Christopher
      Paton-Gay
              Christopher
      Paton-Gay
              Title:Chief
      Executive Officer and DirectorDate:
            August
      18, 2009By:/s/ Kulwant
      Sandher
              Kulwant
      Sandher
              Title:Chief
      Financial Officer and Director











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 Table of Contents





DELTA
OIL & GAS, INC.


(the
“Registrant”)


(Commission
File No. 000-52001)


Exhibit Index


to


Quarterly
Report on Form 10-Q


for
the Quarter Ended June 30, 2009





Exhibit
                No.
              Description
              Filed
                Herewith10.1
              Farmout Agreement by and between Sunset Exploration, Inc.
      and Delta Oil & Gas, Inc., Effective May 25, 2009
              X10.2
              Letter Agreement by and between Ranken Energy Corporation
      and Delta Oil & Gas, Inc. Relating to 2009-1 Drilling
      Program
              X31.1
              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 2002
              X31.2
              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
              X32.1
              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
              X













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