**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      DC 20549





**FORM
        10-QSB/A**





[X]
            Quarterly
                Report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934For
                the quarterly period endedSeptember
                30, 2006[
                ]
            Transition
                Report pursuant to 13 or 15(d) of the Securities Exchange Act of
                1934For
                the transition period __________to__________Commission
                File Number:333-82636





Delta
      Oil & Gas, Inc.


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





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




1122
                6th Avenue , Seattle, Washington 98109(Address
                of principal executive offices)





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





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





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





State
      the
      number of shares outstanding of each of the issuer’s classes of common stock, as
      of the latest practicable date: 45,070,506 common shares as of September 30,
      2006.





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




Table
          of Contents







TABLE
                OF CONTENTS
            PagePART
                I - FINANCIAL INFORMATIONItem
                1.
            Financial
                Statements
            3Item
                2.
            Management’s
                Discussion and Analysis
            4Item
                3.
            Controls
                and Procedures
            13PART
                II - OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            14Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            14Item
                3.
            Defaults
                Upon Senior Securities
            14Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            14Item
                5.
            Other
                Information
            14Item
                6.
            Exhibits
            14


2
 Table
          of Contents


**PART
      I - FINANCIAL INFORMATION**





**Item
      1.****Financial
      Statements**





Our
                  unaudited consolidated financial statements included in this Amended
                  Form
                  10-QSB/A are as follows:F-1
              Unaudited
                  Consolidated Balance Sheet as of September 30,
                  2006F-2
              Unaudited
                  Consolidated Statements of Operations for the three
                  and nine months ended September 30, 2006 and 2005 and from inception
                  on
                  January 9, 2001 through September 30, 2006F-3
              Unaudited
                  Consolidated Statements of Cash Flows for the nine
                  months ended September 30, 2006 and 2005 and from inception on
                  January 9,
                  2001 through September 30, 2006F-4
              Notes
                  to Unaudited Consolidated Financial
                  Statements;








These
      unaudited consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of America
      for interim financial information and the SEC instructions to Form 10-QSB.
      In
      the opinion of management, all adjustments considered necessary for a fair
      presentation have been included. Operating results for the interim period ended
      September 30, 2006 are not necessarily indicative of the results that can be
      expected for the full year.


3
 Table
          of Contents


**DELTA
      OIL & GAS, INC.**


(A
      Development Stage Company)


Consolidated
      Balance Sheets




(Stated
      in U.S. Dollars)


**September
                    30,****2006**
              
              December
                    31,2005**ASSETS****Current**Cash
                  and cash equivalents
              **$**
              **736,402**
              
              $
              343,004Accounts
                  receivable
              
              **12,989**
              
              
              10,068Prepaid
                  expenses
              
              **8,502**
              
              
              1,615**757,893**
              
              
              354,687**Natural
                  Gas And Oil Properties**Proved
                  property
              
              **549,773**
              
              
              1,272Unproved
                  property
              
              **2,969,918**
              
              
              2,040,700**3,519,691**
              
              
              2,041,972**Other
                  Equipment**Computer
                  equipment
              
              **3,492**
              
              
              3,492Less:
                  accumulated depreciation
              
              **(2,500)**
              
              
              (2,033)**992**
              
              
              1,459**$**
              **4,278,576**
              
              $
              2,398,118**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****LIABILITIES****Current**Accounts
                  payable and accrued liabilities
              **$**
              **79,570**
              
              $
              93,318Note
                  payable
              
              **-**
              
              
              39,397**79,570**
              
              
              132,715**STOCKHOLDERS'
                  EQUITY**Common
                    stock, 100,000,000 shares authorized of $0.001
                  par
                    value, 45,070,506 and 44,027,735 shares issued
                  and
                    outstanding, respectively
              
              **45,071**
              
              
              44,026Additional
                  paid-in capital
              
              **5,373,843**
              
              
              3,110,591Share
                  subscriptions receivable
              
              **-**
              
              
              (16,000)Deficit
                  accumulated during the development stage
              
              **(1,219,908)**
              
              
              (873,214)**4,199,006**
              
              
              2,265,403**$**
              **4,278,576**
              
              $
              2,398,118
   The
        accompanying notes are an integral part of these consolidated financial
        statements.


F-1
 Table
          of Contents


**DELTA
        OIL & GAS, INC.**
 (A
        Development Stage Company)
 Consolidated
        Statements of Operations
  (Stated
        in U.S. Dollars)
  **Three
                    Months Ended**
                  **September
                    30,**
                
                **Nine
                    Months Ended**
                  **September
                    30,**
                
                **From****Inception
                          on****January
                        9, 2001****Through****September
                    30,****2006**
                
                2005
                
                **2006**
                
                2005
                
                2006**Revenue**Royalties
                    received
                **$**
                **168,528**
                
                $
                1,073
                
                **$**
                **171,942**
                
                $
                4,861
                
                $
                266,072**Costs
                    And Expenses**Natural
                    gas and oil operating costs
                
                **21,005**
                
                
                922
                
                
                **22,690**
                
                
                3,590
                
                
                57,459General
                    and administrative
                
                **259,686**
                
                
                328,851
                
                
                **469,640**
                
                
                410,927
                
                
                1,180,418Depreciation
                    and depletion
                
                **6,316**
                
                
                146
                
                
                **6,630**
                
                
                217
                
                
                44,234Impairment
                    of natural gas and oil properties
                
                **-**
                
                
                -
                
                
                **-**
                
                
                -
                
                
                65,503Dry
                    well costs written off
                
                **80,833**
                
                
                -
                
                
                **80,833**
                
                
                -
                
                
                199,523**367,840**
                
                
                329,919
                
                
                **579,793**
                
                
                414,734
                
                
                1,547,137**Net
                    Operating (Loss)**
                
                **(199,312)**
                
                
                (328,846)
                
                
                **(407,851)**
                
                
                (409,873)
                
                
                (1,281,065)**Other
                    Income**Forgiveness
                    of debt
                
                **-**
                
                
                -
                
                
                **39,933**
                
                
                -
                
                
                39,933Interest
                    income
                
                **6,335**
                
                
                -
                
                
                **21,224**
                
                
                -
                
                
                21,224**6,335**
                
                
                -
                
                
                **61,157**
                
                
                -
                
                
                61,157**Net
                    (Loss)**
                
                **(192,977)**
                
                
                (328,846)
                
                
                **(346,694)**
                
                
                (409,873)
                
                
                (1,219,908)**Basic
                    (Loss) Per Common Share**
                **$**
                **0.00**
                
                $
                (0.01)
                
                **$**
                **(0.01)**
                
                $
                (0.01)**Weighted
                    Average Number Of****Common
                    Shares Outstanding**
                
                **45,070,506**
                
                
                42,664,440
                
                
                **44,739,760**
                
                
                42,016,997






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)
 **For
                            the Nine Months Ended****September
                          30,**
                      
                      **From****Inception
                                on****January
                              9, 2001****Through****September
                          30,****2006**
                      
                      2005
                      
                      2006**Cash
                          Flows From Operating Activities:**Net
                          loss
                      **$**
                      **(346,694)**
                      
                      $
                      (409,873)
                      
                      $
                      (1,219,908)Adjustments
                          to reconcile net loss to net cash
                          used
                            in operating activities:Depreciation
                          and depletion
                      
                      **6,630**
                      
                      
                      217
                      
                      
                      44,234Impairment
                          of natural gas and oil properties
                      
                      **-**
                      
                      
                      -
                      
                      
                      65,503Dry
                          well costs written off
                      
                      **-**
                      
                      
                      -
                      
                      
                      199,523Changes
                          in operating assets and liabilities:Accounts
                          receivable
                      
                      **(2,921)**
                      
                      
                      (1,530)
                      
                      
                      (12,989)Accounts
                          payable
                      
                      **(13,748)**
                      
                      
                      287,983
                      
                      
                      79,570Note
                          payable
                      
                      **(39,397)**
                      
                      
                      (17,362)
                      
                      
                      (30,001)Prepaid
                          expenses
                      
                      **(6,887)**
                      
                      
                      (8,047)
                      
                      
                      (8,502)**Net
                          Cash Used in Operating Activities**
                      
                      **(403,017)**
                      
                      
                      (148,612)
                      
                      
                      (882,570)**Cash
                          Flows From Investing Activities:**Purchase
                          of other equipment
                      
                      **-**
                      
                      
                      (1,751)
                      
                      
                      (3,492)Investment
                          in natural gas and oil working interests
                      
                      **(1,483,882)**
                      
                      
                      (1,869,394)
                      
                      
                      (3,796,451)**Net
                          Cash Used in Investing Activities**
                      
                      **(1,483,882)**
                      
                      
                      (1,871,145)
                      
                      
                      (3,799,943)**Cash
                          Flows From Financing Activities:**Proceeds
                          from issuance of common stock
                      
                      **2,264,297**
                      
                      
                      1,988,439
                      
                      
                      5,418,915Shares
                          subscription received
                      
                      **-**
                      
                      
                      739,985
                      
                      
                      -Shares
                          subscription receivable
                      
                      **16,000**
                      
                      
                      (16,000)
                      
                      
                      -Due
                          to related party
                      
                      **-**
                      
                      
                      (13,122)
                      
                      
                      -Advances
                          payable
                      
                      **-**
                      
                      
                      (7,974)
                      
                      
                      -Promissory
                          note payable
                      
                      **-**
                      
                      
                      174,187
                      
                      
                      -**Net
                          Cash Provided by Financing Activities**
                      
                      **2,280,297**
                      
                      
                      2,865,515
                      
                      
                      5,418,915**Net
                          Increase In Cash And Cash Equivalents**
                      
                      **393,398**
                      
                      
                      845,758
                      
                      
                      736,402**Cash
                          And Cash Equivalents At Beginning Of Period****(Excess
                          Of Checks Issued Over Funds On Deposit)**
                      
                      **343,004**
                      
                      
                      -
                      
                      
                      -**Cash
                          And Cash Equivalents At End Of Period**
                      **$**
                      **736,402**
                      
                      $
                      845,758
                      
                      $
                      736,402
 The
          accompanying notes are an integral part of these consolidated financial
          statements.


F-3
 Table
          of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2006**


**(Unaudited)**


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





**1.**
            **BASIS
                OF PRESENTATION**





The
      unaudited consolidated financial statements as of September 30, 2006 included
      herein have been prepared without audit pursuant to the rules and regulations
      of
      the Securities and Exchange Commission. Certain information and footnote
      disclosures normally included in financial statements prepared in accordance
      with United States generally accepted accounting principles have been condensed
      or omitted pursuant to such rules and regulations. In the opinion of management,
      all adjustments (consisting of normal recurring accruals) considered necessary
      for a fair presentation have been included. It is suggested that these
      consolidated financial statements be read in conjunction with the December
      31,
      2005 audited financial statements and notes thereto.







**2.**
            **OPERATIONS**







a)
            Organization





Delta
      Oil
& Gas, Inc. (“the Company”) was incorporated as a Colorado corporation on
      January 9, 2001.





The
      Company is a development stage, independent natural gas and oil company engaged
      in the exploration, development and acquisition of natural gas and oil
      properties in the United States. The Company’s entry into the natural gas and
      oil business began on February 8, 2001.





During
      the year ended December 31, 2004, the Company completed a forward stock split
      on
      the basis of 5 1⁄2 common shares for every one previously held common share,
      common shares outstanding have been adjusted retroactively.




b)
            Development
                Stage Activities





The
      Company is a development stage enterprise engaged in the exploration for and
      production of natural gas and oil in the United States. Since January 9, 2001,
      the Company has acquired an 8.9% working interest in a well which commenced
      production in February 2001. The Company has subsequently acquired other working
      interests in wells in North America.





F-4
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2006**


**(Unaudited)**


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




**2.**
            **OPERATIONS
                (Continued)**





b)
            Development
                Stage Activities (Continued)





The
      Company is subject to several categories of risk associated with its development
      stage activities. Natural gas and oil exploration and production is a
      speculative business, and involves a high degree of risk. Among the factors
      that
      have a direct bearing on the Company’s prospects are uncertainties inherent
      estimating natural gas and oil reserves, future hydrocarbon production, and
      cash
      flows, particularly with respect to wells that have not been fully tested and
      with wells having limited production histories; access to additional capital;
      changes in the price of natural gas and oil; availability and cost of services
      and equipment; and the presence of competitors with greater financial resources
      and capacity.





c)
            Going
                Concern





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern.





As
      shown
      in the accompanying financial statements, the Company has incurred a net loss
      of
      $1,219,908 since inception. To achieve profitable operations, the Company
      requires additional capital for obtaining producing oil and gas properties
      through either the purchase of producing wells or successful exploration
      activity. Management believes that sufficient funding will be available to
      meet
      its business objectives including anticipated cash needs for working capital
      and
      is currently evaluating several financing options. However, there can be no
      assurance that the Company will be able to obtain sufficient funds to continue
      the development of and, if successful, to commence the sale of its products
      under development. As a result of the foregoing, there exists substantial doubt
      the Company’s ability to continue as a going concern. These financial statements
      do not include any adjustments that might result from the outcome of this
      uncertainty.




F-5
 Table
          of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2006**


**(Unaudited)**


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





**3.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES**




a)
            Basis
                of Consolidation





The
      consolidated financial statements include the financial statements of the
      Company and its wholly-owned subsidiary, Delta Oil & Gas (Canada) Inc. All
      significant inter-company transactions have been eliminated.





b)
            Use
                of Estimates





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities,
      and
      disclosure of contingent assets and liabilities at the date of the financial
      statements, and the reported amounts of revenues and expenses during the
      reporting periods. Actual results could differ from those estimates. Significant
      estimates with regard to these financial statements include the estimate of
      proved natural gas and oil reserve quantities and the related present value
      of
      estimated future net cash flows therefrom (see “Supplemental Oil and Gas
      Disclosures - Unaudited”).





c)
            Natural
                Gas and Oil Properties




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





F-6
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2006**


**(Unaudited)**


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





**3.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)**




c)
            Natural
                Gas and Oil Properties




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.





d)
            Asset
                Retirement Obligations





The
      Company has adopted Statement of Financial Accounting Standards No. 143 (“SFAS
      143”), “Accounting for Asset Retirement Obligations”, which requires that asset
      retirement obligations (“ARO”) associated with the retirement of a tangible
      long-lived asset, including natural gas and oil properties, be recognized as
      liabilities in the period in which it is incurred and becomes determinable,
      with
      an offsetting increase in the carrying amount of the associated assets. The
      cost
      of tangible long-lived assets, including the initially recognized ARO, is
      depleted, such that the cost of the ARO is recognized over the useful life
      of
      the assets. The ARO is recorded at fair value, and accretion expense is
      recognized over time as the discounted are accreted to the expected settlement
      value. The fair value of the ARO is measured using expected future cash flow,
      discounted at the Company’s credit-adjusted risk-free interest
      rate.




The
        Company determined that, pursuant to SFAS 143, the net effect of the ARO
        calculation to the Company’s income statement would be immaterial to record in
        its financial statements for the year ended December 31, 2005.






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-7
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2006**


**(Unaudited)**


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





**3.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)**




f)
            Revenue
                Recognition





The
      Company uses the sales method of accounting for natural gas and oil revenues.
      Under this method, revenues are recognized upon the passage of title, net of
      royalties. Revenues from natural gas production are recorded using the sales
      method. When sales volumes exceed the Company’s entitled share, an overproduced
      imbalance occurs. To the extent the overproduced imbalance exceeds the Company’s
      share of the remaining estimated proved natural gas reserves for a given
      property, the Company records a liability. At September 30, the Company had
      no
      overproduced imbalances.





g)
            Cash
                and Cash Equivalent





Cash
      and
      cash equivalent consists of cash on deposit with high quality major financial
      institutions, and to date has not experienced losses on any of its balances.
      The
      carrying amounts approximated fair market value due to the liquidity of these
      deposits.





h)
            Environmental
                Protection and Reclamation Costs





The
      operations of the Company have been, and may be in the future be affected from
      time to time in varying degrees by changes in environmental regulations,
      including those for future removal and site restorations costs. Both the
      likelihood of new regulations and their overall effect upon the Company may
      vary
      from region to region and are not predictable.





The
      Company’s policy is to meet or, if possible, surpass standards set by relevant
      legislation, by application of technically proven and economically feasible
      measures. Environmental expenditures that relate to ongoing environmental and
      reclamation programs will be charged against statements of operations as
      incurred or capitalized and amortized depending upon their future economic
      benefits. The Company does not currently anticipate any material capital
      expenditures for environmental control facilities because all property holdings
      are at early stages of exploration. Therefore, estimated future removal and
      site
      restoration costs are presently considered minimal.





F-8
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2006**


**(Unaudited)**


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





**3.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)**




i)
            Foreign
                Currency Translation





United
      States funds are considered the Company’s functional currency. Transaction
      amounts denominated in foreign currencies are translated into their United
      States dollar equivalents at exchange rates prevailing at the transaction date.
      Monetary assets and liabilities are adjusted at each balance sheet date to
      reflect exchange rates prevailing at that date, and non-monetary assets and
      liabilities are translated at the historical rate of exchange. Gains and losses
      arising from restatement of foreign currency monetary assets and liabilities
      at
      each year-end are included in statements of operations.





j)
            Other
                Equipment





Computer
      equipment is stated at cost. Provision for depreciation on computer equipment
      is
      calculated using the straight-line method over the estimated useful life of
      three years.





k)
            Impairment
                of Long-Lived Assets





In
      the
      event that facts and circumstances indicate that the costs of long-lived assets,
      other than oil and gas properties, may be impaired, and evaluation of
      recoverability would be performed. If an evaluation is required, the estimated
      future undiscounted cash flows associated with the asset would be compared
      to
      the asset’s carrying amount to determine if a write-down to market value or
      discounted cash flow value is required. Impairment of oil and gas properties
      is
      evaluated subject to the full cost ceiling as described under Oil and Gas
      Properties.





l)
            Loss
                Per Share





In
      February 1997, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS
      128”). Under SFAS 128, basic and diluted earnings per share are to be presented.
      Basic earnings per share is computed by dividing income available to common
      shareholders by the weighted average number of common shares outstanding in
      the
      period. Diluted earnings per share takes into consideration common shares
      outstanding (computed under basic earnings per share) and potentially dilutive
      common shares.





F-9
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2006**


**(Unaudited)**


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





**3.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (Continued)**




m)
            Income
                Taxes





The
      Company follows the liability method of accounting for income taxes under which
      deferred tax assets and liabilities are recognized for the future tax
      consequences of (i) temporary differences between the tax bases of assets and
      liabilities, and their reported amounts in the financial statements, and (ii)
      operating loss and tax credit carryforwards for tax purposes. Deferred tax
      assets are reduced by a valuation allowance when, based upon management’s
      estimates, it is more likely than not that a portion of the deferred tax assets
      will not be realized in a future period.





n)
            Financial
                Instruments





The
      Company’s financial instruments consist of cash and cash equivalent, accounts
      receivable, accounts payable and accrued liabilities, and promissory note
      payable.





It
      is
      management’s opinion that the Company is not exposed to significant interest or
      credit risks arising from these financial instruments. The fair value of these
      financial instruments is approximate their carrying values.





o)
            Stock-Based
                Compensation





The
      Company accounts for employee stock-based compensation using the intrinsic
      value
      method prescribed in Accounting Principles Board Opinion No. 25 - “Accounting
      for Stock Issued to Employees”, and related interpretations. Accordingly,
      compensation cost for stock options is measured as the excess, if any, of the
      fair value of the Company’s common stock at the date of the grant over the
      amount an employee must pay to acquire the common stock. Non-employee
      stock-based compensation is accounted for using the fair value method in
      accordance with SFAS No. 123 - “Accounting for Stock-Based Compensation”.




F-10
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2006**


**(Unaudited)**


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




**4.**
            **NATURAL
                GAS AND OIL PROPERTIES**





a)
                Proved Property
            Cost
            
            Accumulated
              Depletion
            
            **Net
                Value**
              **September
                30,****2006**
            
            Net
                Value
              December31,2005i.
                Liberty Valance
            $
            102,346
            
            $
            (101,074)
            
            **$**
            **1,272**
            
            $
            1,272ii.
                Wordsworth Property
            
            185,677
            
            
            (
                2,063)
            
            
            **183,614**
            
            
            -iii.
                Owl Creek Prospect
            
            368,987
            
            
            (
                4,100)
            
            
            **364,887**
            
            
            -$
            657,010
            
            $
            107,237
            
            **$**
            **549,773**
            
            $
            1,272




Descriptions




i.
      Liberty Valance





In
      February 2001, the Company acquired and 8.9% working interest in a gas well
      located in California at a cost of $90,000. The well commenced production in
      February 2001 following a redrill.




ii.
        Wordsworth Prospect ( formerly
        ‘Texalta’ ),
        Saskatchewan, Canada




On
        April
        10, 2006, the Company entered into an agreement (the “Agreement”) with Petrex
        Energy Ltd., for a participation and Farmout agreement where the Company
        will
        participate for 15% gross working interest before payout (BPO) and 7.5% gross
        working interest after pay out (APO) in a proposed four well horizontal drilling
        program in the Wordsworth area in Southeast Saskatchewan, Canada. As at
        September 30, 2006, the Company had advanced $185,677 (CDN$205,693) as its
        share
        of the costs in this Agreement. During the quarter, the Wordsworth Prospect
        started to produce revenue.




F-11
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2006**


**(Unaudited)**


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








**4.**
            **NATURAL
                GAS AND OIL PROPERTIES**(Continued)





a)
      Proved
      Property


iii. Owl
          Creek
          Prospect ( formerly
          ‘Brinx’ ),
          Oklahoma, USA
  In
          June
          2006, Delta Oil & Gas entered into an agreement to accept the assignment of
          an undivided 20% working interest in a potential oil well known as the
          Powell #2
          and an option to purchase a 20% interest in all future wells drilled on
          the land
          surrounding Powell#2. In addition Delta has an option to participate in
          any
          lands of mutual interest that may be acquired in the future by the Owl
          creek
          participating partners. The cost to Delta for this assignment was $368,987.
          Isbill #1-36 was abandoned during the 3 months ending September 30, 2006,
          and
          costs amounted to $81,026 was charged to the income statement for the quarter.
          During the quarter, the Owl Creek Prospect started to produce
          revenue.


b)
      Unproved Properties


**SEPTEMBER
                30**
              **2006**
            
            DECEMBER
                31
              2005i.
            Todd
                Creek
              Acquisition
                cost
              Cash
                call
            **$**
            **597,263**
              **583,571**
            
            $
            597,263
              519,990ii.
            Hillspring
              Acquisition
                cost
            
            **414,766**
            
            
            414,766iii.
            Cache
                Slough Prospect
              Cash
                call
            
            **431,887**
            
            
            301,387iv.
            Strachan
                Prospect
              Acquisition
                cost
            
            **347,431**
            
            
            207,294v.
            Palmetto
                Point Prospect
              Acquisition
                cost (10 wells)
              Acquisition
                cost (2 wells)
            
            **425,000**
              **70,000**
            
            
            -
              -
              
              -vi.
            Mississippi
            
            **100,000****$**
            **2,969,918**
            
            $
            2,040,700





F-12
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2006**


**(Unaudited)**


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





**4.**
            **NATURAL
                GAS AND OIL PROPERTIES**(Continued)




b)
      Unproved properties (Continued)





i)
            Todd
                Creek, Alberta, Canada





In
      January 2005, the Company acquired a 20% working interest in 13.75 sections
      (8,800 acres) of land in Todd Creek, Alberta, Canada, at a cost of $597,263.
      The
      Company also has an option to acquire an additional 15% interest in 7 additional
      sections of land by participating in 20% of the drilling cost by December 31,
      2006. As at September 30, 2006, a cash call of $583,571 has been paid as share
      of costs for a proposed drilling program.





ii)
            Hillspring,
                Alberta, Canada





In
      January 2005, the Company acquired a 10% working interest in 1 section (64
      acres) of land in Hillspring, Alberta, Canada, at a cost of $414,766. The
      Company also had an option to acquire an additional 10% working interest in
      an
      additional 1.25 sections by paying $207,833 by July 1, 2005. Later the Company
      elected not to exercise this option and the option expired.





Hillspring
      Prospect





This
      option expired on July1, 2005, but was later extended to December 29,
      2006.





iii)
            Cache
                Slough Prospect, California, USA





In
      May
      2005, the Company entered into a participation agreement with Production
      Specialties Company (“PSC”) where the Company has been granted the right to earn
      a 68% working interest in a test well and a 12.50% working interest in certain
      lands located in Solano County, California, by paying 18.75% of the test well
      operations. As at September 30, 2006, a cash call of $431,887 has been paid
      as
      share of costs for a proposed drilling program.





Following
      these payments, the Company will be responsible for 12.5% of all additional
      expenditures for drilling and production on the property and be entitled to
      receive 8.5% of all revenue generate by the property, which is 12.5% of this
      California company’s 68% interest.




F-13
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2006**


**(Unaudited)**


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





**4.**
            **NATURAL
                GAS AND OIL PROPERTIES**(Continued)




b)
            Unproved
                Properties (Continued)




iv)
            Strachan
                Prospect, Alberta, Canada





In
      September 2005, the Company entered into a participation and farmout agreement
      with Odin Capital Inc. (“Odin”) where the Company will participate for 4% share
      of the costs of drilling a test well in certain lands located in the Leduc
      formation, Alberta, Canada. In exchange for he participation costs, the Company
      will earn interests in certain petroleum and natural gas wells ranging from
      1.289% to 4.0%. As at September 30, 2006, the Company has advanced $347,431
      as
      its share of the costs in the Leduc formation property.





A
      director of the Company maintains a 50% ownership interest in Odin.





v)
            Palmetto
                Point Prospect, Mississippi, USA





On
      February 21, 2006, the Company entered into an agreement (the “Agreement”) with
      0743608 B.C. Ltd., (“Assignor”) a British Columbia based oil and gas exploration
      company, in order to accept an assignment of the Assignor’s ten percent (10%)
      gross working and revenue interest in a ten-well drilling program (the “Drilling
      Program”) to be undertaken by Griffin & Griffin Exploration L.L.C.,
      (“Griffin”) a Mississippi based exploration company. Under the terms of the
      Agreement, the Company paid the Assignor $425,000 as payment for the assignment
      of the Assignor’s 10% gross working and revenue interest in the Drilling
      Program. The Company also entered into a joint Operating Agreement directly
      with
      Griffin on February 24, 2006.




The
      Drilling Program on the acquired property interests is anticipated to be
      initiated by Griffin on or about May 1, 2006 and to be completed by Griffin
      within approximately 10 months. The anticipated commencement date for the
      drilling program was extended due to flooding of the road accessing the well
      sites attributable to the melting snow. The prospect area owned or controlled
      by
      Griffin on which the ten wells will be drilled, is comprised of approximately
      1273 acres in Palmetto Point, Mississippi. The exact locations of the ten wells
      in which the Company will participate are yet to be determined.




F-14
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2006**


**(Unaudited)**


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





**4.**
              **NATURAL
                  GAS AND OIL PROPERTIES**(Continued)
  b)
              Unproved
                  Properties (Continued)
  vi)
              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 proposed wells are to be drilled is comprised of approximately 300,000
      gross acres of land located between Southwest Mississippi and North East
      Louisiana. The proposed wells will be targeting the Frio and Wilcox Geological
      formations. Delta 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.




**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.





F-15
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2006**


**(Unaudited)**


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




b)
            Distribution
                Risk





The
      Company is dependent on the operator to market any oil production form 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.




**6.**
            **PROMISSORY
                NOTE PAYABLE**




**SEPTEMBER
                30**
              **2006**
            
            DECEMBER
                31
              2005Unsecured
                loan, repayable January 4, 2006,
              together
                with accrued interest at a rate of 6.5% per
              annum.
                As at September 30, 2006, the note was forgiven
              and
                the Company was releasedfrom
                all obligations under
              the
                promissory note.
            **$**
            **Nil**
            
            $
            39,397


During
            the quarter ended June 30, 2006, the Company was released from all obligations
            under the note payable by the note holder, which amounted to $39,933
            including
            principle and interest accrued before and after maturity. The Company
            provided
            no consideration in exchange for this release.


**7.**
            **SHARE
                CAPITAL**





i.
            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.




F-16
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2006**


**(Unaudited)**


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





**7.**
            **SHARE
                CAPITAL**(Continued)




On
      April
      25, 2006, the Company issued 727,272 common shares pursuant to a private
      placement at $2.75 per share.





ii.
            Stock
                Options





Compensation
      expense related to stock options granted is recorded at their fair value as
      calculated by the Black-Scholes option pricing model. Compensation expense
      of
      $96,701 was recorded during the three months ended September 30, 2006 (September
      30, 2005 - $268,714) related to options granted during the year ended December
      31, 2005 and the nine months ended September 30, 2006, but vested during the
      three months ended September 30, 2006.


The
      changes in stock options are as follows:


******NUMBER**
              WEIGHTED
                AVERAGE
                EXERCISE
                  PRICEBalance
                  outstanding, December 31, 2005
                Granted
                Exercised
                
                Balance
                  outstanding, September 30, 2006
              330,000
                300,000
                (317,500)
              $
                  0.95
                0.95
                (0.95)312,500
              $
                  1.00





The
      following table summarized information about the stock options outstanding
      at
      September 30, 2006:








**OPTIONS
                OUTSTANDING**
            
            **OPTIONS
                EXERCISABLE****EXERCISE
                PRICE**
            **NUMBER
                OF SHARES**
            **REMAINING
                CONTRACTUAL LIFE (YEARS)**
            
            **NUMBER
                OF SHARES**$
                1.00
              $
                1.15
              $
                1.15
            12,500
              240,000
              60,000
            2.25
              1.00
              1.00
            
            12,500
              32,000
              50,000




F-17
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2006**


**(Unaudited)**


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





**7.**
            **SHARE
                CAPITAL**(Continued)




w)
            Common
                Stock Share Purchase Warrants





As
      at
      September 30, 2006, share purchase warrants outstanding for the purchase of
      common shares as follows:







**WARRANTS
                OUTSTANDING****EXERCISE**
              **PRICE**
            **NUMBER
                OF**
              **SHARES**
            **EXPIRY**
              **DATE**$ 1.50
              $
                1.50
              $
                1.50
            1,200,000
              383,985
              900,000
            May 2, 2010
              August
                29, 2010
              December
                19, 2010





**8.**
            **RELATED
                PARTIES**





During
      the period ended September 30, 2006, the Company paid $27,494 (September 30,
      2005 - $14,731) for management fees to a director of the Company.





An
      amount
      of $883 at September 30, 2006 (December 31, 2005 - $805) is due to a director
      of
      the Company.





F-18
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2006**


**(Unaudited)**


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








**9.**
            **COMMITMENT
                AND CONTRACTURAL
                OBLIGATIONS**





A
      lease
      agreement for the Vancouver office commenced March 1, 2005 and terminates on
      February 28, 2006, and will subsequently be paid on a month-to-month basis.
      The
      lease agreement includes a fixed rental fee of $1,295 per month plus additional
      charges for services supplied by the landlord or incurred on behalf of the
      client in the previous month.





On
      March
      1, 2005, the Company also rented and office on a month to month basis for $243
      per month.








**10.**
            ****SUBSEQUENT
                EVENT****




Cache
      Slough Assignment. Subsequent to the reporting period, the Company assigned
      all of its interest in the Cache Slough prospect in exchange for
      $1,500,000.




F-19
 Table
          of Contents




**Item
      2.     Management’s Discussion and Analysis**





**Forward-Looking
      Statements**





Certain
      statements, other than purely historical information, including estimates,
      projections, statements relating to our business plans, objectives, and expected
      operating results, and the assumptions upon which those statements are based,
      are “forward-looking statements” within the meaning of the Private Securities
      Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933
      and Section 21E of the Securities Exchange Act of 1934. These
      forward-looking statements generally are identified by the words “believes,”
“project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,”
“may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and
      similar expressions. We
      intend
      such forward-looking statements to be covered by the safe-harbor provisions
      for
      forward-looking statements contained in the Private Securities Litigation Reform
      Act of 1995, and are including this statement for purposes of complying with
      those safe-harbor provisions. Forward-looking
      statements are based on current expectations and assumptions that are subject
      to
      risks and uncertainties which may cause actual results to differ materially
      from
      the forward-looking statements. Our
      ability to predict results or the actual effect of future plans or strategies
      is
      inherently uncertain. Factors which could have a material adverse affect on
      our
      operations and future prospects on a consolidated basis include, but are not
      limited to: changes in economic conditions, legislative/regulatory changes,
      availability of capital, interest rates, competition, and generally accepted
      accounting principles. These risks and uncertainties should also be considered
      in evaluating forward-looking statements and undue reliance should not be placed
      on such statements. We
      undertake no obligation to update or revise publicly any forward-looking
      statements, whether as a result of new information, future events or otherwise. Further
      information concerning our business, including additional factors that could
      materially affect our financial results, is included herein and in our other
      filings with the SEC.





**Business
      Development**





We
      are
      engaged in the exploration, development, acquisition, and operation of oil
      and
      gas properties. We participate in the oil and gas industry through the purchase
      of small interests in producing wells, oil and gas exploration, and development
      projects. Our current focus is on the exploration of our land portfolio
      comprised of working interests in Palmetto Point, Mississippi; Southern
      Saskatchewan, Canada; the Southern Alberta Foothills area in Canada; and Garvin
      and McClain counties in Oklahoma.





The
      disclosure that follows relates to each property for which we have an
      interest.





Liberty
      Valance Well




On
      February 7, 2001, we acquired an 8.9% working interest in a production gas
      well
      called the Liberty Valance RD1 Gas Unit (“Liberty Valance” or the “well”). The
      well is located in the Rancho Capay Gas Field in Glenn County, California.
      We
      acquired this well for $90,000. Based upon a reserve report, reserves in the
      Liberty Valance Well were estimated at 2443 (MCF) on


4
 Table
          of Contents


December
      31, 2005 translating in an estimate of $9,823 for the standardized measure
      of
      discounted cash flows remaining from reserves as of December 31, 2005. The
      operator of the well markets each non−operator's share of gas production from
      the well and deducts all royalty burdens and operating expenses prior to the
      distribution of revenues. The Liberty Valance well generated revenue of $576
      during the three month period ending September 30, 2006 and $3,990 during the
      nine month period ending September 30, 2006.





Todd
      Creek **** Prospect
      and Hillspring Prospect




On
      November 26, 2004, through our wholly owned Canadian subsidiary, Delta Oil
&
Gas (Canada), Inc., we entered into two agreements (the "Agreements") with
      Win
      Energy Corporation, ("Win"), an Alberta based Oil & Gas Exploration Company,
      in order to acquire an interest in lands and leases owned by Win. On or about
      January 25, 2005, we paid Win the full purchase price set forth in the
      Agreements and acquired a working interest in two prospective properties known
      as Todd Creek and Hillspring. Both properties are located approximately 90
      miles
      south of Calgary, Alberta in the Southern Alberta Foothills belt.




Todd
      Creek Prospect





On
      January 25, 2005, we acquired a 20% working interest in 13.75 sections of land
      (8800 acres) in Todd Creek for the purchase price of $597,263. We also have
      an
      option to acquire an additional 15% interest in 7 additional sections of land
      (4,480 acres). This option terminates on December 31, 2006.





Included
      in the acquisition is a test well that has been drilled and cased. Under the
      terms of this agreement, Win shall assume all costs of drilling and completing
      or abandoning the test well up to gross costs of $1,330,000. Thereafter, we
      will
      assume responsibility for 20% of all costs, risks, and expenses relating to
      the
      test well.





During
      the second quarter of 2005, a well located in Todd Creek property was drilled
      to
      a specifically targeted depth. This well is located in 13-28-9-2W5 in Alberta,
      Canada and we will refer to this well as the “13-28 well.” The 13-28 well was
      evaluated and tested. The operator encountered gas reservoirs and concluded
      that
      this well is a potential gas well. This well was tied into a newly constructed
      gas processing plant and production commenced during the reporting period.
      We
      and Win Energy Corporation intend to drill further exploration wells in this
      prospect in the fourth quarter of 2006.





Hillspring
      Prospect





On
      January 25, 2005, we acquired a 10% working interest in one section of land
      (640
      acres) in Hillspring for the purchase price of $414,766. It is now anticipated
      that a test well will be drilled on our property interest in early 2007.





Our
      acquisition of an interest in Hillspring Prospect included an option to acquire
      an additional 10% working interest in 1.25 sections in the immediate area for
      the sum of $207,833 (US dollars). This option expired on July 1, 2005, but
      was
      later extended to December 29, 2006.


5
 Table
          of Contents


Cache
      Slough Prospect




On
      May
      25, 2005, we entered into a Farmout Agreement (“Agreement”) with a California
      based oil and gas company. This California company has the right to acquire
      an
      oil and gas leasehold interest in certain lands located in Section 6, 7, &
18, Township 4 North, Range 3 East, M.D.B.M., Solano County, California upon
      incurring expenditures for drilling and testing on the said property. We refer
      to this property as the “Cache Slough Prospect.” Based upon an agreement with
      the property owner, this California company was responsible for all costs and
      received 68% of the revenue generated from the wells drilled on the property.
      The property owner received the remaining 32% of revenue. This California
      company agreed to grant us a right to acquire 12.5% of their 68% interest upon
      us paying 18.75% of all costs associated with drilling, testing, and completing
      the first test well on the property. Following these payments, we would be
      responsible for 12.5% of all additional expenditures for drilling and production
      on the property and be entitled to receive 8.5% of all revenue generated by
      the
      property, which is 12.5% of this California company’s 68% interest.





Drilling
      of the first well on this property commenced in July of 2005. Preliminary drill
      logs indicated that this is a potential gas well and the operator then completed
      the well for testing. Preliminary testing resulted in the potential discovery
      of
      natural gas and the operator elected to complete the well. The well is in the
      process of being tied in to a nearby pipeline to accommodate any potential
      natural gas production.





Based
        on
        the positive results from the first well drilled on this property, a second
        well
        was drilled on this property to a targeted depth of 5,500 feet. The operator
        of
        the well elected to complete the well based on the initial testing and
        anticipates tying it in to a nearby pipeline to accommodate any potential
        natural gas production. The total costs associated with these two wells are
        $431,887.





Subsequent
      to the reporting period, we assigned all of our interest in the Cache Slough
      Prospect in exchange for $1,500,000.




Strachan
      Prospect




On
      September 23, 2005, we entered into a Farmout Agreement (“Agreement”) with Odin
      Capital Inc. (“Odin”), a Calgary, Alberta corporation. A former member of our
      board of directors, Mr. Philipchuk, maintains a 50% ownership interest in Odin.
      Odin has the right to acquire an oil and gas leasehold interests in certain
      lands located in Section 9, Township 38, Range 9, West of the 5 th Meridian, Alberta, Canada (“Section 9”) upon incurring expenditures for drilling
      and testing on the property. In exchange for us paying 4.0000% of all costs
      associated with drilling, testing, and completing the test well on the property
      which we refer to as the Leduc formation test well, we will have
      earned:





a)  in
      the
      Spacing Unit for the Earning Well:





i)  a
      2.000%
      interest in the petroleum and natural gas below the base of the


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Mannville
      excluding natural gas in the Leduc formation; and





ii)  a
      4.000%
      interest in the natural gas in the Leduc formation before payout subject to
      payment of the Overriding Royalty which is convertible upon payout at royalty
      owners option to 50% of our Interest; and





b)  a
      1.600%
      interest in the rights below the base of the Shunda formation in Section 10,
      Township 38, Range 9W5M.





c)  a
      1.289%
      interest in the rights below the base of the Shunda formation in Section 15
      and
      16, Township 38, Range 9W5M, down to the base of the deepest formation
      penetrated.





On
      October 6, 2005, drilling commenced Leduc formation test well. Under the terms
      of the Agreement, we advanced 110% of the anticipated costs prior to drilling.
      The total costs advanced by us prior to drilling were $253,977. The well was
      drilled to the targeted depth of 13,650 feet. Based on results indicating the
      presence of a potential gas well, the operator inserted casing into the total
      depth of the well and will perform a full testing program. If the additional
      testing returns positive results, this well will be tied a nearby pipeline
      to
      accommodate the natural gas production.





Palmetto
      Point Prospect - 12 Wells




On
      February 21, 2006, we entered into an agreement (the “Agreement”) with 0743608
      B.C. Ltd., (“Assignor”) a British Columbia based oil and gas exploration
      company, in order to accept an assignment of the Assignor’s ten percent (10%)
      gross working and revenue interest in a ten-well drilling program (the “Drilling
      Program”) to be undertaken by Griffin & Griffin Exploration L.L.C.,
      (“Griffin”) a Mississippi based exploration company. Under the terms of the
      Agreement, we paid the Assignor $425,000 as payment for the assignment of the
      Assignor’s 10% gross working and revenue interest in the Drilling Program. We
      also entered into a Joint Operating Agreement directly with Griffin on February
      24, 2006.




The
      Initial Drilling Program on ten (10) wells on the acquired property interest
      has
      been completed by Griffin. The prospect area owned or controlled by Griffin
      on
      which the initial ten wells will be drilled, is comprised of approximately
      1273
      acres in Palmetto Point, Mississippi. To date, ten wells have been drilled,
      4 of
      which are producing, 1 of which is expected to produce but is currently awaiting
      a compressor, 3 of which are expected to produce but are waiting on pipeline
      completion rigs and 2 of which were not commercially viable and were plugged
      and
      abandoned.





We
      elected to participate in an additional two well program which has also been
      completed. With respect to the two additional wells at this same location,
      the
      first is being drilled at present and the second is awaiting a drilling
      rig.





Palmetto
      Point Prospect - 50 wells





During
      the reporting period, we entered into a joint venture agreement to acquire
      an
      interest in a


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drilling
      program comprising of up to 50 natural gas and/or oil wells. The area in which
      the proposed well are to be drilled in approximately 300,000 gross acres
      location between Southwest Mississippi and Northeastern Louisiana. Drilling
      commenced in the first week of September 2006. The site of the first 20 proposed
      wells are located within range to tie into existing pipeline infrastructure
      should the wells be suitable for commercial production. The drilling program
      will be conducted by Griffin in its capacity as operator. We have 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 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. The operating agreement provides for further payments based on the
      following schedule;








1.
            On
                or before October 1st,
                2006 $200,000 to be employed in the further development of prospects
                on
                lands in Mississippi and Louisiana.


2.
            On
                or before November 1st,
                2006, $100,000 to be employed in the further development of prospects
                on
                lands in Mississippi and Louisiana.








Wordsworth
      Prospect





On
      April
      20, 2006, we entered into a farmout, option and participation letter agreement
      (“FOP Agreement”) where we acquired a 15% working interest in certain leasehold
      interests located in southeast Saskatchewan, Canada referred to as the
      Wordsworth area for the purchase price of $152,724. We are responsible for
      our
      proportionate share of the costs associated with drilling, testing, and
      completing the first test well on the property. In exchange for us paying our
      proportionate share of the costs associated with drilling, testing, and
      completing the first test well on the property, we earned a 15% working interest
      before payout and a 7.5% working interest after payout on the Wordsworth
      prospect. Payout refers to the return of our initial investment in the property.
      In addition, we also acquired an option to participate and acquire a working
      interest in a vertical test well drilled to 1200 meters to test the
      Mississippian (Alida) formation in LSD 13 of section 24, township 7, range
      3
      W2.





During
      June 2006, the first well was drilled to a horizontal depth of 2033 meters
      in
      the Wordsworth prospect. The initial drilling of this well and subsequent
      testing revealed that this well contains oil reserves suitable for commercial
      production. In June 2006, this initial well was producing as a flowing oil
      well.
      Revenue generated from this well for the quarter ending September 30, 2006
      was
      $88,475. At the present time, we have not estimated the reserves of this well
      and can provide no assurance that this well will continue to produce in the
      future.





Based
      on
      the results from the first test well, we expect a second sell to be drilled
      by
      the end of the first quarter of 2007.





Owl
      Creek Prospect





On
      June
      1, 2006, we entered into an Assignment Agreement with Brinx Resources, Ltd.,


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(“Brinx”)
      a Nevada Oil & Gas Exploration Company, in order to acquire a working
      interest in lands and leases owned by Brinx. The purchase price of $300,000
      for
      the assignment and options to acquire future interests has been paid in full.
      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 & McClain
      Counties, Oklahoma and we refer to the lands as the “Owl Creek
      Prospect.”





Pursuant
      to the terms of the Assignment Agreement, we acquired a 20% working interest
      in
      an oil well drilled at the Owl Creek Prospect and we refer to the “Powell #2.”
The Powell #2 was drilled to total depth of 5,617 feet on May 18, 2006 and
      underwent testing. Based upon the positive result of the testing on the Powell
      #2 well, this well was completed and commercial production has commenced. Under
      the terms of the Assignment Agreement, we are responsible for our proportionate
      share of the costs of completion and tie-in for production of the Powell #2
      well. Initially after the well was completed, the Powell #2 well began flowing
      natural oil and gas under its own pressure without the assistance of a pump.
      The
      flow rates of the Powell #2 well have fluctuated significantly. Revenue
      generated from this well for the quarter ending September 30, 2006 was $79,477.
      At the present time, we have not estimated the reserves of the Powell #2 well
      and can provide no assurance that this well will continue to produce in the
      future.





We
      were
      also granted an option to earn a 20% working interest in any future wells to
      be
      drilled on the 1,120 acres of land in Garvin & McClain Counties, USA which
      make up the Owl Creek Prospect. Lastly, we received an option to earn a 20%
      working interest in any future wells to be drilled on any land of mutual
      interest acquired by the Owl Creek participants in and around the same area.
      The
      working interest in future wells is earned by paying 20% of the costs of
      drilling and completing each additional well.





Based
      upon the positive results of the Powell #2 well, an additional well we refer
      to
      as the “Isbill #1-36” was drilled and reached its targeted depth in September
      2006. However, test results showed that the well will not be commercially
      viable, therefore the well was abandoned and all costs were written off to
      the
      income statement during the quarter ended September 30, 2006.





**Results
      of Operations for the three and nine months ended September 30, 2006 and
      2005**





For
      the
      three months ended September 30, 2006, our revenues generated from natural
      gas
      and oil sales increased to $168,528 from revenue of $1,073 for the three months
      ended September 30, 2005. For the nine months ended September 30, 2006, our
      revenues generated from natural gas and oil sales increased to $171,942 from
      revenue of $4,861 for the nine months ended September 30, 2005. Prior to the
      three months ended September 30, 2006, our Liberty Valance well was our only
      producing property. The increase in revenue is attributable to royalties
      received during the three months ended September 30, 2006 from the Wordsworth
      and Owl Creek prospects.





We
      incurred costs and expenses in the amount of $367,840 for the three months
      ended
      September 30, 2006, compared to costs and expenses of $329,919 for the same
      three month period in the prior year. The increase in expenses was caused by
      an
      increase in our natural gas and operating costs, together with the write down
      of
      the costs associated with Isbill #1-36 at Owl Creek due to abandonment; however,
      this was partially offset by a reduction in general and administration costs
      due
      to a lower stock-based compensation charge. Stock-based


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compensation
      of $96,701 was a significant component of our general and administrative
      expenses for the three months ended September 30, 2006. Our costs and expenses
      for the three months ended September 30, 2005 consisted of general and
      administrative expenses of $328,851, natural gas and oil operating costs of
      $922, and depreciation and depletion of $146. Stock-based compensation of
      $268,714 was a significant component of our general and administrative expenses
      for the three months ended September 30, 2005.





We
      incurred costs and expenses in the amount of $579,793 for the nine months ended
      September 30, 2006, compared to costs and expenses of $414,734 for the nine
      months ended September 30, 2005. Our costs and expenses for the nine months
      ended September 30, 2006 consisted of general and administrative expenses of
      $469,640, natural gas and oil operating costs of $22,690, depreciation and
      depletion of $467, and impairment of natural gas an oil properties of $80,833.
      Stock-based compensation of $157,801 was a significant component of our general
      and administrative expenses for the nine months ended September 30, 2006. Our
      costs and expenses for the nine months ended September 30, 2005 consisted of
      general and administrative expenses of $410,927, natural gas and oil operating
      costs of $3,590, and depreciation and depletion of $217. Stock-based
      compensation of $268,714 was a significant component of our general and
      administrative expenses for the nine months ended September 30, 2005. The
      increase in costs and expenses for the three and nine months ended September
      30,
      2006 when compared to the same period in the prior year is attributable to
      increased general and administrative fees primarily attributable to management
      costs and the write down of Isbil #1-36 well at Owl Creek.





We
      reported other income of $6,335 for the three months ended September 30, 2006
      and $61,157 for the nine months ended September 30, 2006. We did not record
      any
      other income in the three or nine months ended September 30, 2005. Other income
      during the three months ended September 30, 2006 consisted of $6,335 in interest
      income. Other income during the nine months ended September 30, 2006 consisted
      of $21,224 in interest income and $39,933 relating to the settlement of debt
      on
      a promissory note.





Net
      loss
      for the three months ended September 30, 2006 was $192,977, compared to a net
      loss of $328,846 for the three months ended September 30, 2005. Net loss for
      the
      nine months ended September 30, 2006 was $346,694, compared to a net loss of
      $409,873 for the nine months ended September 30, 2005.





There
      are
      material events and uncertainties which could cause our reported financial
      information to not to be indicative of future operating results or financial
      condition. Our inability to successfully identify, execute or effectively
      integrate future acquisitions may negatively affect our results of operations.
      The success of any acquisition depends on a number of factors beyond our
      control, including the ability to estimate accurately the recoverable volumes
      of
      reserves, rates of future production and future net revenues attainable from
      the
      reserves and to assess possible environmental liabilities. Drilling for oil
      and
      natural gas may also involve unprofitable efforts, not only from dry wells
      but
      also from wells that are productive but do not produce sufficient net reserves
      to return a profit after deducting operating and other costs. In addition,
      wells
      that are profitable may not achieve our targeted rate of return. Our ability
      to
      achieve our target results are also dependent upon the current and future market
      prices for crude oil and natural gas, costs associated with producing oil and
      natural gas and our ability to add reserves at an acceptable


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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
      September 30, 2006, we had total current assets of $757,893 and total current
      liabilities in the amount of $79,570. As a result, we had working capital of
      $678,323 as of September 30, 2006.





The
      revenue we currently generate natural gas and oil sales does not exceed our
      operating expenses. We primarily relied on financing activities including
      issuance of common stocks and units as well as share subscription receipts
      to
      fund our operations for the nine months ended September 30, 2006. During the
      nine months ended September 30, 2006, we received $2,122,496 from financing
      activities.





We
      will
      require additional funds to expand our acquisition, exploration and production
      of natural oil and gas properties. Our management anticipates that current
      cash
      on hand is sufficient to fund our continued operations at the current level
      for the next twelve months. Additional capital will be required to effectively
      expand our operations and implement our overall business strategy. It is
      uncertain whether we will be able to obtain financing when sought. If we are
      unable to obtain additional financing, the full implementation of our ability
      to
      expand our operations will be impaired.





Operating
      activities used $322,184 in cash for the nine months ended September 30, 2006.
      Our net loss of $346,694 was the primary component of our negative operating
      cash flow. Investing activities during the nine months ended September 30,
      2006
      consisted of $1,564,715 for the purchase or natural gas and oil properties.
      Cash
      flows provided by financing activities during the nine months ended September
      30, 2006 primarily consisted of $2,280,297 related to the issuance of common
      stock.





The
      underlying drivers that resulted in material changes and the specific inflows
      and outflows of cash for the nine months ended September 30, 2006 are as
      follows:





a.  Property
      acquisition costs, and


b. Financing
      from the issuance of common stock.





**Off
      Balance Sheet Arrangements**





As
      of
      September 30, 2006, there were no off balance sheet arrangements.


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  **Going
      Concern**




As
      shown
      in the accompanying financial statements, we have incurred a net loss of
      $1,219,908 since inception. To achieve profitable operations, we require
      additional capital for obtaining producing oil and gas properties through either
      the purchase of producing wells or successful exploration activity. Our
      management believes that sufficient funding will be available to meet our
      business objectives including anticipated cash needs for working capital and
      is
      currently evaluating several financing options. However, there can be no
      assurance that we will be able to obtain sufficient funds to continue the
      development of and, if successful, to commence the sale of our products under
      development. As a result of the foregoing, there exists substantial doubt about
      our ability to continue as a going concern.





**Critical
      Accounting Policies**





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





**Joint
      Ventures**





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




**Natural
      Gas and Oil Properties**





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





**Revenue
      Recognition**





We
      use
      the sales method of accounting for natural gas and oil revenues. Under this
      method, revenues are recognized upon the passage of title, net of royalties.
      Revenues from natural gas


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production
      are recorded using the sales method. When sales volumes exceed our entitled
      share, an overproduced imbalance occurs. To the extent the overproduced
      imbalance exceeds our share of the remaining estimated proved natural gas
      reserves for a given property, we record a liability. At September 30, 2006,
      we
      had no overproduced imbalances.





**Item
      3.     Controls and Procedures**





We
      carried out an evaluation of the effectiveness of the design and operation
      of
      our disclosure controls and procedures (as defined in Exchange Act Rules
      13a-15(e) and 15d-15(e)) as of September 30, 2006. This evaluation was carried
      out under the supervision and with the participation of our Chief Executive
      Officer and Chief Financial Officer, Mr. Douglas Bolen. Based upon that
      evaluation, our Chief Executive Officer and Chief Financial Officer concluded
      that, as of September 30, 2006, our disclosure controls and procedures are
      effective. There have been no changes in our internal controls over financial
      reporting during the quarter ended September 30, 2006.





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





Limitations
      on the Effectiveness of Internal Controls





Our
      management does not expect that our disclosure controls and procedures or our
      internal control over financial reporting will necessarily prevent all fraud
      and
      material error. Our disclosure controls and procedures are designed to provide
      reasonable assurance of achieving our objectives and our Chief Executive Officer
      and Chief Financial Officer concluded that our disclosure controls and
      procedures are effective at that reasonable assurance level. Further, the design
      of a control system must reflect the fact that there are resource constraints,
      and the benefits of controls must be considered relative to their costs. Because
      of the inherent limitations in all control systems, no evaluation of controls
      can provide absolute assurance that all control issues and instances of fraud,
      if any, within the Company have been detected. These inherent limitations
      include the realities that judgments in decision-making can be faulty, and
      that
      breakdowns can occur because of simple error or mistake. Additionally, controls
      can be circumvented by the individual acts of some persons, by collusion of
      two
      or more people, or by management override of the internal control. The design
      of
      any system of controls also is based in part upon certain assumptions about
      the
      likelihood of future events, and there can be no assurance that any design
      will
      succeed in achieving its stated goals under all potential future conditions.
      Over time, control may become inadequate because of changes in conditions,
      or
      the degree of compliance with the policies or procedures may deteriorate.


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**PART
      II - OTHER INFORMATION**





**Item
      1.     Legal
      Proceedings**





We
      are
      not a party to any pending legal proceeding. We are not aware of any pending
      legal proceeding to which any of our officers, directors, or any beneficial
      holders of 5% or more of our voting securities are adverse to us or have a
      material interest adverse to us.





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





None





**Item
      3.     Defaults upon Senior
      Securities**





None





**Item
      4.     Submission of Matters to a Vote of
      Security Holders**





No
      matters have been submitted to our security holders for a vote, through the
      solicitation of proxies or otherwise, during the quarterly period ended
      September 30, 2006.





**Item
      5.     Other
      Information**





None





**Item
      6.      Exhibits**





**Exhibit**
                **Number**
              **Description
                  of Exhibit**10.1
              Assignment
                  Agreement of Interests in Cache Slough
                  Prospect (1)31.1
              Certification
                  of Chief Executive Officer pursuant to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 200231.2
              Certification
                  of Chief Financial Officer pursuant to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 200232.1
              Certification
                  of Chief Executive Officer and Chief
                  Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant
                  to Section 906 of the Sarbanes-Oxley Act of
                  2002




(1)
        Previously included as an exhibit to the quarterly report
        on Form 10-QSB for the period ended September 30, 2006 filed on November
        20,
        2006.




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**SIGNATURES**





In
      accordance with the requirements of the Securities and Exchange Act of 1934,
      the
      Registrant has duly caused this report to be signed on its behalf by the
      undersigned, thereunto duly authorized.





**Delta
                  Oil & Gas, Inc.**Date:
              January
                  22, 2007By:       /s/
                  Douglas Bolen
                Douglas
                  Bolen
                Title:**Chief
                  Executive Officer and
                  Director**