**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-QSB**





[X]
            Quarterly
                Report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934For
                the quarterly period ended:   **September 30,
                2007**[  
                ]
            Transition
                Report pursuant to 13 or 15(d) of the Securities Exchange Act of
                1934For
                the transition period _________ to __________Commission
                File
                Number:  **000-52001**





Delta
      Oil & Gas, Inc.


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





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








**2600
                144 4th Ave S.W., Calgary, Alberta, Canada T2P
                3N4**(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:  45,940,506 common shares as of
      November 1, 2007.





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







***Table
          of Contents***


**TABLE
        OF CONTENTS**








**Page****PART
                I – FINANCIAL INFORMATION**Item
                1.
            Financial
                Statements
            3Item
                2.
            Management’s
                Discussion and Analysis
            4Item
                3.
            Controls
                and Procedures
            14**PART
                II – OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            15Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            15Item
                3.
            Defaults
                Upon Senior Securities
            15Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            15Item
                5.
            Other
                Information
            15Item
                6.
            Exhibits
            15









2
 ***Table
          of Contents***


**PART
      I - FINANCIAL INFORMATION**





**Item
      1.                          Financial
      Statements**





Our
                unaudited consolidated financial statements included in this Form
                10-QSB
                are as follows:F-1
            Unaudited
                Consolidated Balance Sheet as of September 30,
                2007;F-2
            Unaudited
                Consolidated Statements of Operations for the
                three and nine months ended September 30, 2007 and 2006 and from
                inception
                on January 9, 2001 to September 30, 2007;F-3
            Unaudited
                Consolidated Statements of Cash Flows for the
                nine months ended September 30, 2007 and 2006 and from inception
                on
                January 9, 2001 to September 30, 2007;F
                - 4
            Unaudited Consolidated Statement
                of
                Changes in Stockholders' Equity from inception on January 9, 2001 to
                September 30, 2007;F-5
                - F - 21
            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, 2007 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
                BalanceSheets**(Stated
                in U.S. Dollars)**Unaudited**
            
            
            Audited**September
                30,**
            
            
            December
                31,**2007**
            
            
            2006**ASSETS****Current**Cash
                and cash equivalents
            
            **$**
            **601,406**
            
            
            $
            1,668,758Accounts
                receivable
            
            ****
            **136,283**
            
            
            
            88,451Tax
                Prepaid
            
            ****
            **6,912**
            
            
            
            -Prepaid
                expenses
            
            ****
            **19,519**
            
            
            
            1,611****
            **764,120**
            
            
            
            1,758,820**Natural
                Gas And Oil Properties**Proved
                property
            
            ****
            **892,006**
            
            
            
            812,717Unproved
                property
            
            ****
            **2,343,424**
            
            
            
            1,816,007****
            **3,235,430**
            
            
            
            2,628,724**Other
                Equipment**Computer
                equipment
            
            ****
            **3,492**
            
            
            
            3,492Less:
                accumulated depreciation
            
            ****
            **(3,143**
            **)**
            
            
            (2,655
            )****
            **349**
            
            
            
            837**$**
            **3,999,899**
            
            
            $
            4,388,381**LIABILITIES
                AND STOCKHOLDERS' EQUITY****LIABILITIES****Current**Accounts
                payable and accrued liabilities
            
            **$**
            **69,665**
            
            
            $
            39,526**Long
                Term**Asset
                retirement obligation
            
            ****
            **40,635**
            
            
            
            40,635****
            **110,300**
            
            
            
            80,161**STOCKHOLDERS'
                EQUITY****Share
                Capital**Preferred
                Shares, 25,000,000 shares authorized of $0.001par
                value of which none have been issuedCommon
                stock, 100,000,000 shares authorized of $0.001par
                value, 45,940,506 and 45,070,406 shares issuedand
                outstanding, respectively
            
            ****
            **45,941**
            
            
            
            45,071Additional
                paid-in capital
            
            ****
            **6,136,288**
            
            
            
            5,411,761**Deficit
                accumulated during the development stage**
            
            ****
            **(2,292,630**
            **)**
            
            
            (1,148,612
            )****
            **3,889,599**
            
            
            
            4,308,220**$**
            **3,999,899**
            
            
            $
            4,388,381The
                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
                  Statementsof
                  Operations**(Stated
                  in U.S. Dollars)Unaudited**CUMULATIVE
                  PERIOD****FROM
                  INCEPTION****JANUARY
                  9, 2001****THREE
                  MONTHS ENDED**
              
              
              **NINE
                  MONTHS ENDED**
              
              
              **TO****SEPTEMBER
                  30,**
              
              
              **SEPTEMBER
                  30,**
              
              
              **SEPTEMBER
                  30,****2007**
              
              
              2006
              
              
              **2007**
              
              
              2006
              
              
              **2007****Revenue**Natural
                  gas and oil sales
              
              **$**
              **230,483**
              
              
              $
              168,528
              
              
              **$**
              **638,126**
              
              
              $
              171,942
              
              
              **$**
              **1,249,256**Gain
                  on sale of oil property
              
              ****
              **-**
              
              
              
              -
              
              
              ****
              **-**
              
              
              
              -
              
              
              ****
              **1,061,159******
              **230,483**
              
              
              
              168,528
              
              
              ****
              **638,126**
              
              
              
              171,942
              
              
              ****
              **2,310,415****Costs
                  And Expenses**Natural
                  gas and oil operating costs
              
              ****
              **44,040**
              
              
              
              21,005
              
              
              ****
              **127,301**
              
              
              
              22,690
              
              
              ****
              **263,351**General
                  and administrative
              
              ****
              **163,918**
              
              
              
              259,686
              
              
              ****
              **1,075,260**
              
              
              
              469,640
              
              
              ****
              **2,482,452**Depreciation
                  and depletion
              
              ****
              **232,338**
              
              
              
              6,316
              
              
              ****
              **561,287**
              
              
              
              6,630
              
              
              ****
              **1,066,790**Impairment
                  of natural gas and oil properties
              
              ****
              **-**
              
              
              
              -
              
              
              ****
              **40,589**
              
              
              
              -
              
              
              ****
              **717,470**Dry
                  well costs written off
              
              ****
              **-**
              
              
              
              80,833
              
              
              ****
              **-**
              
              
              
              80,833
              
              
              ****
              **118,690**Asset
                  retirement obligations
              
              ****
              **-**
              
              
              
              -
              
              
              ****
              **-**
              
              
              
              -
              
              
              ****
              **40,635******
              **440,296**
              
              
              
              367,840
              
              
              ****
              **1,804,437**
              
              
              
              579,793
              
              
              ****
              **4,689,388****Net
                  Operating Loss**
              
              ****
              **(209,813**
              **)**
              
              
              (199,312
              )
              
              ****
              **(1,166,311**
              **)**
              
              
              (407,851
              )
              
              ****
              **(2,378,973**
              **)****Other
                  Income**Forgiveness
                  of debt
              
              ****
              **-**
              
              
              
              -
              
              
              ****
              **-**
              
              
              
              39,933
              
              
              ****
              **39,933**Interest
                  income
              
              ****
              **9,364**
              
              
              
              6,335
              
              
              ****
              **32,563**
              
              
              
              21,224
              
              
              ****
              **56,680******
              **9,364**
              
              
              
              6,335
              
              
              ****
              **32,563**
              
              
              
              61,157
              
              
              ****
              **96,613****Loss
                  before income taxes**
              
              **$**
              **(200,449**
              **)**
              
              $
              (192,977
              )
              
              **$**
              **(1,133,748**
              **)**
              
              $
              (346,694
              )
              
              **$**
              **(2,282,360**
              **)**Income
                  taxes for 2006
              
              ****
              **6,109**
              
              
              
              -
              
              
              ****
              **10,270**
              
              
              
              -
              
              
              ****
              **10,270****Net
                  Loss**
              
              **$**
              **(206,558**
              **)**
              
              $
              (192,977
              )
              
              **$**
              **(1,144,018**
              **)**
              
              $
              (346,694
              )
              
              **$**
              **(2,292,630**
              **)****Basic
                  Loss Per Common Share**
              
              **$**
              **(0.00**
              **)**
              
              $
              0.00
              
              
              **$**
              **(0.03**
              **)**
              
              $
              (0.01
              )**Weighted
                  Average Number Of****Common
                  Shares Outstanding**
              
              ****
              **45,918,767**
              
              
              
              45,070,506
              
              
              ****
              **45,625,891**
              
              
              
              44,739,760The
                  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
                  Statementsof Cash
                  Flows**(Stated
                  in U.S. Dollars)Unaudited**CUMULATIVE
                  PERIOD****FROM
                  INCEPTION****JANUARY
                  9, 2001****NINE
                  MONTHS ENDED**
              
              
              **TO****SEPTEMBER
                  30,**
              
              
              **SEPTEMBER
                  30,****2007**
              
              
              2006
              
              
              **2007****Cash
                  Flows From Operating Activities:**Net
                  (loss) for the period
              
              **$**
              **(1,144,018**
              **)**
              
              $
              (346,694
              )
              
              **$**
              **(2,292,630**
              **)**Adjustments
                  to reconcile net loss to net cashused
                  in operating activities:Gain
                  on sale of property
              
              ****
              **-**
              
              
              
              -
              
              
              ****
              **(1,061,159**
              **)**Depreciation
                  and depletion
              
              ****
              **561,287**
              
              
              
              6,630
              
              
              ****
              **1,066,790**Impairment
                  of natural gas and oil properties
              
              ****
              **40,589**
              
              
              
              -
              
              
              ****
              **717,470**Dry
                  well costs written off
              
              ****
              **-**
              
              
              
              -
              
              
              ****
              **118,690**Stock-based
                  compensation expense
              
              ****
              **134,754**
              
              
              
              -
              
              
              ****
              **700,740**Shares
                  issued to President & CEO for servicess rendered
              
              ****
              **460,000**
              
              
              
              -
              
              
              ****
              **460,000**Shares
                  issued to CFO for services rendered
              
              ****
              **44,843**
              
              
              
              -
              
              
              ****
              **44,843**Shares
                  issued to Investor Relations Services Inc for services
              
              ****
              **40,800**
              
              
              
              -
              
              
              ****
              **40,800**Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              ****
              **(47,832**
              **)**
              
              
              (2,921
              )
              
              ****
              **(136,283**
              **)**Accounts
                  payable and accrued liabilities
              
              ****
              **30,139**
              
              
              
              (13,748
              )
              
              ****
              **69,665**Asset
                  retirement obligations
              
              ****
              **-**
              
              
              
              -
              
              
              ****
              **40,635**Promissory
                  note payable
              
              ****
              **-**
              
              
              
              (39,397
              )
              
              ****
              **-**Tax
                  Prepaid
              
              ****
              **(6,912**
              **)**
              
              
              -
              
              
              ****
              **(6,912**
              **)**Prepaid
                  expenses
              
              ****
              **(17,908**
              **)**
              
              
              (6,887
              )
              
              ****
              **(19,519**
              **)****Net
                  Cash Generated/(Used) in Operating Activities**
              
              ****
              **95,742**
              
              
              
              (403,017
              )
              
              ****
              **(256,870**
              **)****Cash
                  Flows From Investing Activities:**Purchase
                  of other equipment
              
              ****
              **-**
              
              
              
              -
              
              
              ****
              **(3,492**
              **)**Sale
                  proceeds of natural gas and oil working interests
              
              ****
              **-**
              
              
              
              -
              
              
              ****
              **1,500,000**Investment
                  in natural gas and oil working interests
              
              ****
              **(1,208,094**
              **)**
              
              
              (1,483,882
              )
              
              ****
              **(5,574,079**
              **)****Net
                  Cash Used in Investing Activities**
              
              ****
              **(1,208,094**
              **)**
              
              
              (1,483,882
              )
              
              ****
              **(4,077,571**
              **)****Cash
                  Flows From Financing Activities:**Proceeds
                  from issuance of common stock
              
              ****
              **45,000**
              
              
              
              2,264,297
              
              
              ****
              **4,935,847**Shares
                  subscriptions receivable
              
              ****
              **-**
              
              
              
              16,000
              
              
              ****
              **-****Net
                  Cash Provided by Financing Activities**
              
              ****
              **45,000**
              
              
              
              2,280,297
              
              
              ****
              **4,935,847****Net
                  Increase/(Decrease) In Cash And Cash Equivalents**
              
              ****
              **(1,067,352**
              **)**
              
              
              393,398
              
              
              ****
              **601,406****Cash
                  And Cash Equivalents At Beginning Of Period****(Excess
                  Of Deposits  Over Checks Issued)**
              
              ****
              **1,668,758**
              
              
              
              343,004
              
              
              ****
              **-****Cash
                  And Cash Equivalents At End Of Period**
              
              **$**
              **601,406**
              
              
              $
              736,402
              
              
              **$**
              **601,406****Non-Cash
                  Financing Activities**500,000
                  shares issued to the President & CEO as part of his
              
              **$**
              **460,000**
              
              
              
              -
              
              
              **$**
              **460,000**compensation
                  package250,000
                  shares issued to the CFO for services rendered and
              
              ****
              **44,843**
              
              
              
              -
              
              
              ****
              **44,843**for
                  cancelling options previously granted60,000
                  shares issued to Investor Relations Services Inc., forservices
                  rendered.
              
              ****
              **40,800**
              
              
              
              -
              
              
              ****
              **40,800****Supplemental
                  Disclosures of Cash Flow Information**Income
                  taxes for 2006
              
              **$**
              **6,109**
              
              
              
              -
              
              
              **$**
              **10,270**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)**CONSOLIDATED
                  STATEMENT OF CHANGES IN STOCKHOLDERS'
                  EQUITY**PERIOD
                  FROM INCEPTION, JANUARY 9, 2001, TO SEPTEMBER 30, 2007(Stated
                  in U.S. Dollars)UnauditedDEFICITCOMMON
                  STOCK
              
              
              ACCUMULATEDNUMBER
              
              
              
              
              
              SHARE
              
              
              SHARE
              
              
              DURING
                  THEOF
                  COMMON
              
              
              PAR
              
              
              ADDITIONAL
              
              
              SUBSCRIPTIONS
              
              
              SUBSCRIPTIONS
              
              
              DEVELOPMENTSHARES
                  VALUE
              
              
              VALUE
              
              
              PAID-IN
                  CAPITAL
              
              
              RECEIVED
              
              
              RECEIVED
              
              
              STAGE
              
              
              TOTALShares
                  issued for cash at $0.00018
              
              
              13,750,000
              
              
              $
              13,750
              
              
              $
              (11,250
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              2,500Shares
                  issued for cash at $0.0036
              
              
              27,500,000
              
              
              
              27,500
              
              
              
              72,500
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              100,000Shares
                  issued for cash at $0.045
              
              
              46,750
              
              
              
              47
              
              
              
              2,078
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,125Net
                  (Loss) for the period ended
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (184,407
              )
              
              
              (184,407
              )Balance,
                  December 31, 2001
              
              
              41,296,750
              
              
              
              41,297
              
              
              
              63,328
              
              
              
              -
              
              
              
              -
              
              
              
              (184,407
              )
              
              
              (79,782
              )Net
                  Loss for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (62,760
              )
              
              
              (62,760
              )Balance,
                  December 31, 2002
              
              
              41,296,750
              
              
              
              41,297
              
              
              
              63,328
              
              
              
              -
              
              
              
              -
              
              
              
              (247,167
              )
              
              
              (142,542
              )Net
                  (Loss) for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (24,423
              )
              
              
              (24,423
              )Balance,
                  December 31, 2003
              
              
              41,296,750
              
              
              
              41,297
              
              
              
              63,328
              
              
              
              -
              
              
              
              -
              
              
              
              (271,590
              )
              
              
              (166,965
              )Share
                  subscriptions received
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              160,000
              
              
              
              -
              
              
              
              -
              
              
              
              160,000Net
                  (Loss) for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (31,574
              )
              
              
              (31,574
              )Balance,
                  December 31, 2004
              
              
              41,296,750
              
              
              
              41,297
              
              
              
              63,328
              
              
              
              160,000
              
              
              
              -
              
              
              
              (303,164
              )
              
              
              (38,539
              )Units
                    issued for cash at $1.00,net of share issuance cost
              
              
              2,483,985
              
              
              
              2,484
              
              
              
              2,481,241
              
              
              
              (160,000
              )
              
              
              -
              
              
              
              -
              
              
              
              2,323,725Options
                  exercised for cash at $0.8
              
              
              245,000
              
              
              
              245
              
              
              
              195,755
              
              
              
              -
              
              
              
              (16,000
              )
              
              
              -
              
              
              
              180,000Stock-based
                  compensation
              
              
              -
              
              
              
              -
              
              
              
              370,267
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              370,267Net
                  (Loss) for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (570,050
              )
              
              
              (570,050
              )Balance,
                  December 31, 2005
              
              
              44,025,735
              
              
              
              44,026
              
              
              
              3,110,591
              
              
              
              -
              
              
              
              (16,000
              )
              
              
              (873,214
              )
              
              
              2,265,403Subscriptions
                  receivable
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              16,000
              
              
              
              -
              
              
              
              16,000Options
                  exercised for cash at $0.8
              
              
              305,000
              
              
              
              305
              
              
              
              243,695
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              244,000Options
                  exercised for cash at $1.00
              
              
              12,500
              
              
              
              13
              
              
              
              12,488
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              12,501Shares
                    issued for cash at $2.75,net of finders fee
              
              
              727,271
              
              
              
              727
              
              
              
              1,849,268
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,849,995Stock-based
                  compensation
              
              
              -
              
              
              
              -
              
              
              
              195,719
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              195,719Net
                  (loss) for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (275,398
              )
              
              
              (275,398
              )Balance,
                  December 31, 2006
              
              
              45,070,506
              
              
              
              45,071
              
              
              
              5,411,761
              
              
              
              -
              
              
              
              -
              
              
              
              (1,148,612
              )
              
              
              4,308,220Options
                  exercised for cash at $0.75
              
              
              60,000
              
              
              
              60
              
              
              
              44,940
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              45,000Shares
                  issued to President & CEO as part
                  of his compensation package at $0.92
              
              
              500,000
              
              
              $
              500
              
              
              $
              459,500
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              460,000Shares
                  issued to Investor Relations
                  Services,
                    Inc. as part of the agreement
              
              
              60,000
              
              
              $
              60
              
              
              $
              40,740
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              40,800Shares
                  issued in consideration for services rendered as
                  CFO and for cancelling options previously granted
              
              
              250,000
              
              
              $
              250
              
              
              $
              44,593
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              44,843Stock-based
                  compensation
              
              
              -
              
              
              
              -
              
              
              
              134,754
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              134,754Net
                  (loss) for the period
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,144,018
              )
              
              
              (1,144,018
              )Balance,
                  September 30, 2007
              
              ****
              **45,940,506**
              
              
              **$**
              **45,941**
              
              
              **$**
              **6,136,288**
              
              
              **$**
              **-**
              
              
              **$**
              **-**
              
              
              **$**
              **(2,292,630**
              **)**
              
              **$**
              **3,889,599**The
                  accompanying notes are an integral part of these consolidated financial
                  statements
  F
            -
            4
 ***Table
            of
            Contents***




**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATEDFINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007**


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




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




The
      unaudited consolidated financial statements as of September 30, 2007 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 adjustment (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, 2006 audited financial statements and notes thereto.
      The
      results of the operations for the nine months ended September 30, 2007 are
      not
      indicative of the results that may be expected for the year.




**2.**
            **OPERATIONS**




a) Organization





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





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





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 and Canada.





F
          -
          5
 ***Table
          of Contents***


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007**


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





**2.           OPERATIONS
      (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 consolidated financial statements, the Company has incurred
      a net loss of $2,292,630 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
      consolidated financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.





**3.**
            **SIGNIFICANT
                ACCOUNTING POLICIES**





a)
            Basis
                of Consolidation





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





F
          -
          6
 ***Table
          of Contents***


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007**


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





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





b)
            Use
                of Estimates





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





c)
            Natural
                Gas and Oil Properties





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





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














F
          -
          7
 ***Table
          of Contents***


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007**


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





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





d)
            Asset
                Retirement Obligations





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





e)
            Joint
                Ventures





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





f)
            Revenue
                Recognition





Revenue
      from sales of crude oil, natural gas and refined petroleum products are recorded
      when deliveries have occurred and legal ownership of the commodity transfers
      to
      the customers.  Title transfers for crude oil, natural gas and bulk
      refined products generally occur at pipeline custody points or when a tanker
      lifting has occurred.  Revenues from the production of oil and natural
      gas properties in which the Company shares an undivided interest with other
      producers are recognized based on the actual volumes sold by the Company during
      the period.  Gas imbalances occur when the Company’s actual sales
      differ from its entitlement under existing working interests.  The
      Company records a liability for gas imbalances when it has sold more than its
      working interest of gas production and the estimated remaining reserves make
      it
      doubtful that the partners can recoup their share of production from the field.
      At September 30, 2007 and 2006, the Company had no overproduced
      imbalances.





F
          -
          8
 ***Table
          of Contents***


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007** **(Stated
      in U.S. Dollars)**





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





g)
            Cash
                and Cash Equivalent





Cash
      consists of cash on deposit with high quality major financial institutions,
      and
      to date the Company has not experienced losses on any of its
      balances.  The carrying amounts approximated fair market value due to
      the liquidity of these deposits.  For purposes of the balance sheet
      and statements of cash flows, the Company considers all highly liquid
      instruments with maturity of three months or less at the time of issuance to
      be
      cash equivalents.  At September 30, 2007 and 2006, the Company had no
      cash equivalents.





h)
            Environmental
                Protection and Reclamation Costs





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





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





i)
            Foreign
                Currency Translation





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





F
          -
          9
 ***Table
          of Contents***


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007** **(Stated
      in U.S. Dollars)**





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





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 Natural Oil and Gas Properties.





l)
            Loss
                Per Share





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





m)
            Income
                Taxes





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








F
          -
          10
 ***Table
          of Contents***


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007** **(Stated
      in U.S. Dollars)**





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





n)
            Financial
                Instruments





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





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




o)  Comprehensive Loss





SFAS
      No.
      130, “Reporting Comprehensive Income,” establishes standards for the reporting
      and display of comprehensive loss and its components in the financial
      statements. As at September 30, 2007 and 2006, the Company has no items that
      represent a comprehensive loss and, therefore, has not included a schedule
      of
      comprehensive loss in the financial statements.




p)  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”.





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




**a)  Proved
      Properties**





**Properties**
            
            **December
                31, 2006**
            
            
            **Addition**
            
            
            **Depletion
                for the Period**
            
            
            **Write
                down in carrying**
              **Value**
            
            
            **September
                30, 2007****USA
                properties**
            
            $
            454,480
            
            
            $
            643,106
            
            
            $
            (394,232
            )
            
            $
            (39,337
            )
            
            **$**
            **664,017****Canada
                properties**
            
            
            358,237
            
            
            
            37,571
            
            
            
            (166,567
            )
            
            
            (1,252
            )
            
            ****
            **227,989****Total**
            
            **$**
            **812,717**
            
            
            **$**
            **680,677**
            
            
            **$**
            **(560,799**
            **)**
            
            **$**
            **(40,589**
            **)**
            
            **$**
            **892,006**







F
          -
          11
 ***Table
          of Contents***


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007** **(Stated
      in U.S. Dollars)**




a)
  Proved
      Properties
      -  Descriptions




i.   Liberty
      Valance, California, USA





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.





On
                January 1, 2007, the Company assigned all of its right, title and
                interest
                to Lario Oil & Gas.  Lario Oil & Gas agreed to assume
                all costs and liability associated with the plugging and abandonment
                of
                the well.




ii.  
      Wordsworth Prospect, Saskatchewan, Canada





On
      April
      10, 2006, the Company entered into an agreement (the “Agreement”) with Petrex
      Energy Ltd., for a participation and Farmout agreement where the Company will
      participate for 15% gross working interest before payout (BPO) and 7.5% gross
      working interest after pay out (APO) in a proposed four well horizontal drilling
      program in the Wordsworth area in Southeast Saskatchewan, Canada.  As
      at December 31, 2006, the Company had advanced $210,606 as its share of the
      costs in this Agreement.  Currently there is one producing well on
      this prospect.





iii.
            Owl
                Creek Prospect, Oklahoma, USA





In
      June
      2006, the Company 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 the Company 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 Company paid $22,911 in
      this period for capital expenditures.  As of September 30, 2007, the
      cost to the Company for this assignment was $391,898.





In
      July
      2006, the Company also elected to participate in Isbill #1-36, it was abandoned
      during the year.  The associated costs of $80,738 were moved to the
      cost pool for proved properties for depletion.





In
      January 2007, the Company elected to participate in Isbill #2-36
      well.  The Company paid $187,559 for its 20% of working
      interest.  Isbill #2-36 started production from April
      2007.





F
          -
          12
 ***Table
          of Contents***


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007** **(Stated
      in U.S. Dollars)**





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




iii. Owl
      Creek
      Prospect, Oklahoma, USA (Continued)


In
        April
        2007, the Company entered into the 2006-3 Drilling Program for a buy-in cost
        of
        $113,700 which will provide 12.5% Before Casing Point (“BCP”) working interest
        and After Casing Point (“ACP”) working interest of 10%.  In September
        2007, Wolf#1-7 was abandon. The associated costs of $244,989 were moved to
        the
        proved properties cost pool for depletion.
  iv.   Todd
        Creek, Alberta, Canada
  In
        January 2005, the Company acquired a 20% working interest in 13.75 sections
        (8,800 acres) of land in Todd Creek, Alberta, Canada, at a cost of
        $597,263.  One of the well 13-28-9-2W5M has production since October
        2006.




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





On
      August
      4, 2006, the Company elected to participate in an additional two well program
      in
      Mississippi owned by Griffin & Griffin Exploration and paid
      $70,000.





The
      Drilling Program on the acquired property interests was initiated by Griffin
      in
      May 2006 and was substantially completed by Griffin by December 31,
      2006.  The prospect area owned or controlled by Griffin on which the
      ten wells were drilled, is comprised of approximately 1,273 acres in Palmetto
      Point, Mississippi.





As
      of
      September 30, 2007, seven wells were found to be proved wells, and two wells
      were written off.


F
          -
          13
 ***Table
          of Contents***


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007** **(Stated
      in U.S. Dollars)**





**4.            N** **ATURAL
      GAS AND OIL PROPERTIES**(Continued)





vi. Mississippi
      II, 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  wells are targeting the Frio and Wilcox Geological
      formations. The Company has agreed to pay 10% of all prospect fees, mineral
      leases, surface leases and drilling and completion costs to earn a net 8% share
      of all production zones to the base of the Frio formation and 7.5% of all
      production to the base of the Wilcox formation.  In January 2007, the
      well CMR USA 39-14 was found to be proved.  The cost of $35,126 was
      added to the proved properties cost pool.  Dixon#1 was abandoned in
      January 2007, the associated costs of $40,605 were moved to the proved
      properties cost pool for depletion.  Also, Randall#1 was abandon in
      June 2007, the associated costs of $26,918 were moved to the proved properties
      cost pool.





**b)  
      Unproved Properties**




**Properties**
            
            **December
                31, 2006**
            
            
            **Addition**
            
            
            **Cost
                added to capitalized cost**
            
            
            **September
                30, 2007****USA
                properties**
            
            $
            497,500
            
            
            $
            677,004
            
            
            $
            (375,208
            )
            
            **$**
            **799,296****Canada
                properties**
            
            
            1,318,507
            
            
            
            225,621
            
            
            
            -
            
            
            ****
            **1,544,128****Total**
            
            $
            1,816,007
            
            
            $
            902,625
            
            
            $
            (375,208
            )
            
            **$**
            **2,343,424**





**b)****Unproved properties – Description**





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 paid $314,959 (CDN$352,376) on October 27, 2006
      for well 13-33-8-2W5M.  It was abandoned and the cost was moved to the
      proved properties cost pool for depletion.  As at September 30, 2007,
      a cash call of $258,139 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.


F
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          14
 ***Table
          of Contents***


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007** **(Stated
      in U.S. Dollars)**





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





iii.     Cache Slough Prospect, California, USA





In
      May
      2005, the Company entered into a participation agreement with Production
      Specialties Company (“PSC”) where the PSC has been granted the right to earn a
      68% working interest in a test well and the Company was granted the right to
      earn 12.50% working interest in certain lands located in Solano County,
      California, by paying 18.75% of the test well operations.  During the
      year a cash call of $438,841 has been paid as share of costs for a proposed
      drilling program.





Following
      these payments, the Company was 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.





On
      November 16, 2006, the Company assigned all of its interest in exchange for
      a
      cash amount of $1,500,000.





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 participated for 4% share of
      the costs of drilling a test well in certain lands located in the Leduc
      formation, Alberta, Canada.  In exchange for the participation costs,
      the Company earned interests in certain petroleum and natural gas wells ranging
      from 1.289% to 4.0%.  As at September 30, 2007, the Company has
      advanced $388,662 as its share of the costs in the Leduc formation
      property.





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.


F
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 ***Table
          of Contents***


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007** **(Stated
      in U.S. Dollars)**





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





Unproved
      Properties – Description (Continued)





v.   
      Palmetto Point Prospect, Mississippi, USA





The
      Drilling Program on the acquired property interests was initiated by Griffin
      in
      May 2006 and was substantially completed by Griffin by December 31,
      2006.  The prospect area owned or controlled by Griffin on which the
      ten wells were drilled, is comprised of approximately 1,273 acres in Palmetto
      Point, Mississippi.





On
      August
      4, 2006, the Company elected to participate in additional two wells program
      in
      Mississippi owned by Griffin & Griffin Exploration and paid
      $70,000.





As
      of
      September 30, 2007, seven wells were found to be proved wells, and two wells
      were written off.





vi.   
      Mississippi II, 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 are being drilled is comprised of approximately 300,000
      gross
      acres of land located between Southwest Mississippi and North East Louisiana.
      The proposed wells are targeting the Frio and Wilcox Geological
      formations. The Company has agreed to pay 10% of all prospect fees, mineral
      leases, surface leases and drilling and completion costs to earn a net 8% share
      of all production zones to the base of the Frio formation and 7.5% of all
      production to the base of the Wilcox formation. In January 2007, the well
      CMR USA 39-14 was found to be proved.  The associated cost of $35,126
      was added to the proved properties cost pool.  Also, Dixon#1 was
      abandoned in January 2007, the associated costs of $40,605 were moved to the
      proved properties cost pool for depletion.  Randall#1 was abandon in
      June 2007, the associated costs of $26,918 were moved to the proved properties
      cost pool.  Finally two further wells, TEC#1 and Buffalo River are
      awaiting testing.





F
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          16
 ***Table
          of Contents***


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007** **(Stated
      in U.S. Dollars)**





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





Unproved
      Properties (Continued)





vii.  
      Owl Creek Prospect, Oklahoma, USA





In
      June
      2006, the Company 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 the Company has an option to
      participate in any lands of mutual interest that may be acquired in the future
      by the Owl creek participating partners.





In
      April
      2007, the Company entered into the 2006-3 Drilling Program for a buy-in cost
      of
      $113,700 which will provide 12.5% Before Casing Point (“BCP”) working interest
      and After Casing Point (“ACP”) working interest of 10%.





In
      September 2007, the Company entered into the 2007-1 Drilling Program for a
      buy-in cost of $77,100 which will provide 25% Before Casing Point (“BCP”)
      working interest and 20% After Casing Point (“ACP”) working
      interest.





**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
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 ***Table
          of Contents***


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007**


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





**5.      
      NATURAL GAS AND OIL EXPLORATION RISK (Continued)**




b)  Distribution Risk





The
      Company is dependent on the operator to market any oil production from its
      wells
      and any subsequent production which may be received from other wells which
      may
      be successfully drilled on the Prospect.  It relies on the operator’s
      ability and expertise in the industry to successfully market the
      same.  Prices at which the operator sells gas/oil both in intrastate
      and interstate commerce, will be subject to the availability of pipe lines,
      demand and other factors beyond the control of the operator.  The
      Company and the operator believe any oil produced can be readily sold to a
      number of buyers.





c)
            Credit
                Risk





A
      substantial portion of the Corporation’s accounts receivable is with joint
      venture partners in the oil and gas industry and is subject to normal industry
      credit risks.





d)
            Foreign
                Operations Risk





The
      Company is exposed to foreign currency fluctuations, political risks, price
      controls and varying forms of fiscal regimes or changes thereto which may impair
      its ability to conduct profitable operations as it operates internationally
      and
      holds foreign denominated cash and other assets.





**6.** **ASSET
      RETIREMENT OBLIGATIONS**





The
      Company determined that the net effect of the ARO calculation to the Company’s
      income statement for the year ended December 31, 2006 is $40,635, (2005: $0).
      The ARO is calculated using the 5% value of proved properties as at December
      31,
      2006.  The Company has not increased its ARO during this period, since
      the amount accrued to date is sufficient.


F
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          18
 ***Table
          of Contents***


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007**


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





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





**i.**
            **Common
                Stock**


On
      January 11, 2006, the Company issued 75,000 common shares for exercise of stock
      options at $0.80 per share.





On
      January 24, 2006, the Company issued 230,000 common shares for exercise of
      stock
      options at $0.80 per share.





On
      January 25, 2006, the Company issued 12,500 common shares for exercise of stock
      options at $1.00 per share.





On
      April
      25, 2006, the Company issued 727,271 common shares pursuant to a private
      placement at $2.75 per share.





On
      January 23, 2007, the Company issued 60,000 common shares for exercise of stock
      options at $0.75 per share.





On
      March
      1, 2007, the Company issued 500,000 common shares to its President & CEO as
      part of his compensation package.  The price of the share as of March
      1, 2007 was $0.92.





On
      May 1,
      2007, the Company issued 60,000 common shares to Investor Relations Services,
      Inc. as part of the investor relation services and consulting
      agreement.  The price of the share as of May 1, 2007 was
      $0.68.





On
      July
      8, 2007, the Company issued 250,000 common shares to its Chief Financial Officer
      as part of his services rendered and the cancellation of stock
      options.  The price of the share was $0.55.  It was the
      average of the share price of July 6 and July 9, 2007.





**Preferred
      Stock**


The
      Company did not issue any preferred stock during the quarter ended September
      30,
      2007 (December 31, 2006 - $Nil).





**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 $134,754 was recorded during the nine months ended September 30,
      2007
      (December 31, 2006 – $195,719) related to options granted during the year ended
      December 31, 2006 and vested during the nine months ended September 30, 2007,
      as
      well as options granted and vested during the period ended September 30,
      2007.  The changes in stock options are as follows:


F
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          19
 ***Table
          of Contents***


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007**


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





**7.         SHARE
      CAPITAL (Continued)**




**NUMBER**
            **WEIGHTED
                AVERAGE**
              **EXERCISE
                PRICE**Balance
                outstanding, December 31, 2006
              Granted
              Cancelled
              Exercised
              Balance
                outstanding, September 30, 2007
            300,000300,000
              (300,000)( 
                60,000)
            $                 0.950.75(0.75)(0.75)240,000
            $                 0.75





The
      weighted average assumptions used in calculating the fair value of stock options
      granted and vested during the nine month period ended September 30, 2007 and
      September 30, 2006, using the Black-Scholes option pricing model are as
      follows:





**September
                30, 2007**
            September
                30, 2006Rick-free
                interest rate
            3.77%
            3.77%Expected
                life of the option
            3
                years
            1
                yearExpected
                volatility
            146.36%
            288.99%Expected
                dividend yield
            -
            -





The
      following table summarized information about the stock options outstanding
      at
      September 30, 2007:





**OPTIONS
      OUTSTANDING                                                                                                     OPTIONS
      EXERCISABLE**


**EXERCISE
                PRICE**
            **NUMBER
                OFSHARES**
            **REMAININGCONTRACTUALLIFE
                (YEARS)**
            
            **NUMBER
                OFSHARES**$
                0.75
            240,000
            1.47
            
            240,000




**iii.  Common
      Stock Share Purchase Warrants**





As
      at
      September 30, 2007, share purchase warrants outstanding for the purchase of
      common shares as follows:





**WARRANTS
      OUTSTANDING**


**EXERCISEPRICE**
            **NUMBER
                OF**
              **SHARES**
            **EXPIRY**
              **DATE**$
                1.50
              $
                3.00
            2,483,985
              727,271
            February
                1, 2010
              April
                30, 2009





F
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          20
 ***Table
          of Contents***


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**SEPTEMBER
      30, 2007**


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





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





During
      the period ended September 30, 2007, the Company paid $ nil (September 30,
      2006
      - $27,494) for management fees and $81,596 for consulting fees (September 30,
      2006 - $nil) to directors of the Company.  Amounts paid to related
      parties are based on exchange amounts agreed upon by those related
      parties.





On
      March
      1, 2007, the Company issued to Douglas Bolen 500,000 shares of our common stock
      in consideration for services rendered pursuant to the consulting agreement
      with
      Last Mountain Management, Inc. (“LMM”).  Douglas Bolen, our Chief
      Executive Officer, is the sole shareholder, officer, and director of LMM. The
      price of the share as of March 1, 2007 was $0.92.  Total cost of
      $460,000 was included in the general and administration expense.  On
      July 8, 2007, the Company issued to Kulwant Sandher 250,000 shares of our common
      stock in consideration for services rendered as Chief Financial Officer as
      well
      as in consideration for cancelling options previously granted.  The
      price of the share as of July 8, 2007 was $0.55.  The cost of $44,843
      is the total cost of $137,500 net of $92,657, which was recorded in the
      compensation expense for options granted, was included in the general and
      administration expense.  These shares were issued pursuant to Section
      4(2) of the Securities Act of 1933, as amended.





**9.** **COMMITMENT
      AND CONTRACTUAL OBLIGATIONS**





A
      lease
      agreement for the Vancouver, Canada office commenced June 1, 2007 and will
      terminate on May 31, 2008.  The lease agreement provides a fixed
      rental fee of $1,365 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 an office in Calgary, Canada on a month to
      month basis for $243 per month.





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





On
      October 10, 2007, the Company elected to participate in the drilling of
      Powell#3-25.  The share of the estimated Dry Hole Costs was
      $112,319.





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          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.





**Overview**





We
      were
      incorporated under the laws of the State of Colorado on January 9, 2001 under
      the name Delta Oil & Gas, Inc. We are engaged in the exploration,
      development, acquisition and operation of oil and gas properties. Because oil
      and gas exploration and development requires significant capital and our assets
      and resources are limited, we participate in the oil and gas industry through
      the purchase of small interests in either producing wells or oil and gas
      exploration and development projects.





**Business
      of Issuer**





We
      are an
      exploration company focused on developing North American oil and natural gas
      reserves. Our current focus is on the exploration of our land portfolio
      comprised of working interests in highly prospective acreage in Palmetto Point,
      Mississippi; Southern Saskatchewan, Canada; the Southern Alberta Foothills
      area
      in Canada; and Garvin and McClain counties in Oklahoma.





4
 ***Table
          of Contents***


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 was 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
      1,032 (MCF) on December 31, 2006 translating in an estimate of $123 for the
      standardized measure of discounted cash flows remaining from reserves as of
      December 31, 2006. 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 $2,870 during the year ended December 31, 2006. On January
      1, 2007, we sold our remaining interest in the Liberty Valance Well for
      forgiveness of abandonment costs associated with the well.





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.  Included in the acquisition was a test well that has been
      drilled and cased. Under the terms of this agreement, Win has assumed 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
      2007, we paid a cash call of $258,139 as our share of costs for the proposed
      drilling program.




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 in September 2006. The revenue
      received from this well was $25,758 for the nine months ended September 30,
      2007. The revenue received from this well for the three months ended September
      30, 2007 was $6,586. Our costs related to our interest in the 13-28 well
      presently exceed the royalties we receive.  As a result, we are
      evaluating our interest in the 13-28 well which may include potentially
      abandoning the well.






5
 ***Table
          of Contents***








In
      October 2006, we completed the drilling of a second well in the Todd Creek
      Prospect located in 13-33-8-2 in Alberta, Canada and we refer to this well
      as
      the “13-33 well” at a cost of $314,954.  Independent reserves reports
      we commissioned indicate that no economic hydrocarbons were
      present.  As a result, the 13-33 well was abandoned.




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. We anticipate that
      a
      test well will be drilled on our property interest during the fourth quarter
      of
      2007, but no date has been scheduled at the present time.




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 5th 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
                Mannville excluding natural gas in the Leduc formation;
                andii)
            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;
                andb)
            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 $347,431. The well was
      drilled to the targeted depth of 13,650 feet.  During the three month
      period ended September 30, 2007, we paid additional drilling costs of
      $41,231.





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.
      We are awaiting information from the operator as to when the full testing
      program will be completed. If the additional testing returns positive results,
      this well will be tied a nearby pipeline to accommodate the natural gas
      production.






6
 ***Table
          of Contents***




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
      was
      completed by Griffin. On August 4, 2006, we paid $70,000 in exchange for our
      participation in an additional two well program which has also been
      completed.  The prospect area owned or controlled by Griffin on which
      the wells were drilled, is comprised of approximately 1,273 acres in Palmetto
      Point, Mississippi. All twelve wells have been drilled and currently 7 wells
      are
      producing, 3 wells are expected to produce but are currently waiting to be
      tied
      into the pipeline, and 2 wells were not commercially viable and were plugged
      and
      abandoned. Total revenue received from these wells for the year ended December
      31, 2006 was $17,485. The revenue received from these wells for the three months
      ended September 30, 2007 was $21,990.  Total revenue received from
      these wells for the nine months ended September 30, 2007 was
      $51,575.





Palmetto
      Point Prospect - 50 wells





During
      the fiscal quarter ended September 30, 2006, we entered into a joint venture
      agreement to acquire an interest in a drilling program comprising of up to
      50
      natural gas and/or oil wells. The area in which the wells are being drilled
      is
      approximately 300,000 gross acres located between Southwest Mississippi and
      Northeastern Louisiana. Drilling commenced in 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 is being 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. During the fourth quarter of fiscal
      2006, we made additional payments of $300,000 to be employed in the further
      development of prospects on lands in Mississippi and Louisiana in accordance
      with the terms of the operating agreement.





We
      have
      drilled seven wells of which two have been abandoned (Dixon #1 and Randall
      #1).  Our costs attributable to these two abandoned wells was $67,523.
      Of the successful 5 wells, Redbug #1 (CMR USA) and Faust #1 (TEC#1) are
      producing and Buffalo River #1, Redbug #2 and Buffalo River #2 are awaiting
      connection to the nearby pipeline for production. The revenue received from
      the
      CMR USA and TEC#1 wells for the three months ended September 30, 2007 was
      $2,389.  The revenue received from the CMR USA and TEC#1 wells for the
      nine months ended September 30, 2007 was $9,066.






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Wordsworth
      Prospect





On
      April
      10, 2006, we entered into a farmout, option and participation letter agreement
      (“FOP Agreement”) where we acquired a 15% working interest in certain leasehold
      interests located in southeast Saskatchewan, Canada referred to as the
      Wordsworth area for the purchase price of $152,724. We are responsible for
      our
      proportionate share of the costs associated with drilling, testing, and
      completing the first test well on the property. In exchange for us paying our
      proportionate share of the costs associated with drilling, testing, and
      completing the first test well on the property, we earned a 15% working interest
      before payout and a 7.5% working interest after payout on the Wordsworth
      prospect. Payout refers to the return of our initial investment in the property.
      In addition, we also acquired an option to participate and acquire a working
      interest in a vertical test well drilled to 1200 meters to test the
      Mississippian (Alida) formation in LSD 13 of section 24, township 7, range
      3
      W2.





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 year ended December 31, 2006 was
      $223,613. The revenue received from these wells for the three months ended
      September 30, 2007 was $29,174.  Revenue generated from this well for
      the nine months ended September 30, 2007 was $104,118.





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





The
      operator has indicated that based on the success to date, it expects to drill
      one additional well every quarter for the next year.





Owl
      Creek Prospect





On
      June
      1, 2006, we entered into an Assignment Agreement with Brinx Resources, Ltd.,
      (“Brinx”) a Nevada Oil & Gas Exploration Company, in order to acquire a
      working interest in lands and leases owned by Brinx. The purchase price of
      $300,000 for the assignment and options to acquire future interests has been
      paid in full. 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






8
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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 year ended December
      31,
      2006 was $265,062. The revenue received from the Powell #2 well for the three
      months ended September 30, 2007 was $129,567.  Revenue generated from
      the Powell #2 well for the nine months ended September 30, 2007 was
      $366,975.





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 costs of $80,738 were transferred
      to proved reserves and subsequently depleted in accordance with the our
      accounting policy.





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.





In
      January 2007, we commenced drilling of another well we will refer to as the
      “Isbill#2-36” well. Our 20% working interest in the Isbill#2-36 well cost
      $157,437. The Isbill#2-36 well was drilled to approximately 5,900 feet and
      encountered two potential pay zones and is a direct offset well to the Powell
      #2
      which is currently producing. The revenue received from the Isbill#2-36 well
      for
      the three months ended September 30, 2007 was $40,777.  The revenue
      received from the Isbill#2-36 well for the nine months ended September 30,
      2007
      was $80,585.





2006-3
      Drilling Program





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





The
      initial wells drilled which we refer to as the Crazy Horse, Linda, and Dale
      Ruggles #1 wells were deemed by the operator to not be commercially viable
      and
      as such, were plugged and abandoned.  In September 2007, a well
      drilled which we refer to as the Wolf#1-7 well was also
      abandoned.  The proportionate costs associated with these abandoned
      wells amounted to  $244,989, which were moved to the proved properties
      cost pool for depletion.





The
      operator has advised us that they will be setting production casing for three
      wells drilled as part of it "2006-03" drilling program with Ranken Energy.
      The
      three wells are as follows:  the Elizabeth #1-25 well located in the
      Meridian Prospect, the Plaster #1-1 well located in the Plaster Prospect, and
      reentry into the Dale #1 well located in the Dale Prospect.






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





2007-1
      Drilling Program - 3 Wells





On
      September 10, 2007, we entered into an agreement with Ranken Energy Corporation
      to participate in a three well drilling program in Garvin County, Oklahoma
      (the
“2007-1 Drilling Program”).  We purchased a 20% working interest in
      the 2007-1 Drilling Program and paid $77,100 as our proportionate share of
      the
      buy-in cost. The drilling of the first well is anticipated to commence in the
      fourth quarter of 2007 and all three wells should be drilled shortly thereafter.
      One well will be drilled in each of the following three Prospects: N.E. Anitoch
      Prospect, Washington Creek Prospect, and West Riverbend Prospect.





**Results
      of Operations for the three and nine months ended September 30, 2007 and
      2006**





For
      the
      three months ended September 30, 2007, our revenues generated from natural
      gas
      and oil sales increased to $230,483 from revenue of $168,528 for the three
      months ended September 30, 2006.  For the nine months ended September
      30, 2007, our revenues generated from natural gas and oil sales increased to
      $638,126 from revenue of $171,942 for the nine months ended September 30, 2006.
      Prior to the three months ended June 30, 2006, our Liberty Valance well was
      our
      only producing property. The Wordsworth and Owl Creek prospects commencing
      production in the third quarter of 2006 and the Palmetto Point Propsect
      commenced production in the fourth quarter of 2006.  The increase
      in revenue is primarily attributable to royalties received from our wells
      which commenced production during the third quarter of 2006.





We
      incurred costs and expenses in the amount of $440,296 for the three months
      ended
      September 30, 2007, compared to costs and expenses of $367,840 for the same
      reporting period in the prior year.  The increase in expenses is
      primarily attributable to reported depreciation and depletion expenses of
      $232,338 during the three months ended September 30, 2007.  We
      reported depreciation and depletion expenses of $6,316 during the three months
      ended September 30, 2006.  The most significant component of depletion
      expenditures for the three months ended September 30, 2007 are attributable
      to
      the abandonment of the Wolf#1-7 well associated with the 2006-3 drilling Program
      and the 13-33 well in the Todd Creek Prospect.  In addition to the
      abandonment of certain wells, our depletion expenditures have also increased
      as
      a result of our acquisition of interests in additional producing
      wells.





We
      incurred costs and expenses in the amount of $1,804,437 for the nine months
      ended September 30, 2007, compared to costs and expenses of $579,793 for the
      same reporting period in the prior year.  The increase in expenses was
      caused by an increase in general and administrative expenses and depreciation
      and depletion expenses.  We incurred general and administrative
      expenses in the amount of $1,075,260 for the nine months ended September 30,
      2007, compared to general and administrative expenses of $469,640 for the same
      reporting






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period
      in
      the prior year.  The increase in our general and administrative
      expenses is attributable to stock based compensation paid to our executive
      officers of $639,597.  We incurred depreciation and depletion expenses
      in the amount of $561,287 for the nine months ended September 30, 2007, compared
      to depreciation and depletion expenses of $6,630 for the same reporting period
      in the prior year.  The most significant component of depletion
      expenditures for the nine months ended September 30, 2007 are attributable
      to
      the abandonment of the Wolf#1-7 well associated with the 2006-3 drilling Program
      and the 13-33 well in the Todd Creek Prospect.  In addition to the
      abandonment of certain wells, our depletion expenditures have also increased
      as
      a result of our acquisition of interests in additional producing
      wells.





We
      reported other income of $9,364 for the three months ended September 30, 2007
      and other income of $6,335 for the three months ended September 30, 2006. We
      reported other income of $32,563 for the nine months ended September 30, 2007
      and other income of $61,157 for the nine months ended September 30, 2006. Other
      income during the three and nine months ended September 30, 2007 consisted
      solely of interest income.   Other income during the nine months
      ended September 30, 2006 included forgiveness of debt of $39,933.





Net
      loss
      for the three months ended September 30, 2007 was $206,558, compared to a net
      loss of $192,977 for the three months ended September 30, 2006. Net loss for
      the
      nine months ended September 30, 2007 was $1,144,018, compared to a net loss
      of
      $346,694 for the nine months ended September 30, 2006.





There
      are
      material events and uncertainties which could cause our reported financial
      information to not to be indicative of future operating results or financial
      condition. Our inability to successfully identify, execute or effectively
      integrate future acquisitions may negatively affect our results of operations.
      The success of any acquisition depends on a number of factors beyond our
      control, including the ability to estimate accurately the recoverable volumes
      of
      reserves, rates of future production and future net revenues attainable from
      the
      reserves and to assess possible environmental liabilities. Drilling for oil
      and
      natural gas may also involve unprofitable efforts, not only from dry wells
      but
      also from wells that are productive but do not produce sufficient net reserves
      to return a profit after deducting operating and other costs. In addition,
      wells
      that are profitable may not achieve our targeted rate of return. Our ability
      to
      achieve our target results are also dependent upon the current and future market
      prices for crude oil and natural gas, costs associated with producing oil and
      natural gas and our ability to add reserves at an acceptable cost. We do not
      operate the properties in which we have an interest and we have limited ability
      to exercise influence over operations for these properties or their associated
      costs. Our dependence on the operator and other working interest owners for
      these projects and our limited ability to influence operations and associated
      costs could materially adversely affect the realization of our returns on
      capital in drilling or acquisition activities and our targeted production growth
      rate. As a result, our historical results should not be indicative of future
      operations.





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**Liquidity
      and Capital Resources**





As
      of
      September 30, 2007, we had total current assets of $764,120 and total current
      liabilities in the amount of $69,665. As a result, we had working capital of
      $694,455 as of September 30, 2007.





The
      revenue we currently generate from natural gas and oil sales does exceed our
      cash operating expenses. However, we may 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 generated $95,742 in cash for the nine months ended September 30,
      2007. Investing activities during the nine months ended September 30, 2007
      consisted of $1,208,094 for the investment in natural gas and oil properties.
      Cash flows provided by financing activities during the nine months ended
      September 30, 2007 consisted of $45,000 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, 2007 are as
      follows:





·
            Property
                acquisition costs,


·
            Royalties
                received from the Company’s oil and gas
                prospects





**Off
      Balance Sheet Arrangements**





As
      of
      September 30, 2007, there were no off balance sheet arrangements.





**Going
      Concern**




As
      shown
      in the accompanying financial statements, we have incurred a net loss of
      $2,292,630 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.




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**Critical
      Accounting Policies**





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





**Joint
      Ventures**





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





**Natural
      Gas and Oil Properties**





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





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





**Revenue
      Recognition**





Revenue
      from sales of crude oil, natural gas and refined petroleum products are recorded
      when deliveries have occurred and legal ownership of the commodity transfers
      to
      the customers. Title transfers for crude oil, natural gas and bulk refined
      products generally occur at pipeline custody points or when a tanker lifting
      has
      occurred. Revenues from the production of oil and natural gas properties in
      which we share an undivided interest with other producers are recognized based
      on the actual volumes sold by us during the period. Gas imbalances occur when
      our actual sales differ from its entitlement under existing working interests.
      We record a liability for gas imbalances when we have sold more than our working
      interest of gas production and the estimated remaining reserves make it doubtful
      that the partners can recoup their share of production from the field. At
      September 30, 2007 and 2006, we had no overproduced imbalances.




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**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, 2007. This evaluation was carried
      out under the supervision and with the participation of our Chief Executive
      Officer, Mr. Douglas Bolen and our Chief Financial Officer, Mr. Kulwant Sandher.
      Based upon that evaluation, our Chief Executive Officer and Chief Financial
      Officer concluded that, as of September 30, 2007, 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,
      2007.





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.     LegalProceedings**





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.     UnregisteredSales of Equity
      Securities and Use of Proceeds**





The
      information set forth below relates to our issuances of securities without
      registration under the Securities Act during the reporting period which were
      not
      previously included in a Current Report on Form 8-K.





On
      July
      8, 2007, we issued to Kulwant Sandher, our Chief Financial Officer and Principal
      Financial Officer, 250,000 shares of our common stock, all of which are
      considered by our Board of Directors to be fully paid and non assessable upon
      issuance, in exchange for the cancellation of options to purchase 300,000 shares
      of our common stock at the exercise price of $0.75 per share and services
      rendered, which were issued to Mr. Sandher on January 18, 2007.  These
      shares were issued in reliance upon the exemption from registration provided
      by
      Section 4(2) of the Securities Act of 1933.





**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, 2007.





**Item
      5.Other
      Information**





None





**Item
      6.    Exhibits**





**Exhibit**
              **Number**
            **Description
                of Exhibit**10.1
            Letter
              Agreement /
              Ranken Energy Corporation31.1
            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







15
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          of Contents***


**SIGNATURES**





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





**Delta
                Oil & Gas, Inc.**Date:
            November
                6, 2007By: /s/
                Douglas
                Bolen
              Douglas
                Bolen
              Title:**Chief
                Executive Officer and Director**Date:
            November
                6, 2007By:
                /s/ Kulwant
                Sandher
              Kulwant
                Sandher
              Title:**Chief
                Financial Officer and Director**








16