UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549





FORM
10-Q





[X]
            Quarterly
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended:  March 31,
      2008[  
      ]
            Transition
      Report pursuant to 13 or 15(d) of the Securities Exchange Act of
      1934For
      the transition period __________ to__________Commission
      File Number:  000-52001





Delta Oil
& Gas, Inc.


(Exact
name of registrant as specified in its charter)





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








2600
      144 4th Ave S.W., Calgary, Alberta, Canada T2P
  3N4(Address
      of principal executive offices)





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





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





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




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





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:  45,940,506 common shares as
of March 31, 2008.


Table of Contents










TABLE OF CONTENTS
            PagePART
      I – FINANCIAL INFORMATIONItem
      1.
            Financial Statements
            3Item
      2.
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            4Item
      3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            14Item
      4T.
            Controls and Procedures
            14PART
      II – OTHER INFORMATIONItem
      1.
            Legal Proceedings
            16Item
      1A.
            Risk Factors
            16Item
      2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            16Item
      3.
            Defaults Upon Senior Securities
            16Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            16Item
      5.
            Other Information
            16Item
      6.
            Exhibits
            16









2
 Table of Contents


PART
I - FINANCIAL INFORMATION





Item 1.   Financial
Statements





Our
      unaudited consolidated financial statements included in this Form 10-Q are
      as follows:F-1
            Unaudited
      Consolidated Balance Sheet as of March 31, 2008;F-2
            Unaudited
      Consolidated Statements of Operations for the three months ended March 31,
      2008 and 2007 and from inception on January 9, 2001 to March 31,
      2008;F-3
            Unaudited
      Consolidated Statements of Cash Flows for the three months ended March 31,
      2008 and 2007 and from inception on January 9, 2001 to March 31,
      2008;F-4
            Unaudited Consolidated Statement of Changes in
      Stockholders' Equity from inception on January 9, 2001 toMarch 31, 2008;F-5
            Notes
      to Unaudited Consolidated Financial
Statements;








These
unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and the SEC instructions to Form
10-Q.  In the opinion of management, all adjustments considered
necessary for a fair presentation have been included.  Operating
results for the interim period ended March 31, 2008 are not necessarily
indicative of the results that can be expected for the full
year.


3
 Table of Contents





DELTA
      OIL & GAS, INC.(A
      Development Stage Company)Consolidated
      Balance Sheets(Stated
      in U.S. Dollars)(Audited)March
      31
            
            
            December
      31,2008
            
            
            2007ASSETS
            
            (Unaudited)
            
            (Audited)CurrentCash
      and cash equivalents
            
            $
            162,458
            
            
            $
            71,115GIC
      receivable
            
            
            -
            
            
            
            236,112Accounts
      receivable
            
            
            142,830
            
            
            
            153,990Franchise
      tax prepaid
            
            
            6,912
            
            
            
            6,912Prepaid
      expenses
            
            
            17,871
            
            
            
            19,364330,071
            
            
            
            487,493Natural
      Gas And Oil PropertiesProved
      property
            
            
            2,060,871
            
            
            
            1,432,776Unproved
      property
            
            
            503,091
            
            
            
            1,368,2602,563,962
            
            
            
            2,801,036Other
      EquipmentComputer
      equipment
            
            
            4,483
            
            
            
            4,483Less:
      accumulated depreciation
            
            
            (3,603
            )
            
            
            (3,351
            )880
            
            
            
            1,132$
            2,894,913
            
            
            $
            3,289,661LIABILITIES AND
      STOCKHOLDERS' EQUITYLIABILITIESCurrentAccounts
      payable and accrued liabilities
            
            $
            25,598
            
            
            $
            166,217Loan
      payable
            
            
            90,000
            
            
            
            -115,598
            
            
            
            166,217Long
      TermAsset
      retirement obligation
            
            
            115,157
            
            
            
            111,803230,755
            
            
            
            278,020STOCKHOLDERS'
      EQUITYShare
      CapitalPreferred
      Shares, 25,000,000 shares authorized of $0.001par
      value of which none have been issuedCommon
      stock, 100,000,000 shares authorized of $0.001par
      value, 45,940,506 shares issued and outstanding45,941
            
            
            
            45,941Additional
      paid-in capital
            
            
            6,136,288
            
            
            
            6,136,288Cumulative
      other comprehensive income
            
            
            177,182
            
            
            
            187,348Deficit
      accumulated during the development stage
            
            
            (3,695,253
            )
            
            
            (3,357,936
            )2,664,158
            
            
            
            3,011,641$
            2,894,913
            
            
            $
            3,289,661The
      accompanying notes are an integral part of these consolidated financial
      statements









F -
1
 Table of Contents





DELTA
      OIL & GAS, INC.(A
      Development Stage Company)Consolidated
      Statements of Operations(Stated
      in U.S. Dollars)(Unaudited)CUMULATIVE
      PERIODFROM
      INCEPTIONJANUARY
      9, 2001THREE
      MONTHS ENDED
            
            
            TOMARCH
      31,
            
            
            MARCH
      31,2008
            
            
            2007
            
            
            2008RevenueNatural
      gas and oil sales
            
            $
            277,290
            
            
            $
            147,504
            
            
            $
            1,802,228Gain
      on sale of oil property
            
            
            -
            
            
            
            -
            
            
            
            1,061,159277,290
            
            
            
            147,504
            
            
            
            2,863,387Costs
      And ExpensesNatural
      gas and oil operating costs
            
            
            63,405
            
            
            
            35,744
            
            
            
            398,517General
      and administrative
            
            
            86,293
            
            
            
            619,423
            
            
            
            2,869,418Accretion
            
            
            3,354
            
            
            
            -
            
            
            
            8,230Depreciation
      and depletion
            
            
            98,437
            
            
            
            133,979
            
            
            
            1,271,453Impairment
      of natural gas and oil properties
            
            
            363,370
            
            
            
            -
            
            
            
            1,976,835Dry
      well costs written off
            
            
            -
            
            
            
            -
            
            
            
            119,961614,859
            
            
            
            789,146
            
            
            
            6,644,414Net
      Operating Loss
            
            
            (337,569
            )
            
            
            (641,642
            )
            
            
            (3,781,027
            )Other
      IncomeForgiveness
      of debt
            
            
            -
            
            
            
            -
            
            
            
            39,933Interest
      income
            
            
            252
            
            
            
            10,739
            
            
            
            61,421252
            
            
            
            10,739
            
            
            
            101,354Loss
      before income taxes
            
            $
            (337,317
            )
            
            $
            (630,903
            )
            
            $
            (3,679,673
            )Income
      taxes
            
            
            -
            
            
            
            -
            
            
            
            15,580Net
      Loss
            
            $
            (337,317
            )
            
            $
            (630,903
            )
            
            $
            (3,695,253
            )Basic
      And Diluted Loss Per Common Share
            
            $
            (0.01
            )
            
            $
            (0.01
            )Weighted
      Average Number OfCommon
      Shares Outstanding
            
            
            45,705,191
            
            
            
            45,281,839The
      accompanying notes are an integral part of these consolidated financial
      statements





F -
2
 Table of Contents





DELTA
      OIL & GAS, INC.(A
      Development Stage Company)Consolidated
      Statements of Cash Flows(Stated
      in U.S. Dollars)(Unaudited)CUMULATIVE
      PERIODFROM
      INCEPTIONJANUARY
      9, 2001THREE
      MONTHS ENDED
            
            
            TOMARCH
      31,
            
            
            MARCH
      31,2008
            
            
            2007
            
            
            2008Cash
      Flows From Operating Activities:Net
      (loss) for the period
            
            $
            (337,317
            )
            
            $
            (630,903
            )
            
            $
            (3,695,253
            )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Gain
      on sale of property
            
            
            -
            
            
            
            -
            
            
            
            (1,061,159
            )Accretion
            
            
            3,354
            
            
            
            -
            
            
            
            8,230Depreciation
      and depletion
            
            
            98,437
            
            
            
            133,979
            
            
            
            1,271,453Impairment
      of natural gas and oil properties
            
            
            363,370
            
            
            
            -
            
            
            
            1,976,835Dry
      well costs written off
            
            
            -
            
            
            
            -
            
            
            
            119,961Stock-based
      compensation expense
            
            
            -
            
            
            
            527,507
            
            
            
            608,083Shares
      issued to President & CEO for servicess rendered
            
            
            -
            
            
            
            -
            
            
            
            460,000Shares
      issued to CFO for services rendered
            
            
            -
            
            
            
            -
            
            
            
            137,500Shares
      issued to Investor Relations Services Inc for services
      rendered
            
            
            -
            
            
            
            -
            
            
            
            40,800Realized
      foreign exchange loss
            
            
            -
            
            
            
            -
            
            
            
            184,136Changes
      in operating assets and liabilities:GIC
            
            
            236,112
            
            
            
            -
            
            
            
            -Accounts
      receivable
            
            
            11,160
            
            
            
            19,946
            
            
            
            (142,830
            )Accounts
      payable and accrued liabilities
            
            
            (140,619
            )
            
            
            (38,518
            )
            
            
            (90,425
            )Tax
      Prepaid
            
            
            -
            
            
            
            -
            
            
            
            (6,912
            )Prepaid
      expenses
            
            
            1,493
            
            
            
            (11
            )
            
            
            (17,871
            )Net
      Cash Generated/(Used) in Operating Activities
            
            
            235,990
            
            
            
            12,000
            
            
            
            (207,452
            )Cash
      Flows From Investing Activities:Purchase
      of other equipment
            
            
            -
            
            
            
            -
            
            
            
            (4,483
            )Sale
      proceeds of natural gas and oil working interests
            
            
            -
            
            
            
            -
            
            
            
            1,500,000Investment
      in natural gas and oil working interests
            
            
            (234,647
            )
            
            
            (260,701
            )
            
            
            (6,151,454
            )Net
      Cash Used in Investing Activities
            
            
            (234,647
            )
            
            
            (260,701
            )
            
            
            (4,655,937
            )Cash
      Flows From Financing Activities:Proceeds
      from loan payable
            
            
            90,000
            
            
            
            -
            
            
            
            90,000Proceeds
      from issuance of common stock
            
            
            -
            
            
            
            45,000
            
            
            
            4,935,847Net
      Cash Provided by Financing Activities
            
            
            90,000
            
            
            
            45,000
            
            
            
            5,025,847Net
      Increase/(Decrease) In Cash And Cash Equivalents
            
            
            91,343
            
            
            
            (203,701
            )
            
            
            162,458Cash
      And Cash Equivalents At Beginning Of Period(Excess
      Of Deposits  Over Checks Issued)
            
            
            71,115
            
            
            
            1,668,758
            
            
            
            -Cash
      And Cash Equivalents At End Of Period
            
            $
            162,458
            
            
            $
            1,465,057
            
            
            $
            162,458Supplemental
      Disclosures of Non-Cash Financing Activities500,000
      shares issued to the President & CEO as part of his
            
            $
            -
            
            
            
            -
            
            
            $
            460,000compensation
      package250,000
      shares issued to the CFO for services rendered
            
            $
            -
            
            
            
            -
            
            
            $
            137,50060,000
      shares issued to Investor Relations Services Inc., forservices
      rendered.
            
            $
            -
            
            
            
            -
            
            
            $
            40,800Supplemental
      Disclosures of Non-Cash TransactionsIncome
      taxes paid
            
            $
            -
            
            
            
            -
            
            
            $
            10,270Investment
      in natural gas and oil working interests included in accounts
      payable
            
            $
            -
            
            
            
            -
            
            
            $
            116,023The
      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' EQUITYAND COMPREHENSIVE
      LOSSPERIOD
      FROM INCEPTION, JANUARY 9, 2001, TO DECEMBER 31, 2007(Stated
      in U.S. Dollars)(Audited)DEFICITCOMMON
      STOCK
            
            
            ACCUMULATEDNUMBER
            
            
            
            
            
            
            
            
            SHARE
            
            
            SHARE
            
            
            DURING
      THE
            
            
            CUMULATIVEOF
      COMMON
            
            
            
            
            
            ADDITIONAL
            
            
            SUBSCRIPTIONS
            
            
            SUBSCRIPTIONS
            
            
            DEVELOPMENT
            
            
            COMPREHENSIVESHARES
      VALUE
            
            
            PARVALUE
            
            
            PAID-IN
      CAPITAL
            
            
            RECEIVED
            
            
            RECEIVABLE
            
            
            STAGE
            
            
            INCOME
            
            
            TOTALShares
      issued for cash at $0.00018
            
            
            13,750,000
            
            
            $
            13,750
            
            
            $
            (11,250
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            2,500Shares
      issued for cash at $0.0036
            
            
            27,500,000
            
            
            
            27,500
            
            
            
            72,500
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            100,000Shares
      issued for cash at $0.045
            
            
            46,750
            
            
            
            47
            
            
            
            2,078
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,125Net
      (loss) for the period ended
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (184,407
            )
            
            
            -
            
            
            
            (184,407
            )Balance,
      December 31, 2001
            
            
            41,296,750
            
            
            
            41,297
            
            
            
            63,328
            
            
            
            -
            
            
            
            -
            
            
            
            (184,407
            )
            
            
            -
            
            
            
            (79,782
            )Net
      (loss) for the year
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (62,760
            )
            
            
            -
            
            
            
            (62,760
            )Balance,
      December 31, 2002
            
            
            41,296,750
            
            
            
            41,297
            
            
            
            63,328
            
            
            
            -
            
            
            
            -
            
            
            
            (247,167
            )
            
            
            -
            
            
            
            (142,542
            )Net
      (loss) for the year
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (24,423
            )
            
            
            -
            
            
            
            (24,423
            )Balance,
      December 31, 2003
            
            
            41,296,750
            
            
            
            41,297
            
            
            
            63,328
            
            
            
            -
            
            
            
            -
            
            
            
            (271,590
            )
            
            
            -
            
            
            
            (166,965
            )Share
      subscriptions received
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            160,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            160,000Net
      (loss) for the year
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (31,574
            )
            
            
            -
            
            
            
            (31,574
            )Balance,
      December 31, 2004
            
            
            41,296,750
            
            
            
            41,297
            
            
            
            63,328
            
            
            
            160,000
            
            
            
            -
            
            
            
            (303,164
            )
            
            
            -
            
            
            
            (38,539
            )Units
      issued for cash at $1.00,
            
            
            2,483,985
            
            
            
            2,484
            
            
            
            2,481,241
            
            
            
            (160,000
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,323,725net
      of share issuance costOptions
      exercised for cash at $0.8
            
            
            245,000
            
            
            
            245
            
            
            
            195,755
            
            
            
            -
            
            
            
            (16,000
            )
            
            
            -
            
            
            
            -
            
            
            
            180,000Stock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            370,267
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            370,267Net
      (loss) for the year
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (570,050
            )
            
            
            -
            
            
            
            (570,050
            )Balance,
      December 31, 2005
            
            
            44,025,735
            
            
            
            44,026
            
            
            
            3,110,591
            
            
            
            -
            
            
            
            (16,000
            )
            
            
            (873,214
            )
            
            
            -
            
            
            
            2,265,403Subscriptions
      receivable
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            16,000
            
            
            
            -
            
            
            
            -
            
            
            
            16,000Options
      exercised for cash at $0.8
            
            
            305,000
            
            
            
            305
            
            
            
            243,695
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            244,000Options
      exercised for cash at $1.00
            
            
            12,500
            
            
            
            13
            
            
            
            12,488
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            12,501Shares
      issued for cash at $2.75,
            
            
            727,271
            
            
            
            727
            
            
            
            1,849,268
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,849,995net
      of finders feeStock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            195,719
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            195,719Net
      (loss) for the year
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (234,763
            )
            
            
            -
            
            
            
            (234,763
            )Balance,
      December 31, 2006
            
            
            45,070,506
            
            
            
            45,071
            
            
            
            5,411,761
            
            
            
            -
            
            
            
            -
            
            
            
            (1,107,977
            )
            
            
            -
            
            
            
            4,348,855Options
      exercised for cash at $0.75
            
            
            60,000
            
            
            
            60
            
            
            
            44,940
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            45,000Shares
      issued to President & CEO as
            
            
            500,000
            
            
            
            500
            
            
            
            459,500
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            460,000part
      of his compensation package at $0.92Shares
      issued to Investor Relations
            
            
            60,000
            
            
            
            60
            
            
            
            40,740
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            40,800Services,
      Inc. as part of the agreementShares
      issued to CFO for services rendered
            
            
            250,000
            
            
            
            250
            
            
            
            137,250
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            137,500Stock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            42,097
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            42,097Comprehensive
      (loss):Cumulative
      translation adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            187,348
            
            
            
            187,348Net
      (loss) for the year
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,249,959
            )
            
            
            -
            
            
            
            (2,249,959
            )Comprehensive
      (loss)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,062,611
            )Balance,
      December 31, 2007
            
            
            45,940,506
            
            
            
            45,941
            
            
            
            6,136,288
            
            
            
            -
            
            
            
            -
            
            
            
            (3,357,936
            )
            
            
            187,348
            
            
            
            3,011,641Comprehensive
      (loss):Cumulative
      translation adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (10,166
            )
            
            
            (10,166
            )Net
      (loss) for the period
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (337,317
            )
            
            
            -
            
            
            
            (337,317
            )Comprehensive
      (loss)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (347,483
            )Balance,
      March 31, 2008
            
            
            45,940,506
            
            
            $
            45,941
            
            
            $
            6,136,288
            
            
            $
            -
            
            
            $
            -
            
            
            $
            (3,695,253
            )
            
            $
            177,182
            
            
            $
            2,664,158The
      accompanying notes are an integral part of these consolidated financial
      statements









F -
4
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2008


(Stated
in U.S. Dollars)




1. BASIS
OF PRESENTATION





The
unaudited consolidated financial statements as of March 31, 2008 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, 2007 audited financial statements and notes thereto.  The
results of the operations for the three months ended March 31, 2008 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.





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 $3,695,253 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 its properties
and, if unsuccessful, to commence the sale of its projects under
development.  As a result of the foregoing, there exists substantial
doubt the Company’s ability to continue as a going concern.  These
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.






F -
5
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2008


(Stated
in U.S. Dollars)





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.





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





d)
            Asset
      Retirement Obligations





The
Company has adopted Statement of Financial Accounting Standards No. 143 (“SFAS
143”), “Accounting for Asset Retirement Obligations”, which requires that asset
retirement obligations (“ARO”) associated with the retirement of a tangible
long-lived asset, including natural gas and oil properties, be recognized as
liabilities in the period in which it is incurred and becomes determinable, with
an offsetting increase in the carrying amount of the associated assets. The cost
of tangible long-lived assets, including the initially recognized ARO, is
depleted, such that the cost of the ARO is recognized over the useful life of
the assets. The ARO is recorded at fair value, and accretion expense is
recognized over time as the discounted 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 -
6
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2008


(Stated
in U.S. Dollars)





3. SIGNIFICANT
ACCOUNTING POLICIES (Continued)





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 March 31, 2008 and 2007, the Company had no overproduced
imbalances.





g)
            Cash
      and Cash Equivalent





Cash
consists of cash on deposit with high quality major financial institutions, and
to date has not experienced losses on any of its balances.  The
carrying amounts approximated fair market value due to the liquidity of these
deposits.  For purposes of the balance sheet and statements of cash
flows, the Company considers all highly liquid instruments with maturity of
three months or less at the time of issuance to be cash
equivalents.





h)
            GIC
      Receivable





GIC
Receivable is non-redeemable until April 24, 2008 and bears an interest rate of
3.80 %.





i)
            Environmental
      Protection and Reclamation Costs





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





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.





j)
            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 period end
are included in other comprehensive income.





k)
            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.





F -
7
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2008


(Stated
in U.S. Dollars)





3. SIGNIFICANT
ACCOUNTING POLICIES (Continued)





l)
            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.





m)
            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.





n)
            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.





o)
            Financial
      Instruments





The
Company’s financial instruments consist of cash and cash equivalent, GIC
receivable, accounts receivable, franchise tax prepaid, prepaid expenses,
accounts payable, accrued liabilities and loan payable.





It is
management’s opinion that the Company is not exposed to significant interest or
credit risks arising from these financial instruments.  The fair value
of these financial instruments is approximated to 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. The Company is disclosing this information on its Consolidated
Statements of Changes in Stockholders’ Equity.





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”.





F -
8
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2008


(Stated
in U.S. Dollars)





4. NATURAL GAS AND OIL
PROPERTIES





a)  Proved
Properties




Properties
            
            December
      31, 2007
            
            
            Addition
            
            
            Depletion
      for the Year
            
            
            Impairment
            
            
            March
      31, 2008USA
      properties
            
            $
            1,197,630
            
            
            $
            695,174
            
            
            $
            (59,524
            )
            
            $
            -
            
            
            $
            1,833,280Canada
      properties
            
            
            235,146
            
            
            
            394,476
            
            
            
            (38,661
            )
            
            
            (363,370
            )
            
            
            227,591Total
            
            $
            1,432,776
            
            
            $
            1,089,650
            
            
            $
            (98,185
            )
            
            $
            (363,370
            )
            
            $
            2,060,871





a)     
Proved Properties -  Descriptions





Properties
in U.S.A.





i.     Liberty
Valance, California, USA





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





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. 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.  As of December 31, 2007, the
cost to the Company for this assignment was $392,802.





In July
2006, the Company also elected to participate in Isbill #1-36, which was
abandoned during the year.  Its costs amounted to $80,738 was moved to
the proven cost pool 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.  On December 31, 2007, the Company expended $191,185 on Isbill
#2-36.





In April
2007, the Company entered into the 2006-3 Drilling Program for a buy-in cost of
$113,700 which will provide 12.5% Before Casing Point (“BCP”) working interest
and After Casing Point (“ACP”) working interest of 10%.  In September
2007, Wolf#1-7 was abandoned. Its costs amount to $68,118 was moved to the
proven cost pool for depletion.  In October 2007, Ruggles #1-15 was
also abandoned and the cost of $84,328 was moved to the proven cost pool for
depletion.





In
October 2007, the Company elected to participate in Powell #3-25 and paid
$112,319 for the estimated drilling costs.  Powell #3-25 was abandoned
on November 9, 2007.  Its costs amounted to $81,998 was moved to the
proven cost pool for depletion.  The unused estimated drilling costs
were applied to operating costs of other wells.







F -
9
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2008


(Stated
in U.S. Dollars)








4.
NATURAL GAS AND OIL PROPERTIES
(Continued)





a)  
Proved Properties -  Descriptions





Properties in U.S.A.


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





In the
2006-3 Drilling Program, Elizabeth #1-25 was plugged abandoned on February 7,
2008.  Its cost amounted to $127,421 was moved to the proven cost pool
for depletion.  Plaster #1-11 and Dale #1-15 started producing in
January and February 2008, respectively, total cost of $205,064 was moved to the
proven cost pool.





In the
2007-1 Drilling Program, Pollack #1-35 was plugged and abandoned on January 19,
2008.  Its cost amounted to $150,841 was moved to the proven cost pool
for depletion.  Hulsey #1-8 started producing in February 2008; the
cost of $161,039 was moved to the proven cost pool.




iii.   Palmetto
Point Prospect, Mississippi, USA


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





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





As of
December 31, 2007, eight wells were found to be proved wells, and two wells, PP
F-7 and PP F-121 were abandoned due to no apparent gas or oil shows
present.  The costs of abandon properties were added to the
capitalized cost in determination of the depletion expense.




On August
4, 2006, the Company elected to participate in additional two wells program in
Mississippi owned by Griffin & Griffin Exploration and paid
$70,000.  As of December 31, 2007, both wells were found to be proved
wells.




On
October 10, 2007, the Company elected to participate in the drilling of PP F-12
and PP F-12-3 in Mississippi operated by Griffin & Griffin
Exploration.  The Company’s 10% of the estimated drilling costs was
$88,783. PP F-12 started production from October 2007, and PP F-12-3 started
production from November 2007.  Additional AFE in the amount of
$36,498 for workovers on the PP F-12, PP F-12-3 was paid on January 31,
2008.




On
January 11, 2008, the Company paid $11,030 for PP F-41salt water disposal
well.







F -
10
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2008


(Stated
in U.S. Dollars)





4.
NATURAL GAS AND OIL PROPERTIES
(Continued)





a)    
Proved Properties -  Descriptions





Properties in
U.S.A.





iv.   Mississippi
II, Mississippi, USA




In August
2006, the Company entered into a joint venture agreement with Griffin &
Griffin Exploration, LLC. to acquire an interest in a drilling program comprised
of up to 50 natural gas and/or oil wells.  The area in which the wells are
to be drilled is comprised of approximately 300,000 gross acres of land located
between Southwest Mississippi and North East Louisiana. The wells are targeting
the Frio and Wilcox Geological formations. The Company has agreed to pay
10% of all prospect fees, mineral leases, surface leases and drilling and
completion costs to earn a net 8% share of all production zones to the base of
the Frio formation and 7.5% of all production to the base of the Wilcox
formation.  In January 2007, the well CMR USA 39-14 was found to be
proved.  The cost of $35,126 was added to the proven cost
pool.  Dixon#1 was abandoned in January 2007, its costs amounted to
$40,605 was moved to the proven cost pool for depletion.  Randall#1
was abandoned in June 2007, its costs amounted to $26,918 was moved to the
proven cost pool for depletion.  BR F-24 was abandoned and its cost
amounted to $41,999 was moved to the proven cost pool for
depletion.  Faust #1, USA 1-37 and BR F-33 were found to be proven and
the total cost of $129,360 was added to the proven cost pool.




v.    Mississippi
III, Mississippi, USA




During
August to December 2007, five additional wells, PP F-90, PP F-100, PP F-111, PP
F-6A, and PP F-83 were drilled in the area.  These wells were
abandoned due to modest gas shows and a total drilling cost of $110,729 was
added to the capitalized costs in determination of depletion
expense.





Properties
in Canada





vi.
  Wordsworth Prospect, Saskatchewan, Canada





On April
10, 2006, the Company entered into an agreement (the “Agreement”) with Petrex
Energy Ltd., for a participation and Farmout agreement where the Company will
participate for 15% gross working interest before payout (BPO) and 7.5% gross
working interest after pay out (APO) in a proposed four well horizontal drilling
program in the Wordsworth area in Southeast Saskatchewan, Canada.  As
at December 31, 2007, the Company had advanced $222,649 as its share of the
costs in this Agreement.  Currently there is one producing well on
this prospect.




vii.
 Todd Creek, Alberta, Canada





In
January 2005, the Company acquired a 20% working interest in 13.75 sections
(8,800 acres) of land in Todd Creek, Alberta, Canada, at a cost of
$597,263.  One of the well 13-28-9-2W5M has production since October
2006.





The
Company paid $314,959 (CDN$352,376) on October 27, 2006 for well
13-33-8-2W5M.  It was abandoned and the cost was moved to the proved
properties cost pool for depletion.  During the year ended of December
31, 2007, the remaining wells at Todd Creek were abandoned and the cost was
moved to proven cost pool for depletion.




viii. 
Hillspring, Alberta, Canada





In
January 2005, the Company acquired a 10% working interest in 1 section (64
acres) of land in Hillspring, Alberta, Canada, at a cost of
$414,766.   During the year ended of December 31, 2007, it was
abandoned and the cost was moved to proven cost pool for depletion.





F -
11
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2008


(Stated
in U.S. Dollars)








4.
NATURAL GAS AND OIL PROPERTIES
(Continued)




b)   
Unproved Properties





Properties
            
            December
      31, 2007
            
            
            Addition
            
            
            Cost
      added to capitalized cost
            
            
            March
      31, 2008USA
      properties
            
            $
            781,446
            
            
            $
            175,172
            
            
            $
            (655,395
            )
            
            $
            301,223Canada
      properties
            
            
            586,814
            
            
            
            3,716
            
            
            
            (388,662
            )
            
            
            201,868Total
            
            $
            1,368,260
            
            
            $
            178,888
            
            
            $
            (1,044,057
            )
            
            $
            503,091





b)  
 Unproved Properties - Descriptions





Properties
in U.S.A.




i.  
  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.  On December 12, 2007, estimated drilling costs of $116,023
for Pollack #1-35 was accrued to the year end of December 31, 2007 and paid on
January 14, 2008.





The
Company also paid estimated completion cost of $56,734 for the well, Hulsey
#1-8, on January 18, 2008; and paid estimated drilling cost of $92,593 for the
well, River 31-28, on February 12, 2008.  Both of the wells are for
the 2007-1 Drilling Program.




ii.
    Mississippi II, Mississippi, USA





In
August, 2006, the Company entered into a joint venture agreement with
Griffin & Griffin Exploration, LLC. to acquire an interest in a drilling
program comprised of up to 50 natural gas and/or oil wells.  The area in
which the wells are to be drilled is comprised of approximately 300,000 gross
acres of land located between Southwest Mississippi and North East Louisiana.
The wells are targeting the Frio and Wilcox Geological formations. The
Company has agreed to pay 10% of all prospect fees, mineral leases, surface
leases and drilling and completion costs to earn a net 8% share of all
production zones to the base of the Frio formation and 7.5% of all production to
the base of the Wilcox formation.





Properties
in Canada





iii.
   Wordsworth Prospect, Saskatchewan, Canada





In April
2007, the Company entered into an agreement (the “Agreement”) with Petrex Energy
Ltd., for a participation and Farmout agreement where the Company will
participate for 15% gross working interest before payout (BPO) and 7.5% gross
working interest after pay out (APO) in a proposed four well horizontal drilling
program in the Wordsworth area in Southeast Saskatchewan, Canada.  As
at March 31, 2008, the Company had expended $198,169 of the well
3B9-23/3A11.  In March 2008, the Company joined the drilling of a new
well, 2 HZ 3B9 LEG, and paid cash call of CAN $3,780.





F -
12
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2008


(Stated
in U.S. Dollars)





4.
NATURAL GAS AND OIL PROPERTIES
(Continued)





b)  Unproved
Properties -  Descriptions





iv.   Strachan
Prospect, Alberta, Canada





In
September 2005, the Company entered into a participation and farmout agreement
with Odin Capital Inc. (“Odin”) where the Company will participate for 4% share
of the costs of drilling a test well in certain lands located in the Leduc
formation, Alberta, Canada.  In exchange for the participation costs,
the Company will earn interests in certain petroleum and natural gas wells
ranging from 1.289% to 4.0%.  As at December 31, 2007, the Company has
advanced $388,662 as its share of the costs in the Leduc formation
property.  The well was abandoned in the three month ended of March
31, 2008; the cost of $388,662 was moved to the proven cost pool for
depletion.





5. NATURAL
GAS AND OIL EXPLORATION RISK





a)  Exploration
Risk





The
Company’s future financial condition and results of operations will depend upon
prices received for its natural gas and oil production and the cost of finding
acquiring, developing and producing reserves.  Substantially all of
its production is sold under various terms and arrangements at prevailing market
prices.  Prices for natural gas and oil are subject to fluctuations in
response to changes in supply, market uncertainty and a variety of other factors
beyond its control.  Other factors that have a direct bearing on the
Company’s prospects are uncertainties inherent in estimating natural gas and oil
reserves and future hydrocarbon production and cash flows, particularly with
respect to wells that have not been fully tested and with wells having limited
production histories; access to additional capital; changes in the price of
natural gas and oil; availability and cost of services and equipment; and the
presence of competitors with greater financial resources and
capacity.





b)    Distribution
Risk





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





c) Credit
Risk





A
substantial portion of the 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.





F -
13
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2008


(Stated
in U.S. Dollars)








5. LOAN
PAYABLE





On
February 12, 2008, the Company received a loan in the amount of $90,000 from
Venture Capital Asset Management.  The loan is unsecured and bears an
interest rate which will be determined once the agreement has been
executed.








6. ASSET
RETIREMENT OBLIGATIONS





The ARO
is calculated using the 5% value of proved properties as at December 31,
2007.  Revisions to the liability could occur due to changes in
plugging and abandonment costs, well useful lives or if federal or state
regulators enact new guidance on the plugging and abandonment of wells. The
Company amortizes the amount added to oil and gas properties and recognizes
accretion expense in connection with the discounted liability over the remaining
useful lives of the respective wells.  The Company has not increased
its ARO during this quarter, since the amount accrued to date is
sufficient.





The
information below reflects the change in the asset retirement obligations during
the period ended March 31, 2008 and year ended December 31, 2007:




March 31,
            
            
            December
      31,2008
            
            
            2007Balance,
      beginning of year
            
            $
            111,803
            
            
            $
            40,635Liabilities
      assumed
            
            
            -
            
            
            
            66,292Accretion
      expense
            
            
            3,354
            
            
            
            4,876Balance,
      end of year
            
            $
            115,157
            
            
            $
            111,803





7. SHARE
CAPITAL





i. Common
Stock


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





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





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





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





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





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





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





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





F -
14
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2008


(Stated
in U.S. Dollars)





8. SHARE
CAPITAL (Continued)




Preferred
Stock




The
Company did not issue any preferred stock during the year ended December 31,
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.  Options
exercised for the three months ended March 31, 2008 was $ nil (Year ended
December 31, 2007 - $42,097, related to options granted during the year ended
December 31, 2007).  The changes in stock options are as
follows:


Number
            Weighted
      average
              exercise
      priceBalance
      outstanding, December 31, 2007
              Granted
              Forfeited
              Exercised
              Balance
      outstanding, March 31, 2008
            240,000
              -
              -
              -
            $                      0.75
              -
              -
              -240,000
            $                      0.75





The
weighted average assumptions used in calculating the fair value of stock options
granted and vested during the year ended December 31, 2007, using the
Black-Scholes option pricing model are as follows:





December
      31,
              2007Risk-fee
      interest rate
            3.77%Expected
      life of the option
            3
      yearsExpected
      volatility
            69.03%Expected
      dividend yield
            -





The
following table summarized information about the stock options outstanding as at
March 31, 2008:





Options
      outstanding
            
            Options
      exercisableExercise
      price
            Number
      of shares
            Remaining
      contractual life (years)
            
            Number
      of shares$
      0.75
            240,000
            0.97
            
            240,000





iii.   Common
Stock Share Purchase Warrants





As at
March 31, 2008, share purchase warrants outstanding for the purchase of common
shares as follows:





Warrants
outstanding


Exercise price
            Number
      of shares
            Expiry
      date$
      1.50$
      3.00
            2,483,985727,271
            February
      1, 2010
              April
      30, 2009











F -
15
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2008


(Stated
in U.S. Dollars)





9. RELATED
PARTIES





During
the period ended March 31, 2008, the Company paid $ 41,830 (March 31, 2007 -
$25,606) for consulting fee to Companies controlled by directors and officers of
the Company.  Amounts paid to related parties are based on exchange
amounts agreed upon by those related parties.





On March
1, 2007, the Company issued to Douglas Bolen 500,000 shares of common stock in
consideration for services rendered pursuant to the consulting agreement with
Last Mountain Management, Inc. (“LMM”).  Douglas Bolen, Chief
Executive Officer of the Company, 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 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 is $137,500, which was recorded in the compensation
expense for shares granted and was included in the general and administration
expense.  These shares were issued pursuant to Section 4(2) of the
Securities Act of 1933, as amended.





10. COMPARATIVE
FIGURES





Certain
comparative figures have been reclassified to conform to the financial statement
presentation adopted in the current year.





11. COMMITMENT
AND CONTRACTURAL OBLIGATIONS





A lease
agreement for the Vancouver, Canada office commenced June 1, 2007 and terminates
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 Company in the previous month.





On March
1, 2005, the Company also rented an office in Calgary, Canada on a month to
month basis for $295 per month.














F -
16
 Table of Contents





Item 2.    Management’s
Discussion and Analysis of Financial Condition and Results of
Operations




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




Although
forward-looking statements in this Quarterly Report on Form 10-Q reflect the
good faith judgment of our management, such statements can only be based on
facts and factors currently known by us. Consequently, forward-looking
statements are inherently subject to risks and uncertainties and actual results
and outcomes may differ materially from the results and outcomes discussed in or
anticipated by the forward-looking statements.  We caution the reader
that numerous important factors, including those factors discussed in our Annual
Report on Form 10-KSB for the fiscal year ended December 31, 2007,
which are incorporated herein by reference, could affect the our actual results
and could cause our actual consolidated results to differ materially from those
expressed in any forward-looking statement made by, or on behalf of, Delta
Oil.  Readers are urged not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Quarterly
Report on Form 10-Q. We file reports with the Securities and Exchange Commission
(the “SEC” or “Commission”). We make
available on our website under "Investors/SEC Filings,” free of charge, our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports as soon as reasonably practicable after
we electronically file such materials with or furnish them to the SEC. Our
website address is www.deltaoilandgas.com. You can also read and copy any
materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth
Street, NW, Washington, DC 20549. You can obtain additional information about
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
In addition, the SEC maintains an internet site (www.sec.gov) that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC, including us.




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




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




4
 Table of Contents


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 acreage in Palmetto Point, Mississippi;
Southern Saskatchewan, Canada; the Southern Alberta Foothills area in Canada;
and South Central, Oklahoma.





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 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 20% working interest in a property known as Todd Creek and a 10%
working interest in a property known as 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
(8,800 acres) in Todd Creek for the purchase price of $597,263 from
Win.  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 (the “13-28 well”) and it was evaluated and tested. The operator
encountered gas reservoirs and this well was tied into a newly constructed gas
processing plant and production commenced in September 2006.


5
 Table of Contents


The
revenue received from this well was $18,088 for the year ended December 31,
2007.  Our monthly costs related to our interest in the 13-28
well  exceeded the royalties we received and as a result, we abandoned
our interest in this well in the fourth quarter of 2007.





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 (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 plugged and 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 from Win. We anticipate
that a test well will be drilled on our property interest during the second
quarter of 2008, 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 had the right to acquire an oil and gas leasehold interests in certain
lands located in Section 9, Township 38, Range 9, West of the 5th
Meridian, Alberta, Canada (“Section 9”) upon incurring expenditures for drilling
and testing on the property. In exchange for us paying 4.0% of all costs
associated with drilling, testing, and completing the test well on the property
which we refer to as the Leduc formation test well, we will have
earned:





a)
            in
      the Spacing Unit for the Earning
Well:





i)
            a
      2.0% interest in the petroleum and natural gas below the base of the
      Mannville, excluding natural gas in the Leduc formation;
    and





ii)
            a
      4.0% interest in the natural gas in the Leduc formation before payout,
      subject to payment of the Overriding Royalty which is convertible upon
      payout at royalty owners option to 50% of our Interest;
  and





b)
            a
      1.6% 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 on the 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


6
 Table of Contents


drilling
costs of $41,231.  We have incurred no additional drilling costs since
the three months ended September 30, 2007.





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





Palmetto Point Prospect - 12
Wells Phase - I





On
February 21, 2006, we entered into an agreement (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, we anticipate that 3 wells will be producing and are currently
waiting to be tied into the pipeline, and 2 wells were not commercially viable
and were plugged and abandoned. We refer to this drilling program as Palmetto
Point Phase I.  Total revenue received from these wells for the three
months ended March 31, 2008 was $13,573, as compared with $7,262 in revenues for
the three months ended March 31, 2007.





In
October 2007, as part of Phase I, we drilled a well (the "PP F-12") on the
prospect.  Subsequent testing revealed that the PP F-12 well contained
oil reserves suitable for commercial production.  The PP F-12 well
began producing on October 2, 2007.   This well is situated in
what is known as the Belmont Lake Oil Field.  Based on the positive
results from the PP F-12 well, the operator suggested drilling an additional two
development wells in the immediate vicinity in which we would
participate.  In November 2007, we participated in the drilling of a
step-out well from the PP F-12 (the “PP F-12 #2”).  This well was
drilled to total depth, logged, tested and cased.   The PP F-12
#2 encountered approximately 3 feet of hydrocarbon showings and as such the
operator recommended re-entering the well and directionally drilling on an angle
toward the PP F-12.  Upon completion and testing of this re-entry (the
“PP F-12 #2-3”), the operator encountered approximately 32 feet of hydrocarbon
pay and the well was connected to a nearby pipeline and is currently producing
oil.  Total revenue received from these two oil wells for the three
months ended March 31, 2008 was $35,524, as compared to $0 for the three months
ended March 31, 2007.


7
 Table of Contents


Palmetto Point Prospect - 50
wells – Phase II





During
the fiscal quarter ended September 30, 2006, we entered into a joint venture
agreement to acquire an interest in a drilling program comprised of up to 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 September 2006. The site of the
first 20 wells is located within range to tie into existing pipeline
infrastructure should the wells be suitable for commercial production. The
drilling program was conducted by Griffin in its capacity as operator. We agreed
to pay 10% of all prospect fees, mineral leases, surface leases, and drilling
and completion costs to earn a net 8.0% share of all production zones to the
base of a geological formation referred to as the Frio formation and 7.5% of all
production to the base of a geological formation referred to as the Wilcox
formation. The cost during the quarter ending September 30, 2006 amounted to
$100,000. During the fourth quarter of fiscal 2006, we made additional payments
of $300,000 that was employed in the further development of prospects on lands
in Mississippi and Louisiana in accordance with the terms of the operating
agreement. We did not incur any additional payments other than drilling costs
for these prospects in 2007.  We do not anticipate that we will incur
any additional payments other than drilling costs for these prospects going
forward.





We
drilled seven wells of which two have been abandoned (the Dixon #1 and the
Randall #1).  Our costs attributable to these two abandoned wells was
$67,523. Of the successful four wells, the Redbug #1, Redbug #2 and the Buffalo
River #1 began producing in the three months ended March 31, 2008 and the Faust
#1, is awaiting connection to the nearby pipeline for production. The revenue
received from these wells for the quarter ended March 31, 2008 was
$25,018.





Wordsworth
Prospect





On April
10, 2006, we entered into a farmout, option and participation letter agreement
(“FOP Agreement”) where we acquired a 15% working interest in certain leasehold
interests located in southeast Saskatchewan, Canada referred to as the
Wordsworth area for the purchase price of $152,724. We are responsible for our
proportionate share of the costs associated with drilling, testing, and
completing the first test well on the property. In exchange for us paying our
proportionate share of the costs associated with drilling, testing, and
completing the first test well on the property, we earned a 15% working interest
before payout and a 7.5% working interest after payout on the Wordsworth
prospect. Payout refers to the return of our initial investment in the property.
In addition, we also acquired an option to participate and acquire a working
interest in a vertical test well drilled to 1200 meters to test the
Mississippian (Alida) formation in LSD 13 of section 24, township 7, range 3
W2.  Our total costs as at December 31, 2007 was
$222,649.





During
June 2006, the first well was drilled to a horizontal depth of 2033 meters in
the Wordsworth prospect. The initial drilling of this well and subsequent
testing revealed that this well contained oil reserves suitable for commercial
production. In June 2006, this initial well began producing as an oil well. The
revenue received from this well for the three months ended March 31, 2008 was
$29,430, as compared to $50,139 for the three months ended March
31,


8
 Table of Contents


2007.  The
reduction in revenue was caused by the reduction in working interest from 15% to
7.5% after payout.





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





The
operator has recently recommended re-entering the second horizontal well with a
view to drilling horizontally in a different direction starting at the base of
the vertical portion of that well. We have elected to participate in this
re-entry on the same terms and conditions as the previous wells.  This
well was drilled, at a cost of $33,812, in April 2008, however, no economic
hydrocarbons were found and hence it will be plugged and abandoned. The budget
of anticipated costs for each of the wells will be sent to us on an well-by-well
basis and upon receipt of each budget we will determine if we will
participate.





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 (the “Powell #2”).  The
Powell #2 was drilled to total depth of 5,617 feet on May 18, 2006 and underwent
testing. Based upon the positive result of the testing of the Powell #2, this
well was completed and commercial production commenced in August
2006.  Under the terms of the Assignment Agreement, we are responsible
for our proportionate share of the costs of completion and tie-in for production
of the Powell #2 which was $68,987.  Initially, the Powell #2 began
flowing oil and natural gas under its own pressure without the assistance of a
pump.  Revenue generated from the Powell #2 for the three months ended
March 31, 2008 was $76,569, as compared to $76,603 for the three months ended
March 31, 2007.





As part
of the Assignment Agreement, we were granted an option to earn a 20% working
interest in any future wells drilled on the 1,120 acres of land, which make up
the Owl Creek Prospect. Lastly, we received an option to earn a 20% working
interest in any future wells to be drilled on any land of mutual interest
acquired by the Owl Creek participants in and around the same area. The working
interest in future wells is earned by paying 20% of the costs of drilling and
completing each additional well.  Prior to drilling, we are provided
an invoice for the anticipated costs of each proposed well and given the option
to participate.





Based
upon the positive results of the Powell #2, an additional well (the “Isbill
#1-36”) was drilled and reached targeted depth in September 2006. However, test
results showed that the well


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was not
commercially viable and it was plugged and abandoned in September
2006.  Costs of $80,738 were transferred to proved reserves and
subsequently depleted in accordance with our accounting policy.





In
January 2007, we commenced drilling of another well (the “Isbill #2-36”). Our
20% working interest in the Isbill #2-36 cost $157,437 for both drilling and
completion. The Isbill #2-36 was drilled to approximately 5,900 feet and
encountered two potential pay zones and is a direct offset well to the Powell #2
which is currently producing. The revenue received from the Isbill #2-36 for the
three months ended March 31, 2008 was $55,085.





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.





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





Three
other wells drilled (the “Elizabeth #1-25”, the “Plaster #1-1” and the “Dale #1
re-entry”) were deemed by the operator to be commercially viable and production
casing was set in each.    The Elizabeth #1-25 located in
the Meridian Prospect cost $99,129, the Plaster #1-1 located in the Plaster
Prospect cost $116,581, and re-entry into the Dale #1 located in the Dale
Prospect cost $18,150.  Subsequent to the completion of these wells,
two remain economically viable at this time.  The Plaster #1
encountered hydrocarbon showings and is producing natural gas with amounts of
associated oil as of January, 2008. The Dale #1 re-entry has been producing in
the range of 2 to 3 barrels of oil per day. The Elizabeth #1-25 has been plugged
and abandoned.  Total revenue received form these wells for the
quarter ended March 31, 2008 was $4,075 compared to $0 for the corresponding
period last year.





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





2007-1 Drilling Program - 3
Wells





On
September 10, 2007, we entered into an agreement with Ranken Energy 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 for $77,100. Drilling of the first and second wells
(the “Pollock #1-35” and the “Hulsey #1”) has been completed in the N.E. Anitoch
Prospect and the Washington Creek Prospect
respectively.  The


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Pollock
#1-35 did not prove to be commercially viable but the Hulsey #1 has been
producing in the range of 50 to 60 barrels of oil per day with approximately 50
Mcf of natural gas per day.  Drilling has commenced on the third well
in this drilling program (the “River #1”).  This well has been drilled
in the West Riverbend Prospect and we expect testing to be completed before the
end of June 2008.   Hulsey #1-8 started producing during the
period and the total received for the three month period ended March 31, 2008
was $5,601, as compared to $0 for the three months ended March 31,
2007.





Results
of Operations for the three months ended March 31, 2008 and 2007





For the
quarter ended March 31, 2008, our revenues generated from natural gas and oil
sales increased to $277,290 from revenues of $147,504 for the quarter ended
March 31, 2007 an increase of 88%. The increase in revenue is attributable
to revenues received from the Owl Creek and Palmetto prospects.  In
particular, additional wells commenced production in the fourth quarter of 2007
from Owl Creek and Palmetto Point.





We
incurred costs and expenses in the amount of $614,859 for the quarter ended
March 31, 2008, compared to costs and expenses of $789,146 for the prior period,
a decrease of 22%. Despite increases in certain costs and expense categories,
the decrease in expenses was attributable to a decrease in administrative costs
described below:





·
            General
      and administrative costs decreased to $86,293 from $619,423 in the prior
      year, a decrease of 86%.  The decrease in administrative costs
      was caused by an reduction in stock based compensation expense of $527,507
      which resulted from issuances of stock options and common
      shares;


·
            Natural
      gas and oil operating costs increased to $63,405 from $35,744 for the
      prior period, an increase of 77%, as additional wells produced
      hydrocarbons and the wells were in production for the three months ended
      March 31, 2008 that were not in production for the three months ended
      March 31, 2007;


·
            Depreciation
      and depletion expense increased to $98,437 from $133,979 in 2007, a
      decrease of 27%, as production depleted the wells for 3 months and there
      was a reduction in uneconomic wells compared to the corresponding period
      ended March 31, 2007; and


·
            Impairment
      of natural gas and oil properties expense increased to $363,370 from $0 in
      2007, as increase of 100%, as costs associated with our working interests
      in Strachan, Alberta, Canada were impaired due to our evaluation that the
      costs associated with these prospects are highly unlikely to be
      recovered.





The Net
Operating Loss for the year was $(337,569) (March 31, 2007: $(641,642) due to
the costs as explained above.





We
reported other income of $252 for the three months ended March 31, 2008, as
compared to other income of $10,739 in the three months ended March 31,
2007.





Net loss
for the quarter ended March 31, 2008 was $(337,317), compared to a net loss of
$(630,903) for the quarter ended March 31, 2007.


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





Liquidity
and Capital Resources





As of
March 31, 2008, we had total current assets of $330,071 and total current
liabilities in the amount of $115,598. As a result, we had working capital of
$214,473 as of December 31, 2007.





The
revenue we currently generate from natural gas and oil sales exceeds our
operating expenses. However, we will require additional financing activities
including issuance of our equity or debt securities to fund our operations and
proposed drilling activities for the year ended December 31, 2008. During the
three months March 31, 2008, we received $90,000 from financing activities
involving loan issuance.





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





Operating
activities generated $235,990 in cash for the three months ended March 31, 2008.
Our positive cash flow for the three months ended March 31, 2008 was caused by
the redemption of certain cash equivalents.  Investing activities
during the three months ended March 31, 2008 primarily consisted of $234,647 for
the purchase or natural gas and oil properties. Cash flows


12
 Table of Contents


provided
by financing activities during the three months ended March 31, 2008 primarily
consisted of $90,000 related to the receipt of a loan.





The
underlying drivers that resulted in material changes and the specific inflows
and outflows of cash for the three months ended March 31, 2008 are as
follows:





·
            Revenue
      received as a result of royalties from natural gas and oil producing
      properties;


·
            Property
      acquisition costs; and


·
            Financing
      from the receipt of a loan.





Off
Balance Sheet Arrangements





As of
March 31, 2008, there were no off balance sheet arrangements.





Going
Concern




As shown
in the accompanying financial statements, we have incurred a net loss of
$3,695,253 since inception. To achieve profitable operations, we require
additional capital for obtaining producing oil and gas properties through either
the purchase of producing wells or successful exploration activity. We believe
that we will be able to obtain sufficient funding to meet our business
objectives, including anticipated cash needs for working capital and is
currently evaluating several financing options. However, there can be no
assurances can be offering in this regard. As a result of the foregoing, there
exists substantial doubt about our ability to continue as a going
concern.





Critical
Accounting Policies





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





Joint
Ventures





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





Natural
Gas and Oil Properties





We
account for our oil and gas producing activities using the full cost method of
accounting as prescribed by the United States Securities and Exchange Commission
(“SEC”). Accordingly, all costs associated with the acquisition of properties
and exploration with the intent of finding proved oil and gas reserves
contribute to the discovery of proved reserves, including the costs of abandoned
properties, dry holes, geophysical costs, and annual lease rentals are
capitalized. All


13
 Table of Contents


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 March
31, 2008 and 2007, we had no overproduced imbalances.





Item
3.        Quantitative and Qualitative
Disclosures About Market Risk





Non-applicable
to smaller reporting companies pursuant to Item 305(e) of Regulation
S-K.





Item 4T.      Controls and
Procedures





Evaluation
of Disclosure Controls and Procedures





We
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of March 31, 2008.  This evaluation was
carried out under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, Mr. Douglas
Bolen.  Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, as of March 31, 2008, our
disclosure controls and procedures are effective.





Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the







14
 Table of Contents


SEC's
rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed in our reports filed under the Exchange Act is accumulated and
communicated to management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required
disclosure.





Limitations on the
Effectiveness of Internal Controls





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





Changes in Internal Control
Over Financial Reporting





There
have been no significant changes in our internal controls over financial
reporting during the quarter ended March 31, 2008 that have materially affected
or are reasonably likely to materially affect such controls.










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 Table of Contents


PART
II – OTHER INFORMATION





Item 1.         Legal
Proceedings





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





Item 1A.      Risk
Factors





Non-applicable
to smaller reporting companies.





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





We did
not issue any securities without registration under the Securities Act during
the reporting period.





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 March
31, 2008.





Item 5.    Other
Information





None





Item
6.    Exhibits





Exhibit
              Number
            Description
      of Exhibit31.1
            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










16
 Table 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:
            May
      15, 2008By: /s/  Douglas
      Bolen
              Douglas
      Bolen
              Title:Chief
      Executive Officer and DirectorDate:
            May
      15, 2008By:
      /s/ Kulwant
      SandherKulwant Sandher
              Title:Chief
      Financial Officer and Director








17