UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-KSB


[X]
              ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended December
      31, 2007[ 
       ]
              TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACTFor
      the transition period from _________ to ________Commission
      file number 000-52001




Delta
      Oil & Gas, Inc.(Name
      of small business issuer in its charter)Colorado
            91-2102350(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)2600
      144 4thAvenue.
      S.W., Calgary, Alberta Canada
            T2P
      3N4(Address
      of principal executive offices)
            (Zip
      Code)Issuer’s
      telephone number:  866-355-3644Securities
      registered under Section 12(b) of the Exchange Act:Title
      of each class
            Name
      of each exchange on which registeredNone
            Not
      ApplicableSecurities
      registered under Section 12(g) of the Exchange Act:Common Stock, par value
    $0.001(Title
      of class)





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





Check if
disclosure of delinquent filers in response to Item 405 of Regulation S-B is not
contained in this form, and no disclosure will be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [   ]





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





State
issuer’s revenue for its most recent fiscal
year.  $913,808





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the average bid and asked price of such
common equity, as of a specified date within the past 60 days.


$9,468,647 as
of January 30, 2008





State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date.   45,940,506 Common Shares as
of January 30, 2008





Transitional
Small Business Disclosure Format (Check One):  Yes
[   ]   No [X]


Table of Contents















TABLE OF
CONTENTS








PagePART
      IItem
      1.
            Description of Business
            3Item
      1A.
            Risk Factors
            14Item
      2.
            Description of Property
            20Item
      3.
            Legal Proceedings
            25Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            25PART
      IIItem
      5.
            Market for Common Equity and Related Stockholder
      Matters
            26Item
      6.
            Management’s Discussion and Analysis
            28Item
      7.
            Financial Statements
            32Item
      8.
            Changes In and Disagreements With Accountants on Accounting and
      Financial Disclosure
            33Item
      8A(T).
            Controls and Procedures
            35Item
      8B.
            Other Information
            39PART
      IIIItem
      9.
            Directors,
      Executive Officers, Promoters and Control Persons;Compliance
      With Section 16(a)
              of the Exchange Act
            35Item
      10.
            Executive Compensation
            39Item
      11.
            Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
            41Item
      12.
            Certain Relationships and Related Transactions, and Director
      Independence
            42Item
      13.
            Exhibits
            42Item
      14.
            Principal Accountant Fees and Services
            43











2
 Table of Contents


PART I




Item 1.   Descriptionof Business




This
Annual Report on Form 10-KSB (including the section regarding Management's
Discussion and Analysis of Financial Condition and Results of Operations)
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 Annual Report on Form 10-KSB.
Additionally, statements concerning future matters are forward-looking
statements.




Although
forward-looking statements in this Annual Report on Form 10-KSB 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. Factors that could cause or contribute to
such differences in results and outcomes include, without limitation, those
specifically addressed under the heading “Risks Related to Our
Business” below, as well as those discussed elsewhere in this Annual
Report on Form 10-KSB. Readers are urged not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-KSB. 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-KSB, quarterly reports on Form 10-QSB, 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
Annual Report on Form 10-KSB. 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.







3
 Table of Contents


Business
Development





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





Business
of Issuer





We are an
exploration company focused on developing North American oil and natural gas
reserves. Our current focus is on the exploration of our land portfolio
comprised of working interests in 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.


4
 Table of Contents


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.





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
during 2007 exceeded the royalties we received.  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.





Cache Slough
Prospect





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





Drilling
of the first well on this property commenced in July of 2005. Preliminary drill
logs indicated that this is a potential gas well and the operator then completed
the well for testing. Preliminary testing resulted in the potential discovery of
natural gas and the operator elected to complete the well. Based on the
preliminary testing from the first well drilled on this property, a second well
was drilled on this property to a targeted depth of 5,500 feet. The total costs
associated with these two wells was $438,841.





In
November 2006, we assigned all of our interest in the Cache Slough Prospect in
exchange for $1,500,000.





5
 Table of Contents


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 drilling costs
of $41,231.





Based on
results indicating the presence of a potential gas well, the operator inserted
casing into the total depth of the well in July 2006 and have committed to
perform a full testing program. We are awaiting information from the operator as
to when the full testing program will be completed. If the additional testing
returns positive results, this well will be tied a nearby pipeline to
accommodate the natural gas production.





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.


6
 Table of Contents


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 year
ended December 31, 2006 was $17,485 compared with $128,785 in revenues for the
year ended December 31, 2007.





In
October 2007, as part of Palmetto Point Phase I, we drilled a well (the "PP
F-12") on the prospect.  Subsequent testing revealed that the PP F-12
well contained oil reserves suitable for commercial production.  The
PP F-12 well began producing on October 2, 2007.   This well is
situated in what is known as the Belmont Lake Oil Field.  Based on the
positive results from the PP F-12 well, the operator suggested drilling an
additional two development wells in the immediate vicinity in which we would
participate.  In November 2007, we participated in the drilling of a
step-out well from the PP F-12 (the “PP F-12 #2”).  This well was
drilled to total depth, logged, tested and cased.   The PP F-12
#2 encountered approximately 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.





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
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 five wells, the Redbug #1 (CMR USA) and the Faust #1
(TEC#1) are producing and the Buffalo River #1, the Redbug #2 and the Buffalo
River #2 are awaiting connection to the nearby pipeline for production. The
revenue received from the CMR USA and TEC#1 wells for the year ended December
31, 2007 was $13,045.





7
 Table of Contents


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.
Revenue generated from this well for the year ended December 31, 2006 was
$223,613. The revenue received from this well for the year ended December 31,
2007 was $131,213.





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 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.  We expect
this well to be drilled in the second quarter of 2008. 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 this


8
 Table of Contents


well
for the year ended December 31, 2006 was $265,062. Revenue generated from the
Powell #2 for the year ended December 31, 2007 was $481,584.





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





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





In
January 2007, we commenced drilling of another well (the “Isbill #2-36”). Our
20% working interest in the Isbill #2-36 cost $157,437 for both drilling and
completion. The Isbill #2-36 was drilled to approximately 5,900 feet and
encountered two potential pay zones and is a direct offset well to the Powell #2
which is currently producing. The revenue received from the Isbill #2-36 for the
year ended December 31, 2007 was $141,042.





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.





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.


9
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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 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 is being drilled
in the West Riverbend Prospect and we expect drilling and testing to be
completed before the end of April 2008.





Market
for Our Products and Services





Each oil
and gas working interest that we now own and those that we may later acquire a
percentage of interest in will have an operator who will be responsible for
marketing production.





The
availability of a ready market for oil and gas and the prices of such oil and
gas depend upon a number of factors which are beyond our control. These include,
among other things:




·
              the
      level of domestic production;
 
 ·
              actions
      taken by foreign oil and gas producing
nations;
 
 ·
              the
      availability of pipelines with adequate
  capacity;
 
 ·
              the
      availability and marketing of other competitive
  fuels;
 
 ·
              fluctuating
      and seasonal demand for oil, gas and refined products; and·
              the
      extent of governmental regulation and taxation (under both present and
      future legislation) of the production, importation, refining,
      transportation, pricing, use and allocation of oil, gas, refined products
      and alternative fuels.




In view
of the many uncertainties affecting the supply and demand for crude oil, gas and
refined petroleum products, it is not possible to predict accurately the prices
or marketability of the gas and oil produced for sale.




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 Table of Contents


Competition




The oil
and natural gas industry is intensely competitive, and we compete with other
companies that have greater resources. Many of these companies not only explore
for and produce oil and natural gas, but also carry on midstream and refining
operations and market petroleum and other products on a regional, national or
worldwide basis. These companies may be able to pay more for productive oil and
natural gas properties and exploratory prospects or define, evaluate, bid for
and purchase a greater number of properties and prospects than our financial or
human resources permit. In addition, these companies may have a greater ability
to continue exploration activities during periods of low oil and natural gas
market prices. Our larger or integrated competitors may be able to absorb the
burden of existing, and any changes to, federal, state, local and tribal laws
and regulations more easily than we can, which would adversely affect our
competitive position. Our ability to acquire additional properties and to
discover reserves in the future will be dependent upon our ability to evaluate
and select suitable properties and to consummate transactions in a highly
competitive environment. In addition, because we have fewer financial and human
resources than many companies in our industry, we may be at a disadvantage in
bidding for exploratory prospects and producing oil and natural gas
properties.





Patents,
Licenses, Trademarks, Franchises, Concessions, Royalty Agreements, or Labor
Contracts





We do not
own, either legally or beneficially, any patent or trademark.





Research
and Development





We did
not incur any research and development expenditures in the fiscal years ended
December 31, 2007 or 2006.




Existing
and Probable Governmental Regulation




We
monitor and comply with current government regulations that affect our
activities, although our operations may be adversely affected by changes in
government policy, regulations or taxation. There can be no assurance that we
will be able to obtain all of the necessary licenses and permits that may be
required to carry out our exploration and development programs. It is not
expected that any of these controls or regulations will affect our operations in
a manner materially different than they would affect other natural gas and oil
companies operating in the areas in which we operate.




United
States Government Regulation




The
United States federal government and various state and local governments have
adopted laws and regulations regarding the protection of human health and the
environment. These laws and regulations may require the acquisition of a permit
by operators before drilling commences, prohibit drilling activities on certain
lands lying within wilderness areas, wetlands, or where pollution might cause
serious harm, and impose substantial liabilities for pollution resulting from
drilling operations, particularly with respect to operations in onshore and
offshore waters or on submerged lands. These laws and regulations may increase
the costs of drilling and operating wells. Because these laws and regulations
change frequently, the costs of compliance with existing and future
environmental regulations cannot be predicted with certainty.


11
 Table of Contents


The
transportation and certain sales of natural gas in interstate commerce are
heavily regulated by agencies of the federal government. Production of any oil
and gas by properties in which we have an interest will be affected to some
degree by state regulations. States have statutory provisions regulating the
production and sale of oil and gas, including provisions regarding
deliverability. Such statutes and the regulations are generally intended to
prevent waste of oil and gas and to protect correlative rights to produce oil
and gas between owners of a common reservoir. State regulatory authorities may
also regulate the amount of oil and gas produced by assigning allowable rates of
production to each well or pro-ration unit.





Any
exploration or production on Federal land will have to comply with the Federal
Land Management Planning Act which has the effect generally of protecting the
environment. Any exploration or production on private property whether owned or
leased will have to comply with the Endangered Species Act and the Clean Water
Act. The cost of complying with environmental concerns under any of these acts
varies on a case by case basis. In many instances the cost can be prohibitive to
development. Environmental costs associated with a particular project must be
factored into the overall cost evaluation of whether to proceed with the
project.




Canadian
Government Regulation




The
natural gas and oil industry is subject to extensive controls and regulations
imposed by various levels of government. It is not expected that any of these
controls or regulations will affect our operations in a manner materially
different than they would affect other natural gas and oil companies of similar
size.




Pricing
and Marketing Natural Gas




In
Canada, the price of natural gas sold in interprovincial and international trade
is determined by negotiation between buyers and sellers. Natural gas exported
from Canada is subject to regulation by the NEB and the Government of Canada.
Exporters are free to negotiate prices and other terms with purchasers, provided
that the export contracts continue to meet certain criteria prescribed by the
NEB and the Government of Canada. Natural gas exports for a term of less than
two years or for a term of two to 20 years (in quantities of not more than
30,000 m3/day)
must be made pursuant to an NEB order. Any natural gas export to be made
pursuant to a contract of longer duration (to a maximum of 25 years) or a larger
quantity requires an exporter to obtain an export license from the NEB and the
issue of such a license requires the approval of the Governor in
Council.




The
government of Alberta also regulates the volume of natural gas that may be
removed from the province for consumption elsewhere based on such factors as
reserve availability, transportation arrangements and market
considerations.




12
 Table of Contents


Royalties
and Incentives




In
addition to federal regulation, each province has legislation and regulations
that govern land tenure, royalties, production rates, environmental protection
and other matters. The royalty regime is a significant factor in the
profitability of natural gas and oil production. Royalties payable on production
from lands other than Crown lands are determined by negotiations between the
mineral owner and the lessee. Crown royalties are determined by government
regulation and are generally calculated as a percentage of the value of the
gross production, and the rate of royalties payable generally depends in part on
prescribed reference prices, well productivity, geographical location, field
discovery date and the type or quality of the petroleum product
produced.




Land
Tenure




Crude
natural gas and oil located in the western provinces is owned predominantly by
the respective provincial governments. Provincial governments grant rights to
explore for and produce natural gas and oil pursuant to leases, licenses and
permits for varying terms from two years and on conditions set forth in
provincial legislation including requirements to perform specific work or make
payments. Natural gas and oil located in such provinces can also be privately
owned and rights to explore for and produce such natural gas and oil are granted
by lease on such terms and conditions as may be negotiated.





Compliance
with Environmental Laws





We did
not incur any costs in connection with the compliance with any federal, state,
or local environmental laws. However, costs could occur at any time through
industrial accident or in connection with a terrorist act or a new project.
Costs could extend into the millions of dollars for which we could be totally
liable. In the event of liability, we believe we would be entitled to
contribution from other owners so that our percentage share of a particular
project would be the percentage share of our liability on that project. However,
other owners may not be willing or able to share in the cost of the liability.
Even if liability is limited to our percentage share, any significant liability
would wipe out our assets and resources.





Employees





We have
no employees other than our Chief Executive Officer, Mr. Douglas Bolen, and our
Chief Financial Officer, Mr. Kulwant Sandher.





13
 Table of Contents


Item 1A.   Risk Factors





Because
we have experienced operating losses since inception, it is uncertain when, if
ever, we will have significant operating income or cash flow from operations
sufficient to sustain operations.





We
suffered net losses since our inception, including net losses of $2,038,370 for
the year ended December 31, 2007 and $234,763 for the year ended
December 31, 2006. These losses are the result of an inadequate revenue
stream to compensate for our operating and overhead costs. The volatility
underlying the early stage nature of our business and our industry prevents us
from accurately predicting future operating conditions and results, and we could
continue to have losses. It is uncertain when, if ever, we will have significant
operating income or cash flow from operations sufficient to sustain operations.
If cash needs exceed available resources additional capital may not be available
through public or private equity or debt financings. If we are unable to arrange
new financing on terms that are acceptable to us or generate sufficient revenue
from our prospects, we will be unable to continue in our current form and our
business will fail.





If
we are unable to obtain additional funding, we may be unable to expand our
acquisition, exploration and production of natural oil and gas
properties.





We will
require additional funds to expand our acquisition, exploration and production
of natural oil and gas properties. Our management anticipates that current cash
on hand may be insufficient to fund our 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
implement our overall business strategy. There can be no assurance that
financing will be available in amounts or on terms acceptable to us, if at all.
The inability to obtain additional capital will restrict our ability to grow and
may reduce our ability to continue to conduct current business operations. If we
are unable to obtain additional financing when sought, we will be unable to
acquire additional properties and may also be required to curtail our business
plan. Any additional equity financing may involve substantial dilution to our
then existing shareholders.





Because
exploration, development and drilling efforts are subject to many risks, the
operation of our wells may not be profitable or achieve our targeted
returns.





Exploration,
development, drilling and production activities are subject to many risks,
including the risk that commercially productive reservoirs will not be
discovered. We seek to acquire working interests in properties which we believe
will result in projects that will add value over time. However, we cannot
guarantee that all of our prospects will result in viable projects or that we
will not abandon these properties. Additionally, we cannot guarantee that any
undeveloped acreage we have an interest in will be profitably developed, that
new wells drilled will be productive or that we will recover all or any portion
of our investment in such acreage or wells. Drilling for oil and natural gas may
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 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.





14
 Table of Contents


Because
our oil and natural gas reserve data is independently estimated, these estimates
may still prove to be inaccurate.





Our
reserve estimates are generated each year by an independent consultant. In
conducting its evaluation, the consultant evaluates our properties and
independently develops proved reserve estimates. There are numerous
uncertainties and risks that are inherent in estimating quantities of oil and
natural gas reserves and projecting future rates of production and timing of
development expenditures as many factors are beyond our control. Many factors
and assumptions are incorporated into these estimates including: expected
reservoir characteristics based on geological, geophysical and engineering
assessments;





·
            future
      production rates based on historical performance and expected future
      operating and investment
activities;


·
            future
      oil and gas prices and quality and location differentials;
    and


·
            future
      development and operating costs.





Although
we believe the independent consultant’s reserve estimates are reasonably based
on the information available to them at the time they prepare their estimates,
our actual results could vary materially from these estimated quantities of
proved oil and natural gas reserves (in the aggregate and for a particular
location), production, revenues, taxes and development and operating
expenditures. In addition, these estimates of reserves may be subject to
downward or upward revision based upon production history, results of future
exploration and development, prevailing oil and natural gas prices, operating
and development costs and other factors.





Because
we cannot control activities on our properties, we may experience a reduction or
forfeiture of our interests in some of our non-operated projects as a result of
our potential failure to fund capital expenditure requirements.





We do not
operate the properties in which we have a working 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. The success and timing of drilling, development and
exploitation activities on properties operated by others depend on a number of
factors that are beyond our control, including the operator’s expertise and
financial resources, approval of other participants for drilling wells and
utilization of technology. In addition, if we are not willing or able to fund
our capital expenditures relating to such projects when required by the majority
owner or operator, our interests in these projects may be reduced or
forfeited.





Because
we are subject to various governmental regulations and environmental risks, we
may incur substantial costs to remain in compliance.





From time
to time, in varying degrees, political developments and U.S. federal and state
and Canadian federal and provincial laws and regulations affect our operations.
In particular, price controls, taxes and other laws relating to the oil and
natural gas industry, changes in these laws and changes in administrative
regulations could affect oil and natural gas production, operations and
economics. We cannot predict how agencies or courts will interpret existing laws
and regulations or the effect of these adoptions and interpretations may have on
our business or financial condition.


15
 Table of Contents


Our
business is subject to laws and regulations promulgated by U.S. federal, state
and local authorities and Canadian federal, provincial, and local authorities
relating to the exploration for, and the development, production and marketing
of, oil and natural gas, as well as safety matters. Legal requirements are
frequently changed and subject to interpretation and we are unable to predict
the ultimate cost of compliance with these requirements or their effect on our
operations. We may be required to make significant expenditures to comply with
governmental laws and regulations.





Our
operations are subject to complex U.S. federal, state and local and Canadian
federal state and provincial environmental laws and regulations. Environmental
laws and regulations change frequently, and the implementation of new, or the
modification of existing, laws or regulations could harm us. The discharge of
natural gas, oil, or other pollutants into the air, soil or water may give rise
to significant liabilities on our part to the government and third parties and
may require us to incur substantial costs of remediation.





Because
our business is subject to operating hazards, our business may be adversely
affected by the occurrence of any such hazards.





Our
operations are subject to risks inherent in the oil and natural gas industry,
such as:





·
            unexpected
      drilling conditions including blowouts and
  explosions;


·
            uncontrollable
      flows of oil, natural gas or well
fluids;


·
            equipment
      failures, fires or accidents;


·
            pollution
      and other environmental risks; and


·
            shortages
      in experienced labor or shortages or delays in the delivery of
      equipment.





These
risks could result in substantial losses to us from injury and loss of life,
damage to and destruction of property and equipment, pollution and other
environmental damage and suspension of operations. Our operations are also
subject to a variety of operating risks such as adverse weather conditions and
more extensive governmental regulation. These regulations may, in certain
circumstances, impose strict liability for pollution damage or result in the
interruption or termination of operations.





In
the event that we are unable to successfully compete within our industry, we may
not be able to achieve profitable operations.





We
operate in the highly competitive areas of oil and natural gas exploration,
development, acquisition and production. Factors that affect our ability to
compete successfully in the marketplace include:





·
            seeking
      to acquire desirable producing properties or new leases for future
      exploration;


·
            the
      availability of funds and information relating to a property;
      and


·
            marketing
      of oil and natural gas production;





Our
competitors include major integrated oil companies, substantial independent
energy companies, and affiliates of major interstate and intrastate pipelines
and national and local natural gas gatherers, many of which possess greater
financial and other resources than we do. If we are unable to successfully
compete against our competitors, our business, prospects, financial condition
and results of operation may be adversely affected.





16
 Table of Contents


Due
to numerous factors beyond our control which could affect the marketability of
oil and natural gas, we may experience difficulty selling any oil and natural
gas.





The
availability of markets and the volatility of product prices are beyond our
control and represent a significant risk. The marketability of our production
depends upon the availability and capacity of natural gas gathering systems,
pipelines and processing facilities. The unavailability or lack of capacity of
these systems and facilities could result in the shut-in of producing wells or
the delay or discontinuance of development plans for properties. Our ability to
generate revenue from oil and natural gas sales also depends on other factors
beyond our control. These factors include:





·
            the
      level of domestic production and imports of oil and natural
      gas;


·
            the
      proximity of natural gas production to natural gas
    pipelines;


·
            the
      availability of pipeline capacity;


·
            the
      demand for oil and natural gas by utilities and other end
      users;


·
            the
      availability of alternate fuel
sources;


·
            the
      effect of inclement weather, such as
hurricanes;


·
            state
      and federal regulation of oil and natural gas marketing;
    and


·
            federal
      regulation of natural gas sold or transported in interstate
      commerce.





If
these factors were to change dramatically, our ability to generate revenues from
oil and natural gas sales or obtain favorable prices for our oil and natural gas
could be adversely affected.





If
we are unable to successfully identify, execute or effectively integrate new
prospects, our results of operations may be negatively
affected.





Acquisitions
of working interest in oil and gas properties have been an important element of
our business, and we will continue to pursue acquisitions of new prospects in
the future. In the last year, we have pursued and consummated the acquisition
and drilling of new propsects that have provided us opportunities to grow our
production and reserves. Although we regularly engage in discussions with, and
submit proposals to, acquisition candidates, suitable acquisitions may not be
available in the future on reasonable terms. If we do identify an appropriate
acquisition candidate, we may be unable to successfully negotiate the terms of
an acquisition, finance the acquisition or, if the acquisition occurs,
effectively integrate the acquired business into our existing business.
Negotiations of potential acquisitions and the integration of acquired business
operations may require a disproportionate amount of management’s attention and
our resources. Even if we complete additional acquisitions, continued
acquisition financing may not be available or available on reasonable terms, any
new properties may not generate revenues comparable to our existing properties,
the anticipated cost efficiencies or synergies may not be realized and these
properties may not be integrated successfully or operated profitably. The
success of any acquisition will depend on a number of factors, 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. Our inability to successfully
identify, execute or effectively integrate future acquisitions may negatively
affect our results of operations.





Even
though we perform a due diligence reviews (including a review of title and other
records) of the properties we seek to acquire that we believe is consistent with
industry practices, these reviews are inherently incomplete. Even an in-depth
review of records and properties may not necessarily reveal existing or
potential problems or permit us to become familiar enough with the properties to
assess fully


17
 Table of Contents


their
deficiencies and potential. Even when problems are identified, we may assume
certain environmental and other risks and liabilities in connection with the
acquired properties. The discovery of any material liabilities associated with
our acquisitions could harm our results of operations. In addition, acquisitions
of working interests may require additional debt or equity financing, resulting
in additional leverage or dilution of ownership.





Because
we presently do not carry liability or title insurance and do not plan to secure
any in the future, we are vulnerable to excessive potential claims and loss of
title.





We do not
maintain insurance against public liability, environmental risks or title. The
possibility exists that title to existing properties or future prospective
properties may be lost due to an omission in the claim of title. As a result,
any claims against us may result in liabilities we will not be able to afford
resulting in the failure of our business.





Because
our chief executive officer does not have any significant training and/or
experience in oil and natural gas exploration, development, acquisition and
production, our financial success could suffer irreparable harm as a result of
their decisions and choices.





Mr.
Douglas Bolen, our chief executive officer, does not have any significant
training or experience with oil and natural gas exploration, development,
acquisition and production. With no direct training or experience in these
areas, our chief executive officer may not be fully aware of many of the
specific requirements related to working within this industry. Our management’s
decisions and choices may fail to take into account standard engineering or
managerial approaches oil and gas companies commonly utilize. Consequently, our
operations, earnings, and ultimate financial success could suffer irreparable
harm due to management’s lack of experience in this industry.





Because
our executive officers do not  provide services on a full-time basis,
they may not be able or willing to devote a sufficient amount of time to our
business operations, causing our business to fail.





Mr.
Bolen, our chief executive officer, and Mr. Sandher, our chief financial
officer, do not provide services to us on a full-time basis. We do not maintain
key man life insurance policies for our executive officers. Currently, we do not
have any employees other than our executive officers. If the demands of our
business require the full business time of Messrs. Bolen and Sandher, it is
possible that Messrs. Bolen and/or Sandher may not be able to devote sufficient
time to the management of our business, as and when needed. If our management is
unable to devote a sufficient amount of time to manage our operations, our
business will fail.




Because
our directors and officers may serve as directors or officers of other
companies, they may have a conflict of interest in making decisions for our
business.




Our
directors and officers may serve as directors or officers of other companies or
have significant shareholdings in other oil and gas companies and, to the extent
that such other companies may participate in ventures in which we may
participate, our directors and officers may have a conflict of interest in
negotiating and concluding terms respecting the extent of such participation.
 In the event that such a conflict of interest arises at a meeting of our
directors, a director who has such a conflict will abstain from voting for or
against the approval of such participation or such terms.  In determining
whether or not we will participate in a particular program and the interest
therein to be acquired by us, our directors will primarily consider the degree
of risk to which we may be exposed and our financial position at that
time.




18
 Table of Contents




Because
our auditor has raised substantial doubt about our ability to continue as a
going concern, our business has a high risk of failure.





As noted
in our financial statements, we have only recently commenced operations. The
audit report of Telford Sadovnick, P.L.L.C., Certified Public Accountants issued
a going concern opinion and raised substantial doubt as to our continuance as a
going concern. When an auditor issues a going concern opinion, the auditor has
substantial doubt that the company will continue to operate indefinitely and not
go out of business and liquidate its assets. This is a significant risk to
investors who purchase shares of our common stock because there is an increased
risk that we may not be able to generate and/or raise enough resources to remain
operational for an indefinite period of time.





The
success of our business operations depends upon our ability to obtain additional
capital for obtaining producing oil and gas properties through either the
purchase of producing wells or successful exploration activity. We plan to seek
additional financing through debt and/or equity financing arrangements to secure
funding for our operations. There can be no assurance that such additional
financing will be available to us on acceptable terms or at all. It is not
possible at this time for us to predict with assurance the outcome of these
matters. If we are not able to successfully complete the development of our
business plan and attain sustainable profitable operations, then our business
will fail.





Because
we do not expect to pay dividends for the foreseeable future, investors seeking
cash dividends should not purchase our common stock.





We have
never declared or paid any cash dividends on our common stock. We currently
intend to retain future earnings, if any, to finance the expansion of our
business. As a result, we do not anticipate paying any cash dividends in the
foreseeable future. Our payment of any future dividends will be at the
discretion of our board of directors after taking into account various factors,
including but not limited to our financial condition, operating results, cash
needs, growth plans and the terms of any credit agreements that we may be a
party to at the time. Accordingly, investors must rely on sales of their own
common stock after price appreciation, which may never occur, as the only way to
realize their investment. Investors seeking cash dividends should not purchase
our common stock.





Because
our common stock is quoted on the over-the-counter bulletin board administered
by the NASD and is subject to the “Penny Stock” rules, the level of trading
activity in our stock may be reduced.





Broker-dealer
practices in connection with transactions in "penny stocks" are regulated by
penny stock rules adopted by the Securities and Exchange Commission. Penny
stocks generally are equity securities with a price of less than $5.00 (other
than securities registered on some national securities exchanges or quoted on
the over-the-counter bulletin board administered by the NASD). The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document that provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and,
if the broker-dealer is the sole market maker, the broker-dealer must disclose
this fact and the broker-dealer's presumed control over the market, and monthly
account statements showing the market value of each penny stock held in the
customer's account. In addition, broker-dealers who sell these securities to
persons other than established customers and "accredited investors" must make
a


19
 Table of Contents


special
written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to the transaction.
Consequently, these requirements may have the effect of reducing the level of
trading activity, if any, in the secondary market for a security subject to the
penny stock rules, and investors in our common stock may find it difficult to
sell their shares.





Item 2.   Description of Property





Our
principal executive offices are located at Suite 1600, 144 4th Avenue
S.W., Calgary, Alberta T2P 3N4 and we pay $243 per month for this
location.





Reported
Reserves





Below are
estimates of our net Proved Reserves and the present value of estimated future
net revenues from such Reserves based upon the standardized measure of
discounted future net cash flows relating to proved oil and gas reserves in
accordance with the provisions of Statement of Financial Accounting Standards
No. 69, "Disclosures about Oil and Gas Producing Activities" (SFAS No. 69). The
standardized measure of discounted future net cash flows is determined by using
estimated quantities of Proved Reserves and the periods in which they are
expected to be developed and produced based on period-end economic conditions.
The estimated future production is priced at period-end prices, except where
fixed and determinable price escalations are provided by contract. The resulting
estimated future cash inflows are then reduced by estimated future costs to
develop and produce reserves based on period-end cost levels. No deduction has
been made for depletion, depreciation or for indirect costs, such as general
corporate overhead. Present values were computed by discounting future net
revenues by 10% per year.






20
 Table of Contents





December
      31,2007
            2006
            2005Oil
              (Bbls)
            Gas
              (Mcf)
            Oil
              (Bbls)
            Gas
              (Mcf)
            Oil
              (Bbls)
            Gas
              (Mcf)Proved
      Producing & Non-Producing Reserves
            79,873
            165,638
            43,496
            32,721
            Nil
            2,443Estimated
      future net cash flows from proved oil and gas reserves
            $6,808,750
            $795,203
            $11,143Present
      value of net cash flows from proved oil and gas reserves
            $4,688,087
            $611,152
            $9,823





Production





Production
      Data
            Year
      ended December 31,2007
            2006
            2005Production
      -Oil
      (Bbls)
            11,514
            29,280
            NilGas
      (Mcf)
            18,304
            3,797
            866Average
      Sales Price -Oil
      (Bbls)
            $64.00
            $58.00
            NilGas
      (Mcf)
            $6.00
            $4.60
            $9.20Average
      Production Costs per Mcf
            $2.00
            $2.50
            $6.82





Production
costs may vary substantially among wells depending on the methods of recovery
employed and other factors, but generally include severance taxes,
administrative overhead, maintenance and repair, labor and
utilities.





21
 Table of Contents


Productive
Wells and Acreage





The
following table shows our producing wells and acreage as of December 31,
2007:


Producing
      Wells 3
              Developed
      AcreageOil
              GasGross
      1
              Net
      2
              Gross
      1
              Net
      2
              Gross
      1
              Net
      2Glenn
      County, California
                (Liberty
      Valence)
              0
              0
              0
              0
              0
              0Alberta,
      Canada
                (Todd
      Creek)
              Nil
              Nil
              Nil
              Nil
              Nil
              NilAlberta,
      Canada
                (Hillspring)
              Nil
              Nil
              Nil
              Nil
              Nil
              NilPalmetto
      Point, Mississippi
                (Palmetto)
              2
              0.17
              8
              0.67
              1,273
              127Saskatchewan,
      Canada
                (Wordsworth)
              1
              0.075
              Nil
              Nil
              160
              12Ranken
      2006-03
                Drilling
      Program
              1
              0.10
              1
              0.10
              340
              34Ranken
      2007-01
                Drilling
      Program
              Nil
              Nil
              1
              0.2
              300
              60Garvin
      & McClain Counties, Oklahoma
                (Owl
      Creek)
              2
              0.31
              2
              0.31
              320
              64


1
            A
      gross well or acre is a well or acre in which a working interest is owned.
      The number of gross wells is the total number of wells in which a working
      interest is owned.2
            A
      net well or acre is deemed to exist when the sum of fractional ownership
      working interests in gross wells or acres equals one. The number of net
      wells or acres is the sum of the fractional working interest owned in
      gross wells or acres expressed as hole numbers and fractions
      thereof.




3
            Productive
      wells are producing wells and wells capable of
  production.





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 Table of Contents


Undeveloped
Acreage





The
following table set forth undeveloped acreage as of December 31,
2007:





Undeveloped
      Acreage 1
      as of December 31, 2007Gross
            NetGlenn
      County, California
              (Liberty
      Valence)
            0
            0Alberta,
      Canada
              (Todd
      Creek)
            Nil
            NilAlberta,
      Canada
              (Hillspring)
            Nil
            NilAlberta,
      Canada
              (Strachan)
            Nil
            NilPalmetto
      Point, Mississippi
              (Palmetto)
      – Phase I & II
            300,000
            30,000Saskatchewan,
      Canada
              (Wordsworth)
            4,800
            720Ranken
      2006 – 03
              Drilling
      Program
            820
            80Ranken
      2007 – 01
              Drilling
      Program
            420
            200Garvin
      & McClain Counties, Oklahoma
              (Owl
      Creek)
            7,360
            896





1
            "Undeveloped
      Acreage" includes leasehold interests on which wells have not been drilled
      or completed to the point that would permit the production of commercial
      quantities of natural gas and oil regardless of whether the leasehold
      interest is classified as containing proved undeveloped
      reserves.





Drilling
Activity





The
following table sets forth, for each of the last three fiscal years by
geographic area the number of net productive and dry exploratory wells drilled
and the number of net productive and dry development wells drilled.





23
 Table of Contents





Geographical
      Area
            Net
      Exploratory Wells Drilled
            Net
      Development Wells DrilledProductive
      1
            Dry
      2
            Productive
      1
            Dry
      2Glenn
      County, California
              (Liberty
      Valence)2007
            0
            0
            0
            02006
            0
            0
            0
            02005
            0
            0
            0
            0Alberta,
      Canada
              (Todd
      Creek)2007
            0
            0
            0
            02006
            0.20
            0
            0
            02004
            0.20
            0
            0
            0Alberta,
      Canada
              (Hillspring)2007
            0
            0
            0
            02006
            0
            0
            0
            02005
            0
            0
            0
            0Solano
      County, California
              (Cache
      Slough) 32007
            0
            0
            0
            02006
            0
            0
            0
            02005
            0.125
            0
            0
            0Alberta,
      Canada
              (Strachan)2007
            0
            0
            0
            02006
            0
            0
            0
            02005
      4
            0
            0
            0
            0Palmetto
      Point, Mississippi
              (Palmetto)2007
            1.17
            1.22
            0
            02006
            1.44
            0.36
            0
            02005
            0
            0
            0
            0Saskatchewan,
      Canada
              (Wordsworth)2007
            0.075
            0.075
            0
            02006
            0.075
            0
            0
            02005
            0
            0
            0
            0Ranken
      2006-3 Drilling Program2007
            0.20
            0.40
            0
            02006
            0
            0
            0
            02005
            0
            0
            0
            0Ranken
      2007-1 Drilling Program2007
            0.20
            0.20
            0
            02006
            0
            0
            0
            02005
            0
            0
            0
            0







24
 Table of Contents





Garvin
      & McClain Counties, Oklahoma
              (Owl
      Creek)2007
            0.20
            0
            0.20
            02006
            0.20
            0
            0.20
            0.202005
            0
            0
            0
            0Totals
            1.85
            1.90
            0.20
            0





1
            A
      productive well is an exploratory or development well that is not a dry
      well.





2
            A
      dry well (hole) is an exploratory or development well found to be
      incapable of producing either oil or gas in sufficient quantities to
      justify completion as an oil or gas well.3
            In
      November 2006, we assigned all of our interest in the Cache Slough
      Prospect in exchange for $1,500,000.4
            A
      well was drilled in 2005, but testing of this well has not been completed.
      As a result, it is uncertain at this time whether this well will be
      productive or not.





Present
Activities





A
discussion of present activities on our property interests is included in the
description of business disclosure set forth above.





Delivery
Commitments





We are
not obligated to provide a fixed and determined quantity of oil or gas in the
future. During the last three fiscal years, we have not had, nor do we now have,
any long-term supply or similar agreement with any government or governmental
authority.





We are
not obligated to provide a fixed and determinable quantity of oil or natural gas
in the near future under existing contracts or agreements. Further, during the
last three years we had no significant delivery commitments.





Item 3.   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 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 fourth quarter of the fiscal
year ended December 31, 2007.





25
 Table of Contents


PART II





Item 5.  Market for Common Equity and Related
Stockholder Matters





Market
Information





Our
common stock is currently quoted on the OTC Bulletin Board (“OTCBB”), which is
sponsored by the NASD.  The OTCBB is a network of security dealers who
buy and sell stock.  The dealers are connected by a computer network
that provides information on current "bids" and "asks", as well as volume
information.  Our shares are quoted on the OTCBB under the symbol
“DOIG.”





The
following table sets forth the range of high and low bid quotations for our
common stock for each of the periods indicated as reported by the
OTCBB.  These quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.





Fiscal
      Year Ending December 31, 2007Quarter
      Ended
            
            High
      $
            
            Low
      $March
      31, 2007
            
            1.28
            
            0.71June
      30, 2007
            
            0.94
            
            0.5September
      30, 2007
            
            0.565
            
            0.155December
      31, 2007
            
            0.59
            
            0.21Fiscal
      Year Ending December 31, 2006Quarter
      Ended
            
            High
      $
            
            Low
      $March
      31, 2006
            
            4.125
            
            1.02June
      30, 2006
            
            2.08
            
            0.90September
      30, 2006
            
            1.68
            
            1.03December
      31, 2006
            
            1.24
            
            0.60





Holders
of Our Common Stock





As of
January 31, 2008, we had
­­­­­­­­­­­­­­­­­­­­­­­­­­­approximately
10,000 stockholders, of which eighty-seven (87) are holders of record of our
common stock and the balance hold shares in street name.





Dividends





There are
no restrictions in our articles of incorporation or bylaws that restrict us from
declaring dividends. We have not paid a dividend with respect to our common
stock since our incorporation. We do not expect to pay a dividend on our common
stock in the foreseeable future.





Our
ability to pay dividends is restricted by provisions of the Colorado Business
Corporation Act which provides that a Colorado corporation may only
pay dividends if, after giving effect to the dividend, the corporation
would be able to pay its debts as they become due in the usual course of
business, or the corporation's total assets would be less than its total
liabilities plus the amount that would be needed (if dissolution were to occur
at the time of the dividend) to satisfy the preferential rights upon dissolution
of shareholders whose preferential rights are superior to those receiving the
dividend. At the present time, there are no shareholders who have any
preferential rights.





26
 Table of Contents


Recent
Sales of Unregistered Securities





There
were no issuances of securities without registration under the Securities Act of
1933 during the reporting period which were not previously included in a
Quarterly Report on Form 10-QSB or Current Report on Form 8-K.





Securities
Authorized for Issuance Under Equity Compensation Plans





The
following table provides information about our compensation plans under which
shares of common stock may be issued upon the exercise of options as of December
31, 2007.





Equity
Compensation Plans as of December 31, 2007


A
            B
            CPlan
      Category
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
            Weighted-average
      exercise price of outstanding options, warrants and right
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (A))Equity
      compensation plans
              approved
      by security
              holders
            -
            -
            -Equity
      compensation plans
              not
      approved by security
              holders
            315,000
            $0.53
            5,249,512Total
            315,000
            $0.53
            5,249,512





On
January 3, 2005, we adopted the 2005 Stock Incentive Plan, which provides for
the grant of stock options to our employees, officers, directors and
consultants. We registered the shares of our common stock issuable under the
2005 Stock Incentive Plan and reserved these shares for the granting of options
and rights.





27
 Table of Contents


Item 6. Management’s Discussion and
Analysis





This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934.  The words "believe," "expect," anticipate," "intend,"
"estimate," "may," "should," "could," "will," "plan," "future," "continue," and
other expressions that are prediction of or indicate future events and trends
and that do not relate to historical matters identify forward-looking
statements.  These forward-looking statements are based largely on our
expectations or forecasts of future events, can be affected by inaccurate
assumptions, and are subject to various business risks and known and unknown
uncertainties, a number of which are beyond our
control.  Therefore,  actual results could differ materially
from the forward-looking statements contained in this document, and readers are
cautioned not to place undue reliance on such forward-looking statements,
whether as a result of new information, future events or otherwise.  A
wide variety of factors could cause or contribute to such differences and could
adversely impact revenues, the business plan, operations, profitability, cash
flows and capital needs.  There can be no assurance that the
forward-looking statements contained in this document will, in fact, transpire
or prove to be accurate.





Factors
that could cause or contribute to our actual results differing materially from
those discussed herein or for our stock price to be adversely affected include,
but are not limited to: changes in economic conditions, legislative/regulatory
changes, availability of capital, interest rates, competition, and
generally accepted accounting principles.





Results
of Operations for the Years Ended December 31, 2007 and 2006





For the
year ended December 31, 2007, our revenues generated from natural gas and oil
sales increased to $913,808 from revenues of $517,000 for the year ended
December 31, 2006 an increase of 77%. Prior to the three months ended June 30,
2006, our Liberty Valance well was our only producing property. The increase
in revenue is attributable to revenues received from the Wordsworth, Owl
Creek and Palmetto prospects.  In particular, the additional wells
commenced production in the first quarter of 2007 from Owl Creek and in the
third quarter from Palmetto.





We
incurred costs and expenses in the amount of $3,185,239for the year ended
December 31, 2007, compared to costs and expenses of $1,876,972 for the prior
year, an increase of 70%. The increase in expenses was caused by:





1.
            Natural
      gas and oil operating costs increased to $199,062 from $101,281 for the
      prior year, an increase of 97%, as additional wells produced hydrocarbons
      and the wells were in production for 12 months as opposed to 3 months for
      the prior year;


2.
            General
      and administrative costs increased to $1,375,933 from $696,414 in the
      prior year, an increase of 98%.  The increase in administrative
      costs was caused by an increase in stock based compensation expense of
      $680,397 (December 31, 2006: $195,719) resulting from issuances of stock
      options and common shares and foreign exchange losses increased to
      $184,136 (December 31, 2006: $1,663) as the Canadian dollar strengthened
      against the US Dollar;


3.
            Depreciation
      and depletion expense increased to $667,513 from $467,899 in 2006, an
      increase of 43%, as production depleted the wells for 12 months and
      additional uneconomic wells were moved to the proved pool for depletion;
      and


28
 Table of Contents





4.
            Impairment
      of natural gas and oil properties expense increased to $936,584 from
      $611,378 in 2006, as increase of 53%, as costs associated with our working
      interests in Todd Creek and Hillsprings 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 $(2,271,431) (December 31, 2006: $(298,813) due
to the costs as explained above.





We
reported other income of $37,052 for the year ended December 31, 2007 compared
to other income of $64,050 in the year ended December 31, 2006. Other income
during the year ended December 31, 2006 consisted of $24,117 in interest income
and $39,933 relating to the settlement of debt on a promissory note, while
interest received during the year ended December 31, 2007 amounted to
$37,052.





Net loss
for the year ended December 31, 2007 was $(2,249,959), compared to a net loss of
$(234,763) for the year ended December 31, 2006.





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





Liquidity
and Capital Resources





As of
December 31, 2007, we had total current assets of $487,493 and total current
liabilities in the amount of $166,217. As a result, we had working capital of
$321,276 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
year ended December 31, 2007, we received $45,000 from financing activities
involving share issuances.





29
 Table of Contents


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 used $90,830 in cash for the year ended December 31, 2006 (December
31, 2006: $(192,494)). Our net loss of $2,249,959 was the primary component of
our negative operating cash flow. Investing activities during the year ended
December 31, 2007 primarily consisted of $1,550,822 for the purchase or natural
gas and oil properties (December 31, 2006: $2,104,248). Cash flows provided by
financing activities during the year ended December 31, 2007 primarily consisted
of $45,000 related to the issuance of common stock.





The
underlying drivers that resulted in material changes and the specific inflows
and outflows of cash for the year ended December 31, 2007 are as
follows:





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


·
            Property
      acquisition costs; and


·
            Financing
      from the issuance of common stock.





Off
Balance Sheet Arrangements





As of
December 31, 2007, there were no off balance sheet arrangements.





Going
Concern





As shown
in the accompanying financial statements, we have incurred a net loss of
$3,357,936 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 three to five
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.





30
 Table of Contents


Joint
Ventures





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




Natural
Gas and Oil Properties





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




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





Revenue
Recognition





We use
the sales method of accounting for natural gas and oil revenues. Under this
method, revenues are recognized upon the passage of title, net of royalties.
Revenues from natural gas production are recorded using the sales method. When
sales volumes exceed our entitled share, an overproduced imbalance occurs. To
the extent the overproduced imbalance exceeds our share of the remaining
estimated proved natural gas reserves for a given property, we record a
liability. At December 31, 2007 and 2006, we had no overproduced
imbalances.




31
 Table of Contents




Item 7.Financial Statements





Index to
Financial Statements:








Audited
      Financial Statements:F-1
            Reports
      of Independent Registered Public Accounting FirmF-3
            Consolidated
      Balance Sheet as of December 31, 2007 and 2006F-4
            Consolidated
      Statements of Operations – Years Ended December 31, 2007 and December 31,
      2006 and Cumulative period from inception January 9, 2001 to December 31,
      2007F-5
            Consolidated
      Statement of Stockholders’ Equity (Deficiency) and from inception January
      9, 2001 to December 31, 2007F-6
            Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2007 and
      December 31, 2006 and Cumulative period from inception January 9, 2001 to
      December 31, 2007F-7
            Notes
      to Consolidated Financial
Statements











32
 Table of Contents




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the
Board of Directors and Stockholders of


Delta
Oil & Gas, Inc.


(A
Development Stage Company)





We have
audited the accompanying consolidated balance sheet of Delta Oil & Gas, Inc.(the
“Company”) (a Development Stage Company) as at December 31, 2007, the
related consolidated statements of operations,  changes in
stockholders’ equity and cash flows for the year then ended, and for the period
from inception on January 9, 2001 through to December 31, 2007.  These
consolidated financial statements are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.





We
conducted our audits in accordance with Standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provides a reasonable basis
for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Delta Oil & Gas, Inc.
(A Development Stage Company) as at December 31, 2007, and the results of
its operations and its cash flows for the year then ended, and for the period
from inception on January 9, 2001 through to December 31, 2007, in conformity
with accounting principles generally accepted in the United States of
America.





The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern.  As discussed in Note 1 to
the consolidated financial statements, the Company has suffered recurring losses
and net cash outflows from operations since inception.  These factors
raise substantial doubt about the Company’s ability to continue as a going
concern.  Management’s plans in regard to these matters are also
described in Note 1.  The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.







/s/STS
PARTNERS
LLP


STS
PARTNERS LLP


CHARTERED
ACCOUNTANTS





Vancouver,
British Columbia


April 8,
2008





F -
1
 Table of Contents








REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Stockholders of


Delta
Oil & Gas, Inc.


(A
Development Stage Company)





We have
audited the accompanying consolidated balance sheet of Delta Oil & Gas, Inc.(the
“Company”) (a Development Stage Company) as at December 31, 2006, the
related consolidated statements of operations, stockholders’ equity and cash
flows for the year then ended, and for the period from inception on January 9,
2001 to December 31, 2006.  These consolidated financial statements
are the responsibility of the Company’s management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.





We
conducted our audits in accordance with Standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provides a reasonable basis
for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Delta Oil & Gas, Inc.
(a Development Stage Company) as at December 31, 2006 and the results of
its operations and its cash flows for the year then ended, and for the period
from inception on January 9, 2001 to December 31, 2006, in conformity with
accounting principles generally accepted in the United States of
America.





The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern.  As discussed in Note 1 to
the consolidated financial statements, the Company has suffered recurring losses
and net cash outflows from operations since inception.  These factors
raise substantial doubt about the Company’s ability to continue as a going
concern.  Management’s plans in regard to these matters are also
described in Note 1.  The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.







/s/TELFORD
SADOVNICK,
P.L.L.C.


TELFORD
SADOVNICK, P.L.L.C.


CERTIFIED
PUBLIC ACCOUNTANTS





Bellingham,
Washington


March 23,
2007





F -
2
 Table of Contents





DELTA
      OIL & GAS, INC.(A
      Development Stage Company)Consolidated
      Balance Sheets(Stated
      in U.S. Dollars)(Audited)December
      31
            
            
            December
      31,2007
            
            
            2006ASSETSCurrentCash
      and cash equivalents
            
            $
            71,115
            
            
            $
            1,668,758GIC
      receivable
            
            
            236,112
            
            
            $
            -Accounts
      receivable
            
            
            153,990
            
            
            
            88,451Franchise
      tax prepaid
            
            
            6,912
            
            
            
            -Prepaid
      expenses
            
            
            19,364
            
            
            
            1,611487,493
            
            
            
            1,758,820Natural
      Gas And Oil PropertiesProved
      property
            
            
            1,432,776
            
            
            
            853,352Unproved
      property
            
            
            1,368,260
            
            
            
            1,816,0072,801,036
            
            
            
            2,669,359Other
      EquipmentComputer
      equipment
            
            
            4,483
            
            
            
            3,492Less:
      accumulated depreciation
            
            
            (3,351
            )
            
            
            (2,655
            )1,132
            
            
            
            837$
            3,289,661
            
            
            $
            4,429,016LIABILITIES AND
      STOCKHOLDERS' EQUITYLIABILITIESCurrentAccounts
      payable and accrued liabilities
            
            $
            166,217
            
            
            $
            39,526Long
      TermAsset
      retirement obligation
            
            
            111,803
            
            
            
            40,635278,020
            
            
            
            80,161STOCKHOLDERS'
      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 and 45,070,406 shares issuedand
      outstanding, respectively
            
            
            45,941
            
            
            
            45,071Additional
      paid-in capital
            
            
            6,136,288
            
            
            
            5,411,761Cumulative
      other comprehensive income
            
            
            187,348
            
            
            
            -Deficit
      accumulated during the development stage
            
            
            (3,357,936
            )
            
            
            (1,107,977
            )3,011,641
            
            
            
            4,348,855$
            3,289,661
            
            
            $
            4,429,016The
      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
      Statements of Operations(Stated
      in U.S. Dollars)(Audited)CUMULATIVE
      PERIODFROM
      INCEPTIONJANUARY
      9, 2001YEAR
      ENDED
            
            
            TODECEMBER
      31,
            
            
            DECEMBER
      31,2007
            
            
            2006
            
            
            2007RevenueNatural
      gas and oil sales
            
            $
            913,808
            
            
            $
            517,000
            
            
            $
            1,524,938Gain
      on sale of oil property
            
            
            -
            
            
            
            1,061,159
            
            
            
            1,061,159913,808
            
            
            
            1,578,159
            
            
            
            2,586,097Costs
      And ExpensesNatural
      gas and oil operating costs
            
            
            199,062
            
            
            
            101,281
            
            
            
            335,112General
      and administrative
            
            
            1,375,933
            
            
            
            696,414
            
            
            
            2,783,125Accretion
            
            
            4,876
            
            
            
            -
            
            
            
            4,876Depreciation
      and depletion
            
            
            667,513
            
            
            
            467,899
            
            
            
            1,173,016Impairment
      of natural gas and oil properties
            
            
            936,584
            
            
            
            611,378
            
            
            
            1,613,465Dry
      well costs written off
            
            
            1,271
            
            
            
            -
            
            
            
            119,9613,185,239
            
            
            
            1,876,972
            
            
            
            6,029,555Net
      Operating Loss
            
            
            (2,271,431
            )
            
            
            (298,813
            )
            
            
            (3,443,458
            )Other
      IncomeForgiveness
      of debt
            
            
            -
            
            
            
            39,933
            
            
            
            39,933Interest
      income
            
            
            37,052
            
            
            
            24,117
            
            
            
            61,16937,052
            
            
            
            64,050
            
            
            
            101,102Loss
      before income taxes
            
            $
            (2,234,379
            )
            
            $
            (234,763
            )
            
            $
            (3,342,356
            )Income
      taxes
            
            
            15,580
            
            
            
            -
            
            
            
            15,580Net
      Loss
            
            $
            (2,249,959
            )
            
            $
            (234,763
            )
            
            $
            (3,357,936
            )Basic
      And Diluted Loss Per Common Share
            
            $
            (0.05
            )
            
            $
            (0.01
            )Weighted
      Average Number OfCommon
      Shares Outstanding
            
            
            45,705,191
            
            
            
            44,823,126The
      accompanying notes are an integral part of these consolidated financial
      statements







F -
4
 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
            
            PAR
            
            ADDITIONAL
            
            
            SUBSCRIPTIONS
            
            
            SUBSCRIPTIONS
            
            
            DEVELOPMENT
            
            
            COMPREHENSIVESHARES
      VALUE
            
            VALUE
            
            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
            
            
            $
            3,011,641The
      accompanying notes are an integral part of these consolidated financial
      statements







F -
5
 Table of Contents





DELTA
      OIL & GAS, INC.(A
      Development Stage Company)Consolidated
      Statements of Cash Flows(Stated
      in U.S. Dollars)(Audited)CUMULATIVE
      PERIODFROM
      INCEPTIONJANUARY
      9, 2001YEAR
      ENDED
            
            
            TODECEMBER
      31,
            
            
            DECEMBER
      31,2007
            
            
            2006
            
            
            2007Cash
      Flows From Operating Activities:Net
      (loss) for the year
            
            $
            (2,249,959
            )
            
            $
            (234,763
            )
            
            $
            (3,357,936
            )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Gain
      on sale of property
            
            
            -
            
            
            
            (1,061,159
            )
            
            
            (1,061,159
            )Accretion
            
            
            4,876
            
            
            
            -
            
            
            
            4,876Depreciation
      and depletion
            
            
            667,513
            
            
            
            467,899
            
            
            
            1,173,016Impairment
      of natural gas and oil properties
            
            
            936,584
            
            
            
            611,378
            
            
            
            1,613,465Dry
      well costs written off
            
            
            1,271
            
            
            
            -
            
            
            
            119,961Stock-based
      compensation expense
            
            
            42,097
            
            
            
            195,719
            
            
            
            608,083Shares
      issued to President & CEO for servicess rendered
            
            
            460,000
            
            
            
            -
            
            
            
            460,000Shares
      issued to CFO for services rendered
            
            
            137,500
            
            
            
            -
            
            
            
            137,500Shares
      issued to Investor Relations Services Inc for services
      rendered
            
            
            40,800
            
            
            
            -
            
            
            
            40,800Realized
      foreign exchange loss
            
            
            184,136
            
            
            
            -
            
            
            
            184,136Changes
      in operating assets and liabilities:GIC
            
            
            (236,112
            )
            
            
            -
            
            
            
            (236,112
            )Accounts
      receivable
            
            
            (65,539
            )
            
            
            (78,383
            )
            
            
            (153,990
            )Accounts
      payable and accrued liabilities
            
            
            10,668
            
            
            
            (53,792
            )
            
            
            50,194Promissory
      note payable
            
            
            -
            
            
            
            (39,397
            )
            
            
            -Tax
      Prepaid
            
            
            (6,912
            )
            
            
            -
            
            
            
            (6,912
            )Prepaid
      expenses
            
            
            (17,753
            )
            
            
            4
            
            
            
            (19,365
            )Net
      Cash Generated/(Used) in Operating Activities
            
            
            (90,830
            )
            
            
            (192,494
            )
            
            
            (443,443
            )Cash
      Flows From Investing Activities:Purchase
      of other equipment
            
            
            (991
            )
            
            
            -
            
            
            
            (4,483
            )Sale
      proceeds of natural gas and oil working interests
            
            
            -
            
            
            
            1,500,000
            
            
            
            1,500,000Investment
      in natural gas and oil working interests
            
            
            (1,550,822
            )
            
            
            (2,104,248
            )
            
            
            (5,916,807
            )Net
      Cash Used in Investing Activities
            
            
            (1,551,813
            )
            
            
            (604,248
            )
            
            
            (4,421,290
            )Cash
      Flows From Financing Activities:Proceeds
      from issuance of common stock
            
            
            45,000
            
            
            
            2,106,496
            
            
            
            4,935,847Shares
      subscriptions receivable
            
            
            -
            
            
            
            16,000
            
            
            
            -Net
      Cash Provided by Financing Activities
            
            
            45,000
            
            
            
            2,122,496
            
            
            
            4,935,847Net
      Increase/(Decrease) In Cash And Cash Equivalents
            
            
            (1,597,643
            )
            
            
            1,325,754
            
            
            
            71,115Cash
      And Cash Equivalents At Beginning Of Year(Excess
      Of Deposits  Over Checks Issued)
            
            
            1,668,758
            
            
            
            343,004
            
            
            
            -Cash
      And Cash Equivalents At End Of Year
            
            $
            71,115
            
            
            $
            1,668,758
            
            
            $
            71,115Supplemental
      Disclosures of Non-Cash Financing Activities500,000
      shares issued to the President & CEO as part of his
            
            $
            460,000
            
            
            
            -
            
            
            $
            460,000compensation
      package250,000
      shares issued to the CFO for services rendered
            
            $
            137,500
            
            
            
            -
            
            
            $
            137,50060,000
      shares issued to Investor Relations Services Inc., forservices
      rendered.
            
            $
            40,800
            
            
            
            -
            
            
            $
            40,800Supplemental
      Disclosures of Non-Cash TransactionsIncome
      taxes paid
            
            $
            6,109
            
            
            
            -
            
            
            $
            10,270Investment
      in natural gas and oil working interests included in accounts
      payable
            
            $
            116,023
            
            
            
            -
            
            
            $
            116,023The
      accompanying notes are an integral part of these consolidated financial
      statements





F -
6
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(Stated
in U.S. Dollars)




1. 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 $3,357,936 since inception.  To achieve profitable
operations, the Company requires additional capital for obtaining producing oil
and gas properties through either the purchase of producing wells or successful
exploration activity.  Management believes that sufficient funding
will be available to meet its business objectives including anticipated cash
needs for working capital and is currently evaluating several financing
options.  However, there can be no assurance that the Company will be
able to obtain sufficient funds to continue the development of and, if
successful, to commence the sale of its products under
development.  As a result of the foregoing, there exists substantial
doubt the Company’s ability to continue as a going concern.  These
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.





2.           SIGNIFICANT
ACCOUNTING POLICIES





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





F -
7
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(Stated
in U.S. Dollars)





2.           SIGNIFICANT
ACCOUNTING POLICIES (Continued)





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





c) Natural
Gas and Oil Properties





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





Unproved
properties consist of lease acquisition costs and costs on 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 -
8
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(Stated
in U.S. Dollars)





2. 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 December 31, 2007 and 2006, the Company had no overproduced
imbalances.





g) Cash and
Cash Equivalent





Cash
consists of cash on deposit with high quality major financial institutions, and
to date has not experienced losses on any of its balances.  The
carrying amounts approximated fair market value due to the liquidity of these
deposits.  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 each year-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 -
9
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(Stated
in U.S. Dollars)








2. 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 and accounts payable and
accrued liabilities.





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





p)    Comprehensive
Loss





SFAS No.
130, “Reporting Comprehensive Income,” establishes standards for the reporting
and display of comprehensive loss and its components in the financial
statements. The Company is disclosing this information on its Consolidated
Statements of Changes in Stockholders’ Equity and Consolidated Statement of
Operations.





q)   
Stock-Based Compensation





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





F -
10
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(Stated
in U.S. Dollars)








3. RECENT
ACCOUNTING PRONOUNCEMENTS





In
February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”,
which permits an entity to measure certain financial assets and financial
liabilities at fair value. The objective of SFAS No. 159 is to improve financial
reporting by allowing entities to mitigate volatility in reported earnings
caused by the measurement of related assets and liabilities using different
attributes, without having to apply complex hedge accounting provisions. Under
SFAS No. 159, entities that elect the fair value option (by instrument) will
report unrealized gains and losses in earnings at each subsequent reporting
date. The fair value option election is irrevocable, unless a new election date
occurs. SFAS No. 159 establishes presentation and disclosure requirements to
help financial statement users understand the effect of the entity's election on
its earnings, but does not eliminate disclosure requirements of other accounting
standards. Assets and liabilities that are measured at fair value must be
displayed on the face of the balance sheet.  This statement is
effective beginning January 1, 2008 and the Company is evaluating this
pronouncement.





On
December 4, 2007 the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51. SFAS 160
establishes new accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a subsidiary.
Specifically, this statement requires the recognition of a non-controlling
interest (minority interest) as equity in the consolidated financial statements
and separate from the parent's equity. The amount of net income attributable to
the non-controlling interest will be included in consolidated net income on the
face of the income statement. SFAS 160 clarifies that changes in a parent's
ownership interest in a subsidiary that do not result in deconsolidation are
equity transactions if the parent retains its controlling financial interest. In
addition, this statement requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. Such gain or loss will be measured
using the fair value of the non-controlling equity investment on the
deconsolidation date. SFAS 160 also includes expanded disclosure requirements
regarding the interests of the parent and its non-controlling interest. SFAS 160
is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption is prohibited. We do
not expect the adoption of SFAS 160 will have an effect on our financial
statements.





In
January 2008, Staff Accounting Bulletin (“SAB”) 110, “Share-Based Payment” was
issued.  Registrants may continue, under certain circumstances, to use
the simplified method in developing estimates of the expected term of share
options as initially allowed by SAB 107, “Share-Based Payment”. The
adoption of SAB 110 should have no effect on the financial position and results
of operations of the Company.








F -
11
 Table of Contents


Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Stated
in U.S. Dollars)





4.
NATURAL GAS AND OIL
PROPERTIES





a) 
  Proved Properties




Properties
            
            December
      31, 2006
            
            
            Addition
            
            
            Depletion
      for the Year
            
            
            Impairment
            
            
            December
      31, 2007USA
      properties
            
            $
            495,115
            
            
            $
            1,174,280
            
            
            $
            (432,428
            )
            
            $
            (39,337
            )
            
            $
            1,197,630Canada
      properties
            
            
            358,237
            
            
            
            1,008,545
            
            
            
            (234,389
            )
            
            
            (897,247
            )
            
            
            235,146Total
            
            $
            853,352
            
            
            $
            2,182,825
            
            
            $
            (666,817
            )
            
            $
            (936,584
            )
            
            $
            1,432,776




a)  Proved
      Properties -  DescriptionsProperties
      in U.S.A.


i.
            Liberty
      Valance, California, USA





In
February 2001, the Company acquired a 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 -
12
 Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Stated
in U.S. Dollars)
 4.
NATURAL GAS AND OIL PROPERTIES
(Continued)
  a) 
  Proved Properties -  Descriptions
  Properties
in U.S.A.
  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.
  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.
    F -
13
 Table of Contents
 Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Stated
in U.S. Dollars)




4.
NATURAL GAS AND OIL PROPERTIES
(Continued)
  a)  Proved
Properties -  Descriptions
  Properties
in U.S.A.
  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.


b)  Unproved
Properties





Properties
            
            December
      31, 2006
            
            
            Addition
            
            
            Cost
      added to capitalized cost
            
            
            December
      31, 2007USA
      properties
            
            $
            497,500
            
            
            $
            1,380,593
            
            
            $
            (1,096,647
            )
            
            $
            781,446Canada
      properties
            
            
            1,318,507
            
            
            
            257,880
            
            
            
            (989,573
            )
            
            
            586,814Total
            
            $
            1,816,007
            
            
            $
            1,638,473
            
            
            $
            (2,086,220
            )
            
            $
            1,368,260








F -
14
 Table of Contents





Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Stated
in U.S. Dollars)


4. NATURAL
GAS AND OIL PROPERTIES (Continued)





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 and paid subsequent to the year end.





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.   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





iv.   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 December 31, 2007, the Company had expended $198,152 of the well
3B9-23/3A11.






F -
15
 Table of Contents


Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Stated
in U.S. Dollars)





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.





6. INCOME
TAXES PAYABLE





Income
taxes are provided for the tax effects of transactions reported in the financial
statements and consist of taxes currently due plus deferred
taxes.  Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss, tax credit carry-forwards, and for taxable temporary
differences.  Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax
bases.  Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or
all of the deferred tax will not be realized.  Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.





A
reconciliation of income taxes at statutory rates with the reported taxes is as
follows:





2007
            
            
            2006Loss
      before income taxes
            
            $
            (2,234,379
            )
            
            $
            (275,398
            )Income
      tax recovery at 34% (estimated)
            
            
            759,689
            
            
            
            93,635Unrecognized
      benefit of operating loss carry forwards
            
            
            (759,689
            )
            
            
            (93,635
            )Franchise
      tax
            
            
            15,580
            
            
            
            -15,580
            
            
            
            -








F -
16
 Table of Contents




Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Stated
in U.S. Dollars)





6. INCOME
TAXES PAYABLE (Continued)





Significant
components of the Company’s deferred income tax assets are as
follows:





2007
            
            
            2006Operating
      loss carry forwards
            
            $
            3,248,398
            
            
            $
            1,148,612Natural
      gas and oil properties
            
            
            2,578,086
            
            
            
            2,443,4945,826,484
            
            
            
            3,592,106Statutory
      tax rate
            
            
            34
            %
            
            
            34
            %Deferred
      income tax asset
            
            
            1,981,005
            
            
            
            1,221,316Valuation
      allowance
            
            
            (1,981,005
            )
            
            
            (1,221,316
            )Net
      deferred tax assets
            
            $
            -
            
            
            $
            -








The
Company has approximately $3,248,398 (2006 - $1,148,612) of operating loss carry
forwards which expire beginning in 2025.  The Company has natural gas
and oil properties available to further reduce taxable income of
$2,578,086.





The
company has provided a valuation allowance against its deferred tax assets given
that it is in the development stage and it is more likely than not that these
benefits will not be realized.








7. 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
information below reflects the change in the asset retirement obligations during
the year ended December 31, 2007 and 2006:




December
      31,
            
            
            December
      31,2007
            
            
            2006Balance,
      beginning of year
            
            $
            40,635
            
            
            $
            -Liabilities
      assumed
            
            
            66,292
            
            
            
            40,635Accretion
      expense
            
            
            4,876
            
            
            
            -Balance,
      end of year
            
            $
            111,803
            
            
            $
            40,635








8. 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.






F -
17
 Table of Contents


Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Stated
in U.S. Dollars)





8.            SHARE
CAPITAL (Continued)





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.





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.  Compensation
expense of $42,097 was recorded during the year ended December 31, 2007
(December 31, 2006 – $195,719) related to options granted during the year ended
December 31, 2007 and 2006.  The changes in stock options are as
follows:


Number
            Weighted
      average
              exercise
      priceBalance
      outstanding, December 31, 2006
              Granted
              Cancelled
              Exercised
              Balance
      outstanding, December 31, 2007
            300,000
              300,000
              (300,000)
              (60,000)
            $                      0.95
              0.75
              (0.75)
              (0.75)240,000
            $                      0.75





Number
            Weighted
      average
              exercise
      priceBalance
      outstanding, December 31, 2005
              Granted
              Exercised
              Balance
      outstanding, December 31, 2006
            330,000
              300,000
              (330,000)
            $                      0.95
              0.95
              (0.95)300,000
            $                      0.95




The
weighted average assumptions used in calculating the fair value of stock options
granted and vested during the year ended December 31, 2007 and 2006, using the
Black-Scholes option pricing model are as follows:





December
      31,
              2007
            December
      31,
              2006Risk-fee
      interest rate
            3.77%
            3.77%Expected
      life of the option
            3
      years
            1
      yearExpected
      volatility
            69.03%
            288.99%Expected
      dividend yield
            -
            -








F -
18
 Table of Contents




Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Stated
in U.S. Dollars)





8.            SHARE
CAPITAL (Continued)








The
following table summarized information about the stock options outstanding as at
December 31, 2007:





Options
      outstanding
            
            Options
      exercisableExercise
      price
            Number
      of shares
            Remaining
              contractual
      life (years)
            
            Number
      of shares$
      0.75
            240,000
            1.22
            
            240,000











iii. 
   Common Stock Share Purchase Warrants





As at
December 31, 2007, 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











9. RELATED
PARTIES





During
the year ended December 31, 2007, the Company paid $ nil (2006 - $5,290) for
management fees and $122,814 for consulting fees to Companies controlled by
directors and officers (2006 - $39,672) 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.








F -
19
 Table of Contents


Delta
Oil & Gas, Inc.
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Stated
in U.S. Dollars)





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 $293 per month.




12. SEGMENTED
INFORMATION




In
accordance with SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, the Company has identified only one operating segment,
which is the exploration and production of oil and natural gas.  All
of the Company’s oil and gas properties are located in the United States and
Canada (refer to note 4), and all revenues are attributable to United States and
Canada as follows:





December
      31, 2007
            
            
            December
      31, 2006CountryUnited
      States
            
            $
            764,507
            
            
            $
            502,385Canada
            
            
            149,301
            
            
            
            14,615Total
      Revenue
            
            $
            913,808
            
            
            $
            517,000








AssetsUnited
      States
            
            $
            2,140,338
            
            
            $
            2,373,131Canada
            
            
            1,149,323
            
            
            
            2,055,885Total
      Assets
            
            $
            3,289,661
            
            
            $
            4,429,016







LiabilitiesUnited
      States
            
            $
            216,629
            
            
            $
            51,456Canada
            
            
            61,391
            
            
            
            28,705Total
      Liabilities
            
            $
            278,020
            
            
            $
            80,161








F -
20
 Table of Contents






Item 8. Changes In and Disagreements with
Accountants on Accounting and Financial Disclosure





No events
occurred requiring disclosure under Item 304(b) of Regulation S-B.





Item 8A(T).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 December 31, 2007.  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 December 31, 2007, our disclosure
controls and procedures are effective.





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





Limitations on the
Effectiveness of Internal Controls





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





33
 Table of Contents


Management’s Annual Report
on Internal Control Over Financial Reporting





Our
management, including the Chief Executive Officer and the Chief Financial
Officer, is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Our internal control over financial reporting was designed to provide
reasonable assurance to our management and board of directors regarding the
preparation and fair presentation of published financial
statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.





Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2007. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control — Integrated
Framework.  Based on this assessment, our management believes
that, as of December 31, 2007, our internal control over financial
reporting was effective based on those criteria.  Management reviewed
the results of its assessment with our board of directors.





Changes in Internal Control
Over Financial Reporting





There
have been no significant changes in our internal controls over financial
reporting during the quarter ended December 31, 2007 that have materially
affected or are reasonably likely to materially affect such
controls.





Item 8B.Other information





None.





34
 Table of Contents


PART III





Item 9.Directors, Executive Officers, Promoters and
Control Persons; Compliance with


Section
16(a) of the Exchange Act





The
following information sets forth the names of our current directors and
executive officers, their ages and their present positions.





Name
            Age
            Position(s)
      and Office(s) HeldDouglas
      N. Bolen
            42
            President,
      Chief Executive Officer, Principal Executive Officer &
      DirectorKulwant
      Sandher
            46
            Chief
      Financial Officer and Principal Financial
  Officer





Set forth
below is a brief description of the background and business experience of each
of our current executive officers and directors.





Douglas N. Bolen. Mr. Douglas
Bolenhas been our
Chief Executive Officer and Director since April 15, 2004. Mr. Bolen received a
Bachelor of Arts from the University of Regina, Saskatchewan in 1991 and his
Bachelor of Laws from the University of Saskatchewan in 1995. Mr. Bolen is a
member in good standing of the Law Society of Saskatchewan, the Regina Bar
Association and the Canadian Bar Association. From 1995 to 1999, Mr. Bolen
articled and practiced law at Balfour Moss, Barristers and Solicitors, a large
Regina, Canada based law firm with a practice concentration in the area of
Corporate Commercial law. From 1999 to the present, Mr. Bolen has been providing
consulting services to small to medium sized US based businesses.





Kulwant Sandher. Mr. Sandher
is a Chartered Accountant in both England and Canadian jurisdictions. Mr.
Sandher was appointed as President and Chief Financial Officer of Turner Valley
Oil & Gas Inc. on August 2004 and continues in serve in these positions.
From April 17, 2006 to the present, Mr. Sandher has acted as Chief Financial
Officer and as a member of the board of directors of The Stallion Group. From
May 2004 to March 2006, Mr. Sandher served as Chief Operating Officer and Chief
Financial Officer of Marketrend Interactive Inc. Mr. Sandher acted as Chief
Financial Officer of Serebra Learning Corporation, a public company on the TSX
VE, from September 1999 to October 2002.





Term
of Office





Our
directors are appointed for a one-year term to hold office until the next annual
meeting of our shareholders or until removed from office in accordance with our
bylaws.


35
 Table of Contents





Our
executive officers are appointed by our board of directors and hold office until
removed by the board.





Significant
Employees





We have
no significant employees other than our officers and directors.





Family
Relationships





There are
no family relationships between or among the directors, executive officers or
persons nominated or chosen by us to become directors or executive
officers.





Involvement
in Certain Legal Proceedings





Other
than as set forth below and to the best of our knowledge, during the past five
years, none of the following  occurred with  respect to a
present director,  person nominated to become director, executive
officer, or  control person:  (1)  any bankruptcy
petition filed by or against any business of which such person was a general
partner or executive officer either
at  the  time  of the bankruptcy or within two
years prior to that time; (2) any conviction in a
criminal  proceeding  or  being subject to a
pending criminal proceeding (excluding  traffic  violations
and other minor offenses); (3) being subject to any order, judgment or decree,
not subsequently reversed, suspended or  vacated, of  any
court  of  competent  jurisdiction,  permanently  or
temporarily enjoining, barring, suspending or otherwise limiting his or her
involvement in  any  type of business, securities or banking
activities; and (4) being found
by  a  court  of  competent  jurisdiction  (in  a  civil
action), the SEC or the
Commodities  Futures  Trading  Commission to have
violated a federal or state securities or commodities law, and the judgment has
not been reversed, suspended or vacated.





From May
2004 to March 2006, Mr. Sandher served as Chief Operating Officer and Chief
Financial Officer of Marketrend Interactive Inc.  In September 2007,
Marketrend Interactive Inc. was forced into involuntary dissolution and a
receiver was appointed.





Audit
Committee





We do not
have a separately-designated standing audit committee.  The entire
board of directors performs the functions of an audit committee, but no written
charter governs the actions of the board of directors when performing the
functions of that would generally be performed by an audit committee. The board
of directors approves the selection of our independent accountants and meets and
interacts with the independent accountants to discuss issues related to
financial reporting. In addition, the board of directors reviews the scope and
results of the audit with the independent accountants, reviews with management
and the independent accountants our annual operating results, considers the
adequacy of our internal accounting procedures and considers other auditing and
accounting matters including fees to be paid to the independent auditor and the
performance of the independent auditor.





We do not
have an audit committee financial expert because of the size of our company and
our board of directors at this time.  We believe that we do not
require an audit committee financial expert at this time and will retain outside
consultants who possess these attributes as needed.


36
 Table of Contents


For the
fiscal year ending December 31, 2007, the board of directors:





1.
            Reviewed
      and discussed the audited financial statements with management,
      and





2.
            Reviewed
      and discussed the written disclosures and the letter from our independent
      auditors on the matters relating to the auditor's
      independence.





Based
upon the board of directors’ review and discussion of the matters above, the
board of directors authorized inclusion of the audited financial statements for
the year ended December 31, 2007 to be included in this Annual Report on Form
10-KSB and filed with the Securities and Exchange Commission.





Indemnification
of Directors and Officers





Our
officers and directors are indemnified as provided by the Colorado Revised
Statutes and our articles of incorporation and our bylaws.





Pursuant
to our articles of incorporation and our bylaws, we may indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, (other than an action by or in the right of
us) by reason of the fact that he is or was a director, officer, employee,
fiduciary or agent of the company or is or was serving at the request of us as a
director, officer, employee, fiduciary or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against expenses
(including attorney fees), judgments, fines, and amounts paid in settlement
actually and reasonably believed to be in our best interests and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit, or proceeding by
judgment, order, settlement, or conviction or upon a pleas of nolo contenders or
its equivalent shall not of itself create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in our best
interests and, with respect to any criminal action or proceeding, had reasonable
cause to believe his conduct was unlawful.





Our
articles of incorporation and bylaws also provide that we may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action or suit by or in the right of our
company or procure a judgment in its favor by reason of the fact that he is or
was a director, officer, employee, or agent of our company or is or was serving
at our request as a director, officer, employee, fiduciary or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorney fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in our best interests:
but no indemnification shall be made in respect to any claim, issue, or matter
as to which such person has been adjudged to be liable for negligence or
misconduct in the performance of his duty to us unless and only to the extent
that the court in which such action or suit was brought determines upon
application that, despite the adjudication of liability, but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnification for such expenses which such court deems proper.





37
 Table of Contents


To the
extent that a director, officer, employee, fiduciary or agent of a corporation
has been successful on the merits in defense of any action, suit, or proceeding
referred to in the preceding two paragraphs or in defense of any claim, issue,
or matter therein, he shall be indemnified against expenses (including attorney
fees) actually and reasonably incurred by him in connection
therewith.





The
indemnification provided by the provisions described in this section shall not
be deemed exclusive of any other rights to which those seeking indemnification
may be entitled under our articles of incorporation, the bylaws, agreements,
vote of the shareholders or disinterested directors, or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the heirs
and personal representatives of such a person.





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Exchange Act requires our directors and executive officers and
persons who beneficially own more than ten percent of a registered class of the
Company’s equity securities to file with the SEC initial reports of ownership
and reports of changes in ownership of common stock and other equity securities
of the Company.  Officers, directors and greater than ten percent
beneficial shareholders are required by SEC regulations to furnish us with
copies of all Section 16(a) forms they file.  To the best of our
knowledge based solely on a review of Forms 3, 4, and 5 (and any amendments
thereof) received by us during or with respect to the year ended December 31,
2007, the following persons have failed to file, on a timely basis, the
identified reports required by Section 16(a) of the Exchange Act during fiscal
year ended December 31, 2007:





Name
      and principal position
            Number
      of
              late
      reports
            Transactions
      not
              timely
      reported
            Known
      failures to
              file
      a required formDouglas
      N. Bolen
              CEO,
      Former CFO, & Director
            3
            8
            0Kulwant
      Sandher
              CFO
      & Director
            1
            2
            0





Code
of Ethics Disclosure





We
adopted a Code of Ethics for Financial Executives, which include our principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. The code of ethics was
filed as an exhibit to the annual report on Form 10-KSB for the fiscal year
ended December 31, 2003 and filed with the SEC on April 19, 2004.





38
 Table of Contents


Item 10. Executive Compensation





Summary
Compensation Table




The table
below summarizes all compensation awarded to, earned by, or paid to our former
or current executive officers for the fiscal years ended 2007 and
2006.





SUMMARY
      COMPENSATION TABLEName
              and
              principal
              position
            Year
            Salary
              ($)
            Bonus
              ($)
            Stock
              Awards
              ($)
            Option
              Awards
              ($)
            Non-Equity
              Incentive
      Plan
              Compensation
              ($)
            Nonqualified
              Deferred
              Compensation
              Earnings
      ($)
            All
      Other
              Compensation
              ($)
            Total
              ($)Douglas
      Bolen (1)
              CEO
      & Former CFO
            2007
              2006
            66,000
              52,649
            -
              -
            460,000
              -
            -
              -
            -
              -
            -
              -
            -
              -
            526,000
              52,649Kulwant
      Sandher
              CFO
            2007
              2006
            66,000
              -
            -
              -
            137,500
              -
            -
              -
            -
              -
            -
              -
            -
              -
            203,500
              -





(1)
            Mr.
      Bolen resigned as our Chief Financial Officer and Principal Financial
      Officer on January 18, 2007, but continues to serve as our Chief Executive
      Officer and as a member of our board of
  directors.




Narrative
Disclosure to the Summary Compensation Table





We did
not directly compensate Douglas Bolen, our Chief Executive Officer, during the
fiscal years ended December 31, 2007 and 2006. Mr. Bolen received remuneration
for services rendered during the fiscal years ended December 31, 2007 and 2006
indirectly through compensation paid to a company under his exclusive
control.





On March
1, 2006, we entered into a Consulting Agreement with Last Mountain Management,
Inc. (“LMM”) to provide consulting services to us. Douglas Bolen, our Chief
Executive Officer, is the sole shareholder, officer, and director of LMM. The
Consulting Agreement is effective for a period of one (1) year commencing March
1, 2006 and we have a right to cancellation anytime within any six month term.
Under the terms of the Consulting Agreement, LMM is paid monthly compensation of
$7,000 Canadian dollars plus applicable Canadian Good and Services Tax. The
total monthly compensation paid to LMM during the fiscal year ended December 31,
2006 was $52,649. The total monthly compensation paid to LMM during the fiscal
year ended December 31, 2007 was $66,000.  This compensation is
included in the summary compensation table above in “All Other Compensation.”
Upon execution of the Consulting Agreement, LMM was issued 500,000 shares of our
common stock. The aggregate fair value of these shares was computed in
accordance with FAS 123R and is reported in the summary compensation table above
in the column titled “All Other Compensation.”





We did
not grant any stock options to Mr. Bolen during the years ended December 31,
2007 or 2006.





39
 Table of Contents


On
January 18, 2007, we appointed Kulwant Sandher to serve as our Chief Financial
Officer and Principal Financial Officer. In connection with his appointment, we
granted Mr. Sandher options to purchase 300,000 shares of our common stock at
the exercise price of $0.75 per share with an expiration date of January 17,
2010.  On July 8, 2007, we cancelled all of the options previously
granted to Mr. Sandher and, in consideration for the cancellation of these
options and in compensation for Mr. Sandher’s services rendered to us as Chief
Financial Officer to date, we granted him 250,000 shares of our common stock,
all of which are considered by our Board of Directors to be fully paid and non
assessable upon issuance.





Outstanding
Equity Awards at Fiscal Year-End





The table
below summarizes all unexercised options, stock that has not vested, and equity
incentive plan awards for each named executive officer as of December 31,
2007.





OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-ENDOPTION
      AWARDS
            STOCK
      AWARDSName
            Number
      of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Exercisable
            Number
      of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Unexercisable
            Equity
              Incentive
              Plan
              Awards:
              Number
      of
              Securities
              Underlying
              Unexercised
              Unearned
              Options
              (#)
            Option
              Exercise
              Price
              ($)
            Option
              Expiration
              Date
            Number
              of
              Shares
              or
      Units
              of
              Stock
      That
              Have
              Not
              Vested
              (#)
            Market
              Value
              of
              Shares
              or
              Units
              of
              Stock
              That
              Have
              Not
              Vested
              ($)
            Equity
              Incentive
              Plan
              Awards:
              Number
              of
              Unearned
              Shares,
              Units
      or
              Other
              Rights
              That
      Have
              Not
              Vested
              (#)
            Equity
              Incentive
              Plan
              Awards:
              Market
      or
              Payout
              Value
      of
              Unearned
              Shares,
              Units
      or
              Other
              Rights
              That
              Have
      Not
              Vested
              (#)Douglas
      Bolen
            -
            -
            -
            -
            -
            -
            -
            -
            -Kulwant
      Sandher
            -
            -
            -
            -
            -
            -
            -
            -
            -





Compensation
of Directors





The table
below summarizes all compensation of our directors for the year ended December
31, 2007.





DIRECTOR
      COMPENSATIONName
            Fees
      Earned or
              Paid
      in
              Cash
              ($)
            Stock
      Awards
              ($)
            Option
      Awards
              ($)
            Non-Equity
              Incentive
              Plan
              Compensation
              ($)
            Non-Qualified
              Deferred
              Compensation
              Earnings
              ($)
            All
              Other
              Compensation
              ($)
            Total
              ($)Douglas
      Bolen
            -
            -
            -
            -
            -
            -
            -Kulwant
      Sandher
            -
            -
            -
            -
            -
            -
            -






40
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Narrative
Disclosure to the Director Compensation Table





The total
compensation paid to Mr. Bolen and LMM, a company under the exclusive control of
Mr. Bolen, under the Consulting Agreement entered into on March 1, 2006 is
described in the narrative disclosure to the summary compensation table above.
Mr. Bolen did not receive any compensation for services rendered as a member of
the board of directors for the fiscal years ended December 31, 2007 and
2006.





Mr.
Sandher did not receive any compensation for services rendered as a member of
the board of directors for the fiscal year ended December 31, 2007.





Item 11.Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder
Matters





The
following table sets forth, as of January 31, 2008, the beneficial ownership of
our common stock by each executive officer and director, by each person known by
us to beneficially own more than 5% of the our common stock and by the executive
officers and directors as a group.  Except as otherwise indicated, all
shares are owned directly and the percentage shown is based on 45,940,506 shares
of common stock issued and outstanding on January 31, 2008.Except as otherwise
indicated, the address of each person named in this table is c/o Delta Oil &
Gas, Inc., 2600 144 4th Avenue,
S.W., Calgary, Alberta Canada T2P 3N4.





Title
      of class
            Name
      and address
              of
      beneficial owner (1)
            Amount
      of
              beneficial
      ownership
            Percent
              of
      class*Executive
      Officers & Directors:Common
            Douglas
      N. Bolen
            930,000
      shares
            2.02%Common
            Kulwant
      Sandher
            151,710
      shares
            0.3%Total
      of All Directors and Executive Officers:
            1,081,710
      shares
            2.35%More
      Than 5% Beneficial Owners:Common
            None




(1)
            As
      used in this table, "beneficial ownership" means the sole or shared power
      to vote, or to direct the voting of, a security, or the sole or shared
      investment power with respect to a security (i.e., the power to dispose
      of, or to direct the disposition of, a security). In addition, for
      purposes of this table, a person is deemed, as of any date, to have
      "beneficial ownership" of any security that such person has the right to
      acquire within 60 days after such
date.





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Item 12.  Certain Relationships and Related
Transactions





Except as
disclosed below, none of our directors or executive officers, nor any proposed
nominee for election as a director, nor any person who beneficially owns,
directly or indirectly, shares carrying more than 5% of the voting rights
attached to all of our outstanding shares, nor any members of the immediate
family (including spouse, parents, children, siblings, and in-laws) of any of
the foregoing persons has any material interest, direct or indirect, in any
transaction since the beginning of our last fiscal year on January 1, 2006 or in
any presently proposed transaction which, in either case, has or will materially
affect us.





On March
1, 2006, we entered into a Consulting Agreement with Last Mountain Management,
Inc. (“LMM”) to provide consulting services to us. Douglas Bolen, our Chief
Executive Officer, is the sole shareholder, officer, and director of LMM. The
Consulting Agreement is effective for a period of one (1) year commencing March
1, 2006 and we have a right to cancellation anytime within any six month term.
Under the terms of the Consulting Agreement, LMM is paid monthly compensation of
$5,000 plus applicable Canadian Good and Services Tax. Following the execution
of the Consulting Agreement, LMM was issued 500,000 shares of our common
stock.





Item 13. Exhibits





Exhibit
      Number
            Description3.1
            Articles
      of Incorporation, as amended 13.2
            By-laws,
      as amended 110.1
            Agreement
      to Acquire Interest in Todd Creek 210.2
            Agreement
      to Acquire Interest in Hillspring 210.3
            Amendment
      to Todd Creek and Hillspring Agreements 210.4
            Farmout
      Agreement relating to Cache Slough Prospect 310.5
            Farmout
      Agreement with Odin Capital Inc. relating to Leduc formation test well
      410.6
            Drilling
      Program Agreement between Griffin & Griffin Exploration L.L.C. and
      0743608 B.C. Ltd. 510.7
            Assignment
      Agreement between Delta Oil & Gas, Inc. and 0743608 B.C. Ltd 510.8
            Assignment
      Agreement of Interests in Cache Slough Prospect 710.9
            Assignment
      and Assumption Agreement for Owl Creek Prospect 810.10
            Consulting
      Agreement with Last Mountain Management, Inc. 914.1
            Code
      of Ethics 631.1
            Certification of Chief Executive Officer pursuant to
      Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200231.2
            Certification of Chief Financial Officer pursuant to
      Securities Exchange Act Rule 13a-14(a)/15d-14(a), 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





1Incorporated by reference to Registration Statement on Form SB-2 filed on
February 13, 2002


2Incorporated by reference to current report on Form 8-K filed on February
15, 2005


3Incorporated by reference to current report on Form 8-K filed on
September 29, 2005


4Incorporated by reference to current report on Form 8-K filed on May 26,
2005


5Incorporated by reference to current report on Form 8-K filed on February
27, 2006




42
 Table of Contents


6Incorporated by reference to annual report on Form 10-KSB for the year
ended December 31, 2004


7Incorporated by reference to quarterly report on Form 10-QSB for the
period ended September 30,


2006
filed on November 20, 2006


8Incorporated by reference to current report on Form 8-K filed on June 2,
2006


9Incorporated by reference to Amended Registration Statement on Form 10-SB
filed on February 27, 2007





Item 14.Principal Accountant Fees and
Services





Audit
Fees





The
aggregate fees billed by our auditors for professional services rendered in
connection with a review of the financial statements included in our quarterly
reports on Form 10-QSB and the audit of our annual consolidated financial
statements for the fiscal years ended December 31, 2007 and December 31, 2006
were approximately $25,000and $17,650
respectively.





Audit-Related
Fees





Our
auditors did not bill any additional fees for assurance and related services
that are reasonably related to the performance of the audit or review of our
financial statements.





Tax
Fees





The
aggregate fees billed by our auditors for professional services for tax
compliance, tax advice, and tax planning were $0 for the fiscal years ended
December 31, 2007 and 2006.





All
Other Fees





The
aggregate fees billed by our auditors for all other non-audit services, such as
attending meetings and other miscellaneous financial consulting, for the fiscal
years ended December 31, 2007 and 2006 were $Nil and $3,248
respectively.





43
 Table of Contents


SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





Delta
      Oil & Gas, Inc.By:
      /s/ Douglas
      Bolen
            By:
      /s/  Kulwant
      SandherDouglas
      N. Bolen
            Kulwant
      SandherChief
      Executive Officer
            Chief
      Financial OfficerApril
      14, 2008
            April
      14, 2008





In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated:





By:
      /s/  Douglas N.
      Bolen
            By:
      /s/  Kulwant
      SandherDouglas
      N. Bolen
            Kulwant
      SandherDirector
            DirectorApril
      14, 2008
            April
      14, 2008








44