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 endedDecember
                31, 2006[ 
                ]
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACTFor
                the transition period from _________ to ________Commission
                file number000-52001





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:866-355-3644




Securities
                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. $517,000





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.


$29,881,137
      as of February 21, 2007





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date. 45,630,506 Common Shares as of March 29,
      2007





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




Table
          of Contents





**TABLE
      OF CONTENTS**





PagePART
                IItem
                1.
            Description
                of Business
            3Item
                2.
            Description
                of Property
            12Item
                3.
            Legal
                Proceedings
            17Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            17PART
                IIItem
                5.
            Market
                for Common Equity and Related Stockholder Matters
            18Item
                6.
            Management’s
                Discussion and Analysis
            21Item
                7.
            Financial
                Statements
            25Item
                8.
            Changes
                In and Disagreements With Accountants on Accounting and
                Financial Disclosure
            26Item
                8A.
            Controls
                and Procedures
            26Item
                8B.
            Other
                Information
            27PART
                IIIItem
                9.
            Directors,
                Executive Officers, Promoters and Control Persons;
                Compliance With Section 16(a) of the Exchange Act
            27Item
                10.
            Executive
                Compensation
            30Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters
            32Item
                12.
            Certain
                Relationships and Related
                Transactions
            33Item
                13.
            Exhibits
            33Item
                14.
            Principal
                Accountant Fees and Services
            34




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          of Contents


**** **PART
      I**


**Item
      1. Description of Business**





**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 small interests in either producing wells or oil and gas
      exploration and development projects.





**Business
      of Issuer**





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





Liberty
      Valance Well





On
      February 7, 2001, we acquired an 8.9% working interest in a production gas
      well
      called the Liberty Valance RD1 Gas Unit (“Liberty Valance” or the “well”). The
      well is located in the Rancho Capay Gas Field in Glenn County, California.
      We
      acquired this well for $90,000. The well is operated by a California based
      oil
      and gas company (the “operator”) pursuant to an Operating Agreement dated
      December 29, 2000. Under the Operating Agreement, we are considered a
      non-operator. The operator 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.




Proved
      reserves are estimated quantities of natural gas and oil that geological and
      engineering data demonstrate with reasonable certainty to be recoverable in
      future years from known reservoirs under existing economic and operating
      conditions. Proved developed reserves are proved reserves that reasonably can
      be
      expected to be recovered through existing wells with existing equipment and
      operating methods.





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. Subsequent
      to the year end, we sold our remaining interest in the Liberty Valance Well
      for
      forgiveness of abandonment costs.


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          of Contents


Todd
      Creek Prospect and Hillspring Prospect





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




Todd
      Creek Prospect





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





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





During
      the second quarter of 2005, a well located in Todd Creek property was drilled
      to
      a specifically targeted depth. This well is located in 13-28-9-2W5 in Alberta,
      Canada and we will refer to this well as the “13-28 well.” The 13-28 well was
      evaluated and tested. The operator encountered gas reservoirs and concluded
      that
      this well is a potential gas well. This well was tied into a newly constructed
      gas processing plant and production commenced in September 2006. The revenue
      received from this well was $13,710 for the year ended December 31, 2006.





In
      January 2007, we completed the drilling of a second well in the Todd Creek
      Prospect located in 13-33-8-2 in Alberta, Canada and we will refer to this
      well
      as the “13-33 well.” Independent reserves reports we commissioned indicate that
      no economic hydrocarbons are present and therefore we have transferred the
      well
      costs to proved reserves and subsequently depleted the cost in accordance with
      our accounting policy.




Hillspring
      Prospect





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




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Our
      acquisition of an interest in Hillspring Prospect included an option to acquire
      an additional 10% working interest in 1.25 sections in the immediate area for
      the sum of $207,833 (US dollars). This option expired on July 1, 2005, but
      was
      later extended to December 29, 2006, and we decided not to extend this option
      further.





Cache
      Slough Prospect





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





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





Based
      on
      the positive results from the first well drilled on this property, a second
      well
      was drilled on this property to a targeted depth of 5,500 feet. The operator
      of
      the well elected to complete the well based on the initial testing and
      anticipates tying it in to a nearby pipeline to accommodate any potential
      natural gas production. The total costs associated with these two wells are
      $438,841.





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





Strachan
      Prospect





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


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and
      completing the test well on the property which we refer to as the Leduc
      formation test well, we will have earned:





a)
            in
                the Spacing Unit for the Earning
                Well:





i)
            a
                2.000% interest in the petroleum and natural gas below the base of
                the
                Mannville excluding natural gas in the Leduc formation;
                and





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





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





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





On
      October 6, 2005, drilling commenced Leduc formation test well. Under the terms
      of the Agreement, we advanced 110% of the anticipated costs prior to drilling.
      The total costs advanced by us prior to drilling were $347,431. The well was
      drilled to the targeted depth of 13,650 feet. Based on results indicating the
      presence of a potential gas well, the operator inserted casing into the total
      depth of the well and will perform a full testing program. 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





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




The
      Initial Drilling Program on ten (10) wells on the acquired property interest
      has
      been completed by Griffin. The prospect area owned or controlled by Griffin
      on
      which the initial ten wells will be drilled, is comprised of approximately
      1,273
      acres in Palmetto Point, Mississippi. To date, ten wells have been drilled,
      4 of
      which are producing, 1 of which is expected to produce but is currently awaiting
      a compressor, 3 of which are expected to produce but are waiting on pipeline
      completion rigs and 2 of which were not commercially viable and were plugged
      and
      abandoned. We elected to participate in an additional two well program which
      has
      also been completed. With respect to the two additional wells at this same
      location, it appears that these


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well
      contains reserves suitable for commercial production. These wells are waiting
      to
      be tied into a nearby pipeline. Total revenue received from these wells for
      the
      year ended December 31, 2006 was $17,485





Palmetto
      Point Prospect - 50 wells





During
      the fiscal quarter ended September 30, 2006, we entered into a joint venture
      agreement to acquire an interest in a drilling program comprising of up to
      50
      natural gas and/or oil wells. The area in which the proposed wells are to be
      drilled in approximately 300,000 gross acres location between Southwest
      Mississippi and Northeastern Louisiana. Drilling commenced in the first week
      of
      September 2006. The site of the first 20 proposed wells are located within
      range
      to tie into existing pipeline infrastructure should the wells be suitable for
      commercial production. The drilling program will be conducted by Griffin in
      its
      capacity as operator. We have agreed to pay 10% of all prospect fees, mineral
      leases, surface leases, and drilling and completion costs to earn a net 8%
      share
      of all production zones to the base of a geological formation referred to as
      the
      Frio formation and 7.5% of all production to the base of a geological formation
      referred to as the Wilcox formation. The cost during the quarter ending
      September 30, 2006 amounted to $100,000. During the fourth quarter of fiscal
      2006, we made additional payments of $300,000 to be employed in the further
      development of prospects on lands in Mississippi and Louisiana in accordance
      with the terms of the operating agreement.





We
      have
      drilled four wells of which one well was abandoned (Dixon #1) and the remaining
      three wells, Redbug #1, Faust #1 and Buffalo River are awaiting completion
      and
      connection to the nearby pipeline for production.





Wordsworth
      Prospect (formerly “Texalta”)





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





During
      June 2006, the first well was drilled to a horizontal depth of 2033 meters
      in
      the Wordsworth prospect. The initial drilling of this well and subsequent
      testing revealed that this well contains oil reserves suitable for commercial
      production. In June 2006, this initial well was producing as a flowing oil
      well.
      Revenue generated from this well for the year ended December 31, 2006 was
      $223,613.


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





Owl
      Creek Prospect (formerly “Brinx”)





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





Pursuant
      to the terms of the Assignment Agreement, we acquired a 20% working interest
      in
      an oil well drilled at the Owl Creek Prospect and we refer to the “Powell #2.”
The Powell #2 was drilled to total depth of 5,617 feet on May 18, 2006 and
      underwent testing. Based upon the positive result of the testing on the Powell
      #2 well, this well was completed and commercial production has commenced. Under
      the terms of the Assignment Agreement, we are responsible for our proportionate
      share of the costs of completion and tie-in for production of the Powell #2
      well. Initially after the well was completed, the Powell #2 well began flowing
      natural oil and gas under its own pressure without the assistance of a pump.
      The
      flow rates of the Powell #2 well have fluctuated significantly. Revenue
      generated from this well for the year ended December 31, 2006 was $265,062.




Based
      upon the positive results of the Powell #2 well, an additional well we refer
      to
      as the “Isbill #1-36” was drilled and reached its targeted depth in September
      2006. However, test results showed that the well will not be commercially
      viable, therefore the well was abandoned and all costs were transferred to
      proved reserves and subsequently depleted in accordance with the our accounting
      policy.





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





In
      the
      first quarter of 2007, we commenced drilling of another well we will refer
      to as
      the “Isbill#2-36” well. Our 20% working interest in the Isbill#2-36 well cost
      $155,862. The Isbill#2-36 well is a direct offset well to the Powell #2 which
      is
      currently producing. Our operator has indicated that they encountered two
      potential pay zones and we have elected to complete and fully test the
      well.


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***Market
      for Our Products and Services***





Each
      oil
      and gas property 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. However, the Liberty-Valance well is subject to
      contractual restrictions that require that non-operators such as us consent
      to
      the terms and conditions of any sales contract before it is entered
      into.





The
      availability of a ready market for oil and gas, and the prices of such oil
      and
      gas, depends 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.




***Competition***




The
      oil
      producing properties and exploratory drilling prospects, and gas industry is
      highly competitive in all its phases. Properties in which we have an interest
      will encounter strong competition from many other oil and gas producers,
      including many that possess substantial financial resources, in acquiring
      economically desirable producing properties and exploratory drilling prospects,
      and in obtaining equipment and labor to operate and maintain their
      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, 2006 or 2005.


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***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.





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.


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**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 m 3 /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.




**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 would be entitled to contribution from
      other owners so that our percentage share of a particular project would be
      the
      percentage


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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.





**Item
      2. Description of Property**





Our
      principal executive offices are located at Suite 1600, 144 4 th 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.


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December
                31,2006
            2005
            2004Oil
              (Bbls)
            Gas
              (Mcf)
            Oil
              (Bbls)
            Gas
              (Mcf)
            Oil
              (Bbls)
            Gas
              (Mcf)Proved
                Producing & Non-Producing Reserves
            43,496
            32,721
            Nil
            2,443
            Nil
            1,284Estimated
                future net cash flows from proved oil and gas reserves
            795,203
            $11,143
            $2,356Present
                value of net cash flows from proved oil and gas reserves
            611,152
            $9,823
            $2,121





**Production**





Production
                Data
            Year
                ended December 31,2004
            2005
            2006Production
                -Oil
                (Bbls)
            0
            0
            29,280Gas
                (Mcf)
            1,671
            866
            3,797Average
                Sales Price -Oil
                (Bbls)
            0
            0
            58Gas
                (Mcf)
            5.41
            9.20
            4.60Average
                Production Costs per Mcf
            $1.18
            $6.82
            2.50





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.


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**Productive
      Wells and Acreage**





The
      following table shows our producing wells and acreage as of December 31,
      2006:




Producing
                Wells3
            Developed
                AcreageOil
            GasGross1
            Net2
            Gross1
            Net2
            Gross1
            Net2Glenn
                County, California
              (Liberty
                Valence)
            0
            0
            1
            0.089
            10
            0.89Alberta,
                Canada
              (Todd
                Creek)
            0
            0
            1
            0.20
            8,800
            1,760Alberta,
                Canada
              (Hillspring)
            0
            0
            0
            0
            0
            0Alberta,
                Canada
              (Strachan)
            0
            0
            0
            0
            0
            0Palmetto
                Point, Mississippi
              (Palmetto)
            0
            0
            9
            0.9
            1,273
            127Saskatchewan,
                Canada
              (Wordsworth)
            1
            0.15
            0
            0
            160
            24Garvin
                & McClain Counties, Oklahoma
              (Owl
                Creek)
            1
            0.20
            1
            0.20
            160
            32





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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  **Undeveloped
      Acreage**





The
      following table set forth undeveloped acreage as of December 31,
      2006:




Undeveloped
                Acreage1as
                ofDecember
                31, 2006Gross
            NetGlenn
                County, California
              (Liberty
                Valence)
            0
            0Alberta,
                Canada
              (Todd
                Creek)
            7,350
            1,470Alberta,
                Canada
              (Hillspring)
            659
            65Alberta,
                Canada
              (Strachan)
            640
            12.8Palmetto
                Point, Mississippi
              (Palmetto)
                - Phase I
            0
            0Palmetto
                Point, Mississippi
              (Palmetto)
                - Phase II
            300,000
            30,000Saskatchewan,
                Canada
              (Wordsworth)
            4,800
            720Garvin
                & McClain Counties, Oklahoma
              (Owl
                Creek)
            960
            192





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.


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Geographical
                Area
            Net
                Exploratory Wells Drilled
            Net
                Development Wells DrilledProductive1
            Dry2
            Productive1
            Dry2Glenn
                County, California
              (Liberty
                Valence)2006
            0
            0
            0
            02005
            0
            0
            0
            02004
            0
            0
            0
            0Alberta,
                Canada
              (Todd
                Creek)2006
            0.20
            0
            0
            02004
            0.20
            0
            0
            02003
            0
            0
            0
            0Alberta,
                Canada
              (Hillspring)2006
            0
            0
            0
            02005
            0
            0
            0
            02004
            0
            0
            0
            0Solano
                County, California
              (Cache
                Slough)32006
            0
            0
            0
            02005
            0.125
            0
            0
            02004
            0
            0
            0
            0Alberta,
                Canada
              (Strachan)2006
            0
            0
            0
            020054
            0
            0
            0
            02003
            0
            0
            0
            0Palmetto
                Point, Mississippi
              (Palmetto)2006
            1.44
            0.36
            0
            02005
            0
            0
            0
            02003
            0
            0
            0
            0Saskatchewan,
                Canada
              (Wordsworth)2006
            0.15
            0
            0
            02005
            0
            0
            0
            02003
            0
            0
            0
            0Garvin
                & McClain Counties, Oklahoma
              (Owl
                Creek)2006
            0.20
            0
            0.20
            0.202005
            0
            0
            0
            02003
            0
            0
            0
            0Totals
            1.99
            0.36
            0.20
            0.20


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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, 2006.


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**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, 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
            
            0.60Fiscal
                Year Ended December 31, 2005Quarter
                Ended
            
            High
                $
            
            Low
                $March
                31, 2005
            
            1.17
            
            0.85June
                30, 2005
            
            1.16
            
            0.82September
                30, 2005
            
            4.04
            
            1.02December
                31, 2005
            
            1.54
            
            0.83





**Penny
      Stock**





The
      SEC
      has adopted rules that regulate broker-dealer practices in connection with
      transactions in penny stocks. Penny stocks are generally equity securities
      with
      a market price of less than $5.00, other than securities registered on certain
      national securities exchanges or quoted on the NASDAQ system, provided that
      current price and volume information with respect to transactions in such
      securities is provided by the exchange or system. The penny stock rules require
      a broker-dealer, prior to a transaction in a penny stock, to deliver a
      standardized risk disclosure document prepared by the SEC, that: (a) contains
      a
      description of the nature and level of risk in the market for penny stocks
      in
      both public offerings and secondary trading; (b) contains a description of
      the
      broker's or dealer's duties to the customer and of the rights and remedies
      available to the customer with respect to a violation of such duties or other
      requirements of the securities laws; (c) contains a brief, clear, narrative
      description of a dealer market, including bid and ask prices for penny stocks
      and the significance of the spread between the bid and ask price;


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(d)
      contains a toll-free telephone number for inquiries on disciplinary actions;
      (e)
      defines significant terms in the disclosure document or in the conduct of
      trading in penny stocks; and (f) contains such other information and is in
      such
      form, including language, type size and format, as the SEC shall require by
      rule
      or regulation.





The
      broker-dealer also must provide, prior to effecting any transaction in a penny
      stock, the customer with (a) bid and offer quotations for the penny stock;
      (b)
      the compensation of the broker-dealer and its salesperson in the transaction;
      (c) the number of shares to which such bid and ask prices apply, or other
      comparable information relating to the depth and liquidity of the market for
      such stock; and (d) a monthly account statement showing the market value of
      each
      penny stock held in the customer's account.





In
      addition, the penny stock rules require that prior to a transaction in a penny
      stock not otherwise exempt from those rules, the broker-dealer must make a
      special written determination that the penny stock is a suitable investment
      for
      the purchaser and receive the purchaser's written acknowledgment of the receipt
      of a risk disclosure statement, a written agreement as to transactions involving
      penny stocks, and a signed and dated copy of a written suitability
      statement.





These
      disclosure requirements may have the effect of reducing the trading activity
      for
      our common stock. Therefore, stockholders may have difficulty selling our
      securities.





**Holders
      of Our Common Stock**





As
      of
      February 21, 2007, we had approximately eighty-six (86) holders of record of
      our
      common stock and several other stockholders 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.


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**Recent
      Sales of Unregistered Securities**





The
      information set forth below relates to our 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.





Subsequent
      to the reporting period on January 18, 2007, we granted to Kulwant Sandher,
      in
      connection with services to be rendered and his appointment as our Chief
      Financial Officer, options to purchase 300,000 shares of our common stock at
      the
      exercise price of $0.75 per share with the options vesting quarterly over a
      one
      year period and exercisable for a period of three years from the date of
      issuance or expiring on January 17, 2010. These shares and options were issued
      pursuant to Section 4(2) of the Securities Act of 1933, as amended. We did
      not
      engage in any general solicitation or advertising.





**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, 2006.





**Equity
      Compensation Plans as of December 31, 2006**




A
              B
              C**Plan
                  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
              312,500
              $1.00
              5,564,512Total
              312,500
              $1.00
              5,564,512





On
      January 3, 2005, we adopted the 2005 Stock Incentive Plan, which provides for
      the grant of incentive stock options and non-qualified stock options to our
      employees, officers, directors and consultants. Under the 2005 Stock Incentive
      Plan, we registered 6,194,512 shares of our common stock and reserved such
      number of shares for the granting of options and rights.


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





**Forward-Looking
      Statements**




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





**Results
      of Operations for the Years Ended December 31, 2006 and
      2005**





For
      the
      year ended December 31, 2006, our revenues generated from natural gas and oil
      sales increased to $517,000 from revenue of $7,367 for the year ended December
      31, 2005. 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 royalties received from the Wordsworth and Owl Creek
      prospects commencing in the third quarter of 2006.  However,
      our total revenue including the gain on sale of an oil property was $1,578,159
      for the year ended December 31, 2006. The gain was related to the sale of our
      interest in the Cache Slough Prospect.





We
      incurred costs and expenses in the amount of $1,917,607 for the year ended
      December 31, 2006, compared to costs and expenses of $577,417 for the prior
      year. The increase in expenses was caused by an increase in our natural gas
      and
      operating costs, together with the write down of the costs associated with
      Isbill #1-36 at Owl Creek due to abandonment. We expensed $611,378 during the
      year ended December 31, 2006 as a write down in carrying values of natural
      gas
      and oil properties. We reported depreciation and depletion expenses of $467,899
      during the year ended December 31, 2006. Stock-based compensation of $195,719
      was a significant component of our general and administrative expenses for
      the
      year ended December 31, 2006. Our costs and expenses for the year ended December
      31, 2005 consisted of general and administrative expenses of $571,660, natural
      gas and oil operating costs of $5,465, and depreciation and depletion of


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$292.
      Stock-based compensation of $370,267 was a significant component of our general
      and administrative expenses for the year ended December 31, 2005.





We
      reported other income of $64,050 for the year ended December 31, 2006 and did
      not record any other income in the year ended December 31, 2005. 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.





Net
      loss
      for the year ended December 31, 2006 was $275,398, compared to a net loss of
      $570,050 for the year ended December 31, 2005.





There
      are
      material events and uncertainties which could cause our reported financial
      information to not to be indicative of future operating results or financial
      condition. Our inability to successfully identify, execute or effectively
      integrate future acquisitions may negatively affect our results of operations.
      The success of any acquisition depends on a number of factors beyond our
      control, including the ability to estimate accurately the recoverable volumes
      of
      reserves, rates of future production and future net revenues attainable from
      the
      reserves and to assess possible environmental liabilities. Drilling for oil
      and
      natural gas may also involve unprofitable efforts, not only from dry wells
      but
      also from wells that are productive but do not produce sufficient net reserves
      to return a profit after deducting operating and other costs. In addition,
      wells
      that are profitable may not achieve our targeted rate of return. Our ability
      to
      achieve our target results are also dependent upon the current and future market
      prices for crude oil and natural gas, costs associated with producing oil and
      natural gas and our ability to add reserves at an acceptable 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, 2006, we had total current assets of $1,758,820 and total current
      liabilities in the amount of $39,526. As a result, we had working capital of
      $1,719,294 as of December 31, 2006.





The
      revenue we currently generate natural gas and oil sales does not exceed our
      operating expenses. We primarily relied on financing activities including
      issuance of common stocks and units as well as share subscription receipts
      to
      fund our operations for the year ended December 31, 2006. During the year ended
      December 31, 2006, we received $2,122,496 from financing activities.


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





Operating
      activities used $868,664 in cash for the year ended December 31, 2006. Our
      net
      loss of $275,398 was the primary component of our negative operating cash flow.
      Investing activities during the year ended December 31, 2006 primarily consisted
      of $2,104,247 for the purchase or natural gas and oil properties. Cash flows
      provided by financing activities during the year ended December 31, 2006
      primarily consisted of $2,106,496 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, 2006 are as
      follows:





·
            Property
                acquisition costs, and


·
            Financing
                from the issuance of common stock.





**Off
      Balance Sheet Arrangements**





As
      of
      December 31, 2006, there were no off balance sheet arrangements.





**Going
      Concern**





As
      shown
      in the accompanying financial statements, we have incurred a net loss of
      $1,148,612 since inception. To achieve profitable operations, we require
      additional capital for obtaining producing oil and gas properties through either
      the purchase of producing wells or successful exploration activity. Our
      management believes that sufficient funding will be available to meet our
      business objectives including anticipated cash needs for working capital and
      is
      currently evaluating several financing options. However, there can be no
      assurance that we will be able to obtain sufficient funds to continue the
      development of and, if successful, to commence the sale of our products under
      development. As a result of the foregoing, there exists substantial doubt about
      our ability to continue as a going concern.





**Critical
      Accounting Policies**





In
      December 2001, the SEC requested that all registrants list their 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.


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**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, 2006 and 2005, we had no overproduced
      imbalances.


24
 Table
          of Contents


**Item
      7. Financial Statements**





Index
      to
      Financial Statements:




**Audited
                Financial Statements:**F-1
            Report
                of Independent Registered Public Accounting
                FirmF-2
            Consolidated
                Balance Sheet as of December 31, 2006 and
                2005F-3
            Consolidated
                Statements of Operations - Years Ended December
                31, 2006 and December 31, 2005 and Cumulative period from inception
                January 9, 2001 to December 31, 2006F-4
            Consolidated
                Statement of Stockholders’ Equity (Deficiency) and
                from inception January 9, 2001 to December 31, 2006F-5
            Consolidated
                Statements of Cash Flows for the Years Ended
                December 31, 2006 and December 31, 2005 and Cumulative period from
                inception January 9, 2001 to December 31, 2006F-6
            Notes
                to Consolidated Financial
                Statements





25
 Table
            of Contents


**REPORTOF
        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 of December 31, 2006 and 2005,
          the related consolidated statements of operations, stockholders’ equity and cash
          flows for the
          years 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 2005 and the
          results of its operations and its cash flows for the years 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.
  
 **TELFORD
          SADOVNICK, P.L.L.C.**
 
 **CERTIFIED
          PUBLIC ACCOUNTANTS**
 
 Bellingham,
          Washington
 March
          23,
          2007
 F-1
 Table
            of Contents
 **DELTA
        OIL & GAS, INC.**
 (A
        Development Stage Company)
  **Consolidated
        Balance Sheets**
 (Stated
        in U.S. Dollars)
 **December
                      31,**
                    **2006**
                
                December
                      31,
                    2005**ASSETS****Current**Cash
                    and cash equivalents
                **$**
                **1,668,758**
                
                $
                343,004Accounts
                    receivable
                
                **88,451**
                
                
                10,068Prepaid
                    expenses
                
                **1,611**
                
                
                1,615**1,758,820**
                
                
                354,687**Natural
                    Gas And Oil Properties**Proved
                    properties
                
                **812,717**
                
                
                1,272Unproved
                    properties
                
                **1,816,007**
                
                
                2,040,700**2,628,724**
                
                
                2,041,972**Other
                    Equipment**Computer
                    equipment
                
                **3,492**
                
                
                3,492Less:
                    accumulated depreciation
                
                **(2,655)**
                
                
                (2,033)**837**
                
                
                1,459**$**
                **4,388,381**
                
                $
                2,398,118**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****LIABILITIES****Current**Accounts
                    payable and accrued liabilities
                **$**
                **39,526**
                
                $
                93,318Promissory
                    note payable
                
                **-**
                
                
                39,397**39,526**
                
                
                132,715**Long
                    Term**Asset
                    Retirement obligation
                
                **40,635**
                
                
                -**80,161**
                
                
                132,715**STOCKHOLDERS'
                  EQUITY****Share
                    Capital**Preferred
                    Shares, 25,000,000 shares authorized of $0.001
                  par
                    value of which not have been issuedCommon
                    stock, 100,000,000 shares authorized of $0.001
                  par
                    value, 45,070,507 and 44,025,735 shares issuedand
                    outstanding, respectively
                
                **45,071**
                
                
                44,026Additional
                    paid-in capital
                
                **5,411,761**
                
                
                3,110,591Share
                    subscriptions receivable
                
                **-**
                
                
                (16,000)**Deficit
                    accumulated during the development stage**
                
                **(1,148,612)**
                
                
                (873,214)**4,308,220**
                
                
                2,265,403**$**
                **4,388,381**
                
                $
                2,398,118
 The accompanying notes are an integral
        part of
        these consolidated financial statements.


F-2
 Table
          of Contents


**DELTA
        OIL & GAS, INC.**
 (A
        Development Stage Company)
  **Consolidated
        Statements of Operations**
 (Stated
        in U.S. Dollars)
 **YEAR
                            ENDED**
                          **DECEMBER
                            31,**
                      
                      CUMULATIVE
                                  PERIOD
                                FROM
                                  INCEPTION
                                JANUARY
                                  9, 2001
                                TO
                                DECEMBER
                                  31,**2006**
                      
                      2005
                      
                      2006**Revenue**Natural
                          gas and oil sales
                      **$**
                      **517,000**
                      
                      $
                      7,367
                      
                      $
                      611,130Gain
                          on sale of oil property
                      **$**
                      **1,061,159**
                      
                      $
                      -
                      
                      $
                      1,061,159**$**
                      **1,578,159**
                      
                      $
                      7,367
                      
                      $
                      1,672,289**Costs
                          And Expenses**Natural
                          gas and oil operating costs
                      
                      **101,281**
                      
                      
                      5,465
                      
                      
                      136,050General
                          and administrative
                      
                      **696,414**
                      
                      
                      571,660
                      
                      
                      1,407,192Depreciation
                          and depletion
                      
                      **467,899**
                      
                      
                      292
                      
                      
                      505,503Impairment
                          of natural gas and oil properties
                      
                      **611,378**
                      
                      
                      -
                      
                      
                      676,881Dry
                          well costs written off
                      
                      **-**
                      
                      
                      -
                      
                      
                      118,690Asset
                          retirement obligations
                      
                      **40,635**
                      
                      
                      -
                      
                      
                      40,635**1,917,607**
                      
                      
                      577,417
                      
                      
                      2,884,951**Net
                          Operating (Loss)**
                      
                      **(339,448)**
                      
                      
                      (570,050)
                      
                      
                      (1,212,662)**Other
                          Income**Forgiveness
                          of debt
                      
                      **39,933**
                      
                      
                      -
                      
                      
                      39,933Interest
                          income
                      
                      **24,117**
                      
                      
                      -
                      
                      
                      24,117**64,050**
                      
                      
                      -
                      
                      
                      64,050**Net
                          Income (Loss)**
                      
                      **(275,398)**
                      
                      
                      (570,050)
                      
                      
                      (1,148,612)**Basic
                          (Loss) Per Common Share**
                      **$**
                      **(0.01)**
                      
                      $
                      (0.01)**Weighted
                            Average Number OfCommon
                            Shares Outstanding**
                      
                      **44,823,126**
                      
                      
                      42,235,227
 The accompanying notes are an integral
          part of
          these consolidated financial statements.


F-3
 Table
          of Contents


**DELTA
        OIL & GAS, INC.**
 (A
        Development Stage Company)
  **Consolidated
        Statement of Changes in Stockholders' Equity
        (Deficiency)**
 (Stated
        in U.S. Dollars)
 COMMON
                      STOCK
                  
                  DEFICIT
                      ACCUMULATEDNUMBER
                      OF
                        COMMON
                      SHARES
                      VALUE
                  
                  PAR
                    VALUE
                  
                  ADDITIONAL
                    PAID-IN
                      CAPITAL
                  
                  SHARE
                        SUBSCRIPTIONS
                        RECEIVED
                  
                  SHARE
                        SUBSCRIPTIONS
                        RECEIVABLE
                  
                  DURING
                          THE
                        DEVELOPMENT
                        STAGE
                  
                  TOTALShares
                      issued for cash at $0.00018
                  
                  13,750,000
                  
                  $
                  13,750
                  
                  $
                  (11,250)
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  2,500Shares
                      issued for cash at $0.0036
                  
                  27,500,000
                  
                  
                  27,500
                  
                  
                  72,500
                  
                  
                  -
                  
                  
                  -
                  
                  
                  
                  
                  
                  100,000Shares
                      issued for cash at $0.045
                  
                  46,750
                  
                  
                  47
                  
                  
                  2,078
                  
                  
                  -
                  
                  
                  -
                  
                  
                  
                  
                  
                  2,125Net
                      (Loss) for the period ended
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (184,407)
                  
                  
                  (184,407)Balance,
                      December 31, 2001
                  
                  41,296,750
                  
                  
                  41,297
                  
                  
                  63,328
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (184,407)
                  
                  
                  (79,782)Net
                      Loss for the year
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (62,760)
                  
                  
                  (62,760)Balance,
                      December 31, 2002
                  
                  41,296,750
                  
                  
                  41,297
                  
                  
                  63,328
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (247,167)
                  
                  
                  (142,542)Net
                      (Loss) for the year
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (24,423)
                  
                  
                  (24,423)Balance,
                      December 31, 2003
                  
                  41,296,750
                  
                  
                  41,297
                  
                  
                  63,328
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (271,590)
                  
                  
                  (166,965)Share
                      subscriptions received
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  160,000
                  
                  
                  -
                  
                  
                  -
                  
                  
                  160,000Net
                      (Loss) for the year
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (31,574)
                  
                  
                  (31,574)Balance,
                      December 31, 2004
                  
                  41,296,750
                  
                  
                  41,297
                  
                  
                  63,328
                  
                  
                  160,000
                  
                  
                  -
                  
                  
                  (303,164)
                  
                  
                  (38,539)Units
                      issued for cash at $1.00,
                    net
                      of share issuance 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, net of finders feeStock-based
                      compensation
                  
                  -
                  
                  
                  -
                  
                  
                  195,719
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  195,719Net
                      income (loss) for the year
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (275,398)
                  
                  
                  (275,398)Balance,
                      December 31, 2006
                  
                  **45,070,506**
                  
                  $
                  45,071
                  
                  $
                  5,411,761
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  (1,148,612)
                  
                  $
                  4,308,220
 
 The
        accompanying notes are an integral part of these
        consolidated financial statements.


F-4
 Table
          of Contents


**DELTA
      OIL & GAS, INC.**


(A
      Development Stage Company)




**Consolidated
      Statements of Cash Flows**


(Stated
      in U.S. Dollars)


**YEAR
                    ENDED**
                  **December
                    31,**
              
              CUMULATIVE
                          PERIOD
                        FROM
                        INCEPTION
                        JANUARY
                          9, 2001
                        TO
                        DECEMBER
                          31,**2006**
              
              2005
              
              2006**CASH
                  PROVIDED BY (USED IN):****Cash
                  Flows From Operating Activities:**Net
                  Income (loss) for the period
              **$**
              **(275,398)**
              
              $
              (570,050)
              
              $
              (1,148,612)Adjustments
                  to reconcile net loss to net cashused
                  in operating activities:Gain
                  on sale of property
              
              **(1,061,159)**
              
              
              -
              
              
              (1,061,159)Depreciation
                  and depletion
              
              **467,899**
              
              
              292
              
              
              505,503Impairment
                  of natural gas and oil properties
              
              **611,378**
              
              
              -
              
              
              676,881Interest
                  accrued on note payable
              
              **-**
              
              
              2,143
              
              
              -Dry
                  well costs written off
              
              **-**
              
              
              -
              
              
              118,690Stock-based
                  compensation expense
              
              **195,719**
              
              
              370,267
              
              
              565,986Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              **(78,383)**
              
              
              (2,205)
              
              
              (88,451)Accounts
                  payable and accrued liabilities
              
              **(53,792)**
              
              
              71,355
              
              
              39,526Asset
                  retirement obligations
              
              **40,635**
              
              
              -
              
              
              40,635Promissory
                  Note payable
              
              **(39,397)**
              
              
              (17,362)
              
              
              -Prepaid
                  expenses
              
              **4**
              
              
              (1,615)
              
              
              (1,611)**Net
                  Cash Provided by (Used in) Operating Activities**
              
              **(192,494)**
              
              
              (147,175)
              
              
              (352,612)**Cash
                  Flows From Investing Activities:**Purchase
                  of other equipment
              
              **-**
              
              
              (1,751)
              
              
              (3,492)Sale
                  proceeds of natural gas and oil working interests
              
              **1,500,000**
              
              
              -
              
              
              1,500,000Investment
                  in natural gas and oil working interests
              
              **(2,104,248)**
              
              
              (1,990,700)
              
              
              (4,365,985)**Net
                  Cash Used in Investing Activities**
              
              **(604,248)**
              
              
              (1,992,451)
              
              
              (2,869,477)**Cash
                  Flows From Financing Activities:**Proceeds
                  from issuance of common stock
              
              **2,106,496**
              
              
              2,503,726
              
              
              4,890,847Shares
                  subscriptions receivable
              
              **16,000**
              
              
              -
              
              
              -Advances
                  from (Repaid to) related party
              
              **-**
              
              
              (13,122)
              
              
              -Advances
                  received (repaid)
              
              **-**
              
              
              (7,974)
              
              
              -**Net
                  Cash Provided by Financing Activities**
              
              **2,122,496**
              
              
              2,482,630
              
              
              4,890,847**Net
                  Increase In Cash And Cash Equivalents**
              
              **1,325,754**
              
              
              343,004
              
              
              1,668,758**Cash
                  And Cash Equivalents At Beginning Of Period****(Excess
                  Of Checks Issued Over Funds On Deposit)**
              
              **343,004**
              
              
              -
              
              
              -**Cash
                  And Cash Equivalents At End Of Period**
              **$**
              **1,668,758**
              
              $
              343,004
              
              $
              1,668,758





The
      accompanying notes are an integral part of these
      consolidated financial statements.


F-5
 Table
          of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


**(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.


F-6
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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





**1.**
            **OPERATIONS
                (Continued)**




b)
            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 $1,148,612 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.
 
 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.


F-7
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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





**2.**
            **SIGNIFICANT
                ACCOUNTING POLICIES
                (Continued)**




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 are accreted to the expected settlement
        value. The fair value of the ARO is measured using expected future cash flow,
        discounted at the Company’s credit-adjusted risk-free interest
        rate.





F-8
 Table
          of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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





**2.**
            **SIGNIFICANT
                ACCOUNTING POLICIES
                (Continued)**


e)
            Joint
                Ventures  All
        exploration and production activities are conducted jointly with others and,
        accordingly, the accounts reflect only the Company’s proportionate interest in
        such activities.
 
 f)
            Revenue
                Recognition 
 Revenue
        from sales of crude oil, natural gas and refined petroleum products are recorded
        when deliveries have occurred and legal ownership of the commodity transfers
        to
        the customers. Title transfers for crude oil, natural gas and bulk refined
        products generally occur at pipeline custody points or when a tanker lifting
        has
        occurred. Revenues from the production of oil and natural gas properties
        in
        which the Company shares an undivided interest with other producers are
        recognized based on the actual volumes sold by the Company during the period.
        Gas imbalances occur when the Company’s actual sales differ from its entitlement
        under existing working interests. The Company records a liability for gas
        imbalances when it has sold more than its working interest of gas production
        and
        the estimated remaining reserves make it doubtful that the partners can recoup
        their share of production from the field. At December 31, 2006 and 2005,
        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. At December 31, 2006 and 2005,
        the
        Company had no cash equivalents.
 
 h)
            Environmental
                Protection and Reclamation Costs 
 The
        operations of the Company have been, and may be in the future be affected
        from
        time to time in varying degrees by changes in environmental regulations,
        including those for future removal and site restorations costs. Both the
        likelihood of new regulations and their overall effect upon the Company may
        vary
        from region to region and are not predictable.


F-9
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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





**2.**
            **SIGNIFICANT
                ACCOUNTING POLICIES
                (Continued)**


h)
            Environmental
                Protection and Reclamation Costs
                (Continued) 
 The
        Company’s policy is to meet or, if possible, surpass standards set by relevant
        legislation, by application of technically proven and economically feasible
        measures. Environmental expenditures that relate to ongoing environmental
        and
        reclamation programs will be charged against statements of operations as
        incurred or capitalized and amortized depending upon their future economic
        benefits. The Company does not currently anticipate any material capital
        expenditures for environmental control facilities because all property holdings
        are at early stages of exploration. Therefore, estimated future removal and
        site
        restoration costs are presently considered minimal.
 
 i)
            Foreign
                Currency Translation 
 United
        States funds are considered the Company’s functional currency. Transaction
        amounts denominated in foreign currencies are translated into their United
        States dollar equivalents at exchange rates prevailing at the transaction
        date.
        Monetary assets and liabilities are adjusted at each balance sheet date to
        reflect exchange rates prevailing at that date, and non-monetary assets and
        liabilities are translated at the historical rate of exchange. Gains and
        losses
        arising from restatement of foreign currency monetary assets and liabilities
        at
        each year-end are included in statements of operations.
 
 j)
            Other
                Equipment 
 Computer
        equipment is stated at cost. Provision for depreciation on computer equipment
        is
        calculated using the straight-line method over the estimated useful life
        of
        three years.
 
 k)
            Impairment
                of Long-Lived Assets 
 In
        the
        event that facts and circumstances indicate that the costs of long-lived
        assets,
        other than oil and gas properties, may be impaired, and evaluation of
        recoverability would be performed. If an evaluation is required, the estimated
        future undiscounted cash flows associated with the asset would be compared
        to
        the asset’s carrying amount to determine if a write-down to market value or
        discounted cash flow value is required. Impairment of oil and gas properties
        is
        evaluated subject to the full cost ceiling as described under Natural Oil
        and
        Gas Properties.


F-10
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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





**2.**
            **SIGNIFICANT
                ACCOUNTING POLICIES
                (Continued)**


l)
            Loss
                Per Share 
 In
        February 1997, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS
        128”). Under SFAS 128, basic and diluted earnings per share are to be presented.
        Basic earnings per share is computed by dividing income available to common
        shareholders by the weighted average number of common shares outstanding
        in the
        period. Diluted earnings per share takes into consideration common shares
        outstanding (computed under basic earnings per share) and potentially dilutive
        common shares.
 
 m)
            Income
                Taxes 
 The
        Company follows the liability method of accounting for income taxes under
        which
        deferred tax assets and liabilities are recognized for the future tax
        consequences of (i) temporary differences between the tax bases of assets
        and
        liabilities, and their reported amounts in the financial statements, and
        (ii)
        operating loss and tax credit carryforwards for tax purposes. Deferred tax
        assets are reduced by a valuation allowance when, based upon management’s
        estimates, it is more likely than not that a portion of the deferred tax
        assets
        will not be realized in a future period.
 
 n)
            Financial
                Instruments 
 The
        Company’s financial instruments consist of cash and cash equivalent, accounts
        receivable, accounts payable and accrued liabilities, and promissory note
        payable.
 
 It
        is
        management’s opinion that the Company is not exposed to significant interest or
        credit risks arising from these financial instruments. The fair value of
        these
        financial instruments is approximate their carrying values.
  o)
              Comprehensive
                  Loss
  SFAS
        No.
        130, “Reporting Comprehensive Income,” establishes standards for the reporting
        and display of comprehensive loss and its components in the financial
        statements. As at December 31, 2006 and 2005, the Company has no items that
        represent a comprehensive loss and, therefore, has not included a schedule
        of
        comprehensive loss in the financial statements.


F-11
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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





**2.**
            **SIGNIFICANT
                ACCOUNTING POLICIES
                (Continued)**





p)
            Stock-Based
                Compensation





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




**3.**
            **NATURAL
                GAS AND OIL PROPERTIES**




a)
            Proved
                Property




**Properties**
            **December
                31, 2005**
            
            **Addition**
            
            **Depletion
                for the period**
            
            **Write
                down in carrying**
              **value**
            
            **December
                31, 2006****USA
                properties**
            $
            1,272
            
            $
            747,226
            
            $
            (154,112)
            
            $
            (139,906)
            
            $
            **454,480****Canada
                properties**
            
            -
            
            
            1,142,874
            
            
            (313,165)
            
            
            (471,472)
            
            
            **358,237****Total**
            $
            1,272
            
            $
            1,890,100
            
            $
            (467,277)
            
            $
            (611,378)
            
            $
            **812,717**





F-12
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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




**3.**
            **NATURAL
                GAS AND OIL PROPERTIES
                (Continued)**




a)
            Proved
                Property - Descriptions




i.
              Liberty
                  Valance, California, USA
  In
        February 2001, the Company acquired and 8.9% working interest in a gas well
        located in California at a cost of $90,000. The well commenced production
        in
        February 2001 following a redrill.
  ii.
              Wordsworth
                  Prospect, Saskatchewan, Canada
  On
        April
        10, 2006, the Company entered into an agreement (the “Agreement”) with Petrex
        Energy Ltd., for a participation and Farmout agreement where the Company
        will
        participate for 15% gross working interest before payout (BPO) and 7.5% gross
        working interest after pay out (APO) in a proposed four well horizontal drilling
        program in the Wordsworth area in Southeast Saskatchewan, Canada. As at December
        31, 2006, the Company had advanced $210,304 (CDN$33,968) as its share of
        the
        costs in this Agreement.
 
 iii.
            Owl
                Creek Prospect, Oklahoma, USA 
 In
        June
        2006, the Company entered into an agreement to accept the assignment of an
        undivided 20% working interest in a potential oil well known as the Powell
        #2
        and an option to purchase a 20% interest in all future wells drilled on the
        land
        surrounding Powell#2. In addition the Company has an option to participate
        in
        any lands of mutual interest that may be acquired in the future by the Owl
        creek
        participating partners. The cost to Delta for this assignment was $368,987.
 
 In
        July
        2006, the Company also elected to participate in Isbill #1-36, it was abandoned
        during the year, and costs amounted to $81,026 was charged to the statement
        of
        operations.
 
 iv.
            Todd
                Creek, Alberta, Canada 
 In
        January 2005, the Company acquired a 20% working interest in 13.75 sections
        (8,800 acres) of land in Todd Creek, Alberta, Canada, at a cost of $597,263.
        One
        of the well 13-28-9-2W5M has production since October 2006.


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


F-13
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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




**3.**
            **NATURAL
                GAS AND OIL PROPERTIES
                (Continued)**  v)
              Palmetto
                  Point Prospect, Mississippi,
                  USA  On
          February 21, 2006, the Company entered into an agreement (the “Agreement”) with
          0743608 B.C. Ltd., (“Assignor”) a British Columbia based oil and gas exploration
          company, in order to accept an assignment of the Assignor’s ten percent (10%)
          gross working and revenue interest in a ten-well drilling program (the
“Drilling
          Program”) to be undertaken by Griffin & Griffin Exploration L.L.C.,
          (“Griffin”) a Mississippi based exploration company. Under the terms of the
          Agreement, the Company paid the Assignor $425,000 as payment for the assignment
          of the Assignor’s 10% gross working and revenue interest in the Drilling
          Program. The Company also entered into a joint Operating Agreement directly
          with
          Griffin on February 24, 2006.
 
 As
          of
          December 31, 2006, five wells were found to be proved wells, and two wells
          were
          written off.
 
 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.
  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.


F-14
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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





**3.**
            **NATURAL
                GAS AND OIL PROPERTIES
                (Continued)**  **b)**
              **Unproved
                  Properties**





**Properties**
            **December
                31, 2005**
            
            **Addition**
            
            **Cost
                added to capitalized cost**
            
            **December
                31, 2006****USA
                properties**
            $
            425,000
            
            $
            238,238
            
            $
            (165,738)
            
            **$**
            **497,500****Canada
                properties**
            
            1,615,700
            
            
            17,766
            
            
            (314,959)
            
            
            **1,318,507****Total**
            $
            2,040,700
            
            $
            256,004
            
            $
            (480,697)
            
            **$**
            **1,816,007**




b)
            Unproved
                Properties - Description




i)
            Todd
                Creek, Alberta, Canada


In
        January 2005, the Company acquired a 20% working interest in 13.75 sections
        (8,800 acres) of land in Todd Creek, Alberta, Canada, at a cost of $597,263.
        The
        Company paid $314,954 (CDN$352,376) on October 27, 2006 for well 13-33-8-2W5M.
        It was abandoned and the cost was charged to the statement of operations
        for the
        period. As at December 31, 2006, a cash call of $257,674 has been paid as
        share
        of costs for a proposed drilling program.




F-15
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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





**3.**
            **NATURAL
                GAS AND OIL PROPERTIES
                (Continued)**




b)
              Unproved
                  properties - Description
                  (Continued)
  ii)
              Hillspring,
                  Alberta, Canada
  In
        January 2005, the Company acquired a 10% working interest in 1 section (64
        acres) of land in Hillspring, Alberta, Canada, at a cost of $414,766.
  iii)
                Cache
                    Slough Prospect, California,
                    USA
 
 In
        May
        2005, the Company entered into a participation agreement with Production
        Specialties Company (“PSC”) where the Company has been granted the right to earn
        a 68% working interest in a test well and a 12.50% working interest in certain
        lands located in Solano County, California, by paying 18.75% of the test
        well
        operations. During the year a cash call of $438,841 has been paid as share
        of
        costs for a proposed drilling program.
 
 Following
        these payments, the Company will be responsible for 12.5% of all additional
        expenditures for drilling and production on the property and be entitled
        to
        receive 8.5% of all revenue generate by the property, which is 12.5% of this
        California company’s 68% interest.
 
 On
        November 16, 2006, the Company assigned all of its interest in exchange for
        a
        cash amount of $1,500,000.


F-16
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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





**3.**
            **NATURAL
                GAS AND OIL PROPERTIES
                (Continued)** Unproved
          Properties - Description (Continued)
  iv)
                Strachan
                    Prospect, Alberta, Canada
 In
          September 2005, the Company entered into a participation and farmout agreement
          with Odin Capital Inc. (“Odin”) where the Company will participate for 4% share
          of the costs of drilling a test well in certain lands located in the Leduc
          formation, Alberta, Canada. In exchange for 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, 2006, the Company has advanced $347,431
          as
          its share of the costs in the Leduc formation property.
 
 v)
              Palmetto
                  Point Prospect, Mississippi, USA 
 On
          February 21, 2006, the Company entered into an agreement (the “Agreement”) with
          0743608 B.C. Ltd., (“Assignor”) a British Columbia based oil and gas exploration
          company, in order to accept an assignment of the Assignor’s ten percent (10%)
          gross working and revenue interest in a ten-well drilling program (the
“Drilling
          Program”) to be undertaken by Griffin & Griffin Exploration L.L.C.,
          (“Griffin”) a Mississippi based exploration company. Under the terms of the
          Agreement, the Company paid the Assignor $425,000 as payment for the assignment
          of the Assignor’s 10% gross working and revenue interest in the Drilling
          Program. The Company also entered into a joint Operating Agreement directly
          with
          Griffin on February 24, 2006.
 
 As
          of
          December 31, 2006, five wells were found to be proved wells, and two wells
          were
          written off.
 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.
  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.





F-17
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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





**3.**
            **NATURAL
                GAS AND OIL PROPERTIES
                (Continued)** Unproved
          Properties (Continued)
  vi)
                Palmetto
                    Point Prospect, Mississippi, USA
                    (continued)
  In
          August, 2006, the Company entered into a joint venture agreement with
          Griffin & Griffin Exploration, LLC. to acquire an interest in a drilling
          program comprised of up to 50 natural gas and/or oil wells.  The area in
          which the proposed wells are to be drilled is comprised of approximately
          300,000
          gross acres of land located between Southwest Mississippi and North East
          Louisiana. The proposed wells will be targeting the Frio and Wilcox Geological
          formations. 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.
  **4.**
              **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


F-18
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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





**4.**
            **NATURAL
                GAS AND OIL EXPLORATION RISK
                (Continued)**




b)
            Distribution
                Risk (continued)




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.


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.




**5.**
            **PROMISSORY
                NOTE PAYABLE**






**DECEMBER
                31,**
              **2006**
            
            DECEMBER
                31,
              2005Unsecured
                loan, repayable January 4, 2006, together with accrued interest at
                a
              rate
                of 6.5% per annum. As at December 31, 2006, the promissory note was
forgivenand
                the Company was released from all obligations under the promissory
                note.
            **$**
            **Nil**
            
            $
            39,397





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




F-19
 Table
          of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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


**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 deferred tax liabilities are recognized 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.
  2006
              
              2005Deferred
                tax assets:Net
                operation loss carry-forwards
              $
              1,148,612
              
              $
              873,214Total
                Deferred Tax Assets
              
              390,528
              
              
              296,893Valuation
                allowance for deferred tax
                assets
              
              (390,528)
              
              
              (296,893)$
              -
              
              $
              -Computed
                expected (benefit of) income
                taxes
              
              (93,635)
              
              
              (193,817)Increase
                in valuation allowance
              
              93,635
              
              
              193,817$
              -
              
              $
              -
 
 At
        December 31, 2006, the Company has net operating losses of $1,148,612 which
        begin to expire in 2019. The Company has not filed any income tax returns
        and
        the consolidated financial statements do not include any adjustments that
        might
        result from the outcome of any tax assessments.
 
 **7.**
            **ASSET
                RETIREMENT OBLIGATIONS** 
 The
        Company determined that the net effect of the ARO calculation to the Company’s
        income statement for the year ended December 31, 2006 is $40,635, (2005:
        $0).
        The ARO is calculated using the 5% value of proved properties as at December
        31,
        2006.





F-20
 Table
          of Contents


**DELTA
        OIL & GAS, INC.**
 **(A
        Development Stage Company)**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
        31, 2006**
 **(Stated
        in U.S. Dollars)**


**8.**
            **RECENT
                ACOUNTING PRONOUNCEMENTS** 
 a)
            The
                FASB issued FASB Interpretation No. (“FIN”) 47 - “Accounting for
                Conditional Asset Retirement Obligations” in March 2005. FIN 47 clarifies
                that an entity must record a liability for a conditional asset retirement
                obligation if the fair value of the obligation can be reasonably
                estimated. This Interpretation also clarifies the circumstances under
                which an entity would have sufficient information to reasonably estimate
                the fair value of an asset retirement obligation. This Interpretation
                is
                effective no later than the end of fiscal years 
 b)
            ending
                after December 15, 2005. The Company does not expect this guidance
                to have
                a material impact on its financial statements.  c)
            In
                March 2005, the FASB ratified Emerging Issues Task Force Issue No.04-6
                - “
                Accounting for Stripping Costs Incurred during Production in the
                Mining
                Industry” (“EITF 04-6”), which addresses the accounting for stripping
                costs incurred during the production phase of a mine and refers to
                these
                costs as variable production costs that should be included as a component
                of inventory to be recognized in costs applicable to sales in the
                same
                period as the revenue from the sale of inventory. As a result,
                capitalization of stripping costs is appropriate only to the extent
                product inventory exists at the end of a reporting period and the
                carrying
                value is less than the net realizable value. Adoption of EITF 04-6
                will
                have no material impact on the Company’s financial position, results of
                operations or cash flows. 
 d)
            In
                May 2005, the FASB issued SFAS No. 154 (“SFAS 154”) - “ Accounting Changes
                and Error Corrections”. SFAS No. 154 established new standards on
                accounting for changes in accounting principles. SFAS No 154 requires
                all
                such changes to be accounted for by retrospective application to
                the
                financial statements of prior periods unless prescribed otherwise
                or it is
                impracticable to do so. SFAS No. 154 is effective for accounting
                changes
                and error corrections made in fiscal years beginning after December
                15,
                2005. Adoption of SFAS No.154 is not expected to have a material
                impact on
                the Company’s financial position, results of operations or cash
                flows. 
 e)
            In
                June 2005, the FASB issued Staff Position Paper (“FSP”) 115-1 - “ The
                Meaning of Other-Than- Temporary Impairment and its Application to
                Certain
                Investments”, superseding EITF 03-1. FSP 115-1 will replace the accounting
                guidance on the determination of whether an investment is other-than
                temporarily impaired as set forth in EITF 03-1 with references to
                existing
                other-than-temporary impairment guidance. FSP 115-1 is effective
                for
                reporting periods beginning after December 15, 2005. Adoption of
                FSP 115-1
                is not expected to have a material impact on the Company’s financial
                position, results of operations or cash flows.




F-21
 Table
          of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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


**8.**
            **RECENT
                ACOUNTING PRONOUNCEMENTS
                (continued)**


f)
            In
                February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid
                Financial Instruments, an Amendment of FASB Standards No. 133 and
                140”.
                This Statement established the accounting for certain derivatives
                embedded
                in other instruments. It simplifies accounting for certain hybrid
                financial instruments by permitting fair value re-measurement for
                any
                hybrid instrument that contains an embedded derivative that otherwise
                would require bifurcation under SFAS No. 133 as well as eliminating
                a
                restriction on the passive derivative instruments that a qualifying
                special-purpose entity (“SPE”) may hold under SFAS No. 140. This Statement
                allows a public entity to 
 g)
            irrevocably
                elect to initially and subsequently measure a hybrid instrument that
                would
                be required to be separated into a host contract and derivative in
                its
                entirety at fair value (with changes in fair value recognized in
                earnings)
                so long as that instrument is not designated as a hedging instrument
                pursuant to the Statement. SFAS No. 140 previously prohibited a qualifying
                special-purpose entity from holding a derivative financial instrument
                that
                pertains to a beneficial interest other than another derivative financial
                instrument. This Statement is effective for fiscal years beginning
                after
                September 15, 2006, with early adoption permitted as of the beginning
                of
                an entity’s fiscal year. The Company does not expect the adoption of SFAS
                No. 155 to have a material effect on its financial condition or results
                of
                operations. 
 h)
            In
                March 2006, FASB issued SFAS No. 156, “Accounting for Servicing of
                Financial Assets - an Amendment of FASB Statement No. 140.” This Statement
                requires an entity to recognize a servicing asset or servicing liability
                each time it undertakes an obligation to service a financial asset
                by
                entering into a servicing contract in any of the following situations:
                a
                transfer of the servicer’s financial assets that meets the requirements
                for sale accounting; a transfer of the servicer’s financial assets to a
                qualifying special-purpose entity in a guaranteed mortgage securitization
                in which the transferor retains all of the resulting securities and
                classifies them as either available-for-sale securities or trading
                securities in accordance with FASB Statement No. 115; or an acquisition
                or
                assumption of an obligation to service a financial asset that does
                not
                relate to financial assets of the servicer or its consolidated affiliates.
                The Statement also requires all separately recognized servicing assets
                and
                servicing liabilities to be initially measured at fair value, if
                practicable and permits an entity to choose either the amortization
                or
                fair value method for subsequent measurement of each class of servicing
                assets and liabilities. This Statement is effective for fiscal years
                beginning after September 15, 2006, with early adoption permitted
                as of
                the beginning of an entity’s fiscal year. The Company does not expect the
                adoption of SFAS No. 156 to have a material effect on its financial
                condition or results of operations.




F-22
 Table
          of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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


**8.**
            **RECENT
                ACOUNTING PRONOUNCEMENTS
                (continued)**


i)
            In
                April 2006, FASB issued Staff Position No. FIN No. 46R6, (“FSP 46R-6”),
                “Determining the Variability to Be Considered in Applying FASB
                Interpretation No. 46R.” This FSP addresses how a reporting enterprise
                should determine the variability to be considered in applying FIN
                No. 46R,
                “Consolidation of Variable Interest Entities.” FIN No. 46R provides
                guidance on when to consolidate an entity based on exposure to risks
                and
                rewards, rather than voting control. It describes the characteristics
                of a
                variable interest entity (“VIE”) and how an entity that is involved with a
                VIE should determine whether its 
 j)
            shares
                in the VIE’s risks and rewards extensively enough to be the VIE’s primary
                beneficiary and therefore consolidate it. The guidance in this FSP
                applied
                prospectively to all entities with which the Company first became
                involved
                with and to all entities previously analyzed under FIN No. 46R when
                a
                reconsideration event occurred beginning July 1, 2006. Retrospective
                application of FIN No. 46R was permitted but not required. The Company
                adopted this FSP prospectively. Application of this FSP has not had
                a
                material impact on the 2006 consolidated financial statements. The
                impact
                of this FSP on the Company’s financial statements beyond 2006 is dependent
                upon the specifics of future arrangements 
 k)
            In
                June 2006, FASB issued FASB Interpretation No. 48, “Accounting for
                Uncertainty in Income Taxes - an interpretation of FASB Statement
                No.
                109”, which prescribes a recognition threshold and measurement attribute
                for the financial statement recognition and measurement of a tax
                position
                taken or expected to be taken in a tax return. FIN 48 also 
 l)
            provides
                guidance on de-recognition, classification, interest and penalties,
                accounting in interim periods, disclosure and transition. FIN 48
                is
                effective for fiscal years beginning after December 15, 2006. The
                Company
                does not expect the adoption of FIN 48 to have a material effect
                on its
                financial condition or results of
                operations. 
 m)
            In
                September 2006, FASB issued SFAS No. 157, “Fair Value Measurements” which
                defines fair value, establishes a framework for measuring fair value
                in
                generally accepted accounting principles (GAAP), and expands disclosures
                about fair value measurements. Where applicable, SFAS No. 157 simplifies
                and codifies related guidance within GAAP and does not require any
                new
                fair value measurements. SFAS No. 157 is effective for 
 n)
            financial
                statements issued for fiscal years beginning after November 15, 2007,
                and
                interim periods within those fiscal years. Earlier adoption is encouraged.
                The Company does not expect the adoption of SFAS No. 157 to have
                a
                material effect on its financial condition or results of
                operations.




F-23
 Table
          of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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


**8.**
            **RECENT
                ACOUNTING PRONOUNCEMENTS
                (continued)** 
 o)
            In
                September 2006, FASB issued SFAS No. 158, “Employers' Accounting for
                Defined Benefit Pension and Other Postretirement Plans, an amendment
                of
                FASB Statements No. 87, 88, 106, and 132(R).” SFAS No. 158 requires, among
                other things, that a company (1) 
 p)
            recognize
                a net liability or asset to report the funded status of their defined
                benefit pensions and other postretirement plans on its balance sheet
                and
                (2) measure benefit plan assets and benefit obligations as of the
                company's balance sheet date. Calendar year-end companies with publicly
                traded equity securities are required to adopt the recognition and
                disclosure 
 q)
            provisions
                of SFAS 158 as of December 31, 2006. The Company does not expect
                the
                adoption of SFAS No. 158 to have a material effect on its financial
                condition or results of operations. 
 r)
            In
                September 2006, the SEC announced Staff Accounting Bulletin No. 108
                (“SAB
                108”). SAB 108 addresses how to quantify financial statement errors that
                arose in prior periods for purposes of assessing their materiality
                in the
                current period. It requires analysis of misstatements using both
                an income
                statement (rollover) approach and a balance sheet (iron curtain)
                approach
                in assessing materiality. It clarifies that immaterial financial
                statement
                errors in a prior SEC filing can be corrected in subsequent filings
                without the need to amend the prior filing. In addition, SAB 108
                provides
                transitional relief for correcting errors that would have been considered
                immaterial before its issuance. The Company does not expect the adoption
                of SAB 108 to have a material effect on its financial condition or
                results
                of operations.  **9.**
            **SHARE
                CAPITAL** 
 **Common
        Stock**
 
 i.
            On
                January 11, 2006, the Company issued 75,000 common shares for exercise
                of
                stock options at $0.80 per share.
              
              On
                January 24, 2006, the Company issued 230,000 common shares for exercise
                of
                stock options at $0.80 per share.
              
              On
                January 25, 2006, the Company issued 12,500 common shares for exercise
                of
                stock options at $1.00 per share.
              
              On
                April 25, 2006, the Company issued 727,271 common shares pursuant
                to a
                private placement at $2.75 per
                share. 
  F-24
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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




**9.**
            **SHARE
                CAPITAL (continued)** 
 **Preferred
        Stock**
 
 The
        Company did not issue any preferred stock during the year ended December
        31,
        2006 (December 31, 2005 - $0).
 
 ii.
            Stock
                Options 
 Compensation
        expense related to stock options granted is recorded at their fair value
        as
        calculated by the Black-Scholes option pricing model. Options exercised of
        $195,719 was recorded during the year ended December 31, 2006 (December 31,
        2005
        - $370,267) related to options granted during the year ended December 31,
        2005.
        The changes in stock options are as follows:




******NUMBER**
            
            WEIGHTED
              AVERAGE
              EXERCISE
                PRICEBalance
                outstanding, December 31, 2005
              Granted
              Exercised
            
            330,000
              300,000
              (330,000)
            
            $
            0.95
              0.95
              (0.95)Balance
              outstanding, December 31, 2006
            
            300,000
            
            $
            0.95




The
      following table summarized information about the stock options outstanding
      at
      December 31, 2006:





**OPTIONS
                OUTSTANDING**
            **OPTIONS
              EXERCISABLE****EXERCISE
                PRICE**
            **NUMBER
                OF SHARES**
            **REMAINING**
              **CONTRACTUAL**
              **LIFE
                (YEARS)**
            **NUMBER
                OF SHARES**$
                1.15
              $
                1.15
            240,000
              60,000
            2.22
              2.22
            128,000
              30,000




F-25
 Table
            of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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





**9.**
            **SHARE
                CAPITAL (Continued)**




iii.
            Common
                Stock Share Purchase Warrants





As
      at
      December 31, 2006, 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
            1,200,000
              727,272
            May
                2, 2010
              April
                30, 2009


**10.**
            **RELATED
                PARTIES**


During
        the period ended December 31, 2006, the Company paid $5,290 (2005 - $21,492)
        for
        management fees and $39,672 consulting fees to directors of the Company.
        Amounts
        paid to related parties are based on exchange amounts agreed upon by those
        related parties.
  **11.**
            **SEGMENTED
                INFORMATION**  The
          Company’s exploration and production activity is divided into segments for
          Canada and United States. Each of these segments derives revenues from
          the sales
          of natural gas and oil. The Company’s business is considered as operating into
          two segments (Canada and U.S.A.) based upon the Company’s organizational
          structure, the way in which the operation is managed and evaluated, the
          availability of separate financial results and materiality considerations.
          Information about business segments and geographic operations is reported
          in the
          following tables:
  **Year
                  ended December 31, 2006**
              **Canada**
              
              **United
                  States**
              
              **Total**1.
                  Segment income (loss) from continuing operations
              $
              (980,836)
              
              $
              705,438
              
              $
              (275,398)2.
                  Revenues from natural gas and oil sales
              
              14,615
              
              
              502,385
              
              
              517,0003.
                  Depreciation, depletion
              
              439,606
              
              
              28,293
              
              
              467,8994.
                  Total assets at year-end
              
              2,055,885
              
              
              2,332,496
              
              
              4,388,381


F-26
 Table
          of Contents


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**


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




**11.**
            **SEGMENTED
                INFORMATION**(continued)  **Year
                  ended December 31, 2005**
              **Canada**
              
              **United
                  States**
              
              **Total**1.
                  Segment income (loss) from continuing operations
              $
              (113,436)
              
              $
              (456,614)
              
              $
              (570,050)2.
                  Revenues from natural gas and oil sales
              
              0
              
              
              7,367
              
              
              7,3673.
                  Depreciation, depletion
              
              0
              
              
              292
              
              
              2924.
                  Total assets at year-end
              
              1,883,691
              
              
              514,427
              
              
              2,398,118
  **12.**
            **COMMITMENT
                AND CONTRACTURAL OBLIGATIONS** 
 A
        lease
        agreement for the Vancouver, Canada, office commenced March 1, 2005 and
        terminated on February 28, 2006, and is on a month-to-month basis. The lease
        agreement provides a fixed rental fee of $1,295 per month plus additional
        charges for services supplied by the landlord or incurred on behalf of the
        client in the previous month.
 
 On
        March
        1, 2005, the Company also rented an office in Calgary, Canada on a month
        to
        month basis for $243 per month.
 
 As
        part
        of the Memorandum of Understanding, the Company has committed to pay $100,000
        as
        it’s share of the working interest in the 50 well AMI (area of mutual interest)
        project in Mississippi during the first quarter of 2007.
 
 **13.**
            **SUBSEQUENT
                EVENTS** 
 Subsequent
        to the year end, the Company elected to participate in Isbill #2 well. The
        Company has a total cost of $155,862 for its 20% of working
        interest.
 
 On
        March
        1, 2007 the Company issued 500,000 common shares to its President & CEO as
        part of his compensation package. The shares issued were at market value
        at the
        time of issuance.




F-27
 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. 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, 2006. This evaluation was carried
      out under the supervision and with the participation of our Chief Executive
      Officer and Chief Financial Officer, Mr. Douglas Bolen. Based upon that
      evaluation, our Chief Executive Officer and Chief Financial Officer concluded
      that, as of December 31, 2006, our disclosure controls and procedures are
      effective. There have been no significant changes in our internal controls
      over
      financial reporting during the quarter ended December 31, 2006 that have
      materially affected or are reasonably likely to materially affect such controls.





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.


26
 Table
          of Contents


**Item
      8B. Other information**





None.





**PART
      III**





**Item9.
      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
            41
            President,
                Chief Executive Officer, Principal Executive Officer &
                DirectorKulwant
                Sandher
            45
            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 Bolen **** has
      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.


27
 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**





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.





**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 because we retain
      outside consultants who possess these attributes as needed.


28
 Table
          of Contents


For
      the
      fiscal year ending December 31, 2006, 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, 2006 to be included in this Annual Report on Form
      10-KSB and filed with the Securities and Exchange Commission.





**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,
      2006, 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, 2006:





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
            0
            0
            0Matthew
                Philipchuk
              Former
                Director
            0
            0
            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.


29
 Table
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**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 2006 and
      2005.





SUMMARY
                COMPENSATION TABLENameand
              principalposition
            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
            2006
              2005
            -
              -
            -
              -
            -
              -
            -
              -
            -
              -
            -
              -
            52,649
              -
            -
              -





(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 our executive officer during the fiscal year ended
      December 31, 2006. Douglas Bolen, our Chief Executive Officer, received
      remuneration for services rendered during the fiscal year ended December 31,
      2006 indirectly through compensation paid to a company under the exclusive
      control of Mr. Bolen.





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 cancelation anytime within any six month term.
      Under the terms of the Consulting Agreement, LMM is paid monthly compensation
      of
      $5,000 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. This compensation is included in the summary compensation
      table above in “All Other Compensation.” Upon execution of the Consulting
      Agreement, LMM was to be 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 compensate our executive officers during the fiscal year ended December
      31,
      2005. We
      did not grant any stock options during the year ended December 31, 2006 or
      2005
      to any of our named executive officers.


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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. 75,000 of these options vested upon execution of a stock option agreement
      on January 18, 2007, 75,000 become vested and exercisable on June 30, 2007,
      75,000 become vested and exercisable on September 30, 2007, and the remaining
      75,000 become vested and exercisable on December 31, 2007.





**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,
      2006.





**OUTSTANDING
                EQUITY AWARDS AT FISCAL YEAR-END**OPTION
                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
            -
            -
            -
            -
            -
            -
            -
            -
            -





**Compensation
      of Directors**





The
      table
      below summarizes all compensation of our directors for the year ended December
      31, 2006.





**DIRECTOR
                COMPENSATION**Name
            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
            -
            -
            -
            -
            -
            -
            -Matthew
                Philipchuk(1)
            2,645
            -
            -
            -
            -
            -
            2,645





(1)
            Mr.
                Philipchuk resigned as a member of our board of directors on April
                30,
                2006.


31
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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 year ended December 31, 2006.





Beginning
      in March 2005, Mr. Philipchuk was paid a total of $18,000 Canadian dollars
      ($2000 Canadian dollars on a monthly basis) for services rendered as a member
      of
      our board of directors. Mr. Philipchuk resigned as a director on April 30,
      2006.
      The consulting fees received by Mr. Philipchuk for the fiscal year ended
      December 31, 2006 have been included in the column titled “Fees Earned or Paid
      in Cash” in the director compensation table above.





**Item11.
      Security Ownership of Certain Beneficial Owners and
      Management and Related** **Stockholder
      Matters**





The
      following table sets forth, as of March 29, 2007, 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 45,630,506 shares of common
      stock issued and outstanding on March 29, 2007.  Except
      as
      otherwise indicated, the address of each person named in this table is c/o
      Delta
      Oil & Gas, Inc., 2600 144 4 th 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
            1,000,000
                shares
            2.1 %Common
            Kulwant
                Sandher(2)
            0
                shares
            0.2
                %**Total
                of All Directors and Executive Officers:**
            500,000
                shares
            2.3
                %**More
                Than 5% Beneficial Owners:**Common
            Pamela
                Starek
              2288
                Marstrand Avenue, Suite 111
              Vancouver,
                BC Canada V6K 4S9
            12,500,000
                shares
            27.4
                %




(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.


(2)
            Mr.
                Sandher was granted options to purchase 300,000 shares of common
                stock at
                an exercise price of $0.75 per share, of which 75,000 of these options
                have vested and are exercisable. These vested and exercisable options
                are
                included in the percentage calculation of beneficial
                ownership.


32
 Table
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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 cancelation 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. Upon execution of the
      Consulting Agreement, LMM was to be issued 500,000 shares of our common stock.





**Item
      13. Exhibits**





Exhibit
                Number
            Description3.1
            Articles
                of Incorporation, as amended13.2
            By-laws,
                as amended110.1
            Agreement
                to Acquire Interest in Todd Creek210.2
            Agreement
                to Acquire Interest in Hillspring210.3
            Amendment
                to Todd Creek and Hillspring Agreements210.4
            Farmout
                Agreement relating to Cache Slough Prospect310.5
            Farmout
                Agreement with Odin Capital Inc. relating to Leduc formation test
                well410.6
            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. Ltd510.8
            Assignment
                Agreement of Interests in Cache Slough Prospect710.9
            Assignment
                and Assumption Agreement for Owl Creek Prospect810.10
            Consulting
                Agreement with Last Mountain Management, Inc.914.1
            Code
                of Ethics631.1
            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





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


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


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


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


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


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


7 Incorporated
      by reference to quarterly report on Form 10-QSB for the period ended September
      30, 2006
      filed on November 20, 2006


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


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





33
 Table
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**Item14.
      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, 2006 and December 31, 2005
      were approximately $17,650 and $3,500 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, 2006 and 2005.





**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, 2006 and 2005 were $3,248 and $0
      respectively.


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**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 N.
              Bolen
            By:
            /s/Kulwant
              SandherDouglas N. Bolen
              Chief Executive Officer
              April 2, 2007
            
            Kulwant Sandher
              Chief Financial Officer
              April 2, 2007





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.
                BolenDouglas N. Bolen
                Director
                April 2,
                  2007