|UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
|------------------------------------------------
|Washington, D.C. 20549                          

# FORM 10-QSB

(Mark One)

|[X] | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------

For the quarterly
period ended: September 30, 2007

|[_] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|--- | ---------------------------------------------------------------

For the transition
period from ____ to ________

|BLUE STAR ENERGY, INC.                                           
|-----------------------------------------------------------------
|(Exact Name of Small Business Issuer as Specified in its Charter)

|                                                                         |                                   |                                                 
|------------------------------------------------------------------------ | --------------------------------- | ------------------------------------------------
|Colorado
(State or other jurisdiction 
of incorporation or organization) | 333-146561
(Commission 
File No.) | 20-2835920
I.R.S. Employer
Identification Number

|5525 Erindale Dr., Suite 201, Colorado Springs, Colorado 80918
|--------------------------------------------------------------
|(Address of Principal Executive Offices) (Zip Code)           

Registrant's telephone
number including area code: (719) 260-8509

Former name, former
address, and former fiscal year, if changed since last report

Check whether the Issuer (1) filed
all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the
last 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 [_]

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 the number of shares
outstanding of each of the issuer's classes of common equity, as of the latest
practicable date: 9,780,000 shares of common stock outstanding as of December 5, 2007.

Transitional Small Business
Disclosure Format:    Yes  [_]     No [X]

---



# BLUE STAR ENERGY, INC.

# Index

|                               |                                                                                                                                 | Page
|------------------------------ | ------------------------------------------------------------------------------------------------------------------------------- | ----
|                               |                                                                                                                                 |     
|Part I  FINANCIAL INFORMATION
|                               |                                                                                                                                 |     
|Item 1.                        | Balance Sheet (unaudited) as of September 30, 2007                                                                              | 3   
|                               |                                                                                                                                 |     
|                               | Statements of Operations (unaudited) for the
three months ended September 30, 2007 and 2006                                     | 4   
|                               |                                                                                                                                 |     
|                               | Statements of Operations (unaudited) for the
nine months ended September 30, 2007 and 2006, and Inception
to September 30, 2007 | 5   
|                               |                                                                                                                                 |     
|                               | Statements of Cash Flows (unaudited) for the
nine months ended September 30, 2007 and 2006, and Inception to
September 30, 2007 | 6   
|                               |                                                                                                                                 |     
|                               | Notes to Financial Statements (unaudited)                                                                                       | 7   
|                               |                                                                                                                                 |     
|Item 2.                        | Management's Discussion and Analysis or Plan of Operation                                                                       | 8   
|                               |                                                                                                                                 |     
|Item 3.                        | Controls and Procedures                                                                                                         | 13  
|                               |                                                                                                                                 |     
|Part II  OTHER INFORMATION   
|                               |                                                                                                                                 |     
|Item 1.                        | Legal Proceedings                                                                                                               | 13  
|                               |                                                                                                                                 |     
|Item 6.                        | Exhibits                                                                                                                        | 14  
|                               |                                                                                                                                 |     
|Signatures                     |                                                                                                                                 | 15  
|                               |                                                                                                                                 |     

2

---



BLUE STAR ENERGY, INC.
(An Exploration Stage Company)
BALANCE SHEET as of
September 30, 2007  (Unaudited)

|                                                                 | 
|---------------------------------------------------------------- | 
|ASSETS                                                           | 
|Current assets:                                                  | 
|Cash and cash equivalents                                        | 
|                                                                 | 
|Total current assets                                             | 
|                                                                 | 
|Oil and gas properties, at cost, using full cost method          | 
|Unevaluated oil and gas properties, net                          | 
|Other assets                                                     | 
|                                                                 | 
|Total assets                                                     | 
|                                                                 | 
|LIABILITIES AND SHAREHOLDERS' EQUITY                             | 
|Current liabilities:                                             | 
|Accounts payable and accrued expenses                            | 
|Accrued salaries, benefits, and taxes                            | 
|                                                                 | 
|Total current liabilities                                        | 
|                                                                 | 
|Shareholders' equity:                                            | 
|Preferred stock - $0.01 par value, 10,000,000 shares authorized: | 
|nil shares issued and outstanding                                | 
|Common stock - $0.001 par value, 100,000,000 shares authorized:  | 
|9,660,000  shares issued and outstanding                         | 
|Additional paid-in capital                                       | 
|(Deficit) accumulated during the exploration stage               | 
|                                                                 | 
|Total shareholders' equity                                       | 
|                                                                 | 
|Total liabilities and shareholders' equity                       | 
|                                                                 | 

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

3

---



BLUE STAR ENERGY, INC.
(An Exploration Stage Company)  STATEMENTS OF
OPERATIONSfor the three months ended September 30, 2007 and 2006
(Unaudited)

|                                     | 2007 |  | 2006 |          
|------------------------------------ | ---- |  | ---- | ---------
|Revenues                             |      |  | $    |         
|                                     |      |  |      |          
|Expenses:                            |      | 
|Oil and gas lease expense            |      |  |      |         
|General and administrative           |      |  |      | 94,294   
|                                     |      |  |      |          
|Total expenses                       |      |  |      | 94,294   
|                                     |      |  |      |          
|Operating (loss)                     |      |  |      | (94,294  
|                                     |      | 
|Other income (expense):              |      | 
|Interest income                      |      |  |      | 217      
|                                     |      |  |      |          
|(Loss) before taxes                  |      |  |      | (94,077  
|                                     |      | 
|Provision for income taxes           |      |  |      |         
|                                     |      |  |      |          
|Net (loss)                           |      |  | $    | (94,077  
|                                     |      |  |      |          
|Net (loss) per common share:         |      | 
|Basic and Diluted                    |      |  | $    | (0.01    
|                                     |      |  |      |          
|Weighted average shares outstanding: |      | 
|Basic and Diluted                    |      |  |      | 9,660,000
|                                     |      |  |      |          

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

4

---



BLUE STAR ENERGY, INC.
(An Exploration Stage Company)  STATEMENTS OF OPERATIONSfor the nine months ended September 30, 2007 and 2006, and for the period
from Inception (May 11, 2005) to September 30, 2007  (Unaudited)

|                                     | 2007 |  | 2006 |           | Inception
(May 11, 2005) to
September 30, 2007 |  
|------------------------------------ | ---- |  | ---- | --------- | ---------------------------------------------- | -
|Revenues                             |      |  | $    |          |                                                | $
|                                     |      |  |      |           |                                                |  
|Expenses:                            |      | 
|Oil and gas lease expense            |      |  |      |          |                                                |  
|Impairment of oil and gas properties |      |  |      |          |                                                |  
|General and administrative           |      |  |      | 196,694   |                                                |  
|                                     |      |  |      |           |                                                |  
|Total expenses                       |      |  |      | 196,694   |                                                |  
|                                     |      |  |      |           |                                                |  
|Operating (loss)                     |      |  |      | (196,694  | )                                              |  
|                                     |      |  |     
|Other income (expense):              |      | 
|Interest income                      |      |  |      | 1,248     |                                                |  
|                                     |      |  |      |           |                                                |  
|(Loss) before taxes                  |      |  |      | (195,446  | )                                              |  
|                                     |      |  |     
|Provision for income taxes           |      |  |      |          |                                                |  
|                                     |      |  |      |           |                                                |  
|Net (loss)                           |      |  | $    | (195,446  | )                                              | $
|                                     |      |  |      |           |                                                |  
|Net (loss) per common share:         |      | 
|Basic and Diluted                    |      |  | $    | (0.02     | )                                              | $
|                                     |      |  |      |           |                                                |  
|Weighted average shares outstanding: |      | 
|Basic and Diluted                    |      |  |      | 9,595,714 |                                                |  
|                                     |      |  |      |           |                                                |  
|                                     |      |  |     

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

5

---



BLUE STAR ENERGY, INC.
(An Exploration Stage Company)  STATEMENTS OF CASH FLOWSfor the nine months ended September 30, 2007 and 2006,  and for the period
from Inception (May 11, 2005) to September 30, 2007  (Unaudited)

|                                                                     | 2007 |  | 2006 |          | Inception
(May 11, 2005) to
September 30, 2007 |  
|-------------------------------------------------------------------- | ---- |  | ---- | -------- | ---------------------------------------------- | -
|Cash flows from operating activities:                                |      |  |      |          |                                                |  
|Net (loss)                                                           |      |  | $    | (195,446 | )                                              | $
|                                                                     |      |  |      |          |                                                |  
|Adjustments to reconcile net (loss) to                               |      | 
|net cash (used in) operating activities:                             |      | 
|Impairment of oil and gas properties                                 |      |  |      |         |                                                |  
|(Increase) decrease in other assets                                  |      |  |      |         |                                                |  
|Increase in accounts payable and 
               accrued liabilities |      |  |      | 5,884    |                                                |  
|                                                                     |      |  |      |          |                                                |  
|Total adjustments                                                    |      |  |      | 5,884    |                                                |  
|                                                                     |      |  |      |          |                                                |  
|Net cash (used in) operating activities                              |      |  |      | (189,562 | )                                              |  
|                                                                     |      |  |      |          |                                                |  
|Cash flows from investing activities:                                |      | 
|Proceeds from sale of oil and gas 
              properties          |      |  |      | 23,922   |                                                |  
|Investment in oil and gas properties                                 |      |  |      |         |                                                |  
|                                                                     |      |  |      |          |                                                |  
|Net cash provided by (used in) 
              investing activities   |      |  |      | 23,922   |                                                |  
|                                                                     |      |  |      |          |                                                |  
|Cash flows from financing activities:                                |      | 
|Cash proceeds from sale of stock                                     |      |  |      | 175,000  |                                                |  
|                                                                     |      |  |      |          |                                                |  
|Net cash provided by financing
              activities              |      |  |      | 175,000  |                                                |  
|                                                                     |      |  |      |          |                                                |  
|Net increase (decrease) in cash and equivalents                      |      |  |      | 9,360    |                                                |  
|                                                                     |      | 
|Cash and equivalents at beginning of period                          |      |  |      | 16,937   |                                                |  
|                                                                     |      |  |      |          |                                                |  
|Cash and equivalents at end of period                                |      |  | $    | 26,297   |                                                | $
|                                                                     |      |  |      |          |                                                |  
|Supplemental Cash Flow Information                                   |      | 
|Interest paid                                                        |      |  | $    |         |                                                | $
|                                                                     |      |  |      |          |                                                |  
|Income taxes paid                                                    |      |  | $    |         |                                                | $
|                                                                     |      |  |      |          |                                                |  
|Non-cash investing and financing activities:                         |      | 
|Shares issued in exchange for                                        |      | 
|oil and gas properties                                               |      |  | $    |         |                                                | $
|                                                                     |      |  |      |          |                                                |  
|Liabilities assumed in exchange for                                  |      | 
|oil and gas properties                                               |      |  | $    |         |                                                | $
|                                                                     |      |  |      |          |                                                |  

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

6

---



BLUE STAR ENERGY, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTSSeptember 30, 2007
(Unaudited)

|1. | Summary
of Significant Accounting Policies
|-- | ------------------------------------------

Blue
Star Energy, Inc. (the Company) was organized under the laws of the State of
Colorado on May 11, 2005. The Company is engaged in oil and gas acquisition,
exploration, development and production service activities, primarily in the western
region of the United States. The Company is in the exploration stage and has not
generated any revenues from operations.

Basis
of Presentation:    The interim financial statements included
herein have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) as promulgated in
Item 310 of Regulation S-B. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles generally
accepted in the United States of America (US GAAP) have been condensed or
omitted pursuant to such SEC rules and regulations. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a fair
presentation of financial position as of September 30, 2007, results of operations for the
three months and nine months ended September 30, 2007 and 2006, and cash flows for the
nine months ended September 30, 2007 and 2006, as applicable, have been made. The results
for these interim periods are not necessarily indicative of the results for the entire
year. The accompanying financial statements should be read in conjunction with the audited
financial statements and the notes thereto as of December 31, 2006, included
in the Companys registration statement on Form SB-2, as amended.

Per
Share Amounts:    SFAS 128, Earnings per Share,
provides for the calculation of Basic and Diluted earnings per
share. Basic earnings per share includes no dilution and is computed by dividing net
income (or loss) by the weighted-average number of shares outstanding during the period.
Diluted earnings per share reflect the potential dilution of securities that could share
in the earnings of the Company, similar to fully diluted earnings per share. During the
periods since inception, the Company has not issued any potentially dilutive securities.

Use
of Estimates:    The preparation of the Companys financial
statements in conformity with generally accepted accounting principles requires the
Companys management to make estimates and assumptions that affect the amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

# 2.     
       Going
Concern

The
Companys financial statements are prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of obligations in the normal
course of business. The Company has no source of operating revenue and has financed
operations through the sale and exchange of equity. The Company has incurred losses since
its inception aggregating $729,805. These conditions raise substantial doubt about the
ability of the Company to continue as a going concern.

7

---



The
Company has raised total cash proceeds of $600,300 in sales of common stock since
inception. Management believes that these proceeds will not be sufficient to fund its
operating activity and other capital resource demands during the next twelve months.

The
Companys ability to continue as a going concern is contingent upon its ability to
raise funds through the sale of equity, joint venture or sale of its assets, and attaining
profitable operations. The financial statements do not include any adjustments to the
amount and classification of assets and liabilities that may be necessary should the
Company not continue as a going concern.

# 3.     
       Shareholders
Equity

During
the nine months ended September 30, 2007, the Company issued 330,000 shares of common
stock at $0.50 per share for cash proceeds of $165,000. The $10,000 subscription
receivable at December 31, 2006 was received during 2007.

# 4.
             Related Party
Transactions:

During
2007, an officer and director advanced $5,000 to the Company to cover short term expenses.
The advance was non-interest bearing and was issued and repaid during the nine month
period.

# 5.
            Sale of Oil and
Gas Properties:

Effective
August 31, 2007, the Company sold its interests in certain oil and gas properties located
in Logan County, Colorado for net cash proceeds of $23,922. As the carrying value of these
properties had previously been adjusted to reflect estimated fair market value, no
additional loss was recognized in connection with the sale transaction.

# 6.     
       Subsequent
Events:

Subsequent
to September 30, 2007, the Company issued an additional 120,000 shares of common stock at
$0.50 per share for cash proceeds of $60,000.

# Item 2.  
Managements Discussion and Analysis or Plan of Operation

# Overview

The following discussion updates our
plan of operation for the next twelve months. It also analyzes our financial condition at
September 30, 2007 and compares it to our financial condition at December 31, 2006.
Finally, the discussion summarizes the results of our operations for the three and nine
months ended September 30, 2007 and compares those results to the corresponding periods
ended September 30, 2006. This discussion and analysis should be read in conjunction with
our audited financial statements as of December 31, 2006 including footnotes, and the discussion and analysis
included in our Form SB-2, as amended, filed with the Securities and Exchange Commission
(SEC) on October 23, 2007.

8

---



We are considered an exploration
stage company for accounting purposes, since we have not received any revenue from
operations. We are unable to predict with any degree of accuracy when that classification
will change.

# Plan of Operation

We currently hold an interest in one
oil and gas prospect known as the Stroh Prospect which is located within an
area known as the Denver-Julesburg Basin in northeastern Colorado. The well on this
prospect is presently shut-in.

Our plan of operation is to
participate in the further development of the Stroh prospect, either by installing a
natural gas powered electrical generator and selling electricity into the local grid or
constructing a gathering system and delivering natural gas to market, and to evaluate
opportunities to acquire other interests in oil and gas properties. Based on the absence
of sufficient working capital to meet these objectives, we expect to solicit interest from
third party investors to provide financing for these purposes. Although no specific
commitments have been made, we expect to obtain such financing in the form of private
equity financing. If we are unable to obtain such financing, we may be forced to forego
participation in either development project as well as any opportunity to acquire an
interest in other oil and gas properties.

Stroh Prospect. Between June
2005 and September 2006, we acquired an aggregate 21.75% interest in the Stroh prospect.
During 2001, the lease owner conducted mechanical integrity tests on the existing well
located on the prospect. Additional gas quality tests were conducted by Energy Oil &
Gas, Inc. (Energy Oil), the prospect operator, to confirm the quality of the
producible quantities of gas. To date, we have been advised by Energy Oil that the tests
were favorable, that the presence of gas was confirmed and that the well is intact.
However, these tests are not definitive, and we will have to wait for further production
efforts to evaluate the well.

We hope to make the Stroh prospect
our pilot project for our concept of electricity generation utilizing shut-in natural gas
wells that are located in remote areas where pipeline delivery is unavailable. We believe
there is a strong demand for this type of program and have worked with a local electrical
cooperative to determine whether this type of operation in this area would be profitable
to the company. Along with our operating partners, we plan to acquire and install the
necessary equipment to evaluate the concept, including a modern natural gas-fired
generator, a transformer and the lines to interconnect to the power system via a power
pole located approximately two miles from the prospect.

We believe we can economically
generate and sell approximately 250 kilowatts per hour, which equates to approximately 180
megawatts of electricity per month by acquiring a new or used natural gas-fired generator
and installing it at the location of the Stroh #1 well. Gas released from the well would
be used to rotate the shaft and spins the armature which in turn will produce electricity.
The amount of electricity produced would be metered and delivered to the local power grid.
We expect to execute a take and pay contract with the local cooperative,
meaning it would be obligated to pay for all of the electricity we produce. Revenue we
would receive would be calculated based upon a formula which includes generation output in
half hour increments and total energy produced each month. The rates range from $45.00 to
$70.00 per megawatt hour.

9

---



If we move forward with the
electricity generation project, we anticipate that within the next twelve months we will
install a modern natural gas-fired electrical generator at the prospect and construct the
necessary infrastructure to deliver electricity to the local electrical cooperative. We
estimate our portion of the cost of acquiring the generator and constructing the
infrastructure at approximately $34,800, based on a total estimate of $160,000 and our
contemplated participation of 21.75%. After the initial investment in the equipment, we
anticipate that continuing production costs will be minimal.

If development efforts at the
prospect and installation of the electrical generator and additional infrastructure
proceed as anticipated, we expect to begin producing electricity during 2008. We believe,
based upon the results of the testing of the well, the close proximity to existing
producing oil and gas fields, and information concerning the oil and gas potential in the
area, that there is likelihood that natural gas can be used to economically produce
electricity from the prospect. However, there is no assurance that any reserves are
present or will be in the future. We believe that the prospect also has potential for oil
production, although this is not our primary objective for this field at this time.

Proceeds from electricity generation
would provide capital to pay our proportionate share of costs and expenses in developing
the property as well as our general and administrative expenses. Excess cash flow, if any,
would be used to investigate and acquire additional properties.

As an alternative to selling
electricity generated from natural gas produced at the Stroh prospect, we may investigate
construction of a gathering pipeline system with our operating partners to provide an
additional source of revenue. This gathering system may provide additional revenue to us
through payments made by other owners and operators in the area. The fee for this service
is customarily based on the amount of gas transported through the system. The
attractiveness of a gas gathering pipeline system to other producers will depend on the
amount of the fee and other alternatives for transporting gas to market.

We estimate our portion of the cost
of constructing the gathering pipeline at approximately $40,000, based on a total estimate
of $180,000 and our contemplated participation of 21.75%, which is based on construction
estimates obtained by our operator. If we, along with our operating partners, opt instead
to construct this gathering and delivery system, we would expect Energy Oil to also
propose drilling at least one new well in the foreseeable future to further develop the
property. Based upon several factors, including discussions with representatives of Energy
Oil and our prior experience at the property, we expect to participate in construction of
the additional well which is estimated to cost $49,000 to our interest. We believe that
the additional well is necessary to further develop the prospect and fully exploit the
estimated reserves.

Prospect Acquisition
Philosophy.   Assuming the receipt of additional financing through the sale of our
securities or from cash flow derived from operations, we anticipate undertaking
investigation of additional properties in the next twelve months. Due to our relatively
small size and competitive position in the industry, we do not anticipate acquiring a
large inventory of properties to hold for future development.

Corporate Overhead.   Included
in our plan of operation are the expenses of overseeing our business and paying other
general and administrative expenses. These expenses primarily include salaries and
consulting fees, rent, travel and professional fees. We currently estimate these expenses
at $22,500 per month based on existing commitments and expectations. We expect these
expenses will be paid from our cash position and future equity offerings, if necessary,
until such time, if ever, we are successful in placing one or more of our properties into
production.

10

---



# Liquidity and Capital
Resources

As of September 30, 2007, we had a
working capital deficit of $13,895 comprised of current assets of $26,297 and current
liabilities of $40,192. This represents an increased deficit of $6,524 from the working
capital deficit of $7,371 reported at year end December 31, 2006. Our working capital
position declined because we have utilized our capital resources as we continue to develop
our business plan.

We anticipate that we will need to
obtain more funding in the next 12 months to continue our business operations. The most
significant of our future operating expenses include (i) $35,000 to $40,000 for our
expected portion of the development costs of the Stroh prospect; (ii) approximately
$17,500 per month for salaries and other corporate overhead; and (iii) approximately
$5,000 per month for legal and accounting fees associated with our status as a public
company required to file reports with the SEC.

We plan to obtain additional funds
during the fourth quarter of 2007 through the sale of stock in a private placement. We may
sell up to 500,000 shares at a price of $0.50 per share. Through December 5, 2007, we
have sold 120,000 shares for cash proceeds of $60,000.

All of our capital resources to date
have been provided exclusively through the sale of equity securities. We completed a
private placement in April 2007 during which we sold 330,000 shares at a price of $0.50
per share for total proceeds of $165,000. From inception through September 30, 2007, we
received $600,300 in cash from the issuance of our common stock. Since we are an
exploration stage company and have not generated any cash from operations, we have relied
on the sale of equity to fund all of our capital needs. Our prospects for generating
meaningful cash from operations are slim, as we presently hold in an interest in only one
property. We are dependent on the sale of stock to acquire properties to generate revenue.
Presently, all of our capital resources are being utilized for corporate overhead and
property holding costs.

Net cash used in operating activities
during the first nine months of 2007 was $189,562. This represents an increase of $49,508
from the $140,054 that was used during the first nine months of 2006. The increase in our
use of cash for operating activities is consistent with the increased operating expenses
incurred during 2007.

During the first nine months of 2007,
we sold our interests in the Logan County properties for net cash proceeds of $23,922. In
comparison, during the first nine months of 2006, we invested $123,625 in the acquisition
of oil and gas properties.

# Results of Operations
 Three Months Ended September 30, 2007 Compared to the Three Months Ended September
30, 2006

For the three months ended September
30, 2007, we recorded a net loss of $94,077, or $(0.01) per share, compared to a loss for
the corresponding period of 2006 of $52,955 or $(0.01) per share. In neither period did we
report any revenue. The increase in our net loss was due primarily to an increase in
general and administrative expenses.

General and administrative expense
for the three months ended September 30, 2007 increased to $94,294 compared to $47,986
during the same period of 2006. During 2007, we incurred additional legal and accounting
fees of approximately $46,000 in connection with the preparation and filing of our
registration statement with the SEC.

11

---



# Results of Operations
 Nine Months Ended September 30, 2007 Compared to the Nine Months Ended September
30, 2006

For the nine months ended September
30, 2007, we recorded a net loss of $195,446, or $(0.02) per share, compared to a loss for
the corresponding period of 2006 of $147,286 or $(0.02) per share. In neither period did
we report any revenue. The increase in our net loss was due primarily to an increase in
general and administrative expenses.

General and administrative expense
for the nine months ended September 30, 2007 increased to $196,694 compared to $144,682
during the same period of 2006. The increase is generally attributable to approximately
$51,000 in increased legal and accounting fees associated with the Form SB-2 Registration
Statement filed with the SEC on October 23, 2007, as well as our private placement in
April 2007.

# Forward-Looking
Statements

This Form 10-QSB contains or
incorporates by reference forward-looking statements, as that term is used in
federal securities laws, about our financial condition, results of operations and
business. These statements include, among others:

| |   statements
concerning the benefits that we expect will result from our business activities and
results of exploration that we contemplate or have completed, such as increased revenues;
and
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |   statements
of our expectations, beliefs, future plans and strategies, anticipated developments and
other matters that are not historical facts.
| | --------------------------------------------------------------------------------------------------------------------------------------------------

These statements may be made
expressly in this document or may be incorporated by reference to other documents that we
will file with the SEC. You can find many of these statements by looking for words such as
believes, expects, anticipates, estimates
or similar expressions used in this report or incorporated by reference in this report.

These forward-looking statements are
subject to numerous assumptions, risks and uncertainties that may cause our actual results
to be materially different from any future results expressed or implied in those
statements. Because the statements are subject to risks and uncertainties, actual results
may differ materially from those expressed or implied. We caution you not to put undue
reliance on these statements, which speak only as of the date of this report. Further, the
information contained in this document or incorporated herein by reference is a statement
of our present intention and is based on present facts and assumptions, and may change at
any time and without notice, based on changes in such facts or assumptions.

# Risk Factors Impacting
Forward-Looking Statements

The important factors that could
prevent us from achieving our stated goals and objectives include, but are not limited to,
those set forth in our Form SB-2 Registration Statement, as amended, filed with the SEC, and the
following:

| |  | The
worldwide economic situation;
| | - | ---------------------------------

| |  | Volatility
in the price of oil and gas;
| | - | ---------------------------------------

| |  | Any
change in interest rates or inflation;
| | - | ------------------------------------------

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| |  | The
willingness and ability of third parties to honor their contractual commitments;
| | - | ------------------------------------------------------------------------------------

| |  | Our
ability to raise additional capital, as it may be affected by current conditions in the
stock market and competition in                   the oil and gas industry for risk
capital;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Our
capital costs, as they may be affected by delays or cost overruns;
| | - | ----------------------------------------------------------------------

| |  | Our
costs of production;
| | - | ------------------------

| |  | Technological
changes in the petroleum industry;
| | - | ------------------------------------------------

| |  | Environmental
and other regulations, as the same presently exist and may hereafter be amended;
| | - | ----------------------------------------------------------------------------------------------

| |  | Our
ability to identify, finance and integrate other acquisitions; and
| | - | ----------------------------------------------------------------------

| |  | Volatility
of our stock price.
| | - | ------------------------------

We undertake no responsibility or
obligation to update publicly these forward-looking statements, but may do so in the
future in written or oral statements. Investors should take note of any future statements
made by or on our behalf.

# Item 3.   Controls and
Procedures

(a)    
          We maintain a system of controls and procedures designed to ensure that
          information required to be disclosed by us in reports that we file or submit
          under the Securities Exchange Act of 1934, as amended, is recorded, processed,
          summarized and reported, within time periods specified in the SECs rules
          and forms and to ensure that information required to be disclosed by us in the
          reports that we file or submit under the Securities Exchange Act of 1934, as
          amended, is accumulated and communicated to our management, including our Chief
          Executive Officer and Principal Financial Officer, as appropriate to allow
          timely decisions regarding required disclosure. As of September 30, 2007, under
          the supervision and with the participation of our Chief Executive Officer and
          Principal Financial Officer, management has evaluated the effectiveness of the
          design and operation of our disclosure controls and procedures. Based on that
          evaluation, the Chief Executive Officer and Principal Financial Officer
          concluded that our disclosure controls and procedures were effective.

(b)    
          Changes in Internal Controls. There were no changes in our internal control over
          financial reporting during the quarter ended September 30, 2007 that materially
          affected, or is reasonably likely to materially affect, our internal controls
          over financial reporting.

# PART II

# Item 1.   Legal Proceedings

On November 16, 2007, BlueStar Energy
Services, Inc., an Illinois corporation (BSE Services), filed a complaint
against our company in U.S. District Court for the Northern District of Illinois. The
lawsuit, which has not been formally served on us, alleges damages from trademark
infringement related to our use of the name Blue Star Energy. The Board of
Directors has evaluated various courses of action and, while we vigorously deny any
wrongdoing in connection with the claims, it has concluded it is in the best interest of
the company to pursue settlement with BSE Services. We are currently negotiating a
settlement agreement with BSE Services which we expect to execute in the near future
pursuant to which we will agree to change our corporate name in exchange for dismissal of
the lawsuit with prejudice. The Board of Directors has called a special meeting of the
shareholders to be held on December 11, 2007 for the purpose of approving an amendment to
our Articles of Incorporation to facilitate the name change.

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# Item 6. Exhibits

|a. | Exhibits
|-- | --------

| | 31.1 | Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Raymond E. McElhaney.
| | ---- | -------------------------------------------------------------------------------------------------

| | 31.2 | Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Frank L. Jennings.
| | ---- | ----------------------------------------------------------------------------------------------

| | 32 | Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Raymond E. McElhaney and
Frank                            L. Jennings.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------

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# SIGNATURES

In accordance with Section 13 or
15(d) of the Exchange Act of 1934, the Company caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                        |                                                                                                                   
|----------------------- | ------------------------------------------------------------------------------------------------------------------
|Dated: December 7, 2007 | BLUE STAR ENERGY, INC./s/ Raymond E. McElhaney
By: Raymond E. McElhaney,
President and Principal Executive Officer
|                        |                                                                                                                   
|Dated: December 7, 2007 | /s/ Frank L. Jennings
By: Frank L. Jennings,
Principal Financial Officer                                          

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