UNITED STATES


SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C.20549
 
 Form 10-K
 x
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
 
 For the fiscal year ended December 31, 2010
 
 o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the transition period from _____ to _____
 
 Commission file number 000-26721
 
 AUSTRALIAN OIL & GAS CORPORATION
 (Name of small business issuer in its charter)
 
 Delaware

84-1379164(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)Level 21, 500 Collins Street

Melbourne Victoria Australia

3000(Address of principal executive offices)

(Zip Code)
 
 Issuer’s telephone number (61-3) 8610 4700
Website: www.ausoil.com
 
 
 Securities registered under Section 12(b) of the Exchange Act:   None
 
 Securities registered under Section 12(g) of the Exchange Act:
 Common stock - $0.001 par value
 (Title of class)
 
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  o No x
 
 Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes  o   No x
 
 Indicate by check mark whether the issuer (1) filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 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  o
 
 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o  No  o
 
 Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not 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-K or any amendment to this Form 10-K.  o

















Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of "large accelerated filer,"  "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
  Large accelerated filer   o
Accelerated filer   oNon-accelerated filer   o
Smaller reporting company   x
  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  o    No  x
 
 The aggregate market value of the voting shares of the registrant (based on the closing price reported by the OTC Bulletin Board on or before December 31, 2009), held by non-affiliates was $616,937. For purposes of this disclosure, shares of common stock held by persons who own 5% or more of the outstanding common stock and shares of common stock held by each officer and director have been excluded in that such persons may be deemed to be “affiliates” as that term is defined under the Rules and Regulations of the Securities Exchange Act of 1934, as amended. This determination of affiliate status is not necessarily conclusive.
 
 Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.    Y es x  No o


As at March 29, 2011, 47,650,531 shares of common stock were outstanding.





Documents incorporated by reference:  None



















TABLE OF CONTENTS
  
 PART I
  Item 1.
Business:
 
 Business Development
 Description of Business
 Oil and Gas Interests
 Reserve Estimates
 Production
 Productive Wells and Acreage
 Underdeveloped Acreage
 Drilling Activity
 Current Activities and Plans
 Competitive Factors
 Environmental Compliance and Risk
 Employees
  Item 1A.
Risk Factors
 Item 1B.
Unresolved Staff Comments
 Item 2.
Properties
 Item 3.
Legal Proceedings
 Item 4.
Submission of Matters to a Vote of Security Holders
  PART II
  Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchasers Of Equity Securities
 Item 6.
Selected Financial Data
 Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 Item 7A.
Quantitive and Qualitative Disclosures about Market Risk
 Item 8.
Financial Statements and Supplementary Data Financial Statements and Supplementary Data
 Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 Item 9A.
Controls and Procedures
 Item 9B.
Other Information
  PART III
  Item 10.
Directors, Executive Officers and Corporate Governance Item 11.
Executive Compensation Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 Item 13.
Certain Relationships and Related Transactions, and Director Independence
 Item 14
Principal Accountant Fees and Services
  PART IV
  Item 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
 Signatures
 Financial Statements
 Certifications
 Exhibits





Forward Looking Statements





References in this report to “the Company”, “we”, “us”, “AOGC”, or “our” are intended to refer to Australian Oil & Gas Corporation. This annual report contains certain statements that may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (Exchange Act). Readers of this annual report are cautioned that such forward-looking statements are not guarantees of future performance and that actual results, developments and business decisions may differ from those envisaged by such forward-looking statements.





All statements, other than statements of historical facts, so included in this annual report that address activities, events or developments that the Company intends, expects, projects, believes or anticipates will or may occur in the future, including, without limitation: statements regarding the Company’s business strategy, plans and objectives and statements expressing beliefs and expectations regarding the ability of the Company to successfully raise the additional capital necessary to meet its obligations, the ability of the Company to secure the permits, licenses and leases necessary to facilitate anticipated drilling activities and the ability of the Company to attract additional working interest owners to participate in the exploration and development of oil and gas reserves, are forward-looking statements within the meaning of the Securities Act and the Exchange Act. These forward-looking statements are and will be based on management's then-current views and assumptions regarding future events.




PART I





ITEM 1.   BUSINESS





Australian Oil & Gas Corporation, a Delaware corporation formed on 6th August 2003, is an energy company that explores for natural gas, crude oil and natural gas liquids. Our common stock, par value $0.001 per share, has been traded on the OTC BB since 2003.





The Company seeks oil and gas exploration opportunities in offshore waters within the territorial boundaries of Australia.Once acquired, our strategy is to carry out preliminary geological assessments, including the acquisition of pre-existing data, the formulation and undertaking of new 2D and 3D seismic programs and, if supported by geological rationale and appropriate funding, the drilling of wells to determining whether any viable resource may exist.





The company has two wholly owned Australian subsidiaries; Alpha Oil & Natural Gas Pty Ltd and Nations Natural Gas Pty Ltd. Alpha Oil & Natural Gas Pty Ltd itself has three wholly owned Australian subsidiaries, Vulcan Australia Pty Ltd (which holds the joint venture interest in each of the Oliver, Vulcan  and Nome Joint Ventures), Braveheart Oil & Gas Pty Ltd (which holds the joint venture interest in the Braveheart Joint Venture) and Cornea Oil & Gas Pty Ltd (which will hold the joint venture interest in the Cornea Joint Venture).




Nations Natural Gas Pty Ltd disposed of its wholly owned, but unused, dormant Australian subsidiary, Napoleon Nations Gas Pty Ltd, being surplus to its needs.













AOGC’s goal is to grow a profitable oil and gas company for the long-term benefit of our shareholders.  Our strategy is to build a portfolio of core exploration acreage which provide growth opportunities through grass-roots exploration activity, including the acquisition of seismic surveys and subsequent drilling.





When acquisition opportunities are identified, small operational and technical teams participate in the evaluation process, enabling our Company to move quickly to execute exploration strategies.  Over time we plan to build a team that will have the technical knowledge and sense of urgency to maximize value.  Our local knowledge of Australian producing basins and our proactive culture provide a potential platform for growth through our strategy of acreage acquisition, prospect development and farmout.  An integral part of our plan is to actively evaluate our assets to determine whether farmout or sales of these assets might provide opportunities to reduce commitments, to spread risk and to redeploy our capital resources, so as to constantly rebalance our portfolio and generate new prospects.





We regard Australia as a relatively immature oil and gas country, with particular prospectivity for natural gas, so that our exploration strategy provides the potential exposure to larger gas/liquids targets which may ultimately establish significant production and reserves through successful drilling.  Our technological experts are encouraged to develop strategies for rapid and cost-effective acquisition, processing and interpretation of seismic data, enabling our technical teams to analyse large areas of acreage, to acquire new seismic data, to generate drilling prospects and to relinquish acreage when it is found to be insufficiently prospective to warrant further exploration or where we are unable to raise capital for its exploration.





Industry experts project declines in natural gas production from traditional sources and significant increases in U.S. and Asian natural gas demand over the next 20 years.  Liquefied Natural Gas “LNG” sourced natural gas may provide a significantly larger share of the natural gas market.  We target potential natural gas supply sources suitable not only for LNG processing and export,  but also for domestic Australian consumption, subject to successful exploration and exploiting of our exploration acreage.





We consider that we are now well positioned to pursue these oil and natural gas exploration objectives for the following reasons:





·
Our success in acquiring gas prospective acreage is expected to provide opportunities to farmout and joint venture with other established oil and gas companies, as well as the possibility to joint venture with them in additional exploratory prospects;


·
We possess a significant exploration acreage portfolio in the Browse Basin and Bonaparte Basin region, including the Vulcan Sub-basin, offshore Australia (see “Oil and Gas Interests and Properties” below);


·
We are intent on building a broad-based team with significant experience in the use of structural geology, augmented by 3D seismic technology, and in drilling prospects.


·
We own or have rights to an extensive seismic database, including 6,500 km2of new 2D seismic and some 3,500 km2of 3D seismic data;


·
We are conducting intensive evaluations of our acreage and are in the process of identifying exploration prospects, some of which are high-risk, high-potential, gas and oil prospects.









We have focused on the Bonaparte Basin and Browse Basin region because:





·
We have acquired a significant permit portfolio in these regions;


·
We have developed significant expertise and have an extensive database of information about the geology and geophysics of these regions;


·
We believe there is potential for resources in these regions that have not yet been discovered; and


·
The construction of infrastructure for efficiently developing, producing, transporting and processing natural gas is being actively promoted or has been initiated in each region by others.





Background to Australian Offshore Permits





To gain control of offshore exploration areas in Australia, a Petroleum Exploration Permit (“Permit”) must be tendered for and subsequently granted by the Designated Authority, acting pursuant to the Offshore Petroleum and Greenhouse Gas Storage Act 2006 of the Commonwealth of Australia (“the Act”). A Permit provides rights to the holder to undertake exploration, including seismic surveys and drilling, in the defined area of a Permit.  A Permit is granted for an initial six year period.  Under the terms of a Permit, the exploration work program nominated for the first three years must be met.  The Permit holder may withdraw from the Permit after the third permit year, or at the end of any subsequent Permit year, provided that all the exploration work obligations up to the date of withdrawal have been met.





It should be noted that (provided all work commitments are carried out) Australian petroleum exploration permits may be renewed for two further 5-year terms, upon relinquishment of 50% of the area of a permit at the end of the first 6-year term, and again at the end of the second 5-year permit term. Any Retention Lease or Production License is excluded from the calculation of the area to be relinquished. Permits therefore, have a potential 16-year life, subject to these requirements.





The holder of a Permit may not construct any installation in the Permit or abandon, suspend or complete any well without the written approval of the Designated Authority.  A Permit requires the holder to comply with the Act, the regulations and all directions made there under and to carry out operations with adequate measures for the protection of the environment and to carry insurance as directed by the Designated Authority.  A Permit incurs a modest yearly rental figure.





A Permit is granted by the Designated Authority following a competitive tender program, based on the best work program offered. The experience of the directors and the technical and financial resources of the applicant are taken into consideration before a decision is made. The Company considers that it satisfies the Designated Authority’s requirements and believes that in the future it will be able to secure acreage.  We have already acquired interests in a number of Permits (See Item 2 – Properties).  Our President, Mr. Ernest Geoffrey Albers, has a track record in successfully bidding for exploration permits, and of subsequently progressing through farmout and exploration with major international companies.





For the most part, major companies have dominated the offshore exploration industry in Australia.  More recently, new and independent international operators have become increasingly active. The Company is encouraged by this increased activity and by the diversity of geological concepts being developed.





Increasing availability of sophisticated off-the-shelf technologies from service companies and of expert technical advice from consultants, all aided by the latest computing power, allow companies such as ours to operate in this environment.  There is a worldwide pool of rig operators, seismic service companies and technical consultants upon which we can draw for products and specialist expertise, allowing us to participate at a high level of expertise.










A significant element of our strategy includes the acquisition and control of strategic areas which have potential to be farmed-out, sold or developed in conjunction with industry players: it being recognised that the Company lacks the resources to fully explore and develop areas on its own behalf.  The funding of our programs by others in return for a percentage interest in our exploration permits (farm-out) is a vital part of our strategy and not only spreads risk but, importantly, conserves our capital. We sponsor or assist in the sponsorship of companies for the express purpose of assisting with the funding of costs of our exploration program.





When we require further funds for our programs, it is our intention that the additional funds would be raised in a manner deemed most expedient by the Board of Directors at the time, taking into account budgets, interest of industry in co-participation in our programs and share market conditions.  It is our intention to meet our funding obligations by either partial sale of our interests or farm-out, either to third parties or to entities sponsored by the Company, farmout being a vital part of management’s overall strategy.  It is also part of our plan that funds could be raised by further issues of stock or the promotion of new companies for this purpose. Should funds be required for appraisal or development purposes we would, in addition, look to project loan finance.





Oil and Gas Interests





The Company holds interests in 9 petroleum exploration permits in the offshore areas adjacent to Australia.




Permit
Geological Basin/Sub Basin
Percentage Held
Joint Venture NameAC/P35
Vulcan
15%
VulcanAC/P39
Vulcan
15%
NomeWA-322-P
Browse
17%
BraveheartWA-342-P
Browse
17%
CorneaNT/P62
Bonaparte
21%
National Gas ConsortiumNT/P65
Bonaparte
21%
National Gas ConsortiumNT/P71
Bonaparte
21%
National Gas ConsortiumNT/P72
Bonaparte
21%
National Gas ConsortiumNT/P73
Bonaparte
65%
Stillwater





See Item 2 “Properties” of this report for more information concerning our intentions and our past and recent exploration activities with respect to our oil and gas interests.





Reserve Estimates





The Company has no oil and gas reserves at the present time.













Production





The Company has had no oil and gas production to date.





Productive Wells and Acreage





The Company has no productive wells or productive acreage at the present time.





Underdeveloped Acreage





See Item 2 “Properties” of this report for further information concerning our oil and gas interests.





Drilling Activity





We and our joint venturers drilled Cornea-3 in WA-342-P in December 2009 and Braveheart-1 in WA-333-P in January 2010. See item 2 “Properties” of the report.





Current Activities and Plans





Our current activities relate solely to our participation in oil and gas exploration in the offshore areas of Australia, as described above. (For more information with respect to our current activities and plans see also Item 2 - “Properties”).





Competitive Factors





The acquisition of oil and gas interests is highly competitive. We anticipate that we will continue to encounter strong competition from many established companies with far greater financial, personnel and informational resources.  Competition from such companies may escalate the cost of acquiring properties beyond the range of prices we can afford.  Even if valuable oil and gas deposits are discovered on our properties, our ability to develop and exploit and their marketability will depend on numerous factors, including available equipment and personnel for which there is strong demand, and other competing supplies of oil and gas.





Environmental Compliance and Risk





Since the Company is engaged in the natural resources industry, environmental regulation has a significant impact upon our operations and may necessitate significant capital outlays, which, in turn, may materially affect the earning power of the Company. Certain operations in the exploratory and production phase of oil and gas exploration are potentially hazardous to the environment.  Exploratory drilling in natural areas are sources of significant environmental prescription and regulation.  Further, if recovery methods are utilized which involve the construction of a plant or similar hardware to implement the recovery system, the environmental impact of such a system must be disclosed in an Environmental Impact Statement; and compliance could adversely affect future operations and revenues.  Although we do not have immediate plans to be the operator on any oil and gas drilling operations, others who may drill and operate such properties will face possible environmental regulations, which could affect our liabilities.  Should we operate, then we would directly be responsible for environmental and project management, and liability in the event of mishap.





Employees





As of December 31, 2010, we employed four persons, namely the three directors, and one other person, each on a part time basis.  Additionally, we retain consultant geologists and other geo-scientists, as well as administrative, accounting and financial support on a contract or fee basis, as and when their services are required.










ITEM 1A.                      RISK FACTORS





The business operations of the Company are subject to a high level of risks, which may impact adversely on its future performance. These risks may adversely affect the value of our assets and this may affect the value of our common stock.





The following are some of the important factors that could affect our financial performance or could cause actual results to differ materially from estimates contained in our forward-looking statements. The important factors are not exclusive.





Our future performance is difficult to evaluate because we have a limited operating history and do not own a developed oil and natural gas property or have development plans for any oil or natural gas properties.





We began operations in August 2003 and have a limited operating and financial history.  As a result, there is little historical financial and operating information available to evaluate our performance or an investment in our common stock.





Potential conflicts of interest may cause us to enter into less favorable agreements than we might have obtained from third parties.





Some of our directors are also directors or executive officers of other oil and natural gas companies, which may from time to time compete with us for farm-ins, working interest partners, or property acquisitions. We also may seek to negotiate farm-in agreements or working interest agreements with companies whose boards of directors include individuals who are directors or executive officers of our company.  Under Delaware law, a director that has an interest in a contract or proposed contract or agreement shall disclose his interest in such contract or agreement and shall refrain from voting on any matter in respect of such contract or agreement.  Nevertheless, we may enter into agreements with such other companies that are not as favorable as that which we might have obtained from unrelated third parties.





We will require additional equity capital or debt financings in the future, which may not be available, or may only be available on unfavorable terms.





Our future capital requirements depend on many factors, including the prospectivity of our exploration property and our profitability.  To the extent that available funds are insufficient to fund operating and capital requirements, we will need to fund our exploration commitments by farmout or sale of interests or by raising additional funds through debt financing or curtail our growth and reduce our exploration activities.  Any farmout or sale activity or any equity or debt financing, if available at all, may be on terms that are not favorable to us.  In the case of farmout, sale or equity financings, dilution to our stockholders could result, and in any case such securities may have rights, preferences and privileges that are senior to existing shares.  If we cannot obtain adequate capital on favorable terms or at all, our business, operating results and financial condition could be adversely affected.










Estimates of future cash flows may prove to be inaccurate, resulting in a reduction of our working capital.





Estimates of future net cash flows from oil and gas interests we may wish to develop, prepared by independent consultants, will be based upon estimates by independent engineers of oil and natural gas reserves and the percentage of those reserves which can be recovered and produced with current technology.  These estimates will include assumptions as to the cost of infrastructure, the amount of oil and natural gas capable of being recovered and prices received for the sale of oil and natural gas. Any one or all of those estimates may be inaccurate, which could materially affect resulting future net cash flows and working capital.





We depend on our executive officers for critical management decisions and industry contacts but have no key person insurance for these individuals.





We are dependent upon the continued services of our executive officers, in particular, our President, Mr.E. Geoffrey Albers.  While we do have an employment contract with Mr.E. Geoffrey Albers, we do not carry key person insurance on his life.  The loss of the services of any of our executive officers, through incapacity or otherwise, could have a material adverse effect on our business and would require us to seek and retain other qualified personnel.





Exploring for and producing oil and natural gas are high risk activities with many uncertainties that could adversely affect our business, financial condition or results of operations.





Oil and natural gas exploration activities are subject to numerous risks beyond our control, including the risk that drilling will not result in commercially viable oil or natural gas reserves. Our decisions to explore, assess, appraise or develop or otherwise exploit prospects or properties will depend in part on the evaluation of data obtained through geophysical and geological analyses, seismic and other data and engineering studies, the results of which are often inconclusive or subject to varying interpretations.  Assessment of prospectivity and reserve estimates depend on many assumptions that may turn out to be inaccurate.  Our cost of drilling, completing and operating wells will be uncertain until drilling concludes.  Overruns in budgeted expenditures are common risks that can make a particular project uneconomic.  Further, many factors may curtail, delay or cancel drilling, including the following:





·
delays imposed by or resulting from compliance with regulatory requirements;


·
pressure or irregularities in geological formations;


·
equipment failures or accidents;


·
adverse weather conditions;


·
reductions in oil and natural gas prices;


·
title problems; and


·
limitations in the market for oil and natural gas.





We may incur substantial losses and be subject to substantial liability claims as a result of oil and natural gas exploration activities.





We are not insured against risks.  Losses and liabilities arising from uninsured and underinsured events could materially and adversely affect our business, financial condition or results of operations. Our oil and natural gas exploration activities are subject to all of the operating risks associated with exploring for oil and natural gas, including the possibility of:





·
highly adverse weather conditions, including cyclones and hurricanes;


·
environmental hazards, such as uncontrollable spills or flows of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environment, including groundwater and shoreline contamination;


·
abnormally pressured formations;


·
mechanical difficulties, such as stuck oilfield drilling and service tools and casing collapse;


·
fires and explosions;


·
personal injuries and death; and


·
natural disasters.










Any of these risks could adversely affect our ability to operate or result in substantial losses to our company.  We may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the risks presented.  In addition, pollution and environmental risks generally are not fully insurable.  If a significant accident or other event occurs and is not fully covered by insurance, then it could adversely affect us.





Market conditions or operational impediments may hinder our access to oil and natural gas markets or delay any production.





Market conditions or the unavailability of satisfactory oil and natural gas transportation arrangements may hinder our access to oil and natural gas markets or delay any production.  The availability of a ready market for any future oil and natural gas production will depend on a number of factors, including the demand for and supply of oil and natural gas and the proximity of reserves to pipelines and terminal facilities.  Our ability to market production (when and if we have production) will depend in substantial part on the availability and capacity of gathering systems, pipelines and processing facilities owned and operated by third parties.  Our failure to obtain such services on acceptable terms could materially harm our business.  We may be required to shut-in wells for a lack of a market or because of inadequacy or unavailability of natural gas pipeline or gathering system capacity. If that were to occur, then we would be unable to realize revenue from those wells until production arrangements were made to deliver our production to market.





We are subject to complex laws that can affect the cost, manner or feasibility of doing business.





Exploration, production and sale of oil and natural gas are subject to extensive Australian laws and regulations, including both the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Commonwealth of Australia) and also the Environment Protection and Biodiversity Conservation Action (Commonwealth of Australia) and all regulations, directions and guidelines made thereunder. We may be required to make large expenditures to comply with our permit obligations and governmental regulations.  Matters subject to such obligations and regulation include:





·
permit work program requirements;


·
environmental approvals;


·
seismic work program approvals


·
permits for drilling operations;


·
drilling insurance;


·
development and production approvals; and


·
taxation.





Under these laws, we could be liable for personal injuries, property damage and other damages. Failure to comply with these laws may also result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. Moreover, these laws could change in ways that substantially increase our costs of doing business. Any such liabilities, penalties, suspensions, terminations or regulatory changes could materially and adversely affect our financial condition and results of operations.










Our operations may incur substantial liabilities to comply with applicable environmental laws and regulations.





Our oil and natural gas operations are subject to stringent Australian laws and regulations relating to the release or disposal of materials into the environment or otherwise relating to environmental protection, both of the environment and of the living things within that environment.  These laws and regulations, which include the Environment Protection and Biodiversity Conservation Act 1999, require the acquisition of approvals before seismic acquisition or drilling commences, restrict the types, quantities, and concentration of substances that can be released into the environment in connection with drilling and production activities, limit or prohibit seismic or drilling activities in protected areas, and impose substantial liabilities for pollution resulting from our operations.  Failure to comply with these laws and regulations may result in the assessment of administrative, civil, and criminal penalties, incurrence of investigatory or remedial obligations, or the imposition of injunctive relief.  Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly waste handling, storage, transport, disposal or cleanup requirements could require us to make significant expenditures to maintain compliance, and may otherwise have a material adverse effect on our results of operations, competitive position, or financial condition as well.  Under these environmental laws and regulations, we could be held strictly liable for the removal or remediation of previously released materials or property contamination regardless of whether we were responsible for the release of such materials or if our operations were standard in the industry at the time they were performed.




Competition in the oil and natural gas industry is intense, which may adversely affect our ability to compete.





We operate in a highly competitive environment for the acquisition and exploration of properties, marketing of oil and natural gas and securing qualified and experienced personnel.  Many of our competitors possess and employ financial, technical and personnel resources substantially greater than ours, which can be particularly important in the areas in which we operate.  Those companies often are able to pay more for oil and natural gas properties and prospects and to evaluate, bid for and purchase a greater number of properties and prospects than our financial or personnel resources permit.  Our ability to acquire additional prospects and to find and develop reserves in the future will depend on our ability to evaluate and select suitable properties, to fund exploration and to consummate transactions in a highly competitive environment.  There is substantial competition for capital available for investment in the oil and natural gas industry.  We may not be able to compete successfully in the future in acquiring prospective resources, carrying out seismic and drilling activities, developing reserves, marketing hydrocarbons, attracting and retaining personnel and raising capital.





We may depend on industry partners and could be seriously harmed if they do not perform satisfactorily, a matter which is usually not within our control.





Because we have few employees, limited resources and revenues, we will continue to be largely dependent on industry partners, including farmin participants and joint venturers, for the success of our oil and gas exploration projects.  We could be seriously harmed if our industry partners do not perform satisfactorily on projects that affect us. It is likely that we will have no control over factors that would influence the performance of our partners.










We are controlled by a small number of principal stockholders who may exercise a proportionately larger influence on the company than its stockholders with smaller holdings.





We are controlled by a small number of principal stockholders who may cause events to occur that are not in the interests of the Company’s stockholders with smaller holdings.  Our President, Mr.E.Geoffrey Albers, and entities controlled by him, own approximately 70% of the outstanding common stock (see Item 12).  Accordingly, Mr. Albers has effective control over the election of the Company's directors and significant influence over our management, operations and affairs, including the ability to prevent or cause a change in control of the Company.





Anti-takeover provisions of the certificate of incorporation, bylaws and Delaware law could adversely impact a potential acquisition by third parties that may ultimately be in the financial interests of the company's stockholders.





Our certificate of incorporation, bylaws and the Delaware General Corporation Law contain provisions that may discourage unsolicited takeover proposals.  These provisions could have the effect of inhibiting fluctuations in the market price of the Company's shares that could result from actual or potential takeover attempts, preventing changes in its management or limiting the price that investors may be willing to pay for shares of common stock.  These provisions, among other things, authorize the board of directors to designate the terms of and to issue new series of preferred stock, to limit the personal liability of directors, and to require the Company to indemnify directors and officers to the fullest extent permitted by applicable law and to impose restrictions on business combinations with some interested parties.





The market price of our common stock is highly volatile.





The market price of our common stock has been and is expected to continue to be highly volatile.  Prices for our common stock will be influenced by many factors and may fluctuate widely as a result of factors beyond our control.  General factors which will bear on the price of our common stock include the depth and liquidity of the market for the common stock, investor perception of us and our financial and technical ability and general economic and market conditions.





Our common stock is traded over the counter, which may deprive shareholders of the full value of their shares.





Our common stock is quoted via the Over The Counter Bulletin Board (OTC-BB).  As such, our common stock may have fewer market makers, lower trading volumes and larger spreads between bid and asked prices than securities listed on an exchange such as the New York Stock Exchange or the NASDAQ Stock Market, Inc.  These factors may result in higher price volatility and less market liquidity for the Common Stock.










A low market price may severely limit the potential market for our common stock.





Our common stock is currently trading at a price substantially below $5.00 per share, subjecting trading in the stock to certain SEC rules requiring additional disclosures by broker-dealers.  These rules generally apply to any non-NASDAQ equity security that has a market price of less than $5.00 per share, subject to certain exceptions (a “penny stock”).  Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and institutional or wealthy investors.  For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to the sale.  The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market.  Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer.  Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.  The additional burdens imposed upon broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our common stock.





ITEM 1B.   UNRESOLVED STAFF COMMENTS





None.





ITEM 2.  PROPERTIES





We share the use of premises in Australia at Level 21, 500 Collins Street, Melbourne, Victoria, Australia from which our Australian subsidiaries carry on business.  The Australian office space is taken on a non-exclusive basis, with no rent payable, but the usage of the premises is included in the charges that Setright Oil & Gas Pty Ltd., (an affiliate of the Company by virtue of common management, ownership and control) makes in respect to the administration of the Company.





Following implementation of our acquisition strategy we now hold interests in 9 Petroleum Exploration Permits granted by the Commonwealth of Australia. They are each held in joint venture with other parties.





VULCAN SUB-BASIN INTERESTS, TERRITORY OF ASHMORE AND CARTIER ISLANDS, AUSTRALIA (AC/P35 and AC/P39)





Geologically, AC/P35 and AC/P39 are located on the eastern margin of the Vulcan Sub-basin, a broad, deep and proven hydrocarbon-generative basin, one of a number of proven petroliferous sub-basins which together comprise the North West Shelf hydrocarbon province of Australia.





The permits are within the Territory of Ashmore and Cartier Islands (“the Territory”), an Australian offshore territory which was ceded from Britain and accepted by the Commonwealth of Australia (“Commonwealth”) in 1933. The responsibility for the administration of the Territory was transferred from the Northern Territory of Australia (“Northern Territory”) to the Commonwealth when a level of self-government was instituted in the Northern Territory in 1978.





The Territory comprises West, Middle and East Islands of Ashmore Reef, Cartier Island and a large area of territorial sea generated by those islands.  The Territory is an area of active offshore oil and gas exploration.  The islands are uninhabited, small, low and composed of coral and sand, with some grass cover.










The Territory is located on the outer edge of the continental shelf in the Indian Ocean approximately 320 km off Australia’s north-west coast and 144 kilometres south of the Indonesian Island of Roti.  The Jabiru and Challis oil fields are located within the Territory, as are numerous other oil and gas accumulations and occurrences.




Petroleum extraction activities within the Territory are administered on behalf of the Commonwealth by the Northern Territory Department of Mines and Energy through the Designated Authority protocol operating pursuant to the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Commonwealth).





Commonwealth laws, laws of the Northern Territory and Ordinances made by the Governor-General make up the body of law generally applicable in the Territory.





Our wholly owned subsidiary, Alpha, has established a wholly owned subsidiary, Vulcan Australia Pty Ltd (“Vulcan”) and transferred its interests in each of its Timor Sea permits, AC/P33 (now sold), AC/P35 and AC/P39 to Vulcan.





Joint venture operating agreements are in place for each remaining permit.  The joint ventures were or are named Oliver Joint Venture (AC/P33), Vulcan Joint Venture (AC/P35) and Nome Joint Venture (AC/P39).




Oliver Joint Venture (AC/P33)





On February 18, 2010 Vulcan completed the sale of its 7.5% interest in AC/P33 to a wholly-owned subsidiary of PTT Exploration and Production Public Company Limited, a major Thailand petroleum exploration and production company. Vulcan recovered $ 4,244,679 for its 7.5% interest. These proceeds were utilized in meeting a large proportion of our obligations to the Braveheart Joint Venture and Cornea Joint Venture with respect to the costs associated with the recent drilling of the Braveheart-1 well and Cornea-3 well.  The affairs of the Oliver Joint Venture have now been dissolved and will not be referred to further.





Vulcan Joint Venture (AC/P35)





AC/P35 (granted October 18, 2005) comprises 46 graticular blocks, totalling approximately 3,410 km2 (842,645 acres). There have been five wells drilled in the area, with two having oil and gas indications, all of which were plugged and abandoned. During the first three years of the initial 6-year term of the AC/P35 permit, we obtained a range of pertinent existing reports and open file seismic data.  We also acquired the purchased the right to the reprocessed Onnia 3D seismic data-set of some 1,750 km2 within AC/P35.











Our geological evaluation of this permit during the quarter saw analysis of the Fairfax feature as a focus of our exploration efforts in AC/P35.  The Fairfax feature was not within the area of coverage of the Onnia 3D survey, being in the west of AC/P35 and being covered only by some older seismic lines acquired by previous explorers.  We saw the potential for the Fairfax feature to be a possible mirror-image of the Oliver oil/gas accumulation in AC/P33.  In order to better understand the feature and to advance it to lead status, we decided to acquire a 2D seismic survey to infill the existing data bank and to constrain the south-western end of the feature.  The Fairfax 2D seismic was completed in 2009, with approximately 275 kms of new high quality 2D acquired, utilizing Bergen Offshore’s BOS Atlantic vessel.  The joint venture co-processed the new acquisition with some of the pre-existing seismic lines which were already held over the Fairfax feature.





The joint venture continues to assess the prospectivity of the Fairfax feature and of the AC/P35 permit generally.





The participants in the Vulcan Joint Venture currently are:


%Auralandia NL (Operator)
30.0Natural Gas Corporation Pty Ltd
30.0Petrocorp Australia Pty Ltd (subsidiary of National Gas Australia Pty Ltd)
25.0Vulcan Australia Pty Ltd (subsidiary of Australian Oil & Gas Corporation)
15.0





Nome Joint Venture (AC/P39)





AC/P39 (granted April 7, 2006) is located 600 km west of Darwin, immediately to the east of AC/P35.  It comprises 11 graticular blocks, totalling approximately 920 km2 (2,273 acres).  AC/P39 lies within 100 km of existing petroleum production facilities and along the eastern elevated flank of the Vulcan Sub-basin. There have been five wells drilled in the area, with two having oil and gas indications.  We have obtained a range of existing reports and open file seismic data and acquired the reprocessed 920 km2 Onnia 3D seismic survey within the permit.  Geological evaluation of the permit is continuing, including the assessment of risk as to whether any leads are of sufficient quality to acquire new 3D seismic and whether the leads warrant the risk and cost of drilling and the likelihood of a farminee being prepared to meet the cost of such a well.





Interpretation of the 920 km2 of reprocessed Onnia 3D seismic within AC/P39 is on-going.  We are planning for a further 3D seismic program over our best lead in AC/P39, before making any further commitment to drill a well.





We have developed nine high risk/high impact leads within AC/P39 ranging in size from a mean scope for recovery of prospective resources of 21 million barrels (Tancred NE lead) to 340 million barrels (Ceto lead).





The participants in the Nome Joint Venture are:




%Auralandia NL (Operator)
30.0Natural Gas Corporation Pty Ltd
30.0Petrocorp Australia Pty Ltd (subsidiary of National Gas Australia Pty Ltd)
25.0Vulcan Australia Pty Ltd (subsidiary of Australian Oil & Gas Corporation)
15.0





BROWSE BASIN INTERESTS, OFFSHORE FROM WESTERN AUSTRALIA


– WA-332-P, WA-333-P and WA-342-P


The Browse Basin region is a major proven hydrocarbon area and it forms a part of the extensive series of continental margin sedimentary basins that, together, comprise the North West Shelf hydrocarbon province of Australia. The Browse Basin has been host to a series of major gas, gas condensate and oil discoveries which began with the 1971 discovery at Scott Reef-1 (now called Torosa). The Browse Basin is currently the focus for two proposals to establish new LNG export facilities; one by Woodside Energy Ltd in relation to the Torosa/Brecknock/Calliance complex and the other by Inpex Corporation in relation to the Ichthys complex.  There is one well on the boundary of WA-332-P (Prudhoe-1), one well in WA-333-P (Rob Roy-1 and Braveheart-1), and a total of fifteen wells in WA-342-P, mostly associated with the undeveloped Cornea oil and gas accumulation.





The Browse Basin permits; WA-332-P, WA-333-P and WA-342-P, are contiguous and are located offshore in the eastern Browse Basin. They cover a total area of 9,460 km2 (2,336,620 acres).





Our wholly owned subsidiary, Alpha, together with its joint venturers, in 2008 entered into a farmout agreement with respect to WA-332-P, WA-333-P and WA-342-P (“Permits”) with Gascorp Australia Pty Ltd (“Gascorp”) whereby Gascorp agreed to earn a 15% interest in each of the three Permits in return for Gascorp expending $1,120,000 in acquiring approximately 490 line kilometres of new 2D seismic data (the Braveheart 2D survey) in the Permits and then subsequently it reduced further as a result of Gascorp, at its cost, acquiring infill seismic and a drill site survey in order to determine a specific well location from which to test the Braveheart prospect.  The seismic surveys provided further coverage of the Braveheart Prospect as well as coverage of leads within WA-332-P.  As a result of these farmouts, Alpha’s interest in each of the three permits reduced in two steps from 20% to 14.5%.





Separate new operating agreements were entered into for WA-332-P and WA-333-P (Braveheart) and WA-342-P (Cornea).





Braveheart Joint Venture – WA-332-P (now relinquished) & WA-333-P





Each of these two permits are (or were) held by the Braveheart Joint Venture, consisting of the following parties:




Moby Oil & Gas Limited
26.4375%Braveheart Resources Pty Ltd

(subsidiary of Exoil Limited)
25.3750%Browse Petroleum Pty Ltd

(subsidiary of Gascorp Australia Pty Ltd)
20.1875%Braveheart Oil & Gas Pty Ltd

(subsidiary of Australian Oil & Gas Corporation)
14.5000%Braveheart Energy Pty Ltd

(subsidiary of Goldsborough Limited)
7.2500%Braveheart Petroleum Pty Ltd

(subsidiary of Batavia Oil & Gas Pty Ltd)
6.2500%





The Operator of the Braveheart Joint Venture is Hawkestone.










In late 2009 and early 2010 the Braveheart prospect was drilled by the Songa Venus semi-submersible rig from a location within WA-333-P.  The well failed to encounter hydrocarbons and was plugged and abandoned.





While there was some evidence of miner residual hydrocarbons at the top of the reservoir interval, most of the cleaner sands were water filled.





The company, through its subsidiary, has contributed $2,326,939 to the drilling of the Braveheart-1 well.





Following the drilling of Braveheart-1, the joint venture surrendered WA-332-P





Cornea Joint Venture – WA-342-P





The Cornea Joint Venture comprises the interests held in WA-342-P, which is adjacent to WA-332-P and WA-333-P.





The joint venture has carried out extensive studies as to prospectivity of the known Cornea gas/oil accumulation, where it is postulated that there is scope for recovery of prospective resources of between 40 million and 90 million barrels of oil, if our geological concepts and assumptions are correct.  However, the challenges at Cornea include a low permeability reservoir with difficult to model production characteristics and the long, narrow shape of the field.





This permit is held by the Cornea Joint Venture consisting of the following parties.


Moby Oil & Gas Limited
22.375%Octanex Group
18.750%Cornea Oil & Gas Pty Ltd
17.000%Cornea Petroleum Pty Ltd

(subsidiary of Natural Resources Group Pty Ltd)

(subsidiary of Australian Oil & Gas Corporation)
14.875%Cornea Resource Pty Ltd

(subsidiary of Exoil Limited)
13.100%Coldron Pty Ltd

(subsidiary of Gascorp Australia Pty Ltd)
7.500%Auralandia N.L.
5.000%





The Operator of the Cornea Joint Venture is Exoil’s wholly-owned subsidiary, Hawkestone Oil Pty Ltd (“Hawkestone”).





Between the 11th and 28th of December 2009, the Cornea-3 appraisal/exploration well was drilled into the Cornea oil and gas accumulation by the Songa Venus semi-submersible rig





The company, through its wholly owned subsidiary, Cornea Oil & Gas Pty Ltd, has contributed approximately $3,050,000 to the costs of drilling the well.


The objectives of the well were to define the location of the hydrocarbon contacts and to obtain data relating to the potential reservoir qualities.










Following the conclusion of drilling, a series of logs were run, including a Magnetic Resonance log, as conventional logging tools are unable to resolve the reservoir properties due to the glauconitic nature of the rocks.  In addition, a wireline formation tester was run to assess the pressure within the reservoir and to take fluid samples.





The results of the drilling and logging of Cornea-3 can be summarised as follows:





1.           An oil column of 20.4m was intersected in Cornea-3 (as defined by logs and pressure data) at 808.4m MDRT.





2.           A considerable number of pressure testing results were obtained which enabled the establishment of oil and water gradients and the free water level – a significant improvement on the position known in this vicinity before the well was drilled.  With the assistance of further exploration wells, this information will better enable the exploration for hydrocarbons across the Cornea feature.





3.           The Nuclear Magnetic Resonance (NMR) tool enabled the determination of an average effective, free fluid porosity of 16.4% for the reservoir in this well.  The average inferred permeability of the reservoir in Cornea-3 is 100 millidarcies.  The NMR tool also indicated an average hydrocarbon saturation of 70% for the free fluid porosity.





4.           Extensive efforts were made to sample the oil but the unconsolidated nature of the reservoir meant that, on every attempt, the test tools became blocked with sand, preventing fluid sampling.  However, the oil pressure gradient is consistent with 22 API oil and the NMR logging tool indicated an oil viscosity ranging from 4 centipose at the top of the column to 4.3 centipose at the base – this being less viscous than reported in samples recovered and interpreted by the previous wells in this vicinity.


The results of Cornea-3 defined the existence of a 23m oil column beneath the gas cap in this segment of the Cornea Central closure – a significant exploration result.  A great deal has therefore been learned about how future exploration wells might be drilled in the greater Cornea closure.  This has given the Joint Venture confidence about the ability to drill subsequent vertical and horizontal wells through the targeted sections and, to this end, the Joint Venture will investigate the best method to drill future wells.





Looking to the future, the data obtained from Cornea-3 will enable the Joint Venture to develop an ongoing exploration strategy, now that an oil column has been proved in Cornea-3 and useful data relating to the potential reservoir performance has been obtained.  Continuing the current exploration phase with further exploration drilling is the necessary forerunner to any development strategy being formulated.





Prior to the end of the first term of the WA-342-P permit, the Cornea Joint Venture applied to renew the permit and following discussions with the regulatory authorities concerning the form of the work programme to be undertaken during a renewed term, the permit has been renewed for a further period of five years commencing from January 4, 2011 for a reduced number of blocks down to 21 and covering approximately 1,680 square kilometres.










BONAPARTE BASIN INTERESTS, OFFSHORE FROM THE NORTHERN TERRITORY OF AUSTRALIA – NT/P62, NT/P65, NT/P71 and NT/P72





The Timor Sea covers a huge area underlain by the Bonaparte sedimentary basin made up of various geological segments, with potential for new hydrocarbon discoveries. The region has a long history of exploration activity and discovery and has become a focus for domestic and international petroleum exploration and development activities. There have been numerous oil, gas/condensate and gas discoveries to the north west in the region of the permits, including the Laminaria, Corallina and Bayu-Undan fields.  The giant gas fields of Greater Sunrise, Evans Shoal, Caldita and Barossa are to the north and east of the permits. Recent Plover Formation discoveries have been made in the Heron-2 well and the Blackwood-1 well, in permit NT/P68 immediately north of NT/P63 and immediately south of NT/P65.





The Timor Sea is a major emerging petroleum province, with a developing emphasis in gas processing for the export market.  Discoveries made over the past few years are expected to lead to the area providing substantial gas production and revenue, through value-added gas projects covering a range of gas to liquids processes and technologies.





National Gas Consortium - NT/P62,  NT/P65, NT/P71 and NT/P72





Nations, on June 15, 2006, agreed to farmout 6% of its 30% interest in each of the Timor Sea Permits to NGA (leaving Nations with a net 24% interest) in return for the acquisition and funding by NGA of Nations 30% share of the new Sunshine 2D seismic survey (887 kms) and Kurrajong 2D seismic survey (3,291 km), which were acquired in November 2006.





Nations, on June 16, 2008, agreed to a further farmout of 3% of its 24% interest in each of the Timor Sea Permits to NGA (leaving Nations with a net 21% interest) in return for expenditure of AUD$1.6 million by NGA on Joint Venture exploration costs. The cost of the Company’s share of the Sunshine and Kurrajong surveys was met entirely by NGA.





On August 8, 2006, Nations, together with the other joint venturers in the National Gas Consortium, were granted petroleum exploration permits NT/P71 and NT/P72 for an initial 6-year term.  Permits NT/P71 and NT/P72, which cover a total area of approximately 17,380 km2 (4,294,772 acres), are located in the Australian sector of the Timor Sea, and are held by the National Gas Consortium, which holds the contiguous NT/P62, NT/P63 and NT/P64 permits to the immediate west.





The National Gas Consortium then held six permits aggregating approximately 32,255 km2 (7,970,533 acres) namely, NT/P62, NT/P63, NT/P64, NT/P65, NT/ P71 and NT/P72, all within jurisdiction of Australia.





The participants in the National Gas Consortium then were:


%National Oil & Gas Pty Ltd (Operator)
24.5Australian Natural Gas Pty Ltd
24.5National Gas Australia Pty Ltd
30.0Nations Natural Gas Pty Ltd (AOGCsubsidiary)
21.0


During 2009 the National Gas Consortium relinquished NT/P63 and NT/P64.











NT/P71 and NT/P72 Joint Venture





Interests in the permits NT/P71 and NT/P72, as at the end of the year, were as per the holdings shown above for the National Gas Consortium. Low key evaluation of these permits continued through the year




Sunshine Joint Venture and Mimosa Joint Venture – NT/P62 and NT/P65




On August 29, 2009, the members of the National Gas Consortium applied for a variation in the permits NT/P62 and NT/P65 where the year 5 well obligation in each permit will be swapped for a seismic interpretation and mapping obligation from year 6.




The obligation to acquire at least 150 km of new 2D seismic data in NT/P62 was met through the completion of the Mimosa 2D survey carried out in March, 2009.  Cost of the 2D survey was met by Gascorp Australia Pty Ltd as its farmin obligation.





The obligation to acquire at least 200 km of new 2D seismic data in NT/P65 was met through the completion of the Sunshine Infill 2D survey carried out in March 2009. The cost of the Sunshine survey was met entirely by Gascorp Australia Pty Ltd as its farmin obligation.





Following these farmins the interests in each of NT/P62 and NT/P65 are:


%Gascorp Australia Pty Ltd
12.500National Oil & Gas Pty Ltd (Operator)
21.4375Australian Natural Gas Pty Ltd
21.4375National Gas Australia Pty Ltd
26.2500Nations Natural Gas Pty Ltd (AOGC subsidiary)
18.3750


Stillwater Joint Venture - NT/P73





On March 27, 2007, the Australian Government granted our subsidiary, Alpha, a petroleum exploration permit, NT/P73, for an initial 6-year term.  NT/P73 covers an area of 6,815 km2 (1,683,300 acres). The Barossa and Caldita gas accumulations are located to the west of the NT/P73 permit area.





In the first three years of the initial 6-year term of the NT/P73 permit we have obtained existing reports and open file seismic data and mapped, interpreted and revised analyses and concepts for the area.  We have elected to enter the second three years of the initial permit term and drill one exploration well and perform further interpretational work. There have been no wells drilled in the permit area.





Our work to date has focused on the Stillwater feature of the NW corner of NT/P73.  We reached agreement with ConocoPhillips with respect to our right to approximately 200 kms2 of 3D data acquired by ConocoPhillips in the NW corner of our NT/P73, most of which covers the Stillwater feature, which sits en enchelon with the Caldita gas discovery, located in the adjacent permit held by ConocoPhillips and Santos.  This data has met our permit work obligation.










Following the purchase of seismic and other geological and geophysical data in 2009 Gascorp Australia Pty Ltd exercised an option to acquire a 35% interest in this permit by farmin.


Following this farmin the interests in NT/P73 are:


%Gascorp Australia Pty Ltd
35.000Alpha Oil & Natural Gas Pty Ltd (Operator)
65.000




ITEM 3.   LEGAL PROCEEDINGS





None





ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.





No matter was submitted to a vote of security holders during the period covered by this report.











PART II





ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASERS OF EQUITY SECURITIES





Market Information





Our common stock is not traded on an exchange but is quoted on the OTC Bulletin Board under the trading symbol “AOGC.OB”. The prices set forth below reflect the quarterly high and low bid prices for shares of common stock for the past two years.  These quotations reflect inter-dealer prices, without retail markup, markdown or commission, and may not represent actual transactions.


Period
High Sale or Bid
Low Sale or Bid1st Quarter 2009
$0.10
$0.052nd Quarter 2009
$0.06
$0.043rd Quarter 2009
$0.20
$0.054th Quarter 2009
$0.10
$0.041st Quarter 2010
$0.08
$0.042nd Quarter 2010
$0.08
$0.063rd Quarter 2010
$0.07
$0.064th Quarter 2010
$0.09
$0.06


As at December 31, 2010, there were 4 market makers in our common stock.
  As at December 31, 2010, there were approximately 212 holders of record of our common stock.





The Company has not paid any cash dividends on its common stock and does not anticipate paying cash dividends in the foreseeable future. We intend to retain any earnings to finance the growth of the business. There can be no assurance that we will ever pay cash dividends.





Recent Sales of Unregistered Securities





During the past two years, without registering the securities under the Securities Act of 1933, the Company has issued following securities:





On March 26, 2009, 2,400,000 shares of common stock were issued to Mr EG Albers under the terms of his employment contract pursuant to Section 4(2) of the Securities Act, filed as an exhibit to the 2008 Form 10-K.





On December 23, 2009, 2,200,000 shares of common stock were issued to Mr EG Albers under the terms of his employment contract pursuant to Section 4(2) of the Securities Act, filed as an exhibit to this 2009 Form 10-K.




On December 13, 2010, 2,000,000 shares of common stock were issued to Mr EG Albers under the terms of his employment contract pursuant to Section 4(2) of the Securities Act, filed as an exhibit to this 2010 Form 10-K.










Share Repurchase Program





The Company does not maintain any stock repurchase program involving purchases of the Company’s common stock by or on behalf of the Company that would require disclosure under Item 703 of the Regulation S-B.





ITEM 6. SELECTED FINANCIAL DATA





The information set forth below is only a summary, is not necessarily indicative of results of future operations and should be read in conjunction with Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes to Consolidated Financial Statements.





We derived our historical information from our audited financial statements as of December 31, 2005, 2006, 2007, 2008 and 2009. The historical results included below and elsewhere in this document are not indicative of our future


performance.


Years Ended December 31,2006


2007


2008


2009


2010Operating revenues


-



-



-



-



-Interest expense


341



29



17



8



27Net income (loss)


592



(815
)


(389
)


(491
)


1,292Net income (loss) per share (1) - basic


0.02



(0.05
)


(0.01
)


(0.01
)


0.03Net income (loss) per share (1) - dilutive


0.02



(0.02
)


(0.01
)


(0.01
)


0.03Total assets


737



484



9



2,974



3,092Long-term debt


276



305



-



206



2,187


(1)  Basic and fully diluted loss per share is based on the weighted average number of shares of our common stock outstanding during each year: 33,212,561 in 2006 and 36,467,152 in 2007 and 40,052,317 in 2008 and 44,281,575 in 2009 and 46,406,026 Basic and 48,888,434 Dilutive in 2010. NOTE: Basic and diluted earnings per share are the same in loss years.





ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.





General





Australian Oil & Gas Corporation is an independent energy company focused on exploration and development of oil and natural gas reserves.  Our core business is directed at the acquisition of interests in oil and gas prospects in the off-shore areas in Australia’s territorial waters.  Since August 2003, when current management began operating the company, we have not conducted any substantive revenue generating business operations. Management has identified opportunities in oil and gas exploration in Australia, has acquired permits authorizing the exploration for petroleum, has carried out geological and geophysical programs, including the acquisition of seismic data.  It has not yet made any decision as to the company’s future operations other than as disclosed elsewhere herein.










We rely on the considerable experience in the oil and gas industry of our President, Mr.E.G.Albers, and our consultants to identify and conduct initial geological analyses of properties in which we acquire an interest.  We have devoted essentially all of our resources to the identification and acquisition of large - tract oil and gas properties and seek to keep our overhead at a minimum level through the retention of carefully selected consultants, contractors and service companies.  We use proven modern technologies to evaluate properties and prospects.  Generally, we expect to invest in projects at different percentage levels of participation, with our intention being to spread risk and to reduce the Company’s financial commitments through either farmout or sale.





To date, together with certain other affiliated joint venturers, the Australian authorities have awarded us interests in 9 Petroleum Exploration Permits.





Liquidity and Capital Resources





The following table reflects our working capital position at December 31, 2009 and 2010:


2009


20010Current assets

$
6


$
42Current liabilities

$
3,478


$
123Working capital

$
(3,472
)

$
(81
)Current ratio


0.02



0.341
 
 In order to fund on-going administration and the cost of acquisition of interests, the Company has previously largely relied on infusions of cash through the advances of Great Missenden Holdings Pty Ltd, an affiliated company associated with our President, Mr.E.Geoffrey Albers.  To date, we have also relied upon farmins from National Gas Australia Pty Ltd and Gascorp Australia Pty Ltd (both affiliated companies associated with Mr Albers) by way of farmout to fund a significant proportion of our preliminary seismic and associated obligations.  When we require further funds, it is our intention that the additional funds would be raised in a manner deemed most expedient by the Board of Directors at the time, taking into account budgets, the interest of industry in co-participation in our programs, stock market and oil and gas market conditions.  When additional funds for exploration are required, our strategy to meet our obligations by either partial sale of our interests or farm out, the latter course of action being a vital part of managements overall strategy.  We would also look to further issues of stock or the promotion of new companies formed for the purpose of funding exploration within our permit interests.  Should funds be required for appraisal or development purposes we would, in addition, look to project loan finance.





Our cash requirements for the next 12 months to support the operations are currently assessed to be approximately $275,000. This figure includes office administration of $75,000, and payments of approximately $200,000 for future exploration.  The Company has sufficient liquid capital to support its operations during the next twelve months.





In addition, if the Company is to maintain its remaining portfolio of tenement interests then it will have to make future binding commitments to carry out specified work programs in order to meet permit terms.  We may also elect to carry out exploration over and above our minimum permit commitments or enter into new projects with expenditure obligations.










Expenditure commitments include obligations arising from the minimum work obligations for the initial 3 year period of exploration permits and thereafter commitments made annually.  Minimum work obligations, may, subject to negotiation and approval, be varied or suspended or extended.  They may also be satisfied by farmout, sale, relinquishment or surrender of a permit.





However, if the Company requires further funds, the Company can seek the farmout or sale of permit interests, or the sponsorship of new companies for this purpose, or through the sale of additional shares of our common stock.





On February 17, 2009 the Company signed a Line of Credit agreement with Great Missenden Holdings Pty Ltd, for $250,000 of which $200,000 has been drawn down.





On October 18, 2010 the Company signed a new Line of Credit agreement with Great Missenden Holdings Pty Ltd, for another $200,000 of which $109,383 has been drawn down.





Contractual Obligations and Off-Balance Sheet Arrangements





We have no off-balance sheet arrangements, as defined by Item 303 of Regulation S-K under the Securities Act.





Critical Accounting Policies





Management has identified the accounting policies described below as critical to our business operations and the understanding of the results of operations. The impact and any associated risks related to these policies on our business operations are discussed throughout this section where such policies affect our reported and expected financial results. The preparation of this Annual Report requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, revenues and expenses of the Company during the reporting period and contingent assets and liabilities as of the date of our financial statements. There can be no assurance that the actual results will not differ from those estimates.





Undeveloped oil and gas properties:





We utilize the “successful efforts” method of accounting for undeveloped mineral interests and oil and gas properties.  Costs of carrying and retaining undeveloped properties are to be charged to expense when incurred.  Capitalized costs are to be charged to operations at the time the Company determines that no economic reserves exist. Proceeds from the sale of undeveloped properties are to be treated as a recovery of cost.  Proceeds in excess of the capitalized cost realized from the sale of any such properties, if any, are to be recognized as gain to the extent of the excess.




Recent Accounting Pronouncements




None.









ITEM 7A.  QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.





Not applicable.





ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





See Item 15 (a) for an index to the Consolidated Financial Statements and supplementary financial information, which are attached hereto and incorporated by reference herein.




ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  Not applicable.




ITEM 9A. CONTROLS AND PROCEDURES





As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2010. This evaluation was carried out under the supervision and with the participation of our President and Chief Financial Officer. Based upon that evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of such date.





As used herein, "disclosure controls and procedures" meanscontrols and other procedures of ours that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file under the Securities Exchange Act is accumulated and communicated to our management, including our President and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.





Internal Controls





Since the date of the evaluation described above, there were no significant changes in our internal control or in other factors that could significantly affect these controls, and there were no corrective actions with regard to significant deficiencies and material weaknesses.





Management’s Report on Internal Control over Financial Reporting





The management of Australian Oil and Gas Corporation (“the Company”) is responsible for (1) the preparation of the accompanying financial statements; (2) establishing and maintaining internal controls over financial reporting; and (3) the assessment of the effectiveness of internal control over financial reporting. The Securities and Exchange Commission defines effective internal control over financial reporting as a process designed under the supervision of the company’s principal executive officer and principal financial officer, and implemented in conjunction with management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles.










All internal control systems, no matter how well designed, have inherent limitations and  provide only reasonable assurance that the objectives of the control system are met, Therefore, no evaluation of controls can provide absolute assurance that all control issues and misstatements due to error or fraud, if any, within the company have been detected. Additionally, any system of controls is subject to risk that controls may become inadequate due to changes in conditions or that compliance with policies or procedures mat deteriorate. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because changes in conditions or that compliance with the policies or procedures may deteriorate.





As of December 31, 2010, management of the Company conducted as assessment of the effectiveness of the company’s internal control over financial reporting based on criteria established in the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. From this assessment, management has concluded that the company’s internal control over financial reporting was effective as of December 31, 2010.





This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.







/s/ E. Geoffrey Albers


E. Geoffrey Albers,


Chief Executive Officer and


Chief Financial Officer


(Principal Executive and Financial Officer)








ITEM 9B    OTHER INFORMATION.





Not applicable







26





PART III





ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.




Set forth below are the names of each of the executive officers of the Registrant and the position held:


Name

Age

PositionErnest Geoffrey Albers

66

President, Treasurer and DirectorWilliam Ray Hill

60

Director, Vice PresidentMark Anthony Muzzin

48

Director, Vice President


Ernest Geoffrey Albers has been our President and Treasurer and a director since August 2003.  Mr. Albers is a company director with over 30 years experience as a lawyer and administrator in Australian corporate law, petroleum exploration and resource sector investment.  During this period Mr Albers has sponsored the formation of companies that have made the original Maari (Moki) oilfield discovery and development in New Zealand, the Yolla Gas/Condensate discovery in Bass Strait, the Evans Shoal gasfield discovery/ appraisal in the Timor Sea, the Oyong and Wortel gas/oil discoveries in Indonesia and the SE Gobe oilfield development in Papua New Guinea. He is a director of Australian publicly listed companies; Octanex N.L., Moby Oil & Gas Limited and Exoil Limited.  He is a member of the Petroleum Exploration Society of Australia and a Fellow of the Institute of Directors in Australia.





W. Ray Hill has been a director of the Company since August 2003. Mr. Hill is President and Director of The Zonia Company, an Arizona real estate development company.  Mr. Hill is the founder and President of Geowest Corporation, which is involved in the development and operation of a solid waste construction and demolition landfill.  In 1988 Mr. Hill founded Citizens Recycle & Collection, a solid waste hauling and Transfer Company, which was acquired by Waste Management, Inc. in 1996.





Mark A Muzzin was appointed a director of the Company on November 16, 2005. Mr Muzzin has had over 20 years of commercial experience and holds a B.A. degree from Latrobe University, Melbourne, Australia.  His career commenced in the mid eighties for a London stock broking firm and has consulted for two of the major banks in Australia in the share custodian area. He has been involved in capital raising activities for resource companies in Australia and is a consultant for various oil and gas companies.  He is managing director of Strategic Energy Resources Ltd and is a director in a number of Australian private companies. Mr Muzzin is a member of the Petroleum Exploration Society of Australia.





Board/Committee Matters




The Company does not currently maintain separate standing committees, including an Audit, Nominating or Compensation Committee, of the Board of Directors, because of the small size of the Board and of the Company.  As a result, the entire Board of Directors acts as these Committees for the purpose of overseeing these functions, including the Company’s accounting and financial reporting processes, and the audits of the financial statements by our independent registered public accounting firm.










Board Attendance





The Board of Directors met five times during the year ended December 31, 2010.  During 2010, each of the directors attended at least 100% of the total number of meetings of the Board of Directors.  It is the Company’s policy that, absent unusual or unforeseen circumstances, all of the directors are expected to attend annual meetings of stockholders.





Audit Committee Financial Expert





We do not have an audit committee financial expert serving on our Board of Directors because no current member of the Board has the requisite experience and education to qualify as an audit committee financial expert as defined in Item 401 of Regulation S-B and because we are a start up oil and gas exploration company with limited revenues to date.  However, in the future, the current members of the Board intend to consider such qualifications in making future nominations of persons to join our Board of Directors.





Report of the Board, Acting as the Audit Committee




The Board of Directors, acting as the Audit Committee, has prepared the following report for inclusion in this Annual Report.  The Board has the responsibility for reviewing the Company’s accounting practices, internal accounting controls and financial results and is responsible for the engagement of the Company’s independent auditors.  The Board met five times in 2010 and has reviewed and discussed the audited financial statements with the Company’s management.





The Board has discussed with the independent auditors the matters required to be discussed by SAS 114 (Codification of Statements on Auditing Standards, AU Section 380), as may be modified or supplemented.





The Board has received the letter from the independent auditors required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), as may be modified or supplemented.





Based on the review and discussions referred to in the foregoing three paragraphs, the Board of Directors determined that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 for filing with the Securities and Exchange Commission.





E. Geoffrey Albers


Mark A. Muzzin


W. Ray Hill











Dated:  March 29, 2011



















THIS REPORT SHALL NOT BE DEEMED INCORPORATED BY REFERENCE INTO ANY FILING UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES IT BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED TO BE FILED UNDER SUCH ACTS.





Code of Ethics





The Board of Directors on March 28, 2007, adopted a code of ethics for the Company’s principal executive, financial and accounting officers. (See Exhibit 14 to the 2006 10K).





The Code has created written standards that require accountability for adherence to the code and have been designed to deter wrongdoing and to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships.  The code requires full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the Commission and in other public communications.  The code includes requirements for compliance with applicable governmental laws, rules and regulations and the prompt internal reporting of violations of the code to an appropriate person or persons identified in the code.





The Company will provide to any person without charge, upon request, a copy of such code of ethics.  The Code is available by written request to the Company at its address Level 21, 500 Collins Street, Melbourne, Victoria, Australia or by email to admin@ausoil.com.





Section 16(A) Beneficial Ownership Reporting Compliance





Section 16(a) of the Securities Act of 1934 requires our officers and directors, and greater than 10% stockholders, to file reports of ownership and changes in ownership of our securities with the Securities and Exchange Commission.  Copies of the reports are required by SEC regulation to be furnished to us.





Based solely upon a review of Forms 3 and 4 furnished to the Company, the Company is not aware of any director, officer, or beneficial owner of more than ten percent of the Common Stock of the Company, who failed to file, on a timely basis, reports required by Section 16(a) of the Securities Exchange Act of 1934.

















ITEM 11.                 EXECUTIVE COMPENSATION





Compensation awarded to, earned by, or paid to our sole executive officer whose compensation exceeded $100,000.





Summary Compensation Table for 2010




Nae and Principal Position
Year
Salary

($)

Stock Awards

($) *


Total

($)E.G. Albers
2010
NIL

$
160,000


$
160,000(CEO) President and Treasurer
2009
NIL

$
88,000


$
88,000


*   This amount is the grant date fair value of the shares issued.





All other tables regarding executive officer compensation have been omitted as inapplicable.





ur directors are not compensated for their service on the Board.





Compensation Committee Interlocks and Insider Participation





We have no compensation committee or another board committee performing equivalent functions. Each of the current members of the Board, being Messrs. Albers, Muzzin and Hill has participated in deliberations of the Board concerning executive officer compensation.





Compensation Committee Report





Given that no compensation has been paid to our directors and executive officers in our 2010 fiscal year, our Board of Directors has not reviewed or discussed the Compensation Discussion and Analysis set forth in Item 402(b) of Regulation S-K under the Securities Act with management; and has not recommended that such Compensation Discussion and Analysis be included in our Annual Report or proxy statement. This disclosure is being made by all members of our Board, being Messrs. Geoffrey Albers, Mark Muzzin, and William Ray Hill.












ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS





The following table sets forth, as of December 31, 2010, certain information with respect to the beneficial ownership of shares of common stock by (i) any officer of our company, (ii) each director of our company, (iii) each person known to us to be the beneficial owner of more than 5 percent of our outstanding shares of common stock, and (iv) our directors and executive officers as a group.




Beneficial Owner

Number

of Shares(1)


Percent of Class(2)Ernest Geoffrey Albers (3)


35,311,782



74.10William Ray Hill


100,000



0.21Mark Anthony Muzzin


0



0All executive officers and directors as a group (3 persons)


35,411,782



74.31
%





(1)
The number of shares and the percentage of the class beneficially owned by the entities above are determined under rules promulgated by the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days through the exercise of any stock option or other right. The inclusion herein of such shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner of such shares. Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power (or shares such power with his or her spouse) with respect to all shares of capital stock listed as beneficially owned by such person or entity.





(2)
Percentages are based upon the total 47,650,531outstanding shares of Common Stock at December 31, 2010, combined with the number of shares of Common Stock beneficially owned by each person or entity.


(3)
Includes shares of common stock registered in the names of Mr. Albers’ family members and affiliates.




ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.




Set forth below is information regarding transactions involving the Company and executive officers, directors and significant shareholders of the Company during the most recent fiscal year and for the prior fiscal year.





Some of our directors and officers are engaged in various aspects of oil and gas exploration and development for their own account and through other entities in which they are directors and or shareholders. Furthermore, as described in this Item 13, certain of our directors and officers are involved in transactions with the Company. We have no policy prohibiting, nor does our Certificate of Incorporation prohibit, transactions between the Company and our officers and directors. We may enter into cost-sharing arrangements with respect to geological investigations, seismic acquisition and drilling of our properties.  Directors and officers may participate, from time to time, in these arrangements and such transactions may be on a non-promoted basis (actual costs), or on a promoted basis, but must be approved by a majority of the disinterested directors of the Board of Directors.











With respect to Mr E.G. Albers, President, Treasurer and a director of AOGC and each of its subsidiaries including Alpha, Nations, Vulcan ,Braveheart and Cornea, transactions were entered into, in relation to:





*           Great Missenden Holdings Pty Ltd:Mr. Albers is a director and shareholder of Great Missenden Holdings Pty Ltd.





For the year ended December 31, 2010, and the year ended December 31, 2009, respectively Great Missenden Holdings Pty Ltd charged $27,276 and $8,101 for interest on all advances during the year





*           Setright Oil & Gas Pty Ltd:  Mr Albers is a director and shareholder of Setright Oil & Gas Pty Ltd.   For the year ended December 31, 2010, and the year ended December 31, 2009, respectively, Setright Oil & Gas Pty Ltd charged the Company $17,124 and $15,372 for the provision of accounting and administrative services rendered by third parties for the benefit of the Company, but not including services rendered by Mr. E Geoffrey Albers, who is remunerated separately by way of the issue of shares of common stock.  AOGC’s subsidiaries have the use of premises in Australia at Level 21, 500 Collins Street, Melbourne, Victoria.  The office space is taken on a nonexclusive basis, with no rent payable, but the usage of the premises is included in the charges Setright Oil & Gas Pty Ltd makes in respect to the administration of the Company.





*           Oliver, Vulcan and Nome Joint Ventures: Mr. Albers is a director and shareholder in the joint venture participants with Vulcan Australia Pty Ltd (Vulcan) with regard to exploration permit ACP/33, ACP/35 and AC/P39; namely Petrocorp Australia Pty Ltd, Natural Gas Corporation Pty Ltd and Auralandia N.L.  Mr Muzzin is a shareholder in Auralandia N.L. As a result of incurring expenditures, the predecessor in title to Petrocorp Australia Pty Ltd earned an aggregate 25% interest in each of AC/P33, AC/P35 and AC/P39 (Vulcan Joint Venture), 5% of which was earned from AOGC subsidiary, Alpha (predecessor in title to Vulcan).





*           Braveheart Joint Venture:  With regard to the Braveheart Joint Venture, Mr. Albers is a director and shareholder in each of Browse Petroleum Pty Ltd, Braveheart Petroleum Pty Ltd, Moby Oil & Gas Limited, Braveheart Energy Pty Ltd and Exoil Limited, the parent of Braveheart Resources Pty Ltd. He is a major shareholder in the parent of Braveheart Energy Pty Ltd.  All of these companies are the holders of the Braveheart Joint Venture.





*           Cornea Joint Venture:  With regard to the Cornea Joint Venture, Mr. Albers is a director and shareholder in each of Coldron Pty Ltd, Cornea Petroleum Pty Ltd, Moby Oil & Gas Limited, Auralandia NL, Cornea Energy Pty Ltd, Octanex NL and Exoil Limited, the parent of Cornea Resources Pty Ltd. All of these companies are the holders of the Cornea Joint Venture.





*           National Gas Consortium.With regard to the National Gas Consortium, Mr. Albers is a director and shareholder in each of National Oil & Gas Pty Ltd, Australian Natural Gas Pty Ltd and Natural Gas Australia Pty Ltd. Expenditure incurred by National Gas Australia Pty Ltd has resulted in National Gas Australia Pty Ltd earning an aggregate 30% interest in each of NT/P62, NT/P63, NT/P64, NT/P65, NT/P71 and NT/P72, (National Gas Consortium), of which 9% was earned from Nations.










*           NT/P70 Joint Venture.  With regard to the NT/P70 Joint Venture, Mr Albers is a director and shareholder in National Gas Australia Pty Ltd.  Expenditure incurred during a prior period by National Gas Australia Pty Ltd (in which Mr E.G. Albers is the sole shareholder and sole director) in relation to the acquisition of the 795 line km Crocodile 2D Seismic Survey is in the order of $950,000.  As a result of this expenditure, National Gas Australia Pty Ltd earned a 20% interest in NT/P70 from AOGC.





*           NT/P73 Stillwater Joint Venture.  With regard to the Stillwater Joint Venture, Mr Albers is a director and shareholder in Gascorp Australia Pty Ltd which has acquired a 35% interest in NT/P73 following the exercise of option purchased for $249,935.





Mr. Mark A Muzzin, a director and Vice-President of AOGC is a shareholder in Exoil Limited, the parent of Braveheart Resources Pty Ltd and Cornea Resources Pty Ltd.







ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES





The company paid the following fees to Demetrius & Company L.L.C for services rendered during fiscal years 2010 and 2009:




2010

$


2009

$Audit Fees:


34,500



34,100Tax Fees:


4,605



3,400All other fees:


-



650
 Audit fees are for the audit of our annual financial statements, review of the financial statements included in our report on 10-Q and other services typically provided by an accountant in connection with statutory and regulatory filings or engagements for those fiscal years.  Tax fees are for assurance and other services related to the performance of the audit or review of our financial statements. The other fee in 2009 was for the dissolution of the two dormant US subsidiary companies during the fiscal year ended December 31, 2009




Audit Committee’s Pre-Approval Practice





Inasmuch as the Company does not have an audit committee, its Board of Directors performs the functions of its audit committee. Section 10A(i) of the Securities Exchange act of 1934 prohibits our auditors from performing audit services for us as well as any services not considered to be “audit services” unless such services are pre-approved by the board of directors (in lieu of the audit committee) or unless the services meet certain de minimis standards.





The board of directors has adopted resolutions that provide that the board must:





Preapprove all audit services that the auditor may provide to us or any subsidiary (including, without limitation, providing comfort letters in connection with securities underwritings or statutory audits) as required by Section 10A(i) (1) (A) of the Securities Exchange Act of 1934 (as amended by the Sarbanes-Oxley Act of 2002).





Preapprove all non-audit services (other than certain de-minimis services described in Section 10A(i) (1) (B) of the Securities Exchange act of 1934 (as amended by the Sarbanes-Oxley Act of 2002) that the auditors propose to provide to us or any of its subsidiaries.





The board of directors considers at each of its meetings whether to approve any audit services or non-audit services. In some cases, management may present the request; in other cases, the auditors may present the request. The board of directors has approved Demetrius & Company LLC performing our audit for the 2009 and 2010 fiscal years.





























PART IV





ITEM 15                      EXHIBITS, FINANCIAL STATEMENT SCHEDULES





a)





1.   Index to Consolidated Financial Statements


The following Consolidated Financial Statements are filed as part of this annual report on Form 10-K:
 Report of Independent Registered Public Accounting Firm
F-2Consolidated Balance Sheets-December 31, 2010 and 2009
F-3Consolidated Statements of Operations--Years Ended December 31, 2010 and 2009
F-4Consolidated Statements of Stockholders' Equity—From inception(August 6, 2003) through to December 31, 2010
F-5Consolidated Statements of Cash Flows--Years endedDecember 31, 2010 and 2009
F-7Notes to Consolidated Financial Statements
F-8 - F-12


2.   Financial Statement Schedules





Financial statement schedules have been omitted because they are either not required, not applicable or the information required to be set forth therein is included in the Consolidated Financial Statements hereto.





3.   Exhibits




Exhibit

Number
Description3.1
Certificate of Incorporation of Australian Oil & Gas Corporation (incorporated by reference from Exhibit 3.1 to the Company’s annual report on Form 10-K for the year ended December 31, 2005).3.2
By-Laws, as amended, of Australian Oil & Gas Corporation (incorporated by reference from Exhibit 3.2 to the Company’s annual report on Form 10-K for the year ended December 31, 2005).10.8
Deed of Re-appointment between the Company and E.G. Albers, dated February 17, 2009 (incorporated by reference from Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008).10.9
Agreement between the Company and Great Missenden Holdings Pty Ltd, regarding $250,000 Line of Credit, dated February 17, 2009 (incorporated by reference from Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008).10.10
Series III Convertible Unsecured Note held by Great Missenden Holdings Pty Ltd.10.11
Agreement between the Company and E.G. Albers regarding the Acquisition of Shares and Compliance with U.S. Securities Law, dated February 17, 2009 (incorporated by reference from Exhibit 10.11 to the Company’s annual report on Form 10-K for the year ended December 31, 2008).10.12
Agreement between the Company and Great Missenden Holdings Pty Ltd, regarding $200,000 Line of Credit, dated October 18, 2010. *10.13
Series IV Convertible Unsecured Note held by Great Missenden Holdings Pty Ltd.*14
Standards of Conduct of Australian Oil & Gas Corporation (incorporated by reference from Exhibit 14 to the Company’s annual report on Form 10-K for the year ended December 31, 2006).21
List of Subsidiaries of Australian Oil & Gas Corporation. *24.1
Certification of Secretary with respect to power of attorney. *31
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. *32
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *




*  Filed herewith





(b)           Not applicable.


(c)           Not applicable.









SIGNATURES







Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
  AUSTRALIAN OIL & GAS CORPORATION
  By:
/s/ E. Geoffrey AlbersE. Geoffrey AlbersE. Geoffrey Alberts, President
 
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
  Name

Title

Date/s/ E. Geoffrey Albers

President, Treasurer, Chief Financial Officer and Director

29thday of March 2011E. Geoffrey Albers/s/ Mark A Muzzin

Director, Vice President

29thday of March 2011Mark A Muzzin/s/ W. Ray Hill

Director, Vice President

29thday of March 2011W. Ray Hill










35





FINANCIAL STATEMENTS
 
 Table of Contents





Audit Report of Independent Registered Accountant





Consolidated Balance Sheets – as at December 31, 2010 and 2009





Consolidated Statements of Operations for the twelve months ended December 31, 2010 and 2009 and for the period from inception (August 6, 2003) to December 31, 2010.





Consolidated Statements of Changes in Stockholders’ Equity And Comprehensive Income for the period from inception (August 6, 2003) to December 31, 2010





Consolidated Statements of Cash Flows for the twelve months ended December 31, 2010 and 2009 and for the period from inception (August 6, 2003) to December 31, 2010.





Notes to Consolidated Financial Statements






















REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To the Board of Directors and Stockholders


of Australian Oil & Gas Corporation (An Exploration Stage Enterprise)





We have audited the accompanying consolidated balance sheets of Australian Oil & Gas Corporation and subsidiaries (An Exploration Stage Enterprise) as of December 31, 2010 and 2009 and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years then ended and the period from inception (August 6, 2003) to December 31, 2010. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.





We conducted our audits in accordance with the 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. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide 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 Australian Oil & Gas Corporation and subsidiaries (An Exploration Stage Enterprise) as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the two years then ended and for the period from inception (August 6, 2003) to December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.










/s/ Demetrius & Company, L.L.C.


Wayne, New Jersey


March 29, 2011






F-2









Australian Oil & Gas Corporation


(an exploration stage enterprise)




CONSOLIDATED BALANCE SHEETS




(Dollar amounts in thousands)




12/31/10


12/31/09$


$ASSETSCurrent assets:Cash and cash equivalents


37



5Receivables


5



1Total Current Assets


42



6Non-Current assets:Exploration and Evaluation Asset (Note 12)


3,050



2,968Total Non-Current Assets


3,050



2,968Total Assets


3,092



2,974LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)Current liabilities:Accounts payable and accrued expenses


108



3,466Accounts payable to director related entities (Note 6)


15



12Total Current Liabilities


123



3,478Non-Current liabilities:Convertible Lines of Credit – Director Related (Notes 5 & 6)


343



206Accounts payable to director related entities (Note 6)


1,844



-Total Non-Current Liabilities


2,187



206Total Liabilities


2,310



3,684STOCKHOLDERS’ EQUITY (DEFICIT)Common stock, $0.001 par value; 75,000,000 shares authorized,Issued shares, 47,650,531 at

December 31, 2010 and 45,650,531at December 31, 2009; Outstanding shares, 47,650,531

atDecember 31, 2010 and 45,650,531 at December 31, 2009.


48



46Capital in excess of par value


2,880



2,722Accumulated other Comprehensive Income


304



264Deficit accumulated during the exploration stage


(2,450
)


(3,742
)Total Stockholders’ Equity (Deficit)


782



(710
)Total Liabilities and Stockholders’ Equity (Deficit)


3,092



2,974




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





F-3







Australian Oil & Gas Corporation


(an exploration stage enterprise)


CONSOLIDATED STATEMENTS OF OPERATIONS


For the twelve months ended December 31, 2010 and 2009


and for the period from inception (August 6, 2003) to December 31, 2010





(Dollar amounts in thousands)




For the twelve months ended

Dec 31, 2010

$


For the twelve months ended

Dec 31, 2009

$


From

inception to

Aug 6, 2003

$ExpensesExploration


2,704



671



5,185General and administrative


156



117



1,302Merger and reorganization


-



-



249Total operating expenses


2,860



788



6,736Loss before other income and expense


(2,860
)


(788
)


(6,736
)Other Income and (Expense)Income from sale of tenement and tenement information (Note 11)


4,244



249



6,143Write down of investments


-



-



(1,759
)Currency exchange gain / (loss)


(73
)


56



(9
)Interest income


8



-



71Interest expense


(27
)


(8
)


(136
)Income / (loss) before income tax


1,292



(48
)


(2,426
)Income tax provision


-



-



24Net Income / (loss)


1,292



(491
)


(2,450
)Income / (loss) per Common Share:Basic

$
0.03


$
(0.01
)

$
(0.07
)Dilutive

$
0.03


$
(0.01
)

$
(0.07
)Weighted average common share used in calculation -Basic


46,406,026



44,281,575



35,830,232Weighted average common share used in calculation -Dilutive


48,888,434



44,281,575



35,830,232




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





F-4







Australian Oil & Gas Corporation


(an exploration stage enterprise)


CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME


For the period from inception (August 6, 2003) to December 31, 2010





(Dollar amounts in thousands)


Common StockShares



Amount

$


Capital in

excess of

par value

$


Accumulated Other Comprehensive Income

$


Deficit Accumulated during exploration stage

$



Total

Equity

$Issuance of common stock:Combination of Controlled Entities





1,560












1,560To holders of unsecured claims againstSynergy Technology Corporation


3,000,000To equity holders of Synergy TechnologyCorporation


4,800,528To the Plan Funder to fund thePlan of Reorganization


19,500,000



20



55









75Loss from operations

















(184
)


(184
)Balance, December 31, 2003


27,300,528



1,580



55







(184
)


1,451Loss from operations


















(1,849
)


(1,849
)Foreign currency translation adjustment














195







195Balance, December 31, 2004


27,300,528



1,580



55



195



(2,033
)


(203
)To the Chairman as compensation


2,500,000



2



248











250Shares issued external to combined grouppreviously held within the combined group






65















65Loss from operations


















(606
)


(606
)Foreign currency translation adjustment














48







48Balance, December 31, 2005


29,800,528



1,647



303



243



(2,639
)


(446
)To the Chairman as compensation


2,000,000



2



198











200
 Profit from operations


















592



592Acquisition of entities subject to common control






(1,621
)


1,621











-Foreign currency translation adjustment














17







17Balance , December 31, 2006


35,900,531



28



2,122



260



(2,047
)


363To the Chairman as compensation


1,500,000



2



88











90Loss from operations


















(815
)


(815
)Foreign currency translation adjustment














(36
)






(36
)Balance, December 31, 2007


37,400,531



30



2,210



224



(2,862
)


(398
)





F-5












Australian Oil & Gas Corporation


(an exploration stage enterprise)


CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (Continued)


For the period from inception (August 6, 2003) to December 31, 2010







(Dollar amounts in thousands)






Conversion of Notes


3,650,000



13



299











312Loss from operations


















(389
)


(389
)Foreign currency translation adjustment














92







92Balance , December 31, 2008


41,050,531



43



2,509



316



(3,251
)


(383
)To the Chairman as compensation (Note 8)


4,600,000



3



213











216Loss from operations


















(491
)


(491
)Foreign currency translation adjustment














(52
)






(52
)Balance, December 31, 2009


45,650,531



46



2,722



264



(3,742
)


(710
)To the Chairman as compensation (Note 8)


2,000,000



2



158











160Income from operations


















1,292



1,292Foreign currency translation adjustment














40







40Balance, December 31, 2010


47,650,531



48



2,880



304



(2,450
)


782











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






F-6





Australian Oil & Gas Corporation


(an exploration stage enterprise)


CONSOLIDATED STATEMENTS OF CASH FLOWS


For the twelve months ended December 31, 2010 and 2009


and Cumulative from inception (August 6, 2003) to December 31, 2010





(Dollar amounts in thousands)




Dec 31, 2010

$


Dec 31, 2009

$


From

inception

$Cash flows from operating activities:Net income / (loss)

1,292


(491
)

(2,450
)Adjustments to reconcile net income / (loss) to net cashused in operating activities:Compensation expense (Note 8)


160



88



915Currency exchange (gain)/loss


39



(106
)


8Write down of investment


-



-



1,759Issuance of Convertible Note in lieu of repayment ofadvances from director related entity


-



-



100Gain on transfer of interest in tenement (Note 11)


(4,244
)


(249
)


(6,142
)Change in assets and liabilitiesIncrease (decrease) in accounts payable


(3,354
)


3,324



476Increase (decrease) in tax payable


-



-



(9
)(Increase) decrease in accounts receivable


(4
)


-



78Increase in exploration assets


(82
)


(2,968
)


(3,050
)Net cash used in operating activities


(6,193
)


(402
)


(8,315
)Cash flows from financing activities:Proceeds from the sale of Common stock – net


-



-



75Proceeds from advance from director-related entities


1,844



150



1,844Proceeds from line of credit


137



-



671Repayment of advance from director-related entities


-



-



(73
)Net cash provided by financing activities


1,981



150



2,517Cash flows from investing activities:Proceeds from sale of tenement


4,244



249



5,753Net cash provided investing activities


4,244



249



5,753Increase (decrease) in cash


32



(3
)


(45
)Cash and cash equivalents at beginning of period


5



8



-Effect of currency exchange rate fluctuations on cash held


-



-



82Cash and cash equivalents at end of period


37



5



37Supplementary disclosure of non-cash financing activities.-  Issuance of Stock for compensation and settlement of advances


160



88



1,012- Administration Fees charged by Setright Oil & Gas Pty Ltd (Note 5)


17



15



250-  Interest charged by Great Missenden Holdings Pty Ltd (Note 5)


27



9



140







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





F-7











Australian Oil & Gas Corporation


(an exploration stage enterprise)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2010




NOTE 1:   ORGANIZATION




Australian Oil & Gas Corporation (the Company) was incorporated in Delaware on August 6, 2003, and began operations on August 11, 2003 and is considered to be a crude petroleum and natural gas company in the exploratory stage. Since inception it has been engaged in the assessment of oil and gas exploration properties.





The authorized capital stock of the AOGC consists of 75,000,000 shares of common stock (AOG Common Stock), $0.001 par value





The company has two wholly owned Australian subsidiaries; Alpha Oil & Natural Gas Pty Ltd and Nations Natural Gas Pty Ltd. Alpha Oil & Natural Gas Pty Ltd itself has three wholly owned Australian subsidiaries, Vulcan Australia Pty Ltd (which holds the joint venture interest in each of the Oliver, Vulcan  and Nome Joint Ventures), Braveheart Oil & Gas Pty Ltd (which holds the joint venture interest in the Braveheart Joint Venture) and Cornea Oil & Gas Pty Ltd (which will hold the joint venture interest in the Cornea Joint Venture).





Nations Natural Gas Pty Ltd disposed of its wholly owned but unused dormant Australian subsidiary, Napoleon Nations Gas Pty Ltd, being surplus to its needs.




NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Basis of consolidation





The consolidated financial statements include all majority-owned subsidiaries. All material intercompany transactions and balances have been eliminated.




Use of estimates





The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results could differ from those estimates.




Undeveloped mineral interests and oil and gas properties




The Company follows the successful efforts method of accounting for its oil and natural gas exploration activities, as follows:





·
Geological and geophysical costs and costs of retaining unproved properties and undeveloped properties are charged to expense as incurred and are included as a reduction of operating cash flow in the consolidated statements of cash flow.




·
Costs of exploratory wells are capitalized pending determination of whether they have discovered proved reserves.





*
The costs of exploratory wells that have found oil and natural gas reserves that cannot be classified as proved when drilling is completed continue to be capitalized as long as the well has found a sufficient quantity of reserves to justify its completion as a producing well and sufficient progress is being made in assessing the proved reserves and the economic and operating viability of the project.  Management evaluates progress on such wells on an on-going basis.





*
If proved reserves are not discovered the related drilling costs are charged to exploration expense.













F-8








·
Acquisition costs of permits, leases and development activities are capitalized.




·
Other exploration costs are charged to expense as incurred.




·
Gains or losses from disposition of the Company’s interests in oil and gas properties are included in earnings under the following conditions:




*
All or part of an interest owned is sold to an unrelated third party; if only part of an interest is sold, there is no substantial uncertainty about the recoverability of cost applicable to the interest retained; and


*
The Company has no substantial obligation for future performance (e.g. drilling a well(s) or operating the property without proportional reimbursement of costs relating to the interest sold).


·
Interest expense allocable to significant unproved leasehold costs and in progress exploration and development projects is capitalized until the assets are ready for their intended use.  There was no interest expense capitalized by the Company in 2007 or in the prior three years.





Asset Impairment.  Costs of unproved oil and gas properties are assessed periodically and a loss is recognized if the properties are deemed impaired.  When events or circumstances indicate that unproved oil and gas property carrying amounts might not be recoverable from estimated future undiscounted cash flows from the property, a reduction of the carrying amount to fair value is required.  Measurement of the impairment loss is based on the estimated fair value of the asset, which the Company would determine using estimated undiscounted future cash flows from the property, adjusted to present value using an interest rate considered appropriate for the asset.




Income taxes





The Company will provide for income taxes utilizing the liability approach under which deferred income taxes are provided based upon enacted tax laws and rates applicable to the periods in which the taxes became payable. The company operates in the state and federal jurisdictions. Through its Australian subsidiary companies its also operates in the federal tax jurisdiction of Australia.




Cash equivalents





For purposes of the statements of cash flows, the Company will consider all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.




Concentrations of credit risk





Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents.  The Company will place its cash with high quality financial institutions. The Company maintains the primary amount of cash in Australian Banks. These accounts are not insured.




Fair Value of Financial Instruments





The Company’s financial instruments include cash, cash equivalents, account receivable, accounts payable, accrued expenses and long term debt. The book values of cash, cash equivalents, account receivable, accounts payable and accrued expenses are representative of their fair value due to the short-term maturity of these instruments The Company’s advance from Great Missenden Holdings Pty Ltd is at a fixed interest rate and the book value, after interest is accrued, is considered representative of the advances fair value.




Recently issued Accounting Standards adopted as of December 31, 2010




None.







F-9







NOTE 3:   INCOME TAXES





Net losses attributable to the acquisition of Synergy Technologies Corporation are limited by Internal Revenue Recognition.  When there is a more than 50% change in ownership, the amount of Net Operating loss available is approximately $342,000, which expires between 2017-2022.





Management of the Company has decided to fully reserve for its deferred tax asset, as it is more likely than not that the Company will not be able to utilize these deferred tax assets against future income, coupled with the possible limitations of the net operating losses due to various changes in ownership over the past years.





$Operating loss carried forwards


1,325,268Less : Valuation Allowance


(1,325,268
)Net Deferred Tax Assets


-





As described in Note 2, the Company adopted FIN 48 on January 1, 2007, which prescribes treatment of “unrecognized tax positions”, and requires measurement and disclosure of such amounts. At both December 31, 2010 and January 1, 2010, the Company had no material unrecognized tax benefits.





Carried forward tax losses in the Australian subsidiaries are not included in the above numbers. Realization of the losses is not probable.




NOTE 4:  BASIC LOSS PER COMMON SHARE





Basic loss per common share is based on the weighted average number of shares of common stock issued from inception to December 31, 2010.




NOTE 5:   RELATED PARTY TRANSACTIONS





Mr. E Geoffrey Albers, the Chairman and President of AOGC, is a director and shareholder of each of Great Missenden Holdings Pty Ltd, Gascorp Australia Pty Ltd and of Setright Oil & Gas Pty Ltd.





On September 22, 2009, Great Missenden Holdings Pty Ltd advanced $200,000 on its $250,000 Line of Credit to AOGC under the terms of the Line of Credit Agreement signed between AOGC and Great Missenden Holdings Pty Ltd on February 17, 2009. The Line of Credit was provided to AOGC in return for the issue to Great Missenden Holdings Pty Ltd of 250 Series III Convertible Unsecured Notes of $1,000 each with an interest rate of 12% per annum. The Series III Convertible Notes may be converted into shares of Common Stock of AOGC at any time on or before December 31, 2012 on the basis of 12,000 shares of Common Stock for every $1,000 Series III Convertible Notes or part thereof. For the year ended December 31, 2010 Great Missenden Holdings Pty Ltd charged $25,907 for interest.





On November 11, 2010, Great Missenden Holdings Pty Ltd advanced $59,838 and on December 17, 2010 another $49,545 on a new $200,000 Line of Credit to AOGC under the terms of the Line of Credit Agreement signed between AOGC and Great Missenden Holdings Pty Ltd on October 18, 2010. The Line of Credit was provided to AOGC in return for the issue to Great Missenden Holdings Pty Ltd of 200 Series IV Convertible Unsecured Notes of $1,000 each with an interest rate of 12% per annum. The Series IV Convertible Notes may be converted into shares of Common Stock of AOGC at any time on or before December 31, 2012 on the basis of 15,000 shares of Common Stock for every $1,000 Series III Convertible Notes or part thereof. For the year ended December 31, 2010 Great Missenden Holdings Pty Ltd charged $1,369 for interest on this new line of credit.





We also have the use of premises in Australia at Level 21, 500 Collins Street, Melbourne, Victoria.  The office space is taken on a nonexclusive basis, with no rent payable, but the usage of the premises is included in the charges Setright Oil & Gas Pty Ltd makes in respect to the administration of the Company. For the year ended December 31, 2010 Setright Oil & Gas Pty Ltd charged the Company $17,124 for the provision of accounting and administrative services rendered by third parties for the benefit of the Company, but not including services rendered by Mr. E Geoffrey Albers, who is remunerated separately by way of the issue of shares of common stock.





With regard to the Vulcan Joint Venture, Mr. Albers is a director and shareholder in each of Auralandia NL, Natural Resources Group Pty Ltd (former Natural Gas Corporation Pty Ltd), Petrocorp Australia Pty Ltd and Vulcan Australia Pty Ltd (subsidiary of Australian Oil & Gas Corporation).  All of these companies are the holders of the Vulcan Joint Venture. Mr Muzzin is a shareholder in Auralandia NL.




F-10













With regard to the Nome Joint Venture, Mr. Albers is a director and shareholder in each of Auralandia NL, Natural Resources Group Pty Ltd, Petrocorp Australia Pty Ltd and Vulcan Australia Pty Ltd (subsidiary of Australian Oil & Gas Corporation).  All of these companies are the holders of the Nome Joint Venture. Mr Muzzin is a shareholder in Auralandia NL.





With regard to the Braveheart Joint Venture, Mr. Albers is a director and shareholder in each of Browse Petroleum Pty Ltd, Braveheart Petroleum Pty Ltd, Moby Oil & Gas Limited, Braveheart Energy Pty Ltd and Exoil Limited, the parent of Braveheart Resources Pty Ltd. He is a major shareholder in the parent of Braveheart Energy Pty Ltd.  All of these companies are the holders of the Braveheart Joint Venture.





With regard to the Cornea Joint Venture, Mr. Albers is a director and shareholder in each of Coldron Pty Ltd, Cornea Petroleum Pty Ltd, Moby Oil & Gas Limited, Auralandia NL, Cornea Energy Pty Ltd, Octanex NL and Exoil Limited, the parent of Cornea Resources Pty Ltd. All of these companies are the holders of the Cornea Joint Venture.





At December 31, 2010 cash calls of $1,843,991 (which is included in “Loan-Director Related Party”) were due to be paid by Alpha Oil & Natural Gas Pty Ltd to the Cornea and Braveheart Joint Ventures.  An agreement dealing with the liability to pay those calls has been reached.  The agreement has the result that neither Braveheart Oil & Gas Pty Ltd nor Cornea Oil & Gas Pty Ltd, Alpha’s subsidiaries are treated as being in default (so that they might otherwise forfeit their respective Participating Interests in the Joint Ventures), while remaining liable to make the payments.   By the agreement, each of Braveheart and Cornea have up to at least 7 July 2012 to make arrangements to satisfy their respective liabilities and may achieve this through a combination of sale of interests or by borrowing funds on commercial terms.  The agreement has been entered into on terms which are favourable to Alpha and which enable Alpha to preserve any benefits which may derive from its interests in the period up to July 2012.





With regard to the National Gas Consortium, Mr. Albers is a director and shareholder in each of National Oil & Gas Pty Ltd, Australian Natural Gas Pty Ltd and Natural Gas Australia Pty Ltd.





Mr. Mark A Muzzin, a director and Vice-President of AOGC is a shareholder in Exoil Limited, the parent of Braveheart Resources Pty Ltd and Cornea Resources Pty Ltd.





NOTE 6:  LIABILITIES TO DIRECTOR RELATED ENTITIES





At December 31, 2010, the Company owed to Setright Oil & Gas Pty Ltd of $11,798 for corporate services





At December 31, 2010, the Company owed to National Oil & Gas Ltd of $3,269 for exploration costs.





From the advances made on September 2009, November 2010 and December 2010 and interest payable on the advances the liability to Great Missenden Holdings at December 31, 2010 is $343,071.




NOTE 7:  COMMON STOCK





·
On March 26, 2009, 2,400,000 shares of Common stock were issued to EG Albers under the terms of his employment contract, filed as an exhibit to the 2008 Form 10-K.


·
On December 23, 2009, 2,200,000 shares of Common stock were issued to EG Albers under the terms of his employment contract, filed as an exhibit to the 2008 Form 10-K.


·
On December 13, 2010, 2,000,000 shares of Common stock were issued to EG Albers under the terms of his employment contract, filed as an exhibit to the 2008 Form 10-K.




NOTE 8:   COMMON STOCK ISSUED TO EG ALBERS





On December 13, 2010, 2,000,000 shares of Common stock were issued to EG Albers under the terms of his employment contract, filed as an exhibit to this 2010 Form 10-K.




F-11












NOTE 9:   COMPREHENSIVE INCOME





Comprehensive income is the change in equity during a period from transactions and other events from non-owner sources. The Company is required to classify items of other comprehensive income in financial statements and to display the accumulated balance of other comprehensive income separately in the equity section of the Consolidated Balance Sheet.





The functional currency of Australian Oil & Gas Corporation’s Australian subsidiaries is Australian


dollars. The comprehensive income of $304,043 disclosed in the consolidated balance sheet is the foreign currency exchange gain on converting the subsidiaries’ balance sheets and income statements to US dollars for consolidation purposes.




NOTE 10:   COMMITMENTS AND CONTINGENCIES





The Company is without insurance pertaining to various potential risks with respect to its properties, including general liability, because it is presently not able to obtain insurance for such risks at rates and on terms, which it considers reasonable.  The financial position of the Company in future periods will be adversely affected if uninsured losses were to be incurred.




NOTE 11:  SALE OF TENEMENT INFORMATION





On February 18, 2010 AOGC’s wholly owned subsidiary, Vulcan Australia Pty Ltd (“Vulcan”) completed the sales of its 7.5% interest in AC/P33 to a wholly-owned subsidiary of PTT Exploration and Production Public Company Limited, a Thailand petroleum exploration and production company. Vulcan recovered $ 4,244,000 for its 7.5% interest. These proceeds have been utilized to meet a large proportion of our obligations to the Braveheart Joint Venture and Cornea Joint Venture with respect to the costs associated with the recent drilling of the Braveheart-1 well and Cornea-3 well.




NOTE 12:  EXPLORATION AND EVALUATION ASSETS




As of December 31, 2010 the company’s Australian subsidiary, Alpha Oil and Natural Gas Pty Ltd (on behalf of its subsidiary Cornea Oil and Gas Pty Ltd) share of drilling costs of the Cornea-3 exploration well in WA-342-P was approximately $3,050,000. The well was drilled from December 11, 2009 to December 28, 2009. Overall, the results of Cornea-3 have defined the location of an oil column. Looking forward, the data obtained from Cornea-3 will enable the Cornea Joint Venture to formulate a future exploration, appraisal and development strategy now that an oil column has been proved and that good data relating to the potential reservoir performance has been obtained. On this basis the costs of the well have been capitalized.





As of December 31, 2010 the company’s Australian subsidiary, Alpha Oil and Natural Gas Pty Ltd (on behalf of its subsidiary Braveheart Oil and Gas Pty Ltd) share of drilling costs of the Braveheart-1 exploration well in WA-333-P was $2,326,939. The well was drilled from December 29, 2009 to January 17, 2010. The well was plugged and abandoned after encountering only minor indications of hydrocarbons. On this basis all costs of the well have been written off and expensed through the statement of operations.





NOTE 13:   SUBSEQUENT EVENTS





The Company has evaluated subsequent events for the period from December 31, 2010, the date of these financial statements through to March 29, 2011, which represents the date these financial statements are being filed with the Commission. Pursuant to the requirements of FASB ASC Topic 855, there were no events or transactions occurring during this subsequent event reporting period that require recognition or disclosure in the financial statement.





With respect to this disclosure, the Company has not evaluated subsequent events occurring after March 29, 2011.








F-12