UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)


xQUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For
the Quarterly Period Ended October 31, 2008





 ̈TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For
the Transition Period from _________ to _________





Commission
file number:  000-51321







TRIANGLE
PETROLEUM CORPORATION


(Exact
name of registrant as specified in its charter)





Nevada
              
              98-0430762(State
      or other jurisdiction of incorporation or organization)
              
              (IRS
      Employer Identification No.)





Suite
1250, 521 - 3 Avenue SW


Calgary,
Alberta


Canada
T2P 3T3


(Address
of Principal Executive Offices)





(403)
262-4471


(Registrant’s
telephone number, including area code)





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





Indicate
by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
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 is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting
company.  See definitions of “large accelerated filer,” “accelerated
filed,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):




Large
      accelerated filer  ̈
              Accelerated
      filer  ̈Non-accelerated
      filer  ̈
              Smaller
      reporting company x(Do
      not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes oNo
x





As of
December 10, 2008, there were 67,426,043 shares of registrant’s common stock
outstanding.











TRIANGLE
PETROLEUM CORPORATION AND SUBSIDIARIES





INDEX





PART
      I.
                FINANCIAL
      INFORMATIONITEM
      1.
                Financial
      Statements
                3Consolidated
      balance sheets at October 31, 2008 and January 31, 2008
      (unaudited)
                3Consolidated
      statements of operations for the three and nine months ended October 31,
      2008 and 2007 (unaudited)
                4Consolidated
      statements of stockholder's equity for the nine months ended October 31,
      2008 and 2007 (unaudited)
                5Consolidated
      statements of cash flows for the three and nine months ended October 31,
      2008 and 2007 (unaudited)
                6Notes
      to unaudited consolidated financial statements
                7 –
      13ITEM
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                14-26ITEM
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                27ITEM
      4T.
                Controls
      and Procedures
                27PART
      II.
                OTHER
      INFORMATIONITEM
      1
                Legal
      proceedings
                29ITEM
      1A
                Risk
      factors
                29ITEM
      2
                Unregistered
      sales of equity securities and use of proceeds
                29ITEM
      3
                Defaults
      upon senior securities
                29ITEM
      4
                Submission
      of matters to a vote of security holders
                29ITEM
      5
                Other
      information
                29ITEM
      6
                Exhibits
                29SIGNATURES
                30




2





Triangle
Petroleum Corporation


Consolidated
Balance Sheets


(Expressed
in U.S. dollars)


(Unaudited)





October31,
                          2008
                          $
                        
                        
                        January31,
                          2008
                          $ASSETSCurrent
      AssetsCash
      and cash equivalents
                        
                        
                        17,278,404
                        
                        
                        
                        4,581,589Prepaid
      expenses
                        
                        
                        408,080
                        
                        
                        
                        797,307Other
      receivables
                        
                        
                        822,843
                        
                        
                        
                        1,689,391Total
      Current Assets
                        
                        
                        18,509,327
                        
                        
                        
                        7,068,287Debt
      Issue Costs, net
                        
                        
                        -
                        
                        
                        
                        465,833Property
      and Equipment
                        
                        
                        45,796
                        
                        
                        
                        66,121Oil
      and Gas Properties (Note 4)
                        
                        
                        16,974,672
                        
                        
                        
                        24,978,949Total
      Assets
                        
                        
                        35,529,795
                        
                        
                        
                        32,579,190LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      LiabilitiesAccounts
      payable
                        
                        
                        2,505,971
                        
                        
                        
                        3,533,833Accrued
      interest on convertible debentures
                        
                        
                        2,106,163
                        
                        
                        
                        2,751,096Accrued
      liabilities
                        
                        
                        707,608
                        
                        
                        
                        420,384Derivative
      liabilities (Note 7)
                        
                        
                        -
                        
                        
                        
                        3,262,846Convertible
      debentures less unamortized discount of $1,435,650 and $1,321,869,
      respectively (Note 6)
                        
                        
                        8,564,350
                        
                        
                        
                        4,778,271Total
      Current Liabilities
                        
                        
                        13,884,092
                        
                        
                        
                        14,746,430Asset
      Retirement Obligations (Note 5)
                        
                        
                        852,935
                        
                        
                        
                        1,003,353Convertible
      Debentures, less unamortized discount of $nil and $3,229,279, respectively
      (Note 6)
                        
                        
                        -
                        
                        
                        
                        6,770,721Total
      Liabilities
                        
                        
                        14,737,027
                        
                        
                        
                        22,520,504Going
      Concern (Note 2)Subsequent
      events (note 11)Stockholders’
      EquityCommon
      Stock (Note 8)
                          Authorized:
      100,000,000 shares, par value $0.00001Issued:
      67,426,043 shares (2008 – 46,794,530 shares)
                        
                        
                        674
                        
                        
                        
                        468Additional
      Paid-In Capital (Note 8)
                        
                        
                        80,540,714
                        
                        
                        
                        57,852,277Warrants
      (Note 9)
                        
                        
                        4,237,100
                        
                        
                        
                        -Deficit
                        
                        
                        (63,985,720
                        )
                        
                        
                        (47,794,059
                        )Total
      Stockholders’ Equity
                        
                        
                        20,792,768
                        
                        
                        
                        10,058,686Total
      Liabilities and Stockholders’ Equity
                        
                        
                        35,529,795
                        
                        
                        
                        32,579,190




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


3





Triangle
Petroleum Corporation


Consolidated
Statements of Operations


(Expressed
in U.S. dollars)


(Unaudited)





Three
                                                          Months
                                                          Ended
                                                          October 31,
                                                        
                                                        
                                                        Three
                                                          Months
                                                          Ended
                                                          October 31,
                                                        
                                                        
                                                        Nine
                                                          Months
                                                          Ended
                                                          October 31,
                                                        
                                                        
                                                        Nine
                                                          Months
                                                          Ended
                                                          October 31,2008
                                                        
                                                        
                                                        2007
                                                        
                                                        
                                                        2008
                                                        
                                                        
                                                        2007$
                                                        
                                                        
                                                        $
                                                        
                                                        
                                                        $
                                                        
                                                        
                                                        $Revenue,
      net of royalties
                                                        
                                                        
                                                        54,500
                                                        
                                                        
                                                        
                                                        191,632
                                                        
                                                        
                                                        
                                                        314,450
                                                        
                                                        
                                                        
                                                        384,859Operating
      ExpensesOil
      and gas production
                                                        
                                                        
                                                        29,718
                                                        
                                                        
                                                        
                                                        146,396
                                                        
                                                        
                                                        
                                                        93,099
                                                        
                                                        
                                                        
                                                        220,199Depletion,
      depreciation and accretion
                                                        
                                                        
                                                        52,735
                                                        
                                                        
                                                        
                                                        151,327
                                                        
                                                        
                                                        
                                                        146,302
                                                        
                                                        
                                                        
                                                        391,884Depreciation
      – property and equipment
                                                        
                                                        
                                                        10,368
                                                        
                                                        
                                                        
                                                        9,178
                                                        
                                                        
                                                        
                                                        30,115
                                                        
                                                        
                                                        
                                                        30,792General
      and administrative
                                                        
                                                        
                                                        847,022
                                                        
                                                        
                                                        
                                                        1,717,907
                                                        
                                                        
                                                        
                                                        3,190,427
                                                        
                                                        
                                                        
                                                        5,252,439Impairment
      of oil and gas properties
                                                        
                                                        
                                                        8,000,000
                                                        
                                                        
                                                        
                                                        4,604,726
                                                        
                                                        
                                                        
                                                        8,000,000
                                                        
                                                        
                                                        
                                                        8,496,129Gain
      on sale of assets
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (10,705
                                                        )
                                                        
                                                        
                                                        -Foreign
      exchange loss
                                                        
                                                        
                                                        2,429,433
                                                        
                                                        
                                                        
                                                        467,707
                                                        
                                                        
                                                        
                                                        2,454,022
                                                        
                                                        
                                                        
                                                        627,45411,369,276
                                                        
                                                        
                                                        
                                                        7,097,241
                                                        
                                                        
                                                        
                                                        13,903,260
                                                        
                                                        
                                                        
                                                        15,018,897Loss
      from Operations
                                                        
                                                        
                                                        (11,314,776
                                                        )
                                                        
                                                        
                                                        (6,905,609
                                                        )
                                                        
                                                        
                                                        (13,588,810
                                                        )
                                                        
                                                        
                                                        (14,634,038
                                                        )Other
      Income (Expenses)Accretion
      of discounts on convertible debentures
                                                        
                                                        
                                                        (602,277
                                                        )
                                                        
                                                        
                                                        (1,704,802
                                                        )
                                                        
                                                        
                                                        (2,608,681
                                                        )
                                                        
                                                        
                                                        (6,313,336
                                                        )Amortization
      of debt issue costs
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (109,584
                                                        )
                                                        
                                                        
                                                        (182,637
                                                        )
                                                        
                                                        
                                                        (340,937
                                                        )Loss
      on debt extinguishment
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (160,662
                                                        )
                                                        
                                                        
                                                        -Interest
      expense
                                                        
                                                        
                                                        (189,041
                                                        )
                                                        
                                                        
                                                        (317,671
                                                        )
                                                        
                                                        
                                                        (654,371
                                                        )
                                                        
                                                        
                                                        (1,006,419
                                                        )Interest
      income
                                                        
                                                        
                                                        127,681
                                                        
                                                        
                                                        
                                                        147,416
                                                        
                                                        
                                                        
                                                        209,911
                                                        
                                                        
                                                        
                                                        543,082Unrealized
      gain on fair value of derivatives
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        2,926,091
                                                        
                                                        
                                                        
                                                        793,589
                                                        
                                                        
                                                        
                                                        6,481,505Total
      Other Income (Expenses)
                                                        
                                                        
                                                        (663,637
                                                        )
                                                        
                                                        
                                                        941,450
                                                        
                                                        
                                                        
                                                        (2,602,851
                                                        )
                                                        
                                                        
                                                        (636,105
                                                        )Net
      Loss for the Period
                                                        
                                                        
                                                        (11,978,413
                                                        )
                                                        
                                                        
                                                        (5,964,159
                                                        )
                                                        
                                                        
                                                        (16,191,661
                                                        )
                                                        
                                                        
                                                        (15,270,143
                                                        )Net
      Loss Per Share – Basic and Diluted
                                                        
                                                        
                                                        (0.18
                                                        )
                                                        
                                                        
                                                        (0.16
                                                        )
                                                        
                                                        
                                                        (0.28
                                                        )
                                                        
                                                        
                                                        (0.44
                                                        )Weighted
      Average Number of Shares Outstanding – Basic and Diluted
                                                        
                                                        
                                                        67,426,000
                                                        
                                                        
                                                        
                                                        37,345,000
                                                        
                                                        
                                                        
                                                        58,592,000
                                                        
                                                        
                                                        
                                                        34,699,000


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





4





Triangle
Petroleum Corporation


Statement
of Stockholders’ Equity


Period
from January 31, 2008 to October 31, 2008


(Expressed
in U.S. dollars)


(Unaudited)





AdditionalCommon
      Stock
                              
                              
                              Paid-inShares
                              
                              
                              Amount
                              
                              
                              Capital
                              
                              
                              Warrants
                              
                              
                              Deficit
                              
                              
                              Total#
                              
                              
                              $
                              
                              
                              $
                              
                              
                              $
                              
                              
                              $
                              
                              
                              $Balance
      – January 31, 2008
                              
                              
                              46,794,530
                              
                              
                              
                              468
                              
                              
                              
                              57,852,277
                              
                              
                              
                              -
                              
                              
                              
                              (47,794,059
                              )
                              
                              
                              10,058,686Issuance
      of common stock for cash pursuant to private placement at $1.40 per unit
      in June 2008
                              
                              
                              18,257,500
                              
                              
                              
                              183
                              
                              
                              
                              21,323,217
                              
                              
                              
                              4,237,100
                              
                              
                              
                              -
                              
                              
                              
                              25,560,500Share
      issuance costs
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (2,251,230
                              )
                              
                              
                              -
                              
                              
                              
                              
                              
                              
                              
                              (2,251,230
                              )Issuance
      of common stock on conversion of convertible debentures at a weighted
      average price of $0.88 per share
                              
                              
                              2,374,013
                              
                              
                              
                              23
                              
                              
                              
                              2,100,117
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              2,100,140Fair
      value of conversion features of convertible debentures
      converted
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,039,906
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,039,906Stock
      based compensation
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              476,427
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              476,427Net
      loss for the period
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (16,191,661
                              )
                              
                              
                              (16,191,661
                              )Balance
      – October 31, 2008
                              
                              
                              67,426,043
                              
                              
                              
                              674
                              
                              
                              
                              80,540,714
                              
                              
                              
                              4,237,100
                              
                              
                              
                              (63,985,720
                              )
                              
                              
                              20,792,768




Triangle
Petroleum Corporation


Statement
of Stockholders’ Equity


Period
from January 31, 2007 to October 31, 2007


(Expressed
in U.S. dollars)


(Unaudited)





AdditionalCommon
      Stock
                            
                            
                            Paid-inShares
                            
                            
                            Amount
                            
                            
                            Capital
                            
                            
                            Deficit
                            
                            
                            Total#
                            
                            
                            $
                            
                            
                            $
                            
                            
                            $
                            
                            
                            $Balance
      – January 31, 2007
                            
                            
                            22,475,866
                            
                            
                            
                            225
                            
                            
                            
                            13,088,795
                            
                            
                            
                            (18,193,312
                            )
                            
                            
                            (5,104,292
                            )Issuance
      of common stock for cash pursuant to private placement at $1.40 per unit
      in June 2008
                            
                            
                            10,412,000
                            
                            
                            
                            104
                            
                            
                            
                            20,823,896
                            
                            
                            
                            -
                            
                            
                            
                            20,824,000Share
      issuance costs
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (1,515,994
                            )
                            
                            
                            
                            
                            
                            
                            (1,515,994
                            )Issuance
      of common stock on conversion of convertible debentures at a weighted
      average price of $1.31 per share
                            
                            
                            4,766,939
                            
                            
                            
                            47
                            
                            
                            
                            6,249,953
                            
                            
                            
                            -
                            
                            
                            
                            6,250,000Fair
      value of conversion features of convertible debentures
      converted
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,802,063
                            
                            
                            
                            -
                            
                            
                            
                            1,802,063Investor
      relation services
                            
                            
                            50,000
                            
                            
                            
                            1
                            
                            
                            
                            108,499
                            
                            
                            
                            -
                            
                            
                            
                            108,500Stock
      based compensation
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            2,958,479
                            
                            
                            
                            -
                            
                            
                            
                            2,958,479Net
      loss for the period
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (15,270,143
                            )
                            
                            
                            (15,270,143
                            )Balance
      – October 31, 2007
                            
                            
                            37,704,805
                            
                            
                            
                            377
                            
                            
                            
                            43,515,691
                            
                            
                            
                            (33,463,455
                            )
                            
                            
                            10,052,613





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


5





Triangle
Petroleum Corporation


Consolidated
Statements of Cash Flows


(Expressed
in U.S. dollars)


(Unaudited)





Three Months
                                                                          Ended
                                                                          October 31,
                                                                        
                                                                        
                                                                        Three Months
                                                                          Ended
                                                                          October 31,
                                                                        
                                                                        
                                                                        Nine Months
                                                                          Ended
                                                                          October 31,
                                                                        
                                                                        
                                                                        Nine Months
                                                                          Ended
                                                                          October 31,2008
                                                                        
                                                                        
                                                                        2007
                                                                        
                                                                        
                                                                        2008
                                                                        
                                                                        
                                                                        2007$
                                                                        
                                                                        
                                                                        $
                                                                        
                                                                        
                                                                        $
                                                                        
                                                                        
                                                                        $Operating
      ActivitiesNet
      loss
                                                                        
                                                                        
                                                                        (11,978,413
                                                                        )
                                                                        
                                                                        
                                                                        (5,964,159
                                                                        )
                                                                        
                                                                        
                                                                        (16,191,661
                                                                        )
                                                                        
                                                                        
                                                                        (15,270,143
                                                                        )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Accretion
      of discounts on convertible debentures
                                                                        
                                                                        
                                                                        602,277
                                                                        
                                                                        
                                                                        
                                                                        1,704,802
                                                                        
                                                                        
                                                                        
                                                                        2,608,681
                                                                        
                                                                        
                                                                        
                                                                        6,313,336Amortization
      of debt issue costs
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        109,584
                                                                        
                                                                        
                                                                        
                                                                        182,637
                                                                        
                                                                        
                                                                        
                                                                        340,937Depletion,
      depreciation and accretion
                                                                        
                                                                        
                                                                        52,735
                                                                        
                                                                        
                                                                        
                                                                        180,695
                                                                        
                                                                        
                                                                        
                                                                        146,302
                                                                        
                                                                        
                                                                        
                                                                        391,884Depreciation
      – property and equipment
                                                                        
                                                                        
                                                                        10,368
                                                                        
                                                                        
                                                                        
                                                                        9,178
                                                                        
                                                                        
                                                                        
                                                                        30,115
                                                                        
                                                                        
                                                                        
                                                                        30,792Impairment
      of oil and gas properties
                                                                        
                                                                        
                                                                        8,000,000
                                                                        
                                                                        
                                                                        
                                                                        4,604,726
                                                                        
                                                                        
                                                                        
                                                                        8,000,000
                                                                        
                                                                        
                                                                        
                                                                        8,496,129Stock-based
      compensation
                                                                        
                                                                        
                                                                        135,393
                                                                        
                                                                        
                                                                        
                                                                        913,365
                                                                        
                                                                        
                                                                        
                                                                        476,427
                                                                        
                                                                        
                                                                        
                                                                        3,066,979Gain
      on sale of assets
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (10,705
                                                                        )
                                                                        
                                                                        
                                                                        -Loss
      on debt extinguishment
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        160,662
                                                                        
                                                                        
                                                                        
                                                                        -Unrealized
      gain on fair value of derivatives
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (2,926,091
                                                                        )
                                                                        
                                                                        
                                                                        (793,589
                                                                        )
                                                                        
                                                                        
                                                                        (6,481,505
                                                                        )Unrealized
      foreign exchange changes
                                                                        
                                                                        
                                                                        2,443,118
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        2,443,118
                                                                        
                                                                        
                                                                        
                                                                        -Asset
      retirement costs
                                                                        
                                                                        
                                                                        (127,514
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (499,151
                                                                        )
                                                                        
                                                                        
                                                                        -Changes
      in operating assets and liabilitiesUnrealized
      foreign exchange changes
                                                                        
                                                                        
                                                                        (19,809
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (19,809
                                                                        )
                                                                        
                                                                        
                                                                        -Prepaid
      expenses
                                                                        
                                                                        
                                                                        3,622
                                                                        
                                                                        
                                                                        
                                                                        42,107
                                                                        
                                                                        
                                                                        
                                                                        58,261
                                                                        
                                                                        
                                                                        
                                                                        (7,746
                                                                        )Other
      receivables
                                                                        
                                                                        
                                                                        (292,757
                                                                        )
                                                                        
                                                                        
                                                                        (573,654
                                                                        )
                                                                        
                                                                        
                                                                        837,680
                                                                        
                                                                        
                                                                        
                                                                        (619,287
                                                                        )Accounts
      payable
                                                                        
                                                                        
                                                                        278,796
                                                                        
                                                                        
                                                                        
                                                                        (161,106
                                                                        )
                                                                        
                                                                        
                                                                        (18,944
                                                                        )
                                                                        
                                                                        
                                                                        48,306Accrued
      interest on convertible debentures
                                                                        
                                                                        
                                                                        189,045
                                                                        
                                                                        
                                                                        
                                                                        317,671
                                                                        
                                                                        
                                                                        
                                                                        (644,932
                                                                        )
                                                                        
                                                                        
                                                                        378,359Accrued
      liabilities
                                                                        
                                                                        
                                                                        (9,268
                                                                        )
                                                                        
                                                                        
                                                                        (100,268
                                                                        )
                                                                        
                                                                        
                                                                        (39,672
                                                                        )
                                                                        
                                                                        
                                                                        123,966Cash
      Used in Operating Activities
                                                                        
                                                                        
                                                                        (712,408
                                                                        )
                                                                        
                                                                        
                                                                        (1,843,150
                                                                        )
                                                                        
                                                                        
                                                                        (3,274,580
                                                                        )
                                                                        
                                                                        
                                                                        (3,187,993
                                                                        )Investing
      ActivitiesPurchase
      of property and equipment
                                                                        
                                                                        
                                                                        (5,850
                                                                        )
                                                                        
                                                                        
                                                                        (4,316
                                                                        )
                                                                        
                                                                        
                                                                        (9,791
                                                                        )
                                                                        
                                                                        
                                                                        (35,992
                                                                        )Oil
      and gas property expenditures
                                                                        
                                                                        
                                                                        (1,127,139
                                                                        )
                                                                        
                                                                        
                                                                        (6,096,236
                                                                        )
                                                                        
                                                                        
                                                                        (4,863,048
                                                                        )
                                                                        
                                                                        
                                                                        (13,522,965
                                                                        )Cash
      advances from partners, net
                                                                        
                                                                        
                                                                        (1,560,410
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        1,006,674
                                                                        
                                                                        
                                                                        
                                                                        -Proceeds
      received from sale of oil and gas properties
                                                                        
                                                                        
                                                                        13,000
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        3,921,998
                                                                        
                                                                        
                                                                        
                                                                        983,902Cash
      Provided by (Used in) Investing Activities
                                                                        
                                                                        
                                                                        (2,680,399
                                                                        )
                                                                        
                                                                        
                                                                        (6,100,552
                                                                        )
                                                                        
                                                                        
                                                                        55,833
                                                                        
                                                                        
                                                                        
                                                                        (12,575,055
                                                                        )Financing
      ActivitiesProceeds
      from issuance of common stock
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        25,560,500
                                                                        
                                                                        
                                                                        
                                                                        20,824,000Share
      issuance costs
                                                                        
                                                                        
                                                                        (25,569
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (2,048,156
                                                                        )
                                                                        
                                                                        
                                                                        (1,515,994
                                                                        )Convertible
      debenture repayment
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (4,800,000
                                                                        )
                                                                        
                                                                        
                                                                        -Cash
      Provided by (Used in) Financing Activities
                                                                        
                                                                        
                                                                        (25,569
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        18,712,344
                                                                        
                                                                        
                                                                        
                                                                        19,308,006Unrealized
      foreign exchange on cash and cash equivalents
                                                                        
                                                                        
                                                                        (2,796,782
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (2,796,782
                                                                        )
                                                                        
                                                                        
                                                                        -Increase
      (Decrease) in Cash and Cash Equivalents
                                                                        
                                                                        
                                                                        (6,215,158
                                                                        )
                                                                        
                                                                        
                                                                        (7,943,702
                                                                        )
                                                                        
                                                                        
                                                                        12,696,815
                                                                        
                                                                        
                                                                        
                                                                        3,544,958Cash
      and Cash Equivalents – Beginning of Period
                                                                        
                                                                        
                                                                        23,493,562
                                                                        
                                                                        
                                                                        
                                                                        17,287,642
                                                                        
                                                                        
                                                                        
                                                                        4,581,589
                                                                        
                                                                        
                                                                        
                                                                        5,798,982Cash
      and Cash Equivalents – End of Period
                                                                        
                                                                        
                                                                        17,278,404
                                                                        
                                                                        
                                                                        
                                                                        9,343,940
                                                                        
                                                                        
                                                                        
                                                                        17,278,404
                                                                        
                                                                        
                                                                        
                                                                        9,343,940Cash
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        223,269
                                                                        
                                                                        
                                                                        
                                                                        649,562Cash equivalents
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        17,055,135
                                                                        
                                                                        
                                                                        
                                                                        8,694,378Non-cash
      Investing and Financing ActivitiesCommon
      stock issued for conversion of debentures
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        750,000
                                                                        
                                                                        
                                                                        
                                                                        2,100,140
                                                                        
                                                                        
                                                                        
                                                                        6,250,000Supplemental
      Disclosures:Interest
      Paid
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        1,299,860
                                                                        
                                                                        
                                                                        
                                                                        628,058




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





6





Triangle
Petroleum Corporation


Notes to
the Consolidated Financial Statements


(Expressed
in U.S. dollars, except as noted)


(Unaudited)





Triangle
Petroleum Corporation, together with its consolidated subsidiaries (“Triangle”
or the “Company”), is an independent oil and gas company focused primarily on
the acquisition, exploration and development of resource properties consisting
mainly of shale gas reserves.  Our primary exploration and development
acreage is located in the Horton Bluff formation of the Maritimes Basin in
Canada and in the Fayetteville Shale of the Arkoma Basin in the United States.
We have producing properties in the Fort Worth Basin and in the Alberta Deep
Basin.





1.
            Basis
      of Presentation





The
accompanying consolidated financial statements of Triangle have been prepared in
accordance with generally accepted accounting principles ("GAAP") in the
U.S.  In the opinion of management, the accompanying financial
statements reflect all adjustments necessary to present fairly our financial
position at October 31, 2008 and our operations and cash flows for the three and
nine month periods ended October 31, 2008 and 2007. In preparing the
accompanying financial statements, management has made certain estimates and
assumptions that affect reported amounts in the financial statements and
disclosures of contingencies. Actual results may differ from those estimates.
Certain amounts presented in prior period financial statements have been
reclassified for consistency with current period presentation. The results for
interim periods are not necessarily indicative of annual results.




Certain
disclosures have been condensed or omitted from these financial statements.
Accordingly, they should be read along with the consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the
year ended January 31, 2008. In the prior year, the Company was accounted for as
an exploration stage entity. Starting in the fourth quarter of fiscal 2008, the
Company was no longer accounted for as an exploration stage entity.




Certain
reclassifications have been made to the prior period’s financial statements to
conform to the current period’s presentation.





2.
            Going
      Concern




The
Company is primarily engaged in the acquisition, exploration and development of
oil and gas resource properties. The Company will have to raise additional funds
through equity or debt offerings, dispositions of assets or other means to
finance the repayment of the convertible debentures (if the holders do not elect
to convert), to finance commitments to continue to earn lands related to
farm-out agreements, to fund general and administrative expenses and to complete
the exploration and development phase of its programs. While the Company has
been successful in raising funds in the past, there can be no assurance that it
will be able to do so in the future. The continuation of the Company as a going
concern is dependent upon its ability to obtain necessary additional funds to
continue operations and to determine the existence, discovery and successful
exploitation of economically recoverable reserves in its resource properties,
confirmation of the Company’s interests in the underlying properties, and the
attainment of profitable operations.We
presently do not have any available credit, bank financing or other external
sources of liquidity. Due to our brief history and historical operating losses,
our operations have not been a source of liquidity. We will need to obtain
additional capital in order to expand operations and become profitable. In order
to obtain capital, we may need to sell additional shares of our common stock or
borrow funds from private lenders. There can be no assurance that we will be
successful in obtaining additional funding.




We will
still need additional capital in order to continue operations until we are able
to achieve positive operating cash flow. Additional capital is being sought, but
we cannot guarantee that we will be able to obtain such investments. Financing
transactions may include the issuance of equity or debt securities, obtaining
credit facilities, or other financing mechanisms. However, the trading price of
our common stock and a downturn in the North American stock and debt markets
could make it more difficult to obtain financing through the issuance of equity
or debt securities.




Failure
to obtain additional financing will result in the going concern assumption being
inappropriate and adjustments would be required to the carrying values of assets
and liabilities, the reported revenues and expenses, and the balance sheet
classifications used.





3.
            Accounting
      Policies




(a)
              Recently
      Adopted Accounting
Pronouncements




In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements” ("SFAS 157").  SFAS 157 defines fair value, establishes
a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. On February
12, 2008, the FASB issued Staff Position No. FAS 157-2  ("FSP 157-2")
which proposed a one year deferral for the implementation of SFAS 157 for
non-financial assets and liabilities that are recognized or disclosed at fair
value on a nonrecurring basis (less frequent than annually).





7





Triangle
Petroleum Corporation


Notes to
the Consolidated Financial Statements


(Expressed
in U.S. dollars, except as noted)


(Unaudited)





3.
            Accounting
      Policies (continued)




On
February 1, 2008 Triangle elected to implement SFAS 157 with the one-year
deferral for certain non-financial assets and liabilities. Beginning February 1,
2009, the Company will adopt the provisions for non-financial assets and
non-financial liabilities that are not required or permitted to be measured at
fair value on a recurring basis. We are in the process of evaluating this
portion of the standard and have not yet determined the impact that it will have
on our financial statements upon adoption in 2009.




SFAS 157
(as amended), defines fair value, establishes a framework for measuring fair
value, outlines a fair value hierarchy based on inputs used to measure fair
value and enhances disclosure requirements for fair value
measurements.  Fair value is defined as the price at which an asset
could be exchanged in a current transaction between knowledgeable, willing
parties. A liability’s fair value is defined as the amount that would be paid to
transfer the liability to a new obligor, not the amount that would be paid to
settle the liability with the creditor. Where available, fair value is based on
observable market prices or parameters or derived from such prices or
parameters. Where observable prices or inputs are not available, use of
unobservable prices or inputs are used to estimate the current fair value, often
using an internal valuation model. These valuation techniques involve some level
of management estimation and judgment, the degree of which is dependent on the
item being valued.




Beginning
February 1, 2008, assets and liabilities recorded at fair value in the
consolidated balance sheets are categorized based upon the level of judgment
associated with the inputs used to measure their fair value. Hierarchical
levels—defined by SFAS 157 and directly related to the amount of subjectivity
associated with the inputs to fair valuation of these assets and liabilities—are
as follows:




Level
I—Inputs are unadjusted, quoted prices in active markets for identical assets or
liabilities at the measurement date.




Level
II—Inputs (other than quoted prices included in Level I) are either directly or
indirectly observable for the asset or liability through correlation with market
data at the measurement date and for the duration of the instrument’s
anticipated life.




Level
III—Inputs reflect management’s best estimate of what market participants would
use in pricing the asset or liability at the measurement date. Consideration is
given to the risk inherent in the valuation technique and the risk inherent in
the inputs to the model.




The fair
value of the Company’s derivative liabilities was measured using Level III
inputs. The significant unobservable inputs to the fair value measurement
included estimates of volatility of the share price and term of the contract.
The inputs were calculated based on historical data as well as current estimated
amounts. See Note 7.




The
estimated fair values of derivative liabilities, being the conversion feature of
the December 8, 2005 convertible debenture, included in the consolidated balance
sheets at October 31, 2008 and January 31, 2008 are summarized below. The
decrease in the derivative liability from January 31, 2008 to October 31, 2008
is primarily attributable to the settlement of derivatives as a result of the
repayment of the underlying debentures.


Significant
                      Unobservable
                      Inputs
                      (Level III)
                      October 31, 2008
                      $
                    
                    
                    Significant
                      Unobservable
                      Inputs
                      (Level III)
                      January 31, 2008
                      $Derivative
      liability – conversion feature
                    
                    
                    -
                    
                    
                    
                    3,262,846




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an Amendment of FASB
Statement No. 115”.  This statement permits entities to choose to
measure many financial instruments and certain other items at fair value. Most
of the provisions of SFAS No. 159 apply only to entities that elect the fair
value option. However, the amendment to SFAS No. 115 “Accounting for Certain
Investments in Debt and Equity Securities” applies to all entities with
available-for-sale and trading securities. Effective February 1, 2008, the
Company adopted SFAS No. 159. The adoption of this statement did not have a
material effect on the Company's current financial statements.





8





Triangle
Petroleum Corporation


Notes to
the Consolidated Financial Statements


(Expressed
in U.S. dollars, except as noted)


(Unaudited)








3.
            Accounting
      Policies (continued)





(b)
            Recent
      Issued Accounting Pronouncements




In
December 2007, the Financial Accounting Standard Board (FASB) revised the
Statement of Financial Accounting Standard (SFAS) No. 141, “Business
Combinations”. SFAS No. 141R requires an acquirer to be identified for all
business combinations and applies the same method of accounting for business
combinations – the acquisition method – to all transactions. In addition,
transaction costs associated with acquisitions are required to be expensed. The
revised statement is effective to business combinations in years beginning on or
after December 31, 2008. The adoption of this statement will impact business
combinations, if any, after the effective date.




In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements”. SFAS no. 160 requires the Company to report
non-controlling interest in subsidiaries as equity in the consolidated financial
statements; and all transactions between equity and non controlling interests as
equity. SFAS No. 160 is effective for the Company commencing on February 1, 2009
and it will not impact the Company's current financial statements.




In March
2008, the FASB has issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”, which requires disclosures about how and
why an entity uses derivative instruments, how derivative instruments and
related hedged items are accounted for under SFAS No. 133, and how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance and cash flows. SFAS No. 161 is effective on February 1,
2009 and is not anticipated to significantly effect the Company's financial
statements.




In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles. SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP. SFAS No. 162 directs the GAAP hierarchy to
the entity, not the independent auditors, as the entity is responsible for
selecting accounting principles for financial statements that are presented in
conformity with GAAP. SFAS No. 162 is effective November 15, 2008. SFAS No. 162
is not expected to have a material impact on the Company’s financial
statements.




In May
2008, the FASB directed the FASB Staff to issue FSP APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) (FSP APB 14-1). FSP APB 14-1 applies to
convertible debt instruments that, by their stated terms, may be settled in cash
(or other assets) upon conversion, including partial cash settlement of the
conversion option. FSP APB 14-1 requires bifurcation of the instrument into a
debt component that is initially recorded at fair value and an equity component.
The difference between the fair value of the debt component and the initial
proceeds from issuance of the instrument is recorded as a component of equity.
The liability component of the debt instrument is accreted to par using the
effective yield method; accretion is reported as a component of interest
expense. The equity component is not subsequently re-valued as long as it
continues to qualify for equity treatment. FSP APB 14-1 is effective for the
Company on February 1, 2009. Early adoption is not permitted. The Company is
evaluating the impact of adopting FSP APB 14-1 on the Company’s financial
statements.





4.
            Oil
      and Gas Properties





The
Company follows the full cost method of accounting for oil and gas operations
whereby all costs of exploring for and developing oil and gas reserves are
initially capitalized on a country-by-country (cost center) basis. Capitalized
costs, less estimated salvage value, are depleted using the units-of-production
method whereby historical costs and future development costs are amortized over
the total estimated proved reserves. Costs of acquiring and evaluating unproven
properties and major development projects are initially excluded from the
depletion and depreciation calculation until it is determined whether or not
proved reserves can be assigned to such properties. These costs are assessed
periodically to ascertain whether impairment has occurred (i.e., "impairment
tests”). The Company incurred an $8,000,000 impairment charge in the third
quarter of fiscal 2009 related to its Fayetteville assets. All of the Company’s
oil and gas properties are located in the United States and Canada. The
following table summarizes information regarding the Company's oil and gas
acquisition, exploration and development activities:





Costs
                                        
                                        
                                        Accumulated Depletion
                                        
                                        
                                        Net BookOpening
                                        
                                        
                                        Additions
                                        
                                        
                                        Dispositions
                                        
                                        
                                        Closing
                                        
                                        
                                        Opening
                                        
                                        
                                        Depletion
                                        
                                        
                                        Loss (Gain)
                                        
                                        
                                        Closing
                                        
                                        
                                        Value$
                                        
                                        
                                        $
                                        
                                        
                                        $
                                        
                                        
                                        $
                                        
                                        
                                        $
                                        
                                        
                                        
                                        
                                        
                                        $
                                        
                                        
                                        $
                                        
                                        
                                        $Proved
      Properties
                                        
                                        
                                        12,886,510
                                        
                                        
                                        
                                        50,108
                                        
                                        
                                        
                                        (164,985
                                        )
                                        
                                        
                                        12,771,633
                                        
                                        
                                        
                                        12,472,601
                                        
                                        
                                        
                                        63,824
                                        
                                        
                                        
                                        (40,710
                                        )
                                        
                                        
                                        12,495,715
                                        
                                        
                                        
                                        275,918Unproven
      Properties
                                        
                                        
                                        34,397,768
                                        
                                        
                                        
                                        3,920,732
                                        
                                        
                                        
                                        (3,757,013
                                        )
                                        
                                        
                                        34,561,487
                                        
                                        
                                        
                                        9,832,728
                                        
                                        
                                        
                                        8,000,000
                                        
                                        
                                        
                                        30,005
                                        
                                        
                                        
                                        17,862,733
                                        
                                        
                                        
                                        16,698,754Total
                                        
                                        
                                        47,284,278
                                        
                                        
                                        
                                        3,970,840
                                        
                                        
                                        
                                        (3,921,998
                                        )
                                        
                                        
                                        47,333,120
                                        
                                        
                                        
                                        22,305,329
                                        
                                        
                                        
                                        8,063,824
                                        
                                        
                                        
                                        (10,705
                                        )
                                        
                                        
                                        30,358,448
                                        
                                        
                                        
                                        16,974,672




9





Triangle
Petroleum Corporation


Notes to
the Consolidated Financial Statements


(Expressed
in U.S. dollars, except as noted)


(Unaudited)





4.
            Oil
      and Gas Properties (Continued)




Proved
Properties




The
Company's proved acquisition and exploration costs were distributed in the
following geographic areas:




October
      31, 2008
              $
            
            
            January
      31, 2008
              $Alberta
      Deep Basin – Canada
            
            
            275,918
            
            
            
            324,162Barnett
      Shale (Texas) – United States
            
            
            -
            
            
            
            89,747Total
      proved acquisition and exploration costs
            
            
            275,918
            
            
            
            413,909





In
Canada, depletion and depreciation expense for the three and nine month periods
ended October 31, 2008 was $12,796 and $57,902 (2007 - $62,249 and $122,002),
respectively.




In the
U.S., depletion and depreciation expense for the three and nine month periods
ended October 31, 2008 was $nil and $5,922 (2007 - $80,429 and $231,864),
respectively. In June 2008, the Company sold its interests in two Barnett shale
wells for gross proceeds of $164,985. The net book value of the US proven
property costs at the time of the sale was $131,820 and the related properties
had an asset retirement obligation of $7,545. As such the Company recorded a
gain on the sale of assets of $40,710.




Unproven
Properties




All of
the Company’s unproven properties are not subject to depletion. The Company's
unproven acquisition and exploration costs were distributed in the following
geographic areas:





October 31, 2008
                              $
                            
                            
                            January 31, 2008
                              $Windsor
      Block of Maritimes Basin  (Nova Scotia)
                            
                            
                            16,228,496
                            
                            
                            
                            15,441,144Beech
      Hill Block of Maritimes Basin (New Brunswick)
                            
                            
                            123,365
                            
                            
                            
                            21,975Western
      Canadian Shale (Alberta and B.C.)
                            
                            
                            44,511
                            
                            
                            
                            -Canada
                            
                            
                            16,396,372
                            
                            
                            
                            15,463,119Fayetteville
      Shale (Arkansas)
                            
                            
                            299,395
                            
                            
                            
                            8,289,901Rocky
      Mountains (Colorado, Montana, Wyoming)
                            
                            
                            2,987
                            
                            
                            
                            812,020United
      States
                            
                            
                            302,382
                            
                            
                            
                            9,101,921Total
      unproven acquisition and exploration costs
                            
                            
                            16,698,754
                            
                            
                            
                            24,565,040





o
            In
      Canada, $16,228,496 of unproven property costs were excluded from costs
      subject to depletion which relate to Canadian shale gas exploration costs
      mainly in the Windsor Block of the Maritimes Basin. The Company
      anticipates that these costs will be subject to depletion in fiscal 2011,
      when the Company anticipates having pipelines built and commissioned to
      market potential gas from the Windsor
Block.


o
            In
      July 2008, the Company received cash of $2,943,510 for a partner’s share
      of its 30% working interest in exploration costs associated with the
      Windsor Block of Nova Scotia. Also, the related properties had an asset
      retirement obligation that was reduced by $165,283 for the partner’s share
      of its 30% working interest.


o
            In
      the U.S., $302,382 of unproven property costs were excluded from costs
      subject to depletion which relates mainly to Fayetteville Shale gas
      acquisition costs. Due to recent economic conditions, the Company has
      extended the timing of its anticipated sale of the acreage position
      related to these costs from fiscal 2009 to mid fiscal 2010. Furthermore,
      in September 2008 the Company sold 20 net acres of its 10,437 net acres
      for $13,000 and in November 2008, the Company sold 240 of its 10,437 net
      acres for $288,000. The Company recorded an $8,000,000 impairment charge
      on the remaining land in the third
quarter.


o
            In
      June 2008, the Company sold its 25% working interest in 9,692 acres in the
      Phat City area of Montana (Rocky Mountains project) for cash of $800,503.
      The net book value of the Rocky Mountains project at the time of the sale
      was $830,508, which related to U.S. Rocky Mountain leasehold acquisition
      costs. As such the Company recorded a loss on the sale of assets of
      $30,005.





10







Triangle
Petroleum Corporation


Notes to
the Consolidated Financial Statements


(Expressed
in U.S. dollars, except as noted)


(Unaudited)





5.
            Asset
      Retirement Obligations





The
estimated fair value of the future costs associated with dismantlement,
abandonment and restoration of oil and natural gas properties is recorded when a
liability is incurred, generally through a lease construction or acquisition or
completion of a well.  The current estimated costs are escalated at an
inflation rate and discounted to present value at a credit adjusted risk-free
rate over the estimated economic life of the properties.  Such costs
are capitalized as part of the basis of the related asset and are depleted as
part of the applicable full cost pool.  The associated liability is
recorded initially as a long-term liability.  Subsequent adjustments
to the initial asset and liability are recorded to reflect revisions to
estimated future cash flow requirements.  In addition, the liability
is adjusted to reflect accretion expense as well as settlements during the
period. A reconciliation of the changes in the asset retirement obligations is
as follows:




Nine Months
                      October 31, 2008
                      $
                    
                    
                    Nine Months
                      October 31, 2007
                      $Balance,
      beginning of period
                    
                    
                    1,003,353
                    
                    
                    
                    90,913Liabilities
      incurred
                    
                    
                    439,083
                    
                    
                    
                    290,434Liabilities
      settled as part of dispositions
                    
                    
                    (172,828
                    )
                    
                    
                    -Liabilities
      settled in cash
                    
                    
                    (499,151
                    )
                    
                    
                    -Accretion
                    
                    
                    82,478
                    
                    
                    
                    38,018Balance,
      end of period
                    
                    
                    852,935
                    
                    
                    
                    419,365


6.
            Convertible
      Debentures





Agreement Date
                
                December 8,
                  2005
                  $
                
                
                December 28,
                  2005
                  $
                
                
                Total
                  $Balance,
      January 31, 2008
                
                
                4,778,271
                
                
                
                6,770,721
                
                
                
                11,548,992Converted
                
                
                (2,100,140
                )
                
                
                -
                
                
                
                (2,100,140
                )Repaid
                
                
                (4,000,000
                )
                
                
                -
                
                
                
                (4,000,000
                )Accretion
      - expensed
                
                
                815,052
                
                
                
                1,793,629
                
                
                
                2,608,681Accretion
      - settled
                
                
                506,817
                
                
                
                -
                
                
                
                506,817Balance,
      October 31, 2008
                
                
                -
                
                
                
                8,564,350
                
                
                
                8,564,350Amount
      classified as current
                
                
                -
                
                
                
                8,564,350
                
                
                
                8,564,350Face
      value at October 31, 2008
                
                
                -
                
                
                
                10,000,000
                
                
                
                10,000,000Interest
      rate
                
                
                5.0
                %
                
                
                7.5
                %





On June
5, 2008, the Company repaid $4,000,000 of convertible debentures that were due
to mature on December 8, 2008 plus an early redemption fee of $800,000 and
accrued interest of $1,299,860. The carrying value of the debentures at the time
of repayment, including the conversion feature of the debenture that was
accounted for as a derivative, was $4,639,338, which is equal to the face value
of $4,000,000, less unamortized discounts of $506,817 and deferred financing
costs of $283,196, plus the derivative liability of $1,429,351. The Company paid
$4,800,000 on settlement ($4,000,000 face value plus a 20% early redemption fee
of $800,000); therefore a $160,662 loss was recorded on the extinguishment of
the debenture.





7.
            Derivative
      Liabilities





The
Company was required to bifurcate and separately account for the embedded
conversion feature contained in the December 8, 2005 convertible debenture as a
derivative. The Company was required to record the derivative at the estimated
fair value on each balance sheet date with changes in fair values reflected in
the statement of operations.


Conversion
                      Feature
                      Fair
      Value$January
      31, 2008
                    
                    
                    3,262,846Conversion
      features settled on conversion
                    
                    
                    (1,039,906
                    )Change
      in fair value
                    
                    
                    (793,589
                    )Conversion
      features settled on repayment
                    
                    
                    (1,429,351
                    )October
      31, 2008
                    
                    
                    -


11


Triangle
Petroleum Corporation


Notes to
the Consolidated Financial Statements


(Expressed
in U.S. dollars, except as noted)


(Unaudited)





7.
            Derivative
      Liabilities (continued)




The
Company used the Black-Scholes valuation model to calculate the fair value of
derivative liabilities. The following table shows the assumptions used in the
calculation of the conversion feature in the December 8, 2005 convertible
debenture.


Strike
      Price
                      
                      
                      Volatility
                      
                      
                      Risk
      Free
                        Rate
                      
                      
                      Dividend
      Yield
                      
                      
                      Term
      in
                        YearsWeighted
      Average Assumptions
                        at:
      June 3, 2008 (repayment date)
                      
                      $
                      1.34
                      
                      
                      
                      110.50
                      %
                      
                      
                      1.99
                      %
                      
                      
                      –
                      
                      
                      
                      0.51




8.
            Common
      Stock





Shares
                            
                            
                            Common Stock
                            
                            
                            Additional Paid-
                              In Capital$
                            
                            
                            
                            $January
      31, 2008
                            
                            
                            46,794,530
                            
                            
                            
                            468
                            
                            
                            
                            57,852,277Private
      Placement, net of share issuance costs of $2,251,230
                            
                            
                            18,257,500
                            
                            
                            
                            183
                            
                            
                            
                            19,071,987Conversion
      of debentures
                            
                            
                            2,374,013
                            
                            
                            
                            23
                            
                            
                            
                            3,140,023Stock based compensation
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            476,427October 31, 2008
                            
                            
                            67,426,043
                            
                            
                            
                            674
                            
                            
                            
                            80,540,714





During
the nine month period ended October 31, 2008, 2,374,013 shares were issued upon
the conversion of convertible debentures in the amount of $2,100,140. The fair
value of the conversion feature related to the converted debentures was
$1,039,906, which was transferred from the derivative liability to additional
paid-in capital upon conversion.





On June
3, 2008, 18,257,500 units were issued in a private placement for gross proceeds
of $25,560,500. The net proceeds after deducting expenses were $23,309,270. The
Company paid the placement agents of the offering a cash fee of 7% of the gross
proceeds of the offering. Each unit was priced at $1.40 per unit and consists of
one share of common stock (relative fair value of $19,072,170 or $1.045 per
share) and one-half share purchase warrant (relative fair value of $4,237,100 or
$0.232 per unit – see Note 9). One full warrant can be exercised into one share
of common stock for a period of two years at a price of $2.25 per share.
Pursuant to the terms of the sale, the Company was required, on a best efforts
basis, to file a registration statement with the SEC, and to cause such
registration statement to be declared effective by the SEC, within 150 days
after closing, to permit the public resale of the shares underlying the
warrants.  The registration statement was declared effective by the
SEC on July 14, 2008. Also, pursuant to the terms of the sale, the Company was
required, on a best efforts basis, to list the Company’s shares on the Toronto
Stock Exchange (which includes the TSX Venture Exchange) on or before December
31, 2008.  The Company’s shares of common stock commenced trading on
the TSX Venture Exchange on December 5, 2008.





9.
            Warrants





As at
October 31, 2008, the Company had 9,128,750 warrants outstanding that can be
exercised into 9,128,750 shares of common stock at a price of $2.25 per share,
which expire on June 3, 2010. The warrants were granted on June 3, 2008, at
which time they had a relative fair value compared to the common stock issued of
$4,237,100.





10.
            Stock
      Options





The
weighted average grant date fair value of stock options granted during the three
and nine month periods ended October 31, 2008 was $0.259 and $0.693,
respectively. No stock options were exercised during the three and nine month
periods ended October 31, 2008. During the three and nine month periods ended
October 31, 2008, the Company recorded stock-based compensation of $135,393 and
$476,427, respectively, as general and administrative
expense.


12





Triangle
Petroleum Corporation


Notes to
the Consolidated Financial Statements


(Expressed
in U.S. dollars, except as noted)


(Unaudited)





10.
            Stock
      Options (continued)





A summary of the Company’s stock option activity is as follows:





Number of Options
                                  
                                  
                                  Weighted Average
                                    Exercise Price
                                    $
                                  
                                  Aggregate Intrinsic
                                    Value
                                    $Outstanding,
      January 31, 2008
                                  
                                  
                                  2,580,000
                                  
                                  
                                  
                                  2.54Granted
                                  
                                  
                                  1,250,000
                                  
                                  
                                  
                                  1.54Forfeited
                                  
                                  
                                  (220,000
                                  )
                                  
                                  
                                  3.33Outstanding, October 31,
    2008
                                  
                                  
                                  3,610,000
                                  
                                  
                                  
                                  2.14
                                  
                                  Exercisable, October 31,
    2008
                                  
                                  
                                  2,030,000
                                  
                                  
                                  
                                  2.48
                                  
                                  





The
weighted average remaining contractual life of stock options outstanding as of
October 31, 2008 was 3.65 years.





The fair
value of the options granted during the quarter of $0.26 (nine months ended
October 31, 2008 - $0.69 per option) was estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:




Three Months
                      Ended
                      October 31, 2008
                    
                    
                    Nine Months
                      Ended
                      October 31, 2008Expected
      dividend yield
                    
                    
                    0
                    %
                    
                    
                    0
                    %Expected
      volatility
                    
                    
                    81
                    %
                    
                    
                    79
                    %Expected
      life (in years)
                    
                    
                    3.5
                    
                    
                    
                    3.5Risk-free
      interest rate
                    
                    
                    2.67
                    %
                    
                    
                    2.71
                    %Estimated
      forfeiture rate
                    
                    
                    30
                    %
                    
                    
                    30
                    %




As at
October 31, 2008, there was $1,131,570 of total unrecognized compensation costs
related to non-vested share-based compensation arrangements which are expected
to be recognized over a weighted-average period of 16 months.





A summary
of the status of the Company’s non-vested share options as of October 31, 2008,
and changes during the nine month period ended October 31, 2008, is presented
below:


Non-vested
      share options
                    
                    Options
                      #
                    
                    
                    Weighted-Average
                      Grant-Date
      Fair Value
                      $Non-vested
      at January 31, 2008
                    
                    
                    1,250,000
                    
                    
                    
                    0.93Granted
                    
                    
                    1,250,000
                    
                    
                    
                    0.69Vested
                    
                    
                    (920,000
                    )
                    
                    
                    0.98Non-vested
      at October 31, 2008
                    
                    
                    1,580,000
                    
                    
                    
                    0.72




11.
            Subsequent
      Events





Subsequent
to the end of the quarter, the Company sold 240 of its 10,000 net acres of land
in the Fayetteville shale for $288,000.





The
Company’s shares of common stock commenced trading on the TSX Venture exchange
on December 5, 2008.


13


ITEM
2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS





This
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements that reflect
Management's current views with respect to future events and financial
performance. You can identify these statements by forward-looking words such as
“may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or
similar words.  Those statements include statements regarding the
intent, belief or current expectations of us and members of our management team
as well as the assumptions on which such statements are based. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risk and uncertainties, and that
actual results may differ materially from those contemplated by such
forward-looking statements.





Readers
are urged to carefully review and consider the various disclosures made by us in
this report and in our other reports filed with the Securities and Exchange
Commission. The following Management’s Discussion and Analysis of Financial
Condition and Results of Operations of the Company should be read in conjunction
with the Consolidated Financial Statements and notes related thereto included in
this Quarterly Report on Form 10-Q.
Important  factors  currently  known  to
Management  could  cause  actual  results  to
differ  materially  from  those in
forward-looking  statements.  We undertake no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes in the future operating results
over time. We believe that our assumptions are based upon reasonable data
derived from and known about our business and operations.  No
assurances are made that actual results of operations or the results of our
future activities will not differ materially from our
assumptions.  Factors that could cause differences include, but are
not limited to, expected market demand for our products, fluctuations in pricing
for materials, and competition.





Overview





Prior to
May 2005, we were known as Peloton Resources Inc., a mining exploration company.
Peloton was actively searching for ore bodies containing gold in British
Columbia. A consultant was hired to assess the economic viability of exploring
for and developing gold reserves on Peloton’s properties. Based upon his report,
Peloton decided to abandon all mining activities and to commence shifting
towards an oil and gas exploration company. In connection with the shift in
operational focus, we changed our name to Triangle Petroleum
Corporation.





We are an
exploration company focused on emerging shale gas opportunities.  Our
corporate strategy is to utilize our U.S. shale gas experience to secure early
stage shale gas projects in Canada.  In conjunction with this
strategy, we have screened and participated in various projects in North America
with numerous potential joint venture partners.  Based on activity to
date, we have selected and designated one project as core from our portfolio of
projects, based on our belief that it provides the best prospect for exploring
for commercial quantities of gas.  This core project is focused on a
shale gas opportunity located in the Maritimes Basin of Eastern Canada, on the
Windsor Block in Nova Scotia and on the Beech Hill Block of New
Brunswick.  We intend to execute our operating plan in order to
realize the full value of the land base that has been established in the
Maritimes Basin.  We have acquired 2D and 3D seismic and drilled two
vertical test wells in late 2007 and drilled three vertical exploration wells in
2008 on the Windsor Block (516,000 gross acres, 361,200 net acres or 232,200 net
acres if our joint venture participant elects to participate) in Nova Scotia and
acquired 2D seismic in 2008, creating the option to earn an interest in the
Beech Hill Block (68,000 gross acres, 47,600 net acres or 30,600 net acres if
our joint venture participant elects to participate) in New
Brunswick.





We are
also in the process of evaluating a potential secondary shale gas project in
Western Canada.  In addition, we have non-core interests in the
Fayetteville Shale trend in Arkansas (20,344 gross acres, 10,172 net acres), the
Barnett Shale trend in Texas (478 gross acres, 61 net acres), and conventional
oil and gas plays in the Kakwa and Wapiti areas of Alberta (23,360 gross acres,
5,394 net acres) and the states of Colorado and Wyoming (38,419 gross acres and
9,605 net acres). These projects areas are currently designated as non-core due
to our desire to focus our limited manpower resources on one core and one
secondary project.


14





Plan
of Operations





The
following table contains forward looking information about budgeted cash flows
that are based on certain assumptions that include, but are not limited to,
successful drilling and completions results, the ability to supplement our
working capital by completing equity or debt financings and selling non-core
assets, continued funding from work program partners, Zodiac Exploration Corp.
(“Zodiac”) exercising its option under the Zodiac Joint Venture Agreement to
earn an additional 12.5% working interest by paying 50% of the second $15
million in gross costs, and the availability of drilling and completion
equipment. All references to "C$" in the following table are to Canadian dollars
(C$1.00=US$0.80).





We intend
to pursue our core projects in the Province of Nova Scotia pursuant to a work
program and budget pertaining to certain acreage interests in the Windsor Block
of Nova Scotia as of September 15, 2008.  The work program and budget
covers an 18-month period from July 1, 2008 to December 31, 2009.  It
estimates gross expenditures of Cdn$47.5 million (Cdn$14.0 million net). The
work program budget assumes that Zodiac will fund 50% of drilling costs up to
$15 million gross ($7.5 million net to Zodiac) to earn a 12.5% interest in the
Windsor Block and that Zodiac will exercise its option to earn an additional
12.5% interest in the Windsor Block by funding an additional $7.5 million net to
Zodiac costs as per the terms of the Zodiac Joint Venture Agreement. Details of
the Zodiac Joint Venture Agreement may be found under the headings "Properties" and "Liquidity and Capital
Resources".





Triangle Work Program and BudgetTiming of
                                                                            Expenditures
                                                                          
                                                                          Exploration & Development
                                                                            Activity
                                                                          
                                                                          Gross
                                                                            Cost
                                                                            (C$000's)
                                                                          
                                                                          
                                                                          Triangle Net
                                                                            Cost
                                                                            (C$000's)
                                                                          
                                                                          
                                                                          Cost Per Quarter
      (C$000's)Gross
                                                                          
                                                                          
                                                                          Triangle
      NetQ3
      2008
                                                                          
                                                                          Drill
      & case N-14-A (Kennetcook #3)
                                                                          
                                                                          
                                                                          3,000
                                                                          
                                                                          
                                                                          
                                                                          600
                                                                          (1)Drill & case O-61-C (Stanley
      #1)
                                                                          
                                                                          
                                                                          3,000
                                                                          
                                                                          
                                                                          
                                                                          600
                                                                          (1)
                                                                          
                                                                          
                                                                          6,000
                                                                          
                                                                          
                                                                          
                                                                          1,200Q4
      2008
                                                                          
                                                                          Drill
      & case E-38-A (Kennetcook #4)
                                                                          
                                                                          
                                                                          3,000
                                                                          
                                                                          
                                                                          
                                                                          600
                                                                          (1)Complete
      N-14-A (Kennetcook #3)
                                                                          
                                                                          
                                                                          3,000
                                                                          
                                                                          
                                                                          
                                                                          600
                                                                          (1)Complete O-61-C (Stanley
#1)
                                                                          
                                                                          
                                                                          3,000
                                                                          
                                                                          
                                                                          
                                                                          600
                                                                          (1)
                                                                          
                                                                          
                                                                          9,000
                                                                          
                                                                          
                                                                          
                                                                          1,800Q1
      2009
                                                                          
                                                                          Complete
      E-38-A (Kennetcook #4)
                                                                          
                                                                          
                                                                          3,000
                                                                          
                                                                          
                                                                          
                                                                          600
                                                                          (2)Drill
      & case Kennetcook #5
                                                                          
                                                                          
                                                                          4,000
                                                                          
                                                                          
                                                                          
                                                                          800
                                                                          (2)Complete Kennetcook #5
                                                                          
                                                                          
                                                                          3,500
                                                                          
                                                                          
                                                                          
                                                                          700
                                                                          (2)
                                                                          
                                                                          
                                                                          10,500
                                                                          
                                                                          
                                                                          
                                                                          2,100Q2
      2009
                                                                          
                                                                          Drill
      & case Kennetcook #6
                                                                          
                                                                          
                                                                          2,000
                                                                          
                                                                          
                                                                          
                                                                          400
                                                                          (2)Complete Kennetcook #6
                                                                          
                                                                          
                                                                          2,000
                                                                          
                                                                          
                                                                          
                                                                          400
                                                                          (2)
                                                                          
                                                                          
                                                                          4,000
                                                                          
                                                                          
                                                                          
                                                                          800Q3
      2009
                                                                          
                                                                          Drill
      & case Kennetcook #7
                                                                          
                                                                          
                                                                          3,000
                                                                          
                                                                          
                                                                          
                                                                          1,350
                                                                          (3)Complete
      Kennetcook #7
                                                                          
                                                                          
                                                                          3,000
                                                                          
                                                                          
                                                                          
                                                                          1,350
                                                                          (3)Drill
      & case Avon #1
                                                                          
                                                                          
                                                                          3,000
                                                                          
                                                                          
                                                                          
                                                                          1,350
                                                                          (3)Complete Avon #1
                                                                          
                                                                          
                                                                          3,000
                                                                          
                                                                          
                                                                          
                                                                          1,350
                                                                          (3)
                                                                          
                                                                          
                                                                          12,000
                                                                          
                                                                          
                                                                          
                                                                          5,400Q4
      2009
                                                                          
                                                                          Drill
      & case Stanley #2 delineation well
                                                                          
                                                                          
                                                                          3,000
                                                                          
                                                                          
                                                                          
                                                                          1,350
                                                                          (3)Complete Stanley #2 delineation
      well
                                                                          
                                                                          
                                                                          3,000
                                                                          
                                                                          
                                                                          
                                                                          1,350
                                                                          (3)
                                                                          
                                                                          
                                                                          6,000
                                                                          
                                                                          
                                                                          
                                                                          2,700Total
      Budget Expenditures
                                                                          
                                                                          $
                                                                          C47,500
                                                                          
                                                                          
                                                                          $
                                                                          C14,000





Notes:


(1)
            Assumes
      Triangle pays 20%, Zodiac pays 50%, and Contact Exploration Corp.
      (“Contact”) pays 30%.


(2)
            Assumes
      Triangle pays 20%, Zodiac elects to pay 50% to earn an additional 12.5%
      working interest, and Contact pays
30%.


(3)
            Assumes
      Triangle pays 45%, Zodiac pays 25%, and Contact pays
  30%.




15


The work
program, including the wells in Avon and Stanley, satisfies the requirements of
a 10-well commitment made to the Nova Scotia Department of Energy in support of
a production agreement and land tenure application submitted June 24,
2008.  The 10 locations must be drilled prior to the end of
2011.  Four locations must be drilled in Kennetcook prior to the end
of 2009, which is satisfied by the 2008 portion of the work program, and two
wells in each of Avon, Stanley and Wolfville, which requirements are partially
satisfied by this work program, with the balance to be completed in 2010 and
2011.





We intend
to allocate our working capital to the work program and budget as described in
the table above.  However, there may be circumstances where, for sound
business reasons, a reallocation of the funds may be necessary.  In
particular, we have identified six other locations in the Kennetcook area which
are equally viable to the locations proposed in the table below, and therefore
substitutions or additions may occur.  Furthermore, while we intend to
use our working capital as described in the work program and budget, our current
working capital is not sufficient to complete the work program. On December 9,
2008, we entered into a best efforts financing agreement with Wolverton Capital
Markets, a division of Wolverton Securities Ltd. and Research Capital
Corporation to offer flow-through common shares on a private placement basis at
a price of C$0.25 per flow-through share for gross proceeds of C$3 million.
Proceeds from the sale of the flow-through shares, if any, will be used to incur
Canadian exploration expenses on our shale gas projects in the Maritimes Basin
prior to December 31, 2009. These qualifying expenditures will be renounced to
subscribers of the flow-through shares effective on or before December 31,
2008.





We intend
to complete the wells listed in the work program and budget, based on our own
past experience in the area, and employing best practices of other operators in
the industry working in similar basins.  Completions are expected to
consist of perforating, fracture treating, and multi-day flow-testing several
distinct geological intervals within each well.  Depending on
geological interpretation, it is expected that two to four intervals may be
completed in any given vertical well.  Horizontal wells may contain up
to five separate completion intervals.  Size and number of fracture
treatments will depend on geologic and rock mechanics data received as the wells
are drilled and logged. Perforation intervals are expected to be 1 to 10 metres
thick, within overall prospective shale intervals that may be on the order of
100 metres thick.  Fracture stimulation, likely using slick water and
sand proppant, will be undertaken in virtually all cases.  The size of
fracture is expected to be between 10 and 100 tonnes per perforated
interval.  Industry best practices will be continually reviewed and
employed if applicable. The expected completion program cost estimated in the
work program and budget includes these estimates and assumptions.





Properties





All of
our oil and gas properties are located in the United States and
Canada.





Canada





Maritimes Basin - Eastern
Canadian Shale Gas Project





During
fiscal 2007 and early fiscal 2008, a multi-disciplined geoscience team screened
prospective basins in Eastern Canada.  The screening process included
an assessment of the geological history for a given area, estimates of pressure
and temperature profiles and a determination of the ability to fracture
stimulate a prospective shale package.  As a direct result of
implementing this strategy, we executed two farm-in agreements with a Canadian
company to pursue two shale gas opportunities in the Maritimes Basin in March
and May 2007.





Beech
Hill Block





The Beech
Hill Farm-In Agreement was entered into with Contact in March 2007 and covers
approximately 68,000 gross acres in the Moncton Sub-Basin of the Maritimes Basin
located in the Province of New Brunswick, Canada. We are entitled to earn a 70%
working interest in the block subsequent to the acquisition and evaluation of a
minimum Cdn$250,000 seismic program and then electing no later than December 31,
2008 to drill a test well by mid-2009.  Effective May 31, 2008, we
entered into the Zodiac Joint Venture Agreement, wherein Zodiac agreed to incur
the first Cdn$250,000 of costs for the seismic program for the option to earn a
25% working interest in the Beech Hill Block after paying 50% of the test well
costs.  Based upon Zodiac participating in the test well, we would
retain a 45% working interest and would continue as operator.


16




During
June and July 2008, approximately $280,000 gross ($30,000 net) expenditures were
incurred to complete the acquisition phase of approximately 30 kilometres (18
miles) of 2D seismic on the Beech Hill Block. We now have until the end of 2008
to interpret this data and decide whether or not to drill a well by mid-2009 in
order to earn a 70% working interest (net 45% should Zodiac elect to
participate).  Zodiac has paid Cdn$250,000 towards the seismic
program, thereby earning the option to participate in the drilling of the first
potential well.  The Beech Hill Block is covered by leases and
licenses to search for oil and natural gas with the New Brunswick government
which expire between February 2009 and June 2011.





Windsor
Block





The
Windsor Block Farm-In Agreement was entered into with Contact in May 2007 and
covers approximately 516,000 gross acres in the Windsor Sub-Basin of the
Maritimes Basin located in the Province of Nova Scotia,
Canada.  During fiscal 2008, we earned a 70% working interest in the
block by drilling and completing a test well.  In July 2008, our joint
venture partner, Contact, elected to maintain its 30% working interest instead
of converting to a 5% gross overriding royalty.  Effective May 31,
2008, we entered into the Zodiac Joint Venture Agreement to drill as many as six
new delineation wells on the Windsor Block.  The joint venture
provides for an initial commitment by Zodiac to pay 50% of drilling costs, up to
Cdn$7.5 million (Cdn$15 million gross), to earn a 12.5% working interest in the
entire Windsor Block.  Within 30 days of fulfilling this expenditure
commitment, Zodiac has the option to commit another Cdn$7.5 million (Cdn$15
million gross) for an additional 12.5% working interest.  Based upon
Zodiac spending the entire Cdn$15 million, we would retain a 45% working
interest and would continue as operator, and Zodiac would earn a 25% working
interest in the Windsor Block.





From May
2007 to June 2008, we spent approximately $17.5 million (net $14.6 million) on
the first stage of the Windsor Block exploration program, consisting of drilling
and completing two vertical test wells (Kennetcook #1 and Kennetcook #2), a 2D
and 3D seismic program and geological studies.  Both of the vertical
test wells, the seismic and geological studies have provided us with sufficient
valuable technical information for us to believe that this has the potential to
be a significant shale gas resource project.  In conjunction with
Contact electing to maintain their 30% working interest instead of converting to
a gross over-riding royalty in July 2008, Contact paid us 30% of the gross costs
($2.9 million) for the second well and seismic program that was expended in this
first stage of the drilling program that was not a part of the earning
parameter.





The
Windsor Block is covered by an exploration agreement with the Nova Scotia
government, originally issued in 1999, which was due to expire on September 15,
2008, and has now been extended by the Nova Scotia Department of Energy an
additional 180 days.  We are working with the Nova Scotia government
to convert the exploration agreement into a production agreement.  We
submitted a development plan application in mid June 2008, which triggered an
automatic six month extension of the exploration agreement while the Nova Scotia
government reviews the application.  If the production agreement is
not granted, our right to explore for and develop oil and gas on this block
would be forfeited.





In July
2008, we started the second stage of the Windsor Block shale gas exploration
program to test the gas content and productivity of the Horton Bluff shales in
various locations across the Windsor Block, and also to evaluate potential
overlying conventional oil and gas reservoirs.





The first
vertical exploration well in this program, N-14-A, spud in mid July 2008 and
cased in August 2008. N-14-A is located approximately eight kilometers (five
miles) north of our two 2007 vertical test wells. N-14-A was drilled to a depth
of 2,600 meters (8,500 feet). Log, core, and lab analysis indicates a
potentially gas-bearing Horton Bluff shale and sand interval, approximately
1,000 meters (3,300 feet) thick.





The
second vertical exploration well, O-61-C, spud in August 2008, and was cased in
October 2008. This well is located approximately 22 kilometers (14 miles) west
of from N-14-A, in a separate fault block. Total depth drilled was 2,960 meters
(9,700 feet).  Logs indicate the presence of over 300 meters (1,000
feet) of shale within the Horton Bluff section as well as several potential
tight sand intervals.


17





Our third
vertical exploration well, E-38-A, spud in late October 2008, and was cased in
November 2008. The well is located in the Kennetcook area near N-14-A, but in a
separate fault block. Total depth drilled was 1,700 meters (5,600 feet), and
casing was run to 1,500 meters (4,900 feet). A shale section of approximately
1,000 meters (3,300 feet) is being evaluated for completion.





Completion
operations commenced on the N-14-A well at the end of October 2008, with a
four-stage perforation and fracture treatment taking place in early December
2008.  The completion consisted of a four-stage frac treatment across
a 100 meter (330 foot) interval, each stage consisting of approximately 50
tonnes (110,000 pounds) per stage.





Completion
operations on the other two wells drilled in this program are being evaluated by
our technical teams and our partners.  Operations will move forward on
the basis of that technical evaluation, equipment availability, government
approvals, and partner concurrence.





Western Canadian Shale
Program





We
continue to actively evaluate various shale packages in Alberta and British
Columbia.  Our objective is to potentially secure an initial land
position.  To date, we have participated in a multi-company geological
study of the Western Canadian Sedimentary Basin, reviewed this study, identified
our own key technical indicators, correlated these key indicators back to the
study and identified prospective shale areas.  This follows the
corporate strategy in the Maritimes Basin of utilizing our U.S. shale gas
experience to secure early stage shale gas projects in Canada.





Alberta Canada Deep Basin -
Western Canadian Conventional Program (non-core project)





In fiscal
2009, there is no exploration activity planned on this project.  We
are producing from two wells.  The first well is located in the Kakwa
Area and we have an 18% interest before payout (12% after payout). The second
well is located in the Wapiti Area and we have an approximate 35% working
interest.





United
States





Arkoma Basin Arkansas -
Fayetteville Shale Program (non-core project)





Based
upon escalating land prices in this basin and due to the lack of progress in
accelerating the exploration program, we decided in late March 2008 to sell the
10,400 non-operated net acres.  We are planning to sell this acreage
in the most effective manner by assessing new industry activity and overall
direct acreage sales.  In June 2008, we and the operator of the lands
entered into agreements with Tristone Capital to market the
property.  The sale of this acreage was expected to be concluded
before the end of 2008, but has now been extended to mid 2009 due to the
economy. In November 2008, we sold 240 of the net acres for $288,000 and
wrote-off the remaining land value.





States of Colorado, Montana
and Wyoming - Rocky Mountain Program (non-core project)





We
drilled initial test wells in Colorado and Wyoming in 2006 and 2007 that were
not successful in the primary targets.  In June 2008, we sold our
third prospect in this project, located in Northern Montana, consisting of 9,692
net acres of land, for proceeds of approximately $800,000.





Greater Fort Worth Basin
Texas - Barnett Shale Program (non-core project)





In fiscal
2009, there is no exploration activity planned on this project.  At
the beginning of the year, we had six low working interest shale gas wells
pipeline connected (5.75%-15% working interest), of which four were
producing.  The operator of two of the six wells commenced voluntary
bankruptcy proceedings in the prior year.  During 2008, through the
trustee, we sold our interest in the two wells in an auction of the operator's
assets for proceeds of approximately $165,000.  As such, we currently
have four low working interest shale gas wells pipeline connected (11%-15%
working interest), of which one well is currently producing.


18




Results
of operations for the three and nine months ended October 31, 2008 compared to
the three and nine months ended October 31, 2007





Daily Sales Volumes, Working
Interest before royalties





Three Months
                                        Ended
                                        October 31,
                                        2008
                                      
                                      
                                      Three Months
                                        Ended
                                        October 31
                                        2007
                                      
                                      
                                      Nine Months
                                        Ended
                                        October 31,
                                        2008
                                      
                                      
                                      Nine Months
                                        Ended
                                        October 31,
                                        2007Barnett
      Shale in Texas, USA
                                      Mcfpd
                                      
                                      
                                      33
                                      
                                      
                                      
                                      333
                                      
                                      
                                      
                                      58
                                      
                                      
                                      
                                      193Deep Basin in Alberta,
    Canada
                                      Mcfpd
                                      
                                      
                                      80
                                      
                                      
                                      
                                      247
                                      
                                      
                                      
                                      108
                                      
                                      
                                      
                                      127Total Company
                                      Mcfpd
                                      
                                      
                                      113
                                      
                                      
                                      
                                      580
                                      
                                      
                                      
                                      166
                                      
                                      
                                      
                                      320Total Company
                                      Boepd*
                                      
                                      
                                      19
                                      
                                      
                                      
                                      97
                                      
                                      
                                      
                                      28
                                      
                                      
                                      
                                      53





* Mcf
converted into BOE on a basis of  6:1





Net Operating
Results





Three Months
                              Ended
                              October 31,
                              2008
                            
                            
                            Three Months
                              Ended
                              October 31,
                              2007
                            
                            
                            Nine Months
                              Ended
                              October 31,
                              2008
                            
                            
                            Nine Months
                              Ended
                              October 31,
                              2007Volumes
                            Mcf
                            
                            
                            10,401
                            
                            
                            
                            53,516
                            
                            
                            
                            45,306
                            
                            
                            
                            87,492Price
                            $/Mcf
                            
                            
                            6.63
                            
                            
                            
                            5.77
                            
                            
                            
                            8.50
                            
                            
                            
                            6.28Revenue
                            
                            
                            $
                            69,008
                            
                            
                            $
                            308,613
                            
                            
                            $
                            384,970
                            
                            
                            $
                            549,554Royalties
                            
                            
                            
                            14,508
                            
                            
                            
                            116,981
                            
                            
                            
                            70,520
                            
                            
                            
                            164,695Revenue,
      net of royalties
                            
                            
                            
                            54,500
                            
                            
                            
                            191,632
                            
                            
                            
                            314,450
                            
                            
                            
                            384,859Production expenses
                            
                            
                            
                            29,718
                            
                            
                            
                            146,396
                            
                            
                            
                            93,099
                            
                            
                            
                            220,199Net
                            
                            
                            $
                            24,782
                            
                            
                            $
                            45,236
                            
                            
                            $
                            221,351
                            
                            
                            $
                            164,660





For the three and nine month periods
ended October 31, 2008, we realized $69,008 and $384,970, respectively, in
revenue from sales of natural gas and natural gas liquids, as compared to
$308,613 and $549,554 in the same periods in 2007. Revenue decreased mainly due
to reduced production volumes since we sold two Barnett Shale wells. Royalties
as a percent of revenue was 21% and 18% for the three month and nine month
periods ended October 31, 2008, respectively, compared to 38% and 30% in the
same periods in 2007; the royalty rate decreased mainly as a result of lower
royalty rates in Canada as a result of the Gas Cost Allowance credit received
monthly from the Alberta government starting in 2008. Production expenses
related to this revenue were $17.14/Boe and $12.32/Boe for the three and nine
month periods ended October 31, 2008, respectively, compared to $16.41/Boe and
$15.10/Boe in the same periods in 2007.


19





Depletion, Depreciation and Accretion (“DD&A”)





Three Months
                              Ended
                              October 31,
                              2008
                            
                            
                            Three Months
                              Ended
                              October 31,
                              2007
                            
                            
                            Nine Months
                              Ended
                              October 31,
                              2008
                            
                            
                            Nine Months
                              Ended
                              October 31,
                              2007Depletion
      – oil and gas properties
                            
                            $
                            12,796
                            
                            
                            $
                            142,676
                            
                            
                            $
                            63,824
                            
                            
                            $
                            353,866Accretion
                            
                            
                            39,939
                            
                            
                            
                            8,651
                            
                            
                            
                            82,478
                            
                            
                            
                            38,018Depletion
      and Accretion
                            
                            
                            52,735
                            
                            
                            
                            151,327
                            
                            
                            
                            146,302
                            
                            
                            
                            391,884Depreciation – property and
      equipment
                            
                            
                            10,368
                            
                            
                            
                            9,178
                            
                            
                            
                            30,115
                            
                            
                            
                            30,792Total
                            
                            $
                            63,103
                            
                            
                            $
                            160,505
                            
                            
                            $
                            176,417
                            
                            
                            $
                            422,676Depletion per BOE
                            
                            $
                            7.38
                            
                            
                            $
                            16.00
                            
                            
                            $
                            8.45
                            
                            
                            $
                            24.27





Unproven
property costs of $24,698,754 were excluded from costs subject to depletion at
October 31, 2008. Depletion expense related to oil and gas properties decreased
in the three and nine months periods ended October 31, 2008 compared to the same
periods in 2007 primarily as a result of the U.S. properties having no depletion
starting in the second quarter of fiscal 2009 as the related proved property
costs were nil.





General and Administrative
(“G&A”)





Three Months
                  Ended
                  October 31,
                  2008
                
                
                Three Months
                  Ended
                  October 31,
                  2007
                
                
                Nine Months
                  Ended
                  October 31,
                  2008
                
                
                Nine Months
                  Ended
                  October 31,
                  2007Salaries,
      benefits and consulting fees
                
                $
                391,750
                
                
                $
                431,290
                
                
                $
                1,349,859
                
                
                $
                1,082,577Office
      costs
                
                
                230,333
                
                
                
                125,797
                
                
                
                680,827
                
                
                
                547,438Professional
      fees
                
                
                47,920
                
                
                
                65,916
                
                
                
                344,866
                
                
                
                212,033Public
      company costs
                
                
                126,443
                
                
                
                225,562
                
                
                
                455,444
                
                
                
                430,151Operating
      overhead recoveries
                
                
                (84,815
                )
                
                
                (44,023
                )
                
                
                (116,996
                )
                
                
                (86,739
                )Stock-based
      compensation
                
                
                135,391
                
                
                
                913,365
                
                
                
                476,427
                
                
                
                3,066,979Total
      G&A
                
                $
                847,022
                
                
                $
                1,717,907
                
                
                $
                3,190,427
                
                
                $
                5,252,439





General
and administrative expenses have decreased in the three and nine month periods
ended October 31, 2008 compared to the same periods in 2007 primarily due to
decreased stock-based compensation expense mainly as a result of shares issued
to our executives that have now been fully expensed.





Salaries,
wages and consulting fees increased in the nine month period ended October 31,
2008 compared to the same period in 2007 due to increased staff and the payment
of bonuses to employees in July 2008. Salaries, wages and consulting fees
decreased in the three month period ended October 31, 2008 compared to the same
period in 2007 due to non-recurring staff recruitment costs paid in the third
quarter of 2007.





Office
costs increased in the nine month period ended October 31, 2008 compared to the
same period in 2007 due to increased office rent associated with the new
corporate headquarters starting the second half of 2007. Office costs increased
in the three month period ended October 31, 2008 compared to the same period in
2007 due to an insurance credit booked in the third quarter of 2007 and the
reversal of a $65,000 bad debt expense for revenue that was received in the
third quarter of 2007.





Professional
fees increased in the nine month period ended October 31, 2008 compared to the
same period in 2007 due to increased year-end audit and reserve evaluation fees,
increased audit and accounting fees for the restatements of our 10-K and 10-Q
filings with the SEC.  Professional fees in the three month period
ended October 31, 2008 were consistent with the same period in
2007.


20


Public
company costs consist mainly of fees for investor relations and also include
directors' fees, press release and SEC filing costs, printing costs and transfer
agent fees. Public company costs increased marginally in the nine month period
ended October 31, 2008 compared to the same period in 2007 mainly due to
increased director fees, which is partially offset by reduced investor relation
costs related to management implementing cost reductions. Public company costs
decreased in the three month period ended October 31, 2008 compared to the same
period in 2007 mainly due to reduced investor relation costs related to
management implementing cost reductions.




Accretion
of Discounts on Convertible Debentures




Agreement Date
                        
                        Three Months
                          Ended
                          October 31,
                          2008
                        
                        
                        Three Months
                          Ended
                          October 31,
                          2007
                        
                        
                        Nine Months
                          Ended
                          October 31,
                          2008
                        
                        
                        Nine Months
                          Ended
                          October 31,
                          2007June
      14, 2005
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        515,626December
      8, 2005
                        
                        
                        -
                        
                        
                        
                        864,619
                        
                        
                        
                        813,337
                        
                        
                        
                        3,304,559December
      28, 2005
                        
                        
                        602,277
                        
                        
                        
                        840,183
                        
                        
                        
                        1,795,344
                        
                        
                        
                        2,493,151Total
      accretion of discounts
                        
                        $
                        602,277
                        
                        
                        $
                        1,704,802
                        
                        
                        $
                        2,608,681
                        
                        
                        $
                        6,313,336




Accretion
of discounts on convertible debentures decreased in the three and nine month
periods ended October 31, 2008 compared to the same periods in 2007 due
primarily to the June 14, 2005 debenture discounts being realized prior to
fiscal 2009, the conversion of December 8, 2005 debentures throughout fiscal
2008 and fiscal 2009 which reduced the accretion base, the repayment of the
December 8, 2005 debentures on June 5, 2008, and the reduction of the December
28, 2005 accretion since the maturity date was extended.




Interest
Expense




Agreement Date
                        
                        Three Months
                          Ended
                          October 31,
                          2008
                        
                        
                        Three Months
                          Ended
                          October 31,
                          2007
                        
                        
                        Nine Months
                          Ended
                          October 31,
                          2008
                        
                        
                        Nine Months
                          Ended
                          October 31,
                          2007June
      14, 2005
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        18,918December
      8, 2005
                        
                        
                        -
                        
                        
                        
                        128,629
                        
                        
                        
                        91,360
                        
                        
                        
                        426,542December
      28, 2005
                        
                        
                        189,041
                        
                        
                        
                        189,042
                        
                        
                        
                        563,011
                        
                        
                        
                        560,959Total
      interest expense
                        
                        $
                        189,041
                        
                        
                        $
                        317,671
                        
                        
                        $
                        654,371
                        
                        
                        $
                        1,006,419




Interest
expense decreased for the three and nine month periods ended October 31, 2008
compared to the same periods in 2007 due primarily to the conversion and
repayment of the December 8, 2005 convertible debentures.




21


Oil and Gas
Properties




Net Book Value
                    January 31,
                    2008
                  
                  
                  Additions
                  
                  
                  Depletion and
                    Impairment
                  
                  
                  Disposition
                  
                  
                  Gain
                    (Loss)
                  
                  
                  Net Book
                    Value
                    October 31,
                    2008UnprovenWindsor
      Block Maritimes Shale – Nova Scotia, Canada
                  
                  $
                  15,441,144
                  
                  
                  $
                  3,730,862
                  
                  
                  $
                  -
                  
                  
                  $
                  (2,943,510
                  )
                  
                  $
                  -
                  
                  
                  $
                  16,228,496Beech
      Hill Block Maritimes Shale – New Brunswick, Canada
                  
                  
                  21,975
                  
                  
                  
                  101,390
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  123,365Western
      Canadian Shale – Alberta and B.C., Canada
                  
                  
                  -
                  
                  
                  
                  44,511
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  44,511Arkoma
      Basin, Arkansas – Fayetteville Shale
                  
                  
                  8,289,901
                  
                  
                  
                  22,494
                  
                  
                  
                  (8,000,000
                  )
                  
                  
                  (13,000
                  )
                  
                  
                  -
                  
                  
                  
                  299,395U.S.
      Rocky Mountains – Colorado, Montana, Wyoming
                  
                  
                  812,020
                  
                  
                  
                  21,475
                  
                  
                  
                  -
                  
                  
                  
                  (800,503
                  )
                  
                  
                  (30,005
                  )
                  
                  
                  2,987ProvedAlberta
      Deep Basin – Western Canada
                  
                  
                  324,162
                  
                  
                  
                  9,658
                  
                  
                  
                  (57,902
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  275,918Greater
      Fort Worth Basin, Texas – Barnett Shale
                  
                  
                  89,747
                  
                  
                  
                  40,450
                  
                  
                  
                  (5,922
                  )
                  
                  
                  (164,985
                  )
                  
                  
                  40,710
                  
                  
                  
                  -Net
                  
                  $
                  24,978,949
                  
                  
                  $
                  3,970,840
                  
                  
                  $
                  (8,063,824
                  )
                  
                  $
                  (3,921,998
                  )
                  
                  $
                  10,705
                  
                  
                  $
                  16,974,672




During
the nine month period ended October 31, 2008, we spent $3,730,862 on the Windsor
Block mainly as follows:


·
            $1,772,000
      testing Kennetcook #1 and #2;


·
            $784,000
      drilling the N-14-A well in the Kennetcook area of the Windsor Block of
      Nova Scotia;


·
            $890,000
      drilling the 0-61-C well in the Stanley area of the Windsor Block of Nova
      Scotia; and


·
            $231,000
      on initial drilling costs for the E-38-A well in the Kennetcook area of
      the Windsor Block of Nova Scotia that spud in late October 2008 and was
      drilling over quarter-end.




In July
2008, we received $2,943,510 in cash for our joint venture partner’s share of
its 30% working interest in exploration costs associated with the Windsor Block
in Nova Scotia. This disposition included $172,828 of non-cash asset retirement
obligation reversals.




In
September 2008, we sold 20 net acres of the 10,437 net acres of Fayetteville
shale land for $13,000 and in November 2008, we sold an additional 240 of the
10,437 net acres for $288,000. As a result of these partial sales, and as result
of reduced interest in land sales and reduced gas prices attributable to the
slowdown in the economy, we wrote-down the land value at October 31, 2008 by
$8,000,000 to $299,395.




In June
2008, we sold our 25% working interest in 9,692 acres in the Phat City area of
Montana (Rocky Mountains project) for gross cash proceeds of $800,503. The net
book value of the Rocky Mountains project at the time of the sale was $830,508,
which related to U.S. Rocky Mountain leasehold acquisition costs. As such we
recorded a loss on the sale of assets of $30,005.




In June
2008, we sold our interest in two Barnett shale wells for gross proceeds of
$164,985. The net book value of the U.S. proved property costs at the time of
the sale was $131,820 and the related properties had an asset retirement
obligation on the books of $7,545. As such we recorded a gain on the sale of
assets of $40,710.




22


Net Cash
Oil and Gas Additions:


Three Months
                          Ended
                          October 31,
                          2008
                        
                        
                        Nine Months
                          Ended
                          October 31,
                          2008Net
      additions, per above table
                        
                        $
                        2,227,249
                        
                        
                        $
                        3,970,840Non-cash
      ARO additions
                        
                        
                        (393,633
                        )
                        
                        
                        (439,083
                        )Non-cash
      ARO dispositions
                        
                        
                        35,399
                        
                        
                        
                        172,828Changes
      in investing working capital
                        
                        
                        (741,876
                        )
                        
                        
                        1,158,464Net
      oil and gas additions, per Statement of Cash Flows
                        
                        $
                        1,127,139
                        
                        
                        $
                        4,863,049




Liquidity
and Capital Resources






To date,
we have generated minimal revenues and have incurred operating losses in every
quarter. We are an early stage production company, have not generated
significant revenues from operations and have incurred significant losses since
inception. These factors among others raise substantial doubt about our ability
to continue as a going concern.




As at
October 31, 2008, we had working capital of $4,625,235, resulting primarily from
our cash and cash equivalents of $17,278,404 offset by payables of $3,213,579,
convertible debentures of $8,564,350 and associated accrued interest of
$2,106,163. We have a cash equivalents balance of $17,278,404 at October 31,
2008, which are held on deposit at a Schedule “1” Canadian Chartered Bank in
U.S. term deposits and non-redeemable guaranteed investment certificates that
mature in less than 90 days. For the nine month period ended October 31, 2008,
we had net cash outflow from operating activities of $3,274,580, mainly related
to cash general and administrative expenses of $2,714,000 and cash abandonment
liability settlements of $499,151.


October 31, 2008
                    
                    
                    January 31, 2008Agreement Date
                    
                    Face Value
                    
                    
                    Discount
                    
                    
                    Carrying
                      Value
                    
                    
                    Face Value
                    
                    
                    Discount
                    
                    
                    Carrying
                      ValueDecember
      8, 2005
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    6,100,140
                    
                    
                    $
                    1,321,869
                    
                    
                    $
                    4,778,271December
      28, 2005
                    
                    
                    10,000,000
                    
                    
                    
                    1,435,650
                    
                    
                    
                    8,564,350
                    
                    
                    
                    10,000,000
                    
                    
                    
                    3,229,279
                    
                    
                    
                    6,770,721Total
      convertible debentures
                    
                    $
                    10,000,000
                    
                    
                    $
                    1,435,650
                    
                    
                    $
                    8,564,350
                    
                    
                    $
                    16,100,140
                    
                    
                    $
                    4,551,148
                    
                    
                    $
                    11,548,992





We have
$10,000,000 of convertible debentures outstanding as at October 31, 2008. The
convertible debentures were issued on December 28, 2005 and mature on June 1,
2009, whereby $10,000,000 plus accrued interest is payable or convertible at the
option of the holder at $4.00 per share.  Based on the current share
price, conversion is not likely and we will either be required to repay or
refinance these debentures.




The
December 8, 2005 debentures were convertible at the lower of (i) $5.00 or (ii)
90% of the average of the three lowest daily volume weighted average prices of
our common stock of the 10 trading days immediately preceding the date of
conversion. During the nine month period ended October 31, 2008, $2,100,140 of
the December 8, 2005 convertible debentures were converted into 2,374,013 shares
of common stock and the remaining $4,000,000 of these convertible debentures
were repaid, subject to a 20% early redemption fee ($800,000).




We were
committed to pay 66% of the drilling and completion costs for one well in our
Fayetteville project to earn a 50% working interest. The operator had to spud
this well before July 31, 2008 or we automatically earn our 50% working
interest. The operator did not spud this well; therefore, we earned our 50%
working interest.  We were also committed to pay 33% of the costs to
drill one well in our Rocky Mountains project to earn 25% working interest. On
June 30, 2008, we sold our Montana acreage position along with this
commitment.




23


We expect
significant capital expenditures during the next 12 months for drilling programs
on our Canadian shale program, overhead and working capital purposes. To
partially fund these expenditures, we closed a private placement on June 3, 2008
for aggregate gross proceeds of $25,560,500. Also, to partially fund the
remaining expenditures, we entered into a Joint Venture Agreement with Zodiac
effective May 31, 2008, whereby Zodiac may pay up to 50% of the next
C$30,000,000 in gross costs for the next six wells in the Windsor Block of Nova
Scotia to earn up to 25% in the Block. There is a risk that neither Zodiac, nor
our 30% joint venture partner in the Windsor Block, will be able to pay for
their portion of the well costs, which would slow down or stop exploration on
the Windsor Block.  Also, to partially fund the remaining
expenditures, we sold 240 of our 10,000 net undeveloped acres in the
Fayetteville Shale in November 2008 for $288,000. We will have to raise
additional funds to complete the exploration and development phase of our
programs and, while we have been successful in doing so in the past, there can
be no assurance that we will be able to do so in the future. Our continuation as
a going concern for a period longer than the current fiscal year is dependent
upon our ability to obtain necessary additional funds to continue operations and
to determine the existence, discovery and successful exploitation of
economically recoverable reserves in our resource properties, earning of our
interests in the underlying properties, and the attainment of profitable
operations.




By
adjusting our operations to the level of capitalization, we believe we have
sufficient capital resources to meet projected cash flow deficits in the near
term. However, if during that period, or thereafter, we are not successful in
generating sufficient liquidity from operations or in raising sufficient capital
resources, on terms acceptable to us, this could have a material adverse effect
on our business, results of operations, liquidity and financial
condition.




We
presently do not have any available credit, bank financing or other external
sources of liquidity. Due to our brief history and historical operating losses,
our operations have not been a source of liquidity. We will need to obtain
additional capital in order to expand operations and become profitable. In order
to obtain capital, we may need to sell additional shares of our common stock or
borrow funds from private lenders. There can be no assurance that we will be
successful in obtaining additional funding.




We will
still need additional capital in order to continue operations until we are able
to achieve positive operating cash flow. Additional capital is being sought, but
we cannot guarantee that we will be able to obtain such investments. Financing
transactions may include the issuance of equity or debt securities, obtaining
credit facilities, or other financing mechanisms. However, the trading price of
our common stock and a downturn in the North American stock and debt markets
could make it more difficult to obtain financing through the issuance of equity
or debt securities. Even if we are able to raise the funds required, it is
possible that we could incur unexpected costs and expenses, fail to collect
significant amounts owed to us, or experience unexpected cash requirements that
would force us to seek alternative financing. Furthermore, if we issue
additional equity or debt securities, stockholders may experience additional
dilution or the new equity securities may have rights, preferences or privileges
senior to those of existing holders of our common stock. If additional financing
is not available or is not available on acceptable terms, we will have to
curtail our operations.




On
December 9, 2008, we entered into a best efforts financing agreement with
Wolverton Capital Markets, a division of Wolverton Securities Ltd. and Research
Capital Corporation to offer flow-through common shares on a private placement
basis at a price of C$0.25 per flow-through share for gross proceeds of C$3
million. Proceeds from the sale of the flow-through shares, if any, will be used
to incur Canadian exploration expenses on our shale gas projects in the
Maritimes Basin prior to December 31, 2009. These qualifying expenditures will
be renounced to subscribers of the flow-through shares effective on or before
December 31, 2008.




June 2008
Private Placement




On June 3, 2008, we sold an aggregate of 18,257,500
units in a private placement transaction for gross proceeds of $25,560,500. The
net proceeds after deducting expenses were $23,309,270. We paid the placement
agents of the offering a cash fee of 7% of the gross proceeds of the offering.
Each unit was priced at $1.40 per unit and consists of one share of common stock
and one-half of a warrant. One full warrant can be exercised into one share of
common stock for a period of two years at a price of $2.25 per share. Pursuant
to the terms of the sale, we were required, on a best efforts basis, to file a
registration statement with the SEC, and to cause such registration statement to
be declared effective by the SEC, within 150 days after closing, to permit the
public resale of the shares underlying the warrants.  The registration
statement was declared effective by the SEC on July 14, 2008. Also, pursuant to
the terms of the sale, we were required, on a best efforts basis, to list our
shares of common stock on the Toronto Stock Exchange (which includes the TSX
Venture Exchange) on or before December 31, 2008.  Our shares of
common stock commenced trading on the TSX Venture Exchange on December 5,
2008.




24


Critical
Accounting Policies




Use of
Estimates




The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. We base our estimates and assumptions on
current facts, historical experience and various other factors that we believe
to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities and the
accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by us may differ materially and adversely from
our estimates. To the extent there are material differences between the
estimates and the actual results, future results of operations will be
affected.




Investment
in Oil and Gas Properties




We
utilize the full cost method to account for our investment in oil and gas
properties. Accordingly, all costs associated with acquisition and exploration
of oil and gas reserves, including such costs as leasehold acquisition costs,
interest costs relating to unproven properties, geological expenditures and
direct internal costs are capitalized into the full cost pool. We had properties
in two countries with proved reserves. For our proved oil and gas reserves,
capitalized costs, including estimated future costs to develop the reserves and
estimated abandonment costs, net of salvage, will be depleted on the
units-of-production method using estimates of proved reserves. Investments in
unproven properties and major development projects including capitalized
interest, if any, are not amortized until proved reserves associated with the
projects can be determined. If the future exploration of unproven properties is
determined uneconomical, the amounts of such properties are added to the
capitalized cost to be amortized. The capitalized costs included in the full
cost pool are subject to a ceiling test.




Asset
Retirement Obligations




We
recognize a liability for future retirement obligations associated with our oil
and gas properties. The estimated fair value of the asset retirement obligation
is based on the current estimated cost escalated at an inflation rate and
discounted at a credit adjusted risk-free rate. This liability is capitalized as
part of the cost of the related asset and amortized over its useful life. The
liability accretes until we settle the obligation. The costs are estimated by
management based on its knowledge of industry practices, current laws and past
experiences. The costs could increase significantly from management’s current
estimate.




Stock-Based
Compensation




We record
compensation expense in the consolidated financial statements for stock options
granted to employees, consultants and directors using the fair value method.
Fair values are determined using the Black Scholes option pricing model, which
is sensitive to the estimate of the Company’s stock price volatility and the
options expected life. Compensation costs are recognized over the vesting
period.




Derivative
Liabilities




We record
derivatives at their fair values on the date that they meet the requirements of
a derivative instrument and at each subsequent balance sheet date. Fair values
are determined using the Black Scholes option pricing model, which requires and
is very sensitive to an estimate of the Company’s stock price volatility and
term. Any change in fair value will be recorded as non-operating, non-cash
income or expense at each reporting date.




25


Recently
Issued Accounting Pronouncements




In
December 2007, the Financial Accounting Standard Board (FASB) revised the
Statement of Financial Accounting Standard (SFAS) No. 141, “Business
Combinations”. SFAS No. 141R requires an acquirer to be identified for all
business combinations and applies the same method of accounting for business
combinations – the acquisition method – to all transactions. In addition,
transaction costs associated with acquisitions are required to be expensed. The
revised statement is effective to business combinations in years beginning on or
after December 31, 2008. The adoption of this statement will impact business
combinations, if any, after the effective date.




In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements”. SFAS no. 160 requires the Company to report
non-controlling interest in subsidiaries as equity in the consolidated financial
statements; and all transactions between equity and non controlling interests as
equity. SFAS No. 160 is effective for us commencing on February 1, 2009 and it
will not impact our current financial statements.




In March
2008, the FASB has issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”, which requires disclosures about how and
why an entity uses derivative instruments, how derivative instruments and
related hedged items are accounted for under SFAS No. 133, and how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance and cash flows. SFAS No. 161 is effective on February 1,
2009 and is not anticipated to significantly affect our financial
statements.




In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles. SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP. SFAS No. 162 directs the GAAP hierarchy to
the entity, not the independent auditors, as the entity is responsible for
selecting accounting principles for financial statements that are presented in
conformity with GAAP. SFAS No. 162 is effective November 15, 2008. SFAS No. 162
is not expected to have a material impact on our financial
statements.




In May
2008, the FASB directed the FASB Staff to issue FSP APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) (FSP APB 14-1). FSP APB 14-1 applies to
convertible debt instruments that, by their stated terms, may be settled in cash
(or other assets) upon conversion, including partial cash settlement of the
conversion option. FSP APB 14-1 requires bifurcation of the instrument into a
debt component that is initially recorded at fair value and an equity component.
The difference between the fair value of the debt component and the initial
proceeds from issuance of the instrument is recorded as a component of equity.
The liability component of the debt instrument is accreted to par using the
effective yield method; accretion is reported as a component of interest
expense. The equity component is not subsequently re-valued as long as it
continues to qualify for equity treatment. FSP APB 14-1 is effective for the
Company on February 1, 2009. Early adoption is not permitted. We are evaluating
the impact of adopting FSP APB 14-1 will have on our financial
statements.




26


ITEM
3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Not
required under Regulation S-K for “smaller reporting companies.”




ITEM
4T - CONTROLS AND PROCEDURES




(a)
Evaluation of disclosure controls and procedures.




Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as
of October 31, 2008. In designing and evaluating the disclosure controls
and procedures, management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design of disclosure
controls and procedures must reflect the fact that there are resource
constraints and that management is required to apply its judgment in evaluating
the benefits of possible controls and procedures relative to their
costs.




Based
on our evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, as a result of the material weaknesses described below, our
disclosure controls and procedures are not designed at a reasonable assurance
level and are ineffective to provide reasonable assurance that information we
are required to disclose in reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms, and that such
information is not accumulated nor communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. The material weaknesses, which
relate to internal control over financial reporting, that were identified
are:




a)
            We
      did not have sufficient personnel in our accounting and financial
      reporting functions.  As a result, we were not able to achieve
      adequate segregation of duties and were not able to provide for adequate
      reviewing of the financial statements. This control deficiency, which is
      pervasive in nature, results in a reasonable possibility that material
      misstatements of the financial statements will not be prevented or
      detected on a timely basis; and




b)
            We
      did not maintain sufficient personnel with an appropriate level of
      technical accounting knowledge, experience, and training in the
      application of US GAAP commensurate with our complexity and our financial
      accounting and reporting requirements. This control deficiency is
      pervasive in nature and specifically resulted in us restating previously
      filed annual and quarterly financial statements as a result of errors in
      the accounting for convertible debentures and warrants. Further, there is
      a reasonable possibility that material misstatements of the consolidated
      financial statements including disclosures will not be prevented or
      detected on a timely basis as a
result.




We are
committed to improving our financial organization. As part of this commitment,
we will create a segregation of duties consistent with control objectives and
will look to increase our personnel resources and technical accounting expertise
within the accounting function by the end of fiscal 2010 to resolve non-routine
or complex accounting matters. In addition, when funds are available to the
Company, which we expect to occur by the end of fiscal 2010, we will take the
following action to enhance our internal controls: Hiring additional
knowledgeable personnel with technical accounting expertise to further support
the current accounting personnel at the Company, which management estimates will
cost approximately $100,000 per annum. In January 2008, the Company engaged an
outside consultant that specializes in the accounting for derivative instruments
that are embedded within the Company's financing transactions. The Company will
continue to engage consultants in the future as necessary in order to ensure
proper treatment.




Management
believes that hiring additional knowledgeable personnel with technical
accounting expertise will remedy the following material weaknesses: (A) lack of
sufficient personnel in our accounting and financial reporting functions to
achieve adequate segregation of duties; and (B) insufficient personnel with an
appropriate level of technical accounting knowledge, experience, and training in
the application of US GAAP commensurate with our complexity and our financial
accounting and reporting requirements.




27


Management
believes that the hiring of additional personnel who have the technical
expertise and knowledge with the non-routine or technical issues we have
encountered in the past will result in both proper recording of these
transactions and a much more knowledgeable finance department as a whole. Due to
the fact that our accounting staff consists of a Chief Financial Officer,
accounting manager and accounting clerk, additional personnel will also ensure
the proper segregation of duties and provide more checks and balances within the
department. Additional personnel will also provide the cross training needed to
support us if personnel turn over issues within the department occur. We believe
this will greatly decrease any control and procedure issues we may encounter in
the future.




We will
continue to monitor and evaluate the effectiveness of our disclosure controls
and procedures and our internal controls over financial reporting on an ongoing
basis and are committed to taking further action and implementing additional
enhancements or improvements, as necessary and as funds allow.




(b)
Changes in internal control over financial reporting.




We regularly
review our system of internal control over financial reporting and make changes
to our processes and systems to improve controls and increase efficiency, while
ensuring that we maintain an effective internal control environment. Changes may
include such activities as implementing new, more efficient systems,
consolidating activities, and migrating processes.




There
were no changes in our internal control over financial reporting that occurred
during the period covered by this Quarterly Report on Form 10-Q that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.




28


PART
II - OTHER INFORMATION




Item
1. Legal Proceedings.




From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are currently not aware
of any such legal proceedings or claims that we believe will have, individually
or in the aggregate, a material adverse affect on our business, financial
condition or operating results.




Item
1A. Risk Factors.




Not
required under Regulation S-K for “smaller reporting companies.”




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




None.




Item
3. Defaults Upon Senior Securities.




None.




Item
4. Submission of Matters to a Vote of Security Holders.




None.




Item
5. Other Information.




None.




Item
6. Exhibits




31.1
                Certification
      of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended31.2
                Certification
      of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended32.1
                Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer)32.2
                Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (Chief Financial
  Officer)




29


SIGNATURES




In
accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.




TRIANGLE
      PETROLEUM CORPORATIONDate:  December
      11, 2008
              By:
              /s/ MARK
      GUSTAFSONMark
      GustafsonChief
      Executive Officer (Principal Executive Officer)Date:  December
      11, 2008
              By:
              /s/ SHAUN
      TOKERShaun
      TokerChief
      Financial Officer (Principal Financial Officer and Principal Accounting
      Officer)




30