UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION





**Washington,
      D. C. 20549**  ****





**FORM
      10-Q**




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





For
      the
      quarterly period ended December 31, 2007





OR





o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934





For
      the
      transition period from _____________ to ___________________





Commission
      file number: 000-51425





**Rancher
      Energy Corp.**





(Exact
      name of registrant as specified in its charter)




Nevada
            98-0422451(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification No.)





999
      - 18 th Street,
      Suite 3400


Denver,
      Colorado 80202


(Address
      of principal executive offices)





(303)
      629-1125


(Registrant's
      telephone number, including area code)





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, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.




Large
      accelerated filer o Accelerated filer x Non-accelerated filer o




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




Yes o No x




As
      of
      February 8 ,
      2008,
      114,437,956 shares of Rancher Energy Corp. common stock, $.00001 par value,
      were
      outstanding.











Rancher
      Energy Corp.




Table
      of Contents




**PART
                I - FINANCIAL INFORMATION****Page**Item
                1.
            
            Financial
                StatementsConsolidated
                Balance Sheets as of December 31, 2007 and March 31, 2007
            **2**Consolidated
                Statements of Operations for the Three and Nine Months ended
                December 31, 2007 and 2006
            **4**Consolidated
                Statement of Changes in Stockholders’ Equity as of December 31,
                2007
            **5**Consolidated
                Statements of Cash Flows for the Nine Months ended December 31, 2007
                and
                2006
            **6**Notes
                to Consolidated Financial Statements
            **8**Item
                2.
            
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            **17**Item
                3.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            **25**Item
                4.
            
            Controls
                and Procedures
            **25**




**PART
                II - OTHER INFORMATION**




Item
                  1A.
            
            Risk
                  Factors
            **26**Item 2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            **27**Item
                6.
            
            Exhibits
            **28**SIGNATURES
            
            
            **31**




1




**Part
      I. Financial Information**





Item
      1.
      Financial Statements


Rancher
      Energy Corp.


Consolidated
      Balance Sheets




December
                  31,
                2007
            
            
            March
                  31,
                2007
                (Unaudited)**ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            10,253,091
            
            $
            5,129,883Accounts
                receivable
            
            
            780,079
            
            
            453,709Prepaid
                expenses
            
            
            690,317
            
            
            -Total
                current assets
            
            
            11,723,487
            
            
            5,583,592Oil
                & gas properties at cost (successful efforts method):Unproved
            
            
            53,870,386
            
            
            56,079,133Proved
            
            
            18,081,265
            
            
            18,552,188Less:
                Accumulated depletion, depreciation and amortization
            
            
            (1,249,879
            )
            
            (347,821
            )Net
                oil & gas properties
            
            
            70,701,772
            
            
            74,283,500Other
                assets:Other
                assets, net of accumulated depreciation of $156,290 and $27,880,
                respectively
            
            
            2,655,494
            
            
            1,610,939Total
                assets
            
            $
            85,080,753
            
            $
            81,478,031




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






2




Rancher
        Energy Corp.
 Consolidated
        Balance Sheets


December
                31,
              2007
              (Unaudited)
            
            
            March
                31,
              2007**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable and accrued liabilities
            
            
            1,977,037
            
            
            1,542,840Accrued
                oil & gas property costs
            
            
            -
            
            
            250,000Asset
                retirement obligation
            
            
            564,308
            
            
            196,000Note
                payable, net of unamortized discount of $3,598,545
            
            
            8,641,455
            
            
            -Liquidated
                damages pursuant to registration rights arrangements
            
            
            -
            
            
            2,705,531Derivative
                liability
            
            
            394,286
            
            
            -Total
                current liabilities
            
            
            11,577,086
            
            
            4,694,371Long-term
                liabilities:Derivative
                liability
            
            
            209,134
            
            
            -Asset
                retirement obligation
            
            
            705,328
            
            
            1,025,567Total long-term liabilities
            
            
            914,462
            
            
            1,025,567Commitments
                and contingencies:
            
            
            -
            
            
            -Stockholders’
                equity:Common
                stock, $0.00001 par value, 275,000,000 shares authorized,
              114,437,956
                and 102,041,432 shares issued and outstanding at December 31,
              2007
                and March 31, 2007, respectively
            
            
            1,145
            
            
            1,021Additional
                paid-in capital
            
            
            91,529,215
            
            
            84,985,934Accumulated
                deficit
            
            
            (18,941,155
            )
            
            (9,228,862
            )Total
                stockholders’ equity
            
            
            72,589,205
            
            
            75,758,093Total
                liabilities and stockholders’ equity
            
            $
            85,080,753
            
            $
            81,478,031






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




3







Rancher
        Energy Corp.
 Consolidated
        Statements of Operations
 (Unaudited)


Three
                Months Ended
              December
                31,
            
            
            Nine
                Months Ended
              December
                31,2007
            
            
            2006
            
            
            2007
            
            
            2006Revenues:Oil
                & gas sales
            
            
            1,704,267
            
            $
            105,416
            
            $
            $4,685,373
            
            $
            105,416Losses
                on derivative activities
            
            
            (636,109
            )
            
            
            
            
            (636,109
            )Total
                revenues
            
            
            1,068,158
            
            
            105,416
            
            
            4,049,264
            
            
            105,416Operating
                expenses:Production
                taxes
            
            
            207,588
            
            
            11,192
            
            
            570,239
            
            
            11,192Lease
                operating expenses
            
            
            808,091
            
            
            73,725
            
            
            2,087,753
            
            
            73,725Depreciation,
                depletion, amortization and accretion
            
            
            319,391
            
            
            37,155
            
            
            1,097,255
            
            
            37,155Impairment
            
            
            -
            
            
            4,681
            
            
            -
            
            
            385,526Exploration
                expense
            
            
            55,945
            
            
            220,191
            
            
            186,772
            
            
            235,131General
                and administrative
            
            
            1,735,482
            
            
            1,200,405
            
            
            5,788,574
            
            
            2,166,687Total operating expenses
            
            
            3,126,497
            
            
            1,547,349
            
            
            9,730,593
            
            
            2,909,416Loss
                from operations
            
            
            (2,058,339
            )
            
            (1,441,933
            )
            
            (5,681,329
            )
            
            (2,804,000
            )Other
              income (expense):


Liquidated
                damages pursuant to registration rights arrangement
            
            
            -
            
            
            -
            
            $
            (2,645,393
            )
            
            -Interest
                and other income
            
            
            95,982
            
            
            71,262
            
            
            169,846
            
            
            94,747Interest
                expense and financing costs
            
            
            (1,342,984
            )
            
            -
            
            
            (1,555,417
            )
            
            (33,000
            )Total
                other income (expense)
            
            
            (1,247,002
            )
            
            71,262
            
            
            (4,030,964
            )
            
            61,747Net
                loss
            
            $
            (3,305,341
            )
            $
            (1,370,671
            )
            $
            (9,712,293
            )
            $
            (2,742,253
            )Basic
                and diluted net loss per share
            
            $
            (0.03
            )
            $
            (0.03
            )
            $
            (0.09
            )
            $
            (0.07
            )Basic
                and diluted weighted average shares
              outstanding
            
            
            113,471,032
            
            
            53,933,905
            
            
            108,425,299
            
            
            40,227,219




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




4




Rancher
        Energy Corp.
 Consolidated
        Statement of Changes in Stockholders’ Equity
 (Unaudited)




Shares
            
            
            Amount
            
            
            Additional
              Paid-
                In
              Capital
            
            
            Accumulated
              Deficit
            
            
            Total
              Stockholders’
              EquityBalance,
                April 1, 2007
            
            
            102,041,432
            
            $
            1,021
            
            $
            84,985,934
            
            $
            (9,228,862)
            
            $
            75,758,093Liquidated
                damages and imputed interest pursuant to registration rights arrangement,
                settled in shares
            
            
            9,731,569
            
            
            97
            
            
            5,463,315
            
            
            -
            
            
            5,463,412Stock
                issued upon exercise of stock options
            
            
            1,500,000
            
            
            15
            
            
            -
            
            
            -
            
            
            15Restricted
                stock awards
            
            
            500,000
            
            
            5
            
            
            180,945
            
            
            -
            
            
            180,950Common
                stock exchanged for services - non-employee directors
            
            
            557,812
            
            
            6
            
            
            222,744
            
            
            
            
            -
            222,750Common
                stock exchanged for services - non-employee
            
            
            107,143
            
            
            1
            
            
            112,499
            
            
            
            
            -
            112,500Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            864,143
            
            
            -
            
            
            864,143Offering
                costs
            
            
            -
            
            
            -
            
            
            (300,365)
            
            
            -
            
            
            (300,365)Net
                loss
            
            
            
            
            
            -
            
            
            
            
            
            (9,712,293)
            
            
            (9,712,293)Balance,
                December 31, 2007
            
            
            114,437,956
            
            $
            1,145
            
            $
            91,529,215
            
            $
            (18,941,155)
            
            $
            72,589,205






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




5


Rancher
      Energy Corp.


Consolidated  Statements
        of Cash Flows
 (Unaudited)


Nine
                Months Ended December 31,2007
            
            
            2006Cash
                flows from operating activities:Net
                loss
            
            $
            (9,712,293
            )
            $
            (2,742,253
            )Adjustments
                to reconcile net loss to cash used for operating
                activities:Depreciation,
                depletion, amortization and accretion
            
            
            1,097,255
            
            
            37,155Impairment
                of unproved properties
            
            
            -
            
            
            385,526Liquidated
                damages pursuant to registration rights arrangement
            
            
            2,645,393
            
            
            -Imputed
                interest expense
            
            
            112,489
            
            
            33,453Amortization
                of deferred financing costs and discount on note payable
            
            
            1,132,050
            
            
            -Unrealized losses
                on derivative activities
            
            
            578,435
            
            
            -Stock-based
                compensation expense
            
            
            864,143
            
            
            1,020,739Restricted
                stock compensation expense
            
            
            180,950
            
            
            -Services
                exchanged for common stock - non-employee directors
            
            
            222,750
            
            
            -Services
                exchanged for common stock - non-employee
            
            
            112,500
            
            
            -Changes
                in operating assets and liabilities:Settlement
                of asset retirement obligation
            
            
            (18,318
            )
            
            -Accounts
                receivable
            
            
            (260,853)
            
            
            (94,727)Prepaid
                expenses
            
            
            (560,321)
            
            
            -Other
                assets
            
            
            -
            
            
            (42.352)Accounts
                payable and accrued liabilities
            
            
            45,758
            
            
            382,260Net
                cash used for operating activities
            
            
            (3,560,062
            )
            
            (1,020,199)Cash
                flows from investing activities:Capital
                expenditures for oil & gas properties
            
            
            (2,087,871
            )
            
            (50,524,058
            )Proceeds
                from conveyance of unproved oil & gas properties
            
            
            491,500
            
            
            -Increase
                in other assets
            
            
            (797,432
            )
            
            (124,843
            )Net
                cash used for investing activities
            
            
            (2,393,803
            )
            
            (50,648,901
            )Cash
                flows from financing activities:Payment
                of deferred financing costs
            
            
            (862,577
            )
            
            -Proceeds
                from issuance of convertible notes payable
            
            
            -
            
            
            8,112,862Proceeds
                from borrowings
            
            
            12,240,000
            
            
            -Payments
                of convertible notes payable
            
            
            -
            
            
            -Proceeds
                from notes payable converted to common stock
            
            
            -
            
            
            500,000Proceeds
                from sale of common stock and warrants
            
            
            -
            
            
            74,937,508Proceeds
                from issuance of common stock upon exercise of stock
                options
            
            
            15
            
            
            -Payment
                of offering costs
            
            
            (300,365)
            
            
            -Net
                cash provided by financing activities
            
            
            11,077,073
            
            
            83,550,370Increase
                in cash and cash equivalents
            
            
            5,123,208
            
            
            31,881,270Cash
                and cash equivalents, beginning of period
            
            
            5,129,883
            
            
            46,081Cash
                and cash equivalents, end of period
            
            $
            10,253,091
            
            $
            31,927,351




6


Rancher
        Energy Corp.
 Consolidated
        Statements of Cash Flows
 (Unaudited)


Nine
                Months Ended December 31,2007
            
            
            2006Non-cash
                investing and financing activities:Payables
                for purchase of oil & gas properties
            
            $
            118,023
            
            $
            500,000Asset
                retirement asset and obligation
            
            $
            18,473
            
            $
            901,458Value
                of warrants issued in connection with acquisition of South
                Cole
              Creek
                and South Glenrock B Fields
            
            $
            -
            
            $
            616,140Common
                stock and warrants issued on conversion of notes payable
            
            $
            -
            
            $
            503,453Common
                stock issued on payment of liquidated damages pursuant to registrations
                rights arrangement
            
            $
            5,463,412
            
            $
            -Conveyance
                of overiding royalityinterest
                in financing transaction
            
            $
            4,500,000
            
            $
            -




7




Rancher
      Energy Corp.


Notes
      to
      Consolidated Financial Statements


(Unaudited)




**Note
      1—Organization and Summary of Significant Accounting
      Policies**





Organization





Rancher
      Energy Corp. (“Rancher Energy” or the “Company”) was incorporated in Nevada on
      February 4, 2004. The Company acquires, explores for, develops and produces
      oil
      and natural gas, concentrating on applying secondary and tertiary recovery
      technology to older, historically productive fields in North
      America.





Basis
      of Presentation





The
      accompanying unaudited consolidated financial statements include the accounts
      of
      the Company’s wholly owned subsidiary, Rancher Energy Wyoming, LLC, a Wyoming
      limited liability company that was formed on April 24, 2007. In management’s
      opinion, the Company has made all adjustments, consisting of only normal
      recurring adjustments, necessary for a fair presentation of financial position,
      results of operations, and cash flows. The consolidated financial statements
      should be read in conjunction with financial statements included in the
      Company’s Annual Report on Form 10-K for the year ended March 31, 2007. The
      accompanying consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States for interim
      financial information. They do not include all information and notes required
      by
      generally accepted accounting principles for complete financial
      statements.  However, except as disclosed herein, there has been no
      material change in the information disclosed in the notes to financial
      statements included in the Company’s Annual Report on Form 10-K for the year
      ended March 31, 2007. Operating results for the periods presented are not necessarily indicative
      of
      the results that may be expected for the full year.





Other
      Significant Accounting Policies





The
      accounting policies followed by the Company are set forth in Note 1 to the
      consolidated financial statements included in its Annual Report on Form 10-K
      for
      the year ended March 31, 2007, and are supplemented in the Notes to Consolidated
      Financial Statements in this Quarterly Report on Form 10-Q for the nine months
      ended December 31, 2007. These unaudited consolidated financial statements
      and
      notes should be read in conjunction with the consolidated financial statements
      and notes included in the Annual Report on Form 10-K for the year ended March
      31, 2007. As a result on transactions entered into since the filing of the
      Company’s Annual Report on Form 10-K. the following significant accounting
      policies have been implemented.





Deferred
      Financing Costs




The
      Company capitalizes costs incurred in connection with borrowings or
      establishment of credit facilities. These costs are amortized as an adjustment
      to interest expense over the life of the borrowing or life of the credit
      facility .





Commodity
      Derivatives




The
      Company accounts for derivative instruments or hedging activities under the
      provisions of Statement of Financial Accounting Standards (“SFAS”) No. 133,
“Accounting for Derivative Instruments and Hedging Activities.”
SFAS No. 133 requires the Company to record derivative instruments at
      their fair value. The Company’s risk management strategy is to enter into
      commodity derivatives that set “price floors” and “price ceilings” for its crude
      oil production. The objective is to reduce the Company’s exposure to commodity
      price risk associated with expected crude oil production.




The
      Company has elected not to designate the commodity derivatives to which they
      are
      a party as cash flow hedges, and accordingly, such contracts are recorded at
      fair value on its consolidated balance sheets and changes in such fair value
      are
      recognized in current earnings as income or expense as they occur.




8




The
      Company does not hold or issue commodity derivatives for speculative or trading
      purposes. The Company is exposed to credit losses in the event of nonperformance
      by the counterparty to its commodity derivatives. It is anticipated, however,
      that its counterparty will be able to fully satisfy its obligations under the
      commodity derivatives contracts. The Company does not obtain collateral or
      other
      security to support its commodity derivatives contracts subject to credit risk
      but does monitor the credit standing of the counterparty.  The
      price
      we receive for production in our three fields is indexed to Wyoming Sweet crude
      oil posted price. The
      Company has not hedged the basis differential between the NYMEX price and the
      Wyoming Sweet price.




Reclassification
      .


Certain
      amounts in the 2006 financial statements have been  reclassified to conform to the 2007 financial statement presentation. Such
      reclassification had no effect on net loss.





Recent
      Accounting Pronouncements




In
      September 2006, the Financial Accounting Standards Board (FASB) issued
      Statement of Financial Accounting Standards No. 157, *Fair
      Value Measurements* (SFAS 157).
      This statement clarifies the definition of fair value, establishes a framework
      for measuring fair value, and expands the disclosures on fair value
      measurements. SFAS 157 is effective for fiscal years beginning after
      November 15, 2007. We have not determined the effect, if any, the adoption
      of this statement will have on our financial position or results of
      operations.




In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* (SFAS 159). This statement permits entities to choose to measure many
      financial instruments and certain other items at fair value. This statement
      expands the use of fair value measurement and applies to entities that elect
      the
      fair value option. The fair value option established by this Statement permits
      all entities to choose to measure eligible items at fair value at specified
      election dates. SFAS 159 is effective for fiscal years beginning after
      November 15, 2007. We have not determined the effect, if any, the adoption
      of this statement will have on our financial position or results of operations.




In
      December 2007, the FASB issued FASB Statement No. 141 (Revised 2007), *Business
      Combination* (SFAS
      141R). SFAS 141R will significantly change the accounting for business
      combinations. Under Statement 141R, an acquiring entity will be required to
      recognize all the assets acquired and liabilities assumed in a transaction
      at
      the acquisition-date fair value with limited exceptions and includes a
      significant number of new disclosure requirements. SFAS 141R applies
      prospectively to business combinations for which the acquisition date is on
      or
      after the beginning of the first annual reporting period beginning on or after
      December 15, 2008. We have not determined the effect, if any, the adoption
      of
      this statement will have on our financial position or results of operations.




In
      December 2007, the FASB issued FASB Statement No. 160, *Noncontrolling
      Interests in Consolidated Financial Statements* (SFAS
      160). SFAS 160 establishes new accounting and reporting standards for the
      noncontrolling interest in a subsidiary and for the deconsolidation of a
      subsidiary. SFAS 160 is effective for fiscal years, and interim periods within
      those fiscal years, beginning on or after December 15, 2008. We have not
      determined the effect, if any, the adoption of this statement will have on
      our
      financial position or results of operations.




Net
      Income (Loss) per Share





Basic
      net
      income (loss) per common share of stock is calculated by dividing net income
      (loss) available to common stockholders by the basic weighted-average of common
      shares outstanding during each period.





Fully-diluted
      net income per common share of stock is calculated by dividing adjusted net
      income by the weighted-average of fully -diluted common shares outstanding,
      including the effect of other dilutive securities. The Company’s potentially
      dilutive securities consist of in-the-money outstanding options and warrants
      to
      purchase shares of the Company’s common stock. Fully-diluted net loss per common
      share does not give effect to dilutive securities as their effect would be
      anti-dilutive. The treasury stock method is used to measure the dilutive impact
      of stock options and warrants. For the three and nine months ended December
      31,
      2007, securities totaling 80,473,550 were excluded from fully-diluted weighted
      average shares outstanding, consisting of 75,960,550 warrants and 4,513,000
      options to acquire shares of the Company’s common stock, as their effect would
      be anti-dilutive.




9




The
      following table sets forth the calculation of basic and fully-diluted loss
      per
      share:




For
                the Three Months Ended
              December
                31,
            
            
            For
                the Nine Months Ended
              December
                31,2007
            
            
            
            2006
            
            
            2007
            
            
            2006Net
                loss
            $
            (3,305,341)
            
            
            $
            (1,370,671)
            
            $
            (9,712,293)
            
            $
            (2,742,253)Basic
                weighted-average common shares outstanding
            
            113,471,032
            
            
            
            53,933,905
            
            
            108,425,299
            
            
            40,277,219Basic
                and fully-diluted net loss per common share
            $
            (0.03)
            
            
            $
            (0.03)
            
            $
            (0.09)
            
            $
            (0.07)




**Note
      2—Property Acquisitions**





Cole
      Creek South Field and South Glenrock B Field Acquisitions





On
      December 22, 2006, the Company acquired certain oil & gas properties
      including (i) a 100% working interest (79.3% net revenue interest) in the Cole
      Creek South Field, which is located in Wyoming’s Powder River Basin; and (ii) a
      93.6% working interest (74.5% net revenue interest) in the South Glenrock B
      Field, which is also located in Wyoming’s Powder River Basin.





Big
      Muddy Field Acquisition




On
      January 4, 2007, the Company acquired the Big Muddy Field, which is located
      in the Powder River Basin east of Casper, Wyoming.





*Pro
      Forma Results of Operations*




The
      following table reflects the pro forma results of operations for the three
      and
      six months ended December 31, 2006, as though the acquisitions had occurred
      on April 1, 2006. The pro forma amounts include certain adjustments,
      including recognition of depreciation, depletion, and amortization based on
      the
      allocated purchase price.




The
      pro
      forma results do not necessarily reflect the actual results that would have
      occurred had the acquisitions occurred during the period presented, nor does
      it
      necessarily indicate the future results of the Company and the
      acquisitions.




Three
                Months Ended
              December
                31, 2006
            
            
            Nine
                Months EndedDecember
                31, 2006Revenue
            
            $
            1,100,169
            
            $
            4,500,447Net
                loss
            
            $
            (1,434,105
            )
            $
            (2,340,433
            )Net
                loss per basic and fully-
              diluted
                share
            
            $
            (0.01
            )
            $
            (0.03
            )





See
      Note
      9 for discussion of events occurring subsequent to December 31, 2007.




10




**Note
      3—Asset Retirement Obligations**




The
      Company recognizes an estimated liability for future costs associated with
      the
      abandonment of its oil & gas properties. A liability for the fair value of
      an asset retirement obligation and a corresponding increase to the carrying
      value of the related long-lived asset are recorded at the time a well is
      completed or acquired. The increase in carrying value is included in proved
      oil
& gas properties in the balance sheets. The Company depletes the amount
      added to proved oil & gas property costs and recognizes accretion expense in
      connection with the discounted liability over the remaining estimated economic
      lives of the respective oil & gas properties. Cash paid to settle asset
      retirement obligations is included in the operating section of the Company’s
      statements of cash flows.





The
      Company’s estimated asset retirement obligation liability is based on historical
      experience in abandoning wells, estimated economic lives, estimates as to the
      cost to abandon the wells in the future, and federal and state regulatory
      requirements. The liability is discounted using a credit-adjusted risk-free
      rate
      estimated at the time the liability is incurred or revised, as appropriate.
      The
      credit-adjusted risk-free rate used to discount the Company’s abandonment
      liabilities was 13.1%. Revisions to the liability are due to changes in
      estimated abandonment costs and changes in well economic lives, or if federal
      or
      state regulators enact new requirements regarding the abandonment of
      wells.




The
      Company did not have any oil & gas properties prior to the Cole Creek South
      Field, the South Glenrock B Field, and the Big Muddy Field acquisitions in
      late
      2006 and early 2007 discussed in Note 2, Property Acquisitions, and,
      consequently, did not have any asset retirement obligation liability. The
      Company recorded no accretion expense during the very brief period it owned
      the
      fields in the period ended December 31, 2006. A reconciliation of the Company’s
      asset retirement obligation liability during the nine months ended December
      31
      is as follows:







2007
            
            
            2006Balance,
                April 1
            
            $
            1,221,567
            
            $
            -Liabilities
                incurred
            
            
            
            
            
            901,458Liabilities
                settled
            
            
            (18,318
            )
            
            -Accretion
                expense
            
            
            66,387
            
            
            -Balance,
                December 31
            
            $
            1,269,636
            
            $
            901,458Current
            
            $
            564,308
            
            $
            109,274Long-term$
            705,328
            
            $
            792,184




**Note
      4—Income Taxes**




As
      of
      December 31, 2007, because the Company believes that it is more likely than
      not
      that its net deferred tax assets, consisting primarily of net operating losses,
      will not be utilized in the future, the Company has fully provided for a
      valuation of its net deferred tax assets.




Effective
      April 1, 2007, we adopted FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes - An Interpretation of FASB Statement No.
      109* ,
      which
      clarifies the financial statement recognition and disclosure requirements for
      uncertain tax positions taken or expected to be taken in a tax return. Any
      interest and penalties related to uncertain tax positions are recorded as
      interest expense and general and administrative expense, respectively. At the
      time of adoption, there was no impact to the Company’s consolidated financial
      statements, and as of December 31, 2007, the Company did not have any
      unrecognized tax benefits, and no interest or penalties related to income tax
      reporting were reflected in the consolidated balance sheet and statement of
      operations. We do not expect any material changes to the unrecognized tax
      positions within the next 12 months.




The
      Company is subject to United States federal income tax and income tax from
      multiple state jurisdictions. Currently, the Internal Revenue Service is not
      reviewing any of the Company’s federal income tax returns, and agencies in
      states where the Company conducts business are not reviewing any of the
      Company’s state income tax returns. All tax years remain subject to examination
      by tax authorities, including for the period from February 4, 2004 through
      March
      31, 2007.




11




**Note
      5—Short Term Note Payable**




On
      October 16, 2007, the Company borrowed $12,240,000 pursuant to a Term Credit
      Agreement with a financial institution (the Lender), resulting in net proceeds
      of $11,622,800 after the deduction of the Lender’s fees, expenses, and three
      months of interest to be held in escrow. In addition, the Company incurred
      approximately $390,000 in investment banking, legal, and other fees and expenses
      in connection with the transaction. The
      Company capitalized costs associated with the issuance of the Note Payable
      as
      deferred financing costs. Amortization of the deferred financing costs in the
      amount of $131,342 is included in interest expense for the three and nine months
      ended December 31, 2007 .




All
      amounts outstanding under the Credit Agreement are due and payable on October
      31, 2008 (Maturity Date) and bear interest at a rate equal to the greater of
      (a) 12% per annum and (b) the one-month LIBOR rate plus 6% per annum.
      The Company is required to make monthly interest payments on the amounts
      outstanding under the Credit Agreement, but is not required to make any
      principal payments until the Maturity Date. The Company may prepay the amounts
      outstanding under the Credit Agreement at any time without penalty.





The
      Company’s obligations under the Credit Agreement are collateralized by a first
      priority security interest in its properties and assets, including all rights
      under oil & gas leases in its three producing oil fields in the Powder River
      Basin of Wyoming and all of its equipment on those properties. The Company
      also
      granted the Lender a 2% Overriding Royalty Interest (ORRI), proportionally
      reduced when the Company’s working interest is less than 100%, in all crude oil
      and natural gas produced from its three Powder River Basin fields. The
      Company estimates that the fair value of the ORRI granted to the Lender is
      approximately $4,500,000 and has recorded this amount as a discount to the
      Note
      Payable and as a decrease of oil and gas properties. Amortization of the
      discount based upon the effective interest method in the amount of $901,455
      is
      included in interest expense for the three and nine months ended December 31,
      2007 .
      As long
      as any of its obligations remain outstanding under the Credit Agreement, the
      Company will be required to grant the same ORRI to the Lender on any new working
      interests acquired after closing. Prior to the Maturity Date, the Company may
      re-acquire 50% of the ORRI granted to the Lender at a repurchase price
      calculated to ensure that total payments by the Company to the Lender of
      principal, interest, ORRI revenues, and ORRI repurchase price will equal 120%
      of
      the loan amount.





The
      Credit Agreement contains several events of default, including if, at any time
      after closing, the Company’s most recent reserve report indicates that its
      projected net revenue attributable to proved reserves is insufficient to fully
      amortize the amounts outstanding under the Credit Agreement within a 48-month
      period and it is unable to demonstrate to the Lender’s reasonable satisfaction
      that it would be able to satisfy such outstanding amounts through a sale of
      its
      assets or an sale of equity. Upon the occurrence of an event of default under
      the Credit Agreement, the Lender may accelerate the Company’s obligations under
      the Credit Agreement. Upon certain events of bankruptcy, obligations under
      the
      Credit Agreement would automatically accelerate. In addition, at any time that
      an event of default exists under the Credit Agreement, the Company will be
      required to pay interest on all amounts outstanding under the Credit Agreement
      at a default rate, which is equal to the then-prevailing interest rate under
      the
      Credit Agreement plus four percent per annum.





The
      Company is subject to various restrictive covenants under the Credit Agreement,
      including limitations on its ability to sell properties and assets, pay
      dividends, extend credit, amend material contracts, incur indebtedness,
      provide guarantees, effect mergers or acquisitions (other than to change its
      state of incorporation), cancel claims, create liens, create subsidiaries,
      amend
      its formation documents, make investments, enter into transactions with its
      affiliates, and enter into swap agreements. The Company must maintain (a) a
      current ratio of at least 1.0 (excluding from the calculation of current
      liabilities any loans outstanding under the Credit Agreement) and (b) a
      loan-to-value ratio greater than 1.0 to 1.0 for the term of the loan. As of
      December 31, 2007 and of the date of this Quarterly Report, the Company is
      in
      compliance with all covenants under the Credit Agreement.




12




**Note
      6—Common Stock**





Registration
      and Other Payment Arrangements




In
      connection with the sale of certain Units, consisting of common stock and
      warrants to acquire common stock, the Company entered into agreements that
      require the transfer of consideration under registration and other payment
      arrangements, if certain conditions are not met.




Under
      the
      terms of the Registration Rights Agreement, the Company was required to pay
      the
      holders of the registrable securities issued in the December 2006 and January
      2007 equity private placement, liquidated damages if the registration statement
      that was filed in conjunction with the private placement was not declared
      effective by the U.S. Securities and Exchange Commission (SEC) within 150 days
      of the closing of the private placement (December 21, 2006). The liquidated
      damages were due on or before the day of the failure (May 20, 2007) and
      every 30 days thereafter, or three business days after the failure is cured,
      if
      earlier. The amount due was 1% of the aggregate purchase price, or $794,000
      per
      month. If the Company failed to make the payments timely, interest would accrue
      at a rate of 1.5% per month. All payments pursuant to the registration rights
      agreement and the private placement agreement could not exceed 24% of the
      aggregate purchase price, or $19,057,000 in total. The payment could be made
      in
      cash, notes, or shares of common stock, at the Company’s option, as long as the
      Company did not have an equity condition failure. The equity condition failures
      are described further below. Pursuant to the terms of the registration rights
      agreement, when the Company opted to pay the liquidated damages in shares of
      common stock, the number of shares issued was based on the payment amount of
      $794,000 divided by 90% of the volume weighted average price of the Company’s
      common stock for the 10 trading days immediately preceding the payment due
      date.





The
      Company’s registration statement was declared effective on October 31, 2007. The
      following is a summary of payments during the nine months ended December 31,
      2007:







Payment
                Date
            
            
            90%
                of Volume
              Weighted
                Average
              Price
                for 10 Days
              PrecedingPayment
            
            
            Shares
                Issued
            
            
            Closing
                Price at
              Payment
                Date
            
            
            Value
                of
              Shares
                IssuedMay
                18, 2007
            
            $
            0.85
            
            
            933,458
            
            $
            1.04
            
            $
            970,797June
                19, 2007
            
            $
            0.84
            
            
            946,819
            
            $
            0.88
            
            
            833,201July
                19, 2007
            
            $
            0.60
            
            
            1,321,799
            
            $
            0.66
            
            
            872,387August
                17, 2007
            
            $
            0.45
            
            
            1,757,212
            
            $
            0.41
            
            
            720,457September
                17, 2007
            
            $
            0.32
            
            
            2,467,484
            
            $
            0.34
            
            
            838,945October
                17, 2007
            
            $
            0.55
            
            
            1,443,712
            
            $
            0.57
            
            
            822,915October
                31, 2007
            
            $
            0.43
            
            
            861,085
            
            $
            0.47
            
            
            404,7109,731,569
            
            
            
            
            $
            5,463,412




A
      reconciliation of the Company’s liquidated damages liability pursuant to
      registration rights arrangements during the nine months ended December 31,
      2007
      is as follows:





Balance,
                April 1, 2007
            
            $
            2,705,531Obligations
                incurred
            
            
            2,645,393Imputed
                interest expense
            
            
            112,488Common
                stock issued in payment of obligations
            
            
            (5,463,412
            )Balance,
                December 31, 2007
            
            $
            0




13




The
      Registration Rights Agreement requires that the Company must maintain
      effectiveness of the registration statement, provide the information necessary
      for sale of shares to be made, register a sufficient number of shares, and
      maintain the listing of the shares. Lack of compliance requires the Company
      to
      pay the holders of the registrable securities liquidated damages under the
      same
      terms discussed above. As of the date of this Quarterly Report, the Company
      has
      not recorded any liability associated with the requirement to maintain
      effectiveness of the registration statement.




Failure
      to maintain the equity conditions, a description of which follows, negates
      the
      Company’s ability to settle the liquidated damages, if any, in shares of common
      stock. The Company must ensure that:




o
            Common
                stock is designated for quotation on OTC Bulletin Board, the New
                York
                Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global
                Market,
                the NASDAQ Capital Market, or the American Stock
                Exchange;




§
            Common
                stock has not been suspended from trading, other than for two days
                due to
                business announcements; and




§
            Delisting
                or suspension has not been threatened, or is not
                pending.




o
            Shares
                of common stock have been delivered upon conversion of Notes and
                Warrants
                on a timely basis;




o
            Shares
                may be issued in full without violating the rules and regulations
                of the
                exchange or market upon which they are listed or
                quoted;




o
            Payments
                have been made within five business days of when due pursuant to
                the
                Securities Purchase Agreement, the Convertible Notes, the Registration
                Rights Agreement, the Transfer Agent Instructions, or the Warrants
                (Transaction Documents);




o
            There
                has not been a change in control of the company, a merger of the
                company
                or an event of default as defined in the Notes;
                and




o
            There
                is material compliance with the provisions, covenants, representations
                or
                warranties of all Transaction
                Documents.




There
      is
      an equity conditions failure if, on any day during the 10 trading days prior
      to
      when a registration-delay payment is due, the equity conditions have not been
      satisfied or waived.




Under
      the
      terms of the Securities Purchase Agreement, liquidated damages are due to the
      holders of the securities if the Company meets the applicable listing
      requirements on an approved exchange or market but the registrable shares are
      not listed by December 21, 2007 on an approved exchange or market. The
      liquidated damages are equal to 0.25% of the aggregate purchase price, or
      $198,000, payable in cash. The payments are due on the day of the listing
      failure.




Currently,
      there are no equity conditions failures and we are not subject to any listing
      requirements.





**Note
      7—Share-Based Compensation**




Chief
      Executive Officer (CEO) Options





During
      the nine months ended December 31, 2007, the Company’s CEO exercised options to
      acquire 1,500,000 shares of common stock, for a cumulative exercise price of
      $15.00 ($0.00001/share).




14




2006
      Stock Incentive Plan





During
      the nine months ended December 31, 2007, options to purchase 40,000, 673,000
      and
      25,000 shares of common stock were granted to directors, employees and a
      consultant, respectively. The options granted have exercise prices of $1.02,
      $0.45 to $1.18 and $1.64, vest over five years, three years and one year, and
      have a maximum term of ten, five and five years, respectively. The fair value
      of
      the options granted was estimated as of the grant date using the Black-Scholes
      option pricing model with the following assumptions:





Volatility
            76.00%Expected
                option term
            Five
                to 10 yearsRisk-free
                interest rate
            4.63%
                to 4.68%Expected
                dividend yield
            0.00%





During
      the nine months ended December 31, 2007, options to purchase 1,060,000 shares
      of
      common stock granted to employees expired. The options had exercise prices
      of
      $1.18 to $3.19.




Total
      estimated unrecognized compensation cost from unvested stock options as of
      December 31, 2007 was approximately $1,384,839 which the Company expects to
      recognize over 3.7 years. As of December 31, 2007 there were 3,013,000 options
      outstanding under the 2006 Stock Incentive Plan and 6,987,000 options are
      available for issuance.





The
      expected term of options granted was estimated to be the contractual term.
      The
      expected volatility was based on an average of the volatility disclosed by
      other
      comparable companies who had similar expected option terms. The risk free rate
      was based on the five-year and 10-year U.S. Treasury bond rate.





Restricted
      Stock Award





On
      April 20, 2007, four new members were appointed to our Board of Directors.
      Each newly appointed director received a stock grant of 100,000 shares of the
      Company’s common stock that vests 20% (20,000 shares) on the date of grant with
      vesting 20% per year thereafter. On May 31, 2007, the remaining independent
      Board member not covered by the April 20, 2007 award received a stock grant
      of 100,000 shares of the Company’s common stock that vests 20% (20,000 shares)
      on the date of grant with vesting 20% per year thereafter.





On
      May
      22, 2007, the Company issued 400,000 shares of common stock to the four new
      members, and on June 26, 2007, the Company issued 100,000 shares of common
      stock
      to the remaining independent Board member. Pursuant to the vesting discussed
      above, of the total fair market value at the date of grant of $517,000, and
      for
      the nine months ended December 31, 2007, $180,950 has been reflected as a charge
      to general and administrative expense in the statement of operations, with
      a
      credit of $5 to common stock and $180,945 to additional paid-in
      capital.





Common
      Stock Exchanged for Services





*Consulting
      Agreement*





On
      February 2, 2007, the Company entered into an agreement with an executive search
      firm to recruit additional members for its Board of Directors. Upon acceptance
      and retention of the additional directors, the Company could pay a portion
      of
      the executive search firm’s services in shares of common stock.





On
      April
      20, 2007, four new members were appointed to the Company’s Board of Directors.
      On April 23, 2007, the Company and the executive search firm agreed to payment
      of a portion of services through the issuance of 107,143 shares of common stock
      at a price of $1.05 per share, the closing price on that date. The stock
      issuance was authorized by the Board of Directors on June 27, 2007. For the
      nine
      months ended December 31, 2007, total compensation of $112,500 has been
      reflected as a charge to general and administrative expense in the statement
      of
      operations, with a corresponding credit to additional paid-in capital.




*Board
      of Director Fees*




On
      April
      20, 2007, the Board of Directors approved a resolution whereby members may
      receive stock in lieu of cash for Board meeting fees, Committee meeting fees
      and
      Committee Chairmen fees.




For
      the
      three and nine months ended December 31, 2007, board members elected to receive
      275,001 and 557,812 shares of common stock, respectively, in lieu of cash,
      valued at $0.73 to $0.27 per share, the closing price of the Company’s stock on
      the dates of grant. Total compensation for the three and nine months ended
      December 31, 2007of $74,250 and $222,750, respectively, has been reflected
      as a
      charge to general and administrative expense in the statement of operations,
      with a corresponding credit to additional paid-in capital.




15




**Note
      8—Commodity Derivatives**




The
      Company accounts for derivative instruments or hedging activities under the
      provisions of Statement of Financial Accounting Standards (“SFAS”) No. 133,
“Accounting for Derivative Instruments and Hedging Activities.”
SFAS No. 133 requires the Company to record derivative instruments at
      their fair value.




Under
      the
      terms of the Credit Agreement (Note 5), the Company was required to enter into
      derivatives contracts covering approximately 75% of its proved developed
      producing reserves scheduled to be produced during a two-year period. The
      objective is to reduce the Company’s exposure to commodity price risk associated
      with expected crude oil production.




The
      Company’s risk management strategy is to enter into commodity derivatives that
      set “price floors” and “price ceilings” for its crude oil production. On October
      16, 2007, the Company entered into a participation cap costless collar with
      an
      unrelated counterparty that specifies a price floor of $65 per barrel, indexed
      to West Texas Intermediate NYMEX (WTI- NYMEX) covering 75% of scheduled
      production in the next two years, a total of 113,220 barrels; and a WTI- NYMEX
      price ceiling of $83.50 per barrel covering 45% of scheduled production for
      two
      years, a total of 67,935 barrels.




The
      Company has elected not to designate the commodity derivatives to which they
      are
      a party as cash flow hedges, and accordingly, such contracts are recorded at
      fair value on its consolidated balance sheets and changes in such fair value
      are
      recognized in current earnings as income or expense as they occur. As of
      December 31, 2007, the fair value of the contract with the counterparty was
      estimated to be $578,435 in a net liability position This amount together with
      realized losses on settlement of the derivative contract of $57,674 (combined
      total of $636,109) is reflected as losses from risk management activities on
      the
      consolidated statements of operations for the three and nine months ended
      December 31, 2007.





The
      Company does not hold or issue commodity derivatives for speculative or trading
      purposes. The Company is exposed to credit losses in the event of nonperformance
      by the counterparty to its commodity derivatives. It is anticipated, however,
      that its counterparty will be able to fully satisfy its obligations under the
      commodity derivatives contracts. The Company does not obtain collateral or
      other
      security to support its commodity derivatives contracts subject to credit risk
      but does monitor the credit standing of the counterparty.  The
      price
      we receive for production in our three fields is indexed to Wyoming Sweet crude
      oil posted price. The
      Company has not hedged the basis differential between the NYMEX price and the
      Wyoming Sweet price.




**Note
      9—Subsequent Events**


*Financing
        Letter of Intent*
 Subsequent
        to December 31, 2007, the Company executed a **** non-binding **** letter
        of
        intent with an experienced industry operator (the “Industry Operator”) under
        which the Industry Operator will spend up to $83.5 million to earn up to
        a 55%
        working interest in the Company’s three fields in the Powder River Basin - the
        Big Muddy, Cole Creek South, and South Glenrock B.  The earn-in period is
        expected to be three years, or less depending on the requirements of the
        development plan.  Upon the closing, the Industry Operator will provide
        $12,240,000 of the funds to retire the Short Term Note Payable (Note 5) and
        the
        remainder of the funds will be utilized primarily for the development of
        the
        Company’s CO 2 enhanced
        oil recovery (EOR) project in its three fields. The transaction is subject
        to
        regular corporate approvals, completion of due diligence and other conditions.
        Closing is scheduled to occur on or before April 30, 2008.


16





**Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations**





**Forward-Looking
      Statements**





The
      statements contained in this Quarterly Report on Form 10-Q that are not
      historical are “forward-looking statements”, as that term is defined in
      Section 21E of the Securities Exchange Act of 1934, as amended (the
      Exchange Act), that involve a number of risks and uncertainties. These
      forward-looking statements include, among others, the following:




•
            
            business
                strategy;•
            
            water
                availability and waterflood production targets;•
            
            carbon
                dioxide (CO2)
                availability, deliverability, and tertiary production
                targets;•
            
            construction
                of a CO2pipeline
                and surface facilities;•
            
            inventories,
                projects, and programs;•
            
            other
                anticipated capital expenditures and budgets;•
            
            future
                cash flows and borrowings;•
            
            the
                availability and terms of financing;•
            
            oil
                reserves;•
            
            reservoir
                response to CO2injection;•
            
            ability
                to obtain permits and governmental approvals;•
            
            technology;•
            
            financial
                strategy;•
            
            realized
                oil prices;•
            
            production;•
            
            lease
                operating expenses, general and administrative costs, and finding
                and
                development costs;•
            
            availability
                and costs of drilling rigs and field services;•
            
            future
                operating results;•
            
            plans,
                objectives, expectations, and intentions and•
            
            terms
                of and ability to close the proposed letter of intent financing
                arrangement





These
      statements may be found under “Management’s Discussion and Analysis of Financial
      Condition and Results of Operations”, and other sections of this Quarterly
      Report. Forward-looking statements are typically identified by use of terms
      such
      as “may”, “could”, “should”, “expect”, “plan”, “project”, “intend”,
“anticipate”, “believe”, “estimate”, “predict”, “potential”, “pursue”, “target”
or “continue”, the negative of such terms or other comparable terminology,
      although some forward-looking statements may be expressed differently.




17





The
      forward-looking statements contained in this Quarterly Report are largely based
      on our expectations, which reflect estimates and assumptions made by our
      management. These estimates and assumptions reflect our best judgment based
      on
      currently known market conditions and other factors. Although we believe such
      estimates and assumptions to be reasonable, they are inherently uncertain and
      involve a number of risks and uncertainties that are beyond our control. In
      addition, management’s assumptions about future events may prove to be
      inaccurate. Management cautions all readers that the forward-looking statements
      contained in this Quarterly Report are not guarantees of future performance,
      and
      we cannot assure any reader that such statements will be realized or the
      forward-looking events and circumstances will occur. Actual results may differ
      materially from those anticipated or implied in the forward-looking statements
      due to the factors listed in the “Risk Factors” section and elsewhere in our
      Annual Report on Form 10-K for the year ended March 31, 2007. All
      forward-looking statements speak only as of the date of this Quarterly Report.
      We do not intend to publicly update or revise any forward-looking statements
      as
      a result of new information, future events or otherwise. These cautionary
      statements qualify all forward-looking statements attributable to us or persons
      acting on our behalf.





**Organization**





Rancher
      Energy is an independent energy company which explores for and develops,
      produces, and markets oil & gas in North America. Prior to April 2006,
      Rancher Energy, formerly known as Metalex Resources, Inc. (“Metalex”), was
      engaged in the exploration of a gold prospect in British Columbia, Canada.
      Metalex found no commercially exploitable deposits or reserves of gold. During
      April 2006, stockholders voted to change the name to Rancher Energy Corp. Since
      April 2006, we have employed a new Chief Executive Officer, Chief Operating
      Officer, Senior Vice President, Engineering, and Chief Accounting Officer and
      are actively pursuing oil & gas prospects in the Rocky Mountain
      region.




We
      operate three fields in the Powder River Basin, Wyoming, which is located in
      the
      Rocky Mountain region of the United States. The fields, acquired in
      December 2006 and January 2007, are the South Glenrock B Field, the
      Big Muddy Field, and the Cole Creek South Field. All three fields currently
      produce some oil and are waterflood or CO 2 tertiary
      recovery candidates. We plan to substantially increase production in our fields
      by using waterflood, CO 2 injection
      and other enhanced oil recovery (EOR) techniques. To fund the acquisition of
      the
      three fields and our operating expenses, from June 2006 through
      January 2007, we sold $89.3 million of our securities in two private
      placements. In December 2006, we also entered into an agreement with the
      Anadarko Petroleum Corporation to supply us with CO 2 needed
      to
      conduct CO 2 tertiary
      recovery operations in our three fields.




Since
      late 2006 we have added operating staff and have engaged consultants to conduct
      field studies of secondary (waterflood) and tertiary( CO 2 flood)
      development of the three Powder River Basin fields. To date, work has focused
      on
      field and engineering studies to prepare for development operations. We have
      also engaged an engineering firm to evaluate routes and undertake the required
      front end engineering and design for the required CO 2 pipeline, as well as another engineering firm to evaluate and design surface
      facilities appropriate for CO 2 injection.





Outlook
      for the Coming Year





On
      February 5, 2007 we executed a non-binding letter of intent  with  an
      experienced industry operator (the “industry
      partner”) under which the industry partner will invest up to $83.5 million in
      our CO 2 enhanced
      oil recovery (EOR) program in our three fields in the Powder River Basin of
      Wyoming. Under terms of the proposed financing agreement the industry partner
      will earn up to a 55% working interest in the three fields for its
      investment.  The earn-in period is expected to be three years or less
      depending on the
      requirements of the development plan which is being developed jointly by Rancher
      and the industry partner. Closing of the transaction is scheduled to occur
      on or
      before April 30, 2008.






18





Results
      of Operations





*Three
      Months Ended December 31, 2007 Compared to Three Months December 31,
      2006*





The
      following is a comparative summary of our results of operations:




Three
                Months Ended December
                31,2007
            
            
            2006Revenues:Oil
                production (in barrels)
            
            22,020
            
            
            2,198Net
                Oil price (per barrel)
            $
            77.40
            
            $
            47.96Oil
                sales
            
            1,704,267
            
            
            105,416Losses
                on derivative activities
            
            (636,109)
            
            
            -Total
                revenues
            
            1,068,158
            
            
            105,416Operating
                expenses:Production
                taxes
            
            207,588
            
            
            11,192Lease
                operating expenses
            
            808,091
            
            
            73,725Depreciation,
                depletion, amortization, and accretion
            
            319,391
            
            
            37,155Impairment
                of unproved properties
            
            -
            
            
            4,681Exploration
                expense
            
            55,945
            
            
            220,191General
                and administrative expense
            
            1,735,482
            
            
            1,200,405Total
                operating expenses
            
            3,126,497
            
            
            1,547,349Loss
                from operations
            
            (2,058,339)
            
            
            (1,441,933)Other
                income (expense):Interest
                expense and financing costs
            
            (1,342,984)
            
            
            -Interest
                and other income
            
            95,982
            
            
            71,262Total
                other income (expense)
            
            (1,247,002)
            
            
            71,262Net
                loss
            $
            (3,305,341)
            
            $
            (1,370,671)






*Overview* .
      For the
      three months ended December 31, 2007, we reported a net loss of $3,305,341,
      or
      $0.03 per basic and fully-diluted share, compared to a net loss of $1,370,671,
      or $0.03 per basic and fully-diluted share, for the corresponding three months
      of 2006. We are a vastly different Company in the 2007 period as compared to
      the
      2006 period. On December 22, 2006, we completed our acquisition of the Cole
      Creek South Field and South Glenrock B Field, and on January 4, 2007, we
      completed our acquisition of the Big Muddy Field. We also added technical,
      clerical and field operations staff since 2006 and have conducted numerous
      studies and evaluations of the properties acquired to enable us to carry out
      our
      Enhanced Oil Recovery (EOR) business plan. Discussions of individually
      significant period to period variances follow.




*Revenue,
      production taxes, and lease operating expenses* .
      For the
      three months ended December 31, 2007, we reflected net oil & gas sales of
      $1,704,267on 22,020 barrels of oil at $77.40 per barrel, production taxes
      (including ad valorem taxes) of $207,588 and lease operating expenses of
      $808,091, as compared to $105,416, $11,192 and $73,725, respectively, for the
      corresponding three months ended December 31, 2006. . As noted above, the 2006
      period represented the ten day period from acquisition and covered only two
      of
      our three fields. For the three months ended December 31, 2007, production
      taxes
      were $9.43 per barrel, and lease operating expenses were $36.70 per barrel,
      an
      amount that includes unscheduled well repair and maintenance work, the majority
      of which are one-time costs.





19


*Losses
          on risk management activities* During
          the three months ended December 31, 2007 we entered into a crude oil derivative
          contract with an unrelated counterparty to set a price floor of $63 per
          barrel
          for 75% of our estimated crude oil production for the next two years, and
          a
          price ceiling of $83.50 for 45% of the same level of production. During
          the
          three months ended December 31, 2007 we recorded realized losses on the
          risk
          management activities of $57,674 and unrealized losses of $578,435.
 
 *Depreciation,
          depletion, amortization and accretion* .
          For the
          three months ended December 31, 2007, we reflected depreciation, depletion,
          and
          amortization of $319,391 ($291,707 related to oil & gas properties, and
          $47,684 related to other assets) as compared to $37,155 for the corresponding
          three months ended December 31, 2006. For the three months ended December
          31,
          2007, depreciation, depletion, and amortization of oil & gas properties was
          $12.84 per barrel.





*Exploration
      expense* .
      For the
      three months ended December 31, 2007, we reflected exploration expense of
      $55,945 as compared to $220,191 for the corresponding three months ended
      December 31, 2006. The exploration expense is attributed to geological and
      geophysical work at our Cole Creek South Field, the South Glenrock B Field,
      and
      the Big Muddy Field. The much higher level of expense in 2006 reflects the
      significant efforts to evaluate the newly acquired fields in the period as
      compared to a more routine level of efforts in 2007.




*General
      and administrative expense* .
      For the
      three months ended December 31, 2007, we reflected general and administrative
      expenses of $1,735,482 as compared to $1,200,405 for the corresponding three
      months ended December 31, 2006. The increase is primarily attributed to staff
      additions, office expansion and other actions to increase our capacity to manage
      our oil & gas operations. For the three months ended December 31, 2007,
      included in general and administrative expenses is stock-based compensation
      expense, restricted stock compensation expense, and services exchanged for
      common stock to non-employee directors that aggregate $394,209. Other key
      elements comprising the increase include salaries, Sarbanes-Oxley compliance,
      audit fees, legal, and reservoir engineering. For the three months ended
      December 31, 2006, included in general and administrative expenses is
      stock-based compensation of $491,000.





*Interest
      expense and financing costs.* For the
      three months ended December 31, 2007, we reflected interest expense and
      financing costs of  $1,342,984 as compared to $-0-for the corresponding
      three months ended December 31, 2006. The 2007 amount is comprised of interest
      paid on the Note Payable issued in October 2007 of $310,080, and amortization
      of
      deferred financing costs and discount on Note Payable of $1,032,904. During
      the
      2006 period we had no debt.





*Interest
      and other income* .
      For the
      three months ended December 31, 2007, we reflected interest and other income
      of
      $95,982 as compared to $71,292 for the corresponding three months ended December
      31, 2006. The interest and other income included in 2007 primarily reflects
      earnings on excess cash derived from our October 2007 debt issuance. Interest
      earned in the 2006 period reflects earnings on excess cash from our private
      placements in June, October and December 2006.




20




*Nine
      Months Ended December 31, 2007 Compared to Nine Months December 31,
      2006*





The
      following is a comparative summary of our results of operations:




Nine
                Months Ended
              December
                31,2007
            
            
            2006Revenues:Oil
                production (in barrels)
            
            68,076
            
            
            2,198Oil
                price (per barrel)
            $
            68.83
            
            $
            47.96Oil
                sales
            
            4,685,373
            
            
            105,416Losses
                on derivative activities
            
            (636,109)
            
            
            -Total
                revenues
            
            4,049,264
            
            
            105,416Operating
                expenses:Production
                taxes
            
            570,239
            
            
            11,192Lease
                operating expenses
            
            2,087,753
            
            
            73,725Depreciation,
                depletion, amortization, and accretion
            
            1,097,255
            
            
            37,155Impairment
                of unproved properties
            
            -
            
            
            385,526Exploration
                expense
            
            186,772
            
            
            235,131General
                and administrative expense
            
            5,788,574
            
            
            2,166,687Total
                operating expenses
            
            9,730,593
            
            
            2,909,416Loss
                from operations
            
            (5,681,329)
            
            
            (2,804,000)Other
                income (expense):Liquidated
                damages pursuant to registration rights arrangement
            
            (2,645,393)
            
            
            -Interest
                expense and financing costs
            
            (1,555,417)
            
            
            (33,000)Interest
                and other income
            
            169,846
            
            
            94,747Total
                other income (expense)
            
            (4,030,964)
            
            
            61,747Net
                loss
            $
            (9,712,293)
            
            $
            (2,742.253)




21




*Overview* .
      For the
      nine months ended December 31, 2007, we reported a net loss of $9,712,293,
      or
      $0.09 per basic and fully-diluted share, compared to a net loss of $2,742,253,
      or $0.07 per basic and fully-diluted share, for the corresponding nine months
      of
      2006. We are a vastly different Company in the 2007 period as compared to the
      2006 period. On December 22, 2006, we completed our acquisition of the Cole
      Creek South Field and South Glenrock B Field, and on January 4, 2007, we
      completed our acquisition of the Big Muddy Field. We also added technical,
      clerical and field operations staff since 2006 and have conducted numerous
      studies and evaluations of the properties acquired to enable us to carry out
      our
      Enhanced Oil Recovery (EOR) business plan. Discussions of individually
      significant period to period variances follow.




*Revenue,
      production taxes, and lease operating expenses* .
      For the
      nine months ended December 31, 2007, we reflected net oil & gas sales of
      $4,685,373 on 68,076 barrels of oil at $68.83 per barrel, production taxes
      (including ad valorem taxes) of $570,239 and lease operating expenses of
      $2,087,753, as compared to $105,416, $11,192 and $73,725, respectively, for
      the
      corresponding nine months ended December 31, 2006. As noted above, the 2006
      period represented the ten day period from acquisition and covered only two
      of
      our three fields. For the nine months ended December 31, 2007, production taxes
      were $8.38 per barrel, and lease operating expenses were $30.67per barrel,
      an
      amount that includes unscheduled well repair and maintenance work, the majority
      of which are one-time costs.




*Losses
      on risk management activities* During
      the nine months ended December 31, 2007 we entered into a crude oil derivative
      contract with an unrelated counterparty to set a price floor of $63 per barrel
      for 75% of our estimated crude oil production for the next two years, and a
      price ceiling of $83.50 for 45% of the same level of production. During the
      nine
      months ended December 31, 2007 we recorded realized losses on the risk
      management activities of $57,674 and unrealized losses of $578,435.





*Depreciation,
      depletion, amortization and accretion* .
      For the
      nine months ended December 31, 2007, we reflected depreciation, depletion,
      and
      amortization of $1,097,255 ($968,445 related to oil & gas properties, and
      $128,810 related to other assets) as compared to $37,115 for the corresponding
      nine months ended December 31, 2006. For the nine months ended December 31,
      2007, depreciation, depletion, and amortization of oil & gas properties was
      $13.25 per barrel.




*Impairment
      expense* .
      For the
      nine months ended December 31, 2007 there was no impairment of unproved
      properties, as compared to $385,526, related solely to the Burke Ranch property,
      for the corresponding nine months ended December 31, 2006.





*Exploration
      expense* .
      For the
      nine months ended December 31, 2007, we reflected exploration expense of
      $186,772 as compared to $235,131 for the corresponding nine months ended
      December 31, 2006. The exploration expense is attributed to geological and
      geophysical work at our Cole Creek South Field, the South Glenrock B Field,
      and
      the Big Muddy Field.





*General
      and administrative expense* .
      For the
      nine months ended December 31, 2007, we reflected general and administrative
      expenses of $5,788,574 as compared to $2,166,687 for the corresponding nine
      months ended December 31, 2006. The increase is primarily attributed staff
      additions, office expansion and other actions to increase our capacity to manage
      our oil & gas operations. For the nine months ended December 31, 2007,
      included in general and administrative expenses is stock-based compensation
      expense, restricted stock compensation expense, and services exchanged for
      common stock to a non-employee and non-employee directors that aggregate
      $1,380,343. Other key elements comprising the increase include salaries,
      Sarbanes-Oxley compliance, audit fees, legal, and reservoir engineering. For
      the
      nine months ended December 31, 2006, included in general and administrative
      expenses is stock-based compensation of $1,020,739.





*Liquidated
      damages pursuant to registration rights agreement* .
      In
      connection with our equity private placement in December 2006 and
      January 2007, we entered into a registration rights agreement and agreed to
      file a registration statement to register for resale the shares of common stock.
      The agreement includes provisions for payment if the registration statement
      was
      not declared effective by May 20, 2007, and additional payments were due if
      there were additional delays in obtaining effectiveness. During the nine months
      ended December 31, 2007, we paid liquidated damages totaling $2,645,393 by
      issuing shares of our common stock. The registration statement was declared
      effective on October 31, 2007 and no damages have been paid since that
      date.





*Interest
      expense and financing costs.* For the
      three months ended December 31, 2007, we reflected interest expense and
      financing costs of $1,555,417 as compared to $33,00 for the corresponding nine
      months ended December 31, 2006. The 2007 amount is comprised of interest paid
      on
      the Note Payable issued in October 2007 of $310,080, imputed interest on the
      liquidated damages pursuant to the registration rights arrangement discussed
      above of $112,488 and amortization of deferred financing costs and discount
      on
      Note Payable of $1,132,849.





*Interest
      and other income* .
      For the
      nine months ended December 31, 2007, we reflected interest and other income
      of
      $169,846 as compared to $97,747 for the corresponding nine months ended December
      31, 2006. The interest and other income included in 2007 primarily reflects
      earnings on excess cash derived from the December 2006 and January 2007 private
      placement of units and our October 2007 debt issuance. Interest earned in the
      2006 period reflects earnings on excess cash from our private placements in
      June, October and December 2006.




22





**Liquidity
      and Capital Resources**





As
      of
      December 31, 2007, we had working capital of $146,402





We
      have
      revenue from production operations in our three fields.  However, we
      currently have negative cash flow from operating activities.  Monthly oil
& gas production revenue is adequate to cover monthly field operating costs
      and production taxes at the current time.  Only a portion of the remaining
      cash costs, which consist primarily of general and administrative expenses
      and
      interest expense are covered by cash flow.





Our
      currently available cash sources are not sufficient to fund our planned
      expenditures for the secondary and tertiary development of our three
      fields.  Essentially all of the necessary funding for their development is
      expected to come from, and is dependent on, successful completion of a debt,
      equity or other financing arrangements.




*Short-Term
      Financing*


On
      October 16, 2007, we borrowed $12,240,000 pursuant to a Term Credit Agreement
      with GasRock Capital LLC (GasRock). We received net proceeds of $11,622,800
      after the deduction of GasRock’s fees, expenses, and three months of interest to
      be held in escrow. In addition, we incurred approximately $390,000 in investment
      banking, legal, and other fees and expenses in connection with the
      transaction.




All
      amounts outstanding under the Credit Agreement are due and payable on October
      31, 2008 (Maturity Date), and bear interest at a rate equal to the greater
      of
      (a) 12% per annum and (b) the LIBOR rate plus 6% per annum. We are
      required to make monthly interest payments on the amounts outstanding under
      the
      Credit Agreement but are not required to make any principal payments until
      the
      Maturity Date. We may prepay the amounts outstanding under the Credit Agreement
      at any time without penalty.




Our
      obligations under the Credit Agreement are secured by a first priority security
      interest in all of our properties and assets, including all rights under our
      oil
& gas leases in our three producing oil fields in the Powder River Basin of
      Wyoming and all of our equipment on those properties.




We
      also
      granted GasRock a 2% Overriding Royalty Interest (ORRI), proportionally reduced
      when our working interest is less than 100%, in all crude oil and natural gas
      produced from our three Powder River Basin fields. As long as any of our
      obligations remain outstanding under the Credit Agreement, we will be required
      to grant the same ORRI to GasRock on any new working interests acquired by
      us
      after closing. Prior to the Maturity Date, we may re-acquire 50% of the ORRI
      granted to GasRock at a repurchase price calculated to ensure that total
      payments by us to GasRock of principal, interest, ORRI revenues, and ORRI
      repurchase price will equal 120% of the loan amount.




As
      required by the Credit Agreement, we entered into an oil hedge agreement
      covering approximately 75% of our proved developed producing reserves scheduled
      to be produced during a two-year period. We have entered into a Participating
      Cap Costless Collar with BP Corporation North America Inc. (BP) with a price
      floor of $65/bbl for NYMEX light sweet crude oil on 75% of our scheduled
      production and a ceiling price of $83.50 on 45% of our scheduled production.
      The
      price we receive for production in our three fields is indexed to Wyoming Sweet
      crude oil posted price. We have not hedged the basis differential between the
      NYMEX price and the Wyoming Sweet price.




We
        are
        subject to various restrictive covenants under the Credit Agreement, including
        limitations on our ability to sell properties and assets, pay dividends,
        extend
        credit, amend our material contracts, incur indebtedness, provide guarantees,
        effect mergers or acquisitions (other than to change our state of
        incorporation), cancel claims, create liens, create subsidiaries, amend our
        formation documents, make investments, enter into transactions with our
        affiliates, and enter into swap agreements. We must maintain (a) a current
        ratio of at least 1.0 (excluding from the calculation of current liabilities
        any
        loans outstanding under the Credit Agreement) and (b) a loan-to-value ratio
        greater than 1.0 to 1.0 for the term of the loan.
  The
        Credit Agreement contains several events of default, including if, at any
        time
        after closing, our most recent reserve report indicates that our projected
        net
        revenue attributable to our proved reserves is insufficient to fully amortize
        the amounts outstanding under the Credit Agreement within a 48-month period
        and
        we are unable to demonstrate to GasRock’s reasonable satisfaction that we would
        be able to satisfy such outstanding amounts through a sale of our assets
        or
        equity. Upon the occurrence of an event of default under the Credit Agreement,
        GasRock may accelerate our obligations under the Credit Agreement. Upon certain
        events of bankruptcy, our obligations under the Credit Agreement would
        automatically accelerate. In addition, at any time that an event of default
        exists under the Credit Agreement, we will be required to pay interest on
        all
        amounts outstanding under the Credit Agreement at a default rate, which is
        equal
        to the then-prevailing interest rate under the Credit Agreement plus four
        percent per annum.


23


*Financing
          Letter of Intent*
 On
          February 5, 2008, we executed a non-binding letter of intent with an experienced
          oil & gas industry operator (the “Industry Operator”) under which
          up
          to $83.5 million in financing is expected to be invested in our CO 2 enhanced
          oil recovery (EOR) program in our three Powder River Basin fields, Big
          Muddy,
          Cole Creek South, and South Glenrock B. Under terms of the proposed financing
          agreement, in return for an $83.5 million investment, the Industry Operator
          will
          earn up to a 55% working interest in the fields. The earn-in period is
          expected
          to be three years, or less depending on the requirements of the development
          plan.  Upon closing, the Industry Operator will provide immediate funding
          to enable us to pay off the short term note. The remainder of the funds
          will be
          expended on our CO 2 EOR
          program in accordance with a schedule we plan to jointly develop with the
          Industry Operator. The closing of the transaction ,is subject to regular
          corporate approval, completion of due diligence and certain other conditions,
          and is scheduled to occur on or before April 30, 2008.
  We
          anticipate that after closing of the financing transaction , the pay off
          of the
          short term note and with continued oil production from our existing fields,
          we
          will have sufficient cash reserves to fund our near term operations . Dependent
          upon the results of the CO 2 development work carried out during the earn in period we may raise additional
          financing through debt or equity sales for working capital and to fund
          our
          development efforts.
  In
          the
          event the financing is not completed as planned, the existing funds from
          the
          short-term financing together with proceeds from existing production should
          be
          sufficient to cover the negative cash flow from operations through the
          Maturity
          Date of the short-term financing. Without additional funding, we would
          not be
          able to repay the short-term financing on the Maturity Date. Accordingly,
          if the
          financing is not completed as planned, we will reconsider our business
          plan and
          consider other strategic alternatives, which could include partnering with
          other
          industry participants, property sales, and a scale back of operating plans
          and
          staffing.




*Cash
      Flows*




The
      following is a summary of Rancher Energy’s comparative cash flows:




For
                the Nine Months Ended December 31,2007
            
            
            2006Cash
                flows from:Operating
                activities
            
            $
            (3,560,062
            )
            
            (1,020,199
            )Investing
                activities
            
            
            (2,393,803
            )
            
            (50,648,901
            )Financing
                activities
            
            
            11,077,073
            
            
            83,550,370





Cash
      flows used for operating activities increased primarily as a result of general
      and administrative expenses incurred in connection with the expansion of the
      Company’s oil & gas operations and interest expense incurred in connection
      with the October 2007 short term financing.





Cash
      flows used for investing activities decreased significantly in the 2007 period
      compared to the 2006 period. During the nine months ended December 31, 2007
      and
      2006, net cash used for investing activities included acquisitions of oil and
      gas properties of $-0- and $50,225,944; $2,087,871 and $298,114 for capital
      expenditures on existing oil and gas properties; and $797,432 and $124,843
      for
      the acquisition of other assets, respectively. Expenditures for oil & gas
      properties during the nine months ended December 31, 2007 were reduced by net
      proceeds of $491,500 from the conveyance of certain unproved oil & gas
      properties.





During
      the nine months ended December 31, 2007, cash flows provided by financing
      activities included $11,377,423 of net proceeds from the short term debt
      financing discussed above; funds used for offering costs associated with the
      registration of certain equity securities included in our Form S-1 and
      subsequent amendments filed with the Securities and Exchange Commission in
      the
      amount of $300,365. During the nine months ended December 31, 2006, cash flows
      provided by financing activities included $500,000 of proceeds from the issuance
      of notes payable that were converted to common stock, $8,112,862 of proceeds,
      net of offering costs, from the sale of common stock and warrants in connection
      with a Regulation S offering, and $74,937,508 of proceeds, net of offering
      costs
      for the sale of common stock and warrants.





Off-Balance
      Sheet Arrangements





Other
      than operating leases, we do not have any off-balance sheet arrangements, and
      we
      do not have any unconsolidated subsidiaries.





Critical
      Accounting Policies and Estimates





Critical
      accounting policies and estimates are provided in Part II, Item 7, Management’s
      Discussion and Analysis of Financial Condition and Results of Operations, to
      the
      Annual Report on Form 10-K for the year ended March 31, 2007. Additional
      footnote disclosures are provided in Notes to Consolidated Financial Statements
      in Part I, Financial Information, Item 1, Financial Statements to this Quarterly
      Report on Form 10-Q for the nine months ended December 31, 2007.




24




**Item
      3.**  **Quantitative
      and Qualitative Disclosure About Market Risk.**





**Commodity
      Price Risk**




Because
      of our relatively low level of current oil & gas production, we are not
      exposed to a great degree of market risk relating to the pricing applicable
      to
      our oil production. However, our ability to raise additional capital at
      attractive pricing, our future revenues from oil & gas operations, our
      future profitability and future rate of growth depend substantially upon the
      market prices of oil and natural gas, which fluctuate widely. With increases
      to
      our production, exposure to this risk will become more significant. We expect
      commodity price volatility to continue. In connection with our short term
      financing in October 2007, we entered into an oil hedge agreement covering approximately
      75% of our proved developed producing reserves scheduled to be produced during
      a
      two-year period .
      Terms
      of future debt facilities may also require that we hedge a portion of our
      expected future production.





**Item
      4.**  **Controls
      and Procedures.**




**Disclosure
      Controls and Procedures**




We
      maintain controls and procedures designed to ensure that information required
      to
      be disclosed in the reports that we file or submit under the Securities Exchange
      Act of 1934 (Exchange Act) is recorded, processed, summarized, and reported
      within the time periods specified in the rules and forms of the SEC. Evaluations
      have been performed under the supervision and with the participation of our
      management, including the Chief Executive Officer and Chief Accounting Officer,
      of the effectiveness of the design and operation of our disclosure controls
      and
      procedures (as such terms are defined in Rule 13a-15(e) and 15d-15(e) of the
      Exchange Act). We view internal control over financial reporting to be an
      integral part of our disclosure control over financial reporting. Based on
      the
      evaluation of our Chief Executive Officer and Chief Accounting Officer that
      there are material weaknesses in our internal control over financial reporting,
      we concluded that our disclosure controls and procedures are not effective
      as of
      December 31, 2007. The weaknesses and our remediation efforts were discussed
      in
      our Form 10-K filed with the SEC on June 29, 2007. Since June 29, 2007, we
      have
      implemented additional remediation efforts including:





1.
            The
                appointment of a Chief Accounting Officer with significant experience
                in
                financial reporting:


2.
            The
                implementation of quarterly fraud assessments carried out by management
                as
                part of our financial closing process;


3.
            The
                appointment of an independent, experienced accounting and business
                advisory firm to review public filings for completeness and to consult
                on
                complex or emerging accounting issues;


4.
            The
                appointment of an experienced consulting firm to assist in the development
                of internal control process documentation and to conduct independent
                testing of such controls and processes;


5.
            The
                implementation of a new accounting software system, with significantly
                enhanced segregation of duties and formal authority
                processes.





Our
      management does not expect that our disclosure controls and procedures will
      prevent all errors and all fraud. The design of a control system must reflect
      the fact that there are resource constraints, and the benefits of controls
      must
      be considered relative to their costs. Based on the inherent limitations in
      all
      control systems, no evaluation of controls can provide absolute assurance that
      all control issues and instances of fraud, if any, within the Company have
      been
      detected. These inherent limitations include the realties that judgments in
      decision-making can be faulty and that breakdowns can occur because of simple
      errors or mistakes. Additionally, controls can be circumvented by the individual
      acts of some persons, by collusion of two or more people, or by management
      override of the controls. The design of any system of controls also is based
      in
      part upon certain assumptions about the likelihood of future events. Therefore,
      a control system, no matter how well conceived and operated, can provide only
      reasonable, not absolute, assurance that the objectives of the control system
      are met.




25




**Changes
      in Internal Control over Financial Reporting**





The
      following changes in our internal controls over financial reporting that
      occurred during the nine months ended December 31, 2007 have materially
      affected, or are reasonably likely to materially affect, our internal control
      over financial reporting:





1.
            The
                appointment of four new independent
                directors;


2.
            The
                establishment of an Audit Committee;


3.
            The
                establishment of a Compensation
                Committee;


4.
            The
                establishment of a Nominating and Corporate Governance
                Committee;


5.
            The
                adoption of an updated Code of Business Conduct and Ethics;
                and


6.
            The
                adoption of an Insider Trading Policy,
                and:


7.
            The
                appointment of a Chief Accounting
                Officer.





Because
      the testing of these controls has not been completed, the operating
      effectiveness of these changes has yet to be fully evaluated. Accordingly,
      the material weaknesses in our internal control over financial reporting as
      discussed above and in our Form 10-K filed with the SEC on June 29, 2007 remain
      in effect as of December 31, 2007, the end of the period covered by this
      Quarterly Report on Form 10-Q.




**PART
      II. OTHER INFORMATION**





**Item
      1A. Risk Factors.**





As
      a
      result of the completion of our short-term debt financing in October 2007,
      we
      have amended the risk factors discussed in Part I, “Item 1A Risk Factors” in our
      Annual Report on Form 10-K, as amended, for the year ended March 31, 2007 by
      adding the two below risk factors. In addition to the other information set
      forth in this report and the below risk factors, you should carefully consider
      the risk factors, discussed in our Annual Report on Form 10-K, as amended,
      for
      the year ended March 31, 2007, which could materially affect our business,
      financial condition and/or future results of operations. The risks, described
      in
      our Annual Report on Form 10-K and below, are not the only risks facing our
      Company. Additional risks and uncertainties not currently known to us or that
      we
      currently deem to be immaterial also may materially affect our business,
      financial condition and/or results of operations. There have been no material
      changes in our risk factors from those disclosed in our Annual Report on Form
      10-K, as amended, for the year ended March 31, 2007 other than the addition of
      the two below risk factors.





***If
      we are unable to obtain additional financing our business plans will not be
      achievable*** **.**




Our
      current cash position will not be sufficient to fund the development of the
      Big
      Muddy Field for waterflood operations and our three properties for
      CO 2 EOR
      operations. We will require substantial additional funding. Our plan is to
      obtain debt or equity financing. The terms of any such financing may restrict
      our future business activities and expenditures. We do not know if additional
      financing will be available at all when needed or on acceptable terms.
      Insufficient funds will prevent us from implementing our secondary and tertiary
      recovery business strategy.




***Our
      October 2007 short-term debt financing required the imposition of a mortgage
      interest in favor of our lender on our three fields and a default by us of
      the
      financing terms could result in the foreclosure and loss of one or more of
      our
      fields and other assets.***




We
      borrowed $12 million in October 2007, which is due in October 2008, and granted
      to the lender a mortgage on our interests in three fields and our other assets.
      We plan to use these funds to increase oil production and for working capital.
      We do not expect that our cash flow from operations or other assets will be
      sufficient to repay this loan. We have recently entered into a letter of intent
      for a financing; however, the letter of intent is non-binding, subject to
      conditions and may not close. There is no assurance that other funding would
      be
      available. If we are not successful in repaying this debt within the term of
      the
      loan, or default under the terms of the loan, the lender will be able to
      foreclose one or more of our three properties and other assets and we could
      lose
      the properties. A
      foreclosure could significantly reduce or eliminate our property interests,
      force us to alter our business strategy, which could involve the sale of
      properties or working interests in the properties, and adversely affect our
      results of operations and financial condition.




26




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





On
      December 31, 2007, pursuant to our compensation arrangement with our
      non-employee directors, we issued 275,001 shares of our common stock in the
      aggregate under our 2006 Stock Incentive Plan to our non-employee directors
      for
      their service on our Board of Directors and for attending board and committee
      meetings, as the case may be. More specifically, we issued to the following
      directors the shares specified: (i) William A. Anderson, 61,111 shares; (ii)
      Joseph P. McCoy, 69,445 shares, (iii) Patrick M. Murray, 41,667 shares, (iv)
      Myron M. Sheinfeld, 41,667 shares, and (v) Mark Worthey, 61,111 shares. The
      foregoing issuances were made pursuant to Section 4(2) of the Securities
      Act.




27




**ITEM
      6. EXHIBITS**





**Exhibit**
            
            **Description**3.1
            
            Amended
                and Restated Articles of Incorporation(17)3.2
            
            Articles
                of Correction(22)3.3
            
            Amended
                and Restated Bylaws(2)4.1
            
            Form
                of Stock Certificate for Fully Paid, Non-Assessable Common Stock
                of the
                Company(1)4.2
            
            Form
                of Unit Purchase Agreement(2)4.3
            
            Form
                of Warrant Certificate(2)4.4
            
            Form
                of Registration Rights Agreement, dated December 21, 2006(3)4.5
            
            Form
                of Warrant to Purchase Common Stock(3)10.1
            
            Burke
                Ranch Unit Purchase and Participation Agreement between Hot Springs
                Resources Ltd. and PIN Petroleum Partners Ltd., dated February 6,
                2006(4)10.2
            
            Employment
                Agreement between John Works and Rancher Energy Corp., dated June 1,
                2006(5)10.3
            
            Assignment
                Agreement between PIN Petroleum Partners Ltd. and Rancher Energy
                Corp.,
                dated June 6, 2006(5)10.4
            
            Loan
                Agreement between Enerex Capital, Corp. and Rancher Energy Corp.,
                dated
                June 6, 2006(5)10.5
            
            Letter
                Agreement between NITEC LLC and Rancher Energy Corp., dated June 7,
                2006(5)10.6
            
            Loan
                Agreement between Venture Capital First LLC and Rancher Energy Corp.,
                dated June 9, 2006(6)10.7
            
            Exploration
                and Development Agreement between Big Snowy Resources, LP and Rancher
                Energy Corp.,
              dated
                June 15, 2006(5)10.8
            
            Assignment
                Agreement between PIN Petroleum Partners Ltd. and Rancher Energy
                Corp.,
                dated June 21, 2006(5)10.9
            
            Purchase
                and Sale Agreement between Wyoming Mineral Exploration, LLC and Rancher
                Energy Corp., dated August 10, 2006(4)10.10
            
            South
                Glenrock and South Cole Creek Purchase and Sale Agreement by and
                between
                Nielson & Associates, Inc. and Rancher Energy Corp.,
              dated
                October 1, 2006(7)10.11
            
            Rancher
                Energy Corp. 2006 Stock Incentive Plan(7)10.12
            
            Rancher
                Energy Corp. 2006 Stock Incentive Plan Form of Option Agreement(7)10.13
            
            Employment
                Agreement by and between John Dobitz and Rancher Energy Corp., dated
                October 2, 2006(7)10.14
            
            Denver
                Place Office Lease between Rancher Energy Corp. and Denver Place
                Associates Limited Partnership, dated October 30, 2006(8)10.15
            
            Employment
                Agreement between Andrew Casazza and Rancher Energy Corp., dated
                October 23, 2006(9)10.16
            
            Finder’s
                Fee Agreement between Falcon Capital and Rancher Energy Corp.(10)10.17
            
            Amendment
                to Purchase and Sale Agreement between Wyoming Mineral Exploration,
                LLC
                and Rancher Energy Corp.(11)10.18
            
            Letter
                Agreement between Certain Unit Holders and Rancher Energy Corp.,
                dated
                December 8, 2006(2)10.19
            
            Letter
                Agreement between Certain Option Holders and Rancher Energy Corp.,
                dated
                December 13, 2006(2)10.20
            
            Product
                Sale and Purchase Contract by and between Rancher Energy Corp. and
                the
                Anadarko Petroleum Corporation, dated December 15, 2006(12)10.21
            
            Amendment
                to Purchase and Sale Agreement between Nielson & Associates, Inc. and
                Rancher Energy Corp.(13)10.22
            
            Securities
                Purchase Agreement by and among Rancher Energy Corp. and the Buyers
                identified therein,
              dated
                December 21, 2006(3)10.23
            
            Lock-Up
                Agreement between Rancher Energy Corp. and Stockholders identified
                therein, dated December 21, 2006(3)10.24
            
            Voting
                Agreement between Rancher Energy Corp. and Stockholders identified
                therein, dated as of December 13, 2006(3)10.25
            
            Form
                of Convertible Note(14)10.26
            
            Employment
                Agreement between Daniel Foley and Rancher Energy Corp., dated
                January 12, 2007(15)




28





**Exhibit**
            
            **Description**10.27
            
            First
                Amendment to Securities Purchase Agreement by and among Rancher Energy
                Corp. and the Buyers identified therein, dated as of January 18, 2007(16)10.28
            
            Rancher
                Energy Corp. 2006 Stock Incentive Plan Form of Restricted Stock Agreement(19)10.29
            
            First
                Amendment to Employment Agreement by and between John Works and Rancher
                Energy Corp.,
              dated
                March 14, 2007 (18)10.30
            
            Employment
                Agreement between Richard Kurtenbach and Rancher Energy Corp., dated
                August 3, 2007(20)10.31
            
            Term
                Credit Agreement between Rancher Energy Corp. and GasRock Capital
                LLC,
                dated as of October 16, 2007(21)10.32
            
            Term
                Note made by Rancher Energy Corp. in favor of GasRock Capital LLC,
                dated
                October 16, 2007(21)10.33
            
            Mortgage,
                Security Agreement, Financing Statement and Assignment of Production
                and
                Revenues from Rancher Energy Corp. to GasRock Capital LLC, dated
                as of
                October 16, 2007(21)10.34
            
            Security
                Agreement between Rancher Energy Corp. and GasRock Capital LLC, dated
                as
                of October 16, 2007(21)10.35
            
            Conveyance
                of Overriding Royalty Interest by Rancher Energy Corp. in favor of
                GasRock
                Capital LLC, dated as of
              October
                16, 2007(21)10.36
            
            ISDA
                Master Agreement between Rancher Energy Corp. and BP Corporation
                North
                America Inc., dated as of
              October
                16, 2007(21)10.37
            
            Restricted
                Account and Securities Account Control Agreement by and among Rancher
                Energy Corp., GasRock Capital LLC, and Wells Fargo Bank, National
                Association, dated as of October 16, 2007(21)10.38
            
            Intercreditor
                Agreement by and among Rancher Energy Corp., GasRock Capital LLC,
                and BP
                Corporation North America Inc., dated as of October 16, 2007(21)10.39
            
            First Amendment
              to
              Denver Place Office lease between Rancher Energy Corp. and Denver Place
              Associates Limited Partnership, dated March 6, 2007.(18)10.40
            
            Joint
                Venture Financing Letter of Intent, dated February 6, 2008. (23)10.41
            
            CO2Supply
              Agreement, dated _______, 2008.(24)31.1
            
            Certification
                Pursuant to Rule 13a-14(a)/15d-14(a) (Chief Executive
                Officer)31.2
            
            Certification
                Pursuant to Rule 13a-14(a)/15d-14(a) (Chief Accounting
                Officer)32.1
            
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 200232.2
            
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002




(1)
            Incorporated
                by reference from our Form SB-2 Registration Statement filed on
                June 9, 2004.




(2)
            Incorporated
                by reference from our Current Report on Form 8-K filed on
                December 18, 2006.




(3)
            Incorporated
                by reference from our Current Report on Form 8-K filed on
                December 27, 2006.




(4)
            Incorporated
                by reference from our Quarterly Report on Form 10-Q/A filed on
                August 28, 2006.




(5)
            Incorporated
                by reference from our Annual Report on Form 10-K filed on June 30,
                2006.




(6)
            Incorporated
                by reference from our Current Report on Form 8-K filed on June 21,
                2006.




(7)
            Incorporated
                by reference from our Current Report on Form 8-K filed on October 6,
                2006.




(8)
            Incorporated
                by reference from our Current Report on Form 8-K filed on November 9,
                2006.




(9)
            Incorporated
                by reference from our Current Report on Form 8-K filed on
                November 14, 2006.




(10)
            Incorporated
                by reference from our Current Report on Form 8-K/A filed on
                November 14, 2006.




(11)
            Incorporated
                by reference from our Current Report on Form 8-K filed on December 4,
                2006.




(12)
            Incorporated
                by reference from our Current Report on Form 8-K filed on
                December 22, 2006.




(13)
            Incorporated
                by reference from our Current Report on Form 8-K filed on
                December 27, 2006.




29





(14)
            Incorporated
                by reference from our Current Report on Form 8-K filed on January 8,
                2007.




(15)
            Incorporated
                by reference from our Current Report on Form 8-K filed on January 16,
                2007.




(16)
            Incorporated
                by reference from our Current Report on Form 8-K filed on January 25,
                2007.




(17)
            Incorporated
                by reference from our Current Report on Form 8-K filed on April 3,
                2007.




(18)
            Incorporated
                by reference from our Current Report on Form 8-K filed on March 20,
                2007.




(19)
            Incorporated
                by reference from our Annual Report on Form 10-K filed on June 29,
                2007.




(20)
            Incorporated
                by reference from our Current Report on Form 8-K filed on August
                7,
                2007.




(21)
            Incorporated
                by reference from our Current Report on Form 8-K filed on October
                17,
                2007.




(22)
            Incorporated
                by reference from our Form 10-Q for the quarterly period ended September
                30, 2007.




(23)
            Incorporated
                by reference from our Current Report on Form 8-K filed on February
                7,
                2008.




30




**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.




**RANCHER
                ENERGY CORP.**
                (Registrant)Dated:
                  February 11, 2008
            By:
            /s/
              John WorksJohn
                Works
                President,
                  Chief Executive Officer, Chief Financial Officer, Secretary and
                  Treasurer(Principal Executive Officer)Dated:
                  February 11, 2008
            By:
            /s/ Richard
              E. KurtenbachChief Accounting
                  Officer(Principal Accounting
                  Officer)




31