UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, 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 January 31, 2009



or



[  ]         Transition Report Pursuant to Section13 or 15(d) of the Securities Exchange Act of 1934 
               For the transition period from _____ to _____



Commission File Number: 000-53313



STRATEGIC AMERICAN OIL CORPORATION(Exact name of registrant as specified in its charter)







|NEVADA                                                         |  | 98-0454144                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation of organization) |  | (I.R.S. Employer Identification No.)
|                                                               |  |                                     
|Suite 2015, 600 Leopard Street, Corpus Christi, Texas          |  | 78473                               
|(Address of principal executive offices)                       |  | (Zip Code)                          





| | (361) 884-7474                                       | 
| | ---------------------------------------------------- | 
| | (Registrant's telephone number, including area code) | 



Indicate by check mark whether the registrant has (1) 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  S
   No  £



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:



|£
  Large accelerated filer                                                  | £
  Accelerated filer     
|---------------------------------------------------------------------------- | --------------------------
|£
  Non-accelerated filer (Do not check
       if smaller reporting company) | SSmaller reporting company



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  £
   No  S



Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  28,610,350 shares of common stock outstanding as of March 17, 2009.



__________







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STRATEGIC AMERICAN OIL CORPORATION



TABLE OF CONTENTS





|PART I - FINANCIAL INFORMATION | 3       
|------------------------------ | --------
|                               | Item 1. 
|                               | Item 2. 
|                               | Item 3. 
|                               | Item 4. 
|PART II - OTHER INFORMATION    | 28      
|                               | Item 1. 
|                               | Item 1A.
|                               | Item 2. 
|                               | Item 3. 
|                               | Item 4. 
|                               | Item 5. 
|                               | Item 6. 
|SIGNATURES                     | 30      







2



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PART I



















STRATEGIC AMERICAN OIL CORPORATION(An Exploration Stage Company)CONSOLIDATED FINANCIAL STATEMENTSJANUARY 31, 2009
(Unaudited)















3



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STRATEGIC AMERICAN OIL CORPORATION(An Exploration Stage Company)

CONSOLIDATED BALANCE SHEETS





|                                                             |                  |              
|------------------------------------------------------------ | ---------------- | -------------
|                                                             | January 31, 2009 | July 31, 2008
|                                                             | (Unaudited)      |              
|                                                             |                  |              
|CURRENT ASSETS                                               |                  |              
|Cash                                                         | $	18,252         | $	67,650     
|Accounts receivable                                          | 11,235           | 189,514      
|Other current assets                                         | 120,000          | 41,641       
|                                                             | 149,487          | 298,805      
|                                                             |                  |              
|RECLAMATION BONDS (Note 3)                                   | 81,192           | 81,192       
|EQUIPMENT (Note 4)                                           | 36,122           | 43,037       
|OIL AND GAS PROPERTIES (Note 5)                              |                  |              
|Proved properties                                            | 803,384          | 823,706      
|Unproved properties                                          | 498,969          | 398,222      
|                                                             | $	1,569,154      | $	1,644,962  
|                                                             |                  |              
|                                                             |                  |              
|CURRENT LIABILITIES                                          |                  |              
|Accounts payable and accrued liabilities                     | $	325,369        | $	339,592    
|Due to related parties (Note 6)                              | 130,777          | 123,500      
|                                                             | 456,146          | 463,092      
|ASSET RETIREMENT OBLIGATIONS (Note 7)                        | 15,365           | 15,365       
|                                                             | 471,511          | 478,457      
|STOCKHOLDERS' EQUITY                                         |                  |              
|Capital stock (Note 8)                                       |                  |              
|Common stock $0.001 par value: 500,000,000 shares authorized |                  |              
|28,610,350 shares issued and outstanding                     |                  |              
|(July 31, 2008 - 27,615,685)                                 | 28,611           | 27,616       
|Additional paid-in capital                                   | 6,448,667        | 5,858,651    
|Share subscriptions                                          | 18,012           | 68,012       
|Deficit accumulated during the exploration stage             | (5,397,647)      | (4,787,774)  
|                                                             | 1,097,643        | 1,166,505    
|                                                             | $	1,569,154      | $	1,644,962  



COMMITMENTS AND CONTINGENCIES (Notes 1 and 9)





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



4



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STRATEGIC AMERICAN OIL CORPORATION(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)



|                                                                       | Three Months
Ended
January 31,
2009 | Three Months
Ended
January 31,
2008 | Six Months
Ended
January 31,
2009 | Six Months
Ended
January 31,
2008 | For the
Period from
May 16, 2003
(inception) to
January 31, 2009
|---------------------------------------------------------------------- | ----------------------------------- | ----------------------------------- | --------------------------------- | --------------------------------- | ----------------------------------------------------------------
|OIL AND GAS REVENUES (Note 6)                                          | $127,769                            | $226,497                            | $263,196                          | $420,670                          | $2,037,316                                                      
|EXPENSES                                                               |                                     |                                     |                                   |                                   |                                                                 
|Consulting fees                                                        | 73,052                              | 151,204                             | 244,444                           | 237,039                           | 1,264,270                                                       
|Consulting fees - stock based (Note 8)                                 | 5,555                               | -                                   | 11,111                            | 82,000                            | 971,500                                                         
|Depreciation and depletion                                             | 17,310                              | 12,323                              | 27,237                            | 26,760                            | 158,401                                                         
|Direct operating costs (Note 6)                                        | 103,632                             | 248,631                             | 190,792                           | 398,926                           | 1,511,233                                                       
|General and administrative                                             | 32,410                              | 36,030                              | 92,978                            | 72,268                            | 348,566                                                         
|Impairment of properties (Note 5)                                      | 3,700                               | -                                   | 3,700                             | -                                 | 237,006                                                         
|Interest and financing charges (Note 6)                                | 9,757                               | -                                   | 9,757                             | -                                 | 9,757                                                           
|Management fees (Note 6)                                               | 81,224                              | 78,982                              | 171,744                           | 170,658                           | 875,301                                                         
|Management fees - stock
            based (Note 8)                     | -                                   | -                                   | -                                 | -                                 | 1,200,000                                                       
|Professional fees                                                      | 50,617                              | 88,025                              | 108,019                           | 120,694                           | 566,958                                                         
|Travel and promotion                                                   | 263                                 | 31,070                              | 13,287                            | 59,940                            | 291,971                                                         
|                                                                       | 377,520                             | 646,265                             | 873,069                           | 1,168,285                         | 7,434,963                                                       
|NET LOSS FOR THE PERIOD                                                | $(249,751)                          | $(419,768)                          | $(609,873)                        | $(747,615)                        | $(5,397,647)                                                    
|BASIC AND DILUTED NET
   LOSS PER SHARE                                | $	(0.01)                            | $	(0.02)                            | $	(0.02)                          | $	(0.03)                          |                                                                 
|WEIGHTED AVERAGE NUMBER
   OF SHARES OUTSTANDING,
   BASIC AND DILUTED | 28,610,350                          | 27,615,351                          | 28,423,004                        | 27,185,627                        |                                                                 





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



5



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STRATEGIC AMERICAN OIL CORPORATION(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)



|                                         | Common Stock | Additional | Share           | Accumulated   | Stockholders'
|---------------------------------------- | ------------ | ---------- | --------------- | ------------- | -------------
|                                         | Shares       | Amount     | Paid-in Capital | Subscriptions | Deficit      
|Balance, July 31, 2008                   | 27,615,351   | $27,616    | $5,858,651      | $68,012       | $(4,787,774) 
|                                         |              |            |                 |               |              
|Common stock                             |              |            |                 |               |              
|Issued for cash at $0.60
      per share | 994,999      | 995        | 596,005         | (50,000)      | -            
|                                         |              |            |                 |               |              
|Share issuance costs                     | -            | -          | (17,100)        | -             | -            
|                                         |              |            |                 |               |              
|Stock based compensation                 | -            | -          | 11,111          | -             | -            
|                                         |              |            |                 |               |              
|Net loss for the period                  | -            | -          | -               | -             | (609,873)    
|Balance, January 31, 2009                | 28,610,350   | $28,611    | $6,448,667      | $18,012       | $(5,397,647) 





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









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STRATEGIC AMERICAN OIL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)



|                                                                        | Six Months
Ended
January 31, 2009 | Six Months
Ended
January 31, 2008 | For the Period
From May 16, 2003
(inception) to
January 31, 2009
|----------------------------------------------------------------------- | --------------------------------- | --------------------------------- | ----------------------------------------------------------------
|CASH FLOWS FROM OPERATING ACTIVITIES                                    |                                   |                                   |                                                                 
|Net loss for the period                                                 | $(609,873)                        | $(747,615)                        | $(5,397,647)                                                    
|Adjustments to reconcile net loss to net cashfrom operating activities: |                                   |                                   |                                                                 
|Depreciation and depletion                                              | 27,237                            | 26,760                            | 158,401                                                         
|Impairment loss on oil and gas properties                               | 3,700                             | -                                 | 237,006                                                         
|Stock based compensation                                                | 11,111                            | 82,000                            | 2,171,500                                                       
|Changes in operating assets and liabilities:                            |                                   |                                   |                                                                 
|Accounts receivable                                                     | 178,279                           | 30,343                            | (11,235)                                                        
|Other current assets                                                    | (78,359)                          | (12,900)                          | (120,000)                                                       
|Accounts payable and accrued liabilities                                | 45,777                            | 104,816                           | 385,369                                                         
|NET CASH FLOWS USED IN OPERATING ACTIVITIES                             | (422,128)                         | (516,596)                         | (2,576,606)                                                     
|                                                                        |                                   |                                   |                                                                 
|CASH FLOWS FROM FINANCING ACTIVITIES                                    |                                   |                                   |                                                                 
|Issuance of shares for cash, net of share issuance costs                | 469,900                           | 395,800                           | 4,249,897                                                       
|Advances and repayments to related parties                              | 7,277                             | -                                 | 144,670                                                         
|NET CASH FLOWS FROM FINANCING ACTIVITIES                                | 477,177                           | 395,800                           | 4,394,567                                                       
|                                                                        |                                   |                                   |                                                                 
|CASH FLOWS FROM INVESTING ACTIVITIES                                    |                                   |                                   |                                                                 
|Acquisition of oil and gas properties                                   | (104,447)                         | (174,976)                         | (1,653,867)                                                     
|Purchase of equipment                                                   | -                                 | (7,002)                           | (64,650)                                                        
|Reclamation bonds                                                       | -                                 | (19,317)                          | (81,192)                                                        
|NET CASH FLOWS USED IN INVESTING ACTIVITIES                             | (104,447)                         | (201,295)                         | (1,799,709)                                                     
|                                                                        |                                   |                                   |                                                                 
|INCREASE (DECREASE) IN CASH                                             | (49,398)                          | (322,091)                         | 18,252                                                          
|CASH, BEGINNING                                                         | 67,650                            | 667,722                           | -                                                               
|CASH, ENDING                                                            | $	18,252                          | $	345,631                         | $	18,252                                                        



SUPPLEMENTAL CASH FLOW INFORMATION AND



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





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STRATEGIC AMERICAN OIL CORPORATION(An Exploration Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2009 (Unaudited)





NOTE 1:              NATURE OF OPERATIONS

Strategic American Oil Corporation (the "Company") was incorporated as Carlin Gold Corporation on April 12, 2005 in Nevada, U.S.A.  On July 11, 2005 the Company changed its name to Nevada Gold Corp., on October 18, 2005 the Company changed its name to Gulf States Energy Inc., and on September 5, 2006 the Company changed its name to Strategic American Oil Corporation.  The Company is an exploration stage company as it has not generated significant revenues from operations.  The Company was formed for the purpose of oil and gas exploration and development.  The Company owns 100% of Penasco Petroleum Inc. ("Penasco"), a Nevada corporation incorporated on November 23, 2005.

The accompanying consolidated financial statements have been prepared on the basis of a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  At January 31, 2009, the Company had a working capital deficiency of $306,659 and has incurred significant losses since inception and further losses are anticipated in the development of its oil and gas property interests.  The ability of the Company to continue as a going concern is dependent on raising additional capital to fund ongoing exploration and development and ultimately on generating future profitable operations.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.  Since internally generated cash flow will not fund development and commercialization of the Company's oil and gas properties, the Company will require significant additional financial resources and will be dependent on future financings to fund its ongoing exploration and development as well as other working capital requirements.  The Company's future capital requirements will depend on many factors including the rate and extent of progress in its exploration and development programs.  There can be no assurance the Company will be successful in its efforts to raise additional financing or if financing is available, that it will be on terms that are acceptable to the Company.

Management is addressing going concern remediation through raising additional sources of capital for operations and planned property acquisitions.  Management's plans are intended to increase the Company's financial stability and improve the efficiency of continuing operations.  The Company continues to raise capital through private placements to meet immediate working capital requirements.  Management expects to be able to complete planned property acquisitions and funding of on-going operations.  These measures, if successful, will contribute to reducing the risk of going concern uncertainties for the Company over the next twelve to twenty-four months.

Unaudited Interim Consolidated Financial Statements

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information.  They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements.  However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the consolidated financial statements for the year ended July 31, 2008 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission.  The interim unaudited consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K.  In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made.  Operating results for the six months ended January 31, 2009 are not necessarily indicative of the results that may be expected for the year ending July 31, 2009.

8



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NOTE 2:              SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

These consolidated financial statements are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America.  The accompanying consolidated financial statements include the accounts of its wholly-owned subsidiary, Penasco.  All significant inter-company transactions and balances have been eliminated upon consolidation.

Use of Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and revenues and expenses during the period reported.  By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant.  Significant areas requiring management's estimates and assumptions are determining the fair value of transactions involving common stock, and valuation and impairment losses on oil and gas property acquisitions.  Other areas requiring estimates include deferred tax balances, depreciation and depletion, and valuation of stock based compensation.  Actual results could differ from those estimates.

Foreign Currency Translation

The functional currency of the Company, including its subsidiary, is United States dollars.  In accordance with SFAS No. 52, "Foreign Currency Translation", foreign denominated monetary assets and liabilities are translated into their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date.  Non-monetary assets and liabilities are translated at the transaction date.  Revenue and expenses are translated at average rates of exchange during the year.  Net gains and losses resulting from foreign exchange translations and foreign currency exchange gains and losses on transactions occurring in a currency other than the Company's functional currency are included in the determination of net income in the period.

Financial Instruments

The fair values of cash and cash equivalents, other current monetary assets, accounts payable and accrued liabilities were estimated to approximate their carrying values due to the immediate or short-term maturity of these financial instruments.  The Company's operations and financing activities are conducted primarily in United States dollars, and as a result the Company is not subject to significant exposure to market risks from changes in foreign currency rates.  Management has determined that the Company is not exposed to significant credit risk.

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear any interest.  The Company regularly reviews collectability and establishes or adjusts an allowance for uncollectible amounts as necessary using the specific identification method.  Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.  There were no reserves for uncollectible amounts in the periods presented.

Equipment

Equipment acquisitions are recorded at cost and are amortized using the straight-line method over estimated useful lives at the following rates:





|Computer Equipment
Furniture and Fixtures
Production Equipment | 2 years
5 years
5 years
|-------------------------------------------------------------- | -----------------------
|Leasehold Improvements                                         | term of the lease      



Oil and Gas Properties

The Company follows the full cost method of accounting for its oil and gas operations whereby all cost related to the acquisition of petroleum and natural gas interests are capitalized.  Such costs include land and lease acquisition costs, annual carrying charges of non-producing properties, geological and geophysical costs, costs of drilling and equipping productive and non-productive wells, and direct exploration salaries and related benefits.  The Company operates in one cost center, being the United States.

All costs included in properties subject to amortization, are amortized on the unit-of-production method using estimates of proved reserves.  Investments in unproved properties and development projects are not amortized until proved reserves associated with the projects can be determined or impairment occurs.  If the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized.  Abandonment of oil and natural gas properties are charged to the full cost pool and amortized.



9



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NOTE 2:              SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, cont.

Under the full cost method, the net book value of oil and natural gas properties are subject to a "ceiling" amount.  The ceiling is the estimated after-tax future net cash flows from proved oil and natural gas properties, discounted at 10% per annum plus the lower of cost or fair market value of unevaluated properties.  In calculating future net revenues, prices and costs in effect at the time of the calculation are held constant for the lives of the oil and natural gas reserves, except for changes that are fixed and determinable by existing contracts.  The excess, if any, of the net book value above this ceiling is charged to expense.

Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations.

Asset Retirement Obligations

The Company has adopted the provisions of SFAS No. 143 "Accounting for Asset Retirement Obligations," which establishes standards for the initial measurement and subsequent accounting for obligations associated with the sale, abandonment or other disposal of long-lived tangible assets arising from the acquisition, construction or development and for normal operations of such assets.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.  Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life.  Recoverability of these assets is measured by comparison of its carrying amount to future undiscounted cash flows the assets are expected to generate.  An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

Revenue Recognition

Oil and natural gas revenues are recorded using the sales method whereby the Company recognizes oil and natural gas revenue based on the amount of oil and gas sold to purchasers when title passes, the amount is determinable and collection is reasonably assured.  Actual sales of gas are based on sales, net of the associated volume charges for processing fees and for costs associated with delivery, transportation, marketing, and royalties in accordance with industry standards.  Operating costs and taxes are recognized in the same period of which revenue is earned.

Income Taxes

The Company follows the liability method of accounting for income taxes.  Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances.  Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment.  As at January 31, 2009 the Company had net operating loss carry forwards; however, due to the uncertainty of realization, the Company has provided a full valuation allowance for the potential deferred tax assets resulting from these losses carry forwards.

Stock-Based Compensation

The Company records stock-based compensation in accordance with SFAS No. 123R "Share Based Payments", using the fair value method.  All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

Loss per Common Share

Basic loss per share includes no dilution and is computed by dividing loss attributable to common stockholders by the weighted average number of common shares outstanding for the period.  Diluted earnings per share reflects the potential dilution of securities that could share in the earnings (loss) of the Company.  The common shares potentially issuable on conversion of outstanding convertible debentures and exercise of stock options were not included in the calculation of weighted average number of shares outstanding because the effect would be anti-dilutive.

10



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NOTE 3:              RECLAMATION BONDS

Reclamation bonds includes interest and non-interest bearing deposits issued in the States of Louisiana $41,192 (July 31, 2008 - $41,192) and Texas $40,000 (July 31, 2008 - $40,000) to cover each State's reclamation requirement for producing operations.

NOTE 4:              EQUIPMENT

Equipment acquisitions consist of the following:

|                         |  |                  |              
|------------------------ |  | ---------------- | -------------
|                         |  | January 31, 2009 | July 31, 2008
|                         |  |                  |              
|Equipment                |  |                  |              
|Computer Equipment       |  | $	4,632          | $	4,632      
|Furniture and Fixtures   |  | 7,774            | 7,774        
|Leasehold Improvements   |  | 11,294           | 11,294       
|Production Equipment     |  | 40,950           | 40,950       
|                         |  | 64,650           | 64,650       
|Accumulated Depreciation |  | (28,528)         | (21,613)     
|                         |  | $	36,122         | $	43,037     

NOTE 5:              OIL AND GAS PROPERTIES

Proven Reserves

Barge Canal, Texas

On November 16, 2006 the Company completed an assignment and purchase agreement with OPEX Energy, LLC with an effective date of August 1, 2006.  Under the terms of the agreement, the Company paid $500,000 plus a finder's fee of $50,000 for a 100% working interest (90% after payout) and a 72.5% net revenue interest (62.25% after payout) in approximately 81 acres of an oil and gas lease (the "Welder Lease") located in Calhoun County, Texas.  At the time of the acquisition, the two wells on the Welder lease were producing assets.

South Delhi / Big Creek Field, Louisiana

On August 24, 2006, the Company entered into an assignment of oil and gas interests purchase agreement with Energy Program Accompany, LLC (the "EPA Purchase Agreement").  Under the terms of the EPA Purchase Agreement, the Company paid $250,000 to acquire the Holt Lease, the Strahan Lease and the McKay Lease, as described below.  At the time of the acquisition, one of four wells on the Holt lease, the one well on the Strahan lease, and no wells on the McKay lease were producing assets.  In December 2007 an independent registered engineer completed a reserve and economics report on the combined South Delhi and Big Creek Field properties.  The report outlined the proved developed producing reserves as of January 1, 2008 and accordingly, acquisition costs of $290,290 and development costs of $42,900 were reclassified as capitalized proved oil and gas properties.

The Holt Lease

Pursuant to the EPA Purchase Agreement, the Company acquired a 97% working interest and an 81.25% net revenue interest in approximately 136 acres in Franklin Parish, Louisiana (the "Holt Lease").

The Strahan Lease

Pursuant to the EPA Purchase Agreement, the Company acquired a 100% working interest and an 81.25% net revenue interest in approximately 40 acres in Richland Parish, Louisiana (the "Strahan Lease").

The McKay Lease

Pursuant to the EPA Purchase Agreement, the Company acquired a 100% working interest and an 82.08% net revenue interest in approximately 80 acres in Richland Parish, Louisiana (the "McKay Lease"). On November 1, 2008 the Company assigned 100% of its interest in and to the McKay No. 1 well bore and leasehold.  Pursuant to the Assignment Agreement, the Company retained ownership to all surface equipment, which was subsequently moved to the Company's Holt Lease in Franklin Parish.  Additionally, all plugging liabilities were transferred to the purchaser and the Company retained no ORRI or working interest in the McKay No. 1 well.

11



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NOTE 5:              OIL AND GAS PROPERTIES, cont.

Assignment of Interests to Tradestar Resources Corporation

In conjunction with the acquisition of the Holt Lease, the Strahan Lease and the McKay Lease, the Company assigned a 25% working interest with respect to each lease to Tradestar Resources Corporation as a finder's fee.  In each case, the 25% working interest consists of two parts - a 12.5% working interest prior to payout and a 12.5% back in after payout agreement working interest.  Tradestar Energy Inc., a wholly owned subsidiary of Tradestar Resources Corporation, became the operator of record for the Holt, Strahan and McKay Leases as of December 1, 2007.

Unproven Reserves

Gobbler's Knob Prospect, Illinois

Through December 15, 2008 the Company had entered into several oil and gas leases in Hamilton County, Illinois.  The leases total approximately 214 gross acres pursuant to which the Company has a 100% working interest and 87.5% net revenue interest.  On December 15, 2008 the Company assigned all 214 gross acres of the Gobbler's Knob prospect.  Pursuant to the Assignment Agreement, the Company retained a 7.5% ORRI and 10% back in after payout on any reworked drilled wells, and the purchaser must re-work or drill one well each 12 months to hold the acreage.  Accordingly, acquisition costs of $3,700 were written off to impairment during the period.

Janssen Lease, Texas

In October 2005 the Company entered into an agreement to purchase a 25% working interest and an 18.75% net revenue interest in approximately 138 acres of an oil and gas lease (the "Janssen Lease") located in Karnes County, Texas.  This lease interest was acquired from Rockwell Energy of Texas LLC for $220,000 plus additional payments of $13,800 to negotiate new oil, gas and mineral leases.  On December 20, 2006 the Company farmed out 100% of the working interest to ETG Energy Resources, retaining a 3% back in after payout on any producing zones and a 5% non-promoted option to participate in any offset drilling within the leased area.  At July 31, 2007 management determined the recoverable value of its interest to be $75,000 and accordingly, costs of $158,800 were written off to impairment in the 2007 fiscal year.

Koliba Prospect, Texas

Through January 31, 2009 the Company has entered into to several lease agreements with certain mineral owners of a 79 acre tract, and purchased an assignment of leases on an adjoining 64 acre tract (the "Koliba Lease") in Victoria County, Texas.  The Company has leased over 95% of the minerals with additional leases pending.  The property underlying these lease agreements is located near the Barge Canal project and has one shut-in oil/gas well, which is in close proximity to our Barge Canal gas sales line and salt water disposal system.

Little Mule Creek Project, Oklahoma

In October 2007 the Company entered into an agreement with Marmik Oil Company ("Marmik") of Eldorado, Arkansas to purchase a 4.0% working interest in the Little Mule Creek Project located in Alfalfa and Woods Counties, Oklahoma.  Under the terms of the agreement, the Company's interest is subject to a 25% back in after payout, which would reduce the Company's interest to 3.0%.  The prospect consists of nearly 11,550 acres.  To January 31, 2009 the Company has paid for a prorate share of land and geology-geophysical costs, charges to exercise additional lease options (prorata share), and a prorata share of drilling costs.  The initial well (RRCC#1-19), was drilled and tested and deemed to be uneconomic for commercial oil and gas production,  and will be plugged in second quarter 2009.  Accordingly, acquisition and development costs of $163,773 were deemed to be impaired during the period and added to the full cost pool, which is amortized on a unit-of-production basis.

Oakdale NE, Donoho, Markum City and DST Prospects, Illinois

Through January 31, 2009 the Company has entered into numerous oil and gas leases in Jefferson County, Illinois.  The leases total approximately 2,560 gross acres pursuant to which the Company has a 100% working interest and a 87.5% net revenue interest.

12



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NOTE 5:              OIL AND GAS PROPERTIES, cont.

Capitalized Costs of Oil and Natural Gas Producing Properties

The Company's aggregate capitalized costs related to oil and natural gas properties are as follows:

|                                 |  | January 31, 2009 | July 31, 2008
|-------------------------------- |  | ---------------- | -------------
|Proven Reserves                  |  |                  |              
|Barge Canal                      |  | $	595,424        | $	595,424    
|South Delhi / Big Creek Field    |  | 337,833          | 337,833      
|                                 |  | 933,257          | 933,257      
|Accumulated depletion            |  | (129,873)        | (109,551)    
|                                 |  | 803,384          | 823,706      
|Unproven or Unevaluated Reserves |  |                  |              
|Janssen Lease                    |  | 233,800          | 233,800      
|Little Mule Creek                |  | 163,773          | 144,090      
|Meek B-1                         |  | 74,506           | 74,506       
|                                 |  |                  |              
|Illinois Prospects               |  | 162,429          | 154,347      
|Louisiana Prospects              |  | 16,156           | 9,474        
|Texas Prospects                  |  | 85,311           | 15,311       
|                                 |  | 735,975          | 631,528      
|Impairment Loss                  |  | (237,006)        | (233,306)    
|                                 |  | 498,969          | 398,222      
|                                 |  | $	1,302,353      | $	1,221,928  

Capitalized Costs Incurred for Oil and Natural Gas Producing Activities

Costs incurred in oil and natural gas property acquisition, exploration and development activities that have been capitalized are summarized below:

|                              |  | January 31, 2009 | July 31, 2008
|----------------------------- |  | ---------------- | -------------
|Acquisition Costs             |  |                  |              
|Barge Canal                   |  | $	572,456        | $	572,456    
|Janssen Lease                 |  | 233,800          | 233,800      
|Little Mule Creek             |  | 43,086           | 43,086       
|Meek B-1                      |  | 74,506           | 74,506       
|South Delhi / Big Creek Field |  | 290,290          | 290,290      
|                              |  |                  |              
|Illinois Prospects            |  | 162,429          | 154,347      
|Louisiana Prospects           |  | 16,156           | 9,474        
|Texas Prospects               |  | 85,311           | 15,311       
|                              |  | 1,478,034        | 1,393,270    
|Development Costs             |  |                  |              
|Barge Canal                   |  | 12,246           | 12,246       
|South Delhi / Big Creek Field |  | 42,900           | 42,900       
|                              |  | 55,146           | 55,146       
|Exploration Costs             |  |                  |              
|Little Mule Creek             |  | 120,687          | 101,004      
|Retirement Obligations        |  |                  |              
|Barge Canal                   |  | 10,722           | 10,722       
|South Delhi / Big Creek Field |  | 4,643            | 4,643        
|                              |  | 15,365           | 15,365       
|                              |  | 1,669,232        | 1,564,785    
|Accumulated Depletion         |  | (129,873)        | (109,551)    
|Impairment Loss               |  | (237,006)        | (233,306)    
|                              |  | $	1,302,353      | $	1,221,928  

13



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NOTE 6:              RELATED PARTY TRANSACTIONS

During the six months ended January 31, 2009 the Company had transactions with certain officers and directors of the Company as follows:

(a)        recorded production revenues of $186,005 (2008 - $222,367) and incurred production costs of $74,120 (2008 - $238,236) for the Barge Canal property which is operated by a company controlled by an officer of the Company;

(b)        incurred $171,744 in management fees (2008 - $170,658) paid to directors and officers during the period, of which $71,777 (July 31, 2008 - $44,500) was payable at January 31, 2009.

Also outstanding at January 31, 2009 are the following promissory notes:

(a)        a $34,000 (July 31, 2008 - $54,000) promissory note bearing interest at 18% per annum which is due on demand to an officer of the Company; and

(b)        a $25,000 (July 31, 2008 - $25,000) promissory note bearing interest at 18% per annum which is due on demand to a company controlled by a director of the Company.

All related party transactions involving provision of services or tangible assets were recorded at the exchange amount, which is the value established and agreed to by the related parties reflecting arms length consideration payable for similar services or transfers.

NOTE 7:              ASSET RETIREMENT OBLIGATIONS

The Company's asset retirement obligations ("ARO's") in regards to Barge Canal and South Delhi / Big Creek Field projects (refer to Note 5) relates to site restoration.  A reconciliation between the opening and closing ARO's balances is provided below:

|                              |  | January 31, 2009 | July 31, 2008 
|----------------------------- |  | ---------------- | --------------
|                              |  |                  |               
|Barge Canal                   |  |                  |               
|Opening Balance               |  | $	10,722         | $            -
|Liabilities Incurred          |  | -                | 10,722        
|                              |  | 10,722           | 10,722        
|South Delhi / Big Creek Field |  |                  |               
|Opening Balance               |  | 4,643            | -             
|Liabilities Incurred          |  | -                | 4,643         
|                              |  | 4,643            | 4,643         
|                              |  | $	15,365         | $	15,365      

In accordance with Statement of Financial Accounting Standards No. 143 "Accounting for Asset Retirement Obligations," the Company measured the ARO's at a fair value of $15,365 and capitalized this to proved oil and gas properties.  The ARO's will accrete to $91,014 until the time at which it is expected to be settled.  A discount rate of 6.00% was used to calculate the present value of the ARO.  Actual retirement costs will be recorded against the ARO's when incurred.  Any difference between the recorded ARO's and the actual retirement costs incurred will be recorded as a gain or loss in the period of settlement.

14



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NOTE 8:              STOCKHOLDERS

Share Capital

The Company's capitalization at January 31, 2009 was 500,000,000 authorized common shares with a par value of $0.001 per share.

2009 Share Transactions

On August 25, 2008 the Company completed a private placement for an aggregate of 183,333 Units as follows:

(a)        100,000 Units of the Company, at a subscription price of $0.60 per Unit, with each such Unit being comprised of one common share of common stock of the Company and one-half of one common stock share purchase warrant of the Company, with each such whole warrant being exercisable for one additional common share of the Company at an exercise price of $1.00 per warrant share for a period of three years from the date that the Company's common shares are first listed for trading on any stock exchange or over-the-counter bulletin board market, being August 12, 2008; and

(b)        83,333 Units of the Company, at a subscription price of $0.60 per Unit, with each such Unit being comprised of one common share and one common share purchase warrant, with each such warrant being exercisable for one additional common share of the Company at an exercise price of $1.00 per warrant share for a period of one year from the date that the Company's common shares are first listed for trading on any stock exchange or over-the-counter bulletin board market, being August 12, 2008.

On August 29, 2008 the Company completed a private placement for 570,000 Units at a subscription price of $0.60 per Unit for gross proceeds of $342,000.  Each Unit is comprised of one common share and one non-transferable share purchase warrant of the Company.  Each warrant entitles the holder to purchase an additional common share of the Company at an exercise price of $1.00 per warrant share, for a period of one year from the date the Company's common stock are first listed for trading on any stock exchange or over-the-counter bulletin board market, being August 12, 2008.  The Company has paid finders' fees in conjunction with the completion of the private placement in the amount of $17,100 in cash.

On September 16, 2008 the Company completed a private placement for 158,333 Units at a subscription price of $0.60 per Unit for gross proceeds of $95,000.  Each Unit is comprised of one common share and one non-transferable share purchase warrant of the Company.  Each warrant entitles the holder to purchase an additional common share of the Company at an exercise price of $1.00 per warrant share, for a period of one year from the date the Company's common stock are first listed for trading on any stock exchange or over-the-counter bulletin board market, being August 12, 2008.

On October 10, 2008 the Company completed a private placement of 83,333 Units at a subscription price of $0.60 per Unit for gross proceeds of $50,000.  Each Unit is comprised of one common share and one non-transferable share purchase warrant of the Company.  Each warrant entitles the holder to purchase an additional common share of the Company at an exercise price of $1.00 per warrant share, for a period of one year from the date the Company's common stock are first listed for trading on any stock exchange or over-the-counter bulletin board market, being August 12, 2008.

The Company has not separately disclosed the fair market value of the warrants attached to the unit private placements during the current and prior fiscal years.

Share Purchase Warrants

A summary of the Company's common share purchase warrants as at January 31, 2009 and changes during the period is presented below:

|                          | Number of
Warrants | Weighted Average
Exercise Price | Weighted Average
Remaining
Life (years)
|------------------------- | ------------------ | ------------------------------- | ---------------------------------------
|Balance, July 31, 2007    | 6,392,759          | $	0.81                          | 1.79                                   
|Issued                    | 724,666            | 1.00                            | 1.33                                   
|Balance, July 31, 2008    | 7,117,425          | 0.83                            | 0.79                                   
|Issued                    | 944,999            | 1.00                            | 1.10                                   
|Cancelled or Expired      | (6,565,384)        | (0.86)                          | n/a                                    
|Balance, January 31, 2009 | 1,497,040          | $	0.79                          | 0.78                                   



15



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NOTE 8:              STOCKHOLDERS' EQUITY, cont.

Stock Compensation Plan

On July 5, 2007 the Company adopted the 2007 Stock Incentive Plan allowing for the issuance of up to 10,000,000 common shares.

On July 5, 2007 the Company granted a total of 3,800,000 stock options to consultants, officers and directors, of which 3,700,000 vested immediately and the remaining 100,000 vest over 18 months.  Of the 3,800,000 options granted, 250,000 were granted at an exercise price of $0.10 per share and 3,550,000 were granted at an exercise price of $0.35 per share.  The term of the options is ten years.  The fair value of the vested options at the date of grant of $1,915,000 was estimated using the Black-Scholes option pricing model with an expected life of 5 years, a risk free interest rate of 5.25%, a dividend yield of 0%, and an expected volatility of 100%.  Of this, $1,881,667 has been recorded as stock based consulting and management fees in the year ended July 31, 2007, $22,222 in the fiscal year ended July 31, 2008 and the remaining $11,111 will be expensed in the fiscal year ended July 31, 2009.

A summary of the Company's stock options as at January 31, 2009 and changes during the period is presented below:

|                          | Number of
Options | Weighted Average
Exercise Price | Weighted Average
Remaining
Life (years)
|------------------------- | ----------------- | ------------------------------- | ---------------------------------------
|Balance, July 31, 2007    | 3,800,000         | $	0.33                          | 9.93                                   
|Issued                    | -                 | -                               | -                                      
|Balance, July 31, 2008    | 3,800,000         | 0.33                            | 8.83                                   
|Issued                    | -                 | -                               | -                                      
|Balance, January 31, 2009 | 3,800,000         | $	0.33                          | 8.67                                   

A summary of the status of the Company's unvested options as of January 31, 2009 and changes during the six months ended January 31, 2009 is presented below:

|                           |  | Number of
Shares | Weighted-Average
Grant Date
Fair Value
|-------------------------- |  | ---------------- | --------------------------------------
|Unvested, July 31, 2007    |  | 66,666           | $	0.50                                
|Vested                     |  | (33,333)         | 0.50                                  
|Unvested, July 31, 2008    |  | 33,333           | 0.50                                  
|Vested                     |  | (33,333)         | 0.50                                  
|Unvested, January 31, 2009 |  | -                | $      -                              

NOTE 9:              COMMITMENTS

On December 20, 2006 the Company entered into a Professional Services Agreement with a consultant, who agreed to become an officer of the Company as of May 1, 2007.  The initial term of the agreement is two years expiring on November 30, 2008.  Pursuant to the terms and provisions of the Professional Services Agreement: (i) the Company shall pay a monthly fee of $10,000; (ii) the Company issued 500,000 shares of its restricted common stock; and (iii) the Company granted an aggregate of 600,000 options to purchase shares of its common stock at $0.35 for a ten year term.

The Company has entered into various employment and consulting agreements with both fixed compensation arrangements and established fees paid on a daily basis as needed.  There are no outstanding agreements at January 31, 2009 with fixed compensation arrangements.

NOTE 10           SUPPLEMENTAL CASH FLOW INFORMATION ANDNONCASH INVESTING AND FINANCING ACTIVITIES

On October 1, 2007, the Company issued 200,000 shares of its common stock pursuant to a Consulting Services Agreement.  The Company recorded the fair value of the shares issued at $0.41 per share or $82,000 as a stock-based consulting expense.

|                  | Six Months Ended
|----------------- | ----------------
|                  | January 31, 2009
|                  |                 
|Interest paid     | $            -  
|Income taxes paid | $            -  



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FORWARD-LOOKING STATEMENTS

This Form 10-Q for the quarterly period ended January 31, 2009 contains forward-looking statements that involve risks and uncertainties.  Forward-looking statements in this document include, among others, statements regarding our capital needs, business plans and expectations.  Such forward-looking statements involve assumptions, risks and uncertainties regarding, among others, the success of our business plan, availability of funds, government regulations, operating costs, our ability to achieve significant revenues, our business model and products and other factors.  Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements.  In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology.  In evaluating these statements, you should consider various factors, including the assumptions, risks and uncertainties set forth in reports and other documents we have filed with or furnished to the SEC, including, without limitation, our Form 10-K for the period ended July 31, 2008.  These factors or any of them may cause our actual results to differ materially from any forward-looking statement made in this document.  While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding future events, our actual results will likely vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.  The forward-looking statements in this document are made as of the date of this document and we do not intend or undertake to update any of the forward-looking statements to conform these statements to actual results, except as required by applicable law, including the securities laws of the United States.

OVERVIEW

As used in this Quarterly Report: (i) the terms "we", "us", "our", "Strategic", "Penasco" and the "Company" mean Strategic American Oil Corporation and its wholly owned subsidiary, Penasco Petroleum Inc., unless the context otherwise requires; (ii) "SEC" refers to the Securities and Exchange Commission; (iii) "Securities Act" refers to the Securities Act of 1933, as amended; (iv) "Exchange Act" refers to the Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States dollars unless otherwise indicated.

The following discussion of our plan of operations, results of operations and financial condition as at and for the six months ended January 31, 2009 should be read in conjunction with our unaudited consolidated interim financial statements and related notes for the six months ended January 31, 2009 included in this Quarterly Report, as well as our Annual Report on Form 10-K for the year ended July 31, 2008.

General

We were incorporated under the laws of the State of Nevada on April 12, 2005 under the name "Carlin Gold Corporation".  On July 19, 2005, we changed our name to "Nevada Gold Corp.".  On October 18, 2005, we changed our name to "Gulf States Energy, Inc." and increased our authorized capital from 100,000,000 shares of common stock to 500,000,000 shares of common stock, par value $0.001 per share.  On September 5, 2006, we changed our name to "Strategic American Oil Corporation".  We own 100% of the issued and outstanding share capital of Penasco, which was formed under the laws of the State of Nevada on November 23, 2005.

Our principal offices are located at Suite 2015, 600 Leopard Street, Corpus Christi, Texas, 78473.  Our telephone number is (361) 884-7474 and our fax number is (512) 233-2531.

Our Business Operations

We are a natural resource exploration and production company engaged in the exploration, acquisition and development of oil and gas properties in the United States.  We maintain an aggregate of approximately 395 gross (209 net) developed acres and approximately 14,253 gross (3,162 net) undeveloped acres pursuant to leases or acquisitions as described below.  Of that acreage, we maintain approximately 176 gross (132 net) developed acres in Louisiana, 219 gross (77 net) developed acres in Texas, 2,560 gross (2,560 net) undeveloped acres in Illinois, 11,550 gross (462 net) undeveloped acres in Oklahoma, and 143 gross (140 net) undeveloped acres in Texas.  Total developed and undeveloped acreage is approximately 14,648 gross acres (3,371 net).

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Acreage

The following table sets forth information regarding our gross and net developed and undeveloped oil and natural gas acreage under lease through the date of this Quarterly Report:

|                    |            
|------------------- | -----------
|                    | Gross Acres
|Developed Acreage   |            
|Illinois            | -          
|Louisiana           | 175.90     
|Oklahoma            | -          
|Texas               | 219.00     
|                    |            
|Undeveloped Acreage |            
|Illinois            | 2,560.33   
|Louisiana           | -          
|Oklahoma            | 11,550.00  
|Texas               | 143.00     
|                    | 14,648.23  

(*)     Certain of our interests in oil and natural gas properties are less than 100%.  Accordingly, we have presented the acreage of our mineral properties on a net acre basis.

Productive Wells

The following table sets forth information regarding the total gross and net productive wells, expressed separately for oil and gas.  All of our productive oil and gas wells were located in Texas and Louisiana.  For the purposes of this subsection: (i) one or more completions in the same bore hole have been counted as one well, and (ii) a well with one or multiple completions at least one of which is an oil completion has been classified as an oil well.  We do not have any wells with multiple completions.

|          | Oil   | Natural Gas
|--------- | ----- | -----------
|          | Gross | Net        
|Louisiana | 3     | 2.25       
|Texas     | 2     | 2.00       
|          | 5     | 4.75       

A productive well is an exploratory well, development well, producing well or well capable of production, but does not include a dry well.  A dry well, or a hole, is an exploratory or a development well found to be incapable of producing either oil or gas in sufficient quantities to justify completion as an oil or gas well.

A gross well is a well in which a working interest is owned, and a net well is the result obtained when the sum of fractional ownership working interests in gross wells equals one.  The number of gross wells is the total number of wells in which a working interest is owned, and the number of net wells is the sum of the fractional working interests owned in gross wells expressed as whole numbers and fractions thereof.  The "completion" of a well means the installation of permanent equipment for the production of oil or gas, or, in the case of a dry hole, to the reporting of abandonment to the appropriate agency.

Production and Price History

We began production of oil in August 2006 with the acquisition of the Holt, Strahan and McKay leases in Franklin and Richland Parish, Louisiana.  In November 2006, we completed the acquisition of the Welder lease in Calhoun County, Texas, which produces both oil and gas.  The effective date of the Welder acquisition was August 1, 2006 and accordingly, production results from the effective date through the closing date have been included in operating results.  The table below sets forth the net quantities of oil and gas production, net of royalties, attributable to us from initial production in August 2006 through January 31, 2009.  For the purposes of this table, the following terms have the following meanings: (i) "Bbl" means one stock tank barrel or 42 U.S. gallons liquid volume; (ii) "MBbls" means one thousand barrels of oil; (iii) "Mcf" means one thousand cubic feet; (iv) "Mcfe" means one thousand cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil; (v) "MMcfe/d" means one million cubic feet equivalent per day, determined by using the ratio of six Mcf of natural gas to one Bbl of oil; and (vi) "MMcf" means one million cubic feet.

18



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|                            | Six Months
Ended
January 31, 2009 | Six Months
Ended
January 31, 2008 | Period from
Inception to
January 31, 2009
|--------------------------- | --------------------------------- | --------------------------------- | -----------------------------------------
|Production Data             |                                   |                                   |                                          
|Oil (MBbls)                 | 2.6                               | 4.6                               | 21.4                                     
|Natural Gas (MMcf)          | 6.0                               | 5.3                               | 36.7                                     
|Total (MMcfe)               | 22.1                              | 32.6                              | 164.5                                    
|Average Prices              |                                   |                                   |                                          
|Oil (per Bbl)               | $	80.16                           | $	85.14                           | $	83.64                                  
|Natural Gas (per Mcf)       | $	6.94                            | $	5.65                            | $	6.73                                   
|Total (per Mcfe)            | $	11.61                           | $	12.81                           | $	12.33                                  
|Average Costs (per Mcfe)    |                                   |                                   |                                          
|Lease Operating Expenses(*) | $	7.89                            | $	11.70                           | $	7.66                                   
|Production Tax Expense      | $	0.75                            | $	0.53                            | $	0.43                                   

(*)     Transportation and administrative expenditures are included in lease operating expenses.

Net production includes only production that is owned by us, whether directly or beneficially, and produced to our interest, less royalties and production due to others.  Production of natural gas includes only marketable production of gas on an "as sold" basis.  Production of natural gas includes only dry, residue and wet gas, depending on whether liquids have been extracted before we passed title, and does not include flared gas, injected gas and gas consumed in operations.  Recovered gas, lift gas and reproduced gas are not included until sold.

Drilling Activity

As of the date of this Quarterly Report, we have participated in one (1) drilling venture with Brayton Operating Company based in Corpus Christi, Texas.  A 12.5% working interested was purchased in a middle-lower Frio test (Meeks No. B-1), Victoria County, Texas.  The prospect was based on 3-D seismic data and adjacent well information.  The well was drilled, logged and plugged as indicated gas sands were deemed uneconomic.  We have completed five (5) workovers of producing or previously producing wells on our leases in the Delhi South and Big Creek fields in Richland and Franklin Parishes, Louisiana.  We also participated in the side-track re-entry on the Janssen No. A-1 in Karnes County, Texas.  All producing wells in Louisiana are operated for us by Tradestar Energy, Inc. ("Tradestar") based in Hot Springs, Arizona.  The Welder (Barge Canal) wells are operated for us by Carter E&P, LLC, based in Corpus Christi, Texas.  The Janssen lease (Karnes Co., Texas) is operated by PROEX Energy Management Company ("Proex") based in Houston, Texas.  We pay a monthly management fee to the operating companies for their services.

As of the date of this Quarterly Report, we have also drilled one horizontal well in the Little Mule Creek prospect (R&R Cattle No. 1-19) in Section 19, T29N, R12W, Alfalfa County, Oklahoma.

Our Properties

Barge Canal, Texas

On November 16, 2006 we completed an assignment and purchase agreement with OPEX Energy, LLC with an effective date of August 1, 2006.  Under the terms of the agreement, we acquired a 100% working interest (90% after payout) and a 72.5% net revenue interest (62.25% after payout) in approximately 81 acres of an oil and gas lease (the "Welder Lease") located in Calhoun County, Texas.  At the time of the acquisition, the two wells on the Welder lease were producing assets.

As of the date of this Quarterly Report, two wells are producing gas and oil from the property.  The wells are operated using a gas lift system.  A third well is utilized for salt water disposal.  The wells have additional proven non-producing zones behind pipe.  We intend to develop the proved developed non-producing (PDNP) zones as current producing horizons deplete.

South Delhi/Big Creek Field, Louisiana

On August 24, 2006, we entered into an assignment of oil and gas interests purchase agreement with Energy Program Accompany, LLC (the "EPA Purchase Agreement").  At the time of the acquisition, one of four wells on the Holt lease, the one well on the Strahan lease, and no wells on the McKay lease were producing assets.  Under the terms of the EPA Purchase Agreement, we paid $250,000 to acquire the Holt Lease, the Strahan Lease and the McKay Lease, as described below.

19



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The Holt Lease

Pursuant to the EPA Purchase Agreement, we acquired a 97% working interest and an 81.25% net revenue interest in approximately 136 acres in Franklin Parish, Louisiana (the "Holt Lease").  In the months following the acquisition, we re-worked the Holt No. 10 well, pulling the well and replacing the rods, tubing and downhole pump.  For Holt No. 24, we pulled the well, replaced the rods, tubing and downhole pump.  On Holt No. 22, we pulled the well, replaced the tubing, rods and downhole pump.  We also installed new surface pumping unit (320 pump jack).  For the salt water disposal well, we cleaned up and installed a new triplex pump.  We built new all weather roads to wells and built new tank battery (oil storage tanks and separators) for Holt No. 22 and 24.  We also buried flow lines (oil and salt water), installed overhead power to all wells with transformer capable of handling additional load (wells), removed old tanks and separators, and built an equipment storage location.

As of the date of this Quarterly Report, we are producing oil from the Holt No.'s 10 and 22 wells.  The Holt No. 4 and 24 wells are off-line pending workover or offset drilling.  The Holt No. 15 well is utilized as a salt water disposal well.

The Strahan Lease

Pursuant to the EPA Purchase Agreement, we acquired a 100% working interest and an 81.25% net revenue interest in approximately 40 acres in Richland Parish, Louisiana (the "Strahan Lease").

As of the date of this Quarterly Report, we are producing oil from the Strahan No. 1 well.

The McKay Lease

Pursuant to the EPA Purchase Agreement, we acquired a 100% working interest and an 82.08% net revenue interest in approximately 80 acres in Richland Parish, Louisiana (the "McKay Lease").  On the McKay lease, we re-worked the well but did not improve production.  On November 1, 2008 we assigned 100% of our interest in and to the McKay No. 1 well bore and leasehold.  Pursuant to the Assignment Agreement, we retained ownership to all surface equipment, which was subsequently moved to our Holt Lease in Franklin Parish.  Additionally, all plugging liabilities were transferred to the purchaser and we retained no ORRI or working interest in the McKay No. 1 well.

Assignment of Interests to Tradestar Resources Corporation

In conjunction with our acquisition of the Holt Lease, the Strahan Lease and the McKay Lease, we assigned a 25% working interest with respect to each lease to Tradestar Resources Corporation as a finders fee.  The 25% working interest consisted of two parts, (i) a 12.5% working interest assigned upon acquisition of the leases, and (ii) a 12.5% back in assigned with an effective date of January 1, 2007.  Tradestar Energy Inc., a wholly owned subsidiary of Tradestar Resources Corporation, became the operator of record for the Holt, Strahan and McKay Leases as of December 1, 2007.

Janssen Lease, Texas

In October 2005, we entered into an agreement to purchase a 25% working interest and an 18.75% net revenue interest in approximately 138 acres of an oil and gas lease (the "Janssen Lease") located in Karnes County, Texas.  This lease interest was acquired from Rockwell Energy.  An unsuccessful attempt was made to re-enter and re-complete a Roeder gas sand at 10,300 feet using side track drilling techniques.  As the original lease was set to expire, we negotiated a new oil and gas lease with the mineral owners and farmed out 100% of the working interest to ETG Energy Resources.  We retained a 3% working interest on any producing zones and a 5% non-promoted option to participate in any offset drilling within the leased area.  ETG successfully re-completed in the Roeder Sand and the Janssen A-1 well is currently producing between 250-300 mcf gas per day and approximately six (6) barrels per day of condensate.

Koliba Lease, Texas

Through the date of this Quarterly Report, we have entered into to several lease agreements with certain mineral owners of a 79 acre tract, and purchased an assignment of leases on an adjoining 64 (the "Koliba Lease") in Victoria County, Texas.  To date, we have leased over 95% of the minerals with additional leases pending.  The property underlying these lease agreements is located near our Welder lease and has one shut-in oil/gas well.  The well has proven oil and gas zones behind pipe that previously produced 30 Bbls oil per day plus water.  The well is in close proximity to our Welder gas sales line and salt water disposal system.  We will drill one well as an offset to the former Koliba No. 1 well, and will retain a carried 25% interest to casing point.

20



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Little Mule Creek Project, Oklahoma

In October 2007, we entered into an agreement with Marmik Oil Company ("Marmik") of Eldorado, Arkansas to purchase a 4.0% working interest in the Little Mule Creek Project located in Alfalfa and Woods Counties, Oklahoma.  Our interest is subject to a 25% back in after payout, which would reduce our interest to 3.0%.  The prospect consists of nearly 11,550 acres.  An initial horizontal well was spudded in around January 9, 2008 and is at 3,720 feet through the date of this Quarterly Report.  The well is planned to be drilled vertically to 4,950 feet and then drilled horizontally approximately 1,867 feet to a total vertical depth of approximately 5350 feet.  The main target zone is the Maquoketa dolomitic shale.  The Maquoketa zone produces from a number of vertical wells in the lease area, but this will be the first horizontal drilling in the field.  There are approximately 160 drilling locations within the current leased area.  In addition to the Maquoketa zone, three other potentially productive zones are present in the prospect area: Tonkawa Sands at 4,500 feet, Mississippian Chat at 4,900 feet and Misner Sand at 5,000 feet.  The initial well (RRCC#1-19), was drilled and tested and deemed to be uneconomic for commercial oil and gas production,  and will be plugged in second quarter 2009.  Accordingly, acquisition and development costs of $163,773 were impaired during the period and added to the full cost pool, which is amortized on a unit-of-production basis.

Recent Activities

Much of the developed leasehold in Louisiana is adjacent to offset production.  A number of offset in-field drilling locations are indicated.  Additionally, Denbury Resources, Inc. (NYSE: DNR) has acquired a substantial acreage position in the Delhi-Holt-Bryant Unit in the immediate area of our holdings.  Denbury has begun work to institute a tertiary carbon dioxide flood and are shooting 3-D seismic in the immediate area of our leases.  We are currently negotiating to purchase a 220 acre lease containing five wells and one salt water disposal well in the area of our Strahan and McKay Leases (Richland Parish, Louisiana).  Additionally, we are negotiating on approximately 160 acres of leases adjacent to our Holt lease in Franklin Parish, Louisiana.

Our undeveloped acreage in the Illinois basin is adjacent to current or past producing wells.  Drilling and completion costs are lower than in many other producing basins and the net revenues are higher.  Our leases in Illinois average 87.5% net revenue interest with 100% working interest.  Multiple pay zones are indicated in leasehold areas including the Cypress, Levias, Aux Vases, Ste. Genevieve, Salem, Saint Lewis and Warsaw formations.  Maximum drill depths will be approximately 4,000 feet.

Additionally, the potential for "reef" type structures is considered high in several of our leasehold areas.  Negotiations are underway with possible joint venture partners for the funding of 3-D seismic surveys in order to identify possible reef drilling targets.  We are also currently evaluating oil well logs, maps and other data in the Welder (Barge Canal) lease area (Texas).  Initial reviews indicate the potential for possible offset drilling sites.

We continue to review and evaluate submittals on properties in Louisiana, Texas, Illinois and other areas of the continental United States.





21



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RESULTS OF OPERATIONS

Three Months Ended January 31, 2009 Compared to Three Months Ended January 31, 2008

|                               | Three Months Ended
January 31, 2009 | Three Months Ended
January 31, 2008
|------------------------------ | ----------------------------------- | -----------------------------------
|OIL AND GAS REVENUES           | $	127,769                           | $	226,497                          
|EXPENSES                       |                                     |                                    
|Consulting Fees                | 73,052                              | 151,204                            
|Consulting Fees - Stock Based  | 5,555                               | -                                  
|Depreciation and Depletion     | 17,310                              | 12,323                             
|Direct Operating Costs         | 103,632                             | 248,631                            
|General and Administrative     | 32,410                              | 36,030                             
|Impairment of Properties       | 3,700                               |                                    
|Interest and Financing Charges | 9,757                               |                                    
|Management Fees                | 81,224                              | 78,982                             
|Professional Fees              | 50,617                              | 88,025                             
|Travel and Promotion           | 263                                 | 31,070                             
|                               | 337,520                             | 646,265                            
|NET LOSS FOR THE PERIOD        | $	(249,751)                         | $	(419,768)                        

Revenue

Revenue from oil and gas properties was $127,769 for the three months ended January 31, 2009 compared to $226,497 in the prior period.  Significant developments or changes between these periods are outlined below:

- Barge Canal: Revenue from the Barge Canal project was $87,215 for the three months ended January 31, 2009 as compared to $120,322 for the three months ended January 31, 2008.  Average sale prices for oil and natural gas (per Mcfe) were 39% lower in the current period, while average production increased by 11% from the prior period.  The increase in production resulted primarily from weather delays and unscheduled maintenance in the prior period.  The market price of oil and gas continued to decline throughout the current period.
- South Delhi/Big Creek Field: Revenue from the South Delhi / Big Creek Field project was $33,870 for the three months ended January 31, 2009 as compared to $101,377 for the three months ended January 31, 2008.  As with Barge Canal, average sale prices for oil and natural gas (per Mcfe) were 39% lower in the current period.  Average production for the three months ended January 31, 2009 decreased by 53% from the prior period.  The decrease in production resulted from a decrease in the number of producing wells and downtime due to maintenance in the current period.  The market price of oil and gas continued to decline throughout the current period.
- Janssen Lease: Revenue from the Janssen Lease project was $3,148 for the three months ended January 31, 2009 as compared to $3,773 for the three months ended January 31, 2008.  As with Barge Canal and South Delhi/Big Creek Field, average sale prices for oil and natural gas (per Mcfe) were 39% lower in the current period.
- Interest income was $3,536 for the three months ended January 31, 2009 as compared to $1,025 for the three months ended January 31, 2008 due to higher interest bearing deposits in the current period.

Operating Expenses

Operating expenses incurred during the three months ended January 31, 2009 were $377,520 compared to $646,265 in the prior period.  Significant changes and expenditures are outlined as follows:

- Consulting fees decreased to $73,052 during the three months ended January 31, 2009 from $151,204 during the same period ended January 31, 2008 due primarily to limited corporate development in the current period due to difficult market conditions.
- Consulting fees - stock based increased to $5,555 during the three months ended January 31, 2009 from $Nil during the same period ended January 31, 2008.  The current period expense consists of the fair value of option grants issued to consultants that were earned during the period.
- Depreciation and depletion increased to $17,310 during the three months ended January 31, 2009 from $12,323 during the same period ended January 31, 2008.  Depletion of capitalized oil and natural gas properties is based on production during the current and comparative periods.

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- Direct operating costs were $103,632 during the three months ended January 31, 2009 compared to $248,631 during the same period ended January 31, 2008.  Significant developments or changes in direct operating costs per project are outlined as follows:

1. Barge Canal: Direct operating costs of $42,927 during the three months ended January 31, 2009 represented approximately 49% of gross production sales for Barge Canal during the period.  Direct operating costs of $162,227 during the three months ended January 31, 2008 represented approximately 135% of gross production sales for Barge Canal during the period.  Prior period operating costs were higher than the current period due to significant maintenance and workover charges.
2. South Delhi/Big Creek Field: Direct operating costs of $59,185 for the three months ended January 31, 2009 represented approximately 175% of gross production sales for this project during the period.  Direct operating costs of $85,726 for the three months ended January 31, 2008 represented approximately 85% of gross production sales for this project during the period.  Operating costs in the current period were reduced due to lower production and a decrease in producing wells, but included planned and weather related maintenance charges which increased the total as a percentage of gross production sales.
3. Janssen Lease: Direct operating costs of $1,520 for the three months ended January 31, 2009 represented approximately 48% of gross production sales for this project during the period.  Direct operating costs of $678 for the three months ended January 31, 2008 represented approximately 18% of gross production sales for this project during the period.

- General and administrative costs decreased to $32,410 during the three months ended January 31, 2009 from $36,030 during the same period ended January 31, 2008 due to recent efforts to streamline operations under difficult market conditions.
- Impairment loss on properties increased to $3,700 during the three months ended January 31, 2009 from $Nil during the same period ended January 31, 2008.  During the current period, we expensed impairment charges on our Gobbler's Knob property.
- Interest and financing charges increased to $9,757 during the three months ended January 31, 2009 from $Nil during the same period ended January 31, 2008.  Interest and financing charges includes accrued interest on promissory notes issued to related parties.
- Management fees increased to $81,224 during the three months ended January 31, 2009 from $78,982 during the same period ended January 31, 2008.  Some executive services varies from month to month based on activities and requirements of our company.
- Professional fees decreased to $50,617 during the three months ended January 31, 2009 from $88,025 during the same period ended January 31, 2008 due primarily to reductions in corporate activity in the current period and significant charges related to the listing process in the prior year.
- Travel and promotion decreased to $263 during the three months ended January 31, 2009 from $31,070 during the same period ended January 31, 2008.  Market conditions during the current period did not support extensive travel related to future financing activities.

Our net loss during the three months ended January 31, 2009 was $249,751 or ($0.01) per share compared to a net loss of $419,768 or ($0.02) per share during the same period ended January 31, 2008.  The weighted average number of shares outstanding was 28,610,350 for the three months ended January 31, 2009 compared to 27,615,351 in the prior period.

Transactions with Officers and Directors

Of the $377,520 incurred as operating expenses during the three months ended January 31, 2009 an aggregate of $81,224 was incurred payable to certain officers and directors and recorded as management fees, and $9,757 was incurred and interest and financing charges on promissory notes issued to related parties.  At January 31, 2009 a balance of $59,000 is due to directors and officers which bears interest at 18% per annum and is due on demand.  Additionally, management fees of $71,777 are outstanding at January 31, 2009 with no specified terms of repayment.

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RESULTS OF OPERATIONS

Six Months Ended January 31, 2009 Compared to Six Months Ended January 31, 2008

|                               | Six Months Ended
January 31, 2009 | Six Months Ended
January 31, 2008
|------------------------------ | --------------------------------- | ---------------------------------
|OIL AND GAS REVENUES           | $	263,196                         | $	420,670                        
|EXPENSES                       |                                   |                                  
|Consulting Fees                | 244,444                           | 237,039                          
|Consulting Fees - Stock Based  | 11,111                            | 82,000                           
|Depreciation and Depletion     | 27,237                            | 26,760                           
|Direct Operating Costs         | 190,792                           | 398,926                          
|General and Administrative     | 92,978                            | 72,268                           
|Impairment of Properties       | 3,700                             | -                                
|Interest and Financing Charges | 9,757                             | -                                
|Management Fees                | 171,744                           | 170,658                          
|Professional Fees              | 108,019                           | 120,694                          
|Travel and Promotion           | 13,287                            | 59,940                           
|                               | 873,069                           | 1,168,285                        
|NET LOSS FOR THE PERIOD        | $	(609,873)                       | $	(747,615)                      

Revenue

Revenue from oil and gas properties was $263,196 for the six months ended January 31, 2009 compared to $420,670 in the prior period.  Significant developments or changes between these periods are outlined below:

- Barge Canal: Revenue from the Barge Canal project was $186,005 for the six months ended January 31, 2009 as compared to $222,367 for the six months ended January 31, 2008.  Average sale prices for oil and natural gas (per Mcfe) were 9% lower in the current period, and average production decreased by 12% from the prior period.  The decrease in production resulted primarily from flooding and delays related to an above average hurricane season.  A significant percentage of sales in the current period occurred in August, prior to any flooding or weather delays.  The market price of oil and gas continued to decline throughout the current period.
- South Delhi/Big Creek Field: Revenue from the South Delhi / Big Creek Field project was $65,125 for the six months ended January 31, 2009 as compared to $190,517 for the six months ended January 31, 2008.  As with Barge Canal, average sale prices for oil and natural gas (per Mcfe) were 9% lower in the current period.  Average production for the six months ended January 31, 2009 decreased by 63% from the prior period.  The decrease in production resulted from flooding and delays related to an above average hurricane season, as well as a decrease in producing wells during the period and planned downtime for ongoing maintenance.  The market price of oil and gas continued to decline throughout the current period.
- Janssen Lease: Revenue from the Janssen Lease project was $8,312 for the six months ended January 31, 2009 as compared to $6,761 for the six months ended January 31, 2008.  As with Barge Canal and South Delhi/Big Creek Field, average sale prices for oil and natural gas (per Mcfe) were 39% lower in the current period.
- Interest income was $3,754 for the six months ended January 31, 2009 as compared to $1,025 for the six months ended January 31, 2008 due to higher interest bearing deposits in the current period.

Operating Expenses

Operating expenses incurred during the six months ended January 31, 2009 were $873,069 compared to $1,168,285 in the prior period.  Significant changes and expenditures are outlined as follows:

- Consulting fees increased to $244,444 during the six months ended January 31, 2009 from $237,039 during the same period ended January 31, 2008 due primarily to increased corporate development and reliance on third party service providers, which was reduced in the most recent quarter under difficult market conditions.
- Consulting fees - stock based decreased to $11,111 during the six months ended January 31, 2009 from $82,000 during the same period ended January 31, 2008.  The current period expense consists of the fair value of option grants issued to consultants that were earned during the period.  The prior period consisted of the fair value of stock grants issued to consultants.

24



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- Depreciation and depletion decreased to $27,237 during the six months ended January 31, 2009 from $26,760 during the same period ended January 31, 2008.  Depletion of capitalized oil and natural gas properties is based on production during the current and comparative periods.
- Direct operating costs were $190,792 during the six months ended January 31, 2009 compared to $398,926 during the same period ended January 31, 2008.  Significant developments or changes in direct operating costs per project are outlined as follows:

1. Barge Canal: Direct operating costs of $74,120 during the six months ended January 31, 2009 represented approximately 40% of gross production sales for Barge Canal during the period.  Direct operating costs of $238,236 during the six months ended January 31, 2008 represented approximately 107% of gross production sales for Barge Canal during the period.  Prior period operating costs were higher than the current period due to significant maintenance and workover charges.
2. South Delhi/Big Creek Field: Direct operating costs of $113,929 for the six months ended January 31, 2009 represented approximately 175% of gross production sales for this project during the period.  Direct operating costs of $159,335 for the six months ended January 31, 2008 represented approximately 84% of gross production sales for this project during the period.  Operating costs in the current period were reduced due to lower production levels than the prior period and a decrease in producing wells, but included planned and weather related maintenance charges which increased the total as a percentage of gross production sales.
3. Janssen Lease: Direct operating costs of $2,743 for the six months ended January 31, 2009 represented approximately 33% of gross production sales for this project during the period.  Direct operating costs of $1,355 for the six months ended January 31, 2008 represented approximately 20% of gross production sales for this project during the period.

- General and administrative costs increased to $92,978 during the six months ended January 31, 2009 from $72,268 during the same period ended January 31, 2008 due to fees and service costs related to the listing process, which was reduced in the most recent quarter under difficult market conditions.
- Impairment loss on properties increased to $3,700 during the six months ended January 31, 2009 from $Nil during the same period ended January 31, 2008.  During the current period, we expensed impairment charges on our Gobbler's Knob property.
- Interest and financing charges increased to $9,757 during the six months ended January 31, 2009 from $Nil during the same period ended January 31, 2008.  Interest and financing charges includes accrued interest on promissory notes issued to related parties.
- Management fees increased to $171,744 during the six months ended January 31, 2009 from $170,658 during the same period ended January 31, 2008.  Some executive services varies from month to month based on activities and requirements of our company.
- Professional fees decreased to $108,019 during the six months ended January 31, 2009 from $120,694 during the same period ended January 31, 2008 due primarily to increases in audit and review costs in addition to increases in counsel fees associated with the listing process and growth in our operations, which was reduced in the most recent quarter under difficult market conditions.
- Travel and promotion decreased to $13,287 during the six months ended January 31, 2009 from $59,940 during the same period ended January 31, 2008.  Market conditions during the current period did not support extensive travel related to future financing activities.

Our net loss during the six months ended January 31, 2009 was $609,873 or ($0.02) per share compared to a net loss of $747,615 or ($0.03) per share during the same period ended January 31, 2008.  The weighted average number of shares outstanding was 28,423,004 for the six months ended January 31, 2009 compared to 27,185,627 in the prior period.

Transactions with Officers and Directors

Of the $873,069 incurred as operating expenses during the six months ended January 31, 2009 an aggregate of $171,744 was incurred payable to certain officers and directors and recorded as management fees, and $9,757 was incurred and interest and financing charges on promissory notes issued to related parties.  At January 31, 2009 a balance of $59,000 is due to directors and officers which bears interest at 18% per annum and is due on demand.  Additionally, management fees of $71,777 are outstanding at January 31, 2009 with no specified terms of repayment.

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LIQUIDITY AND CAPITAL RESOURCES

|                          | January 31, 2009 | January 31, 2008
|------------------------- | ---------------- | ----------------
|Cash and Cash Equivalents | $	18,252         |                 
|Working Capital (Deficit) | (306,659)        |                 
|Total Assets              | 1,569,154        |                 
|Total Liabilities         | 471,511          |                 
|Shareholders' Equity      | 1,097,643        |                 

At January 31, 2009 we had $18,252 in cash and a working capital deficit of $306,659.  We have financed our operations through proceeds from the private placement of equity securities and debt instruments.  We decreased net cash by $49,398 during the six months ended January 31, 2009 compared to a decrease of $322,091 in net cash during the same period ended January 31, 2008.  See "Plan of Operation and Funding" below.

Operating Activities

Net cash used in operating activities during the six months ended January 31, 2009 was $422,128 compared to $516,596 during the same period ending January 31, 2008.  Significant operating expenditures during the current period included consulting fees, direct operating costs, in addition to management and professional fees.

Financing Activities

Net cash provided by financing activities during the six months ended January 31, 2009 was $477,177 compared to $395,800 during the same period ending January 31, 2008.  During the current period, we received net proceeds of $469,900 primarily from private placement subscriptions.

Investing Activities

Net cash used in investing activities during the six months ended January 31, 2009 was $104,447 compared to $201,295 in the same period ending January 31, 2008.  Significant investing expenditures during the current period included additional Koliba prospect acquisitions in Victoria County, Texas.

Stock Options and Warrants

As at January 31, 2009 we had 3,800,000 stock options and 1,497,040 share purchase warrants outstanding.  The outstanding stock options have a weighted average exercise price of $0.33 per share and the outstanding warrants have a weighted average exercise price of $0.79 per share.  Accordingly, as at January 31, 2009 the outstanding options and warrants represented a total of 5,297,040 shares issuable for proceeds of approximately $2,437,000 if these options and warrants were exercised in full.  The exercise of these options and warrants is at the discretion of the holders and, accordingly, there is no assurance that any of these options or warrants will be exercised.

Plan of Operation and Funding

At January 31, 2009 we had $18,252 of cash on hand and a working capital deficit of $306,659.  As such, our working capital at January 31, 2009 will not be sufficient to enable us to pursue our lease operating costs, to pay our general and administrative expenses, and to pursue our plan of operations over the next twelve months.  We anticipate that we will require additional financing of approximately $2,600,000.  Our management is currently making efforts to obtain the required financing, but we have not yet secured any commitments with respect to such financing.  If we are not able to obtain financing in the amounts required or on terms that are acceptable to us, we may be forced to scale back, or abandon, our plan of operations.

Various conditions outside of our control may detract from our ability to raise the capital needed to execute our plan of operations, including the price of oil as well as the overall market conditions in the international and local economies.  We recognize that the United States economy has suffered through a period of uncertainty during which the capital markets have been depressed from levels established twelve months ago, and that there is no certainty that these levels will stabilize or reverse.  We also recognize that the price of oil increased from approximately $30 per barrel in 2003 to over $100 per barrel in the summer of 2008 but has decreased to approximately $50 per barrel as of early December 2008.  If the price of oil continues to drop, we recognize that it will adversely affect our ability to raise additional capital.  Any of these factors could have a material impact upon our ability to raise financing and, as a result, upon our short-term or long-term liquidity.

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Going Concern

Our current sources of revenue are inadequate to provide incoming cash flows to sustain our future operations.  As outlined above, our ability to pursue our planned business activities is dependent upon our successful efforts to raise additional equity financing.  These factors raise substantial doubt regarding our ability to continue as a going concern.  Our consolidated financial statements have been prepared on a going concern basis, which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business.  As at January 31, 2009 we had accumulated losses of $5,397,647 since inception.  Our financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Current Economic Conditions

During 2008, particularly in the fourth quarter, the ongoing global credit crisis and economic weakness have made for extremely volatile capital markets characterized by plunging equity and commodity prices and an environment in which few opportunities exist to raise additional capital.  We have taken precautions where we can, and implemented initiatives to preserve our cash resources.  We will be reviewing our operating activities, exploration plans  and capital position on an ongoing basis during fiscal 2009 and may revise our operations or abandon properties if management deems it necessary in order to maintain the long-term viability of the Company.

Off-Balance Sheet Arrangements

As of the date of this Quarterly Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Critical Accounting Policies

Our consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis.  The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements.  In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances.  Actual results could differ from those estimates made by management.

We believe that our critical accounting policies and estimates include the accounting for accounts receivable, marketable securities and long-lived assets reclamation costs, and accounting for legal contingencies.

See Note 2 of the interim consolidated financial statements for our six months ended January 31, 2009 for a summary of significant accounting policies.



Not applicable because we are a smaller reporting company.



Evaluation of Disclosure Controls and Procedures

Our principal executive officer and our principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of the end of the period covered by this report, based on their evaluation of these controls and procedures required by paragraph (b) of Rules 13a-15 and 15d-15.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during our fiscal year ended January 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



27



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PART II



On June 6, 2008, Glasscell Morris and Margie L. Morris (the "Petitioners") filed a petition with the Fifth District Court, Parish of Franklin, Louisiana, naming the following as defendants: Penasco Petroleum, Inc. (which is a wholly owned subsidiary of Strategic American Oil Corporation), Tradestar Energy, Inc. and the Unopened Succession of Walter Leon Girod.  The Petitioners allege: (i) that Mr. Girod was the owner of a 40-acre tract (the "Property") located in Franklin Parish, Louisiana; (ii) that an oil well (serial number 141591, which is referred to elsewhere in this report as Holt No. 22) was completed on the Property in 1973; (iii) that the Petitioners purchased the Property from Mr. Girod in 1988 but Mr. Girod reserved to himself all of the oil, gas and other minerals located in, under or on the Property; (iv) that the well produced no oil or gas from October 1992 through October 2002; (v) that no revenues were distributed to Mr. Girod or to the Petitioners since 1992; (vi) that Mr. Girod, who never married and had no children, died in 2000 but no succession has been opened; and (vii) that with Petitioners' permission, Penasco and Tradestar began production of the well on the Property on or about January 1, 2007.  The Petitioners are seeking a declaration that they are the owners of the mineral rights of the Property, that they should be paid royalties (and interest thereon) with respect to any oil, gas or minerals generated by the well from January 1, 2007 until the date of judgment, and that they should be paid any such future royalties from the date of judgment forward.  Penasco's participation in the Holt No. 22 well will not be affected regardless of whether the Petitioners are or are not named as successors to Mr. Girod's royalty interests.

The hearing on Glasscell Morris' complaint was held on August 7, 2008, resulting in Mr. Morris becoming the successor in interest to Walter Girod, with no change in interest owned by Penasco Petroleum.  Mr. Morris was required to execute a lease in favor of Penasco Petroleum, Inc. allowing for a 1/8 royalty on production and no bonus, with Penasco Petroleum agreeing not to construct buildings on the Morris property.

As of the date of this Quarterly Report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceeding.  Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.



Except for the risk factor outlined below, there have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended July 31, 2008 which was filed with the SEC on November 13, 2008.

Recent market events and conditions, including disruptions in the U.S. and international credit markets and other financial systems and the deterioration of the U.S. and global economic conditions, has, among other things, impeded access to capital or increased the cost of capital, which had had an adverse effect on our ability to fund our working capital and other capital requirements.

In 2007 and into 2008, the U.S. credit markets began to experience serious disruption due to a deterioration in residential property values, defaults and delinquencies in the residential mortgage market (particularly, subprime and non-prime mortgages) and a decline in the credit quality of mortgage backed securities.  These problems led to a slow-down in residential housing market transactions, declining housing prices, delinquencies in non-mortgage consumer credit and a general decline in consumer confidence.  These conditions continued and worsened in 2008, causing a loss of confidence in the broader U.S. and global credit and financial markets and resulting in the collapse of, and government intervention in, major banks, financial institutions and insurers and creating a climate of greater volatility, less liquidity, widening of credit spreads, a lack of price transparency, increased credit losses and tighter credit conditions.  Notwithstanding various actions by the U.S. and foreign governments, concerns about the general condition of the capital markets, financial instruments, banks, investment banks, insurers and other financial institutions caused the broader credit markets to further deteriorate and stock markets to decline substantially.  In addition, general economic indicators have deteriorated, including declining consumer sentiment, increased unemployment and declining economic growth and uncertainty about corporate earnings.

These unprecedented disruptions in the current credit and financial markets have had a significant material adverse impact on a number of financial institutions and have limited access to capital and credit for many companies.  These disruptions have, among other things, made it more difficult for us to obtain, and have increased our cost of obtaining, capital and financing for our operations.  Our access to additional capital may not be available on terms acceptable to us or at all.



None.

28



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Item 3.

None.



None.



None.



The following exhibits are included with this Quarterly Report on Form 10-Q:

|Exhibit | Description of Exhibit                                                                                                                                                                  
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1    | Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).                                                                       
|31.2    | Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).                                                                       
|32.1    | Certifications pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.









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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.

STRATEGIC AMERICAN OIL CORPORATION

|/s/ "Randall Reneau"                                                                                              
|------------------------------------------------------------------------------------------------------------------
|Randall ReneauPresident, Chief Executive Officer, Principal Executive Officer and a director
Date:  March 18, 2009





|/s/ "Johnathan Lindsay"                                                                                                          
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|Johnathan LindsaySecretary, Treasurer, Chief Financial Officer, Principal Accounting Officer and a director
Date:  March 18, 2009