<PAGE> 1
                              UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549

                               FORM  10-Q

 /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
             For the quarterly period ended September 30, 2008

                                     OR

 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
                For the transition period from        to

                       Commission File Number 0-5525

                             PYRAMID OIL COMPANY
           (Exact name of registrant as specified in its charter)

              CALIFORNIA                                 94-0787340
     (State or other jurisdiction of                (I.R.S. Employer
       incorporation or organization)             Identification Number)

            2008 - 21ST. STREET,
          BAKERSFIELD, CALIFORNIA                       93301
     (Address of principal executive offices)         (Zip Code)

                               (661) 325-1000
             (Registrant's telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.   Yes [X]   No [ ]

     Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company.

        Large accelerated filer [ ]          Accelerated filer [ ]
        Non-accelerated filer [ ]            Smaller reporting company [X]

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

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.

               (Class)                   (Outstanding at September 30,2008)
    COMMON STOCK WITHOUT PAR VALUE                    4,677,728

<PAGE>  2
                      PART I - FINANCIAL STATEMENTS

Item 1. Financial Statements

                            PYRAMID OIL COMPANY
                              BALANCE SHEETS
                                  ASSETS
<Table>
<Caption>
                                             September 30,  December 31,
                                                 2008           2007
                                             (Unaudited)     (Audited)
                                             ------------   ------------
<S>                                          <C>            <C>
CURRENT ASSETS:
  Cash and cash equivalents                   $1,956,085     $  618,448
  Short-term investments                       2,271,080      1,478,979
  Trade accounts receivable, net                 653,024        643,340
  Interest receivable                              4,579          2,251
  Crude oil inventory                             83,184         71,298
  Prepaid expenses                                54,175        170,913
  Deferred income taxes                           72,000             --
                                             ------------   ------------
         TOTAL CURRENT ASSETS                  5,094,127      2,985,229
                                             ------------   ------------

PROPERTY AND EQUIPMENT, at cost
  Oil and gas properties and equipment
    (successful efforts method)               15,715,290     14,734,929
  Capitalized asset retirement costs             378,065        310,579
  Drilling and operating equipment             2,080,127      2,050,556
  Land, buildings and improvements             1,063,140      1,010,847
  Automotive, office and other
    property and equipment                     1,162,324      1,141,451
                                             ------------   ------------
                                              20,398,946     19,248,362
  Less: accumulated depletion,
      depreciation, amortization
      and valuation allowance                (14,563,854)   (14,040,610)
                                             ------------   ------------
                                               5,835,092      5,207,752
                                             ------------   ------------
OTHER ASSETS
  Deposits                                       250,000        250,000
  Other assets                                     7,380          7,380
  Assets held for resale                           9,633          9,633
                                             ------------   ------------
                                             $11,196,232     $8,459,994
                                             ============   ============
<FN>
  The Accompanying Notes Are an Integral Part of These Financial Statements.
</Table>

<PAGE>  3
                            PYRAMID OIL COMPANY
                              BALANCE SHEETS
                     LIABILITIES AND STOCKHOLDERS' EQUITY
<Table>
<Caption>
                                             September 30,  December 31,
                                                 2008           2007
                                             (Unaudited)     (Audited)
                                             ------------   ------------
<S>                                          <C>            <C>
CURRENT LIABILITIES:
  Accounts payable                            $   88,385     $  108,500
  Accrued professional fees                       71,790         54,165
  Accrued taxes, other than income taxes          38,122         61,684
  Accrued payroll and related costs               53,713         57,647
  Accrued royalties payable                      209,130        212,916
  Accrued insurance                                6,600         65,999
  Accrued income taxes                           166,357        145,815
  Current maturities of long-term debt            23,670         26,868
                                             ------------   ------------
         TOTAL CURRENT LIABILITIES               657,767        733,594
                                             ------------   ------------

LONG-TERM DEBT, net of current maturities         26,703         44,542
                                             ------------   ------------
DEFERRED TAXES                                   251,000             --
                                             ------------   ------------
LIABILITY FOR SHARE BASED COMPENSATION                --         67,000
                                             ------------   ------------
LIABILITY FOR ASSET RETIREMENT OBLIGATION      1,144,857      1,010,903
                                             ------------   ------------

COMMITMENTS (Note 3)

STOCKHOLDERS' EQUITY:
  Preferred stock - no par value;
    10,000,000 authorized shares;
    no shares issued or outstanding                   --             --
  Common stock - no par value;
    50,000,000 authorized shares;
    4,677,728 shares issued and
    outstanding                                1,137,010      1,071,610
  Retained earnings                            7,978,895      5,532,345
                                             ------------   ------------
                                               9,115,905      6,603,955
                                             ------------   ------------
                                             $11,196,232     $8,459,994
                                             ============   ============
<FN>

  The Accompanying Notes Are an Integral Part of These Financial Statements.

</Table>

<PAGE>  4
                             PYRAMID OIL COMPANY
                           STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<Table>                         Three months ended       Nine months ended
<Caption>                          September 30,            September 30,
                               ---------------------    ---------------------
                                 2008        2007         2008        2007
                               ---------   ---------    ---------   ---------
<S>                            <C>         <C>          <C>         <C>
REVENUES
 Oil and gas sales            $1,999,119  $1,168,440   $5,712,201  $3,105,033
 Gain on sale of
   fixed assets                      500     440,473          500     440,473
                               ---------   ---------    ---------   ---------
                               1,999,619   1,608,913    5,712,701   3,545,506
                               ---------   ---------    ---------   ---------
COSTS AND EXPENSES:
  Operating expenses             548,991     417,901    1,433,274   1,189,214
  Exploration costs                   --       1,036      (28,812)      6,687
  General and administrative     298,759     265,685      740,359     716,614
  Taxes, other than income
    and payroll taxes             42,481      30,301       99,091      78,912
  Provision for depletion,
    depreciation and
    amortization                 169,185     113,976      523,244     332,553
  Accretion expense               54,847       5,466       66,468      16,587
  Other costs and expenses        25,643       7,589      101,215      31,641
                               ---------   ---------    ---------   ---------
                               1,139,906     841,954    2,934,839   2,372,208
                               ---------   ---------    ---------   ---------
OPERATING INCOME                 859,713     766,959    2,777,862   1,173,298
                               ---------   ---------    ---------   ---------
OTHER INCOME (EXPENSE):
  Interest income                 22,661      20,873       64,672      63,053
  Other income                     5,217       4,305       24,031      16,286
  Interest expense                 ( 529)     (   75)      (1,763)     (1,872)
                               ---------   ---------    ---------   ---------
                                  27,349      25,103       86,940      77,467
                               ---------   ---------    ---------   ---------
INCOME BEFORE INCOME
 TAX PROVISION                   887,062     792,062    2,864,802   1,250,765
  Income tax provision (benefit)
     Current                     (35,223)    139,650      239,252     183,075
     Deferred                    218,000          --      179,000          --
                               ---------   ---------    ---------   ---------
                                 182,777     139,650      418,252     183,075
                               ---------   ---------    ---------   ---------
NET INCOME                    $  704,285   $ 652,412   $2,446,550  $1,067,690
                               =========   =========    =========   =========
<FN>
  The Accompanying Notes Are an Integral Part of These Financial Statements.
</Table>

<PAGE> 5
                             PYRAMID OIL COMPANY
                           STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<Table>                         Three months ended       Nine months ended
<Caption>                          September 30,            September 30,
                               ---------------------    ---------------------
                                 2008        2007         2008        2007
                               ---------   ---------    ---------   ---------
<S>                            <C>         <C>          <C>         <C>

EARNINGS PER COMMON SHARE

  Basic and diluted income
    Per common share              $0.15       $0.14        $0.52       $0.23
                               =========   =========    =========   =========

Basic and diluted weighted
  average number of common
  shares outstanding            4,677,728   4,677,728    4,677,728   4,677,728
                                =========   =========    =========   =========

<FN>

  The Accompanying Notes Are an Integral Part of These Financial Statements.

</Table>



























<PAGE> 6                   PYRAMID OIL COMPANY
                         STATEMENTS OF CASH FLOWS
                               (UNAUDITED)

<Table>
<Caption>
                                                       Nine months ended
                                                         September 30,
                                                  ---------------------------
                                                      2008           2007
                                                  ------------   ------------
<S>                                                 <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

  Net income                                        $2,446,550     $1,067,690

  Adjustments to reconcile net income
    to cash provided by
    operating activities:
      Provision for depletion,
        depreciation and amortization                  523,244        332,553
      Gain on sale of real property                       (500)      (440,473)
      Accretion expense                                 66,468         16,587
      Severance award agreement                         (1,600)        66,200
      Exploration costs                                (28,812)         6,687
      Deferred income taxes                            179,000             --

  Changes in assets and liabilities:
    (Increase) decrease in trade accounts
      and interest receivable                          (12,012)        27,413
    Increase in crude oil inventories                  (11,886)       (18,412)
    Decrease in prepaid expenses                       116,738        104,086
    Decrease in accounts payable
      and accrued liabilities                          (72,629)        (5,483)
                                                     ---------      ---------
Net cash provided by operating activities            3,204,561      1,156,848
                                                     ---------      ---------

<FN>

  The Accompanying Notes Are an Integral Part of These Financial Statements.

</Table>











<PAGE> 7

                           PYRAMID OIL COMPANY
                         STATEMENTS OF CASH FLOWS
                               (UNAUDITED)
<Table>
<Caption>
                                                      Nine months ended
                                                        September 30,
                                                  ---------------------------
                                                       2008           2007
                                                  ------------   ------------
<S>                                                 <C>            <C>
CASH FLOWS FROM INVESTING ACTIVITIES:

  Proceeds from redemption of
    certificate of deposit                          $       --    $   200,000
  Purchase of short-term investments                  (750,000)      (180,000)
  Increase in short-term investments                   (42,101)       (34,892)
  Proceeds from sale of fixed assets                       500        448,471
  Capital expenditures                              (1,054,286)      (743,402)
                                                     ---------      ---------
Net cash used in investing activities               (1,845,887)      (309,823)
                                                     ---------      ---------
CASH FLOWS FROM FINANCING ACTIVITIES:

   Proceeds from line of credit                             --        150,000
   Principal payments on line of credit                     --       (150,000)
   Loans to employees                                   (2,100)        (2,000)
   Principal payments on loans to employees              2,100          1,600
   Principal payments on long-term debt               ( 21,037)      ( 28,351)
                                                     ---------       --------
Net cash used in financing activities                 ( 21,037)      ( 28,751)
                                                     ---------       --------

Net increase in cash                                 1,337,637        818,274

Cash at beginning of period                            618,448        619,001
                                                     ---------      ---------
Cash at end of period                               $1,956,085     $1,437,275
                                                     =========      =========
SUPPLEMENTAL CASH FLOW INFORMATION:

  Cash paid during the nine months for interest       $  1,763       $  1,872
                                                      ========       ========
  Cash paid during the nine months for income taxes   $232,585       $ 26,125
                                                      ========       ========

<FN>

   The Accompanying Notes Are an Integral Part of These Financial Statements.

</Table>


<PAGE> 8                      PYRAMID OIL COMPANY
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2008
                                  (UNAUDITED)


1.  Summary of Significant Accounting Policies

The financial statements include the accounts of Pyramid Oil Company (the
Company).  Such financial statements included herein have been prepared by the
Company, without an audit, pursuant to the rules and regulations of the
Securities and Exchange Commission.  Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.

A summary of the Company's significant accounting policies is contained in its
December 31, 2007 Form 10-KSB which is incorporated herein by reference.  The
financial data presented herein should be read in conjunction with the
Company's December 31, 2007 financial statements and notes thereto, contained
in the Company's Form 10-KSB.

In the opinion of the Company, the unaudited financial statements, contained
herein, include all adjustments necessary to present fairly the Company's
financial position as of September 30, 2008 and December 31, 2007 and the
results of its operations and its cash flows for the nine month periods ended
September 30, 2008 and 2007.  The results of operations for an interim period
are not necessarily indicative of the results to be expected for a full year.

Income taxes:  When tax returns are filed, it is highly certain that some
positions taken would be sustained upon examination by the taxing authorities,
while others are subject to uncertainty about the merits of the position taken
or the amount of the position that would be ultimately sustained.  The benefit
of a tax position is recognized in the financial statements in the period
during which, based on all available evidence, management believes it is more
likely than not that the position will be sustained upon examination,
including the resolution of appeals or litigation processes, if any.  Tax
positions taken are not offset or aggregated with other positions.  Tax
positions that meet the more-likely-than-not recognition threshold are
measured as the largest amount of tax benefit that is more than 50 percent
likely of being realized upon settlement with the applicable taxing authority.
The portion of the benefits associated with tax positions taken that exceeds
the amount measured as described above is reflected as a liability for
unrecognized tax benefits in the accompanying balance sheets along with any
associated interest and penalties that would be payable to the taxing
authorities upon examination.

Interest associated with unrecognized tax benefits are classified as interest
expense and penalties are classified in selling, general and administrative
expenses in the statements of income.




<PAGE> 9

2.  Impact of Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Boards (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value
Measurement, which defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements.  SFAS No.
157 focuses on creating consistency and comparability in fair value
measurements.  With the exception of certain nonfinancial assets and
liabilities, SFAS No. 157 is effective for financial assets and liabilities
that are measured at fair value within the financial statements for fiscal
years beginning after November 15, 2007, and interim periods within those
fiscal years.  In February 2008, the FASB issued FASB Staff Position (FSP)
No. FAS 157-2 to defer SFAS No. 157's effective date for all nonfinancial
assets and liabilities, except those items recognized or disclosed at fair
value on an annual or more frequently recurring basis, until years beginning
after November 15, 2008.  We adopted SFAS No. 157 on January 1, 2008 and
elected not to apply the fair value option.

In February 2007, the FASB issued SFAS No.159, The Fair Value Option for
Financial Assets and Financial Liabilities, Including an Amendment of FASB
Statement No. 115, which permits an entity to measure certain financial
assets and financial liabilities at fair value.  The objective of SFAS No. 159
is to improve financial reporting by allowing entities to reduce volatility in
reported earnings, caused by the measurement of related assets and liabilities
using different attributes, without having to apply complex hedge accounting
rules.  Under SFAS No. 159, entities that elect the fair value option will
report unrealized gains and losses in earnings as of each subsequent reporting
date.  The fair value option may be elected on an instrument-by-instrument
basis with a few exceptions, as long as it is applied to the instrument in its
entirety.  The fair value option election is irrevocable, unless a new
election date occurs.  SFAS No. 159 is effective as of the beginning of the
first fiscal year that begins after November 15, 2007.  We adopted SFAS No.
159 on January 1, 2008 and elected not to apply the fair value option.

In March 2008 the FASB issued SFAS 151 "Disclosures about Derivative
instruments and Hedging Activities - an amendment of FASB Statement No. 133".
This Statement changes the disclosure requirements for derivative instruments
and hedging activities. Entities are required to provide enhanced disclosures
about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity's financial position,
financial performance, and cash flows. This Statement is effective for
financial statements issued for fiscal years and interim periods beginning
after November 15,2008; earlier adoption is encouraged.  We do not expect the
adoption of SFAS No. 151 to have an impact on our financial statements.

In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful
Life of Intangible Assets.  FSP No. FAS 142-3 amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under SFAS No. 142, Goodwill

<PAGE> 10

and Other Intangible Assets.  The intent of this FSP is to improve the
consistency between the useful life of a recognized intangible asset under
SFAS No. 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141(R) and other GAAP.  FSP No. FAS 142-3 is
effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2008.  We do not expect the adoption of FSP No.
FAS 142-3 to have an impact on our financial statements.

In March 2008 the FASB issued SFAS 161 Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133.
This Statement changes the disclosure requirements for derivative instruments
and hedging activities.  Entities are required to provide enhanced disclosures
about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity's financial position,
financial performance, and cash flows. This Statement is effective for
financial statements issued for fiscal years and interim periods beginning
after November 15, 2008; earlier adoption is encouraged.  We do not expect the
adoption of SFAS 161 to have an impact on our financial statements.

In December 2007 the FASB issued SFAS 160 Non-controlling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51.  This Statement
amends ARB 51 to establish accounting and reporting standards for the non-
controlling interest in a subsidiary and for the de-consolidation of a
subsidiary.  It clarifies that a non-controlling interest in a subsidiary is
an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements.  This Statement changes the
way the consolidated income statement is presented.  It requires consolidated
net income to be reported at amounts that include the amounts attributable to
both the parent and the non-controlling interest.  It also requires
disclosure, on the face of the consolidated statement of income, of the
amounts of consolidated net income attributable to the parent and to the non-
controlling interest.  This Statement establishes disclosure requirements in
the consolidated financial statements, which will enable users to clearly
distinguish between the interests of the parents owners and the interests of
the non-controlling owners of a subsidiary.  SFAS 160 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008; earlier adoption is prohibited.  We do not expect the
adoption of SFAS 160 to have an impact on our financial statements.

In December 2007, the FASB issued No. 141 (revised 2007), Business
Combinations, which replaces SFAS No. 141.  SFAS 141R establishes principles
and requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired and the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill acquired.  This
Statement also establishes disclosure requirements which will enable users to
evaluate the nature and financial effects of the business combination.  This
Statement is effective for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008.  We do not expect the adoption of
SFAS 141 to have an impact on our financial statements.

<PAGE> 11

3.  Dividends

No cash dividends were paid during the nine months ended September 30, 2008
and 2007.

4.  Income Taxes

The Company adopted the provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, on January 1, 2007.  As a result of the
implementation of FIN 48, the Company made a comprehensive review of its
portfolio of tax positions in accordance with recognition standards
established by FIN 48.  As a result of the implementation of Interpretation
48, the Company recognized no material adjustments to liabilities or
stockholders equity.

The Company files income tax returns in the U.S. federal jurisdiction,
California and New York states.  With few exceptions, the Company is no longer
subject to U.S. federal tax examination for the years before 2005.  State
jurisdictions that remain subject to examination range from 2004 to 2007.  The
Company does not believe there will be any material changes in its
unrecognized tax positions over the next 12 months.

The Company policy is to recognize interest and penalties accrued on any
unrecognized tax benefits as a component of income tax expense.  As of the
date of adoption of FIN 48, the Company did not have any accrued interest or
penalties associated with any unrecognized tax benefits, nor was any interest
expense recognized during the quarter.


5.  Commitments

In February 2002, the Company entered into an employment agreement with
John H. Alexander pursuant to which Mr. Alexander agreed to serve as the
Company's Vice President. On June 3, 2004, Mr. Alexander was appointed as the
Company's President and Chief Executive Officer.  The employment agreement is
for an initial term of six years, which term automatically renews annually if
written notice is not tendered.

Pursuant to the employment agreement, the Company may terminate Mr.
Alexander's employment with or without cause at any time before its term
expires upon providing written notice.  In the event the Company terminates
Mr. Alexander's employment without cause, Mr. Alexander would be entitled to
receive a severance amount equal to his annual base salary and benefits for
the balance of the term of his employment agreement.  In the event of
termination by reason of Mr. Alexander's death or permanent disability, his
legal representative will be entitled to receive his annual salary and
benefits for the remaining term of his employment agreement.  In the event of,
or termination following, a change in control of the Company, as defined in
the agreement, Mr. Alexander would be entitled to receive his annual salary
and benefits for the remainder of the term of his agreement.  In the event
that Mr. Alexander is terminated the Company would incur approximately
$600,000 in costs.

<PAGE> 12

6.  Income Tax Provision

The Company recognized a net income tax expense of $418,252 for the first nine
months of 2008, compared to income tax expense of $183,075 for the same period
in 2007.  Income tax expense has increased due primarily to the recognition of
deferred income tax provision of $179,000.

Net income tax expense for the first nine months was calculated as follows:

                                    Federal       State      Total
                                    --------    ---------  --------
         Current tax provision     $ 189,739    $ 49,513  $ 239,252
         Deferred tax provision      139,000      40,000    179,000
                                     -------     -------    -------
                                   $ 328,739    $ 89,513  $ 418,252
                                     =======      ======    =======

Deferred income taxes are recognized using the asset and liability method by
applying income tax rates to cumulative temporary differences based on when
and how they are expected to affect the tax returns.  Deferred tax assets and
liabilities are adjusted for income tax rate changes.  Net deferred income tax
assets have been offset by a valuation allowance of $1,742,000 as of September
30, 2008.  Management reviews deferred income taxes regularly throughout the
year, and accordingly makes any necessary adjustments to properly reflect the
valuation allowance based upon current financial trends and projected results.


7.  Stock Split

On June 5, 2008, the Company's Board of Directors approved a 5 for 4 stock
split payable on July 3, 2008, to shareholders of record as of June 24, 2008.
The effective date of the split is July 7, 2008.

                                                         Common Stock
                                                           ---------
     Shares outstanding at June 30, 2008                   3,741,721
     Shares issued 5 for 4 stock split July 3, 2008          936,007
                                                           ---------
     Shares outstanding at July 7, 2008                    4,677,728
                                                           =========

All share and per share data for the periods presented have been retroactively
restated to reflect this stock split.










<PAGE> 13

8.  Severance Award Agreement

On January 9, 2007, the Company and John Alexander entered into a Severance
Award Agreement pursuant to which the Company awarded Mr. Alexander a
supplemental payment in connection with his future severance of employment
with the Company and recorded a liability for share-based compensation of
$67,000.  Mr. Alexander serves as the Company's Chief Executive Officer.
Pursuant to the Severance Award Agreement and following the termination of Mr.
Alexander's employment, he will be entitled to receive (at the Company's
option) 25,000 shares of the Company's common stock or the then-fair market
value of the shares.  As of September 30, 2008, the Company intends to deliver
the Company's common shares for the Severance Award; therefore, in accordance
with SFAS 123(R), management has reclassified the liability for share-based
compensation to stockholders' equity.


9.  Incentive and Retention Plan

On January 9, 2007, the Company's Board of Directors adopted an Incentive and
Retention Plan pursuant to which the Company's officers and other employees
selected by the Company's Compensation Committee are entitled to receive
payments if they are employed by the Company as of the date of a 'Corporate
Transaction,' as defined in the Incentive and Retention Plan.  A 'Corporate
Transaction' includes certain mergers involving the Company, sales of Company
assets, and other changes in the control of the Company, as specified in the
Incentive and Retention Plan.  In general, the amount that is payable to each
plan participant will equal the number of plan units that have been granted to
him or her, multiplied by the increase in the value of the Company between
January 9, 2007 and the date of a Corporate Transaction.

10.  Related-party Transaction

Effective January 1, 1990, John H. Alexander, an officer and director of the
Company participated with a group of investors that acquired the mineral and
fee interest on one of the Company's oil and gas leases (Santa Fe Energy
lease) in the Carneros Creek field after the Company declined to participate.
The thirty-three percent interest owned by Mr. Alexander represents a minority
interest in the investor group.  Royalties on oil and gas production from this
property paid to the investor group approximated $364,000 during the first
nine months of 2008.


11.  Investor Relations Consultants

On March 12, 2008, the Company entered into an agreement with Pfeiffer High
Investor Relations, Inc. (PHIR) pursuant to which PHIR will serve as an
investor relations consultant to the Company.  PHIR will receive a monthly fee
of $5,000 and will be reimbursed for approved out-of-pocket expenses.  The
agreement also provides for the payment of a 1.5% finder's fee to PHIR upon
the closing of a specified transaction, such as a merger, a sale of assets or
a sale of equity securities, if PHIR is responsible for initiating the
transaction.

<PAGE> 14

If Company and PHIR mutually decide to extend the agreement after its initial
six-month term, the Company will grant to PHIR's two principals, for a total
purchase price of $20.00, fully vested warrants to purchase a total of 20,000
shares of the Company's common stock at an exercise price of $4.00 per share.
The warrants will have a two-year term, will be assignable and will have
piggyback registration rights and cashless exercise provisions.


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

FORWARD LOOKING INFORMATION

Crude oil prices have decreased by approximately $45.20 per barrel as of
November 12, 2008, when compared with prices at September 30, 2008.

Management has implemented operational and developmental changes to react to
the decline in crude oil prices and the expected decline in earnings.  In late
October, management postponed the drilling of a planned developmental oil well
on one of the Company's existing oil and gas properties until sometime in
2009.  This was done in anticipation of additional declines in crude oil
values.

Although management expects significant reductions in revenues and earnings in
the near future, the Company is financially and operationally positioned to
withstand these conditions.  The Company has in excess of $4,000,000 in cash
and short-term investments (CD's), less than $30,000 in long-term debt and no
obligatory capital projects scheduled.  Operationally, management has used
cash generated by prior months of high oil prices to complete its programs of
up-grading Company wells, facilities and equipment.

The Company's Texas joint venture is currently producing natural gas at much
smaller rates than previously expected.  The consensus opinion of participants
on the project is that the well has a skin damage condition (a condition
that prevents the entry of gas into the well bore).  A small workover and an
acid job are being proposed to remedy the problem.  Additionally, the
participants in the joint venture are currently considering a change in
operator on the project.

Management believes there may be new opportunities in this period of declining
crude oil values to seek out existing oil and gas production that could be
available for acquisition.

The Company's growth during the balance of 2008 will be highly dependant on
the success of its operations and capital investments, including the outcome
of wells that have not yet been drilled.  The Company's future capital
investment program may be modified due to exploration and development
successes or failures, market conditions and other variables.



<PAGE> 15

The production and sales of oil and gas involve many complex processes that
are subject to numerous uncertainties, including reservoir risk, mechanical
failures, human error and market conditions.

The Company has positioned itself over the past several years to withstand
various types of economic uncertainties, with a program of consolidating
operations on certain producing properties and concentrating on properties
that provide the major revenue sources.  The drilling of a new well and
several limited workovers of certain wells have allowed the Company to
maintain its crude oil reserves for the last three years.  The Company expects
to maintain its reserve base in 2008 by drilling new wells and routine
maintenance of its existing wells.

The Company may be subject to future costs necessary for compliance with the
new implementation of air and water environmental quality requirements of the
various state and federal governmental agencies.  The requirements and costs
are unknown at this time, but management believes that costs could be
significant in some cases.  As the scope of the requirements become more
clearly defined, management may be better equipped to determine the true costs
to the Company.

The Company continues to absorb the costs for various state and local fees and
permits under new environmental programs, the sum of which were not material
during 2008 and 2007.  The Company retains outside consultants to assist it in
maintaining compliance with these regulations.  The  Company is actively
pursuing an ongoing policy of upgrading and restoring older properties to
comply with current and proposed environmental regulations.  The costs of
upgrading and restoring older properties to comply with environmental
regulations have not been determined.  Management believes that these costs
will not have a material adverse effect upon its financial position or results
of operations.

Portions of the Quarterly Report, including Management's Discussion and
Analysis, contain forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the Company's actual results
and performance in future periods to be materially different from any future
results or performance suggested in forward-looking statements in this
release.  Such forward-looking statements speak only as of the date of this
report and the Company expressly disclaims any obligation to update or revise
any forward-looking statements found herein to reflect any changes in Company
expectations or results or any change in events.  Factors that could cause
results to differ materially include, but are not limited to: the timing and
extent of changes in commodity prices of oil, gas and electricity,
environmental risk, drilling and operational costs, uncertainties about
estimates of reserves and government regulations.






<PAGE> 16

ANALYSIS OF SIGNIFICANT CHANGES IN RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 2008
  COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 2007

REVENUES

Oil and gas revenues increased by 71% for the three months ended September 30,
2008 when compared with the same period for 2007.  Oil and gas revenues
increased by 63% due to higher average crude oil prices for the third quarter
of 2008.  The average price of the Company's oil and gas for the third
quarter of 2008 increased by approximately $40.41 per equivalent barrel when
compared to the same period of 2007.  Revenues increased by 8% due to higher
crude oil production/shipments.  The Company's net revenue share of crude oil
production/sales increased by approximately 1,400 barrels for the third
quarter of 2008.  The increase in production/sales volume is due primarily to
the drilling of new wells on the Anderson lease and fracturing procedures that
were done in the first quarter of 2008.

Gain on Sale of Fixed Assets - The amounts for the three months ended
September 30, 2007 reflects a gain on the sale of real property (160 acres of
grazing land).  The Proceeds from the sale were $448,471 for a gain on the
sale of real property before taxes of $440,473.


OPERATING EXPENSES

Operating expenses increased by approximately 31% for the third quarter of
2008.  The cost to produce an equivalent barrel of crude oil increased by
approximately $5.31 per barrel (total cost of approximately $30.24 per
equivalent barrel) for the third quarter of 2008 when compared with the third
quarter of 2007.  The increase in operating expenses of approximately $131,000
was due to many factors.  These include higher costs for down-hole pump
repairs, labor, equipment fuel, parts and supplies, equipment rental and
insurance.

Down-hole pump repairs increased by approximately 6% due to the replacement of
down-hole pumps with more expensive pumps that are more efficient and have
better longevity.  Labor costs increased by approximately 6% due primarily to
an increase in overtime wages and the addition of one full-time and one part-
time employee in 2008.  Equipment fuel increased by approximately 4% due
primarily to the increased per unit costs of gasoline and diesel fuel during
the first nine months of 2008.  Repair and maintenance parts and supplies
increased by approximately 3.5% due to increased levels of repair and
maintenance activities.  Equipment rental increased by approximately 3% due
primarily to the rental of crude oil storage tanks for the new wells that have
been drilled in 2007 and 2008 on the Anderson and Santa Fe leases.  The
Company also rented crude oil storage tanks for the three wells that were
fraced in the first quarter of 2008.




<PAGE> 17

GENERAL AND ADMINISTRATIVE

General and administrative expenses increased by approximately 12% for the
quarter ended September 30, 2008, when compared with the same period for 2007.
Legal fees increased by approximately 14% due to services that were rendered
for the stock split that was declared on June 5, 2008 (see footnote 7),
increased costs for compliance with SEC filings and general corporate matters.
Accounting services decreased by 17% for the quarter ended September 30, 2008,
due primarily to a decrease in fees for compliance costs associated with
Sarbanes-Oxley Section 404, management's report on internal controls over
financial reporting.  Compensation costs increased by 8% due primarily to
an increase in annual salaries that was effective June 1, 2008.


PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION

The provision for depletion, depreciation and amortization increased by 48%
for the quarter ended September 30, 2008, when compared with the same period
for 2007.  The increase is due primarily to a 43% increase in depletion of the
Company's oil and gas properties.  The increase in depletion is due primarily
to an increase in the depletable base of oil and gas properties due to the
drilling of three new wells in 2006 and one new well in 2007 and 2008 and
higher crude oil production sales during the third quarter of 2008.


ACCRETION EXPENSE

The increase in accretion expense of $49,381 for the quarter ended September
30, 2008, is due primarily to an increase in the Company's liability for asset
retirement obligations (ARO).  The adjustment to the ARO is due to an increase
in the estimated costs associated with the retirement of its oil and gas
properties.


OTHER COSTS AND EXPENSES

Other costs and expenses increased by approximately $18,000 for the third
quarter of 2008, when compared with the same period for 2007.  The increase is
due to the retention of an investor relations consultant at a monthly fee of
$5,000 that was effective March 12, 2008 (see footnote 12).  The remaining
increase in costs is due to an increase in the annual listing fees for the
American Stock Exchange.











<PAGE> 18

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
  COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2007

REVENUES

Oil and gas revenues increased by approximately 84% for the nine months ended
September 30, 2008 when compared with the same period for 2007.  Oil and gas
revenues increased by 78% due to higher average crude oil prices for the nine
months ended September 30, 2008.  The average price of the Company's oil and
gas for the first nine months of 2008 increased by approximately $45.40 per
equivalent barrel when compared with the same period for 2007.  Revenues
increased by 6% due to higher crude oil production/shipments. The Company's
net revenue share of crude oil production/sales increased by approximately
2,900 barrels for the nine months ended September 30, 2008.  The increase in
production/sales volume is due primarily to the drilling of new wells on the
Anderson lease and fracturing procedures that were done in the first quarter
of 2008.


OPERATING EXPENSES

Operating expenses increased by approximately 21% for the nine months ended
September 30, 2008, when compared with the same period for 2007.  The cost to
produce an equivalent barrel of crude oil increased by approximately $3.30 per
barrel (total cost of approximately $26.76 per equivalent barrel) for the nine
months ended September 30, 2008.  The increase in operating expenses of
approximately $244,000 was due to many factors.  These include higher costs
for down-hole pump repairs, labor, equipment fuel, parts and supplies,
equipment rental and insurance.  This was offset by lower costs for contract
operations and outside services.

Down-hole pump repairs increased by approximately 5% due to the replacement of
down-hole pumps with more expensive pumps that are more efficient and have
better longevity.  Labor costs increased by approximately 5% due primarily to
an increase in overtime wages and the addition of one full-time and one part-
time employee in 2008.  Equipment fuel increased by approximately 3.4% due
primarily to the increased per unit costs of gasoline and diesel fuel during
the first nine months of 2008.  Repair and maintenance parts and supplies
increased by approximately 2.6% due to increased levels of repair and
maintenance activities.  Equipment rental increased by approximately 2.3% due
primarily to the rental of crude oil storage tanks for the new wells that have
been drilled in 2007 and 2008 on the Anderson and Santa Fe leases.  The
Company also rented crude oil storage tanks for the three wells that were
fraced in the first quarter of 2008.  Insurance costs increased by
approximately 2% due to higher premiums for workers' compensation and employee
medical insurance.  Contract operations decreased by approximately 2% due to
lower costs for the New York gas properties that were shut-in during the first
nine months of 2008.  Waste water disposal decreased by approximately 1%.





<PAGE 19>

EXPLORATION COSTS

In the first quarter of 2008, the Company received a payment, from its joint
venture partner, in the amount of $28,812 for its share of certain tangible
completion equipment on an exploratory well that had been abandoned in 2006.


GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased by approximately 3% for the
nine months ended September 30, 2008, when compared with the same period for
2007.  Legal fees increased by approximately 6% due to services that were
rendered for the stock split that was declared on June 5, 2008 (see footnote
7), increased costs for compliance with SEC filings and general corporate
matters.  Accounting services decreased by 2% for the nine months ended
September 30, 2008, due primarily to a decrease in fees for compliance costs
associated with Sarbanes-Oxley Section 404, management's report on internal
controls over financial reporting.  Compensation costs decreased by 4% due
primarily to the severance award agreement (see footnote 8).  The severance
award agreement was effective January 9, 2007 and was recorded in the first
quarter of 2007.


PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION

The provision for depletion, depreciation and amortization increased by 57%
for the nine months ended September 30, 2008, when compared with the same
period for 2007.  The increase is due primarily to a 52% increase in depletion
of the Company's oil and gas properties.  The increase in depletion is due
primarily to an increase in the depletable base of oil and gas properties due
to the drilling of three new wells in 2006 and one new well in 2007 and 2008
and higher crude oil production sales during the first nine months of 2008.

ACCRETION EXPENSE

The increase in accretion expense of $49,881 for the nine months ended
September 30, 2008, is due primarily to an increase in the Company's liability
for asset retirement obligations (ARO).  The adjustment to the ARO is due to
an increase in the estimated costs associated with the retirement of its oil
and gas properties.


OTHER COSTS AND EXPENSES

Other costs and expenses increased by approximately $70,000 for the nine
months ended September 30, 2008, when compared with the same period for 2007.
The increase is due to the retention of an investor relations consultant at a
monthly fee of $5,000 that was effective March 12, 2008 (see footnote 12).
The remaining increase in costs is due to an increase in the annual listing
fees for the American Stock Exchange (AMEX) and the payment of a one-time fee
to the AMEX for the stock split that was declared on June 5, 2008 (see
footnote 7).

<PAGE> 20

IMPACT OF CHANGING PRICES

The Company's revenue is affected by crude oil prices paid by the major oil
companies.  Average crude oil prices for the third quarter of 2008 increased
by approximately $40.41 when compared with the same period for 2007.  Average
crude oil prices for the first nine months of 2008 increased by approximately
$45.40 per equivalent barrel when compared with the same period for 2007.  At
the end of the third quarter of 2008, crude oil prices had increased by
approximately $4.35 per barrel when compared with crude oil prices at December
31, 2007.


LIQUIDITY AND CAPITAL RESOURCES

Cash increased by $1,337,637 for the nine months ended September 30, 2008.
During the first nine months of 2008, operating activities provided cash of
$3,204,561.  This was offset by capital expenditures of $1,054,286, purchases
of short-term investments of $750,000 and principal payments on long-term debt
totaling $21,037 during the first nine months of 2008.  See the Statements of
Cash Flows for additional detailed information.  The Company had available a
line of credit of $500,000 and short-term investments of $2,271,080 that could
have provided additional liquidity during the first nine months of 2008.


Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          Not Applicable


Item 4.  CONTROLS AND PROCEDURES

Our Chief Executive Officer and Chief Financial Officer have concluded, based
on their evaluation as of the end of the period covered by this report, that
our disclosure controls and procedures (as defined in the Securities Exchange
Act of 1934 Rules 13a-15(e) and 15d-15(e)) are effective to ensure that
information required to be disclosed in the reports that we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosures.

There was no change in our internal control over financial reporting that
occurred during the nine months ended September 30, 2008 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
<PAGE>
<PAGE> 21

                       PYRAMID OIL COMPANY

                   PART II - OTHER INFORMATION


Item 1.  -  Legal Proceedings

               None

Item 1A. -  Risk Factors

     See the risk factors that are included in the Company's Annual Report on
       Form 10KSB for the fiscal year ended December 31, 2007.

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

               None

Item 3.  -  Defaults Upon Senior Securities

               None

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

              None

Item 5.  -  Other Information -

               None

Item 6.  -  Exhibits

          a.  Exhibits

         3.1  Registrant's Amended Articles of Incorporation

        31.1  Certification of the Registrant's Principal Executive Officer
              under Exchange Act Rules 13a-14(a) and 15-d-14(a), as adopted
              pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

        31.2  Certification of the Registrant's Principal Financial Officer
              under Exchange Act Rules 13a-14(a) and 15-d-14(a), as adopted
              pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

        32.1  Certification of the Registrant's Principal Executive Officer
              under 18 U.S.C. Section 1350, as adopted pursuant to Section 906
              of the Sarbanes-Oxley Act of 2002.

        32.2  Certification of the Registrant's Principal Financial Officer
              under 18 U.S.C. Section 1350, as adopted pursuant to Section 906
              of the Sarbanes-Oxley Act of 2002. 
<PAGE>
<PAGE> 22


                            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.


                                           PYRAMID OIL COMPANY
                                              (registrant)



Dated: November 14, 2008
                                            JOHN H. ALEXANDER
                                           ---------------------
                                            John H. Alexander
                                                President


Dated: November 14, 2008
                                            LEE G. CHRISTIANSON
                                           ---------------------
                                            Lee G. Christianson
                                          Chief Financial Officer