1550 – 1185 West Georgia Street,

Vancouver, BC, V6E 4E6

Tel: 604-684-9384 Fax: 604-688-4670

www.quaterraresources.com

Interim Consolidated Financial Statements
March 31, 2007 and 2006

Index	Page
Consolidated Financial Statements
Consolidated Balance Sheets	1
Consolidated Statements of Operations and Deficit	2
Consolidated Statements of Cash Flows	3
Notes to the Consolidated Financial Statements	4 - 24

Notice of No Auditor Review of Interim Statements

These interim consolidated financial statements of the Company for the three months ended March 31, 2007, were prepared by management and have not been reviewed or audited by the Company’s auditors.

Quaterra Resource Inc.

Consolidated Balance Sheets as at March 31, 2007 and December 31, 2006 (Canadian Dollars)

			Unaudited			Audited
			March 31, 2007			December 31, 2006
Assets
Current
Cash and cash equivalents		$	6,591,325		$	9,112,732
Receivables			95,545			56,592
Prepaid and deposits			108,534			70,486
Amount due from Joint Venture Partner	Note 3 (a)		129,553			113,430
			6,924,957			9,353,240
Equipment	Note 2		76,516			51,574
Mineral properties	Note 3		9,940,412			7,855,832
Reclamation bonds			101,532			79,898
		$	17,043,417		$	17,340,544
Liabilities
Current
Accounts payable and accrued liabilities		$	336,890		$	251,311
Due to related parties	Note 4		66,571			26,216
			403,461			277,527
Shareholders' Equity
Share capital	Note 5 (b)		27,990,479			27,861,058
Subscriptions receivable			-			(17,500	)
Contributed surplus	Note 5 (b)		3,931,599			3,709,557
Deficit			(15,282,122	)		(14,490,098	)
			16,639,956			17,063,017
		$	17,043,417		$	17,340,544

Basis of Presentation (Note 1)
Subsequent events (Note 8)

Approved on behalf of the Board of Directors:

Thomas Patton Robert Gayton

The interim consolidated financial statements and accompanying notes contained herein have not been reviewed by the Company’s auditors
Page 1 of 24

Quaterra Resource Inc.

Consolidated Statements of Operations and Deficit for the three months ended March 31, 2007

and 2006 (Canadian Dollars)

			Three months ended
			March 31, 2007			March 31, 2006
Expenses
Administration		$	30,000		$	15,000
Amortization			7,829			-
Consulting
Services			71,825			21,974
Stock based compensation	Note 5 (g)		247,849			-
Directors and officers fees
Services			11,250			-
Stock based compensation	Note 5 (g)		25,306			67,707
Investor relations			64,065			23,626
Office and general			45,850			37,406
Professional fees			75,784			17,646
Regulatory fees and taxes			38,183			716
Shareholders communications			2,074			1,497
Transfer agent			8,984			2,146
Travel and promotion			53,970			11,653
Wages and benefits			49,637			9,373
Less costs recovery			-			(15,800	)
			732,606			192,944
Other (income) expenses
Interest			(90,354	)		(10,384	)
Foreign exchange loss			76,971			2,612
General exploration			72,801			8,911
			59,418			1,139
Net loss for the year			792,024			194,083
Deficit, beginning of the period			14,490,098			10,659,564
Deficit, end of period		$	15,282,122		$	10,853,647
Loss per share - basic and diluted		$	0.01		$	0.00
Weighted average number of shares outstanding			78,122,324			65,571,937

The interim consolidated financial statements and accompanying notes contained herein have not been reviewed by the Company’s auditors
Page 2 of 24

Quaterra Resource Inc.

Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006.

(Canadian Dollars)

			Three Months Ended
Cash provided by (used for):			March 31, 2007			March 31, 2006
Operating Activities
Net loss for the year		$	(792,024	)	$	(194,083	)
Items not involving cash:
Amortization			7,829			-
Stock-based compensation	Note 5 (g)		273,155			67,707
Cost recovery			-			(15,800	)
Operating Cash Flow			(511,040	)		(142,176	)
Changes in Non-Cash Working Capital
Accounts receivables			(38,953	)		(28,920	)
Prepaid and deposits			(38,048	)		-
Accounts payable and accrued liabilities			(153,141	)		160,897
Due to related parties			40,355			8,962
			(189,787	)		140,939
Cash Used in Operating Activities			(700,827	)		(1,237	)
Investing Activities
Expenditures on mineral properties			(1,845,860	)		(509,079	)
Due from Joint Venture partner	Note 3 (a)		(16,123	)		(193,365	)
Purchase of equipment			(32,771	)		-
Purchase of reclamation bonds			(21,634	)		(54	)
Cash Used in Investing Activities			(1,916,388	)		(702,498	)
Financing Activities
Proceeds from issuance of shares, net of share issue costs			78,308			173,994
Subscription receivable			17,500			-
Cash Used in Financing Activities			95,808			173,994
Increase in Cash During the Period			(2,521,407	)		(529,741	)
Cash, Beginning of Period			9,112,732			1,786,298
Cash,End of Period		$	6,591,325		$	1,256,557

Supplemental cash flow information (Note 7)

The interim consolidated financial statements and accompanying notes contained herein have not been reviewed by the Company’s auditors
Page 3 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

1. Basis of Presentation

Quaterra Resources Inc. (the “Company”) is an exploration stage enterprise incorporated under the laws of British Columbia with mineral properties in USA and Mexico. The Company and its subsidiaries are engaged in the acquisition, exploration and development of precious metal properties and does not have any mineral properties in production. The Company has not determined whether these mineral properties contain ore reserves that are economically recoverable. The ability of the Company to meet its commitments as they become due, including completion of the acquisition, exploration and development of its mineral properties, is dependent on the Company’s ability to obtain the necessary financing. The Company’s shares trade on the Tier 2 Board of the TSX Venture Exchange (“TSX.V”) under the symbol QTA.

The consolidated unaudited interim financial statements of the Company were prepared in accordance with Canadian generally accepted accounting principles for interim financial statements. As a result, these unaudited interim financial statements do not contain all of the information required for annual financial statements and they should be read in conjunction with the Company’s annual audited financial statements for the fiscal year ended December 31, 2006. All material adjustments, which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods, have been reflected. The results for the three months ended March 31, 2007 are stated utilizing the same accounting policies and methods of application as the most recent annual financial statements, but are not necessarily indicative of the results to be expected for the full year.

The Company’s reporting currency is the Canadian dollar and all dollar amounts in these statements are in Canadian dollars, unless otherwise indicated. Certain of the prior periods’ comparative figures have been reclassified to conform to the presentation adopted in the current period.

These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, as follows:

(i)	Minera Agua Tierra S.A. de C.V., incorporated in Mexico;
(ii)	Quaterra Alaska, Inc., incorporated in Alaska, USA;
(iii)	Quaterra International Limited, incorporated in the British Virgin Islands;
(iv)	QTA International Nieves Limited, incorporated in the British Virgin Islands; and
(v)	Minera Nieves S.A. de C.V., incorporated in Mexico.

All intercompany accounts and transactions were eliminated upon consolidation.

Page 4 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

2. Equipment

Equipment is carried at cost less accumulated amortization. Details of equipment are as follows:

		March 31, 2007							Dec 31, 2006
		Costs		Accumulated			Net Book		Net Book
				Amortization			Value		Value
Vehicles	$	51,358	$	(23,852	)	$	27,506	$	29,078
Equipment		28,914		(10,415	)		18,499		1,234
Computer		18,163		(2,759	)		15,404		1,843
Software		23,900		(8,793	)		15,107		19,419
	$	122,335	$	(45,819	)	$	76,516	$	51,574

3. Mineral Properties

The Company has interests in several mineral properties in Mexico, Alaska, Nevada, Arizona, Utah and Wyoming. The total capitalized deferred exploration and acquisition costs as at March 31, 2007 are as follows:

Period ended March 31, 2007	Nieves		Los	Uranium	Duke	Big	MacArthur	Other	Total
			Crestones	Properties	Island	Bar		Properties
	$		$	$	$	$	$	$	$
Acquisitions	1,257,762		73,640	1,811,829	112,285	18,461	327,459	637,218	4,238,654
Advances	-		4,103	23,093	-	-	-	10,549	37,745
Air support	-		-	4,664	-	111,795	-	-	116,459
Amortization	20,406		-	-	-	-	-	-	20,406
Assays and surveys	71,559		22,337	29,578	7,930	9,636	-	23,883	164,923
Camp costs	11,963		20,129	58,835	34	47,567	2,121	1,500	142,149
Drilling services	1,429,838		304,190	662,979	658,448	155,807	-	-	3,211,262
Equipment rental and maintenance	3,885		12,065	3,085	37,740	15,453	6,732	-	78,960
Exploration and other	148,303		8,383	33,218	10,057	30,918	1,937	6,230	239,046
Field supplies and wages	130,710		163,219	17,088	55,504	110,816	19,659	1,728	498,724
Geological services	378,143		67,410	572,676	747,741	153,300	78,480	43,816	2,041,566
Project management	308,347		60,584	256,154	72,049	29,146	38,192	-	764,472
Reclamation expenses	-		-	1,485	-	-	-	-	1,485
Travel and related costs	48,804		12,276	58,709	36,044	17,413	10,144	8,294	191,684
Vehicle expenses	12,697		24,295	23,179	4	33,345	2,717	1,190	97,427
Recovery from Blackberry	(1,904,550	)	-	-	-	-	-	-	(1,904,550	)
Total	1,917,867		772,631	3,556,572	1,737,836	733,657	487,441	734,408	9,940,412

(1) Other properties include Gray Hills, Peg Leg, SW Tintic Utah, Carbon County, Yerington, Las Americas, Mirasol, Jaboncillos and Cerro Blanco.

Page 5 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

3. Mineral Properties, continued

The total capitalized deferred exploration and acquisition costs as at December 31, 2006 were as follows:

Period ended December 31, 2006	Nieves		Los	Uranium	Duke	Big	MacArthur	Other	Total
			Crestones	Properties	Island	Bar		Properties
	$		$	$	$	$	$	$	$
Acquisitions	1,244,464		71,696	1,125,438	112,285	18,461	170,324	454,918	3,197,586
Advances	308		4,103	66,344	-	-	-	-	70,755
Air support	-		-	4,664	-	111,795	-	-	116,459
Amortization	20,406		-	-	-	-	-	-	20,406
Assays and surveys	71,146		17,430	17,611	7,930	9,636	-	8,927	132,680
Camp costs	11,313		17,811	25,160	34	47,567	-	620	102,505
Drilling services	1,429,838		144,665	277,846	658,448	105,264	-	-	2,616,061
Equipment rental and maintenance	3,885		312,065	3,085	37,740	15,453	6,732	-	78,960
Exploration and other	148,103		6,289	28,980	10,057	81,462	441	5,856	281,188
Field supplies and wages	129,641		132,322	13,135	55,504	110,816	18,833	1,007	461,258
Geological services	376,868		43,486	402,867	747,741	152,229	19,776	19,197	1,762,164
Project management	308,347		55,258	178,824	72,049	27,133	29,093	-	670,704
Travel and related costs	48,322		10,778	58,709	36,044	17,413	5,142	5,076	181,484
Vehicle expenses	12,664		18,383	2,634	4	33,345	574	568	68,172
Recovery from Blackberry	(1,904,550	)	-	-	-	-	-	-	(1,904,550	)
Total	1,900,755		534,286	2,205,297	1,737,836	730,574	250,915	496,169	7,855,832

(1)	Other properties include Gray Hills, Peg Leg, SW Tintic Utah, Carbon County, Las Americas, Mirasol, and Jaboncillos
	(a)	Nieves Concessions, Mexico
		The Company holds a 50% interest in 15 mineral concessions located in northern Zacatecas, Mexico, (the Nieves Concessions) and two inlaying fractions within the Nieves Concessions (Delores and Nazarene), collectively called Nieves.
		The Company acquired an option on the property pursuant to an Assignment made March 26, 1999 of the Underlying Agreement by Western Silver Corporation (“Western”), a company with common directors and officers, to the Company.
		To acquire its interest, the Company issued 1,444,460 common shares to Western valued at $288,892, issued 360,000 common shares to the concessionaires valued at $72,000 and in accordance with the terms of the Underlying Agreement made scheduled option payments to the concession holders, totalling US $70,000 over three years. In addition, to acquire the interest in the claim fractions the Company paid US $40,000 to the concessionaires. Commencing January 26, 2004, an annual advance minimum royalty payment (“AMR”) of US $75,000 is due to the concession holders until the commencement of commercial production.

Page 6 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

3.	Mineral Properties, continued
	(a)	Nieves Concessions, Mexico, continued
		The Nieves concessions are subject to a maximum 3% net smelter return royalty (“NSR”) to the original concession holders, which the Company may purchase at any time for US $2 million. In addition, Kennecott Exploration Company, the optionor in the initial Underlying Agreement, retains NSR royalties of 2% on certain core claims and 1% on certain peripheral claims.
		Funds in the amount of US $1,500,000 (C $1,904,550) were advanced to the Company pursuant to the terms of an agreement made April 10, 2003 with Blackberry Ventures I, LLC (“Blackberry”), a US-based investment partnership, whereby Blackberry could earn a 50% interest in the Nieves silver property in Mexico or the Duke Island property in Alaska by providing advance funding to the Company to fund exploration expenditures.
		The agreement with Blackberry stipulated that once all monies received from the advances had been incurred on exploration expenditures, Blackberry effectively exercised its option and earned a 50% interest in the Nieves property. In August 2005, the parties formed a joint venture to proceed with exploration on the property. As at March 31, 2007, Blackberry owed the Company $129,553 (2005: $113,430) for its share of joint venture exploration expenditures that have been made on the property.
	(b)	Los Crestones Property, Mexico
		The Company holds a 100% interest in a mineral concession located in northern Durango, Mexico. In April 2004, the Company issued 25,000 common shares valued at $15,000, to an individual as a finder’s fee for his role in the identification and acquisition of the property.
	(c)	Uranium Properties, Arizona, Utah and Wyoming
		In an agreement made effective June 22, 2005 with North Exploration LLC, a Nevada limited partnership, the Company acquired an option to purchase mining claims situated in Arizona, Utah and Wyoming. To exercise the option, the Company is required to make staged payments totalling US $500,000 over five years and to issue 600,000 common shares over three years, as follows: TSX.V regulatory approval for this agreement was received on September 6, 2005.
		(i)	US $15,000 and issue 200,000 common shares on or before September 6, 2005 (Paid and issued).
		(ii)	US $25,000 and issue 200,000 common shares on or before September 6, 2006 (Paid and issued).
		(iii)	US $50,000 and issue 200,000 common shares on or before September 6, 2007.
		(iv)	US $75,000 on or before September 6, 2008.
		(v)	US $135,000 on or before September 6, 2009.
		(vi)	US $200,000 on or before September 6, 2010.
		If the Company meets the above terms and conditions and elects to exercise the option, then the property may be purchased with a further payment of US $100. The agreement is subject to a 2% NSR payable upon commencement of commercial production, which the Company may reduce to 1% by purchase for US $1 million.

Page 7 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

3. Mineral Properties, continued

(c)	Uranium Properties, Arizona, Utah and Wyoming, continued
	In an agreements made effective August 10, 2006 and March 23 2007 with Nustar Exploration LLC, the Company acquired mining claims in the Uranium project areas.
	Pursuant to this agreement the Company’s commitments would be as follows:
	(i)	Initial payments of US $20,000 and US $25,500 (Paid).
	(ii)	US $30,000 on or before August 10, 2007.
	(iii)	US $40,000 on or before August 10, 2008.
	(iv)	US $100,000 on or before August 10, 2009.
	Under agreement dated August 10, 2006, the property is subject to a 4% royalty of which a 2% royalty can be bought back for $500,000.
	Under agreement dated March 23 2007 the Company US $100,000 advance payment on the 4% yellowcake royalty on any claims retained by the Company. Upon payment of purchase price, the Company will own the right to buy back all but 1% of the 4% royalty for $1,000,000 per breccia pipe.
(d)	Duke Island Property, Alaska
	The Company has a 100% interest in 140 mining claims in Alaska (129 federal claims and 11 state claims) on Duke Island, which is near Ketchikan.
(e)	Big Bar Property, Alaska
	The Company has a 100% interest in Big Bar project, which consists of seven state mining claims on the Seward Peninsula, approximately 45 kilometers (110 miles) northeast of Nome, Alaska.
(f)	MacArthur Claim
	Pursuant to an agreement made October 2005 with North Exploration LLC, the Company acquired the right to earn an interest in 66 unpatented mining claims covering the former MacArthur copper- oxide mine, in the Yerington district of Lyon County, Nevada. To earn a 100% interest, subject to a 2% NSR, the Company is required to make staged payments totaling US $1,785,000 by January 15, 2008 as follows:
	(i)	Option 1 US $10,000 upon execution (Paid).
	(ii)	US $25,000 on or before January 15, 2006 (Paid).
	(iii)	US $75,000 on or before January 15, 2007 (Paid).
	(iv)	US $1,675,000 on or before January 15, 2008.
	Alternatively, since the Company has met its obligation of US $100,000 in stage payments by January 15, 2007, and if the Company incurs US $500,000 in exploration expenditures by January 15, 2008, then the Company may elect to acquire the property by making additional payments totaling US $2,645,000 as follows:

Page 8 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

3. Mineral Properties, continued

(f)	MacArthur Claim, continued
	Option 2
	(i)	US $100,000 on or before January 15, 2008.
	(ii)	US $125,000 on or before January 15, 2009.
	(iii)	US $2,420,000 on or before January 15, 2010.
	The property is subject to a 2% NSR, 1% of which the Company may purchase for US $1 million.
	Under an amendment dated January 17, 2007 to the original agreement made October 2005 between the Company and North Exploration LLC a US $350,000 deduction will be made from the final payments, (option one originally US $1,675,000 or option two originally US $2,420,000) as the Company has paid this amount to Charles Gary Clifton in advance.
(g)	Other Properties
	Other properties include Gray Hills, Peg Leg, SW Tintic Utah, Yerington, and Carbon County, properties in the USA and Las Americas, Mirasol, Jaboncillos and Cerro Blanco properties in Mexico.
	Pursuant to an agreement made December 2006 with Tom Turner, the Company acquired a 100% interest in three mineral concessions (Jaboncillos, Mirasol and Las Americas) located in Mexico for consideration of 200,000 shares with a deemed value of $1.53 per share for a total of $306,000 (Note 5 (d)).
	Pursuant to an agreement made March 28 2007 with Andryck Patterson and Daniel Soto, the Company acquired a 100% interest in two prospect permits located in Culberson County, Texas. The payments for these prospects are as follows:
	(i)	Initial payment of US $50,000. (Paid)
	(ii)	US $50,000 on or before March 28, 2008.
	(iii)	US $60,000 on or before March 28, 2009
	(iiii)	US $70,000 on or before March 28, 2010
	(iv)	US $150,000 on or before March 28, 2011
	(iii)	US $220,000 on or before March 28, 2012
	The option agreements for the Arc and Brown Claims, in the Skeena Mining District were terminated in accordance with their terms and the 100% interest reverted back to the Company.

Page 9 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

3. Mineral Properties, continued

(h)	Title to Mineral Properties
	Title to mineral properties may be affected by unregistered prior agreements or transfers, as well as undetected defects. Although the Company has verified title to its mineral properties in accordance with standard industry practices applicable for the current stage of exploration, these procedures do not guarantee the Company’s interests in its mineral properties.
(i)	Environmental Expenditures
	The operations of the Company may, in the future, be affected from time to time in varying degrees by changes in environmental regulations, including those for future removal and site restoration costs. Both the likelihood of new regulations and their overall effect upon the Company vary greatly and are not predictable. The Company's policy is to meet or, if possible, surpass standards set by relevant legislation, by application of technically proven and economically feasible measures.
	Environmental expenditures that relate to ongoing environmental and reclamation programs are charged against earnings as incurred or capitalized and amortized depending on their future economic benefits. Estimated future removal and site restoration costs, when the ultimate liability is reasonably determinable, are charged against earnings over the estimated remaining life of the related business operation, net of expected recoveries.

4. Related Party Transactions

As at March 31, 2007, $66,571 (December 31, 2006: $26,216) was due to directors or senior officers of the Company or to companies controlled by them, for various services rendered.

The following table summarizes the Company’s related party transactions for the three months ended March 31, 2007 and 2006.

Page 10 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

4. Related Party Transactions, continued

			Three Months Ended March 31,
			2007		2006
Services
Administration fee		$	30,000	$	15,000
Consulting		$	27,162	$	18,620
Directors' and officers' fees		$	11,250	$	-
General exploration		$	-	$	2,015
Investor relations		$	13,993	$	12,840
Professional fees
Accounting		$	18,589	$	19,154
Legal fees		$	4,302	$	4,265
Wages and benefits		$	43,539	$	9,374
Cost recovery
Equipment		$	2,299	$	-
Investor relations		$	1,026		467
Office and administration		$	25,322	$	5,739
Regulatory		$	-	$	578
Share issue costs	(1 )	$	28,869	$	7,206
Travel and promotions		$	9,772	$	5,854
Mineral properties
Big Bar	(2 )	$	16,616	$	-
Uranium properites	(2 )	$	24,155	$	25,596
MacArthur	(2 )	$	9,936	$	12,242

(1)	This amount has been capitalized and is included in share capital on the balance sheet
(2)	These amounts have been capitalized and are included in mineral properties on the balance sheet
(3)	Stock based compensation is not included in these related party transactions (Note 5(g))

These transactions were made in the normal course of operations and measured at the exchange amount, which is the amount of consideration established and agreed to by the Company and related parties. They are considered related party due the following relationships to the Company:

(a)	A private company controlled by directors or officers of the Company.
(b)	A director or officer of the Company.
(c)	An association of lawyers in which an officer of the Company is a member (resigned May 1, 2006).

Page 11 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

5. Share Capital

(a)	Authorized
	The Company has unlimited authorized, without par value, common shares.
(b)	Issued and Outstanding

	Number		Total			Contributed
	of shares					Surplus
Balance as at December 31, 2005	65,522,200	$	15,172,975		$	1,013,998
Issued for cash:
Private placements	5,247,855		9,183,746			-
Exercised share purchase warrants	3,814,281		1,907,141			-
Exercised stock options	2,829,000		675,030			-
Total issued for cash	11,891,136		11,765,917			-
Issued for mineral property acquisitions	400,000		606,000			-
Issued for brokerage fees	291,484		510,097			-
Fair value of stock options exercised	-		349,445			(349,445	)
Stock based compensation	-		-			3,045,004
Subtotal before share issue costs	12,582,620		13,231,459			2,695,559
Share issue costs	-		(543,376	)		-
Balance as at December 31, 2006	78,104,820		27,861,058			3,709,557
Issued for cash:
Exercised stock options	135,000		83,760			-
Total issued for cash	135,000		83,760			-
Fair value of stock options exercised	-		51,113			(51,113	)
Stock based compensation	-		-			273,155
Subtotal before share issue costs	135,000		134,873			222,042
Share issue costs	-		(5,452	)		-
Balance as at March 31, 2007	78,239,820	$	27,990,479		$	3,931,599

Page 12 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

5. Share Capital, continued

(c)	Private Placements
	There were no private placements during the three months ended March 31, 2007.
	During the year ended December 31, 2006, the Company issued 5,247,855 units at a price of $1.75 per unit for gross proceeds of $9,183,746. Each unit consisted of one common share and one-half of one share purchase warrant, each whole warrant entitling the holder to purchase an additional common share at a price of $2.25 until expiry on June 21, 2008.
	The Company incurred net share issuance costs of $502,596, including 291,484 shares were issued for finders’ fees valued at $510,097, resulting in net proceeds of $8,681,150 from the private placement.
(d)	Shares Issued for Mineral Property
	There were no shares issued for mineral properties during the three months ended March 31, 2007
	During the year ended December 31, 2006, the Company issued 400,000 common shares for value at $606,000.
	(i)	200,000 common shares value at $1.50 per share, $300,000 in total, pursuant to the terms of the uranium properties agreement (Note 3 (c)).
	(ii)	200,000 common shares value at $1.53 per share, $306,000 in total, pursuant to the acquisition of three mineral concessions in Mexico (Note 3 (g)).

Page 13 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

5. Share Capital, continued

(e)	Share Purchase Warrants
	A summary of the Company’s share purchase warrant transactions for the three months ended March 31, 2007 are as follows:

Exercise	Expiry	Balance	Warrants	Cancelled	Warrants	Balance
Price	Date	Dec. 31, 2006	Issued	or Expired	Exercised	March 31, 2007
$2.25	June 21, 2008	2,623,928	-	-	-	2,623,928
Weighted average exercise price		$2.25	$0.00	$0.00	$0.00	$2.25

A summary of the Company’s share purchase warrant transactions for the year ended December 31, 2006 are as follows:

Exercise	Expiry	Balance	Warrants	Cancelled	Warrants	Balance
Price	Date	Dec. 31, 2005	Issued	or Expired	Exercised	Dec. 31, 2006
$0.66	January 20, 2006	120,000	-	120,000	-	-
$0.50	September 27, 2007	3,250,000		-	3,250,000	-
$0.50	September 27, 2007	564,281		-	564,281	-
$2.25	June 21, 2008	-	2,623,928	-	-	2,623,928
		3,934,281	2,623,928	120,000	3,814,281	2,623,928
Weighted average exercise price		$0.50	$2.25	$0.66	$0.50	$2.25

(f)

Stock Options

As at March 31, 2007 and December 31, 2006, the Company had a stock option plan (the “Plan”), allowing for the reservation of common shares issuable under the Plan to a maximum 10% of the number of issued and outstanding common shares of the Company at any given time. The term of any stock option granted under the Plan may not exceed five years and the exercise price may not be less than the closing price of the Company’s shares on the last business day immediately preceding the date of grant, less any permitted discount. On an annual basis, the Plan requires approval by the Company’s shareholders and submission for regulatory review and acceptance.

Page 14 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

5. Share Capital, continued

(f)	Stock Options, continued
	The purpose of the Plan is to provide directors, officers, key employees and certain other persons who provided services to the Company and its subsidiaries with an increased incentive to contribute to the future success and prosperity of the Company.
	As at March 31, 2007, 5,317,000 of the options outstanding were vested and exercisable and 5,233,250 were vested and exercisable as at December 31, 2006.
	Transactions for the three months ended March 31, 2007 are as follows:

Exercise	Expiry	Balance	Options	Options	Options	Balance
Price	Date	Dec. 31, 2006	Granted	Cancelled/Expired	Exercised	March 31, 2007
$0.12	January 10, 2008	937,000	-	-	33,000	904,000
$0.25	October 2, 2008	50,000	-	-	-	50,000
$0.34	December 8, 2008	90,000	-	-	-	90,000
$0.62	March 25, 2009	590,000	-	-	30,000	560,000
$0.35	August 9, 2010	850,000	-	-	42,000	808,000
$0.40	January 9, 2011	200,000	-	-	-	200,000
$1.04	March 27, 2011	125,000	-	-	-	125,000
$1.00	May 19, 2011	75,000	-	-	-	75,000
$1.12	June 12, 2011	100,000	-	-	-	100,000
$1.55	July 28, 2011	2,110,000	-	-	30,000	2,080,000
$1.55	August 23, 2011	100,000	-	-	-	100,000
$1.50	September 25, 2011	100,000	-	-	-	100,000
$2.05	December 18, 2011	100,000	-	-	-	100,000
$2.65	January 11, 2012	-	75,000	-	-	75,000
$2.70	February 21, 2012	-	25,000			25,000
		5,427,000	100,000	-	135,000	5,392,000
Weighted average exercise price		$0.92	$2.66	$0.00	$0.62	$0.96

Page 15 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

5. Share Capital, continued

(f)	Stock Options, continued
	Transactions for the year ended December 31, 2006 are as follows:

Exercise	Expiry	Balance	Options	Options	Options	Balance
Price	Date	Dec. 31, 2005	Granted	Cancelled/Expired	Exercised	Dec. 31, 2006
$0.15	February 8, 2006	50,000	-	-	50,000	-
$0.15	May 7, 2006	55,000	-	-	55,000	-
$0.12	June 8, 2006	515,000	-	-	515,000	-
$0.19	September 27, 2006	490,000	-	-	490,000	-
$0.12	January 10, 2008	1,591,000	-	-	654,000	937,000
$0.25	October 2, 2008	75,000	-	-	25,000	50,000
$0.34	December 8, 2008	195,000	-	-	105,000	90,000
$0.65	March 2, 2009	100,000	-	100,000	-	-
$0.62	March 25, 2009	800,000	-	-	210,000	590,000
$0.35	August 9, 2010	1,575,000	-	-	725,000	850,000
$0.40	January 9, 2011	-	200,000	-	-	200,000
$1.04	March 27, 2011	-	125,000	-	-	125,000
$1.00	May 19, 2011	-	75,000	-	-	75,000
$1.12	June 12, 2011	-	100,000	-	-	100,000
$1.55	July 28, 2011	-	2,110,000	-	-	2,110,000
$1.55	August 23, 2011	-	100,000	-	-	100,000
$1.50	September 25, 2011	-	100,000	-	-	100,000
$2.05	December 18, 2011	-	100,000	-	-	100,000
		5,446,000	2,910,000	100,000	2,829,000	5,427,000
Weighted average exercise price		$0.29	$1.44	$0.65	$0.24	$0.92

(g) Value Assigned to Stock Options

The fair value of stock options granted using the Black-Scholes option pricing model was calculated with the following weighted average assumptions:

	March 31, 2007	December 31, 2006	March 31, 2006
Risk-free interest rate	4.04%	4.02%	3.90%
Expected Share price volatility	167.40%	121.60%	123.76%
Expected option life in years	3.0	3.5	3.5
Expected dividend yield	0%	0%	0%

Page 16 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

5. Share Capital, continued

(g)	Value Assigned to Stock Options
	The total calculated fair value of options expensed during the three months ended March 31, 2007 was $273,155 (2006: $67,707) and includes amounts calculated from options issued during the year ended December 31, 2006 but vesting during the three months ended March 31, 2007.
	This stock based compensation is included in the statement of operations as follows:

	March 31, 2007			March 31, 2006
	Number of		Stock-based	Number of		Stock-based
	Options issued		Compensation	Options issued		Compensation
Consulting	100,000	$	247,849	-	$	-
Directors' and officers' fees	-		25,306	325,000		67,707
Wages and benefits	-		-	-		-
Total	100,000	$	273,155	325,000	$	67,707

6. Segmented Information

The Company‘s non-current assets are distributed by geographic location as follows:

				March 31, 2007								December 31, 2006
		Equipment		Mineral		Reclamation		Total		Equipment		Mineral		Reclamation		Total
				Properties		Bond						Properties		Bond
Canada	$	23,467	$	-	$	-	$	23,467	$	24,997	$	-	$	-	$	24,997
Mexico		52,042		3,128,185		-		3,180,227		25,488		2,785,632		-		2,811,120
U.S.A.		1,007		6,812,227		101,532		6,914,766		1,089		5,070,200		79,898		5,151,187
	$	76,516	$	9,940,412	$	101,532		10,118,460	$	51,574	$	7,855,832	$	79,898	$	7,987,304

Page 17 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

7. Supplemental Cash Flow Information.

		Three Months Ended
		March 31, 2007		March 31, 2006
Cash Items
Interest received	$	83,378	$	10,384
Share issue costs	$	5,452	$	7,206
Non-Cash Items
Accrued interest	$	6,976	$	-

8. Subsequent Events

The following events occurred subsequent to period ended March 31, 2007:

(a)	310,000 stock options were exercised for gross proceeds of $240,700 with an average price of $0.78 per share and 15,000 share purchase warrants were exercised for gross proceeds of $33,750 with an average price of $2.25 per share.
(b)	The Company has agreed to acquire all the assets of Arimetco Inc., a Nevada corporation, in the Yerington Mining District, Lyon County, Nevada. This transaction is subject to a 180 day review period and the Company may terminate this process if dissatisfied with the condition of the property or fails to obtain requested environmental clearances for past mining-related activities. Under certain circumstances, the review period may be extended for a further 120 day.
	On receiving regulatory approval and providing that properties pass the review process the Company’s commitments would be as follows:
	(ii)	Payment of US $500,000.
	(ii)	250,000 common shares.
	Under this acquisition, the property is subject to a 2% net smelter return royalty capped at US $7.5 million on production from any claims owned by Quaterra in the Yerington and MacArthur mine areas. See news release NR-02-07 dated May 1, 2007.
(c)	After receiving TSX.V approval on May 2, 2007 the Company has issued 7,840 common shares in settlement of $22,500 debt owed by the Company.

Page 18 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

9. Differences between Canadian and United States generally accepted accounting principles (GAAP)

(a) Differences in accounting principles

(i)	Exploration expenditures
	Under Canadian GAAP, acquisition costs of mineral interests and exploration expenditures are capitalized (Note 3).
	Under US GAAP, exploration costs incurred in locating areas of potential mineralization are expensed as incurred. Commercial feasibility is established in compliance with SEC Industry Guide 7, which consists of identifying that part of a mineral deposit that could be economically and legally extracted or produced at the time of the reserve determination. After an area of interest has been assessed as commercially feasible, expenditures specific to the area of interest for further development are capitalized. In deciding when an area of interest is likely to be commercially feasible, management may consider, among other factors, the results of prefeasibility studies, detailed analysis of drilling results, the supply and cost of required labour and equipment, and whether necessary mining and environmental permits can be obtained. To date no exploration expenses have been capitalized.
	The Company has adopted EIFT 04-02 and separately reports the aggregate carrying amount of mineral rights. Mineral rights include an option for the Company to acquire the rights to extract and retain at least a portion of the benefits from the mineral deposits. Acquisition costs include cash and the fair market value of common shares for the mineral rights. These capitalized costs will be amortized over the estimated life of the property following commencement of commercial production or written off if the property is sold, allowed to lapse or abandoned, or when an impairment of value has occurred.

Page 19 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

9. Differences between Canadian and United States generally accepted accounting principles (GAAP)

(a)	Differences in accounting principles
	(ii)	Reconciliation of total assets, liabilities and stockholders’ equity:

		March 31, 2007			December 30, 2006
Total assets per Canadian GAAP	$	17,043,417		$	17,340,544
Expenditures on resource properties		(6,675,770	)		(5,196,365	)
expensed under US GAAP
Total Liabilities and equity per US GAAP	$	10,367,647		$	12,144,179
Total liabilities per Canadian GAAP	$	403,461		$	277,527
Adjustments to US GAAP		-			-
Total liabilities per US GAAP		403,461			277,527
Total equity per Canadian GAAP		16,639,956			17,063,017
Expenditures on resource properties		(6,675,770	)		(5,196,365	)
expensed under US GAAP
Total equity per US GAAP		9,964,186			11,866,652
Total Liabilities and equity per US GAAP	$	10,367,647		$	12,144,179

Page 20 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

9. Differences between Canadian and United States generally accepted accounting principles (GAAP), continued

(a)	Differences in accounting principles, continued
	(iii)	Reconciliation of net loss reported in Canadian GAAP and US GAAP:

		Three months ended March 31,
		2007		2006
Reconciliation of net loss from Canadian
GAAP to US GAAP
Loss for year per Canadian GAAP	$	792,024	$	194,083
Expenditures on mineral properties		1,479,405		393,038
Net loss for year per US GAAP		2,271,429		587,121
Deficit, Beginning of year per US GAAP		19,686,463		13,209,578
Deficit, End of year as per US GAAP	$	21,957,892	$	13,796,699
Net loss per share for the year in
accordance with Canadian GAAP	$	0.02	$	0.00
Total differences	$	0.01	$	0.01
Net loss per share for the year in
accordance with US GAAP	$	0.03	$	0.01
Weighted average number of common
shares outstanding		78,122,324		65,571,937

Page 21 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

9. Differences between Canadian and United States generally accepted accounting principles (GAAP), continued

(a)	Differences in accounting principles, continued
	(iv)	Reconciliation of cash flows reported in Canadian GAAP and US GAAP:

		Three months ended
		March 31, 2007			March 31, 2006
Cash used in operating activities
in accordance with Canadian GAAP	$	(657,205	)	$	(1,237	)
Adjustments to net loss involving use of cash
Write-off of expenditures on mineral interest		(1,479,405	)		(393,038	)
Cash used in operating activities
in accordance with US GAAP		(2,136,610	)		(394,275	)
Cash used in investing activities
in accordance with Canadian GAAP		(1,960,010	)		(702,498	)
Reclassification of expenditures on mineral property interest		1,479,405			393,038
Cash used in investing activities
in accordance with US GAAP		(480,605	)		(309,460	)
Cash used in Financing Activities
in accordance with Candian and US GAAP		95,808			173,994
Increase in cash during the period
in accordance with Candian and US GAAP		(2,521,407	)		(529,741	)
Cash, beginning of period
in accordance with Candian and US GAAP		9,112,732			1,786,298
Cash, end of period
in accordance with Candian and US GAAP	$	6,591,325		$	1,256,557

Page 22 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

9. Differences between Canadian and United States generally accepted accounting principles (GAAP), continued

(b)	Recent accounting pronouncements, continued
	(i)	In December 2004, FASB issued Statement No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”), which requires the measurement and recognition of compensation expense for all stock-based compensation payments and supersedes the Company’s current accounting under APB 25. SFAS 123(R) is effective for all annual periods beginning after June 15, 2005. In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to the adoption of SFAS 123(R). This standard will not have an impact on the Company’s financial statements as it already applies the fair value method of accounting for its stock options.
	(ii)	FAS 153, Exchanges of Non-Monetary Assets. The provisions of this statement are effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for non-monetary asset exchanges occurring in fiscal periods beginning after December 16, 2004. The provisions of this statement should be applied prospectively. There is no impact on the Company’s financial statements.
	(iii)	FIN 46(R), Consolidation of Variable Interest Entities, applies at different dates to different types of enterprises and entities, and special provisions apply to enterprises that have fully or partially applied Interpretation 46, or Interpretation 46 (R) is required in financial statements of public entities that have interests in variable interest entities or potential variable interest entities commonly referred to as special- purpose entities for periods ending after December 15, 2003. Application by public entities is required in financial statements for periods other than special-purpose entities and by non-public entities to all types of entities is required at various dates in 2004 and 2005. In some instances, enterprises have the option of applying or continuing to apply Interpretation 46 for a short period of time before applying Interpretation 46(R). There is no impact on the Company’s financial statements.
	(iv)	SFAS 154, Accounting Changes and Error Corrections. This new standard replaces APB Opinion No. 20, Accounting Changes, and FASB 3, Reporting Accounting Changes in Interim Financial Statements. Statement 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. Statement 154 also provides that (1) a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a "restatement." The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. Early adoption of this standard is permitted for accounting changes and correction of errors made in fiscal years beginning after June 1, 2005. There is no impact on the Company’s financial statements.

Page 23 of 24

Quaterra Resources Inc.

Notes to the Consolidated Financial Statements

Three months ended March 31, 2007 and 2006 (Canadian Dollars)

9. Differences between Canadian and United States generally accepted accounting principles (GAAP), continued

(b) Recent accounting pronouncements, continued

(vii)

SFAS 157, Fair Value Measurements. The provisions of this standard are to provide guidance for using fair value to measure assets and liabilities. The standard clarifies methods for measuring items not actively traded and the principles that fair value should be based upon when pricing an asset or liability. The provisions of Statement 157 are effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year. There is no impact on the Company’s financial statements.

(viii)

On July 13, 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109. Interpretation 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with Statement 109 and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Additionally, Interpretation 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Interpretation 48 is effective for fiscal years beginning after December 15, 2006, with early adoption permitted. The Company is currently evaluating whether the adoption of Interpretation 48 will have a material effect on its consolidated financial position, results of operations or cash flows.

Page 24 of 24