1100 – 1199 West Hastings Street,

Vancouver, BC, V6E 3T5

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

www.quaterraresources.com

Interim Consolidated Financial Statements
For the Nine months ended September 30, 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	4-25

Notice of No Auditor Review of Interim Statements

     These interim consolidated financial statements of the Company for the nine months ended September 30, 2007, were prepared by management and have not been reviewed or audited by the Company’s auditors.

Quaterra Resources Inc. (An Exploration Stage Company)

Consolidated Balance Sheets as at September 30, 2007 and December 31, 2006 (Canadian

Dollars)

			Unaudited			Audited
			September 30, 2007			December 31, 2006
Assets
Current
Cash and cash equivalents		$	6,108,486		$	9,112,732
Restricted cash	Note 3		99,290			-
Receivables			165,172			56,592
Prepaid and deposits			86,592			70,486
Amount due from Joint Venture Partner	Note 5 (a)		149,230			113,430
			6,608,770			9,353,240
Equipment	Note 4		142,306			51,574
Mineral properties	Note 5		16,182,748			7,855,832
Reclamation bonds			129,291			79,898
		$	23,063,115		$	17,340,544
Liabilities
Current
Accounts payable and accrued liabilities		$	344,781		$	251,311
Due to related parties	Note 6		13,109			26,216
			357,890			277,527
Shareholders' Equity
Share capital	Note 7 (b)		36,170,878			27,861,058
Subscriptions receivable			-			(17,500	)
Contributed surplus	Note 7 (b)		9,285,911			3,709,557
Deficit			(22,751,564	)		(14,490,098	)
			22,705,225			17,063,017
		$	23,063,115		$	17,340,544

Basis of Presentation (Note 2)
Subsequent events (Note 10)

Approved on behalf of the Board of Directors:

”Signed Tom Patton”	”Signed Robert Gayton”
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 25

Quaterra Resources Inc. (An Exploration Stage Company)

Consolidated Statement of Operations and Deficit for the nine months ended September 30,

2007 and 2006. (Canadian Dollars)

			Three months ended						Nine months ended
			Sept 30, 2007			Sept 30, 2006			Sept 30, 2007			Sept 30, 2006
Expenses
Administration		$	30,000		$	15,000		$	90,000		$	45,000
Amortization			13,843			4,854			31,029			5,027
Consulting
Services			109,372			38,400			281,692			83,158
Stock based compensation	Note 7 (h)		2,783,893			789,277			3,047,297			872,733
Directors and officers fees
Services			19,808			-			36,308			-
Stock based compensation	Note 7 (h)		2,386,331			876,524			2,411,637			944,716
Investor relations			26,465			14,823			177,050			92,010
Office and general			41,794			58,997			138,616			131,431
Professional fees			23,361			33,239			195,078			80,685
Regulatory fees and taxes			4,378			9,830			53,465			18,566
Shareholders communications			38,418			4,047			88,751			12,507
Transfer agent			5,888			4,484			19,186			12,726
Travel and promotion			35,931			6,809			130,848			41,862
Wages and benefits
Salaries and benefits			56,133			12,360			172,042			30,683
Stock based compensation	Note 7 (h)		664,079			316,572			664,079			347,181
			6,239,694			2,185,216			7,537,078			2,718,285
Other (income) expenses
Interest			(54,205	)		(26,277	)		(207,329	)		(55,928	)
Foreign exchange loss			242,974			29,136			733,832			36,198
General exploration			67,843			53,067			197,885			147,215
Write off of accrued liabilities			-			(6,761	)		-			(46,392	)
			256,612			49,165			724,388			81,093
Net loss for the period			6,496,306			2,234,381			8,261,466			2,799,378
Deficit, beginning of the period			16,255,258			11,224,561			14,490,098			10,659,564
Deficit, end of period		$	22,751,564		$	13,458,942		$	22,751,564		$	13,458,942
Loss per share - basic and diluted		$	0.08		$	0.03		$	0.10		$	0.04
Weighted average number of shares outstanding			79,428,158			71,852,481			78,871,925			68,033,632

The interim consolidated financial statements and accompanying notes contained herein have not been reviewed by the Company’s auditors
Page 2 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and

2006. (Canadian Dollars)

			Three months ended						Nine months ended
			Sept 30, 2007			Sept 30, 2006			Sept 30, 2007			Sept 30, 2006
Operating Activities
Net loss for the period		$	(6,496,306	)	$	(2,234,381	)	$	(8,261,466	)	$	(2,799,378	)
Items not involving cash
Amortization			13,843			4,854			31,029			5,027
Stock based compensation	Note 7 (h)		5,834,303			1,982,373			6,123,013			2,164,630
Write off of accrued liabilities			-			(6,761	)		-			(46,392	)
Shares issued for services			22,500			-			45,000			-
Operating Cash Flow			(625,660	)		(253,915	)		(2,062,424	)		(676,113	)
Changes in Non-Cash Working Capital
Accounts receivables			(67,964	)		(3,625	)		(108,580	)		(73,389	)
Prepaid and deposits			(14,091	)		(3,928	)		(16,106	)		(2,390	)
Accounts payable and accrued liabilities			(346,298	)		(36,242	)		(153,682	)		(177,173	)
Due to related parties			(3,600	)		(16,023	)		(13,107	)		(7,519	)
			(431,953	)		(59,818	)		(291,475	)		(260,471	)
Cash Used in Operating Activities			(1,057,613	)		(313,733	)		(2,353,899	)		(936,584	)
Investing Activities
Expenditures on mineral properties			(2,606,251	)		(1,015,900	)		(6,878,763	)		(2,211,487	)
Due from Joint Venture partner			(79,243	)		(6,105	)		(35,800	)		114,285
Purchase of equipment			(62,064	)		(29,083	)		(121,761	)		(30,609	)
Purchase of relcamation bonds			(3,663	)		(35,000	)		(49,393	)		(35,000	)
Cash used in Investment Activities			(2,751,221	)		(1,086,088	)		(7,085,717	)		(2,162,811	)
Financing Activities
Shares issued for cash, net			5,698,010			115,200			6,534,660			2,515,608
Increase in Cash During the Period			1,889,176			(1,284,621	)		(2,904,956	)		(583,787	)
Cash, Beginning of Period			4,318,600			2,487,132			9,112,732			1,786,298
Cash, End of Period		$	6,207,776		$	1,202,511		$	6,207,776		$	1,202,511
Cash consists of the following
Cash and cash equivalents			6,108,486			1,202,511			6,108,486			1,202,511
Restricted cash			99,290			-			99,290			-
Cash, End of Period		$	6,207,776		$	1,202,511		$	6,207,776		$	1,202,511

Supplemental cash flow information (Note 9)

The interim consolidated financial statements and accompanying notes contained herein have not been reviewed by the Company’s auditors
Page 3 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

1. Nature of Operations

Quaterra Resources Inc. (the “Company”) is an exploration stage enterprise incorporated under the laws of British Columbia. 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.

2. Basis of Presentation and Consolidation

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 nine months ended September 30, 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.
(v)	Minera Nieves S.A. de C.V., incorporated in Mexico.
(vi)	Sigatse Peak Services, LLC’, incorporated in Nevada, USA.

All intercompany accounts and transactions were eliminated upon consolidation.

3. Restricted Cash

Restricted cash of $99,290 (US $100,000) is an amount held in escrow in respect to the Company’s agreement dated June 27, 2007 to, under certain conditions, acquire the assets of Arimetco Inc., a Nevada corporation, in the Yerington Mining District, Lyon County, Nevada (see Note 5 (f) for further details of this agreement).

Page 4 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

4. Equipment

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

		September 30, 2007							Dec 31, 2006
		Costs		Accumulated			Net Book		Net Book
				Amortization			Value		Value
Vehicles	$	108,564	$	(31,034	)	$	77,530	$	29,078
Equipment		44,110		(14,076	)		30,034		1,234
Computer		23,249		(4,650	)		18,599		1,843
Software		35,829		(19,686	)		16,143		19,419
	$	211,752	$	(69,446	)	$	142,306	$	51,574

5. Mineral Properties

The Company has interests in several mineral properties in Mexico, and the US including Alaska, Nevada, Arizona, Utah and Wyoming. The total deferred exploration and acquisition costs as at September 30, 2007 are as follows:

Period ended 'September 30, 2007	Nieves		Los	Uranium	Alaskan	MacArthur	Yerington	Other	Total
			Crestones	Properties	Properties			Properties
	$		$	$	$	$	$	$	$
Acquisitions	1,308,448		78,097	2,949,254	147,737	482,657	770,454	1,136,449	6,873,096
Advances	243		-	354	-	-	-	4,818	5,415
Air support	-		-	4,664	111,795	-	-	30,752	147,211
Amortization	20,406		-	-	-	-	-	-	20,406
Assays and surveys	74,336		67,919	31,793	27,657	48,778	-	65,200	315,683
Camp costs	14,829		31,959	89,653	48,108	60,964	22,769	19,002	287,284
Drilling services	1,429,838		657,812	1,170,162	814,255	721,149	-	-	4,793,216
Equipment rental and maintenance	3,885		12,289	3,253	53,413	18,938	601	2,472	94,851
Exploration and other	157,058		17,271	37,897	42,738	15,629	11,135	13,487	295,215
Field supplies and wages	143,270		231,229	23,706	167,537	43,080	17,851	48,518	675,191
Geological services	393,295		84,556	1,266,750	908,962	239,503	93,667	146,930	3,133,663
Project management	314,596		119,883	317,198	106,843	109,635	-	57,324	1,025,479
Reclamation expenses	-		-	1,485	-	-	-	-	1,485
Travel and related costs	51,080		18,954	64,947	54,643	27,647	3,810	19,456	240,537
Vehicle expenses	14,181		39,488	44,939	33,710	23,484	13,857	8,907	178,566
Recovery from Blackberry	(1,904,550	)	-	-	-	-	-	-	(1,904,550	)
Total	2,020,915		1,359,457	6,006,055	2,517,398	1,791,464	934,144	1,553,315	16,182,748

Note - Alaskan properties are Big Bar and Duke Island

Page 5 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

5. 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	Alaskan	MacArthur	Other	Total
			Crestones	Properties	Properties		Properties
	$		$	$	$	$	$	$
Acquisitions	1,244,464		71,696	1,125,438	130,746	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	17,566	-	8,927	132,680
Camp costs	11,313		17,811	25,160	47,601	-	620	102,505
Drilling services	1,429,838		144,665	277,846	763,712	-	-	2,616,061
Equipment rental and maintenance	3,885		12,065	3,085	53,193	6,732	-	78,960
Exploration and other	148,103		6,289	28,980	91,519	441	5,856	281,188
Field supplies and wages	129,641		132,322	13,135	166,320	18,833	1,007	461,258
Geological services	376,868		43,486	402,867	899,970	19,776	19,197	1,762,164
Project management	308,347		55,258	178,824	99,182	29,093	-	670,704
Travel and related costs	48,322		10,778	58,709	53,457	5,142	5,076	181,484
Vehicle expenses	12,664		18,383	2,634	33,349	574	568	68,172
Recovery from Blackberry	(1,904,550	)	-	-	-	-	-	(1,904,550	)
Total	1,900,755		534,286	2,205,297	2,468,410	250,915	496,169	7,855,832

Note - Alaskan properties are Big Bar and Duke Island

(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 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

5. 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 September 30, 2007, Blackberry owed the Company $149,230 (2006: $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 Corporation, 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 (Paid and issued).
	(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 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

5. Mineral Properties, continued

(c)	Uranium Properties, Arizona, Utah and Wyoming, continued
	In two separate agreements made effective August 10, 2006 and March 23, 2007 with Nustar Exploration LLC, the Company acquired options to earn 100% interests in unpatented mining claims covering breccia pipe targets located on the Arizona Strip.
	Under the agreement dated August 10, 2006 the Company optioned four blocks of claims with commitments as follows:
	(i)	Initial payments of US $20,000 (Paid).
	(ii)	US $30,000 on or before August 10, 2007 (Paid).
	(iii)	US $40,000 on or before August 10, 2008.
	(iv)	US $100,000 on or before August 10, 2009.
	Each of the option blocks is subject to a 4% yellowcake royalty, 3% of which may be bought back by the Company for US $500,000 per claim block.
	Under the agreement dated March 23 2007, the Company purchased a block of unpatented claims for a price of US $25,500 and a US $100,000 minimum advance royalty payment. If production occurs, the claims are subject to a 4% yellowcake royalty, 3% of which may be bought back by the Company for US $1,000,000 per breccia pipe.
(d)	Alaskan Properties
	The Company has a 100% interest in 140 mining claims known as the Duke Island property, in Alaska (129 federal claims and 11 state claims) on Duke Island, which is near Ketchikan.
	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.
(e)	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:

Option 1

(i)	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 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

5. Mineral Properties, continued

(e) 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.

(f)	Yerington
	The Company has entered into an agreement 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 (starting July 13, 2007) and the Company may terminate this process if it is 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 days (See note 3).
	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 (issued from treasury but not distibuted).
	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.
(g)	Other Properties
	Other properties include various properties in USA and Mexico.
	Mexico
	Pursuant to an agreement made December 2006 with Tom Turner, the Company acquired a 100% interest in three mineral concessions 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)).
	Canada
	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 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

5. Mineral Properties, continued

(g) Other Properties, continued

USA

Pursuant to an option agreement made March 27, 2007, the Company may acquire a 100% interest in certain prospect permits. The potential payments for this agreement 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.

Pursuant to an agreement made March 2007 with North Exploration, LLC., the Company acquired the right to earn an interest in 27 unpatented mining claims know as the S.W Tintic Claims in Juab County, Utah. To earn a 100% interest the Company is required to make staged payments totaling US $1 million by February 16, 2018 as follows:

(i)	Initial payment of US $20,000. (Paid).
(ii)	US $20,000 on or before February 15, 2008.
(iii)	US $20,000 on or before February 15, 2009.
(iv)	US $40,000 on or before February 15, 2010.
(v)	US $50,000 on or before February 15, 2011.
(vi)	US $50,000 on or before February 15, 2012.
(vii)	US $100,000 on or before February 15, 2013.
(viii)	US $100,000 on or before February 15, 2014.
(ix)	US $100,000 on or before February 15, 2015.
(x)	US $250,000 on or before February 15, 2016.
(xi)	US $250,000 on or before February 15, 2017.

The property is subject to a 2% NSR, 1% of which the Company may purchase for US $1 million.

Alternatively, Company may acquire the property at any time by paying $1 million, less an previously paid payment, at any time.

(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.

Page 10 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

5. Mineral Properties, continued

(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.

6. Related Party Transactions

As at September 30, 2007, $13,109 (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.

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 to 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).

The following table summarizes the Company’s related party transactions for the nine months ended September 30, 2007 and 2006.

Page 11 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

6. Related Party Transactions, continued

		Three Months Ended					Nine Months Ended
		September 30					September 30
		2007		2006			2007		2006
Services
Administration fee	$	30,000	$	30,000		$	90,000	$	45,000
Consulting	$	32,672	$	24,791		$	91,329	$	53,491
Directors' and officers' fees	$	10,859	$	-		$	27,359	$	-
General exploration	$	-	$	-		$	-	$	4,306
Investor relations	$	3,574	$	1,700		$	25,212	$	20,700
Professional fees
Accounting	$	11,316	$	7,621		$	45,335	$	20,419
Legal fees	$	2,405	$	(1,446	)	$	9,918	$	12,308
Wages and benefits	$	55,871	$	10,192		$	159,551	$	27,734
Cost recovery
Equipment	$	3,567	$	1,690		$	4,177	$	1,690
General exploration	$	-	$	9		$	-	$	9
Investor relations	$	194	$	198		$	1,465	$	1,787
Office and administration	$	14,586	$	22,433		$	67,128	$	75,320
Regulatory	$	-	$	120		$	2,615	$	3,510
Shareholders' communications	$	1,016	$	547		$	1,016	$	547
Share issue costs (1)	$	-	$	4,804		$	1,170	$	12,010
Travel and promotions	$	3,713	$	759		$	11,145	$	8,190
Mineral properties
Los Crestones (2)	$	-	$	-		$	1,920	$	-
Big Bar (2)	$	-	$	3,750		$	3,900	$	11,250
Uranium properites (2)	$	7,500	$	18,750		$	46,751	$	51,567
Duke Island (2)	$	1,875	$	-		$	3,762	$	-
MacArthur (2)	$	20,625	$	9,375		$	41,883	$	28,032

(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 (See Note 7(h))

Page 12 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

7. 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 share purchase warrants	2,480,785		5,581,766			-
Exercised stock options	1,080,000		941,710			-
Total issued for cash	3,560,785		6,523,476			-
Issued for mineral property acquisitions	450,000		1,201,000			-
Issued for services	15,847		45,000			-
Fair value of stock options exercised	-		546,660			(546,660	)
Stock based compensation	-		-			6,123,013
Subtotal before share issue costs	4,026,632		8,316,136			5,576,353
Share issue costs	-		(6,316	)		-
Balance as at September 30, 2007	82,131,452	$	36,170,878		$	9,285,910

Page 13 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

7. Share Capital, continued

(c)	Private Placements
	There were no private placements during the nine months ended September 30, 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.
(d)	Shares Issued for Mineral Property
	During the nine months ended September 30, 2007, the Company issued 450,000 common shares for value at $1,201,000.
	(i)	200,000 common shares value at $2.93 per share, $586,000 in total, pursuant to the terms of the uranium properties agreement (Note 5 (c)).
	(ii)	250,000 common shares value at $2.46 per share, $615,000 in total, pursuant to the acquisition of Yerington property agreement. These shares have been issued from treasury but have not been distributed. They will only be distributed when all terms of the Yerington property agreement have been met. (Note 5 (f)).
	During the year ended December 31, 2006, the Company issued 400,000 common shares for value at $606,000.
	(iii)	200,000 common shares value at $1.50 per share, $300,000 in total, pursuant to the terms of the uranium properties agreement (Note 5 (c)).
	(iv)	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 5 (g)).
(e)	Shares Issued for debt settlement for services
	During the nine months ended September 30, 2007 15,847 shares were issued in settlement of $45,000 debt owed by the Company.
(f)	Share Purchase Warrants
	A summary of the Company’s share purchase warrant transactions for the nine months ended September 30, 2007 are as follows:

Exercise	Expiry	Balance	Warrants	Cancelled	Warrants	Balance
Price	Date	Dec 31, 2006	Issued	or Expired	Exercised	Sept 30, 2007
$2.25	June 21, 2008	2,623,928	-	143,143	2,480,785	-
Weighted average exercise price		$2.25	$0.00	$0.00	$2.25	$0.00

Page 14 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

7. Share Capital, continued

(f) Share Purchase Warrants, continued

On July 20, 2007 notice was given to holders of the share purchase warrants exercisable at $2.25 with an expiry date of June 21, 2008, of an acceleration of the expiry date from June 21, 2008 to August 20, 2007. These warrants have now either been exercised or have expired.

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

(g) Stock Options

As at September 30, 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.

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.

Page 15 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

7. Share Capital, continued

(g) Stock Options, continued

As at September 30, 2007, all outstanding options were vested and exercisable and 5,233,250 were vested and exercisable as at December 31, 2006.

Transactions for the nine months ended September 30, 2007 are as follows:

Exercise	Expiry	Balance	Options	Options	Options	Balance
Price	Date	Dec 31, 2006	Granted	Cancelled/Expired	Exercised	Sept 30, 2007
$0.12	January 10, 2008	937,000	-	-	93,000	844,000
$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	-	-	230,000	360,000
$0.35	August 9, 2010	850,000	-	-	267,000	583,000
$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	-	-	440,000	1,670,000
$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
$3.33	July 10, 2012	-	2,031,000			2,031,000
$3.33	August 7, 2012	-	80,000			80,000
		5,427,000	2,211,000	-	1,080,000	6,558,000
Weighted average exercise price		$0.92	$3.30	$0.00	$0.87	$1.73

Page 16 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

7. Share Capital, continued

(g) 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

(h) 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:

	Sept 30, 2007	December 31, 2006	Sept 30, 2006
Risk-free interest rate	4.57%	4.02%	4.10%
Expected Share price volatility	151.79%	121.60%	120.97%
Expected option life in years	3.0	3.5	3.5
Expected dividend yield	0%	0%	0%

Page 17 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

7. Share Capital, continued

(h) Value Assigned to Stock Options

The total calculated fair value of options expensed during the nine months ended September 30, 2007 was $6,123,013 (2006: $2,164,630) and includes amounts calculated from options issued during the year ended December 31, 2006 but vesting during the nine months ended September 30, 2007.

This stock based compensation is included in the statement of operations as follows:

	September 30, 2007			September 30, 2006
	Number of			Number of
	Options		Stock-based	Options		Stock-based
	issued		Compensation	issued		Compensation
Consulting	1,115,000	$	3,047,297	1,065,000	$	872,733
Directors' and officers' fees	855,000		2,411,637	1,325,000		944,716
Wages and benefits	241,000		664,079	420,000		347,181
Total	2,211,000	$	6,123,013	2,810,000	$	2,164,630

8. Segmented Information

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

				September 30, 2007								December 31, 2006
		Equipment		Mineral		Reclamation		Total		Equipment		Mineral		Reclamation		Total
				Properties		Bond						Properties		Bond
Canada	$	25,051	$	-	$	-	$	25,051	$	24,997	$	-	$	-	$	24,997
Mexico		61,598		4,054,509		-		4,116,107		25,488		2,785,632		-		2,811,120
U.S.A.		55,657		12,128,239		129,291		12,313,187		1,089		5,070,200		79,898		5,151,187
	$	142,306	$	16,182,748	$	129,291	$	16,454,345	$	51,574	$	7,855,832	$	79,898	$	7,987,304

Page 18 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

9. Supplemental Cash Flow Information.

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2007		2006		2007			2006
Cash Items
Interest received	$	53,101	$	26,149	$	212,318		$	55,800
Share issue costs	$	756	$	-	$	6,316		$	45,443
Subscriptions receivable	$	-	$	17,500	$	17,500		$	17,500
Non-Cash Items
Accrued interest	$	1,104	$	-	$	(4,989	)	$	-
Investing Activity
Mineral property costs included in Accounts payable	$	247,153	$	-	$	247,153		$	-
Financing Activities
Shares issued for services	$	22,500	$	-	$	45,000		$	-
Shares issued for mineral properties	$	1,201,000	$	300,000	$	1,201,000		$	300,000
Non-cash share issue costs	$	-	$	-	$	-		$	3,072

10. Subsequent Events

The following events occurred subsequent to period ended September 30, 2007:

(a)	On October 9, 2007, 50,000 stock options were granted to consultants with an exercise price of $2.93 and an expiry date of October 9, 2012.
(b)	On October 14, 2007, 5,000 stock options were cancelled. These had an exercise price of $3.33 and an expiry date of July 20, 2012.
(c)	258,000 stock options were exercised at an average price of $0.46 per share for total funds of $118,780.

Page 19 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

11. 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 5).
		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 pre-feasibility 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 under US GAAP.
		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 20 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

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

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

		September 30, 2007			December 30, 2006
Total assets per Canadian GAAP	$	23,063,115		$	17,340,544
Exploration expenditures on resource properties		(10,630,103	)		(5,196,365	)
expensed under US GAAP
Total assets per US GAAP	$	12,433,012		$	12,144,179
Total liabilities per Canadian GAAP	$	357,890		$	277,527
Adjustments to US GAAP		-			-
Total liabilities per US GAAP		357,890			277,527
Total equity per Canadian GAAP		22,705,225			17,063,017
Exploration expenditures on resource properties		(10,630,103	)		(5,196,365	)
expensed under US GAAP
Total equity per US GAAP		12,075,122			11,866,652
Total Liabilities and equity per US GAAP	$	12,433,012		$	12,144,179

Page 21 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

11. 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 Sept 30,				Nine months ended Sept 30,
		2007		2006		2007		2006
Reconciliation of net loss from Canadian
GAAP to US GAAP
Loss for year per Canadian GAAP	$	6,496,306	$	2,234,381	$	8,261,466	$	2,799,378
Exploration expenditures on mineral
properties		2,397,415		835,195		5,433,738		1,795,869
Net loss for year per US GAAP		8,893,721		3,069,576		13,695,204		4,595,247
Deficit, Beginning of year per US GAAP		24,487,946		14,735,249		19,686,463		13,209,578
Deficit, End of year as per US GAAP	$	33,381,667	$	17,804,825	$	33,381,667	$	17,804,825
Net loss per share for the year in
accordance with Canadian GAAP	$	0.08	$	0.03	$	0.10	$	0.01
Total differences	$	0.03	$	0.01	$	0.07	$	0.06
Net loss per share for the year in
accordance with US GAAP	$	0.11	$	0.04	$	0.17	$	0.07
Weighted average number of common
shares outstanding		79,428,158		71,852,481		78,871,925		68,033,632

Page 22 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

11. 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:

		Nine months ended
		Sept 30, 2007			Sept 30, 2006
Cash used in operating activities
in accordance with Canadian GAAP	$	(2,353,899	)	$	(936,584	)
Adjustments to net loss involving use of cash
Write-off of expenditures on mineral interest		(5,433,738	)		(1,795,869	)
Cash used in operating activities
in accordance with US GAAP		(7,787,637	)		(2,732,453	)
Cash used in investing activities
in accordance with Canadian GAAP		(7,085,717	)		(2,162,811	)
Reclassification of expenditures on mineral property interest		5,433,738			1,795,869
Cash used in investing activities
in accordance with US GAAP		(1,651,979	)		(366,942	)
Cash used in Financing Activities
in accordance with Candian and US GAAP		6,534,660			2,515,608
Increase in cash during the period
in accordance with Candian and US GAAP		(2,904,956	)		(583,787	)
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	$	6,207,776		$	1,202,511
Cash consists of the following
Cash and cash equivalents		6,108,486			1,202,511
Restricted cash		99,290			-
Cash, end of period
in accordance with Candian and US GAAP	$	6,207,776		$	1,202,511

Page 23 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

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

(b)	Recent accounting pronouncements
	(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 24 of 25

Quaterra Resources Inc. (An Exploration Stage Company)

Notes to the Consolidated Financial Statements

Nine months ended September 30, 2007 and 2006 (Canadian Dollars)

11. 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.

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