10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007

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

FOR THE TRANSITION PERIOD FROM ___________ TO _____________.

Commission file number: 000-25170

AURORA OIL & GAS CORPORATION

(Exact name of registrant as specified in its charter)

Utah	87-0306609
(State or other Jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4110 Copper Ridge Dr, Suite 100

Traverse City, Michigan 49684

(Address of principal executive offices)

(231) 941-0073

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x  No o

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

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

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

Yes o No x

The number of shares of the registrant’s common stock outstanding as of April 30, 2007, was 101,644,456.

FORM 10-Q

INDEX

PART I	FINANCIAL INFORMATION	1
Item 1.	Condensed Consolidated Financial Statements	2
	Condensed Consolidated Balance Sheets as of March 31, 2007 (Unaudited), and December 31, 2006	2-3
	Unaudited Statements of Operations for the Three Months Ended March 31, 2007, and 2006	4
	Unaudited Statements of Shareholders’ Equity for the Three Months Ended March 31, 2007, and 2006	5
	Unaudited Statements of Cash Flows for the Three Months Ended March 31, 2007, and 2006	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	26
PART II	OTHER INFORMATION	27
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Submission of Matters to a Vote of Security Holders	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
Signatures		29

i

PART I

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts are forward-looking statements. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” or similar expressions used in this report.

These forward-looking statements are subject to numerous assumptions, risks, and uncertainties. Factors which may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by us in those statements include, among others, the following:

·   the quality of our properties with regard to, among other things, the existence of reserves in economic quantities;

·   uncertainties about the estimates of reserves;

·   our ability to increase our production and oil and natural gas income through exploration and development;

·   the number of well locations to be drilled and the time frame within which they will be drilled;

·   the timing and extent of changes in commodity prices for natural gas and crude oil;

·   domestic demand for oil and natural gas;

·   drilling and operating risks;

·   the availability of equipment, such as drilling rigs and transportation pipelines;

·   changes in our drilling plans and related budgets; and

·   the adequacy of our capital resources and liquidity, including, but not limited to, access to additional borrowing capacity.

Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. You are cautioned not to place undue reliance on such statements, which speak only as of the date of this report.

Certain Definitions

As used in this report, “mcf” means thousand cubic feet, “mmcf” means million cubic feet, “bcf” means billion cubic feet, “bbl” means barrel, “mbbls” means thousand barrels, and “mmbbls” means million barrels. Also in this report, “boe” means barrel of oil equivalent, “mcfe” means thousand cubic feet of natural gas equivalent, “mmcfe” means million cubic feet of natural gas equivalent, “mmbtu” means million British thermal units, and “bcfe” means billion cubic feet of natural gas equivalent. Natural gas equivalents and crude oil equivalents are determined using the ratio of six mcf of natural gas to one bbl of crude oil, condensate, or natural gas liquids. All estimates of reserves and information related to production contained in this report, unless otherwise noted, are reported on a “net” basis.

1

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AURORA OIL & GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS 

		March 31, 2007 (Unaudited)			December 31, 2006 (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,149,766		$	1,735,396
Accounts receivable
Oil and natural gas sales		4,237,085			4,082,231
Joint interest owners		2,063,226			3,079,715
Notes receivable		221,788			341,698
Drilling advances		506,113			1,408,860
Prepaid expenses and other current assets		933,072			264,024
Short-term derivative instruments		670,750			3,552,060
Total current assets		10,781,800			14,463,984
PROPERTY AND EQUIPMENT:
Oil and natural gas properties, using full cost accounting:
Proved properties		131,601,056			121,178,499
Unproved properties		46,697,332			41,847,526
Properties held for sale		5,488,140			8,896,568
Less: accumulated depletion and amortization		(11,375,302	)		(10,628,438	)
Total oil and natural gas properties, net		172,411,226			161,294,155
Pipelines		5,003,152			4,881,240
Other property and equipment		5,116,321			5,093,777
Less: accumulated depreciation		(933,918	)		(753,789	)
Total property and equipment, net		181,596,781			170,515,383
OTHER ASSETS:
Long-term derivative instruments		737,290			1,668,573
Goodwill		19,373,264			19,373,264
Intangibles (net of accumulated amortization of $3,334,167 and $2,946,250, respectively)		1,620,833			2,008,750
Other investments		946,305			985,706
Debt issuance costs (net of accumulated amortization of $1,110,769 and $892,535, respectively)		2,145,104			2,363,898
Other		999,193			1,007,634
Total other assets		25,821,989			27,407,825
TOTAL ASSETS	$	218,200,570		$	212,387,192

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

2

AURORA OIL & GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(continued)

	March 31, 2007 (Unaudited)			December 31, 2006 (Audited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	5,065,743		$	5,623,591
Accrued exploration, development, and leasehold costs		4,785,299			11,587,850
Short-term bank borrowings		8,615			542,788
Current portion of obligations under capital leases		6,427			8,868
Current portion of note payable—other		131,013			161,774
Current portion of mortgage payable		91,431			95,828
Drilling advances		206,023			19,383
Total current liabilities		10,294,551			18,040,082
LONG-TERM LIABILITIES:
Obligations under capital leases, net of current portion		6,154			8,228
Asset retirement obligation		766,670			1,331,893
Notes payable		103,794			118,547
Mortgage payable		3,051,211			3,079,470
Senior secured credit facility		28,000,000			10,000,000
Mezzanine financing		40,000,000			40,000,000
Total long-term liabilities		71,927,829			54,538,138
Total liabilities		82,222,380			72,578,220
Minority interest in net assets of subsidiaries		91,220			77,873
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS’ EQUITY
Common stock, $0.01 par value; authorized 250,000,000 shares; issued and outstanding 101,644,456 shares and 101,412,966 shares, respectively		1,016,445			1,014,130
Additional paid-in capital		138,812,094			138,105,626
Accumulated other comprehensive income		1,408,040			5,220,633
Accumulated deficit		(5,349,609	)		(4,609,290	)
Total shareholders’ equity		135,886,970			139,731,099
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	218,200,570		$	212,387,192

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

3

AURORA OIL & GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended March 31,
		2007			2006
REVENUES:
Oil and natural gas sales	$	5,929,576		$	5,416,866
Pipeline transportation and marketing		129,268			111,766
Field service and sales		189,518			-
Interest and other		13,513			55,364
Total revenues		6,261,875			5,583,996
EXPENSES:
Production taxes		263,098			214,159
Production and lease operating expense		1,925,893			1,658,726
Pipeline operating expense		113,420			65,281
Field services expense		154,272			-
General and administrative expense		2,260,343			1,566,694
Oil and natural gas depletion and amortization		746,865			941,965
Other assets depreciation and amortization		568,606			467,752
Interest expense		981,532			1,594,135
Taxes (refunds), other		(25,182	)		1,667
Total expenses		6,988,847			6,510,379
LOSS BEFORE MINORITY INTEREST		(726,972	)		(926,383	)
MINORITY INTEREST IN INCOME OF SUBSIDIARIES		(13,347	)		(12,800	)
NET LOSS	$	(740,319	)	$	(939,183	)
NET LOSS PER COMMON SHARE—BASIC AND DILUTED	$	(0.01	)	$	(0.01	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC AND DILUTED		101,552,888			70,265,281

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

4

AURORA OIL & GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

	Three Months Ended March 31,
	2007					2006
COMMON STOCK:		Shares		Amount			Shares		Amount
Balance, beginning		101,412,966	$	1,014,130			61,536,261	$	615,363
Cashless exercise of stock options and warrants		78,158		782			3,125,105		31,251
Conversion of redeemable convertible preferred stock to common stock		-		-			23,334		233
Exercise of stock options and warrants		153,332		1,533			15,375,457		153,755
Issuance of stock to related parties in lieu of commission relating to exercise of warrants		-		-			1,469,860		14,699
Balance, end		101,644,456		1,016,445			81,530,017		815,301
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning				138,105,626					58,670,698
Cashless exercise of stock options and warrants				(782	)				(31,251	)
Conversion of redeemable convertible preferred stock to common stock				-					39,768
Costs of equity offerings				(10,096	)				-
Stock-based compensation				661,380					370,466
Exercise of stock options and warrants				55,966					17,892,645
Issuance of stock to related party in lieu of commission relating to exercise of warrants				-					(14,699	)
Balance, end				138,812,094					76,927,627
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Balance, beginning				5,220,633					-
Changes in fair value of derivative instruments				(3,027,593	)				-
Recognition of gain on derivative instruments				(785,000	)				-
Balance, end				1,408,040					-
ACCUMULATED DEFICIT:
Balance, beginning				(4,609,290	)				(2,660,134	)
Net loss				(740,319	)				(939,183	)
Balance, end				(5,349,609	)				(3,599,317	)
TOTAL SHAREHOLDERS’ EQUITY			$	135,886,970				$	74,143,611

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

5

AURORA OIL & GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
CASH FLOWS FROM OPERATING ACTIVITIES:		2007			2006
Net loss	$	(740,319	)	$	(939,183	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation, depletion, and amortization		1,315,471			1,409,717
Amortization of debt issuance costs		218,234			214,976
Accretion of asset retirement obligation		18,895			15,237
Stock-based compensation		594,044			157,392
Equity loss of other investments		96,181			68,406
Minority interest income of subsidiaries		13,347			12,800
Changes in operating assets and liabilities, net of effects of merger:
Accounts receivable - oil and natural gas sales		(154,854	)		12,343
Accounts receivable - joint interest owners		1,016,489			(1,491,410	)
Drilling advance - assets		902,747			92,880
Drilling advance - liabilities		186,640			-
Prepaid expenses and other assets		(380,755	)		(91,283	)
Accounts payable and accrued liabilities		(557,848	)		(898,635	)
Net cash provided by (used in) operating activities		2,528,272			(1,436,760	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development of oil and natural gas properties		(17,593,833	)		(7,904,781	)
Leasehold expenditures, net		(2,768,746	)		(13,809,479	)
Acquisition of oil and natural gas properties		-			(23,938,811	)
Sale of oil and natural gas properties		1,025,000			6,990,681
Acquisitions/additions for pipeline, property, and equipment		(144,456	)		(3,781,711	)
Additions in other investments		-			(250,000	)
Other, net		(37,412	)		(20,986	)
Net cash used in investing activities		(19,519,447	)		(42,715,087	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term bank borrowings (payments)		(534,173	)		(1,300,000	)
Advances on senior secured credit facility		18,000,000			35,000,000
Payments on mortgage obligations		(32,656	)		(13,442	)
Payments of financing fees on credit facilities		(25,000	)		(2,386,613	)
Net proceeds from exercise of options and warrants		57,499			18,046,400
Other, net		(60,125	)		(2,152	)
Net cash provided by financing activities		17,405,545			49,344,193
Net increase in cash and cash equivalents		414,370			5,192,346
Cash and cash equivalents, beginning of the period		1,735,396			11,980,638
Cash and cash equivalents, end of the period	$	2,149,766		$	17,172,984
NONCASH FINANCING AND INVESTING ACTIVITIES:
Oil and natural gas properties asset retirement obligation	$	(581,840	)	$	812,634
Accrued exploration and development costs on oil and natural gas properties		4,321,933			2,633,857
Accrued leasehold costs		463,366			1,053,943
Pipeline acquisition, transfer of investment to pipeline assets		-			1,100,973
Oil and natural gas properties capitalized stock-based compensation		67,336			213,074
CASH PAID FOR INTEREST	$	1,304,765		$	1,497,856

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

6

AURORA OIL & GAS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.   ORGANIZATION AND NATURE OF BUSINESS

Effective May 11, 2006, Cadence Resources Corporation (“Cadence”) and its wholly owned subsidiaries (collectively, the “Company”) amended its articles of incorporation to change its name to Aurora Oil & Gas Corporation (“AOG”). The Company is an oil and natural gas corporation engaged in the exploration, acquisition, development, production, and sale of natural gas and crude oil. The Company generates most of its revenue from the production and sale of natural gas. The Company is currently focused on acquiring and developing operating interests in unconventional drilling programs in the Michigan Antrim shale and the New Albany shale of Indiana and Kentucky.

The Company uses different strategies for natural gas sales depending on the location of the field and the local markets. In most cases, the Company connects to nearby high pressure transmission pipelines. The Company has six base contracts for the sale of natural gas and currently utilizes one primary marketing company for all of its operated properties. The Company sets the firm delivery volume obligation under these contracts on either a monthly or a daily basis with the amount of the obligation varying from month to month or day to day. As new wells come online and production volume increases, new production will be sold in the spot markets or under the base contracts.

The Company’s revenue, profitability, and future rate of growth are substantially dependent on prevailing prices of natural gas and oil. Historically, the energy markets have been very volatile, and it is likely that oil and natural gas prices will continue to be subject to wide fluctuations in the future. A substantial or extended decline in natural gas and oil prices could have a material adverse effect on the Company’s financial position, results of operations, cash flows, and access to capital and on the quantities of natural gas and oil reserves that can be economically produced.

NOTE 2.   BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial information included herein is unaudited, except the balance sheet as of December 31, 2006, which has been derived from our audited consolidated financial statements as of December 31, 2006. Such information includes all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of financial position, results of operations, and cash flows for the interim periods. The results of operations for interim periods are not necessarily indicative of the results to be expected for an entire year. Certain amounts as reported in the 2006 financial statements have been reclassified to conform with the 2007 presentation.

Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in this Form 10-Q pursuant to certain rules and regulations of the Securities and Exchange Commission. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-KSB for the year ended December 31, 2006.

Principles of Consolidation

The accompanying condensed consolidated financial statements of the Company include the accounts of the wholly-owned subsidiaries and other subsidiaries in which the Company holds a controlling financial or management interest of which the Company determined that it is primary beneficiary. The Company uses the equity method of accounting for investments in entities in which the Company has an ownership interest between 20% and 50% and exercises significant influence. The Company also consolidates its pro rata share of oil and natural gas joint ventures. All significant intercompany accounts and transactions have been eliminated in consolidation.

7

AURORA OIL & GAS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates underlying these financial statements include the estimated quantities of proved oil and natural gas reserves used to compute depletion of oil and natural gas properties and to evaluate the full cost pool in the ceiling test analysis.

Asset Retirement Obligation

On January 1, 2006, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations,” which is an interpretation of FASB Statement No. 143 “Accounting for Asset Retirement Obligations.” Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. The Company estimates a fair value of the obligation on each well in which it owns an interest by identifying costs associated with the future dismantlement and removal of production equipment and facilities and the restoration and reclamation of a field’s surface to a condition similar to that existing before oil and natural gas extraction began.

In general, the amount of an Asset Retirement Obligation (“ARO”) and the costs capitalized will be equal to the estimated future cost to satisfy the abandonment obligation using current prices that are escalated by an assumed inflation factor up to the estimated settlement date which is then discounted back to the date that the abandonment obligation was incurred using an assumed cost of funds for the Company. After recording these amounts, the ARO is accreted to its future estimated value using the same assumed cost of funds and the additional capitalized costs are depreciated on a unit-of-production basis within the related full cost pool.

Effective January 1, 2007, the accretion of the ARO on producing wells was adjusted for a change in the estimated life of the wells based on a reserve study prepared by an independent reserve engineering firm. The estimated life of the wells was increased by 10 years to an estimated life of 50 years per well. The accretion expense is included in interest expense and the depreciation expense is included in depreciation, depletion, and amortization in the consolidated statements of operations.

The following table sets forth a reconciliation of the Company’s ARO liability:

Three Months Ended March 31,		2007			2006
Beginning balance	$	1,331,893		$	812,634
Liabilities incurred		67,338			-
Liabilities settled		(34,293	)		-
Accretion expense		18,895			15,237
Revisions of estimated liabilities		(617,163	)		-
Ending balance	$	766,670		$	827,871

8

AURORA OIL & GAS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Derivative Instruments

The Company’s results of operations and operating cash flows are impacted by the fluctuations in the market prices of natural gas. To mitigate a portion of the exposure to adverse market changes, the Company will periodically enter into various derivative instruments with a major financial institution. The purpose of the derivative instrument is to provide a measure of stability to the Company’s cash flow in meeting financial obligations while operating in a volatile natural gas market environment. The derivative instrument reduces the Company’s exposure on the hedged production volumes to decreases in commodity prices and limits the benefit the Company might otherwise receive from any increases in commodity prices on the hedged production volumes.

The Company recognizes all derivative instruments as assets or liabilities in the balance sheet at fair value. The accounting treatment for changes in fair value, as specified in SFAS No. 133 “Accounting for Derivative Investments and Hedging Activities,” is dependent upon whether or not a derivative instrument is designated as a hedge. For derivatives designated as cash flow hedges, changes in fair value, to the extent the hedge is effective, are recognized in Accumulated Other Comprehensive Income on the accompanying balance sheet until the hedged item is recognized in earnings as natural gas revenue. If the hedge has an ineffective portion, that particular portion of the gain or loss would be immediately reported in earnings. The following natural gas contracts were in place as of March 31, 2007:

Period	Type of Contract		Natural Gas Volume per Day		Price per mmbtu		Fair Value Asset (Liability)
April 2007—December 2008		Swap		5,000 mmbtu	$	9.00	$	1,539,680
April 2007—December 2008		Collar		2,000 mmbtu	$	7.55/9.00		(131,640	)
Total Estimated Fair Value							$	1,408,040

For the three months ended March 31, 2007, the Company has recognized in Comprehensive Income changes in fair value of $3,027,593 on the contracts that have been designated as cash flow hedges on forecasted sales of natural gas. See “Comprehensive Income (Loss)” found in this note section. In addition, for the three months ended March 31, 2007, and 2006, the Company recognized $785,000 and $0, respectively, net gains from hedging activities included in oil and natural gas revenues.

Financial Instruments

The Company’s financial instruments consist primarily of cash, accounts receivable, loans receivable, accounts payable, accrued expenses, and debt. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.

Stock-Based Compensation

On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123R), to account for stock-based employee compensation. Among other items, SFAS No. 123R eliminates the use of Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and the intrinsic value method of accounting and requires companies to recognize the cost of employee services received in exchange for stock-based awards based on the grant date fair value of those awards in their financial statements. The Company elected to use the modified prospective method for adoption, which requires compensation expense to be recorded for all unvested stock options beginning in the first quarter of adoption. For stock-based awards granted or modified subsequent to January 1, 2006, compensation expense, based on the fair value on the date of grant, will be recognized in the financial statements over the vesting period. The Company utilizes the Black-Scholes option pricing model to measure the fair value of stock options. To the extent compensation cost relates to employees directly involved in oil and natural gas exploration and development activities, such amounts are capitalized to oil and natural gas properties. Amounts not capitalized to oil and natural gas properties are recognized as general and administrative expenses. See Note 8 “Common Stock Options” which fully describes the Company’s stock-based compensation plans.

9

AURORA OIL & GAS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following stock-based compensation was recorded for the periods indicated:

For the Three Months Ended March 31,	2007		2006
General and administrative expenses	$	594,044	$	157,392
Oil and natural gas properties		67,336		213,074
Total	$	661,380	$	370,466

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income and other comprehensive income. Other comprehensive income includes income resulting from derivative instruments designated as hedging transactions. The details of comprehensive income (loss) are as follows for the periods indicated:

Three Months Ended March 31,	2007			2006
Net loss	$	(740,319	)	$	(939,183	)
Other comprehensive income:
Change in fair value of derivative instruments		(3,027,593	)		-
Comprehensive Income (Loss)	$	(3,767,912	)	$	(939,183	)

Income (Loss) Per Share

Basic net income (loss) per common share is computed based on the weighted average number of common shares outstanding during each period. Diluted net income (loss) per common share is computed based on the weighted average number of common shares outstanding plus other dilutive securities, such as stock options, warrants, and redeemable convertible preferred stock. All dilutive securities were excluded in the computation of diluted loss per share because their effect of assumed exercises or conversions was anti-dilutive and, accordingly, basic and dilutive weighted average shares are the same.

NOTE 3.   RECENT ACCOUNTING PRONOUNCEMENTS

On February 15, 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial Assets and Financial Liabilities”—including an amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The FASB believes the statement will improve financial reporting by providing companies the opportunity to mitigate volatility in reported earnings by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Use of the statement will expand the use of fair value measurements for accounting for financial instruments. The Company does not believe SFAS No. 159 will have a material impact on its consolidated financial statements.

10

AURORA OIL & GAS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.   ACQUISITIONS AND DISPOSITIONS

2007 - Kansas Project

On February 7, 2007, the Company entered into a Purchase and Sale Letter Agreement to sell to Harvest Energy, LLC all of the Company’s interest in various developed and undeveloped oil and natural gas properties located in Lane and Ness Counties in the State of Kansas for approximately $1.0 million. The properties included two net wells, 98 mmcfe in proven reserves, and approximately 23,110 net acres. This transaction closed on March 9, 2007.

NOTE 5.   OIL AND NATURAL GAS PROPERTIES HELD FOR SALE

Management is currently in the process of evaluating the Company’s property portfolio to ensure that the oil and natural gas properties portfolio properly matches the Company’s long-term strategic plan. During the second quarter of 2006, the Company identified certain leasehold properties as held for sale due to their high probability of being sold within the next 12 months. Total oil and natural gas properties held for sale before depletion amounted to $5,488,140 at March 31, 2007, of which $4,448,499 is proved and $1,039,641 is unproved. (See Note 4 “Acquisitions and Dispositions.”) These properties are carried at the lower of historical cost or fair value. Under the full cost method, sales of oil and natural gas properties, whether or not being amortized currently, are accounted for as adjustments of capitalized costs with no gain or loss recognized unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves. The Company has evaluated the proved reserves of these properties (948 mmcfe as of March 31, 2007) and determined that there is no significant effect on the proved reserves regarding the assets held for sale.

NOTE 6.   DEBT

Short-Term Bank Borrowings

The Company has a $5.0 million revolving line of credit agreement with Northwestern Bank for general corporate purposes. As of March 31, 2007, our total borrowing capacity available under this facility was $5.0 million. To secure this line of credit, two trusts controlled by an executive officer pledged certain shares of the Company’s common stock under his control. The interest rate under the revolving line of credit is Wall Street prime (8.25% and 7.75% at March 31, 2007, and 2006, respectively) with interest payable monthly in arrears. Principal is payable at the expiration of the revolving line of credit agreement. Northwestern Bank has extended the expiration date to October 15, 2007. Northwestern Bank also provides letters of credit for the drilling program (as described in Note 9 “Commitments and Contingencies”). Interest expense on the Northwestern Bank revolving line for the three months ended March 31, 2007, and 2006, were $867 and $106,626, respectively.

Short-Term Bank Borrowings - Bach Services & Manufacturing Co. L.L.C. (“Bach”)

On October 6, 2006, Bach entered into a $175,100 revolving line of credit agreement with Northwestern Bank for general company purposes. Effective April 16, 2007, Northwestern Bank increased the borrowing capacity under the revolving line of credit to $0.5 million. This line of credit is secured by all of Bach’s personal property owned or hereafter acquired and is non-recourse to the Company. The interest rate under the revolving line of credit is Wall Street prime (8.25% at March 31, 2007) with interest payable monthly in arrears. Principal is payable at the expiration of the revolving line of credit agreement. The expiration date is October 1, 2007. Interest expense for the three months ended March 31, 2007, was $1,163.

11

AURORA OIL & GAS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Mortgage and Notes Payable - Bach

As of March 31, 2007, the Bach outstanding loans were as follows with interest expense for the three months ended March 31, 2007:

Description of Loan	Date of Loan		Maturity Date		Interest Rate			Principal Amount Outstanding		Interest Expense
Mortgage payable on building		10/06/06		10/15/09		6.00	%	$	377,635	$	5,930
Notes payable
Vehicles		10/06/06		10/01/10		7.50	%		84,592
Equipment		10/06/06		09/01/07		5.50	%		7,688
Vehicles		12/18/06		12/20/09		7.25	%		64,855
Total notes payable								$	157,135	$	3,068

Mortgage Payable

On October 4, 2005, the Company entered into a mortgage loan from Northwestern Bank in the amount of $2,925,000 for the purchase of an office condominium and associated interior improvements. The security for this mortgage is the office condominium real estate. The payment schedule is monthly interest only for the first 3 months starting on November 1, 2005, and, beginning on February 1, 2006, principal and interest in 32 monthly payments of $21,969 with one principal and interest payment of $2,733,994 on October 1, 2008. The interest rate is 6.5% per year. The maturity date is October 1, 2008. As of March 31, 2007, the principal amount outstanding was $2,765,007. Interest expense for the three months ended March 31, 2007, and 2006, was $36,252 and $52,465, respectively.

Note Payable - Directors and Officers Insurance

On November 13, 2006, the Company entered into a financing agreement with AICCO, Inc. to finance the insurance premium related to director and officer liability insurance coverage in the amount of $184,230. A monthly payment of $15,807 is required beginning November 30, 2006, through August 1, 2007. The interest rate is 7.01% per year. As of March 31, 2007, the principal amount outstanding was $77,672. Interest expense for the three months ended March 31, 2007, was $1,182.

Mezzanine Financing

The Company has a 5-year $50 million mezzanine credit facility with Trust Company of the West (“TCW”) for the Michigan Antrim drilling program. The borrower is Aurora Antrim North (“North”), a wholly owned subsidiary of the Company. Upon closing of the BNP Paribas (“BNP”) senior secured credit facility discussed below, TCW now holds a second lien position in the Michigan Antrim natural gas properties. The interest rate is fixed at 11.5% per year, compounded quarterly, and payable in arrears. Beginning September 28, 2006, and quarterly thereafter, the required principal payment is 75% (100% if coverage deficiency or default occurs) of adjusted net cash flow determined by deducting specific expenses, including capital expenditures from “gross cash revenue.” The Company estimates that no principal payments on the mezzanine financing will be required until maturity because of the level of anticipated capital expenditures. The maturity date is September 30, 2009. The borrowing base is impacted by, among other factors, the fair value of the Company’s natural gas reserves that are pledged to TCW. Changes in the fair value of the natural gas reserves are caused by changes in prices for natural gas, operating expenses, and the results of drilling activity. A significant decline in the fair value of these reserves could reduce the borrowing base, and the Company may not be able to meet certain facility covenants.

12

AURORA OIL & GAS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The mezzanine credit facility contains, among other things, certain covenants relating to restricted payments (as defined), loans or advances to others, additional indebtedness, and incurrence of liens and provides for the maintenance of certain financial and operating ratios, including current ratio and specified coverage ratios (collateral coverage and proved developed producing reserves coverage ratios).

As part of the mezzanine credit facility, the Company provided an affiliate of TCW an overriding royalty interest in certain properties to be drilled or developed in the Counties of Alcona, Alpena, Charlevoix, Cheboygan, Montmorency, and Otsego in the State of Michigan. The overriding royalty interest is 4%, subject to certain adjustments.

For the three months ended March 31, 2007, and 2006, interest and fees expensed for the mezzanine credit facility was $1,175,417 and $1,200,972, respectively.

Senior Secured Credit Facility

On January 31, 2006, the Company entered into a senior secured credit facility with BNP for drilling, development, and acquisitions, as well as other general corporate purposes. The borrower is North with a current borrowing base of $50 million. As proved reserves are added, this borrowing base may increase to $100 million with TCW consent. A required semiannual reserve report may result in an increase or decrease in credit availability. The security for this facility is a first lien position in certain Michigan Antrim assets; a guarantee from Aurora; and a guarantee from the Company secured by a pledge of its stock in Aurora. This facility matures the earlier of January 31, 2010, or 91 days prior to the maturity of the mezzanine credit facility, unless the Company elects to terminate the commitment earlier pursuant to the terms of the senior secured credit facility.

This facility provides for borrowings tied to BNP’s prime rate (or, if higher, the federal funds effective rate plus 0.5%) or LIBOR-based rate plus 1.25% to 2.0% depending on the borrowing base utilization, as selected by the Company. The borrowing base utilization is the percentage of the borrowing base that is drawn under the senior secured credit facility from time to time. As the borrowing base utilization increases, the LIBOR-based interest rates increase under this facility. As of March 31, 2007, interest on the borrowings had a weighted average interest rate of 7.125%. For the three months ended March 31, 2007, and 2006, interest and fees expensed for the senior secured credit facility was $388,225 and $392,230, respectively.

The senior secured credit facility contains, among other things, a number of financial and non-financial covenants relating to restricted payments (as defined), loans or advances to others, additional indebtedness, incurrence of liens, a prohibition on the Company’s ability to prepay the mezzanine credit facility, geographic limitations on operations to the United States, and maintenance of certain financial and operating ratios, including current ratio and specified coverage ratios (collateral coverage and proved developed producing reserves coverage ratios). Effective December 21, 2006, the senior secured credit facility was amended to eliminate the interest coverage ratio covenant for the fiscal quarter ending December 31, 2006, and to modify the 2007 fiscal quarters’ interest coverage ratio covenants.

The Company has incurred deferred financing fees of approximately $406,000 from BNP and approximately $2,850,000 from TCW. The deferred financing fees are being amortized on a straight-line basis over the remaining terms of each debt obligation. Amortization expense is estimated to be $0.8 million per year through 2009. Amortization expense was $218,234 and $214,976 for the three months ended March 31, 2007, and 2006, respectively. In addition, the Company incurs various annual fees associated with unused commitment and agency fees. These annual fees are recorded to interest expense.

13

AURORA OIL & GAS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company capitalizes interest on debt related to expenditures made in connection with exploration and development projects that are not subject to the full cost amortization pool. Interest is capitalized only for the period that exploration activities are in progress. Interest is capitalized using a weighted average interest rate based on the outstanding borrowing, and cost of equity of the Company. Capitalized interest was $869,810 and $400,774 for the three months ended March 31, 2007, and 2006, respectively.

NOTE 7.   SHAREHOLDERS’ EQUITY

Common Stock

In January 2007, 78,158 shares of the Company’s common stock were issued in connection with the exercise of outstanding warrants by an outside party in a net issue (cashless) exercise transaction.

In February and March 2007, 60,000 common stock options were exercised by various Company employees under the existing stock option plans at an exercise price of $0.375 per share. The Company received $22,500 in conjunction with this exercise.

In February and March 2007, 93,332 common stock options were exercised by various Company directors under the existing stock option plans at an exercise price of $0.375 per share. The Company received $35,000 in conjunction with these exercises.

Common Stock Warrants

The following table provides information related to stock warrant activity for the three months ended March 31, 2007:

	Number of Shares Underlying Warrants			Weighted Average Exercise Price			Weighted Average Contract Life in Years
Outstanding at the beginning of the period		2,079,500		$	1.71			1.98
Granted		-
Exercised		(78,158	)		(1.25	)		0.24
Forfeitures and other adjustments		(49,342	)		(1.25	)		0.24
Outstanding at the end of the period		1,952,000		$	1.74			1.84

NOTE 8.   COMMON STOCK OPTIONS

As of March 31, 2007, the Company maintains four stock option plans that are fully described in Note 8 “Common Stock Options” in the Company’s Annual Report on Form 10-KSB for the year-ended December 31, 2006. These stock option plans provide for the award of options or restricted shares for compensatory purposes. The purpose of these plans is to promote the interests of the Company by aligning the interests of employees (including directors and officers who are employees), consultants, and non-employee directors of the Company and to provide incentives for such persons to exert maximum efforts for the success of the Company and its subsidiaries.

14

AURORA OIL & GAS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table provides activity for the stock option plans referenced above for the three months ended March 31, 2007:

	Number of Shares Underlying Options
Options outstanding at beginning of period		3,432,496
Options granted		185,000
Options exercised		(153,332	)
Options forfeited and other adjustments		-
Options outstanding at end of period		3,464,164

The weighted average assumptions used in the Black-Scholes option-pricing model used to determine fair value were as follows:

Risk-free interest rate	4.1	%
Expected years until exercise	2.5-6.0
Expected stock volatility	43.0	%
Dividend yield	0	%

All Stock Options

In addition, the Company has awarded compensatory options and warrants totaling 1,430,280 on an individualized basis that was considered outside the awards issued under its existing stock option plans. The following table provides activity with respect to all stock options awarded for the three months ended March 31, 2007:

	Number of Shares Underlying Options			Weighted Average Exercise Price		Aggregate Intrinsic Value(a)
Options outstanding at beginning of period		4,862,776		$	2.23
Options granted		185,000			3.35
Options exercised		(153,332	)		0.38
Forfeitures and other adjustments		(9,000	)		4.70
Options outstanding at end of period		4,885,444		$	2.33	$	4,550,000
Exercisable at end of period		2,992,277		$	1.37	$	4,532,000
Weighted average fair value of options granted during period	$	1.20

(a)The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise price of the option. The intrinsic value of the options exercised during the three months ended March 31, 2007, was approximately $343,000.

15

AURORA OIL & GAS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table provides the unrecognized compensation cost related to unvested stock options as of March 31, 2007. The cost is expected to be recognized over the following 3-year period.

Period to be Recognized	2007		2008		2009		2010		Total Unrecognized Compensation Cost
1st Quarter	$	-	$	428,053	$	31,996	$	1,146
2nd Quarter		610,395		360,689		14,664		-
3rd Quarter		587,474		117,728		5,194		-
4th Quarter		547,100		97,844		2,893		-
Total	$	1,744,969	$	1,004,314	$	54,747	$	1,146	$	2,805,176

The weighted average remaining life by exercise price as of March 31, 2007, is summarized below:

Range of Exercise Prices	Outstanding Shares	Weighted Average Life	Exercisable Shares	Weighted Average Life
$0.25 - $0.38	596,664	3.9	596,664	3.9
$0.50 - $0.75	1,440,000	1.9	1,440,000	1.9
$1.25 - $1.75	352,000	7.4	352,000	7.4
$2.23 - $3.55	498,280	7.0	110,280	2.6
$3.62	1,140,000	3.8	300,000	3.6
$4.45 - $4.70	658,500	8.6	33,333	5.8
$5.19 - $5.54	200,000	4.7	160,000	4.3
$0.25 - $5.54	4,885,444	4.5	2,992,277	3.2

NOTE 9.   COMMITMENTS AND CONTINGENCIES

Environmental Risk

Due to the nature of the oil and natural gas business, the Company is exposed to possible environmental risks. The Company manages its exposure to environmental liabilities for both properties it owns as well as properties to be acquired. The Company has historically not experienced any significant environmental liability and is not aware of any potential material environmental issues or claims at March 31, 2007.

Letters of Credit

For each salt water disposal well drilled in the State of Michigan, the Company is required to issue a letter of credit to the Michigan Supervisor of Wells. The Supervisor of Wells may draw on the letter of credit if the Company fails to comply with the regulatory requirements relating to the locating, drilling, completing, producing, reworking, plugging, filling of pits, and clean up of the well site. The letter of credit or a substitute financial instrument is required to be in place until the salt water disposal well is plugged and abandoned. For drilling natural gas wells, the Company is required to issue a blanket letter of credit to the Michigan Supervisor of Wells. This blanket letter of credit allows the Company to drill an unlimited number of natural gas wells. The existing letters of credit have been issued by Northwestern Bank of Traverse City, Michigan, and are secured only by a Reimbursement and Indemnification Commitment issued by the Company, together with a right of setoff against all of the Company’s deposit accounts with Northwestern Bank. At March 31, 2007, letters of credit in the amount of $1,186,100 were outstanding to the Michigan Supervisor of Wells.

16

AURORA OIL & GAS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Employment Agreement

Effective June 19, 2006, the Company hired Ronald E. Huff to serve as Chief Financial Officer of the Company. The Company has entered into a 2-year Employment Agreement with Mr. Huff, providing for an annual salary of $200,000 per year and an award of a stock bonus in the amount of 500,000 shares of the Company’s common stock on January 1, 2009, so long as he remains employed by the Company through June 18, 2008, which requires the Company to record approximately $2.1 million in stock-based compensation expense over the contract period. If his employment with the Company is terminated prior to this date without just cause or if the Company undergoes a change in control, he will nonetheless be awarded the full 500,000 shares. If his employment is terminated prior to June 18, 2008, due to death or disability, he will receive a prorated stock award. Mr. Huff forfeited the option to purchase 200,000 shares that he was previously awarded for his service as a director of the Company. Mr. Huff remains a director of the Company.

Fry Well Contingency

The Company is a participant with Savoy Energy, L.P. (“Savoy”) in a well known as the Fry 1-13 located in Mecosta County, Michigan. In late December 2006, the well experienced a blow-out event. Savoy currently is estimating costs of approximately $5.6 million for expenses associated with controlling the well and other related costs. The Company has a 13.33% cost interest (10% working interest) in this well to casing point and has recorded approximately $0.8 million to cover its portion of the loss.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with management’s discussion and analysis contained in our 2006 Annual Report on Form 10-KSB, as well as the condensed consolidated financial statements and notes hereto included in this quarterly report on Form 10-Q. The following discussion contains forward-looking statements that involve risks, uncertainties, and assumptions, such as statements of our plans, objectives, expectations, and intentions. Our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events.

Overview

We are a growing independent energy company focused on the exploration, exploitation, and development of unconventional natural gas reserves. Our unconventional natural gas projects target shale plays where large acreage blocks can be easily evaluated with a series of low cost test wells. Shale plays tend to be characterized by high drilling success and relatively low drilling costs when compared to conventional exploration and development plays. Our project areas are focused in the Antrim shale of Michigan and New Albany shale of Southern Indiana and Western Kentucky.

We commenced operations in 1969 to explore and mine natural resources under the name Royal Resources, Inc. In July 2001, we reorganized our business to pursue oil and gas exploration and development opportunities and changed our name to Cadence Resources Corporation. We acquired Aurora Energy, Ltd. (“Aurora”) on October 31, 2005, through the merger of our wholly-owned subsidiary with and into Aurora. The acquisition of Aurora was accounted for as a reverse merger with Aurora being the acquiring party for accounting purposes. The Aurora executive management team also assumed management control at the time the merger closed, and we moved our corporate offices to Traverse City, Michigan. Effective May 11, 2006, Cadence Resources Corporation amended its articles of incorporation to change the parent company name to Aurora Oil & Gas Corporation.

Our revenue, profitability and future rate of growth are substantially dependent on our ability to find, develop, and acquire gas reserves that are economically recoverable based on prevailing prices of natural gas and oil. Historically, the energy markets have been very volatile, and it is likely that oil and natural gas prices will continue to be subject to wide fluctuations in the future. A substantial or extended decline in natural gas and oil prices could have a material adverse effect on our financial position, results of operations, cash flows, access to capital and on the quantities of natural gas and oil that can be economically produced.

Highlights

For the three months ended March 31, 2007, we continued to shift our focus from acquisition of properties to an early stage developer of low risk shale development projects. As of March 31, 2007, our leasehold acres (both developed and undeveloped) were 1,287,450 (702,408 net) which represent a 2% increase over our December 31, 2006 net acres. Of the 70,670 (12,518 net) leasehold acres acquired, 2,594 net acres were in the Antrim shale play and 15,693 net acres were in the New Albany shale play with a reduction of net acres in the Other play areas due to a disposition.

With regard to our strategy to generate growth through drilling, we drilled or participated in 35 (16 net) wells for the three months ended March 31, 2007, with an 89% success rate. Our Antrim drilling program was restricted for the first three months due to frost laws not allowing movement of drilling rigs. As of March 31, 2007, we had 483 (232 net) producing wells and 106 (54 net) wells awaiting hook-up. We also continued our strategy to have greater control over our projects by operating 225 (209 net) wells, thus, operating 38% of our gross wells and 73% of our net wells.

Oil and natural gas production for the three months ended March 31, 2007, was 732,430 mcfe, or 16% over the 633,958 mcfe produced in the three months ended March 31, 2006. For the three months ended March 31, 2007, production continues to be hampered by curtailments on a third-party processing facility, delays bringing wells into production, and dewatering. The Company recently completed construction of its own processing facility and built an alternative pipeline route in response to the curtailment.

18

In order to reduce exposure to fluctuations in the price of natural gas, we will periodically enter into financial arrangements with a major financial institution. We have entered into a financial swap contract for 5,000 mmbtu per day at a fixed price of $9.00 per mmbtu for the period from April 2007 through December 2008 and a costless collar contract for 2,000 mmbtu per day with a ceiling price of $9.00 per mmbtu and a floor price of $7.55 per mmbtu for the period from April 1, 2007, through December 31, 2008. These derivative instruments provide the Company with a weighted average floor price of $8.59 per mmbtu per day on 7,000 mmbtu per day.

(Intentionally Left Blank)

19

Operating Statistics

The following table sets forth certain key operating statistics for the three months ended March 31, 2007 (the “Current Quarter’), and the three months ended March 31, 2006 (the “Prior Quarter”):

						Increase (Decrease)
	2007			2006		Amount			Percent
Net wells drilled
Antrim shale		8			9		(1	)		(11	%)
New Albany shale (“NAS”)		-			2		(2	)		(100	%)
Other		4			-		4			100	%
Dry		4			2		2			100	%
Total		16			13		3			23	%
Total net wells
Antrim—producing		219			116		103			89	%
Antrim—awaiting hookup		42			50		(8	)		(16	%)
NAS—producing		1			-		1			100	%
NAS—awaiting hookup		7			3		4			133	%
Other—producing		12			15		(3	)		(20	%)
Other—awaiting hookup		5			2		3			150	%
Total		286			186		100			54	%
Production
Natural gas (mcf)		690,435			594,346		96,089			16	%
Crude oil (bbls)		6,999			6,602		397			6	%
Natural gas equivalent		732,430			633,958		98,472			16	%
Average daily production
Natural gas (mcf)		7,672			6,604		1,068			16	%
Crude oil (bbls)		78			73		5			7	%
Natural gas equivalent		8,140			7,042		1,098			16	%
Average sales price includes effects of realized hedging
Natural gas (mcf)	$	8.01		$	8.49	$	(0.48	)		(6	%)
Crude oil (bbls)	$	53.74		$	56.27	$	(2.53	)		(5	%)
Natural gas equivalent	$	8.10		$	8.54	$	(0.44	)		(5	%)
Production revenue
Natural gas	$	5,553,439		$	5,045,383	$	508,056			10	%
Crude oil		376,137			371,483		4,654			1	%
Total	$	5,929,576		$	5,416,866	$	512,710			9	%
Average expenses ($ per mcfe)
Production taxes	$	0.36		$	0.34	$	0.02			6	%
Post-production expenses	$	0.39		$	0.52	$	(0.13	)		(25	%)
Lease operating expenses	$	2.24		$	2.09	$	0.14			7	%
General and administrative expense	$	3.09		$	2.47	$	0.62			25	%
General and administrative expense excluding stock-based compensation	$	2.28		$	2.22	$	0.06			3	%
Oil and natural gas depreciation, depletion and amortization expenses	$	1.02		$	1.49	$	(0.47	)		(32	%)
Other assets depreciation and amortization	$	0.78		$	0.74	$	0.04			5	%
Interest expenses	$	1.34		$	2.51	$	1.17			(47	%)
Taxes	$	(0.03	)	$	-	$	0.03			(100	%)
Number of employees		90			44		46			105	%

20

Results of Operations

Three Months Ended March 31, 2007, compared with Three Months Ended March 31, 2006

General. For the Current Quarter, the Company had a net loss of $0.7 million, or $(0.01) per diluted common share, on total revenues of $6.3 million. This compares to a net loss of $0.9 million, or $(0.01) per diluted common share, on total revenue of $5.6 million for the Prior Quarter. The $0.7 million increase in revenue represents our initial steps as an early stage developer of oil and natural gas properties.

Oil and Natural Gas Sales. During the Current Quarter, oil and natural gas sales were $5.9 million compared to $5.4 million in the Prior Quarter. The Company produced 732,430 mcfe at a weighted average price of $8.10 compared to 633,958 mcfe at a weighted average price of $8.54. This increase in production was due to new wells placed on-line. We had 232 net wells producing as of March 31, 2007, as compared to 131 net wells producing as of March 31, 2006. The weighted average price included $0.8 million of realized gains from the gas derivative contract. Production from the Antrim shale play represented approximately 92% of our oil and natural gas revenue for the Current Quarter.

The following table summarizes our oil and natural gas revenue by play/trend in the periods set forth below:

	Three Months Ended March 31, 2007				Three Months Ended March 31, 2006
Play/Trend	(mcfe)		Amount		(mcfe)		Amount
Antrim		675,353	$	5,455,370		533,419	$	4,353,977
New Albany		10,344		74,400		2,483		19,994
Other		46,733		399,806		98,056		1,042,895
Total		732,430	$	5,929,576		633,958	$	5,416,866

Other Revenues. Other revenues increased by $0.1 million, or 99% to $0.3 million in the Current Quarter from $0.2 million in the Prior Quarter. This increase is attributed to the Bach acquisition in 2006 which provides oil and natural gas field services.

Production Taxes. Production taxes were $0.3 million in the Current Quarter compared to $0.2 million in the Prior Quarter. This increase is attributed to new wells being added and production growth of existing wells. On a unit of production basis, production taxes were $0.36 per mcfe in the Current Quarter compared to $0.34 per mcfe in the Prior Quarter.

Production and Lease Operating Expenses. Our production and lease operating expenses include services related to producing oil and natural gas, such as post-production costs, including marketing and transportation, and expenses to operate the wells and equipment on producing leases.

Production and lease operating expenses were $1.9 million in the Current Quarter compared to $1.7 million in the Prior Quarter. On a per unit of production basis, production and lease operating expenses were $2.63 per mcfe in the Current Quarter compared to $2.61 per mcfe in the Prior Quarter. The increase in the Current Quarter was primarily attributable to higher energy costs, higher pumping costs, repair and maintenance associated with compressors and pumps, and outside labor. On a component basis, post-production expenses were $0.3 million, or $0.39 per mcfe, in the Current Quarter compared to $0.3 million, or $0.52 per mcfe, in the Prior Quarter, and lease operating expenses were $1.6 million, or $2.24 per mcfe, in the Current Quarter compared to $1.3 million, or $2.09 per mcfe, in the Prior Quarter. Production and lease operating expenses for operated properties were $2.37 per mcfe in the Current Quarter while non-operated production and lease operating expenses were $3.33 per mcfe in the Current Quarter.

21

Pipeline Operating Expenses and Field Services Expenses. Pipeline operating expenses were $0.1 million in the Current Quarter compared to $0.1 million in the Prior Quarter. Field services expenses were $0.2 million in the Current Quarter compared to no expense in the Prior Quarter which are attributable to the Bach acquisition in October 2006.

General and Administrative Expenses. Our general and administrative expenses include officer and employee compensation, travel, audit, tax and legal fees, office supplies, utilities, insurance, consulting fees, and office related expense. General and administrative expenses in the Current Quarter increased by $0.7 million, or 44%, from the Prior Quarter. This increase is the result of executing our growth strategy. This has resulted in substantial increases in employees and related cost. Our staffing requirements increased 39% to 61 employees for the Current Quarter compared to 44 employees in the Prior Quarter which excludes 29 employees from the Bach acquisition.

Payroll and related costs increased by $1.0 million to $1.5 million in the Current Quarter. This included stock-based compensation of $0.6 million in the Current Quarter which consists of $0.1 million for directors, $0.3 million for senior management and $0.2 million for employees. We reduced legal, accounting, and other consulting services by $0.4 million to $0.4 million in the Current Quarter compared to $0.8 million in the Prior Quarter.

The Company follows the full cost method of accounting under which all costs associated with property acquisition, exploration, and development activities are capitalized. We capitalized certain internal costs that can be directly identified with our acquisition, exploration, and development activities and do not include any costs related to production, general corporate overhead, or similar activities. We capitalized $0.5 million of payroll and benefit costs for the Current Quarter compared to $0.6 million in the Prior Quarter.

Oil and Natural Gas Depletion, Depreciation and Amortization (“DD&A”). DD&A of oil and natural gas properties was $0.7 million and $0.9 million during the Current Quarter and the Prior Quarter, respectively. DD&A is a function of capitalized costs in the full cost pool and related underlying reserves in the periods presented. This decrease is the result of a change in estimate of DD&A from proven developed reserves to total proven reserves and the underlying reserves increasing by 89 bcfe as of December 31, 2006. The average DD&A cost per mcfe was $1.02 and $1.49 in the Current Quarter and the Prior Quarter, respectively.

Other Assets Depreciation and Amortization (“D&A”). D&A of other assets was $0.6 million in the Current Quarter, compared to $0.5 million in the Prior Quarter. This increase was primarily the result of additional investment in other assets.

Interest Expense. Interest expense was $1.0 million in the Current Quarter compared to $1.6 million in the Prior Quarter. This decrease is the result of a change in estimating capitalized interest and reduction in borrowing under the senior secured credit facility. During the fourth quarter 2006, the Company modified its approach to estimating capitalized interest by recognizing that debt need not be specific debt incurred on a specific asset.

Taxes, Other.Tax expense (refund) was ($25,182) in the Current Quarter compared to $1,667 in the Prior Quarter. This decrease primarily represents a 2003 Indiana property tax refund of $39,884 received in 2007. The Company has significant net operating loss carryforwards, thus no income tax expense has been recognized.

Liquidity and Capital Resources

We expect to fund our growth strategy using a combination of debt, existing cash balances, internally generated cash flows from natural gas production, and the proceeds from the 2006 equity offering. Our 2007 capital budget for drilling and related well work and infrastructure is estimated to be approximately $105.6 million with anticipated participation in 410 (228 net) wells. Our 2007 capital budget for leasehold interest and property acquisitions is estimated to be approximately $9.0 million and $1.0 million, respectively. We believe that the proceeds of the 2006 equity offering, our available credit facilities and our operating cash flow will be sufficient to fund our operations and capital expenditures for the next 12 months. However, future cash flows are subject to a number of variables, including the level of production and prices. There can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of capital expenditures.

22

Our mezzanine financing is a $50 million credit facility with Trust Company of the West (“TCW”) for the Michigan Antrim shale drilling program. It has a maturity date of September 30, 2009. Borrowings under the TCW credit facility as of March 31, 2007 were $40 million with available borrowing capacity of $10 million. The interest rate is fixed at 11.5% per year, calculated and payable in arrears. Beginning September 28, 2006 and quarterly thereafter, the required principal payment is 75% (100% if coverage deficiency or default occurs) of Adjusted Net Cash Flow determined by deducting applicable operating expenses and capital expenditures from gross revenue. The TCW borrowing base is subject to semi-annual re-determination and certain other re-determinations based upon several factors. The borrowing base is impacted by, among other factors, the fair value of our natural gas reserves that are pledged to TCW. Changes in the fair value of our oil and natural gas reserves are caused by changes in prices for natural gas and crude oil, operating expenses and the results of drilling activity. A significant decline in the fair value of these reserves could cause us to be unable to meet certain facility covenants, which could result in a reduction in our borrowing base. The TCW loan agreement prohibits the declaration or payment of dividends and contains certain covenants. As of March 31, 2007, we were in compliance with all of the applicable covenants.

Our senior secured credit facility is a $100 million senior secured credit facility with BNP Paribas (“BNP”). The current borrowing base under this facility is $50 million and has not been updated for our 2006 year end reserves. As proved reserves are added, this borrowing base may increase up to $100 million with TCW consent. This facility matures the earlier of January 31, 2010, or 91 days prior to the maturity of the mezzanine credit facility. This facility provides for borrowings tied to prime rate or LIBOR plus 1.25 to 2.0% depending on the borrowing base utilization that we select. As of March 31, 2007, interest on borrowings under our senior credit facility had a weighted average interest rate of 7.125% and our total borrowings under this facility were $28 million. A required semi-annual reserve report may result in an increase or decrease in credit availability.

The senior secured credit facility contains, among other things, certain covenants relating to restricted payments, loans or advances to others, additional indebtedness, and incurrence of liens. It also provides for the maintenance of certain financial and operating ratios, including current ratio and specified coverage ratios (collateral coverage and proved developed producing reserves coverage ratios). Effective December 21, 2006, the senior secured credit facility was amended to eliminate the interest coverage ratio covenant for the fiscal quarter ending December 31, 2006, and to modify the 2007 fiscal quarters’ interest coverage ratio covenants. As of March 31, 2007, we were in compliance with all of the applicable covenants.

Our short-term line of credit is a $5 million revolving line of credit with Northwestern Bank for general corporate purposes. As of March 31, 2007, our total borrowing capacity available under this facility was $5.0 million. The interest rate is the prime rate with interest payable monthly in arrears. Principal is payable at the expiration of the line of credit, October 15, 2007.

Our total capitalization was as follows:

	As of March 31, 2007		As of December 31, 2006
Short-term bank borrowings	$	8,615	$	542,788
Obligations under capital lease		12,581		17,096
Notes payable		234,807		280,321
Mortgage payables		3,142,642		3,175,298
Mezzanine financing		40,000,000		40,000,000
Senior secured credit facility		28,000,000		10,000,000
Total debt		71,398,645		54,015,503
Shareholders’ equity		135,886,970		139,731,099
Total capitalization	$	207,285,615	$	193,746,602

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Cash Flows from Operating Activities

Cash provided by operating activities was $2.5 million in the Current Quarter, compared to cash used of $1.4 million in the Prior Quarter. The $2.5 million in net cash provided by operating activities was substantially due to the following; (1) $1.2 million received from joint interest partner for development projects; (2) $0.9 million transfer from drilling advances made by the Company; and (3) $0.4 million increase in production revenues. See “Results of Operations” for discussion of changes in revenues and expenses. Non-cash charges increased due to higher stock-based compensation. Changes in current operating assets and liabilities decreased cash flow from operations by $1.1 million which excludes the drilling and development activity.

Operating cash flows are impacted by many variables, the most significant of which are the volatility of prices for natural gas and oil produced and operational performance of our producing properties. Prices for these commodities are determined primarily by prevailing market conditions. As of March 31, 2007, we have entered into the following financial hedges: (i) 5,000 mmbtu per day at a price of $9.00 per mmbtu from April 2007 through December 2008, and (ii) a zero cost collar contract for 2,000 mmbtu per day with a cap price of $9.00 per mmbtu and a floor price of $7.55 per mmbtu for the period from April 1, 2007, through December 31, 2008. Based on our March 31, 2007, production exit rate of 8,725 mcfe per day, we have 80% of our existing production hedged through December 2008 with a weighted average floor price of $8.59 per mmbtu.

Cash Flows Used in Investing Activities

Cash flows used in investing activities was $19.5 million in the Current Quarter, compared to $42.7 million in the Prior Quarter. The following table describes our significant investing transactions that we completed in the periods set forth below:

	Three Months Ended March 31
	2007		2006
Acquisitions of leasehold
Antrim shale	$	670,427	$	2,692,996
New Albany shale(a)		902,417		10,161,708
Other		1,195,902		954,775
Drilling and development of oil and natural gas properties
Antrim shale		11,109,790		4,449,371
New Albany shale		664,567		1,221
Other		1,403,866		1,595,699
Infrastructure properties
Antrim shale		3,454,053		1,858,490
New Albany shale		397,758		-
Other		563,799		-
Acquisitions of oil and natural gas properties		-		23,938,811
Acquisitions/additions for pipeline, property, and equipment		144,456		3,781,711
Other, net		37,412		270,986
Subtotal of capital expenditures		20,544,447		49,705,768
Sale of oil and natural gas properties(a)		1,025,000		6,990,681
Subtotal of capital divestitures		1,025,000		6,990,681
Total	$	19,519,447	$	42,715,087

(a) On February 2, 2006, Aurora closed an acquisition of certain New Albany shale acreage located in Indiana, commonly called the Wabash project. Aurora acquired 64,000 acres of oil and natural gas leases from Wabash Energy Partners, L.P. for a purchase price of $11,840,000. The Company was required to deposit into escrow for the sellers $3.2 million in 2005. Aurora then sold half its interest in a combined 95,000 acre lease position in the Wabash project to New Albany-Indiana, L.L.C., an affiliate of Rex Energy Operating Corporation (“Rex”), for a sale price of $10,500,000. Rex placed $3.5 million in an escrow account in 2005 as a deposit until the closing in February 2006.

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Cash Flows Provided by Financing Activities

Cash flows provided by financing activities were $17.4 million in the Current Quarter compared to $49.3 million in the Prior Quarter. Cash flows provided in the Current Quarter included: (1) $18.0 million of senior secured credit borrowing; and (2) $0.1 million of net proceeds received from exercise of common stock options and warrants. Cash flows used in the Current Quarter included: (1) net pay-down of $0.5 in short-term bank borrowings; (2) pay-down of $0.1 million in mortgage obligations; and (3) payment of $25,000 in financing fees.

Cash flows provided by financing activities in the Prior Quarter included: (1) $35.0 million of senior secured credit borrowing; and (2) $18.0 million of net proceeds received from exercise of common stock options and warrants. Cash flows used by financing in the Prior Quarter included: (1) net pay-down of $1.3 in short-term bank borrowings; (2) payments of $2.4 million in financing fees; and (3) pay-down of $15,594 in mortgage obligations and other.

Recent Accounting Pronouncements

Reference is made to Note 3 to the Financial Statements included elsewhere in this filing for a description of certain recently issued accounting pronouncements. We do not expect any of such recently issued accounting pronouncements to have a material effect on our consolidated financial position or results of operations.

Critical Accounting Policies

We consider accounting policies related to use of estimates, oil and natural gas properties, oil and natural gas reserves, stock-based compensation, and income taxes to be critical policies. These accounting policies are summarized in the audited consolidated financial statements and notes included in our Annual Report on Form 10-KSB for the year ended December 31, 2006.

Off Balance Sheet Arrangements

We have no special purpose entities, financing partnerships, guarantees, or off-balance sheet arrangements other than the outstanding letter of credits discussed in Note 9 “Commitments and Contingencies.”

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Price Risk

The Company’s results of operations and operating cash flows are impacted by the fluctuations in the market prices of natural gas. To mitigate a portion of the exposure to adverse market changes, the Company will periodically enter into various derivative instruments with a major financial institution. The purpose of the derivative instrument is to provide a measure of stability to the Company’s cash flow in meeting financial obligations while operating in a volatile natural gas market environment. The derivative instrument reduces the Company’s exposure on the hedged production volumes to decreases in commodity prices and limits the benefit the Company might otherwise receive from any increases in commodity prices on the hedged production volumes. The following natural gas contracts were in place as of March 31, 2007:

Period	Type of Contract		Natural Gas Volume per Day		Price per mmbtu		Fair Value Asset (Liability)
April 2007—December 2008		Swap		5,000 mmbtu	$	9.00	$	1,539,680
April 2007—December 2008		Collar		2,000 mmbtu	$	7.55/9.00		(131,640	)
Total Estimated Fair Value							$	1,408,040

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Interest Rate Risk

The Company does not use interest rate derivatives to mitigate exposure to changes in interest rates. The following table sets forth the Company’s principal financing obligation and the related interest rates as of March 31, 2007:

	Expected Maturity		Average Interest Rate as of March 31, 2006		Principal Outstanding
Short-term bank borrowings		Revolving		Variable - 8.25%	$	8,615
Obligations under capital lease		01/10/09		8.25%		12,581
Notes payable		08/01/07-10/01/10		5.50% - 7.50%		234,807
Mortgage payable		10/15/09		Fixed at 6.00%		377,635
Mortgage payable		10/01/08		Fixed at 6.50%		2,765,007
Mezzanine financing		09/30/09		Fixed at 11.50%		40,000,000
Senior secured credit facility		01/31/10		Variable - 7.125%		28,000,000
Total debt					$	71,398,645

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in our periodic filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

Our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of March 31, 2007, and have concluded that these disclosure controls and procedures are effective at the reasonable assurance level. Our CEO and CFO believe that the condensed consolidated financial statements included in this report on Form 10-Q fairly present in all material respects our financial condition, results of operations, and cash flows for the periods presented in conformity with generally accepted accounting principles.

Our management, including ourCEO and CFO, do not expect that our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met with respect to financial statement preparation and presentation. In addition, any evaluation of the effectiveness of controls is subject to risks that those internal controls may become inadequate in future periods because of changes in business conditions, or because the degree of compliance with the policies or procedures deteriorates.

Changes in Internal Controls over Financial Reporting

There have been no changes in our internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Our management continues to review our internal controls and procedures and the effectiveness of those controls. In the fourth quarter of 2006, the Company formally initiated the process of documenting internal controls over financial reporting in an effort to be in compliance with the evaluation and reporting requirements of the Sarbanes-Oxley Act of 2002 Section 404 by December 31, 2007.

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PART II

ITEM 1. LEGAL PROCEEDINGS

Our management is unaware of any threatened or pending material legal claims or procedures of a non-routine nature.

ITEM 1A. RISK FACTORS

Our business has many risks. Factors that could materially adversely affect our business, financial condition, operating results or liquidity and the trading price of our common stock are described under “Risk Factors in Item 1 of our Annual Report on Form 10-KSB for the year ended December 31, 2006. This information should be considered carefully, together with other information in this report and other reports and materials we file with the Securities and Exchange Commission.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

During the period from January 1, 2007, through March 31, 2007, we issued 78,158 shares of our common stock pursuant to an exercise of a warrant dated April 2, 2004, to purchase 127,500 shares of common stock. This exercise was made pursuant to a net issue election and the balance of the shares under the warrant was forfeited. The shares issued pursuant to the warrant exercise were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.

We did not repurchase any of our outstanding equity securities during the quarter ended March 31, 2007.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

3.1(1)	Restated Articles of Incorporation of Aurora Oil & Gas Corporation.
*3.2	By-Laws of Aurora Oil & Gas Corporation.
10.1	Securities Purchase Agreement between Cadence Resources Corporation and the investors signatory thereto, dated April 2, 2004 (filed as Exhibit 99.3 to our Current Report on Form 8-K filed with the SEC on April 5, 2004, and incorporated herein by reference.)
10.2	Securities Purchase Agreement between Cadence Resources Corporation and the investors signatory thereto, dated January 31, 2005 (filed as Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on February 2, 2005, and incorporated herein by reference.)
10.3(2)	Asset Purchase Agreement with Nor Am Energy, L.L.C., Provins Family, L.L.C. and O.I.L. Energy Corp. dated January 10, 2006.
10.4	Note Purchase Agreement between Aurora Antrim North, L.L.C. et al. and TCW Asset Management Company, dated August 12, 2004 (filed as an Exhibit to our Form S-4 registration statement filed with the SEC on May 13, 2005, and incorporated herein by reference.)
10.5	First Amended and Restated Note Purchase Agreement between Aurora Antrim North, L.L.C. et al. and TCW Asset Management Company, dated December 8, 2005 (filed as an Exhibit to our Annual Report on Form 10-KSB for the fiscal year ended September 30, 2005 filed with the SEC on December 29, 2005 and incorporated herein by reference.)
10.6(2)	First Amendment to First Amended and Restated Note Purchase Agreement between Aurora Antrim North, L.L.C., et al., and TCW Asset Management Company, dated January 31, 2006.
10.7(2)	Credit Agreement among Aurora Antrim North, L.L.C., et al. and BNP Paribas, et al., dated January 31, 2006.
10.8(2)	Intercreditor and Subordination Agreement among BNP Paribas, et al., TCW Asset Management Company, and Aurora Antrim North, L.L.C., dated January 31, 2006.
10.9(2)	Promissory Note from Aurora Energy, Ltd. to Northwestern Bank dated January 31, 2006.
10.10(2)	Confirmation from BNP Paribas to Aurora Antrim North, L.L.C., dated February 22, 2006 relating to gas sale commitment.
10.11	2006 Stock Incentive Plan. (filed as Exhibit 99.1 to our Form S-8 Registration Statement filed with the SEC on May 15, 2006 and incorporated herein by reference.)
10.12(1)	Employment Agreement with Ronald E. Huff dated June 19, 2006.
10.13(1)	Letter Agreement with Bach Enterprises dated July 10, 2006. This Agreement is confidential and has been filed separately with the SEC.
10.14(1)	First Amendment to Credit Agreement between Aurora Antrim North, L.L.C., et al. and BNP Paribas dated July 14, 2006.
10.15(1)	The Denthorn Trust Commercial Guaranty of obligations to Northwestern Bank.
10.16(1)	William W. Deneau Commercial Guaranty of obligations to Northwestern Bank.
10.17(1)	The Denthorn Trust Commercial Pledge Agreement to Northwestern Bank.
10.18(3)	LLC Membership Interest Purchase Agreement dated October 6, 2006 relating to Kingsley Development Company, L.L.C.
10.19(3)	Asset Purchase Agreement with Bach Enterprises, Inc., et al., dated October 6, 2006.
10.20(3)	Promissory Note from Aurora Energy, Ltd. to Northwestern Bank dated October 15, 2006.
10.21(3)	Form of indemnification letter agreement between Aurora Oil & Gas Corporation and Rubicon Master Fund.
10.22(3)	Patricia A. Deneau Trust Commercial Guaranty of obligations to Northwestern Bank.
10.23(3)	Patricia A. Deneau Trust Commercial Pledge Agreement to Northwestern Bank.
10.24	Second Amendment to Credit Agreement between Aurora Antrim North, L.L.C., et al. and BNP Paribas dated December 21, 2006. (filed as an Exhibit 10.24 to our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006, filed with the SEC on March 15, 2007 and incorporated herein by reference.)
*31.1	Rule 13a-14(a) Certification of Principal Executive Officer.
*31.2	Rule 13a-14(a) Certification of Principal Financial and Accounting Officer.
*32.1	Section 1350 Certification of Principal Executive Officer.
*32.2	Section 1350 Certification of Principal Financial and Accounting Officer.

* Filed with this Form 10-Q.

(1)	Filed as an exhibit to our Form 10-QSB for the period ended June 30, 2006, filed with the SEC on August 7, 2006, and incorporated herein by reference.
(2)	Filed as an exhibit to our Form 10-KSB for the fiscal year ended December 31, 2005, filed with the SEC on March 31, 2006, and incorporated herein by reference.
(3)	Filed on October 27, 2006, with our Amendment No. 3 to Form SB-2 registration statement filing, registration no. 333-137176, and incorporated herein by reference.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report on Form 10-Q to be signed on its behalf by the undersigned thereto duly authorized.

	AURORA OIL & GAS CORPORATION
Date: May 14, 2007	By:	/s/  William W. Deneau
		Name: William W. Deneau
		Title: President

Date: May 14, 2007	By:	/s/  Ronald E. Huff
		Name: Ronald E. Huff
		Title: Chief Financial Officer

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EX-3.2

EXHIBIT 3.2

AMENDED AND RESTATED BY-LAWS

of

AURORA OIL & GAS CORPORATION

(a Utah corporation)

ARTICLE I

NAME, SEAL AND OFFICES, ETC.

Section 1.Name: The name of the corporation is Aurora Oil & Gas Corporation.

Section 2.Seal: The seal of the corporation shall be in such form as the Board of Directors shall from time to time prescribe.

Section 3. Offices: The registered office of the corporation shall be in the City of Salt Lake, State of Utah, or in any nearby town. The corporation may also have offices at such other places within or without the State of Utah as the Board of Directors may from time to time establish.

Section 4.Book of By-Laws: These By-Laws shall be recorded in a book kept in the in the office of the corporate secretary, to be known as the Book of By-Laws, and no By Laws, or repeal or amendment thereof, shall take effect until so recorded in such book. Said book may be inspected at said office by the public during office hours of each day except holidays.

ARTICLE II

SHAREHOLDERS

Section 1.Annual Meetings of Shareholders: The annual meeting of the Shareholders for the election of Directors and for such other business as may be laid before such meeting shall be held in the registered office of the corporation, or at such other place within or without the State of Utah as the Board of Directors may from time to time appoint, no later than the end of the month of August. Any corporate business may be transacted at such meeting.

Section 2.Special Meetings of Shareholders: Special meetings of the Shareholders may be called at any time by the Board of Directors, and the Shareholders may meet at any convenient place, within or without the State of Utah, designated in the call for such meeting. If more than eighteen months are allowed to elapse without the annual Shareholders meeting being held, any Shareholder may call such meeting to be held at the registered office of the corporation. At any time, upon written request of any Director or any Shareholder or Shareholders holding in the aggregate one-fifth of the voting power of all Shareholders, it shall be the duty of the Secretary to call a special meeting of Shareholders to be held at the registered office at such time as the Secretary may fix, not less than fifteen nor more than thirty-five days after the receipt of said request, and if the Secretary shall neglect or refuse to issue such call, the Director or Shareholder or Shareholders making the request may do so.

Section 3.Adjourned Meetings: An adjournment or adjournments of any annual or special meeting may be taken without a new notice being given.

Section 4.Notice of Meetings: A written notice of the time, place and purpose of meetings, including annual meetings, shall be given by the Secretary or other person authorized so to do, to all stockholders entitled to vote at such meeting, at least ten days prior to the day named for the meeting. If such written notice is placed in the United States mail, postage prepaid, addressed to a Shareholder at his last known, post office address, notice shall be deemed to have been given him.

Section 5.Waiver of Notice: Notice of time, place and purpose of any meeting of Shareholders may be waived by the written assent of a Shareholder entitled to notice, filed with or entered upon the records of the meeting before or after the holding thereof.

Section 6.Action Without Formal Meeting: Any action which, under any provision of the Laws of Utah, or the Articles or By-Laws, may be taken at a meeting of Shareholders, may be taken without a meeting if authorized by a writing signed by a majority of the holders of shares who would be entitled to notice of a meeting for such purpose. Whenever a certificate in respect to any such action, is required by the Laws of Utah to be filed in the office of the County Recorder or in the office of the Secretary of State, the officers signing the same shall therein state that the action was authorized in the manner aforesaid.

Section 7.Waiver of Invalid Call or Notice: When all the Shareholders of this corporation are present at any meeting, however called or notified, and sign a written consent thereto on the record of such meeting, the doings of such meeting are as valid as if had at a meeting legally called and notified.

Section 8.Voting: Every Shareholder shall have the right at every Shareholders meeting to one vote for every share of stock standing in his or her name on the books of the Corporation on the record date fixed as hereinafter provided, or, if no such date has been fixed, ten days prior to the time of the meeting. The Board of Directors may fix a time not more than 70 days prior to the date of any meeting of the shareholders as the record date as of which shareholders entitled to notice of and to vote at such meeting shall be determined. At each meeting of the stockholders a full, true and complete list, in alphabetical order, of all the shareholders entitled to vote at such meeting and indicating the number of shares held by each, certified by the Secretary or transfer agent, shall be furnished, which list shall be open to the inspection of the stockholders. Shareholders may vote at all meetings, either in person or by proxy appointed by instrument in writing, subscribed by the Shareholders or his duly authorized attorney in fact, executed and filed with, the Secretary not less than one day before the meeting which shall be named therein. Shareholders may also be represented at all meetings by persons holding general power of attorney. At least twenty-four hours prior to any meeting, powers of attorney or proxies shall be submitted to the Secretary for examination. The certificate of the Secretary as to the regularity of such powers of attorney or proxies and as to the number of shares held by the persons who severally and respectively executed such powers of attorney or proxies shall be received as prima facie evidence of the number of shares held by the holder of such powers of attorney or proxies for the purpose of establishing the presence of a quorum at such meeting or for organizing the same, and for all other purposes.

2

Section 9.Quorum: Except as otherwise provided in the Articles of Incorporation at any meeting of the Shareholders, the presence, in person or by proxy, of the holders of a majority of the voting power of all Shareholders shall constitute a quorum: The Shareholders present at a duly organized meeting can continue to do business until adjournment, notwithstanding the withdrawal of enough Shareholders to leave less than a quorum. If a Shareholders meeting cannot be organized because a quorum has not attended, those Shareholders present may adjourn the meeting to such time and place as they may determine, but in case of any meeting called for the election for Directors those who attend the second of such adjourned meetings, though less than a majority of the voting powers of all shareholders, shall nevertheless, constitute a quorum for the purpose of electing Directors. Whenever all Shareholders entitled to vote at any meeting consent, either by writing on the records of the meeting or filed with the Secretary of the Corporation, or by presence at such meeting, an oral consent entered on the minutes, or by taking part in the deliberations at such meeting without objection, the doings of such meeting shall be as valid as if had at a meeting regularly called and noticed and at such meeting any business may be transacted which is not excepted from the written consent or to the consideration of which no objection from want of notice is made at the time, and if any meeting be irregular for want of notice or of such consent provided a quorum was present at such meeting, the proceedings of said meeting may be ratified and approved and rendered likewise valid and the irregularity or defect therein waived by a writing signed by all the Shareholders having the right to vote at such meeting and such consent or approval of Shareholders may be by proxy or power of attorney in writing.

ARTICLE III

DIRECTORS

Section 1.Number and Election: The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise required by law or as may be provided in the Articles of Incorporation. Directors need not be stockholders. The number of Directors constituting the Board of Directors shall be not greater than ten (10) nor fewer than three (3), as fixed from time to time in these by-laws or by action of the Board of Directors or by action of the stockholders. Except as and to the extent the Articles of Incorporation may grant any class or series of stock the right to elect one or more directors, the Directors shall be elected at the annual meeting of the stockholders or as otherwise contemplated by these bylaws, and each Director shall be elected to serve until his or her successor shall be elected and shall qualify, or until his or her earlier resignation or removal.

Section 2.Annual Meetings: The Board of Directors may hold its first annual meeting and all subsequent annual meetings after its election by the Shareholders, without notice and at such place within or without the State of Utah as the Board of Directors may from time to time appoint, for the purpose of organization, the election of officers, and the transaction of other business. At such meetings the Board shall elect a President, a Secretary and a Treasurer, and may elect one or more Vice-Presidents, an Assistant Secretary and an Assistant Treasurer.

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Section 3.Special Meetings: Special meetings of the Board of Directors may be called by the President or any Vice-President or by any two members of the Board of Directors.

Section 4.Notice of Meetings: Notice of all Director's meetings, except as herein otherwise provided, shall be given either by mail, telephone, telegraph, e-mail or personal service of notice, oral or written, at such time or times as the person or persons calling the meeting may deem reasonable, but in no event upon less than three days notice for any meeting the notice of which shall be given by mail, and in no event upon less than 24 hours notice for any meeting the notice of which shall be given by telephone, telegraph or e-mail. Special meetings of the Board may be held at such place within or without the State of Utah as the Board of Directors may from time to time appoint. Notice of any meeting may be waived by any Director entitled to notice before or after the holding thereof by his written or oral assent and the presence of any Director at any meeting, even though without any notice, shall constitute a waiver of notice. Unless otherwise indicated in the notice thereof any and all business may be transacted at any Director's meeting.

Section 5.Quorum: At all meetings of the Board a majority of the Directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the acts of a majority of the Directors present at any meeting at which a quorum is present shall be the acts of the Board of Directors, except as may be otherwise specifically provided for herein (including, but not limited to, as contemplated in the second sentence of Section 7 of this Article) or by law. If at any meeting there is less than a quorum present, a majority of those present may adjourn the meeting from time to time without further notice to any absent Director.

Section 6.Removal: A Director may be removed either with or without cause, by two-thirds of the vote of the Shareholders at a special meeting called for that purpose.

Section 7.Resignations; Removals; Vacancies: Any Director may resign at any time upon written notice to the Board of Directors or to the President or a Secretary. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. Vacancies and newly created directorships resulting from any increase in the authorized number of Directors (other than any Directors elected in the manner described in the next sentence) or from any other cause (a) may be filled by a majority of the Directors then in office, although less than a quorum or fewer than three Directors, or by the sole remaining Director, as applicable, or (b) may be filled by the shareholders of the corporation at the next annual meeting thereof. Whenever the holders of any class or classes of stock or series thereof are entitled by the Articles of Incorporation to elect one or more Directors, vacancies and newly created directorships of such class or classes or series may be filled by, and only by, a majority of the Directors elected by such class or classes or series then in office, or by the sole remaining Director so elected, or by the holders of such class or classes of stock or series thereof. Any Director elected or appointed to fill a vacancy or a newly created directorship shall hold office until the next election of the class of Directors of the Director which such Director replaced or the class of Directors to which such Director was appointed, and until his or her successor is elected and qualified or until his or her earlier resignation or removal.

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Section 8.Powers: All the corporate powers, except such as are otherwise provided for in the Articles of Incorporation, in these By-Laws and by the laws of the State of Utah, shall be, and are, hereby vested in and shall be exercised by the Board of Directors.

Section 9.Committees: The Board of Directors may, by resolution passed by a majority of the whole Board, designate two or more of their number to constitute Committees to serve during the pleasure of the Board, which Committees shall have and exercise the authority of the Board in the management of the business of the corporation to the extent authorized by said resolution. Such Committees may also be constituted to meet the regulatory requirements of the various government entities as well as the requirements of the various stock exchanges. All action taken by such Committees shall be reported to the Board of Directors at its meeting next succeeding such action, and shall be subject to revision or alteration by the Board; providing, however, that no rights or acts of third parties shall be affected by any such revision or alteration. A majority of the Committee members present at a meeting thereof shall constitute a quorum. Vacancies in the Committees shall be filled by the Board of Directors. Each Committee shall fix its own rules of procedure including the time and place of and method or manner off calling meetings thereof.

ARTICLE IV

OFFICERS

Section 1. Officers: The Officers of the Corporation shall be a President, Secretary and Treasurer, and in the discretion of the Board of Directors, a Chairperson of the Board, a Vice Chairperson of the Board, one or more Vice Presidents, an Assistant Secretary and an Assistant Treasurer, each of whom shall be elected at a meeting of and by the Board of Directors.

Any Officers may resign by mailing a notice of resignation to the President or Secretary of the Corporation, or to the registered office of the Corporation, or such other office as may be designated by the Board of Directors. To the extent permitted by law, the resignation shall become effective at the time designated in the notice of resignation, but in no event earlier than its receipt by the Secretary or Assistant Secretary of the Corporation.

In case of a vacancy of any of said offices for any reason, the Board of Directors shall at any regular or special meeting elect a successor who shall hold office for the unexpired term of the predecessor. Any two of the offices may be combined in one person.

The Board of Directors may appoint such other Officers and Agents as may be necessary for the business of the Corporation.

Any Officer or Agent may be removed by the Board of Directors whenever in its judgment the interest of the Corporation may be served thereby; such removal, however, shall be without prejudice to the contract rights of the person so removed.

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Section 2. Chairperson of the Board: The Chairperson of the Board shall serve as the chairperson and presiding officer at all meetings of the stockholders and Board of Directors, and shall have such other duties as prescribed by the Board of Directors.

Section 3. Vice Chairperson of the Board: The Vice Chairperson of the Board shall serve as the chairperson and presiding officer in the absence of the Chairperson of the Board at meetings of the stockholders and Board of Directors, and shall have such other duties as prescribed by the Board of Directors.

Section 4. President: The President is the chief executive officer of the Corporation. The President is in charge of the general and day-to-day management of the Corporation, and shall see that all orders and resolutions of the Board are carried into effect. The President shall execute all deeds, mortgages, bonds or documents authorized by the Board of Directors, and shall sign as President, all certificates of stock, all contracts and other instruments in writing, excepting only those which are specifically provided to be signed by others. The President shall from time to time as requested report to the Board all the matters within the President’s knowledge of interest to the Corporation, and shall also perform such duties as may be required by the State of Utah, these Bylaws, and by order of the Board of Directors.

Section 5. Vice President: The Vice Presidents, in the order of their seniority, shall perform the duties and exercise the powers of the President during the absence or disability of the President. In the event that more than one Vice President is elected, the order of succession to the President’s responsibility shall be established by the Board of Directors, or in the absence of Board action, the order of succession shall be determined based on the title reflective of the highest position, or in the event that title reflects equality, the order of succession shall be in the order of seniority based on date of hire. The Board of Directors or the President shall prescribe any other duties to be performed by the Vice Presidents.

Section 6. Treasurer: The Treasurer shall be custodian of the Corporation’s money and securities, and shall deposit and withdraw the same in the Corporation’s name as directed by the Board of Directors. The Treasurer shall keep a record of all of the Corporation’s accounts and report to the Board of Directors as requested.

Section 7. Secretary: The Secretary shall keep a record of the meetings and Board of Directors. The Secretary shall keep the books of certificates of stock, fill out and sign all certificates of stock issued, and make corresponding entries on the margin or stub of such book. The Secretary shall keep a debit and credit form, showing the number of shares issued to and transferred by the Shareholders, and the dates thereof. The Secretary shall keep the corporate seal and shall affix the same to certificates of stock and other corporate instruments, and shall make such acknowledgements as shall be prescribed by the Board of Directors. The Secretary shall give or cause to be given notice of all meetings of Shareholders and Board of Directors, and all other notices required by the laws of the State of Utah or these Bylaws.

Section 8. Assistant Treasurer and Assistant Secretary: The Assistant Treasurer and Assistant Secretary shall be vested with all the powers and shall perform all the duties of the Treasurer and Secretary respectively, in the absence or disability of the Treasurer and Secretary, as the case may be.

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Section 9. Salary: The salaries of all Officers shall be fixed by the Board of Directors, and the fact that any Officer is a director, shall not preclude that Officer from receiving a salary or voting on the resolution providing for the same.

ARTICLE V

STOCK

Section 1.Evidence of Stock Ownership: Each shareholder shall be entitled, at the shareholder’s election, to hold the stock of the Corporation as an uncertificated security, or in the form of a paper stock certificate. Any paper stock certificate issued by the Corporation shall be signed by the President and the Secretary, or by such other officers as are authorized by these By-Laws or by the Board of Directors. When any paper stock certificate is signed by a transfer agent or registrar, the signature of any such corporate officer and the corporate seal upon certification may be facsimiles, engraved or printed.

If a shareholder elects to hold the stock of the Corporation without a certificate, within a reasonable time after the issuance or transfer of the shares without certificates, the Corporation shall send the shareholder a written information statement: identifying the Corporation and that it is a Utah corporation; stating the name of the person in whose name the shares are issued; stating the number and class of shares issued, and the designation of the series, if any; if the shares being issued have any special designations, preferences, limitations, and rights other than those normally applicable to common stock, a notice to that effect with a promise to furnish the shareholder this information on written request and without charge; and stating any applicable restrictions on transfer or on registration of transfer.

Section 2.Transfer of Shares: Transfer of shares of stock shall be made on the books of the corporation only by the holder in person or by written power of attorney duly executed and witnessed and upon surrender of the certificate or certificates of such shares.

Section 3.Transfer Agent and Registrar: The Board of Directors may appoint either a transfer agent or registrar, or both of them.

Section 4.Stock Transfer Books: The Stock Transfer Books of the Corporation may not be closed at any time for any purpose.

Section 5.Lost or Destroyed Certificates: In case of loss or destruction of a certificate of stock of this Corporation, another certificate may be issued in its place upon proof of such loss or destruction and the giving of a bond of indemnity or other security satisfactory to the Board of Directors.

In the case of shares bearing a restrictive legend, no bond of indemnity is necessary, however an affidavit stating the shares were lost shall be required, as well as the payment of all transfer and special fees by the party responsible for the loss. The Company shall then order the replacement of the certificates as well as the cancellation of the reported lost certificate(s).

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ARTICLE VI

REPEAL OR AMENDMENT OF BY-LAWS

Section 1.By the Shareholders: The power to make, amend or repeal By-Laws shall be in the Shareholders, and the By-Laws may be repealed or amended or new By-Laws may be adopted at any annual Shareholders' meeting, or at any special meeting of the Shareholders called for that purpose, by a vote representing a majority of the allotted shares, or by the written consent duly acknowledged in the same manner as conveyances of real estate required by law to be acknowledged of the holders of a majority of the allotted shares, which written consent may be in one or more instruments.

Section 2.By the Directors: Subject to the power of the Shareholders to make, amend or repeal any By-Laws made by the Board of Directors, a majority of the whole Board of Directors at any meeting thereof shall have the power to adopt, repeal, and amend these By-Laws and to adopt additional By-Laws.

ARTICLE VII

INDEMNIFICATION OF OFFICERS AND DIRECTORS

The corporation shall indemnify any person, to the fullest extent permitted by Utah law, against all judgments, payments in settlement, fines and other reasonable costs and expenses (including attorneys fees) incurred by that person in connection with the defense of any action, suit or proceeding, which is brought or threatened to be brought, in which that person is a part or is otherwise involved because that person was or is a director or officer of the corporation or any affiliate of the corporation. This right of indemnification shall include the right to receive an advance for the payment of defense expenses to the extent permitted by Utah law. This right of indemnification shall continue as to a person who ceases to be a director or officer of the corporation, and shall inure to the benefit of that person’s estate.

The foregoing Amended and Restated By-Laws include amendments adopted by the Board of Directors of the corporation through the 23^rd day of February, 2007. I, the undersigned, the Secretary of the above named corporation, certify that the foregoing is a true and exact copy of such adopted By-Laws of the Corporation.

By:	/s/ Dean A. Swift
	Dean A. Swift
	Secretary

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