Some of the statements contained in this Form 10-Q that are not historical facts are "forward-looking statements" which can be identified by the use of terminology such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Form 10-Q, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:

• our ability to attract and retain management;

• our growth strategies;

• anticipated trends in our business;

• our future results of operations;

• our ability to make or integrate acquisitions;

• our liquidity and ability to finance our exploration, acquisition and development activities;

• our ability to successfully and economically explore for and develop or participate in the exploration and development of oil and natural gas resources;

• market conditions in the oil and gas industry;

• the timing, cost and procedure for proposed acquisitions;

• the impact of government regulation;

• estimates regarding future net revenues from oil and natural gas reserves and the present value thereof;

• planned capital expenditures (including the amount and nature thereof);

• increases in oil and natural gas production;

• the number of wells we anticipate drilling, or participating in the drilling of, in the future;

• estimates, plans and projections relating to acquired properties;

• the number of potential drilling locations;

• our financial position, business strategy and other plans and objectives for future operations;

• the possibility that our acquisitions may involve unexpected costs;

• the volatility in commodity prices for oil and natural gas;

• the accuracy of internally estimated proved reserves;

• the presence or recoverability of estimated oil and natural gas reserves;

• the ability to replace oil and natural gas reserves;

• the availability and costs of drilling rigs and other oilfield services;

• environmental risks;

• exploration and development risks;

• competition;

• the inability to realize expected value from acquisitions;

• the ability of our management team to execute its plans to meet its goals;

• general economic conditions, whether internationally, nationally or in the regional and local market areas in which we are doing business, that may be less favorable than expected, including the possibility that the current economic recession in the United States will be severe and prolonged, which could adversely affect the demand for oil and natural gas and make it difficult, if not impossible, to access financial markets; and

• other economic, competitive, governmental, legislative, regulatory, geopolitical and technological factors that may negatively impact our businesses, operations and pricing.

All written and oral forward-looking statements made in connection with this Form 10-Q that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.

Overview

Organization

We are an independent oil and natural gas company engaged in the acquisition, exploration, development, production and sale of oil and natural gas properties in North America. We have interests in properties in Kansas, Louisiana and Texas.

Index Oil and Gas Inc. ("Index", Index Inc.", "the Company" or "we", "us", or "our") was incorporated in March 2004 under the laws of the State of Nevada and is the parent company with four group subsidiaries: Index Oil & Gas Limited ("Index Ltd"), a United Kingdom holding company, which provides management services to the Company and its United States operating subsidiaries; Index Oil & Gas (USA) LLC ("Index USA"), an operating company; Index Investments North America Inc. ("Index Investments"); and Index Offshore LLC ("Index Offshore"), a wholly owned subsidiary of Index Investments and also an operating company. Index Inc., through its subsidiaries, is engaged in exploration, appraisal, development, production and sale of oil and natural gas. The Company does not currently operate any of its properties and sells its oil and natural gas production to domestic purchasers.

Overview

All references to production quantities are for the Company's net share to its interest in properties, unless stated otherwise.

Production rose approximately 133% from 24.0 MMcfe for the three months ended December 31, 2007 to 55.8 MMcfe for the three months ended December 31, 2008. Correspondingly, revenues increased approximately 138% from $185,314 for the three months ended December 31, 2007 to $440,905 for the three months ended December 31, 2008. The average price for natural gas rose from $7.10 per Mcf to $7.46 per Mcf or 5%. The average price for oil fell 2% from $60.67 per Bbl to $59.57 per Bbl. Overall, the average price per Mcfe rose 2% from $7.73 per Mcfe to $7.90 per Mcfe.

In the three months to December 31, 2008 the Company recorded a full cost ceiling test impairment write down to its oil and gas properties of approximately $3.6 million, due to a downward adjustment to oil and gas reserves and lower oil and gas market prices at the end of the period. The impact of this impairment charge is that our net loss for the three months to December 31, 2008 is substantially higher than any prior equivalent period, including the immediately preceding quarter where a $2.6 million ceiling test impairment charge was taken. In addition the carrying amounts in our balance sheet at December 31, 2008 of oil and natural gas properties, total assets and total stockholders equity are all significantly reduced as a result of this $3.6 million charge.

Our financial results depend upon many factors, particularly the price of oil and gas and our ability to market our production. Commodity prices are affected by changes in market demands, which are impacted by overall economic activity, weather, pipeline capacity constraints, inventory storage levels, basis differentials and other factors. As a result, we cannot accurately predict future oil and gas prices, and therefore, we cannot determine what effect increases or decreases will have on our capital program, production volumes and future revenues. In addition to production volumes and commodity prices, finding and developing sufficient amounts of oil and gas reserves at economical costs are critical to our long-term success.

Like all oil and natural gas exploration and production companies, we face the challenge of natural production declines. As initial reservoir pressures are depleted, oil and natural gas production from a given well naturally decreases. Thus, an oil and natural gas exploration and production company depletes part of its asset base with each unit of oil or natural gas it produces. We attempt to overcome this natural decline by drilling and acquiring more reserves than we produce. Our future growth will depend on our ability to continue to add reserves in excess of production. We will maintain our focus on costs to add reserves through drilling and acquisitions as well as the costs necessary to produce our reserves. Our ability to add reserves through drilling is dependent on our capital resources and can be limited by many factors, including the ability to timely obtain drilling permits and regulatory approvals.

Three Months Ended December 31, 2008 Compared to Three Months Ended December 31, 2007

We had a net loss of $4.4 million for the three months ended December 31, 2008 compared to a net loss of $0.5 million for the three months ended December 31, 2007. The increase in the net loss was primarily due to our ceiling test limitation write-down of approximately $3.6 million, due to the reduction in estimated reserves and oil and natural gas prices, discussed further below. Revenue increased by $0.3 million, but was offset by general and administrative costs of $0.5 million, increased depletion of $0.4 million to $0.5 million, and lower interest income on capital previously raised and used in our operations. The following table summarizes key items of revenue and their related increase (decrease) for the fiscal three months ended December 31, 2008 and 2007.

                                                 Three Months Ended
                                                    December 31,
                                                                    % Change
                                                                    Increase/
                                        2008          2007         (Decrease)
         Total revenues              $ 440,905     $ 185,314               138 %

         Production:
         Gas (MMcf)                     45.774        18.907               142 %
         Oil (MBbls)                     1.669         0.843                98 %
         Total Equivalents (MBoe)        9.298         3.994               133 %
         Total Equivalents (MMcfe)      55.788        23.965               133 %

         $ per unit:
         Avg. Gas Price per Mcf      $    7.46     $    7.10                 5 %
         Avg. Oil Price per Bbl      $   59.57     $   60.67                (2 %)
         Avg. Price per Boe          $   47.42     $   46.40                 2 %
         Avg. Price per Mcfe         $    7.90     $    7.73                 2 %

For the three months ended December 31, 2008, oil and natural gas sales increased $0.3 million, from the same period in 2007, to $0.4 million. The increase for the quarter was primarily due to the increase in production volumes of 31.8 MMcfe from 24.0 MMcfe to 55.8 MMcfe or approximately $0.3 million of the $0.3 million increase. The increase in volumes of 31.8 MMcfe was primarily due to new volumes from Outlar of 18.3 MMcfe, Ducroz of 7.7 MMcfe, Hawkins of 7.6 MMcfe, the three Cason wells of 2.8 MMcfe and Cochran of 1.7 MMcfe. This increased production was offset by decreases in production from Schroeder of 4.8 MMcfe, Kansas wells of 0.1 MMcfe, Vieman of 0.1 MMcfe, Friedrich of 0.7 MMcfe and Shadyside of 4.8 MMcfe. Total oil production was 1.7 MBbls and total natural gas production was 45.8 MMcf.

Additionally, our revenues increased due to year on year price changes, with our average price per Mcfe increasing by $0.17, or 2%, to $7.90 per Mcfe in fiscal 2008 from $7.73 per Mcfe in fiscal 2007. Our revenues also reflected an increased proportion of natural gas volumes, which had a lower energy equivalent value. Weighted average gas volumes increased in price by $0.36 per Mcf and weighted average oil volumes decreased in price per barrel by $1.10. We benefited from increased product prices in the quarter ended December 31, 2008, both for oil and natural gas. However, our production and sales mix has switched to become predominantly natural gas comprised and the year on year price increase on a Boe basis is less significant than the absolute price changes for each product, due to natural gas realizing a lower energy equivalent price compared to crude oil.

                                                         Three Months Ended
                                                            December 31,
                                                                             % Change
                                                                            Increase/
                                                2008           2007         (Decrease)

  Lease operating expense                    $   164,924     $  46,799              252 %
  Production taxes                                34,648        12,575              176 %
  Depreciation, depletion and amortization       463,541       108,036              329 %
  Ceiling test impairment expense              3,622,541             -                -
  General and administrative costs:
    General and administrative costs             488,070       518,243               (6 %)
    Stock-based compensation                      27,738        63,425              (56 %)

  $ per unit:
  Avg. lease operating expense per Mcfe      $      2.96     $    1.95               51 %
  Avg. production taxes per Mcfe             $      0.62     $    0.52               18 %
  Avg. DD&A per Mcfe                         $      8.31     $    4.51               84 %
  Avg. ceiling test impairment expense       $     64.93     $       -                -
  Avg. G&A per Mcfe:
    Avg. G&A per Mcfe                        $      8.75     $   21.62              (60 %)
    Avg. Stock-based compensation per Mcfe   $      0.50     $    2.65              (81 %)

Lease operating expenses increased $0.1 million for the three months ended December 31, 2008 as compared to the same period in 2007. The increase was primarily due to production from new wells that came on production after the first quarter of 2007, principally the three Cason wells, Ducroz, Shadyside, Hawkins, and Outlar 1. On a per unit basis, lease operating expenses increased 51% from $1.95 per Mcfe in 2007 to $2.96 per Mcfe in 2007 due to an increase in production volumes.

Taxes other than income increased $22,000 for the three months ended December 31, 2008 as compared to the same period in 2007 due to higher oil and gas revenues, on a per unit basis increased $0.10 per Mcfe to $0.62 per Mcfe. Production taxes are generally assessed as a percentage of gross oil and/or natural gas sales.

General and administrative expense, excluding stock-based compensation, for the three months ended December 31, 2008 was relatively flat at $0.5 million compared to the same period in 2007, although on a per unit basis, decreased $12.88 per Mcfe to $8.75 per Mcfe.

Stock-based compensation expense decreased for the three months ended December 31, 2008 to approximately $28,000 compared to approximately $63,000 for stock-based compensation in the same period of 2007. This is primarily due to the timing of vesting on larger stock-based awards granted in previous years to officers and directors, including those at the effective date of the reverse merger with Index Ltd, offset by a smaller awards of stock to officers and consultants in fiscal year 2007 and 2008. During the three months ended December 31, 2008 and 2007, the Company did not grant any stock options or warrants. During the three months to December 31, 2008 the Company operated an ongoing agreement with a consulting firm under which a stock award was made subsequent to the end of period. On a per unit basis, stock-based compensation decreased $2.15 per Mcfe to $0.50 per Mcfe.

Depletion, depreciation and amortization ("DD&A") expense increased $0.4 million from the same period in 2007 to $0.5 million for the three months ended December 31, 2008. The increase is primarily due to increased production from new wells that came on production after the first quarter of 2007, principally the three Cason wells, Ducroz, Shadyside, Hawkins, and Outlar 1, and an increase in the unit depletion cost rate. Depletion for oil and gas properties is calculated using the unit of production method, which essentially depletes the capitalized costs associated with the proved properties based on the ratio of production volume for the current period to total remaining reserve volume for the evaluated properties. On a per unit basis, DD&A expense increased from $4.51 per Mcfe to $8.31 per Mcfe.

Ceiling test impairment expense was recorded in the three months ended December 31, 2008 in the amount of $3.6 million. Quarterly, the Company assesses the value of unamortized capitalized costs within its cost center over the discounted present value of cash flows associated with its reserves. Any excess requires an immediate write-down of its capital costs by this amount. During the three months ended December 31, 2008, the excess of unamortized capitalized costs over the related cost ceiling limitation was $3.6 million due primarily to a full write-down of remaining reserves on Shadyside of approximately 354.9 MMcfe and the effect of this write-down on the present value ceiling in the ceiling test computation. Reserve reductions were partially offset by additions related to the Cochran well. In addition, adjustments to the projected average prices for the purposes of the ceiling test for our oil and natural gas reserves lead to a reduction from $11.93/Mcfe at March 31, 2008 to $5.91/Mcfe at December 31, 2008. The impact of this impairment charge is that our net loss for the three months to December 31, 2008 is substantially higher than any prior equivalent period. In addition the carrying amounts in our balance sheet at December 31, 2008 of oil and natural gas properties, total assets and total stockholders equity are all significantly reduced as a result of this $3.6 million charge.

Interest income and other decreased $30,000 for the three months ended December 31, 2008 compared to the same period 2007. This decrease relates to interest income earned on equity fund raising in prior fiscal years.

There was no provision for income taxes for the fiscal three months ended 2008 and 2007 due to a 100% valuation allowance recorded for the three months ended December 31, 2008 and 2007, respectively on the total tax provision as the Company believed that it is more likely than not that the asset will not be utilized during the next year.

Nine Months Ended December 31, 2008 Compared to Nine Months Ended December 31, 2007

We had a net loss of $8.1 million for the nine months ended December 31, 2008 compared to a net loss of $1.4 million for the nine months ended December 31, 2007. The increase in the net loss was primarily due to our ceiling test limitation write-down of approximately $6.2 million, due to the reduction in estimated reserves and oil and natural gas prices. Revenue increased by $2.1 million during 2008, but was offset by operating costs of $0.5 million, which increased $0.4 million due to increased production, general and administrative costs of $2.1 million, which increased by $0.4 million, increased depletion of $1.6 million to $1.8 million, the ceiling test impairment expense of $6.2 million, and lower interest income on capital previously raised and used in our operations. The following table summarizes key items of revenue and their related increase (decrease) for the fiscal six months ended December 31, 2008 and 2007.

                                                  Nine Months Ended
                                                     December 31,
                                                                      % Change
                                                                     Increase/
                                         2008           2007         (Decrease)

          Total revenues              $ 2,567,752     $ 474,263              441 %

          Production:
          Gas (MMcf)                      189.126        40.035              372 %
          Oil (MBbls)                       6.496         3.150              106 %
          Total Equivalents (MBoe)         38.017         9.822              287 %
          Total Equivalents (MMcfe)       228.102        58.935              287 %

          $ per unit:
          Avg. Gas Price per Mcf      $      9.98     $    6.58               52 %
          Avg. Oil Price per Bbl      $    104.63     $   66.96               56 %
          Avg. Price per Boe          $     67.54     $   48.29               40 %
          Avg. Price per Mcfe         $     11.26     $    8.05               40 %

For the nine months ended December 31, 2008, oil and natural gas sales increased $2.1 million, from the same period in 2007, to $2.6 million. The increase for the nine months was primarily due to the increase in production volumes of 169.2 MMcfe from 58.9 MMcfe to 228.1 MMcfe, or approximately $1.9 million of the $2.1 million increase. The increase in volumes of 169.2 MMcfe was primarily due to new volumes from Outlar of 69.8 MMcfe, Ducroz of 31.1 MMcfe, Shadyside of 46.8 MMcfe, Friedrich of 3.4 Mmcfe and our Kansas wells which increased, in total, by
1.0 MMcfe, offset by Walker which decreased 9.8 MMcfe and Schroeder which decreased by 6.1 MMcfe. The Cason wells also contributed 11.9 MMcfe along with Hawkins which contributed 20.1 MMcfe. Total oil production was 6.5 MBbls and total natural gas production was 189.1 MMcf.

Additionally, our revenues increased due to year on year price changes, with an increase in our average price per MMcfe of $3.21, or 49.0%, to $11.26 per Mcfe in fiscal 2008 from $8.05 per Mcfe in fiscal 2007. Our revenues also reflected an increased proportion of natural gas volumes, which had a lower energy equivalent value. Our weighted average gas volumes increased in price by $3.40 per Mcf and weighted average oil volumes increased in price by $37.73 per barrel. We benefited from increased product prices in the nine months ended December 31, 2008, both for oil and natural gas. However, our production and sales mix has switched to become predominantly natural gas comprised, and the year on year price increase on a Boe basis is less significant than the absolute price changes for each product, due to natural gas realizing a lower energy equivalent price compared to crude oil.

                                                         Nine Months Ended
                                                           December 31,
                                                                             % Change
                                                                             Increase/
                                               2008            2007         (Decrease)

 Lease operating expense                    $   467,543     $   106,293             409 %
 Production taxes                               162,743          35,503             459 %
 Depreciation, depletion and amortization     1,820,317         255,997            2566 %
 Ceiling test impairment expense              6,209,815               -               -
 General and administrative costs:
   General and administrative costs           1,925,539       1,559,226              44 %
   Stock-based compensation                     134,354         141,739              (5 %)

 $ per unit:
 Avg. lease operating expense per Mcfe      $      2.05     $      1.80               4 %
 Avg. production taxes per Mcfe             $      0.71     $      0.60              12 %
 Avg. DD&A per Mcfe                         $      7.98     $      4.34             441 %
 Avg. ceiling test impairment expense       $     27.22     $         -               -
 Avg. G&A per Mcfe
   Avg. G&A per Mcfe                        $      8.44     $     26.46             (71 %)
   Avg. Stock-based compensation per Mcfe   $      0.59     $      2.41             (81 %)

Lease operating expenses increased $0.4 million for the nine months ended December 31, 2008 as compared to the same period in 2007. The increase was primarily due to new volumes from our three Cason wells, Outlar, Ducroz, Hawkins, Shadyside, Friedrich and our Kansas wells. On a per unit basis, lease operating expenses increased from $1.80 per Mcfe in 2007 to $2.05 per Mcfe in 2008, due to the increase in production volumes.

Taxes other than income increased $0.1 million for the nine months ended December 31, 2008 as compared to the same period in 2007 due to higher oil and gas revenues and on a per unit basis increased $0.11 per Mcfe to $0.71 per Mcfe. Production taxes are generally assessed as a percentage of gross oil and/or natural gas sales.

General and administrative expense, excluding stock-based compensation, for the nine months ended December 31, 2008 increased 44% or $0.4 million to $1.9 million compared to the same period in 2007, although on a per unit basis, decreased $18.02 per Mcfe to $8.44 per Mcfe. The primary reason for the increase was legal and professional fees incurred for SEC filings and other professional and legal consultation as the Company pursues growth strategies.

Stock-based compensation expense was flat or approximately $0.1 million for the nine months ended December 31, 2008, compared to approximately $0.1 million for stock-based compensation in the same period of 2007. This is primarily due to the timing of vesting on larger stock-based awards granted in previous years to officers and directors, including those at the effective date of the reverse merger with Index Ltd., offset by a smaller awards of stock to officers and consultants in fiscal year 2007 and 2008. During the nine months ended December 31, 2008 and 2007, the Company did not grant any stock options or warrants. On a per unit basis, stock-based compensation decreased $1.82 per Mcfe to $0.59 per Mcfe.

Depletion, depreciation and amortization ("DD&A") expense increased $1.6 million from the same period in 2007 to $1.8 million for the nine months ended December 31, 2008. The increase is primarily due to increased production from new wells that came on production after the first quarter of 2007, principally the three Cason wells, Ducroz, Shadyside, Hawkins, and Outlar 1. Depletion for oil and gas properties is calculated using the unit of production method, which essentially depletes the capitalized costs associated with the proved properties based on the ratio of production volume for the current period to total remaining reserve volume for the evaluated properties. On a per unit basis, DD&A expense increased from $4.34 per Mcfe to $7.98 per Mcfe.

As discussed above, a ceiling test impairment expense was recorded in the nine months ended December 31, 2008 in the amount of $6.2 million. Quarterly, the Company assesses the value of unamortized capitalized costs within its cost center over the discounted present value of cash flows associated with its reserves. Any excess requires an immediate write-down of its capital costs by this amount.

Interest income and other decreased $0.2 million for the nine months ended December 31, 2008 compared to the same period 2007. This decrease is due to interest income earned on an equity fund raising in prior fiscal years.

There was no provision for income taxes for the fiscal six months ended 2008 and 2007 due to a 100% valuation allowance recorded for the nine months ended December 31, 2008 and 2007, respectively on the total tax provision as the Company believed that it is more likely than not that the asset will not be utilized during the next year.

. . .