UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~October~~January 31, ~~2011~~2012

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: 001-32994

OILSANDS QUEST INC.

(Exact name of issuer as specified in its charter)

Colorado		98-0461154
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

800, 1333 - 8th Street SW, Calgary, Alberta, Canada T2R 1M6

(Address of principal executive offices)

(403) 263-1623

(Issuer's telephone number)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer: £	Accelerated filer: T	Non-accelerated filer: £	Smaller reporting company: £
		(Do not check if smaller reporting company)

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

As of ~~December~~March 7, ~~2011~~2012 there were 348,698,837 shares of common stock issued and outstanding.

OILSANDS QUEST INC.

FORM 10Q FOR THE QUARTER ENDED

~~October~~January 31, ~~2011~~2012

Part I. Financial Information
Forward-Looking Statements
Item 1.	Financial Statements
	Unaudited Consolidated Balance Sheets as of October 31, 2011 and April 30, 2011	3
	Unaudited Consolidated Statements of Operations for the Three and Six Months Ended October 31, 2011 and 2010 and for the Period from Inception on April 3, 1998 to October 31, 2011	4
	Unaudited Consolidated Statements of Stockholders’ Equity for the Six Months Ended October 31, 2011 and 2010, for the Years Ended April 30, 2011 and 2010, and for the Period from Inception on April 3, 1998 to April 30, 2009	5
	Unaudited Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended October 31, 2011 and 2010 and for the Period from Inception on April 3, 1998 to October 31, 2011	9
	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended October 31, 2011 and 2010 and for the Period from Inception on April 3, 1998 to October 31, 2011	10
	Unaudited Notes to Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
Part II Other Information		22
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	(Removed and Reserved)	27
Item 5.	Other Information	27
Item 6.	Exhibits	27
	Signatures	27

Table of Contents

Part I. Financial Information
Forward-Looking Statements
Item 1.	Financial Statements
	Unaudited Consolidated Balance Sheets as of January 31, 2012 and April 30, 2011	4
	Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended January 31, 2012 and 2011 and for the Period from Inception on April 3, 1998 to January 31, 2012	4
	Unaudited Consolidated Statements of Stockholders’ Equity for the Nine Months Ended January 31, 2012 and 2011, for the Years Ended April 30, 2011 and 2010, and for the Period from Inception on April 3, 1998 to April 30, 2009	6
	Unaudited Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended January 31, 2012 and 2011 and for the Period from Inception on April 3, 1998 to January 31, 2012	10
	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended January 31, 2012 and 2011 and for the Period from Inception on April 3, 1998 to January 31, 2012	11
	Unaudited Notes to Consolidated Financial Statements	12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.	Controls and Procedures	34

Part II Other Information		35

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3.	Defaults Upon Senior Securities	44

Item 4.	(Removed and Reserved)	44

Item 5.	Other Information	44

Item 6.	Exhibits	45
	Signatures	45

Cautionary Statement about Forward-Looking Statements

The following includes certain statements that may be deemed to be "forward-looking statements." All statements, other than statements of historical facts, included in this Form 10-Q that address activities, events or developments that our management expects, believes or anticipates will or may occur in the future are forward-looking statements. Such forward-looking statements include discussion of such matters as:

·● our ability to maintain protection under the Companies’ Creditors Arrangement Act (Canada) (“CCAA”);

·● ~~risks~~our ~~and~~ability ~~uncertainties~~to ~~associated~~successfully ~~with~~complete ~~limitations on actions against~~ the ~~Company~~Solicitation ~~and~~Process ~~certain~~while ~~subsidiaries~~in ~~during~~CCAA ~~creditor protection~~ proceedings;

·● ~~risks~~our ~~and~~ability ~~uncertainties~~to ~~associated~~submit ~~with~~a ~~potential~~timely ~~delisting~~plan ofto ~~the~~our ~~Company’s~~stakeholders ~~common~~and ~~shares~~the ~~from~~court under the ~~NYSE~~CCAA ~~Amex~~and ~~(the~~to ~~"NYSE")~~resolve our operational, legal and financial difficulties;

·● ~~our~~risks ~~ability~~and touncertainties ~~maintain~~associated ~~sufficient~~with ~~cash~~limitations toon ~~accomplish~~actions ~~our~~against ~~business~~the ~~objectives,~~Company ~~including~~and ~~our~~certain ~~ability~~subsidiaries toduring ~~continue~~creditor asprotection ~~a going concern~~proceedings;

·● ~~the~~risks ~~amount~~ and ~~nature~~uncertainties associated with potential delisting of ~~future~~the ~~capital,~~Company’s ~~exploration~~common ~~and~~shares ~~development~~from ~~expenditures~~the NYSE Amex LLC (the "NYSE");

·● ~~the~~our ~~extent~~ability ~~and~~to ~~timing~~maintain ofsufficient ~~exploration~~cash ~~and~~to ~~development~~accomplish ~~activities~~our business objectives, including our ability to continue as a going concern;

·● ~~business~~the ~~strategies~~amount and ~~development~~nature of ~~our~~future ~~business~~capital, ~~plan~~exploration and ~~exploration~~development ~~programs~~expenditures;

·● ~~potential~~the ~~relinquishment~~extent ofand ~~certain~~timing of ~~our~~exploration ~~oil sands permits~~ and ~~licenses~~development activities;

·● ~~anticipated~~business ~~cost~~strategies ~~of our asset retirement obligations, including the extent~~ and ~~timing~~development of our ~~core~~business ~~hole~~plan ~~re-abandonment~~and ~~program;~~exploration ~~and~~programs;

·● ~~our~~potential ~~ability~~relinquishment toof ~~secure~~certain ~~additional~~of ~~funds~~our ~~through~~oil ~~the~~sands ~~sale~~permits ofand ~~assets or equity.~~licenses;

●	anticipated cost of our asset retirement obligations, including the extent and timing of our core hole re-abandonment program; and

●	our ability to secure additional funds through the sale of assets or issuance of equity.

Forward-looking statements also typically include words such as "anticipate", "estimate", "expect", "potential", "could" or similar words suggesting future outcomes. Readers are cautioned that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those expressed or implied in the forward-looking statements.

The Company is under no duty to update any of these forward-looking statements after the date of this report. You should not place undue reliance on these forward-looking statements.

It is presumed that readers have read or have access to our 2011 Annual Report filed on Form 10-K/A which includes disclosures regarding critical accounting policies as part of Management’s Discussion and Analysis of Financial Condition and Results of Operations. All future payments in Canadian dollars have been converted to United States dollars using an exchange rate of $1.00 U.S. = $01.~~9935~~0052 CDN, which was the ~~October~~January 31, ~~2011~~2012 exchange rate. Unless otherwise stated, all dollar amounts are expressed in U.S. dollars.

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Balance Sheets

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

(in thousands, except share data)

	October 31, 2011			April 30, 2011
	January 31, 2012			April 30, 2011
ASSETS
Current Assets:
Cash and cash equivalents	$	41,~~532~~789		$	15,984
Restricted cash (note 4)		2,~~749~~279			1,862
Accounts receivable		~~494~~1,364			921
Prepaid expenses		~~1,331~~439			630
Total Current Assets		95,~~106~~871			19,397
Property and Equipment (notes 6 and 7)		137,241			153,795
Property and Equipment (notes 5 and 6)		145,546			153,795
Assets held for sale (note 5)		10,285			-
Total Assets	$	151,417		$	173,192
Total Assets	$	156,632		$	173,192
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	~~1,315~~370		$	561
Accrued liabilities		31,~~189~~659		5,696
Current portion of asset retirement obligation (note 8)		~~7,405~~479		7,297
Total Current Liabilities		112,~~909~~508		13,554
Obligation under sublease contract		1,~~122~~064		550
Asset Retirement Obligation (note 8)		204,~~101~~455		19,585
Liabilities related to assets held for sale (note 5)		233		-
Liabilities subject to compromise (note 7)		25,775		-
Stockholders’ Equity:
Capital Stock
Preferred Stock, par value of $0.001 each, 10,000,000 shares authorized, 1 Series B Preferred share outstanding, 2,500 Series C preferred shares outstanding (notes 10 and 11)		-		-
Preferred Stock, par value of $0.001 each, 10,000,000 shares authorized, 1 Series B Preferred share outstanding (notes 10 and 11)		-		-
Common Stock, par value of $0.001 each, 750,000,000 shares authorized, 348,698,837 and 348,495,556 shares outstanding at October 31, 2011 and April 30, 2011 respectively (note 11)		348		348
Common Stock, par value of $0.001 each, 750,000,000 shares authorized, 348,698,837 and 348,495,556 shares outstanding at January 31, 2012 and April 30, 2011 respectively (note 11)		348		348
Additional Paid-in Capital		789,~~806~~866		789,738
Deficit Accumulated During Development Stage		(~~721~~725,~~738)~~975	)	(711,435)		)
Accumulated Other Comprehensive Income		5453,~~851~~376		60,852
Total Stockholders’ Equity		~~123~~117,~~267~~615		139,503
Total Liabilities and Stockholders’ Equity	$	~~156~~151,~~632~~417		$	173,192

Companies' Creditor Arrangement Act (Canada) proceedings and going concern (note 1)

Contingencies and commitments (note 1314)

Subsequent events (notes 1, 5, ~~11 and~~6, 14 and 15)

See Notes to Consolidated Financial Statements

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Statements of Operations

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

(in thousands, except share data and per share amounts)

	Three Months Ended October 31,						Six Months Ended October 31,						From Inception on April 3, 1998 through to October 31,
	Three Months Ended January 31,						Nine Months Ended January 31,						From Inception on April 3, 1998 through to January 31,
	2011			2010			2011			2010			2011
	2012			2011			2012			2011			2012
Expenses
Exploration	$	~~143~~169		$	12,~~738~~808		$	~~678~~847		$	1316,~~416~~225		$	279,~~003~~172
General and administrative
Corporate		32,~~058~~703			53,~~339~~668			79,~~153~~856			912,~~133~~800			8385,~~242~~945
Stock-based compensation (notes 9 and 12)		9360			~~(1)~~50			68128			~~967~~1,017			148,~~187~~247
Foreign exchange (gain) loss		(~~161)~~133	)		(~~81)~~59	)		(~~259)~~392	)		~~203~~144			(~~447)~~580	)
Depreciation and accretion		1,~~302~~177			1,~~117~~069			23,~~650~~827			23,~~221~~290			1213,~~725~~902
Impairment of property and equipment (note 7)		40			218			40			2,243			346,703
Impairment of property and equipment (note 6)		-			5,086			40			7,329			346,703
Total Expenses		43,~~475~~976			812,~~330~~622			1014,~~330~~306			2840,~~183~~805			~~869~~873,~~413~~389
Other Items
Interest income		(~~12)~~10	)		(~~30)~~68	)		(~~27)~~37	)		(~~44)~~112	)		(6,~~595)~~605	)
Loss before deferred income tax		4,463			8,300			10,303			28,139			862,818
Loss before reorganization expenses and deferred income tax		3,966			12,554			14,269			40,693			866,784
Deferred income tax expense (benefit)		-			834			-			(3,024)			(133,386)
Reorganization expenses (note 13)		271			-			271			-			271
Net loss		4,463			9,134			10,303			25,115			729,432
Loss before deferred income taxes		4,237			12,554			14,540			40,693			867,055
Net loss attributable to non-controlling interest		-			-			-			-			(7,694)
Deferred income tax benefit		-			(1,892	)		-			(4,916	)		(133,386	)
Net loss attributable to common stockholders	$	4,463		$	9,134		$	10,303		$	25,115		$	721,738
Net loss		4,237			10,662			14,540			35,777			733,669
Net loss attributable to common stockholders per share - Basic and Diluted	$	0.01		$	0.03		$	0.03		$	0.08
Net loss attributable to non-controlling interest		-			-			-			-			(7,694	)
Weighted average number of common stock outstanding		367,624,792			334,167,607			367,624,792			332,898,049
Net loss attributable to common stockholders	$	4,237		$	10,662		$	14,540		$	35,777		$	725,975
Net loss attributable to common stockholders per share - Basic and Diluted	$	0.01		$	0.03		$	0.04		$	0.10
Weighted average number of common stock outstanding		367,624,793			360,595,841			367,624,793			342,130,646

See Notes to Consolidated Financial Statements

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

(in thousands, except shares)

									Additional Paid in Capital		Accumulated Other Comprehensive Income (Loss)			Deficit Accumulated During the Development Stage		Total Stockholders’ Equity
									Additional		Accumulated Other Comprehensive			Deficit Accumulated During the		Total
	Common Stock				Preferred Stock
	~~Shares~~	Shares	~~Par Value~~	Par Value	~~Shares~~	Shares	~~Par Value~~	Par Value		Paid in Capital	Income (Loss)			Development Stage		Stockholders’ Equity
Balance, April 30, 2011		348,495,556	$	348		1	$	-	$	789,738	$	60,852		$	(711,435)	$	139,503
Common stock issued for :
Exchange of OQI Sask Exchangeable shares		203,281		-		-		-		-		-			-		-
Stock-based compensation cost		-		-		-		-		68128		-			-		68128
Other comprehensive income
Other comprehensive loss:
Foreign exchange loss on translation		-		-		-		-		-		(67,~~001)~~476	)		-		(67,~~001)~~476	)
Net loss		-		-		-		-		-		-			(1014,~~303~~540)		(1014,~~303)~~540	)
Balance October 31, 2011		348,698,837	$	348		1	$	-	$	789,806	$	54,851		$	(721,738)	$	123,267
Balance January 31, 2012		348,698,837	$	348		1	$	-	$	789,866	$	53,376		$	(725,975)	$	117,615

									Additional Paid in Capital			Accumulated Other Comprehensive Income (Loss)		Deficit Accumulated During the Development Stage			Total Stockholders’ Equity
	Common Stock				Preferred Stock				Additional			Accumulated Other		Deficit Accumulated During			Total
	Common Stock				Preferred Stock
		Shares		Par Value		Shares		Par Value	Paid in Capital			Comprehensive Income		Development Stage			Stockholders’ Equity
	Shares		Par Value		Shares		Par Value
Balance, April 30, 2010		292,491,188	$	292		1	$	-	$	758,007		$	35,612	$	(395,196	)	$	398,715
Balance, April 30, 2010		292,491,188	$	292		1	$	-	$	758,007		$	35,612	$	(395,196)		$	398,715
Common stock issued for:
Common stock issued for :
Cash		47,996,858		48		-		-		31,294			-		-			31,342
Cash		19,688,058		20		-		-		18,089			-		-			18,109
Stock-based compensation		-		-		-		-		1,017			-		-			1,017
Exchange of OQI Sask Exchangeable shares		2,072,437		2		-		-		(2)			-		-			-
Share issue costs		-		-		-		-		(1,794	)		-		-			(1,794	)
Stock-based compensation cost		-		-		-		-		967			-		-			967
Premium on flow-through shares		-		-		-		-		(2,304	)		-		-			(2,304	)
Share issue costs		-		-		-		-		(167)			-		-			(167)
Exchange of OQI Sask Exchangeable shares		2,687,387		3		-		-		(3	)		-		-			-
Premium on flow-through shares		-		-		-		-		(1,584)			-		-			(1,584)
Proceeds from exercise of OQI Sask options		-		-		-		-		212			-		-			212
Proceeds from exercise of OQI Options		-		-		-		-		212			-		-			212
Other comprehensive income:
Other comprehensive income
Foreign exchange gain on translation		-		-		-		-		-			3,652		-			3,652
Foreign exchange loss on translation		-		-		-		-		-			(2,803)		-			(2,803)
Net loss		-		-		-		-		-			-		(35,777	)		(35,777	)
Net loss		-		-		-		-		-			-		(25,115)			(25,115)
Balance, January 31, 2011		343,175,433	$	343		1	$	-	$	786,429		$	39,264	$	(430,973	)	$	395,063
Balance October 31, 2010		314,251,683	$	314		1	$	-	$	775,522		$	32,809	$	(420,311)		$	388,334

See Notes to Consolidated Financial Statements

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

(in thousands, except shares)

									Additional Paid in			Accumulated Other Comprehensive		Deficit Accumulated During the Development		Total Stockholders’
									Additional			Accumulated Other		Deficit Accumulated During the		Total
	Common Stock				Preferred Stock
	Shares		Par Value		Shares		Par Value		Paid in Capital			Comprehensive Income		Development Stage		Stockholders’ Equity
Balance, April 30, 2010		292,491,188	$	292		1	$	-	$	758,007		$	35,612	$	(395,196)	$	398,715
Common stock issued for:
Cash		53,126,995		53		-		-		34,155			-		-		34,208
Premium on flow-through shares		-		-		-		-		(1,851)	)		-		-		(1,851)	)
Exchange of OQI Sask Exchangeable shares		2,877,373		3		-		-		(3)	)		-		-		-
Stock-based compensation cost		-		-				-		1,292			-		-		1,292
Share issue costs		-		-		-		-		(2,074)	)		-		-		(2,074)	)
Proceeds from exercise of OQI Sask options		-		-		-		-		212			-		-		212
Other comprehensive income
Other comprehensive income:
Foreign exchange gain on translation		-		-		-		-		-			25,240		-		25,240
Net loss		-		-		-		-		-			-		(316,239)		(316,239)	)
Balance April 30, 2011		348,495,556	$	348		1	$	-	$	789,738		$	60,852	$	(711,435)	$	139,503

See Notes to Consolidated Financial Statements

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

(in thousands, except shares)

									Additional Paid in			Accumulated Other Comprehensive			Deficit Accumulated During the Development			Total Stockholders’
	Common Stock				Preferred Stock				Additional			Accumulated Other			Deficit Accumulated During the			Total
	Common Stock				Preferred Stock
	Shares		Par Value		Shares		Par Value		Paid in Capital			Comprehensive Income (Loss)			Development Stage			Stockholders’ Equity
		Shares		Par Value		Shares		Par Value	Capital			Income (Loss)			Stage			Equity
Balance, April 30, 2009		241,559,549	$	242		1	$	-	$	713,591		$	(26,022	)	$	(330,715	)	$	357,096
Balance, April 30, 2009		241,559,549	$	242		1	$	-	$	713,591		$	(26,022)		$	(330,715)		$	357,096
Common stock issued for:
Cash		44,789,313		45		-		-		39,969			-			-			40,014
Stock option exercises		964,769		-		-		-		782			-			-			782
Exchange of OQI Sask Exchangeable shares		5,177,557		5		-		-		(5)	)		-			-			-
Stock-based compensation cost		-		-				-		5,584			-			-			5,584
Share issue costs		-		-		-		-		(2,096)	)		-			-			(2,096)	)
Proceeds from exercise of OQI Sask options		-		-		-		-		182			-			-			182
Other comprehensive income
Other comprehensive income:
Foreign exchange gain on translation		-		-		-		-		-			61,634			-			61,634
Net loss		-		-		-		-		-			-			(64,481)	)		(64,481)	)
Balance April 30, 2010		292,491,188	$	292		1	$	-	$	758,007		$	35,612		$	(395,196)	)	$	398,715

See Notes to Consolidated Financial Statements

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

(in thousands, except shares)

	Common Stock				Preferred Stock				Additional Paid in			Accumulated Other Comprehensive Income			Deficit Accumulated During the Development			Non- Controlling			Total Stockholders '
	Shares		Par Value		Shares		Par Value		Capital			(Loss)			Stage			Interest			Equity
Common stock issued at inception on April 3, 1998 for assets		6,000,000	$	6		-	$	-	$	92		$	-		$	-		$	-		$	98
Common stock issued for:
Subscription		77,500		-		-		-		36			-			-			-			36
Property		18,796,604		18		-		-		12,815			-			-			-			12,833
Cash		114,665,547		116		-		-		340,013			-			-			-			340,129
Cashless exercise of warrants and options		13,184,966		13		-		-		(13)	)		-			-			-			-
Stock based compensation		44,000		-		-		-		116			-			-			-			116
Services		17,973,611		18		-		-		10,836			-			-			-			10,854
Settlement of debt		32,490,383		33		-		-		28,294			-			-			-			28,327
Premium on flow-through shares		-		-		-		-		(8,717)	)		-			-			-			(8,717)	)
Preferred shares issued on reorganization (note 10)		-		-		1		-		223,579			-			-			-			223,579
Stock option exercises		35,000		-		-		-		165			-			-			-			165
Exchange of OQI Sask exchangeable shares		38,291,938		38		-		-		(38)	)		-			-			-			-
Share issue costs		-		-		-		-		(13,082)	)		-			-			-			(13,082)	)
Stock-based compensation cost		-		-		-		-		94,395			-			-			-			94,395
Proceeds from exercise of OQI Sask options and warrants		-		-		-		-		4,177			-			-			-			4,177
Beneficial conversion feature of Convertible debenture and warrants		-		-		-		-		20,923			-			-			-			20,923
Non-controlling interest:
Shares issued to non-controlling interest		-		-		-		-		-			-			-			13			13
Net loss attributable to non-controlling interest		-		-		-		-		-			-			-			(7,694)	)		(7,694)	)
Increase in interest arising from share issuance by OQI Sask																			24,433			24,433
Shares purchased from non-controlling interest																			(16,752)	)		(16,752)	)
Other comprehensive loss
Other comprehensive loss:
Foreign exchange loss on translation		-		-		-		-		-			(26,022)	)		-			-			(26,022)	)
Net loss		-		-		-		-		-			-			(330,715)	)		-			(330,715)	)
Balance April 30, 2009		241,559,549	$	242		1	$	-	$	713,591		$	(26,022)	)	$	(330,715)	)	$	-		$	357,096

See Notes to Consolidated Financial Statements

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Statements of Comprehensive Loss

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

(in thousands)

		Three Months Ended October 31,					Six Months Ended October 31,					From Inception on April 3, 1998 through to October 31,
	Three Months Ended January 31,							Nine Months Ended January31,						From Inception on April 3, 1998 through to January 31,
		2011		2010			2011			2010		2011
	2012			2011				2012			2011			2012
Net loss	$	4,~~463~~237	$	~~9,134~~$	10,662	$	~~10,303~~	$	$14,540	~~25,115~~	$	~~729~~35,~~432~~777		$	733,669
Foreign exchange loss (gain) on translation		51,~~263~~475		~~(4,659)~~	(6,456	)	~~6,001~~		7,476	~~2,803~~		(543,~~851)~~652	)		(53,376	)
Comprehensive loss	$	9,726	$	4,475		$	16,304		$	27,918	$	674,581
Comprehensive Loss		5,712		$	4,206			$	22,016		$	32,125		$	680,293
Comprehensive loss attributable to non-controlling interest		-		-	-		-		-	-		~~(7,694)~~-			(7,694	)
Comprehensive loss attributable to common stockholders	$	95,~~726~~712	$	~~4,475~~$	4,206	$	~~16,304~~	$	$22,016	~~27,918~~	$	~~666~~32,~~887~~125		$	672,599

See Notes to Consolidated Financial Statements

910

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

(in thousands)

	Six Months Ended October 31,						From Inception on April 3, 1998 through to October 31,
	Nine Months Ended January 31,						From Inception on April 3, 1998 through to January 31,
	2011			2010			2011
	2012			2011			2012
Operating Activities
Net loss	$	(1014,~~303)~~540	)	$	(2535,~~115)~~777	)	$	(~~729~~733,~~432)~~669	)
Non-cash adjustments to net loss
Stock-based compensation		68128			~~967~~1,017			148,~~187~~247
Deferred income tax benefit		-			(34,~~024)~~916	)		(133,386)	)
Depreciation and accretion		23,~~650~~827			23,~~221~~290			1213,~~725~~902
Asset retirement obligation expensed		537			8,~~087~~546			25,408
Impairment of property and equipment		40			27,~~243~~329			346,703
Other non-cash items		633			-			2,418
Asset retirement expenditures		-			(4,431)	)		(4,585)	)
Net lease expenditures		(~~71)~~154	)		-			(~~71)~~154	)
Changes in Non-Cash Working Capital
Accounts receivable and prepaid expenses		(~~417)~~343	)		~~876~~403			(1,~~088)~~095	)
Accounts payable and accrued liabilities		(1,~~704~~491	)		31,~~262~~050			89,~~508~~126
Changes in non-cash working capital related to assets held for sale		(3,200)			108			532
Cash Used in Operating Activities		(11,363	)		(23,489	)		(327,085	)
Cash Used in Operating Activities		(8,359)			(14,806)			(324,081)
Investing Activities
Property and equipment expenditures		(1,~~886)~~983	)		(2,~~960)~~832	)		(86,~~096)~~193	)
Proceeds on sale of equipment		8082			-			8082
Restricted cash		(~~974)~~523	)		(~~922)~~937	)		(2,~~836)~~385	)
Other investments		-			-			(548)	)
Cash Used in Investing Activities		(2,~~780)~~424	)		(3,~~882)~~769	)		(89,~~400)~~044	)
Financing Activities
Issuance of shares for cash, net of issue costs		-			1729,~~942~~548			398,396
Shares issued on exercise of subsidiary options and warrants		-			212			4,505
Shares issued by subsidiary to non-controlling interest		-			-			7,664
Convertible debentures		-			-			8,384
Cash Provided by Financing Activities		-			1829,~~154~~760			418,949
Inflow (Outflow) of cash and cash equivalents		(1113,~~139)~~787	)		~~(534)~~2,502			52,~~468~~820
Effects of exchange rate changes on cash and cash equivalents		(~~313)~~408	)		(~~345)~~181	)		(~~936)~~1,031	)
Cash and cash equivalents, Beginning of Period		15,984			18,642			-
Cash and cash equivalents, End of Period	$	41,~~532~~789		$	1720,~~763~~963		$	41,~~532~~789
Supplemental disclosures of cash flow information:
Cash paid for reorganization expenses (note 13)	$	28		$	-		$	28
Changes in non-cash working capital related to reorganization expenses (note 13)	$	243		$	-		$	243
Non-Cash Financing Activities
Common stock issued for properties	$	-		$	-		$	10,848
Warrants issued for properties	$	-		$	-		$	1,764
Common stock issued for services	$	-		$	-		$	10,505
Common stock issued for debt settlement	$	-		$	-		$	28,401

See Notes to Consolidated Financial Statements

1011

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

1.	COMPANIES’ CREDITORS ARRANGEMENT ACT (CANADA) PROCEEDINGS AND GOING CONCERN

On November 29, 2011, Oilsands Quest Inc. and ~~certain~~its subsidiaries (collectively, the “Company” or “Oilsands Quest”), requested and obtained an order from the Alberta Court of Queen’s Bench (the “Court”) providing creditor protection under the Companies’ Creditors Arrangement Act (Canada) (“CCAA”). While under CCAA protection, the Company will continue with its day to day operations. CCAA protection stays creditors and others from enforcing rights against the Company and affords ~~Oilsands~~the ~~Quest~~Company the opportunity to restructure its financial affairs. The ~~initial~~stay ~~order~~of proceedings is currently in effect until ~~December~~May 2118, ~~2011~~2012, and may be further extended as required and approved by the Court.

Under the terms of the initial order, Ernst & Young Inc. was named as the court-appointed monitor (“Monitor”) ~~under CCAA~~. The Monitor will monitor the Company's ~~property~~assets and liabilities, business and financial affairs and report to the Court from time to time on the Company’s financial and operational position and any other matters that may be relevant to the CCAA ~~proceeding~~proceedings. In addition, the Monitor may advise the Company on the development of a comprehensive restructuring plan and, to the extent required, assist the Company with a restructuring.

While under CCAA protection, the Board of Directors maintains its usual role and management of the Company remains responsible for the day to day operations. The Board of Directors and management, with advice from the Monitor, will be responsible for determining whether a given plan for restructuring the Company’s affairs is feasible. ~~Stakeholders~~ Certain stakeholders whose ~~right~~rights would be compromised by the plan will have an opportunity to vote on the plan. Before a plan is implemented it must be approved by the requisite number and value of affected stakeholders contemplated by law and approved by the Court.

CCAA protection enables the Company to continue with its day to day operations until the CCAA status changes. The implications of this process for Oilsands Quest shareholders will not be known until the end of the restructuring process. If the affected stakeholders do not approve a plan in the manner contemplated by law, Oilsands Quest will likely be placed into receivership or bankruptcy. If by ~~December~~May 2117, ~~2011~~2012, Oilsands Quest has not obtained ana further extension of the initial order or filed a plan, creditors and others will no longer be stayed from enforcing their rights.

In connection with the CCAA, the Company has granted a charge against its assets and any proceeds from and sales thereof, as follows and in the following priority:

· First, ana ~~administration charge,~~ Debtor-in-Possession an(“DIP”) ~~amount~~Charge ~~not~~ to ~~exceed~~Century ~~CAD$1~~Services ~~million,~~Inc. in ~~favour~~sums ofas ~~the~~may ~~Monitor~~be ~~and~~borrowed ~~its~~up ~~counsel and counsel~~ to ~~the~~$3.75 ~~Company,~~million; to(discussed ~~secure~~in ~~payment~~detail ~~of professional fees and disbursements before and after the commencement of the CCAA proceedings~~below); ~~and~~

· Second, aan ~~directors'~~administration ~~and officers'~~ charge, in an amount not to exceed CAD$1 million, in favour of the ~~directors~~Monitor and ~~officers~~its ofcounsel ~~the~~and ~~Company~~counsel asto ~~security for~~ the Company's, ~~obligation~~ to ~~indemnify~~secure ~~them~~payment ~~against~~of ~~obligations~~professional fees and ~~liabilities~~disbursements ~~that~~before ~~they may incur as directors~~ and ~~officers~~ after the commencement of the CCAA ~~proceeding.~~proceedings; and

~~While~~· ~~the~~a ~~Company’s~~financial ~~assets~~advisor oncharge ~~its~~in ~~balance~~a ~~sheet~~maximum ~~are~~amount inof ~~excess~~CAD$1 ofmillion ~~its~~in ~~liabilities,~~connection with the ~~majority~~engagement of ~~the~~TD ~~asset~~Securities ~~value~~Inc. is(“TD inSecurities”). ~~long~~This ~~term,~~charge ~~heavy~~ranks ~~oil~~equally ~~production~~with ~~reserves~~the ~~that~~administration ~~will~~and ~~require~~represents ~~substantial~~a ~~further~~security ~~investment~~for all amounts due to ~~bring~~be onpaid to ~~production.~~TD Securities pursuant to their engagement; and

~~Based~~· onThird, ~~the~~a ~~Company’s~~directors' ~~cash~~and ~~flow~~officers' ~~projections~~charge, ~~the~~in ~~Company~~an ~~has~~amount ~~determined~~not ~~that~~to ~~additional~~exceed ~~priority~~CAD$1 ~~borrowings~~million, ~~are~~in ~~not~~favour ~~necessary~~of ~~from~~ the ~~date~~directors ofand ~~its~~officers ~~court~~of ~~filing to December 31, 2011. Therefore,~~ the Company ~~has~~as ~~not~~security ~~made arrangements~~ for ~~DIP~~the ~~financing~~Company's atobligation ~~this time. Although Oilsands Quest reserves its rights~~ to ~~reapply~~indemnify tothem ~~the~~against ~~Court~~obligations ~~for~~and ~~such~~liabilities ~~a DIP financing facility there is no assurance~~ that ~~such~~they ~~facility~~may ~~could~~incur beas ~~attained,~~directors ~~should~~and ~~such~~officers ~~financing~~after bethe ~~required~~commencement toof ~~satisfy~~ the ~~Company’s~~CCAA ~~ongoing creditor obligations~~proceedings.

OnWhile ~~August 17, 2010~~ the Company’s ~~announced~~assets ~~that~~on itits ~~had~~balance ~~initiated~~sheet aare ~~process~~in toexcess ~~explore~~of ~~strategic~~its ~~alternatives~~liabilities, ~~for~~the ~~enhancing~~majority ~~shareholder~~of ~~value. The strategic alternative process was overseen by a special committee (~~the ~~"Special~~asset ~~Committee")~~value ~~with~~is ~~advice~~in ~~from~~long TDterm ~~Securities~~bitumen ~~Inc.~~resource ~~which~~properties ~~was~~that ~~engaged~~will asrequire asubstantial ~~financial~~further ~~advisor~~investment to ~~assist~~bring ~~with~~on ~~this process. The Special Committee considered all alternatives~~ to ~~increase shareholder value, including strategic financing opportunities, asset divestitures, joint ventures and/or a corporate sale, merger or other business combination~~production. ~~The Company had many initial expressions of interest and exploratory conversations and signed confidentiality agreements with a number of entities who carried out detailed due diligence.~~

On August 17, 2010 the Company announced that it had initiated a process to explore strategic alternatives for enhancing shareholder value. The strategic alternative process was overseen by a special committee ("Special Committee") with advice from TD Securities which was engaged as a financial advisor to assist with this process. The Special Committee considered all alternatives to increase shareholder value, including strategic financing opportunities, asset divestitures, joint ventures and/or a corporate sale, merger or other business combination. The Company had many initial expressions of interest and exploratory conversations and signed confidentiality agreements with a number of entities who carried out detailed due diligence.

The formal strategic alternative process did not result in any proposals to the Company, and the process was concluded in June, 2011 upon the recommendation of the Special Committee.

The Company then proceeded to attempt to raise the funds required to advance the development of the Company's assets and on July 18, 2011, the Company commenced a rights offering (the "Rights Offering") under which the existing shareholders were given the right to purchase shares in the Company. This Rights Offering process was terminated, on the basis of the factors described below, on September 12, 2011, and the Company has, to date, been unable to raise the funds required to advance the development of the Company's assets. The decision to cancel the Rights Offering was based on the fact that the negotiation of a material transaction had reached an advanced stage – a transaction that would, if consummated, have significantly changed the use of proceeds described in the Rights Offering prospectus and that the Company would not achieve a full $60 million subscription through the Rights Offering.

On September 25, 2011, the Company entered into a non-binding letter of intent (the "Letter of Intent") with a third party to sell its Wallace Creek assets for total consideration of $60 million, which included $40 million cash at closing and a $20 million contingent payment that was subject to certain future events. The sale of the Wallace Creek property would have provided the Company with the financial resources to focus on moving its largest and most advanced asset, Axe Lake, toward commercial development.

Completion of the transaction was subject to a number of terms and conditions, including negotiation of a definitive agreement, board approvals, due diligence, financing and approval by BQI shareholders. On November 28, 2011, negotiations for the sale of the Wallace Creek assets were terminated as the potential purchaser could not complete the conditions outlined above within the time frames agreed to in the Letter of Intent.

Following the termination of the negotiations for the sale of the Wallace Creek, the Company initiated the CCAA process in order to preserve its liquidity and fund operations during the restructuring process. CCAA will allow the Company to reassess its business strategy with a view to developing a comprehensive financial and business restructuring plan.

To date the Company has not received any revenue from any of its natural resource properties, none of its estimated bitumen resources have been classified as proved reserves, and the Company's exploration and development work is capital intensive. The Company expects that significant additional exploration and development activities will be necessary to establish proved bitumen reserves, and to develop the infrastructure necessary to facilitate production, from the reserves. As at October 31, 2011, the Company had negative working capital of $5.6 million (excluding restricted cash), including cash and cash equivalents of $4.5 million, and a deficit accumulated during the development phase of $721.7 million.

During the six months ended October 31, 2011, the Company expended $8.4 million on operating activities and $2.8 million on property and equipment. Management anticipates that the Company will be able to fund its activities at a reduced level through January 2012 with its cash and cash equivalents as at October 31, 2011. Accordingly, there is substantial doubt about our ability to continue as a going concern and, without additional working capital, we may not be able to maintain operations beyond January 2012.

The consolidated financial statements have been prepared using U.S. GAAP and the rules and regulations of the SEC as consistently applied by Oilsands Quest prior to the commencement of the CCAA proceeding. While the CCAA proceedings are underway, the consolidated financial statements continue to be prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The CCAA proceeding provides the Company with a period of time to stabilize its operations and financial condition and develop a restructuring plan. However, it is not possible to predict the outcome of these proceedings and, as such, the realization of assets and discharge of liabilities are each subject to significant uncertainty. Further, it is not possible to predict whether the actions taken in any plan will result in sufficient improvements to the Company’s financial condition to allow it to continue as a going concern. If the going concern basis is not appropriate, adjustments will be necessary to the carrying amounts and/or classification of the Company’s assets and liabilities. Further, a comprehensive restructuring plan could materially change the carrying amounts and classifications reported in the consolidated financial statements.

The consolidated financial statements do not purport to reflect or provide for the consequences of the CCAA proceeding. In particular, such consolidated financial statements do not purport to show: (a) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (b) as to pre-petition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (c) as to shareholders accounts, the effect of any changes that may be made in the Company’s capitalization; or (d) as to operations, the effect of any changes that may be made in the Company’s business.

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

The Company then proceeded to attempt to raise the funds required to advance the development of the Company's assets and on July 18, 2011, the Company commenced a Rights Offering under which the existing shareholders were given the right to purchase shares in the Company. This Rights Offering process was terminated, on the basis of the factors described below, on September 12, 2011, and the Company has, to date, been unable to raise the funds required to advance the development of the Company's assets. The decision to cancel the Rights Offering was based on the fact that the negotiation of a material transaction had reached an advanced stage – a transaction that would have, if consummated, significantly changed the use of proceeds described in the Rights Offering prospectus and that the Company would not achieve a full $60 million subscription through the Rights Offering.

On September 25, 2011, the Company entered into a non-binding Letter of Intent with a third party to sell its Wallace Creek assets for total consideration of $60 million, which included $40 million cash at closing and a $20 million contingent payment that was subject to certain future events. The sale of the Wallace Creek property would have provided the Company with the financial resources to focus on moving its largest and most advanced asset, Axe Lake, toward commercial development. Completion of the transaction was subject to a number of terms and conditions, including negotiation of a definitive agreement, board approvals, due diligence, financing and approval by Company's shareholders. On November 28, 2011, negotiations for the sale of the Wallace Creek assets were terminated as the potential purchaser could not complete the conditions outlined above within the time frames agreed to in the Letter of Intent.

Following the termination of the negotiations for the sale of the Wallace Creek, the Company initiated the CCAA process in order to preserve its liquidity and fund operations during the restructuring process. The CCAA process will allow the Company to reassess its business strategy with a view to developing a comprehensive financial and business restructuring plan.

On January 11, 2012 the Company received an approval from the court to conduct a process to solicit offers to acquire, restructure or recapitalize the Company (the “Solicitation Process”).

The Solicitation Process is being overseen by a Special Committee chaired by Paul Ching, and including Ronald Blakely and Brian MacNeill, all of whom are independent directors. The Special Committee will consider all alternatives in developing a plan, including strategic financing opportunities, asset divestitures, joint ventures and/or a corporate sale, merger or other business combination, and will ultimately recommend a course of action to the Company’s full Board and the Monitor. With the Court’s approval, the Company has reengaged TD Securities as financial advisor to assist it with this process. TD Securities is familiar with Oilsands Quest’s assets and business as a result of previous engagements and has assisted Oilsands Quest in prior discussions with potentially interested parties. TD Securities has begun soliciting indications of interest from prospective strategic or financial parties and several confidentiality agreements have been signed with interested parties. Given the time required for potential purchasers to conduct their due diligence, the Company expects to shortlist potential bidders and seek binding offers under the process by April 27, 2012.

On February 7, 2012, the Monitor, in its capacity as the Company’s Foreign Representative, commenced proceedings in the United States Bankruptcy Code for the Southern District of New York ("US Bankruptcy Code") pursuant to Chapter 15 of the United States Bankruptcy Code. This order would allow the CCAA proceedings to be recognized as foreign main proceedings along with the automatic stay and certain other provisions of the US Bankruptcy Code to take effect within the United States. Motions seeking a joint administration of the Chapter 15 cases and approval of the form and manner of notice of the Chapter 15 petitions and hearing were granted by the US Bankruptcy Court on February 8, 2012. A final hearing on such recognition is scheduled for March 15, 2012. (See Note 15).

On February 16, 2012, the Court granted the Company’s motion to approve secured interim DIP financing with Century Services Inc. for a maximum of CDN$3.75 million to fund operating costs and other expenses while the Company proceeds with the Solicitation Process. The DIP financing is a twelve month term demand facility and will be repayable on the earlier of one year following closing or the termination of the Order from the Court providing creditor protection under the CCAA. The Company expects that the DIP facility will be available for draw down by mid-March 2012. There can be no assurance that this funding will be sufficient to fund the Company’s operations and ongoing creditors’ obligations during the period that the Company may spend in creditor protection under the CCAA or until a plan is approved. (See Note 15).

On February 22, 2012, the Court approved the sale of the Company’s non-core Eagles Nest asset to FAMA Capital Ltd. (“FAMA”), an unrelated third party, for CDN$7.0 million. The approval followed a short Court-directed limited bidding process, and the Company signed a Purchase and Sale Agreement with FAMA. FAMA paid deposits in the amount of CDN$50,000 and was required to pay an additional deposit of CDN$350,000 on February 24, 2012. However, FAMA did not make the deposit and the agreement was terminated. On March 7, 2012, the Court approved a new bidding process for the Eagles Nest asset. Bids for the asset are to be submitted to the Monitor by 4 PM MST, March 12, 2012. The bids must be accompanied by an unconditional executed Purchase and Sale Agreement and a deposit representing 10% of the purchase price with closing to occur on or before March 30, 2012. There can be no assurance that the sale will be concluded. (See Note15).

To date the Company has not received any revenue from any of its natural resource properties, none of its estimated bitumen resources have been classified as proved reserves, and the Company's exploration and development work is capital intensive. The Company expects that significant additional exploration and development activities will be necessary to establish proved bitumen reserves, and to develop the infrastructure necessary to facilitate production from those reserves. As at January 31, 2012, the Company had working capital (excluding restricted cash) of $1.1 million including cash and cash equivalents of $1.8 million and a deficit accumulated during the development phase of $726.0 million.

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

During the nine months ended January 31, 2012, the Company expended $11.4 million on operating activities, $2.0 million on property and equipment and $0.5 million on funding restricted cash. Management anticipates that the Company will be able to fund its activities at a reduced level through June 2012 with its working capital as at January 31, 2012, and the interim DIP facility of $3.75 million available for draw-down by mid-March 2012. Accordingly, there is substantial doubt about our ability to continue as a going concern and, without additional working capital, we may not be able to maintain operations beyond June 2012.

On November 29, 2011, the NYSE Amex LLC (“NYSE”) halted trading in the Company’s common shares and imposed an ongoing suspension in trading of the shares. Accordingly, delay in the resumption of trading on the NYSE reduces the liquidity of the Company’s common shares and limits the Company’s availability to obtain equity financing. The NYSE granted the Company an extension until May 18, 2012 to regain compliance with the continued listing standards.

Financial Accounting Standards Board (FASB) Accounting Standards Codification FASB ASC 852 Reorganizations, which is applicable to companies under creditor protection, generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of the petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the statements of operations. The balance sheet must distinguish prepetition liabilities subject to compromise from both those prepetition liabilities that are not subject to compromise and from postpetition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. The Company applied FASB ASC 852 effective November 29, 2011 and has segregated those items as outlined above for the reporting periods subsequent to such date.

The accompanying consolidated financial statements have been prepared using U.S. GAAP and the rules and regulations of the SEC as consistently applied by Oilsands Quest prior to the CCAA. While the Company has filed and been granted creditor protection, the consolidated financial statements continue to be prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The CCAA provides the Company with a period of time to stabilize its operations and financial condition and develop a plan. However, it is not possible to predict the outcome of these proceedings and, as such, the realization of assets and discharge of liabilities are each subject to significant uncertainty. Further, it is not possible to predict whether the actions taken in any plan will result in sufficient improvements to the Company’s financial condition to allow it to continue as a going concern. If the going concern basis is not appropriate, adjustments will be necessary to the carrying amounts and/or classification of the Company’s assets and liabilities. Further, a comprehensive restructuring plan could materially change the carrying amounts and classifications reported in the consolidated financial statements.

The accompanying consolidated financial statements do not purport to reflect or provide for the consequences of the CCAA. In particular, such consolidated financial statements do not purport to show: (a) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (b) as to prepetition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (c) as to shareholders accounts, the effect of any changes that may be made in the Company’s capitalization; or (d) as to operations, the effect of any changes that may be made in the Company’s business.

2.	DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS

On October 31, 2006, CanWest Petroleum Corporation changed its name to Oilsands Quest Inc. (“OQI”). At the same time the name of the Company’s main operating subsidiary was changed from Oilsands Quest Inc. to Oilsands Quest Sask Inc. (“OQI Sask”).

~~OQI~~The ~~together with its subsidiaries, (collectively the “~~Company”) is in the development stage and follows the guidance for a development stage company as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915-10. The principal business activity is the acquisition, exploration and development of natural resource properties in Canada.

These consolidated financial statements include the accounts of OQI and all of its wholly-owned Canadian subsidiaries (directly and indirectly) including OQI Sask, Township Petroleum Corporation (“Township”), Western Petrochemicals Corporation, 1291329 Alberta Limited, Oilsands Quest Technology Inc. and Stripper Energy Services, Inc. (“Stripper”).

All inter-company transactions and balances have been eliminated.

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

3.	BASIS OF PRESENTATION

These consolidated financial statements have been prepared in accordance with US GAAP and reflect all adjustments (all of which are normal and recurring in nature) that, in the opinion of management, are necessary for fair presentation of the interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending April 30, 2012. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted. These unaudited consolidated financial statements and notes included herein have been prepared on a basis consistent with and should be read in conjunction with the Company’s audited consolidated financial statements and notes for the year ended April 30, 2011 as filed in its annual report on Form 10-K/A. Certain comparative figures have been reclassified to conform to current financial statement presentation.

The U.S. dollar is the functional currency for OQI (the parent company). The Canadian dollar (CDN) is the functional currency for OQI’s Canadian subsidiaries. The assets and liabilities of OQI’s Canadian subsidiaries are translated into U.S. dollars based on the current exchange rate in effect at the balance sheet dates. Canadian income and expenses are translated at weighted average rates for the periods in which those elements are recognized. Foreign currency translation adjustments have no effect on net loss and are included in accumulated other comprehensive loss in stockholders’ equity. The only component of accumulated other comprehensive loss is foreign currency translation adjustments. Deferred income taxes are not provided on cumulative foreign currency translation gains and losses where OQI expects undistributed earnings of a foreign operation to be indefinitely reinvested.

Gains and losses arising from transactions denominated in currencies other than the functional currency are included in the results of operations of the period in which they occur. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to the reporting currency using the rate in effect on that date. Non-monetary assets and liabilities are translated at the rates of exchange prevailing at the time the asset was acquired or the liability was incurred.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K/A, that are of significance, or potential significance to the Company.

4.	RESTRICTED CASH

Restricted cash includes $12.90 million on deposit with the Saskatchewan Ministry of Energy and Resources (“SMER”) as collateral for unfunded ~~liability~~liabilities under the Saskatchewan Oil and Gas Orphan Fund and the Licensee Liability Rating Program. The restricted cash is inpledged ~~the~~as ~~form~~collateral ofwith a financial institution for a revolving irrevocable letter of guarantee maturing April 29, 2012 which may be drawn upon by the SMER at any time prior to maturity. In the event that the Company is unable to fulfill its obligation towards the Saskatchewan Oil and Gas Orphan Fund and the Licensee Liability Rating Program, the financial institution will pay the full or remaining amount of the deposit. Restricted cash also includes $0.83 million of Court-approved contractual payment obligations to employees deemed essential to the business during the CCAA proceedings that are held in escrow for payment in ~~January~~July 2012.

5. ~~ASSETS~~PROPERTY ~~HELD~~AND ~~FOR SALE~~EQUIPMENT

On September 25, 2011, the Company entered into a non-binding letter of intent with a third party to sell its interest in the Alberta Oil Sands Permits at Wallace Creek. As of October 31, 2011, the Company continued to work with the third party to finalize a definitive Purchase and Sale agreement and while it was taking longer than expected, the transaction was still expected to close by the end of January 2012 and provide the financial resources required to focus on the development of Axe Lake. On November 28, 2011, the third party notified the Company that they could not meet the terms of that Letter of Intent and negotiations were terminated.

	January 31, 2012			April 30, 2011
	(in thousands)			(in thousands)
Saskatchewan Oil Sands Rights
Permits and Leases	$	407,248		$	430,174
Licenses		-			2,701
Alberta Oil Sands Rights
Permits		35,930			38,003
Leases		7,964			8,405
Saskatchewan Oil Shale Rights (Permits)		11,264			11,927
Equipment		14,386			15,780
Assets Under Construction		3,134			2,786
		479,926			509,776
Less: Accumulated Depreciation and Impairment (Note 6)		(334,380	)		(355,981	)
Net Book Value	$	145,546		$	153,795

At ~~October~~January 31, ~~2011~~2012, the ~~Alberta~~decrease ~~Oil Sands Permits at Wallace Creek are disclosed as assets held for sale~~ in ~~accordance with~~ the ~~authoritative~~net ~~guidance~~book issued by the FASB on disposal of long-lived assets. Included in assets held for sale are the costs of the Wallace Creek permits of $10.3 million. These assets have been measured at the lower of their carrying amount and fair value ~~less~~is ~~costs~~mainly due to ~~sell.~~foreign ~~Using~~exchange afluctuations ~~multiple based~~ on ~~observed market transactions applied to~~ the ~~best~~currency ~~estimate~~translation of ~~contingent~~property ~~resources, the Company estimated that the fair value less costs to sell of the Wallace Creek permits were in excess of their carrying value~~ and, ~~accordingly,~~equipment noheld ~~impairment has been recognized~~ in ~~the~~Canadian ~~period~~dollars. ~~The liabilities related to assets held for sale of $0.2 million consist of asset retirement obligations for the reclamation of the Wallace Creek facility and test wells.~~

~~6. PROPERTY AND EQUIPMENT~~15

	October 31, 2011		April 30, 2011
	(in thousands)		(in thousands)
Saskatchewan Oil Sands Rights
Permits and Leases	$	412,043	$	430,174
Licenses		-		2,701
Alberta Oil Sands Rights
Permits		26,000		38,003
Leases		8,058		8,405
Saskatchewan Oil Shale Rights (Permits)		11,397		11,927
Equipment		14,535		15,780
Assets Under Construction		3,144		2,786
		475,177		509,776
Less: Accumulated Depreciation and Impairment (Note 7)		(337,936)		(355,981)
Net Book Value	$	137,241	$	153,795

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

Saskatchewan Oil Sands Permits

As at April 30, 2011, the Saskatchewan permits comprised an area of approximately 406,274 acres. At ~~October~~January 31, ~~2011~~2012, all Saskatchewan oil sands permits except PS00208 and PS00210 have been relinquished. The remaining permits total 160,632 acres. Relinquishing these permits did not impact the Company’s resource estimates or development plans. The permits were granted by the Province of Saskatchewan in 2004 under The Oil Shale Regulations, 1964 as amended, revised or substituted from time to time. The permits provide for the right to explore and work the permit lands but not to remove, produce or recover, except for test purposes, oil products until a lease, pursuant to these regulations has been granted. The initial five-year term of the permits expired on May 31, 2009 and the Company applied for and received the third of three one-year extensions to May 31, 2012 for the two permits that include the Axe Lake Discovery, PS00208 and PS00210, as allowed under the regulation.

The permits, when granted, were subject to annual rental payments and certain levels of expenditures annually pursuant to the terms of the permits and government regulations. The annual rentals were payable in advance as to $0.02 ($0.02 CDN) per acre for the first year and escalating to $0.10 ($0.10 CDN) per acre in the fifth year. On May 7, 2007, the province updated the Oil Shale Regulations, 1964 requiring an increase to annual rentals of $0.10 ($0.10 CDN) per acre for the remaining term of the permits. The required exploration expenditures to hold the permits were also increased to $0.8281 (0.81 CDN) per acre for each of the remaining years of the permits and $1.2220 ($1.21 CDN) per acre for each year that the permits are extended.

On July 15, 2011, the Company received approval from the Government of Saskatchewan to convert the Axe Lake permits PS00208 and PS00210 to 15 year leases. The leases will give the Company certainty of land tenure needed for commercial development of the property. The leases require annual rental payments of $6160,~~429~~714 ($61,030 CDN) for the term of the leases.

The Company iscontinues ~~currently~~to ~~working~~work with the regulators to assess an issue relating to the re-abandonment of early exploration core holes. As indicated by the Saskatchewan Ministry of Energy and Resources, it is possible that the outcome of such assessment could result in cancellation of the Axe Lake leases under the governing regulations. It is possible that the Company, based on its current liquidity and future estimated cash flows, may not be able to comply with the requirements of the regulations and the ~~permits and~~ leases may be cancelled. (See note 8).

Saskatchewan Oil Sands Licenses

On August 13, 2007, the Company acquired five oil sands licenses totaling 109,920 acres granted under The Petroleum and Natural Gas Regulations, 1969, as amended revised or substituted from time to time, for a term of five years for an aggregate cost of $2,140,233 ($2,249,089 CDN). The licenses ~~provide~~provided for the exclusive right to search for oil sands on the lands granted and to win, recover, extract, carry off, dispose of and sell the oils sands products found on the license lands. The oil sands licenses ~~provide~~provided the opportunity to convert up to 100% of the licenses to a production lease following the completion of specified work requirements. Licenses ~~require~~required annual rental payments of $0.71 ($0.71 CDN) per acre. The licenses were relinquished on August 12, 2011 due to their low prospectivity.

Alberta Oil Sands Permits

As at April 30, 2007, the Alberta oil sands permits comprised an area totaling 67,053 acres (“Raven Ridge Prospect”). The permits were granted by the Province of Alberta under the terms of the Mines and Minerals Act, Alberta. The permits provide the opportunity to convert up to 100% of the permits to a production lease following the completion of specified work requirements. Permits are granted for five year primary terms which expire on August 9, 2011 – 11,386 acres and March 21, 2012 – 55,667 acres, and require annual rental payments of $1.4341 ($1.42 CDN) per acre. On August 9, 2011, permit 7006080098 totaling 11,386 acres expired. On November 22, 2011, the Company received approval from the Government of Alberta to extend the expiry date of its remaining Raven Ridge permits until March 22, 2014.

On January 23, 2008, the Company acquired two oil sands permits totaling 45,546 acres (“Wallace Creek Prospect”) in a public offering of Crown Oil Sands Rights. The total consideration paid for these permits was $9,732,500 ($10,010,880 CDN). The permits were granted by the Province of Alberta under the terms of the Mines and Minerals Act, Alberta. The permits provide the opportunity to convert up to 100% of the permits to a production lease following the completion of specified work requirements. Permits are granted for a five year primary term which expires January 23, 2013. On June 27, 2011, the Company received approval from Alberta Energy to extend the Wallace Creek permits for an additional 67 days to March 31, 2013. Annual rental payments of $1.43 ($1.42 CDN) per acre are required. Following the acquisition, the Alberta permit lands comprised an area totaling 112,599 acres. 16

InOILSANDS ~~November,~~QUEST 2011, the Company received approval from the Government of Alberta to extend the expiry date on its Alberta Oil Sands Permits at Wallace Creek and Raven Ridge by two years from the original expiry dateINC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

On January 23, 2008, the Company acquired two oil sands permits totaling 45,546 acres (“Wallace Creek Prospect”) in a public offering of Crown Oil Sands Rights. The total consideration paid for these permits was $9,732,500 ($10,010,880 CDN). The permits were granted by the Province of Alberta under the terms of the Mines and Minerals Act, Alberta. The permits provide the opportunity to convert up to 100% of the permits to a production lease following the completion of specified work requirements. Permits are granted for a five year primary term which expires January 23, 2013. On June 27, 2011, the Company received approval from Alberta Energy to extend the Wallace Creek permits for an additional 67 days to March 31, 2013. Annual rental payments of $1.41 ($1.42 CDN) per acre are required. Following the acquisition, the Alberta permit lands comprised an area totaling 112,599 acres. On November 22, 2011, the Company received approval from the Government of Alberta to extend the expiry date of its Wallace Creek permits until January 24, 2015.

Alberta Oil Sands Lease

On June 1, 2005, Township acquired one lease consisting of approximately 22,773 acres (the “Eagles Nest Prospect”) via a joint venture arrangement. The lease provides for the right to drill for, win, work and recover and the right to remove bitumen resources from the lease for a term of 15 years, subject to the Mines and Minerals Act, Alberta.

As part of the acquisition of the lease, Township granted royalties as to $0.0058 ($0.0058 CDN) (net after a buy back) on each barrel of crude bitumen produced, saved and sold from the Eagles Nest Prospect.

The annual lease rental payable to the Province of Alberta for the Eagles Nest Prospect is $32,~~467~~089 ($32,256 CDN) per year (see note 15).

Saskatchewan Oil Shale Permits

As at April 30, 2011, the Company held seven oil shale exploration permits near Hudson Bay, Saskatchewan covering 405,961 acres granted under The Oil Shale Regulations, 1964 (Saskatchewan) as amended, revised or substituted from time to time for a term of five years. The term of these permits expired in September and October of 2011.

As at April 30, 2011 and ~~October~~January 31, ~~2011~~2012, the Company held one oil shale exploration permit granted under The Petroleum and Natural Gas Regulations, 1969 (Saskatchewan) totaling 83,769 acres near Hudson Bay, Saskatchewan. The permit provides for the right, license, privilege and authority to explore for oil shale within the permit lands and expires on August 12, 2012.

The term of the remaining permit may be extended for up to three one-year extensions subject to regulatory approvals, if required. This oil shale permit was acquired under a land sale work commitment bid for the first two years of the permit. The Company bid a total work commitment of $~~303~~300,~~541~~008 ($301,568 CDN) to be incurred during the first two years of the permit and the permit requires a further work commitment of $0.8281 ($0.81 CDN) per acre for the last three years and $1.2220 ($1.21 CDN) for each extension year plus annual rental payments of $0.10 ($0.10 CDN) per acre. The Company has fulfilled its work commitment for the term of the permit.

Assets under construction

During the period ended ~~October~~January 31, ~~2011~~2012, the Company incurred costs to construct facilities required for the steam assisted gravity drainage (“SAGD”) pilot. The construction of these facilities was still in progress at ~~October~~January 31, ~~2011~~2012. The cost of property classified as “Assets under construction” is excluded from capitalized costs being depreciated. This amount represents property elements that are work-in-progress and not yet suitable to be placed into productive service as of the balance sheet date.

1317

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

76. IMPAIRMENT OF PROPERTY AND EQUIPMENT

	October 31, 2011 (in thousands)										April 30, 2011 (in thousands)
	January 31, 2012 (in thousands)										April 30, 2011 (in thousands)
	Book Value		Valuation Allowance			Accumulated Depreciation			Net Book Value		Net Book Value
Saskatchewan Oil Sands Rights
Permits and leases	$	~~412~~407,~~043~~248	$	(~~282~~279,~~767~~476	)	$	-		$	~~129~~127,~~276~~772	$	134,023
Licenses		-		-			-			-		-
Alberta Oil Sands Rights
Permits		2635,~~000~~930		(2625,~~000~~698	)		-			-10,232		10,772
Leases		87,~~058~~964		(87,~~058~~964	)		-			-		-
Saskatchewan Oil Shale Rights (Permits)		11,~~397~~264		(11,~~397~~264	)		-			-		-
Equipment		1413,~~535~~469		~~(917~~-	)		(89,~~797~~061	)		4,~~821~~408		6,214
Assets Under Construction		3,~~144~~134		-			-			3,~~144~~134		2,786
Total Property and Equipment	$	~~475~~479,~~177~~009	$	(~~329~~324,~~139~~402	)	$	(89,~~797~~061	)	$	~~137~~145,~~241~~546	$	153,795

The Company evaluates undeveloped properties periodically for impairment on a property-by-property basis considering a combination of time, geological and engineering factors as well as the Company’s current exploration plans and the ability to obtain necessary financing to advance the development of the properties. Where circumstances indicate impairment in value, a valuation allowance is provided. The Company monitors internal and external indicators of impairment periodically. Property and equipment has a net book value of $~~137~~145.25 million as at ~~October~~January 31, ~~2011~~2012 compared to $153.8 million as at April 30, 2011.

a)	Saskatchewan Oil Sands Permits and Leases

The Company initiated a strategic alternative review process on August 17, 2010 to consider all alternatives to increase shareholder value, including strategic financing opportunities, asset divestitures, joint ventures and/or corporate sale, merger or other business combination. The formal phase of the strategic alternative review process did not result in any firm proposals to the Company. The discussions and negotiations throughout the process have illustrated that potential future partners or acquirers would need to see a further level of development, reducing the remaining areas of uncertainty, in order to be prepared to make a substantial investment. The conclusion of the formal phase of the strategic alternative review process indicated that the carrying value of the Saskatchewan Oil Sands Permits was greater than their fair value or estimated future net cash flows at April 30, 2011.

Potential partners or purchasers would negotiate a price that is dependent upon specific facts regarding the property, including the nature and extent of geological and geophysical data, the terms of the permits holding the acreage in the property and a level of asset development that would reflect the results of the Axe Lake reservoir testing efforts. We estimated the fair value of the property by calculating the property’s risk adjusted net present value. We categorize the measurement of fair value of the Saskatchewan Oil Sands Leases as Level 3 inputs. Since the Saskatchewan Oil Sands Permits are nonproducing undeveloped properties with no quoted market, their estimable cash flow streams involve significant judgment and the results are based on estimated future events. The property’s expected future cash flows were calculated on an estimate of contingent resources using a discount rate and price forecast selected by management. The property’s risk adjusted net present value gave effect to such factors as future production costs, drilling and completion costs, prevailing commodity prices, transportation systems for oil and gas production in the vicinity and other economic factors. Management also used market data to support the risk adjusted net present value that was calculated. The results of this assessment indicated impairment and the Company recorded a valuation allowance in the year ended April 30, 2011.

During the period ended October 31, 2011, management reviewed its estimate of fair value of the Saskatchewan Oil Sands Leases at Axe Lake as a result of the Company entering into creditor protection on November 29, 2011. In its analysis, management updated the status of various factors, including intent to develop, remaining lease term, geological and geophysical evaluations, drilling results and activity, business and industry climate, assignment of contingent resources and the economic viability of development if contingent resources are assigned. During the period ended October 31, 2011, these factors did not indicate that they would trigger impairment of the property’s value. Management also reviewed the property’s risk adjusted net present value and the cash flow projections of future production costs, drilling and completion costs, prevailing commodity prices, transportation systems for oil and gas production in the vicinity and other economic factors. The Company determined that these assumptions and projections did not change materially from those used in management’s assessment performed at April 30, 2011. The data obtained from market participants to support management’s conclusions remained comparable during the period ended October 31, 2011. The uncertainty related to the Company’s ability to continue with the development of the Saskatchewan Oil Sands Leases increased when the formal phase of the strategic alternative review process concluded in June 2011 and triggered an impairment of the property. Creditor protection allows the Company to continue with its day to day operations while working on a restructuring plan that would contribute to advancing the development at Axe Lake. Management concluded that no additional valuation allowance was required during the period ended October 31, 2011. The valuation allowance amounts to $282.8 million at October 31, 2011.18

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

During the period ended January 31, 2012, management assessed the carrying value of the Saskatchewan Oil Sands Leases at Axe Lake in conjunction with the periodic assessment of impairment of unproved properties. Because no impairment indicators impacting the property’s value were triggered during that period, management concluded that no additional valuation allowance was required during the period ended January 31, 2012. The valuation allowance amounts to $279.5 million at January 31, 2012 (April 30, 2011 - $296.2 million).

b)	Saskatchewan Oil Sands Licenses

The Company has determined that the presence of extensive top-water in the reservoirs would not allow for commercial development in the near term. Accordingly, an impairment provision on the full carrying value of the Saskatchewan Oil Sands Licenses was recorded in the year ended April 30, 2011. These licenses were relinquished on August 12, 2011 and the book value and valuation allowance were then written off.

c)	Alberta Oil Sands Permits

The Company has recognized a full impairment on the Alberta Oil Sands Permits related to the Raven Ridge prospect at April 30, 2011. Following the conclusion of the formal phase of the strategic alternative review process, the Raven Ridge prospect has been excluded from the Company’s current and future exploration plans and no further development is expected. Accordingly, an impairment provision on the full carrying value of the Raven Ridge prospect was recorded in the year ended April 30, 2011. The valuation allowance amounts to $2625.07 million at ~~October~~January 31, 2012 (April 30, 2011 - $27.2 million).

The Company performed a fair value assessment of the Alberta Oil Sands Permits at Wallace Creek at April 30, 2011 using best estimate of contingent resources of the prospect. The results of this assessment indicated that the fair value of the property was in excess of its carrying value, thus supporting its net book value at April 30, 2011. ~~and~~Since ~~October~~that 31date, ~~2011.~~management ~~The~~has ~~net~~not ~~book~~identified ~~value~~any conditions or changes with respect to the assets or their environment which would indicate impairment of the Wallace Creek ~~prospect~~permits. The ~~disclosed~~net inbook ~~assets~~value ~~held~~of ~~for~~the ~~sale~~Wallace Creek prospect is $10.32 million at ~~October~~January 31, 2012 (April 30, 2011 - $10.8 million).

d)	Alberta Oil Sands Lease

The Company has recognized a full impairment on the Eagles Nest Prospect at April 30, 2011. Since the property is geographically distant from our other oil sands discoveries and is largely unexplored, the Company announced on September 22, 2010 its intention to divest the Eagles Nest oil sands lease. The Company did not receive any offers under financial terms that were acceptable and determined that it was in the best interest to retain these assets until an adequate offer is received or additional funds are available for the development of these longer-term assets. Following the conclusion of the formal phase of the strategic alternative review process, an impairment provision on the full carrying value of the lease was recorded in the year ended April 30, 2011. The valuation allowance amounts to $8.10 million at ~~October~~January 31, 2012 (April 30, 2011 - $8.4 million). (See note 15).

14e) Saskatchewan Oil Shale Permits

Due to the considerable time, effort and financial resources required for the exploration and development of the property, the Company recognized a full impairment on the property in the year ended April 30, 2011. The Company has no plan to further develop the property. As at January 31, 2012, the cumulative impairment on the Pasquia Hills properties amounts to $11.3 million (April 30, 2011 - $11.9 million).

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

e) Saskatchewan Oil Shale Permits

Due to the considerable time, effort and financial resources required for the exploration and development of the property, the Company recognized a full impairment on the property in the year ended April 30, 2011. The Company has no plan to further develop the property. As at October 31, 2011, the cumulative impairment on the Pasquia Hills properties amounts to $11.4 million.

Equipment

Based on an assessment of the carrying value of the leasehold improvements and office equipment related to the Calgary head office, the Company determined that it may not be able to recover the value and recorded an ~~allowance for~~ impairment of $1.1 million on these assets at April 30, 2011. ~~and~~This impairment amounted to $0.9 million at ~~October~~January 31, ~~2011. The~~2012 ~~reduction~~following in the ~~impairment was due to the~~ sale of ~~equipment~~furniture and ~~removal of the related impairment~~fixture.

87. ~~ASSETS~~LIABILITIES ~~RETIREMENT~~SUBJECT ~~OBLIGATION~~TO COMPROMISE

Under bankruptcy laws, actions by creditors to collect amounts owed prior to the petition date are stayed and certain other prepetition contractual obligations may not be enforced against the Company. Liabilities subject to compromise refer to the Company’s estimate of known or potential prepetition claims to be resolved in connection with entering into creditor protection. Such claims remain subject to future adjustments, and payment terms for liabilities subject to compromise will be established as part of a Court-approved plan for restructuring the Company’s affairs. Although prepetition claims are generally stayed under CCAA protection, the Company is permitted to undertake certain actions designed to stabilize its operations including, among other things, payment of employee wages and benefits, payments to suppliers for goods and services received after the petition date and retention of professionals.

FASB ASC 852 Reorganizations requires prepetition liabilities that are subject to compromise to be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. Substantially all unsecured liabilities as at the Petition Date of November 29, 2011 have been classified as liabilities subject to compromise. Future adjustments impacting amounts classified as liabilities subject to compromise depend on Court actions, further developments with respect to disputed claims, determinations of the secured status of certain claims, values of any collateral securing such claims, or other events.

Liabilities subject to compromise amounted to $25.2 million at January 31, 2012 and consisted of operational and corporate obligations incurred prior to November 29, 2011, including the Company’s obligations with respect to asset retirement related to the reclamation of access roads on relinquished properties as well as the re-abandonment of a certain number of core holes at Axe Lake. These obligations are considered to be subject to compromise as they relate to the re-abandonment of early exploration holes or reclamation obligations on properties that are no longer held by the Company.

Liabilities subject to compromise consist of the following:

	January 31, 2012		April 30, 2011
	(in thousands)		(in thousands)

Accounts payable	$	1,568	$	-
Accrued liabilities		924		-
Asset retirement obligation (Note 8)		23,283		-
Total liabilities subject to compromise	$	25,775	$	-

8.	ASSET RETIREMENT OBLIGATION

The Company’s obligations with respect to asset retirement relate to reclamation of an airstrip, camp site, access roads and reservoir test wells. The obligation is recognized when incurred at the present value of the estimated future reclamation cost using a credit-adjusted risk-free rate of 7 to 13 percent (April 30, 2011 – 7 to 13 percent) and an inflation rate of 2.5 percent (April 30, 2011 – 2.5 percent). During the year ended April 30, 2010, the Company conducted a review of its development plans and well licenses and determined that a number of core holes were not abandoned to accommodate our thermal development plans or in accordance with regulatory requirements. We also evaluated the core holes located outside the potential commercial development area and included a portion of these costs in the re-abandonment liability based on performing the obligation over a 5 year period.

During the year ended April 30, 2011, the Company revised the estimated amounts and timing of the settlement of the asset retirement on the airstrip, campsite, access roads and reservoir test wells and conducted a core hole by core hole analysis to determine the number of core holes that management believes will require re-abandonment. The number of core holes to be re-abandoned increased as a result of this review. Accordingly, $8.3 million of cost revisions were recorded in the re-abandonment liability during the year ended April 30, 2011. Subsequent cost revisions amounting to $0.5 million in relation to the re-abandonment liability were recorded during the six months ended October 31, 2011. The Company has submitted a re-abandonment program to the Saskatchewan Ministry of Energy and Resources (“SMER”) that included cost estimates and a schedule of work. The Company is currently working with SMER to assess the waiver applications of 99 core holes, the majority of which are located outside the current potential development area and are therefore located in areas that are not economically recoverable. The uncertainty related to the timing and/or method of settlement that may be beyond the Company’s control is factored into the measurement of the liability. At October 31, 2011, the re-abandonment obligation is comprised of 128 core holes located in areas in or adjacent to the commercial development area plus a portion of the core holes for which waivers were sought and correspond to an undiscounted/gross costs of $25.8 million.20

AtOILSANDS ~~October~~QUEST ~~31, 2011, the total undiscounted inflation-adjusted future obligation was approximately $43~~INC.~~1 million (April 30, 2011 $44.3 million).~~

Continuity of Asset Retirement Obligation (in thousands):	Six Months ended October 31, 2011		Year ended April 30, 2011
Present value of obligation, beginning of period	$	26,882	$	17,485
Liabilities settled		-		(4,585)
Accretion expense		1,564		2,076
Revisions		537		10,185
Transfer to liabilities related to assets held for sale		(233)		-
Foreign currency translation adjustment		(1,244)		1,721
Present value of obligation, end of period	$	27,506	$	26,882
Less: current portion of asset retirement obligation		(7,405)		(7,297)
Long term portion of asset retirement obligation	$	20,101	$	19,585

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

During the year ended April 30, 2011, the Company revised the estimated amounts and timing of the settlement of the asset retirement on the airstrip, campsite, access roads and reservoir test wells and conducted a core hole by core hole analysis to determine the number of core holes that management believes will require re-abandonment. The number of core holes to be re-abandoned increased as a result of this review. Accordingly, $8.3 million of cost revisions were recorded in the re-abandonment liability during the year ended April 30, 2011. Subsequent cost revisions amounting to $0.5 million in relation to the re-abandonment liability were recorded during the nine months ended January 31, 2012. The Company has submitted a re-abandonment program to the Saskatchewan Ministry of Energy and Resources (“SMER”) that included cost estimates and a schedule of work. The Company is currently working with the SMER to assess the waiver applications of 99 core holes, the majority of which are located outside the current potential development area and are therefore located in areas that are not economically recoverable. The uncertainty related to the timing and/or method of settlement that may be beyond the Company’s control is factored into the measurement of the liability. At January 31, 2012, the re-abandonment obligation is comprised of 128 core holes located in areas in or adjacent to the commercial development area plus a portion of the core holes for which waivers were sought and correspond to an undiscounted/gross costs of $25.5 million.

At January 31, 2012, the total undiscounted inflation-adjusted future obligation was approximately $42.6 million (April 30, 2011 $44.3 million).

Continuity of Asset Retirement Obligation (in thousands):	Nine Months ended January 31, 2012			Year ended April 30, 2011
Present value of obligation, beginning of period	$	26,882		$	17,485
Liabilities settled		-			(4,585	)
Accretion expense		2,352			2,076
Revisions		537			10,185
Foreign currency translation adjustment		(1,554	)		1,721
	$	28,217		$	26,882
Transfer to liabilities subject to compromise (Note 7)		(23,283	)		-
Present value of obligation, end of period	$	4,934		$	26,882
Less: current portion of asset retirement obligation		(479	)		(7,297	)
Long term portion of asset retirement obligation	$	4,455		$	19,585

9.	OQI SASK STOCK OPTIONS

OQI acquired the non-controlling shareholder interest in OQI Sask in August 2006 (“the reorganization”). Certain stock options issued by OQI Sask remained outstanding after the reorganization. On exercise, each OQI Sask option may be exchanged into 8.23 OQI Sask Exchangeable Shares which are exchangeable into OQI common shares. Options in OQI Sask during the ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012 are detailed below.

	Number			Weighted Average Exercise Price (CDN)
Issued and outstanding, April 30, 2011		946,667		$	23.01
Expired		(946,667)	)	$	23.01
Issued and outstanding, October 31, 2011		-		$	-
Issued and outstanding, January 31, 2012		-		$	-

~~The~~As 50at January 31,~~000~~ ~~OQI~~2012, ~~Sask~~the ~~options~~Company ~~that~~had ~~were~~no ~~outstanding~~unrecognized atstock ~~July~~option ~~31,~~compensation ~~2011~~expense ~~expired~~related onto ~~August~~the 1,OQI ~~2011~~Sask options.

~~As at October 31, 2011, the Company had no unrecognized stock option compensation expense related to the OQI Sask options.~~21

10. OQI SASK EXCHANGEABLE SHARES AND PREFERRED STOCK

Holders of OQI Sask common shares received Exchangeable Shares which can be exchanged into shares of OQI common stock at any time at each holder’s option or by the Company upon the occurrence of certain events or any time thereafter on August 14, 2013 if the holder has yet to exchange the shares. Transactions in Exchangeable Shares during the six months ended October 31, 2011 are detailed below. For voting purposes, holders of Exchangeable Shares are represented by one outstanding Series B preferred share which carries a number of votes equal to the number of Exchangeable Shares then outstanding.

	OQI Sask Exchangeable Shares		OQI Sask Exchangeable Shares issuable on exercise of OQI Sask options		Total Exchangeable Shares
Balance, April 30, 2011		19,129,237		7,791,069		26,920,306
OQI Sask options expired (note 9)		-		(7,791,069)		(7,791,069)
Exchangeable Shares exchanged into OQI common shares		(203,281)		-		(203,281)
Balance, October 31, 2011		18,925,956		-		18,925,956

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

10.	OQI SASK EXCHANGEABLE SHARES AND PREFERRED STOCK

Holders of OQI Sask common shares received Exchangeable Shares which can be exchanged into shares of OQI common stock at any time at each holder’s option or by the Company upon the occurrence of certain events or any time after on August 14, 2013 if still outstanding. Each Exchangeable Share provides the holder thereof with economic terms and voting rights which are, as nearly as practicable, equivalent to those of a share of OQI common stock. Transactions in Exchangeable Shares during the nine months ended January 31, 2012 are detailed below. For voting purposes, holders of Exchangeable Shares are represented by one outstanding Series B preferred share which carries a number of votes equal to the number of Exchangeable Shares then outstanding.

	OQI Sask Exchangeable Shares			OQI Sask Exchangeable Shares issuable on exercise of OQI Sask options			Total Exchangeable Shares
Balance, April 30, 2011		19,129,237			7,791,069			26,920,306
OQI Sask options expired (note 9)		-			(7,791,069	)		(7,791,069	)
Exchangeable Shares exchanged into OQI common shares		(203,281	)		-			(203,281	)
Balance, January 31, 2012		18,925,956			-			18,925,956

11.	COMMON STOCK

On January 17, 2011 the Company entered into an equity distribution agreement. Under the terms of the agreement the Company could ~~may~~ offer and sell shares of its common stock by way of “at-the-market” (ATM) distributions, up to a maximum of $20 million until January 18, 2012. Shares ~~will~~were be distributed at market prices prevailing at the time of each sale; prices ~~may~~could therefore vary between purchasers and during the period of distribution. ToA ~~date,~~total of 5,537,137 shares ~~have~~were ~~been~~ distributed under this arrangement for gross proceeds of $3.1 million. No share issues occurred during the ~~six~~nine month period ending ~~October~~January 31, ~~2011~~2012. Funds raised from the ATM program ~~will~~are be used to finance general corporate purposes. This arrangement terminated on January 17, 2012.

On October 17, 2011, the Company entered into a securities purchase agreement (“SPA”) with Socius CG II, Ltd. (“Socius”), a subsidiary of Socius Capital Group. The Company ~~has~~had the right, over a term of two years, to require Socius, subject to the terms and conditions of the SPA, to purchase up to $12 million of Series C redeemable preferred shares (the “Preferred Shares”). The ~~Preferred Shares bear interest at an annual rate of 10%. The~~ Company ~~may,~~did atnot its sole discretion, submit a tranche notice to Socius to purchase a certain dollar amount of the Company's preferred shares at $10,000 per share. Upon the issuance of the initial tranche notice, Socius will also receive warrants to purchase shares of the Company's common stock valued at 35% of the Preferred Share amount. The initial exercise price of the warrants will be equal to the closing bid price of the Company's common stock on the day preceding the issuance of the first tranche notice. When the Company elects to sell a tranche of Preferred Shares, warrants equal to 35% of the value of the Preferred Shares will vest and Socius is obligated to exercise these warrants. The vested warrants will be at a price equal to the closing bid price on the day preceding the issuance of the tranche notice. In addition, Socius is obligated to exercise an additional investment right to purchase common stock valued at 100 per cent of the amount of the Preferred Stock, at a per share price equal to the exercise price of the warrants associated with the sale of Preferred Stock. The Company cannot issue a tranche notice in a dollar amount that will result in the common shares issued in accordance with the additional investment right and related warrants exceeding 9.99 % of the then outstanding shares of the common stock. Socius may elect to issue secured promissory notes as the purchase consideration for the common shares. These promissory notes would be for a five year term and would bear interest at an annual rate of 2%. The Company has not sold any Preferred Shares under the terms of the SPA ~~and consequently, no warrants or common shares have been issued under the SPA~~. The SPA ~~was~~automatically terminated on November 29, 2011 upon filing of the CCAA protection.

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

12.	STOCK OPTIONS

Stock based compensation generally takes the form of equity classified stock options granted to employees and non-employees. Options are granted under the Company’s 2006 Stock Option Plan and vest over various terms – generally 18 months to three years. One set of option grants included a performance condition based upon achieving a defined bitumen in place barrel count. Two other sets of option grants included both a market condition based upon total shareholder return over a three year period and performance conditions based upon achieving a combination of defining a reservoir recovery configuration and achieving a defined bitumen in place barrel count. The fair value of the options containing the performance and market conditions were estimated at the date of grant and amortization of these amounts commences when satisfaction of the performance conditions becomes probable. As of ~~October~~January 31, ~~2011~~2012, it was not probable that any of the performance or market conditions would be satisfied.

The following summarizes our stock option activity under the Company’s 2006 Stock Option Plan for the ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012:

	~~Options~~	Options	~~Weighted- Average Exercise Price~~		Weighted- Average Exercise Price	~~Weighted-Average Grant-Date Fair Value~~		Weighted-Average Grant-Date Fair Value	~~Aggregate Intrinsic Value~~		Aggregate Intrinsic Value
Outstanding at April 30, 2011	~~22,883,452~~		$22,883,452	~~3.02~~	$	$3.02	~~2.44~~	$	$2.44	-	$	-
Granted	~~100,000~~		100,000	~~0.29~~		0.29	~~0.19~~		0.19	-		-
Forfeited	~~(1,630,452)~~		(2,568,452	~~1.91~~)		2.66	~~1.33~~		1.92	-		-
Expired	~~(3,390,000)~~		(3,390,000	~~5.95~~)		5.95	~~5.22~~		5.22	-		-
Outstanding at October 31, 2011	17,963,000		$	2.55		$	2.01			-
Outstanding at January 31, 2012			17,025,000		$	2.47		$	1.95			-
Exercisable at October 31, 2011	12,168,000		$	3.37		$	2.70		$	-
Exercisable at January 31, 2012			11,341,250		$	3.30		$	2.65		$	-

Of the total number of outstanding options at ~~October~~January 31, ~~2011~~2012, 4,550,000 options are subject to market and performance conditions with a weighted average grant date fair value of $0.57 per option. As of ~~October~~January 31, ~~2011~~2012, these options have not yet vested and no stock based compensation expense has been recognized as achievement of the required performance and market conditions is not probable.

The weighted-average remaining contractual term of vested and exercisable options at ~~October~~January 31, ~~2011~~2012 was 3.10 years.

During the ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012, 100,000 (~~October~~January 31, ~~2010~~2011 - 1,~~517~~617,474) options were granted and accounted for using the Black-Scholes option-pricing model and nil (~~October~~January 31, ~~2010~~2011 - 3,050,000) options were granted and accounted for using the trinomial option-pricing model.

The trinomial option-pricing model takes into account the same input assumptions as the Black-Scholes model; however, it also further incorporates into the fair-value determination, the possibility that the market condition may not be satisfied and the impact of the possible differing stock price paths. The following weighted average assumptions were used to determine the fair value of the options granted during the ~~six~~ nine months ended ~~October~~January 31, ~~2011~~2012 and ~~2010~~2011:

Black Scholes	~~Black Scholes~~	2012	~~2011~~		~~2010~~	2011
Expected Life (years)	~~Expected Life (years)~~		3.84		~~4.02~~		4.01
Risk free interest rate	~~Risk free interest rate~~		1.96%	%	~~2.62%~~		2.59	%
Expected volatility	~~Expected volatility~~		93.15%	%	~~97.27%~~		97.11	%
Dividend yield	~~Dividend yield~~		0%	%	0%		0	%

As at ~~October~~January 31, ~~2011~~2012, the Company had unrecognized stock option compensation cost of $~~160~~105,~~620~~341 which will be recorded in future periods as options vest. The expense is expected to be recognized over a weighted-average period of 1.2 years. As at ~~October~~January 31, ~~2011~~2012, there were 5,~~795~~683,~~000~~750 unvested options with a weighted average grant date fair value of $0.5655. The weighted average grant date fair value of options that vested and were forfeited during the period was $1.6150 and $0.81, respectively.

1623

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

13. ~~CONTINGENCIES~~REORGANIZATION ~~AND COMMITMENTS~~EXPENSES

Reorganization expenses represent the direct and incremental costs related to the CCAA proceedings. These expenses can include expenses such as professional fees directly related to the CCAA proceedings, realized gains and losses, and provisions for losses resulting from the CCAA proceedings.

Reorganization expenses of $0.27 million incurred at January 31, 2012 consisted of $0.22 million of professional fees directly related to the CCAA proceedings and $0.05 million of Court-approved obligations to certain key eligible employees deemed essential to the business during the CCAA proceedings.

All cash flows related to reorganization items pertained to operating activities.

14.	CONTINGENCIES AND COMMITMENTS

Contingency

On February 24, 2010, a derivative action entitled Make a Difference Foundation Inc. v. Hopkins, et al., Case No. 10-CV-00408, was filed in United States District Court for the District of Colorado by plaintiff Make a Difference Foundation, Inc. The derivative action names the following individual defendants: Christopher H. Hopkins, T. Murray Wilson, Ronald Blakely, Paul Ching, Brian MacNeill, Ronald Phillips, John Read, Gordon Tallman, Pamela Wallin, Thomas Milne and W. Scott Thompson. In addition, the Company is named as a nominal defendant. Plaintiff asserts, among other things, claims for waste and breaches of the fiduciary duty of loyalty and good faith by the defendants stemming from the Company's approval of the proposed sale of the Company's Pasquia Hills assets to Canshale Corp. The plaintiff seeks unspecified damages on behalf of the Company, restitution on behalf of the Company, and reasonable costs and expenses including counsel fees and experts' fees. The Company believes the claims are wholly without merit and filed a motion to dismiss the Complaint on May 18, 2010. Before the motion to dismiss was ruled upon, Plaintiff filed an amended complaint and a second amended complaint on July 15, 2010 and September 20, 2010, respectively. Defendants moved to dismiss the second amended complaint on September 29, 2010. On May 23, 2011, Plaintiff and Defendants filed a stipulated motion requesting the stay of all case deadlines pending further negotiation of a settlement agreement that would resolve the litigation. On August 11, 2011, the parties filed a Notice of Settlement Stipulation and Agreement. On September 2, 2011, the parties entered into an Amended Stipulation and Agreement of Settlement and Release, and plaintiff filed an Unopposed Motion for Order to Preliminarily Approve Derivative Litigation Settlement. The Court denied plaintiffs motion without prejudice on October 6, 2011, directing plaintiff to re-submit an amended motion for preliminary approval of settlement to the Court. On November 2, 2011, the Court granted plaintiff’s amended motion for preliminary approval of settlement~~. The~~, ~~Court~~which ~~has~~in ~~scheduled~~sum involves the implementation of a ~~Settlement~~corporate ~~Hearing~~governance ~~for~~change by the Company and an agreement by the Company’s insurance carrier to pay Plaintiff’s counsel an award of fees in an amount determined by the court, but not more than $250,000 (“Settlement”). On February 24, 2012, ~~where~~ the Court ~~will~~conducted a hearing to determine whether to ~~approve~~give final approval to the ~~proposed~~Settlement ~~settlement~~and to evaluate the request for attorneys’ fees sought by Plaintiff’s counsel. ~~Additional~~At ~~information~~the ~~regarding~~conclusion of the February 24, 2012 hearing, the court took these matters under advisement and overruled three objections to the Settlement ~~Hearing~~submitted by shareholders of the Company. The Company has paid to date the insurance deductible of $250,000 and the ~~details~~remainder of the ~~pending~~Company’s ~~settlement~~counsel ~~can~~fees will be covered ~~found~~by atthe ~~www~~Company’s insurance carrier.~~oilsandsquest.com.~~

As previously disclosed, on February 24, 2011, a putative class action complaint (the "Original Complaint") was filed against the Company and certain current and former officers of the Company on behalf of investors who purchased or sold the Company's securities between August 14, 2006 and July 14, 2009, alleging claims of securities fraud under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and control person liability for such fraud under Section 20(a) of the same act, arising out of the Company's accounting for its acquisition of an interest in OQI Sask in August 2006. On May 27, 2011, the plaintiffs in that putative class action filed an amended complaint (the "Amended Complaint") alleging the same legal causes of action but making the following changes from the Original Complaint: a) expanding the putative class period so that it runs from March 20 2006 to January 13, 2011; b) naming as additional defendants eight individuals who are current or former directors of the Company as well as two additional corporate defendants, McDaniel & Associates Consultants Ltd. and TD Securities, Inc.; and c) basing the claimed fraud on a new theory that the Company overstated the value of its mineral rights as a result of misstatements about, among other things, the potential for extracting bitumen from oil sands lands for which the Company had exploration and development permits. The Amended Complaint seeks unspecified damages~~. The~~ and the Company believes the suit is without merit and intends to defend itself vigorously. On June 6, 2011, the Company filed a motion to dismiss the Amended Complaint. On June 20, 2011, the plaintiffs filed their opposition to the motion to dismiss. The Company filed its reply to the plaintiffs' opposition on June 27, 2011 and on July 29, 2011, the court heard oral arguments and reserved decision. On August 5, 2011, the two remaining defendants moved to dismiss the Amended Complaint. On September 16, 2011, the Court denied the Company's motion to dismiss the Amended Complaint. On September 29, 2011, the defendants answered the Amended Complaint. ~~Discover~~ isAs ~~ongoing. The~~a ~~Company~~consequence ~~believes~~of commencing US Chapter 15 proceedings, the ~~claims~~case ~~are~~has ~~without~~been ~~merit~~stayed on an interim basis until the Court can hear and decide the motion seeking a stay for the pendency of the US Chapter 15 proceedings.

On April 13, 2011, a derivative action entitled Proctor v. Wilson, et al., Case No 2011CV2769 was filed in District Court, Denver County, Colorado. The derivative action names the following individual defendants: T. Murray Wilson, Ronald Blakely, Paul Ching, Christopher H. Hopkins, Brian F. MacNeill, Ronald Philips, John Read, Gordon Tallman and Pamela Wallin. In addition, the Company is named as a nominal defendant. Plaintiff asserts, among other things, claims for breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement and waste against the defendants relating to the alleged failure to properly account for the Company’s acquisition of a minority interest in Oilsands Quest Sask Inc. and the Company’s restatement of its financial statements for certain periods. The plaintiff seeks unspecified damages on behalf of the Company, restitution on behalf of the Company, unspecified disgorgement of profits, unspecified equitable relief and reasonable costs and expenses including counsel fees and experts' fees. Plaintiff sought and obtained approval from the court to file an amended complaint on September 8, 2011. On October 17, 2011, the defendants filed a motion to dismiss the amended complaint. Plaintiffs’ response to the motion to dismiss is due on December 15, 2011. On December 1, 2011, the plaintiff requested and was granted a stay of all proceedings. The Company believes the claims are without merit.24

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Under Creditor Protection Proceedings as of November 29, 2011 - note 1)

(Unaudited)

On April 13, 2011, a derivative action entitled Proctor v. Wilson, et al., Case No 2011CV2769 was filed in District Court, Denver County, Colorado. The derivative action names the following individual defendants: T. Murray Wilson, Ronald Blakely, Paul Ching, Christopher H. Hopkins, Brian F. MacNeill, Ronald Philips, John Read, Gordon Tallman and Pamela Wallin. In addition, the Company is named as a nominal defendant. Plaintiff asserts, among other things, claims for breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement and waste against the defendants relating to the alleged failure to properly account for the Company’s acquisition of a minority interest in Oilsands Quest Sask Inc. and the Company’s restatement of its financial statements for certain periods. The plaintiff seeks unspecified damages on behalf of the Company, restitution on behalf of the Company, unspecified disgorgement of profits, unspecified equitable relief and reasonable costs and expenses including counsel fees and experts' fees. Plaintiff sought and obtained approval from the court to file an amended complaint on September 8, 2011. On October 17, 2011, the defendants filed a motion to dismiss the amended complaint. Plaintiffs’ response to the motion to dismiss is due on December 15, 2011. On December 1, 2011, the plaintiff requested and was granted a stay of all proceedings. On January 3, 2012, the plaintiff sought to lift the stay. By joint motion dated February 17, 2012, plaintiff agreed to hold the motion to lift stay in abeyance pending the outcome of the Chapter 15 proceedings. The Company believes the claims are without merit.

Commitments

The Company is subject to annual lease rentals, minimum exploration expenditures and work commitments related to its exploration permits, licenses and lease assets. For details of these required expenditures, refer to note 6.

1415. SUBSEQUENT EVENTS

a) On ~~November~~February 2916, ~~2011~~2012, the Company ~~requested and~~ obtained an ~~Order~~extension ~~from~~of the ~~Alberta~~order ~~Court~~from ~~of Queen’s Bench (~~the “Court”) providing creditor protection under the ~~Companies’ Creditors Arrangement Act (Canada) ("~~CCAA~~").~~ ~~After~~until ~~considering~~May ~~all~~18 available alternatives, the Board of Directors of Oilsands Quest has decided to seek CCAA protection following the inability of the Company and the third party that had signed a Letter of Intent to purchase the Company’s Wallace Creek asset to meet the terms of that Letter of Intent, thus causing the termination of the Company's negotiations with the third party2012. ~~While under CCAA protection, the Company will continue with its day to day operations.~~

b) InOn ~~November~~February ~~2011~~7, 2012, the ~~Company~~Monitor, ~~received~~in ~~approval~~its ~~from~~capacity as Oilsands Quest’s Foreign Representative, commenced proceedings in the ~~Government~~US ofBankruptcy ~~Alberta~~Code pursuant to ~~extend~~Chapter 15 of the ~~expiry~~United ~~date~~States onBankruptcy ~~its~~Code. ~~Alberta~~This ~~Oil~~order ~~Sands~~would ~~Permits~~allow atthe ~~Wallace~~CCAA ~~Creek~~proceedings to be recognized as foreign main proceedings along with the automatic stay and ~~Raven~~certain ~~Ridge~~other byprovisions ~~two~~of ~~years~~the ~~from~~US Bankruptcy Code to take effect within the ~~original~~United ~~expiry~~States. ~~date~~A final hearing on such recognition is scheduled for March 15, 2012.

c) ~~The~~On ~~SPA~~February ~~entered~~16, ~~into~~2012, ~~with~~the ~~Socius~~Court ongranted ~~October~~the ~~17,~~Company’s ~~2011~~motion ~~(described~~to inapprove ~~Note~~secured ~~11)~~interim ~~was~~DIP ~~automatically~~financing ~~terminated~~with onCentury ~~November~~Services ~~29,~~Inc. ~~2011~~for ~~upon~~a ~~filing~~maximum of CDN$3.75 million to fund operating costs and other expenses while the ~~CCAA~~Company ~~protection~~proceeds with the Solicitation Process. The DIP financing is a twelve month term demand facility and will be available for draw down by mid-March 2012. The terms of DIP financing have yet to be finalized.

17d) On February 22, 2012, the Court approved the sale of the Company’s non-core Eagles Nest asset to FAMA, an unrelated third party, for CDN$7.0 million. The approval followed a short Court-directed limited bidding process, and the Company signed a Purchase and Sale Agreement with FAMA. FAMA paid deposits in the amount of CDN$50,000 and was required to pay an additional deposit of CDN$350,000 on February 24, 2012. However, FAMA did not make the deposit and the agreement was terminated. On March 7, 2012, the Court approved a new bidding process for the Eagles Nest asset. Bids for the asset are to be submitted to the Monitor by 4 PM MST, March 12, 2012. The bids must be accompanied by an unconditional executed Purchase and Sale Agreement and a deposit representing 10% of the purchase price with closing to occur on or before March 30, 2012.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion addresses material changes in our results of operations and capital resources and uses for the three and ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012, compared to the three and ~~six~~nine months ended ~~October~~January 31, ~~2010~~2011, and our financial condition and liquidity since April 30, 2011. We presume that readers have read or have access to our 2011 Annual Report on Form 10-K/A, which includes disclosure regarding critical accounting policies and estimates as part of Management’s Discussion and Analysis of Financial Condition and Results of Operation. Unless otherwise stated, all dollar amounts are expressed in U.S. dollars. All future payments in Canadian dollars have been converted to U.S. dollars using an exchange rate of $1.00 U.S. = $01.~~9935~~0052 CDN, which was the ~~October~~January 31, ~~2011~~2012 exchange rate.

Overview

Recent Events

OnThe ~~November~~Company ~~29,~~has ~~2011,~~secured weDIP ~~requested~~financing ~~and~~of ~~obtained~~CDN$3.75 anmillion ~~Order~~for ~~from~~ the ~~Alberta~~purpose ~~Court~~ of ~~Queen’s~~funding ~~Bench~~operating (costs and other expenses while the ~~"Court")~~Company ~~providing~~proceeds with a Solicitation Process while under creditor protection. ~~under~~The ~~the~~DIP ~~Companies’~~financing ~~Creditors~~is ~~Arrangement~~a ~~Act~~twelve ~~(Canada)~~month ~~("CCAA").~~term ~~While~~demand ~~under~~facility ~~CCAA~~and ~~protection,~~is ~~the~~expected ~~Company~~to ~~will~~be ~~continue~~available ~~with~~for ~~its~~draw ~~day~~down by mid-March 2012. The terms of DIP financing have yet to ~~day~~be ~~operations~~finalized.

InOn ~~November 2011~~February 22, 2012, the Court approved the sale of the Company’s ~~received~~non-core ~~approval~~Eagles Nest asset to ~~extend~~FAMA Capital Ltd. (“FAMA”), an unrelated third party, for CDN$7.0 million. The approval followed a short Court-directed limited bidding process, and the ~~termination~~Company ~~date~~signed a Purchase and Sale Agreement with FAMA. FAMA paid deposits in the amount of ~~its~~CDN$50,000 ~~remaining~~and ~~permits~~was atrequired ~~Wallace~~to ~~Creek~~pay an additional deposit of CDN$350,000 on February 24, 2012. However, FAMA did not make the deposit and ~~Raven~~the ~~Ridge~~agreement was terminated. On March 7, 2012, the Court approved a new bidding process for the Eagles Nest asset. Bids for the asset are to be submitted to the Monitor by ~~two~~4 ~~years~~PM ~~from~~MST, March 12, 2012. The bids must be accompanied by an unconditional executed Purchase and Sale Agreement and a deposit representing 10% of the ~~original~~purchase ~~expiration~~price ~~date~~with closing to occur on or before March 30, 2012.

~~Three~~On ~~Months~~November ~~Ended~~29, 2011, the NYSE Amex LLC ("NYSE") halted trading in the common shares of the Company (symbol: BQI). The NYSE may proceed to delist the Company for failure to meet the continued listing requirements of the NYSE and as a result of the Company proceeding under the CCAA. The Company's common shares will remain suspended from trading until a delisting occurs, or until the NYSE permits the resumption of trading. On February 24, 2012, the ~~October~~NYSE 31granted the Company an extension until May 18, ~~2011~~2012 to regain compliance with the continued listing standards. The Company’s shares are currently not traded on an active market.

Three Months Ended January 31, 2012

On November 22, 2011, the Company received approval to extend the termination date of its remaining permits at Wallace Creek and Raven Ridge by two years from the original expiration date.

On November 29, 2011, we requested and obtained an Order from the Alberta Court of Queen’s Bench (the "Court") providing creditor protection under the Companies’ Creditors Arrangement Act (Canada) ("CCAA"). While under CCAA protection, the Company will continue with its day to day operations.

Effective December 20, 2011, Gordon Tallman and Pamela Wallin resigned from the Board of Directors.

The Company will conduct a process to solicit offers to acquire, restructure or recapitalize the Company (the “Solicitation Process”). The Company has reengaged TD Securities Inc. (“TD Securities”) as its financial advisor to assist it with this process.

Nine Months Ended January 31, 2012

On May 17, 2011, we provided new resource estimates for Wallace Creek following the 2011 winter drilling program.

On June 27, 2011, we received an extension of our permits at Wallace Creek until March 31, 2013.

On July 15, 2011, we received approval from the Government of Saskatchewan to convert portions of the Axe Lake permits to 15-year leases. The two leases, OSA00001 and OSA00002 will be governed under the terms of the Petroleum and Natural Gas Regulations, 1969 and will expire on March 31, 2027.

On July 18, 2011, the Company commenced a Rights Offering under which the existing shareholders were given the right to purchase shares in the Company. This Rights Offering process was terminated on September 12, 2011 as the negotiation of a material transaction had reached an advanced stage and would have significantly changed the use of proceeds described in the rights offering prospectus.

On September 25, 2011, the company entered into a non-binding Letter of Intent with a third party to sell its Wallace Creek assets for total consideration of $60 million, which included $40 million cash at closing and a $20 million contingent payment subject to certain future events. On November 28, 2011, negotiations with the third party for the sale of the Wallace Creek assets were terminated.

As previously announced, we relinquished the licenses in Saskatchewan and the southernmost permits at Raven Ridge in Alberta as we did not view these areas as being prospective for future development. All of our activities in Saskatchewan will now be focused on the development of the Axe Lake leases.

· ~~During~~Various ~~the quarter, various~~ exploration permits for the oil shale properties in Pasquia Hills expired. We continue to hold one permit in the Pasquia Hills area near Hudson Bay, Saskatchewan.

On October 17, 2011, the Company entered into a securities purchase agreement to sell up to $12 million of redeemable preferred shares. This agreement automatically terminated when the Company filed for CCAA protection.

Six Months Ended October 31, 2011

· On May 17, 2011 we provided new resource estimates for Wallace Creek following the 2011 winter drilling program.

· On June 27, 2011, we received an extension of our permits at Wallace Creek until March 31, 2013.

· We provided an operational update at the TD Unconventional Oil Conference in Calgary on July 6, 2011.

· On July 15, 2011 we received approval from the Government of Saskatchewan to convert portions of the Axe Lake permits to 15-year leases. The two leases, OSA00001 and OSA00002 will be governed under the terms of the Petroleum and Natural Gas Regulations, 1969 and will expire on March 31, 2027.

Companies’ Creditors Arrangement Act (Canada) (“CCAA”) Proceedings and Going Concern

On November 29, 2011, Oilsands Quest Inc. and ~~certain~~its subsidiaries (collectively, the “Company” or “Oilsands Quest”), requested and obtained an order from the Alberta Court of Queen’s Bench (the “Court”) providing creditor protection under the Companies’ Creditors Arrangement Act (Canada) (“CCAA”). While under CCAA protection, the Company will continue with its day to day operations. CCAA protection stays creditors and others from enforcing rights against the Company and affords Oilsands Quest the opportunity to restructure its financial affairs. The ~~initial~~stay ~~order~~of proceeding is currently in effect until ~~December~~May 2118, ~~2011~~2012, and may be further extended as required and approved by the Court.

Under the terms of the initial order, Ernst & Young Inc. was named as the court-appointed monitor (“Monitor”) under CCAA. The Monitor will monitor the Company's property, business and financial affairs and report to the Court from time to time on the Company’s financial and operational position and any other matters that may be relevant to the CCAA proceeding. In addition, the Monitor may advise the Company on the development of a comprehensive restructuring plan and, to the extent required, assist the Company with a restructuring.26

~~While~~Under ~~under CCAA protection,~~ the ~~Board~~terms of ~~Directors~~the ~~maintains~~initial ~~its~~order, ~~usual~~Ernst ~~role~~& ~~and~~Young ~~management~~Inc. ofwas ~~the~~named ~~Company~~as ~~remains responsible for~~ the ~~day~~court-appointed tomonitor ~~day operations~~(“Monitor”). The ~~Board~~Monitor ofwill ~~Directors~~monitor the Company's assets and ~~management~~liabilities, ~~with~~business ~~advice~~and ~~from~~financial ~~the~~affairs ~~Monitor, will~~and bereport ~~responsible~~to ~~for~~the ~~determining~~Court ~~whether~~from atime ~~given~~to ~~plan~~time ~~for~~on ~~restructuring~~ the Company’s ~~affairs~~financial isand ~~feasible. Stakeholders~~operational ~~whose~~position ~~rights~~and ~~would~~any beother ~~compromised~~matters bythat ~~the~~may ~~plan~~be ~~will~~relevant ~~have~~to anthe ~~opportunity~~CCAA toproceedings. ~~vote~~In onaddition, the ~~plan.~~Monitor ~~Before a~~may ~~plan~~advise isthe ~~implemented~~Company iton ~~must~~the bedevelopment ~~approved~~of bya ~~the~~comprehensive ~~requisite~~restructuring ~~number~~plan and, ~~value~~to ofthe ~~affected~~extent ~~stakeholders~~required, ~~contemplated~~assist bythe ~~law~~Company ~~and~~with ~~approved~~a ~~by the Court~~restructuring.

~~CCAA~~On ~~protection~~February ~~enables~~7, 2012, the ~~Company~~Monitor, toin ~~continue with~~ its ~~day~~capacity toas ~~day~~Oilsands ~~operations~~Quest’s ~~until~~Foreign ~~the~~Representative, ~~CCAA~~commenced ~~status~~proceedings ~~changes.~~in ~~The~~the ~~implications~~United ofStates ~~this~~Bankruptcy ~~process~~Code for ~~Oilsands~~the ~~Quest~~Southern ~~shareholders~~District ~~will~~of ~~not~~New beYork ~~known~~("US ~~until~~Bankruptcy ~~the~~Code") ~~end~~pursuant to Chapter 15 of the ~~restructuring~~United ~~process~~States Bankruptcy Code. IfThis order would allow the ~~affected~~CCAA ~~stakeholders~~proceedings doto ~~not~~be ~~approve~~recognized aas ~~plan~~foreign inmain proceedings along with the ~~manner~~automatic ~~contemplated~~stay byand ~~law,~~certain ~~Oilsands~~other ~~Quest~~provisions ~~will~~of ~~likely~~the beUS ~~placed~~Bankruptcy ~~into~~Code ~~receivership~~to ortake ~~bankruptcy~~effect within the United States. IfMotions byseeking ~~December~~a ~~21,~~joint ~~2011,~~administration ~~Oilsands~~of ~~Quest~~the ~~has~~Chapter ~~not~~15 ~~obtained~~cases anand ~~extension~~approval of the ~~initial~~form ~~order~~and ormanner ~~filed~~of anotice ~~plan~~of ,the ~~creditors~~Chapter 15 petitions and ~~others~~hearing ~~will~~were nogranted ~~longer~~by bethe ~~stayed~~US ~~from~~Bankruptcy ~~enforcing~~Court ~~their~~on ~~rights~~February 8, 2012. A final hearing on such recognition is scheduled for March 15, 2012.

InWhile ~~connection~~under CCAA protection, the Board of Directors maintains its usual role and management of the Company remains responsible for the day to day operations. The Board of Directors and management, with advice from the ~~CCAA~~Monitor, will be responsible for determining whether a given plan for restructuring the Company’s ~~has~~affairs ~~granted~~is feasible. Certain stakeholders whose rights would be compromised by the plan will have an opportunity to vote on the plan. Before a ~~charge~~plan ~~against~~is ~~its~~implemented ~~assets~~it ~~and~~must ~~any~~be ~~proceeds~~approved ~~from~~by the requisite number and ~~sales~~value ~~thereof,~~of asaffected ~~follows~~stakeholders contemplated by law and inapproved by the ~~following priority:~~Court.

·CCAA ~~First,~~protection anenables ~~administration~~the ~~charge,~~Company into ancontinue ~~amount~~with ~~not~~its day to ~~exceed~~day ~~CAD$1~~operations ~~million,~~until inthe ~~favour~~CCAA status changes. The implications of this process for Oilsands Quest shareholders will not be known until the ~~Monitor~~end ~~and~~of ~~its~~the ~~counsel~~restructuring ~~and~~process. ~~counsel~~If tothe affected stakeholders do not approve a plan in the ~~Company~~manner contemplated by law, toOilsands ~~secure~~Quest ~~payment~~will oflikely ~~professional~~be ~~fees~~placed ~~and~~into ~~disbursements~~receivership ~~before~~or ~~and~~bankruptcy. ~~after~~If ~~the~~by ~~commencement~~May 17, 2012, Oilsands Quest has not obtained a further extension of the ~~CCAA~~initial ~~proceedings;~~order or filed a plan, creditors and others will no longer be stayed from enforcing their rights.

·In ~~Second,~~connection awith ~~directors'~~the ~~and~~CCAA ~~officers' charge~~proceedings, ~~in an amount not to exceed CAD$1 million, in favour of~~ the ~~directors and officer of the~~ Company ashas ~~security~~granted ~~for~~a ~~the~~charge ~~Company's~~against ~~obligation~~its toassets ~~indemnify~~and ~~them~~any ~~against~~proceeds ~~obligations~~from and ~~liabilities~~sales ~~that~~thereof, ~~they may incur~~ as ~~directors~~follows and ~~officers~~in ~~after~~ the ~~commencement~~following ~~of the CCAA proceedings.~~priority:

~~While~~· ~~the~~First, ~~Company’s~~a ~~assets on its balance sheet are~~ Debtor-in-Possession ~~excess~~(“DIP”) ofCharge ~~its~~to ~~liabilities,~~Century ~~the~~Services ~~majority~~Inc. ~~of the asset value is~~ in ~~long~~sums ~~term,~~as ~~heavy~~may ~~oil~~be ~~production~~borrowed ~~reserves~~up ~~that~~to ~~will~~$3.75 ~~require~~million ~~substantial~~(discussed ~~further~~in ~~investment~~detail ~~to bring on to production.~~below);

~~Background~~· Second, an administration charge, in an amount not to exceed CAD$1 million, in favour of the Monitor and its counsel and counsel to the Company, to secure payment of professional fees and disbursements before and after the commencement of the CCAA ~~Proceeding~~proceedings; and

On· ~~August~~a ~~17,~~financial ~~2010~~advisor ~~the~~charge ~~Company~~in ~~announced that it had initiated~~ a ~~process~~maximum toamount ~~explore~~of ~~strategic~~CAD$1 ~~alternatives~~million ~~for~~in ~~enhancing~~connection ~~shareholder~~with ~~value. The strategic alternative process was overseen by a~~ the ~~special~~engagement ~~committee~~of ~~("Special Committee") with advice from~~ TD Securities Inc. ~~which~~(“TD ~~was~~Securities”). ~~engaged~~This ascharge aranks ~~financial~~equally ~~advisor to assist~~ with ~~this~~the ~~process. The~~administration ~~Special Committee considered all alternatives to increase shareholder value, including strategic financing opportunities, asset divestitures, joint ventures~~ and~~/or~~ represents a ~~corporate~~security ~~sale,~~for ~~merger~~all oramounts ~~other~~due ~~business~~to ~~combination. The~~be ~~Company~~paid ~~had~~to ~~many~~TD ~~initial~~Securities ~~expressions~~pursuant ofto ~~interest~~their ~~and~~engagement; ~~exploratory conversations~~ and ~~signed confidentiality agreements with a number of entities who carried out detailed due diligence.~~

Third, a directors' and officers' charge, in an amount not to exceed CAD$1 million, in favour of the directors and officers of the Company as security for the Company's obligation to indemnify them against obligations and liabilities that they may incur as directors and officers after the commencement of the CCAA proceedings.

While the Company’s assets on its balance sheet are in excess of its liabilities, the majority of the asset value is in long term bitumen resource properties that will require substantial further investment to bring on to production.

Background to the CCAA Proceedings

The formal strategic alternative process did not result in any proposals to the Company, and the process was concluded in June, 2011 upon the recommendation of the Special Committee.

The Company then proceeded to attempt to raise the funds required to advance the development of the Company's assets and on July 18, 2011, the Company commenced a Rights Offering under which the existing shareholders were given the right to purchase shares in the Company. This Rights Offering process was terminated, on the basis of the factors described below, on September 12, 2011, and the Company has, to date, been unable to raise the funds required to advance the development of the Company's assets. The decision to cancel the Rights Offering was based on the fact that the negotiation of a material transaction had reached an advanced stage – a transaction that would, if consummated, significantly change the use of proceeds described in the Rights Offering prospectus and that the Company would not achieve a full $60 million subscription through the Rights Offering, perhaps at least partially due to weak market conditions.27

OnThe ~~September~~Company 25then proceeded to attempt to raise the funds required to advance the development of the Company's assets and on July 18, 2011, the Company ~~entered~~commenced ~~into~~ a ~~non-binding~~Rights ~~Letter~~Offering ofunder ~~Intent~~which ~~with~~the aexisting ~~third~~shareholders ~~party~~were given the right to ~~sell~~purchase ~~its~~shares ~~Wallace~~in ~~Creek~~the ~~assets~~Company. This ~~for~~Rights ~~total~~Offering ~~consideration~~process was terminated, on the basis of ~~$60~~the ~~million~~factors described below, ~~which~~on ~~included~~September ~~$40~~12, ~~million~~2011, ~~cash~~and atthe ~~closing~~Company ~~and~~has, ato ~~$20~~date, ~~million~~been ~~contingent~~unable ~~payment~~to ~~subject~~raise the funds required to ~~certain~~advance ~~future~~the ~~events~~development of the Company's assets. The ~~sale~~decision ofto cancel the ~~Wallace~~Rights ~~Creek~~Offering ~~property~~was based on the fact that the negotiation of a material transaction had reached an advanced stage – a transaction that would have, ~~provided~~if ~~the~~consummated, ~~Company~~significantly ~~with~~changed the ~~financial~~use ~~resources~~of toproceeds ~~focus~~described onin ~~moving~~the ~~its~~Rights ~~largest~~Offering prospectus and ~~most~~that ~~advanced~~the ~~asset,~~Company ~~Axe~~would ~~Lake~~not achieve a full $60 million subscription through the Rights Offering, ~~toward~~perhaps ~~commercial~~at ~~development~~least partially due to weak market conditions.

18On September 25, 2011, the Company entered into a non-binding Letter of Intent with a third party to sell its Wallace Creek assets for total consideration of $60 million, which included $40 million cash at closing and a $20 million contingent payment subject to certain future events. The sale of the Wallace Creek property would have provided the Company with the financial resources to focus on moving its largest and most advanced asset, Axe Lake, toward commercial development. Completion of the transaction was subject to a number of terms and conditions, including negotiation of a definitive agreement, board approvals, due diligence, financing and approval by the Company's shareholders. On November 28, 2011, negotiations for the sale of the Wallace Creek assets were terminated as the potential purchaser could not complete the conditions outlined above within the time frames agreed to in the Letter of Intent.

~~Completion~~Following of the ~~transaction~~termination ~~was subject to a number~~ of ~~terms~~the ~~and~~negotiations ~~conditions,~~for ~~including~~the ~~negotiation~~sale of athe ~~definitive~~Wallace ~~agreement~~Creek, ~~board~~the ~~approvals,~~Company ~~due~~initiated ~~diligence,~~the ~~financing~~CCAA ~~and~~process ~~approval~~in ~~by the~~order ~~Company's~~to ~~shareholders.~~preserve Onits ~~November~~liquidity ~~28,~~and ~~2011,~~fund ~~negotiations~~operations ~~for~~during the ~~sale~~restructuring ofprocess. ~~the~~The ~~Wallace~~CCAA ~~Creek~~process ~~assets~~will ~~were~~allow ~~terminated as~~ the ~~potential~~Company ~~purchaser~~to ~~could~~reassess ~~not~~its ~~complete~~business ~~the~~strategy ~~conditions~~with ~~outlined~~a ~~above~~view ~~within~~to ~~the~~developing ~~time~~a ~~frames~~comprehensive ~~agreed~~financial toand inbusiness ~~the~~restructuring ~~Letter of Intent~~plan.

~~Following~~On ~~the~~January ~~termination~~11, of2012 the ~~negotiations~~Company ~~for~~received ~~the~~an ~~sale~~approval offrom the ~~Wallace~~Court ~~Creek,~~to ~~the~~conduct ~~Company~~a ~~initiated the CCAA~~ process ~~in order~~ to ~~preserve~~solicit ~~its~~offers ~~liquidity~~to ~~and~~acquire, ~~fund~~restructure ~~operations~~or ~~during~~recapitalize the ~~restructuring~~Company ~~process. CCAA will allow~~ (the ~~Company~~“Solicitation ~~to reassess its business strategy with a view to developing a comprehensive financial and business restructuring plan~~Process”).

ToThe ~~date~~Solicitation ~~the~~Process ~~Company~~is ~~has~~being ~~not~~overseen ~~received~~by ~~any~~a ~~revenue~~Special ~~from~~Committee ~~any~~chaired ofby ~~its~~Paul ~~natural~~Ching, ~~resource~~and ~~properties~~including Ronald Blakely and Brian MacNeill, ~~none~~all of ~~its~~whom ~~estimated~~are ~~bitumen resources~~independent ~~have~~directors. ~~been~~The ~~classified~~Special asCommittee ~~proved~~will ~~reserves~~consider all alternatives in developing a plan, ~~and~~including ~~the~~strategic ~~Company's~~financing ~~exploration~~opportunities, ~~and~~asset ~~development~~divestitures, ~~work~~joint isventures ~~capital~~and/or ~~intensive.~~a ~~The~~corporate ~~Company~~sale, ~~expects~~merger ~~that~~or ~~significant~~other ~~additional~~business ~~exploration~~combination, and ~~development~~will ~~activities~~ultimately ~~will~~recommend bea ~~necessary~~course of action to ~~establish~~the ~~proved~~Company’s ~~bitumen~~full ~~reserves,~~Board and tothe ~~develop~~Monitor. With the ~~infrastructure~~Court’s ~~necessary~~approval, the Company has reengaged TD Securities as financial advisor to ~~facilitate~~assist ~~production,~~it ~~from~~with ~~the~~this ~~reserves~~process. As atTD ~~October~~Securities ~~31,~~is ~~2011,~~familiar ~~the~~with ~~Company~~Oilsands ~~had~~Quest’s ~~negative~~assets ~~working~~and ~~capital~~business as a result of $5previous engagements and has assisted Oilsands Quest in prior discussions with potentially interested parties.6 ~~million~~TD ~~(excluding~~Securities ~~restricted~~has ~~cash),~~begun ~~including~~soliciting ~~cash~~indications of interest from prospective strategic or financial parties and ~~cash~~several ~~equivalents~~confidentiality ofagreements $4have been signed with interested parties.5 ~~million~~Given the time required for potential purchasers to conduct their due diligence, the Company expects to shortlist potential bidders and aseek ~~deficit~~binding ~~accumulated~~offers ~~during~~under the ~~development~~process ~~phase~~by ofApril ~~$721.7~~27, ~~million~~2012.

~~During~~To date the ~~six~~Company ~~months~~has ~~ended~~not ~~October~~received ~~31,~~any ~~2011~~revenue from any of its natural resource properties, ~~the~~none ~~Company~~of ~~expended~~its ~~$8.4~~estimated ~~million~~bitumen onresources ~~operating~~have ~~activities~~been ~~and~~classified ~~$2.8~~as ~~million~~proved onreserves, ~~property~~and the Company's exploration and ~~equipment~~development work is capital intensive. ~~Management~~The ~~anticipates~~Company expects that ~~the~~significant ~~Company~~additional exploration and development activities will be ~~able~~necessary to ~~fund~~establish ~~its~~proved ~~activities~~bitumen atreserves, aand ~~reduced~~to ~~level~~develop ~~through~~the ~~January~~infrastructure ~~2012~~necessary ~~with~~to ~~its~~facilitate ~~cash~~production, ~~and~~from ~~cash~~those ~~equivalents~~reserves. As as at ~~October~~January 31, ~~2011. Accordingly~~2012, ~~there~~the isCompany ~~substantial~~had ~~doubt~~working ~~about~~capital ~~our~~of ~~ability~~$1.1 tomillion ~~continue~~(excluding asrestricted acash), ~~going~~including ~~concern~~cash and ~~without~~cash ~~additional~~equivalents ~~working~~of ~~capital~~$1.8 million, weand ~~may~~a ~~not~~deficit beaccumulated ~~able~~during tothe ~~maintain~~development ~~operations~~phase ~~beyond~~of ~~January~~$726.0 ~~2012~~million.

During the nine months ended January 31, 2012, the Company expended $11.4 million on operating activities $2.0 million on property and equipment and $0.5 million on funding restricted cash. Management anticipates that the Company will be able to fund its activities at a reduced level through June 2012 with its working capital as at January 31, 2012 and the interim DIP facility of $3.75 million to be available for draw-down by mid-March 2012. Accordingly, there is substantial doubt about our ability to continue as a going concern and without additional working capital, we may not be able to maintain operations beyond June 2012.

The accompanying consolidated financial statements have been prepared using U.S. GAAP and the rules and regulations of the SEC as consistently applied by Oilsands Quest prior to the CCAA. While the Company has filed for and been granted creditor protection, the consolidated financial statements continue to be prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The CCAA provides the Company with a period of time to stabilize its operations and financial condition and develop a plan. However, it is not possible to predict the outcome of these proceedings and, as such, the realization of assets and discharge of liabilities are each subject to significant uncertainty. Further, it is not possible to predict whether the actions taken in any plan will result in sufficient improvements to the Company’s financial condition to allow it to continue as a going concern. If the going concern basis is not appropriate, adjustments will be necessary to the carrying amounts and/or classification of the Company’s assets and liabilities. Further, a comprehensive restructuring plan could materially change the carrying amounts and classifications reported in the consolidated financial statements.

The accompanying consolidated financial statements do not purport to reflect or provide for the consequences of the CCAA. In particular, such consolidated financial statements do not purport to show: (a) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (b) as to pre-petition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (c) as to shareholders accounts, the effect of any changes that may be made in the Company’s capitalization; or (d) as to operations, the effect of any changes that may be made in the Company’s business.

On November 29, 2011, the NYSE ~~Amex ("NYSE")~~ halted trading in the common shares of the Company (symbol: BQI). The NYSE may proceed to delist the Company for failure to meet the continued listing requirements of the NYSE and as a result of the Company proceeding under the CCAA. The Company's common shares will remain suspended from trading until a delisting occurs, or until the NYSE permits the resumption of trading. The NYSE granted the Company an extension until May 18, 2012 to regain compliance with the continued listing standards. The Company’s shares are currently not traded on an active market.

The Company does not currently have sufficient capital resources to carry out the exploration and development plans described above. See "Corporate" and "Liquidity and Capital Resources" below.

Operations Summary:

Axe Lake Camp

The Company has signed a series of agreements with Cenovus Energy Inc. (“Cenovus”) under which Oilsands Quest Sask Inc. is providing camp and other services as Cenovus conducts operations in the area. These agreements allow the Company to recover operating and general administrative costs during the terms of the agreements.

Axe Lake Area – Reservoir Development Activities

We received approval from the Government of Saskatchewan to convert portions of the Axe Lake permits to 15-year leases. These leases, the first oil sands leases in Saskatchewan, are one of the key elements the Company needs in place to proceed to development of a commercial oil sands production facility.

The two leases, OSA00001 and OSA00002, will give us the certainty of land tenure we need to underpin commercial development at Axe Lake and are governed under the terms of the Petroleum and Natural Gas Regulations, 1969 (“1969 Regulations”). The leases expire on March 31, 2027 and may be continued beyond this date if they meet certain requirements of the 1969 Regulations.

WeThe ~~continued~~Company ~~the~~continues ~~procurement~~to ofwork ~~services~~with ~~and materials for~~ the ~~planned~~regulators ~~steam-assisted-gravity~~to ~~drainage~~assess ~~(“SAGD”)~~an ~~pilot.~~issue ~~The~~relating ~~proposed~~to ~~pilot~~the ~~will~~re-abandonment ~~consist~~ of ~~one~~early ~~pair~~exploration ~~of 100~~core ~~meter~~holes. As ~~long~~indicated ~~horizontal~~by ~~wells, with~~ the ~~upper~~Saskatchewan ~~well~~Ministry ~~placed~~of ~~five~~Energy ~~meters~~and ~~below~~Resources("SMER"), ~~the~~it ~~glacial~~is ~~till~~possible ~~cap,~~that orthe ~~overburden,~~outcome ~~and~~of issuch ~~designed~~assessment tocould ~~make~~result ~~use~~in cancellation of the ~~existing~~Axe ~~surface~~Lake ~~facilities.~~leases ~~The~~under ~~SAGD~~the ~~pilot~~governing ~~will~~regulations. It ~~demonstrate~~is ~~the~~possible ~~steam~~that ~~containment~~the ~~properties~~Company, ofbased ~~the~~on ~~glacial~~its ~~till~~current ~~cap~~liquidity and ~~provide~~future ~~information~~estimated ~~essential~~cash ~~for~~flows, ~~the~~may ~~front-end~~not ~~engineering~~be ~~design~~able ~~for~~to comply with the ~~commercial~~requirements ~~development.~~of ~~Further~~the ~~activity~~regulations onand the ~~pilot~~leases ~~project~~may ~~will~~ be ~~dependent~~cancelled. on(See ~~securing~~“Environmental ~~additional~~and ~~financing~~Regulatory” below).

~~Development~~The planning for the steam-assisted-gravity drainage (“SAGD”) pilot has been put on hold as we proceed through the CCAA process. The proposed pilot consists of aone ~~commercial~~pair ~~project~~of ~~remains~~100 ~~subject~~meter tolong ~~financing~~horizontal wells, ~~regulatory~~with ~~and~~the ~~other~~upper ~~contingencies~~well ~~such~~placed asfive ~~successful~~meters ~~reservoir~~below ~~tests,~~the ~~board~~glacial oftill ~~directors’~~cap, ~~approvals~~or overburden, and ~~other~~is ~~risks~~designed ~~inherent~~to inmake use of the ~~oil~~existing ~~sands~~surface ~~industry~~facilities. ~~(See~~The ~~"Risk~~SAGD ~~Factors"~~pilot ~~section~~will demonstrate the steam containment properties of ~~our~~the ~~Form~~glacial 10till cap and provide information essential for the front-~~K/A~~ end engineering design for the ~~year~~commercial ~~ended April~~development. ~~30,~~Further ~~2011~~activity ~~and~~on ~~see~~the ~~Item~~pilot 1Aproject ~~"Risk~~will ~~Factors"~~be ~~below)~~dependent on securing additional financing.

Development of a commercial project remains subject to financing, regulatory and other contingencies such as successful reservoir tests, and other risks inherent in the oil sands industry (See "Risk Factors" section of our Form 10-K/A for the year ended April 30, 2011 and see Item 1A "Risk Factors" below).

Exploration

After analysis of available drilling and seismic data, we concluded that the lands in the south part of Raven Ridge on Permit No. 7006080098 are not prospective and relinquished this permit in August 2011. Relinquishing this land has no impact on the Company's current resource estimates or development plans.

OnDuring ~~June~~the 27nine month period ended January 31, ~~2011~~2012, ~~the~~Saskatchewan ~~Company~~Oil ~~received~~Shale ~~approval~~Permit ~~from~~Nos. ~~Alberta~~PS00222, ~~Energy~~PS00223, toPS00224, ~~extend~~PS00225, ~~the~~PS00226, ~~Wallace~~PS00237 ~~Creek~~and ~~permits~~PS00238 ~~for~~expired anand, ~~additional~~as 67of ~~days~~January to31, ~~March~~2012, 31we hold one exploration permit in Pasquia Hills, ~~2013.~~SHP800001, ~~This~~totaling ~~extension~~83,769 ~~will~~acres ~~allow~~around ~~for~~Hudson ~~two~~Bay, ~~full~~Saskatchewan. ~~seasons~~This ofpermit ~~winter~~will ~~exploration~~expire ~~programs~~on August 13, 2012.

During the quarter ended October 31, 2011, Saskatchewan Oil Shale Permit Nos. PS00222, PS00223, PS00224, PS00225, PS00226, PS00237 and PS00238 expired and, as of October 31, 2011, we hold one remaining exploration permit in Pasquia Hills, SHP800001, totaling 83,769 acres around Hudson Bay, Saskatchewan.

In September 2011, the Government of Alberta announced changes to the "Oil Sands Tenure Resolution, 2010" that would allow permit holders to apply to extend permits with an expiry date between December 1, 2010 and December 1, 2013 by two years.

In addition, the Government of Alberta has temporarily relaxed the drilling requirements for continuing permits to leases from 121 ~~wells~~well per section to 1 well per 3 sections.

InOn November 22, 2011, the Company ~~applied for, and~~ received, approval to extend ~~all of~~ its remaining exploration permits in ~~Wallace~~raven ~~Creek~~Ridge and ~~Raven~~Wallace ~~Ridge~~Creek by two years from their original expiration date. The Raven Ridge and Wallace Creek permits will now expire on March 22, 2014 and January 24, 2015 respectively.

Environmental and Regulatory

The Company is in discussion with the ~~Saskatchewan Ministry of Energy and Resources ("~~SMER") to assess a re-abandonment issue relating to the abandonment of early exploration core holes. We have drilled 359 exploration core holes in Saskatchewan and during a review of our development plans and well records, we determined that 229 of the early-year wells were not abandoned to a standard that meets our thermal development requirements or were not abandoned in accordance with the regulatory requirements.

We have applied for waivers on 83 core holes, the majority of which are located outside the current potential commercial development area and the regulator has indicated that they are willing to consider such waivers on a case by case basis. Our waiver applications are based on the fact that these core holes fall outside the current commercial development area and are therefore located in areas that are not expected to be economically recoverable. We have included approximately 146 core holes in our management’s best estimate of the re-abandonment costs as described in our financial statements. The Company is currently working with SMER to assess the waiver applications. As indicated by the Saskatchewan Ministry of Energy and Resources, it is possible that if the Company does not meet its obligations to re-abandon these core holes, it could result in the cancellation of the Axe Lake permits under the governing regulations.29

~~During~~We have applied to the ~~year~~SMER ~~ended~~for ~~April~~waivers of ~~30,~~our ~~2011~~obligations to re-abandon 83 core holes, wethe ~~completed~~majority anof 18which ~~hole~~are ~~re-abandonment~~located ~~program. We~~outside ~~successfully~~the ~~re-abandoned~~current 14potential ~~core~~commercial ~~holes~~development area and ~~were~~the ~~only~~regulator ~~partially~~has ~~successful~~indicated inthat ~~our~~they ~~attempt~~are willing to ~~re-abandon~~consider ~~the~~such ~~other~~waivers ~~four~~on ~~core~~a ~~holes~~case by case basis. Our ~~Those~~waiver ~~four~~applications are based on the fact that these core holes ~~may~~fall ~~still~~outside ~~contain~~the ~~conduits~~current ~~which~~commercial ~~will~~development ~~require~~area ~~the~~and ~~Company~~are totherefore ~~undertake~~located ~~further~~in ~~monitoring~~areas ~~should~~that aare ~~SAGD~~not ~~project~~expected to be ~~implemented~~economically ~~within~~recoverable. We ~~the~~have ~~vicinity~~included ofapproximately ~~these~~146 core holes. ~~The~~in our management’s best estimate of the re-abandonment ofcosts ~~these~~as ~~four~~described ~~core~~in ~~holes~~our ~~occurred~~financial ~~early~~statements. inThe Company is currently working with the ~~program,~~SMER to assess the waiver applications. As indicated by the Saskatchewan Ministry of Energy and weResources, ~~anticipate~~it ~~high~~is ~~success~~possible ~~rates~~that onif the Company does not meet its obligations to re-~~abandonments~~abandon ~~still~~these tocore ~~come~~holes, it could result in the cancellation of the Axe Lake permits under the governing regulations.

~~The~~During ~~remaining~~the ~~128~~year ended April 30, 2011, we completed an 18 core ~~holes~~hole ~~are~~re-abandonment ~~comprised~~program. We ofsuccessfully are-abandoned ~~combination~~14 ofcore ~~locations~~holes ~~that~~and ~~are~~were only partially successful in orour ~~adjacent~~attempt to re-abandon the ~~commercial~~other ~~development~~four ~~area~~core ~~plus~~holes. Those four core holes may still contain conduits which will require the Company to undertake further monitoring should a ~~portion~~SAGD ofproject be implemented within the vicinity of these core holes. ~~for~~The ~~which~~re-abandonment weof ~~are~~these ~~seeking~~four ~~waivers. Our~~core ~~best~~holes ~~estimate~~occurred ofearly in the ~~undiscounted/gross~~program, ~~costs~~and towe ~~complete~~anticipate ~~this~~high ~~program~~success ~~over~~rates on the ~~next~~re-abandonments ~~four~~still ~~years~~to ~~is $25~~come.~~8 million.~~

19The remaining 128 core holes are comprised of a combination of locations that are in or adjacent to the commercial development area plus a portion of the core holes for which we are seeking waivers. Our best estimate of the undiscounted/gross costs to complete this program over the next four years is $25.5 million.

Management continues to work with the SMER to review the status of the current year’s re-abandonment program given the CCAA protection granted to the Company.

Corporate

On January 17, 2011, the Company entered into an equity distribution agreement (“Agreement”) with Knight Capital Americas, L.P. (“KCA”), a subsidiary of Knight Capital Group, Inc. Under the terms of the Agreement, the Company could ~~may~~ offer and sell shares of common stock by way of “at-the-market” (ATM) distributions on NYSE, up to a maximum of US$20 million until January 1817, 2012, through KCA as sales agent. The shares ~~are~~were distributed at market prices prevailing at the time of each sale and the timing, price and number of shares sold ~~are~~were at our discretion. The number of shares sold on any given day iswas expected to be relatively small compared to the total volume of shares traded. AsUp to the termination of ~~October~~the 31ATM on January 17, ~~2011~~2012, 5,537,137 shares ~~have~~were ~~been~~ distributed ~~under this arrangement~~ for gross proceeds of $3.1 million. Funds raised from the ATM program have been used to finance general corporate purposes. ~~Future sales under this ATM are dependent upon our ability to retain our listing on the NYSE.~~

On October 17, 2011 the Company entered into a Securities Purchase Agreement ("SPA") with Socius CG II, Ltd., a subsidiary of Socius Capital Group (“Socius”). The Company ~~has~~had the right, over a term of two years, to require Socius, subject to the terms and conditions of the SPA, to purchase up to $12 million of Series C redeemable preferred shares (the "Preferred Shares"). The ~~Preferred~~Company ~~Shares~~did ~~bear~~not ~~interest~~sell atany anPreferred ~~annual~~Shares ~~rate~~under the terms of ~~10%~~the SPA. The ~~Company~~SPA ~~may,~~automatically atterminated ~~its~~when ~~sole discretion, submit a tranche notice to Socius to purchase a certain dollar amount of~~ the Company's ~~Preferred~~filed ~~Shares~~for atCCAA ~~$10,000 per share~~protection.

~~Upon the issuance of the initial tranche notice, Socius will also receive warrants to purchase shares of the Company's common stock valued at 35% of the Preferred Share amount.~~ The ~~initial exercise price of the warrants will be equal to the closing bid price of the~~ Company's ~~common~~has ~~stock~~secured ona ~~the~~commitment ~~day~~for ~~preceding~~DIP ~~the~~financing ~~issuance~~ of ~~the first tranche notice~~CDN$3. ~~When~~75 ~~the Company elects to sell a tranche of Preferred Shares~~million, ~~warrants~~for ~~equal to 35% of~~ the ~~value~~purposes of ~~the~~funding ~~Preferred~~operating ~~Shares~~costs ~~will vest~~ and ~~Socius~~other isexpenses ~~obligated~~while ~~to exercise these warrants. The vested warrants will be at a price equal to~~ the ~~closing~~Company ~~bid~~proceeds ~~price~~with onits ~~the~~previously-announced ~~day~~Solicitation ~~preceding~~Process ~~the~~while ~~issuance~~under ofcreditor ~~the~~protection. ~~tranche~~On ~~notice. In~~February ~~addition~~16, ~~Socius is obligated to exercise an additional investment right to purchase common stock valued at 100 per cent of the amount of the Preferred Stock~~2012, ~~at a per share price equal to~~ the ~~exercise~~Court ~~price~~approved of the ~~warrants~~secured ~~associated~~DIP ~~with the sale of Preferred Stock~~financing.

The ~~Company~~DIP ~~cannot~~financing ~~issue~~is a ~~tranche~~twelve ~~notice~~month interm ademand ~~dollar~~facility ~~amount~~and ~~that~~ will ~~result~~be inrepayable on the ~~common~~earlier ~~shares~~of ~~issued~~one inyear ~~accordance~~following ~~with~~closing or the ~~additional~~termination ~~investment~~of ~~right~~the ~~and~~Order ~~related~~from ~~warrants~~the ~~exceeding~~Court ~~9.99%~~providing ofcreditor protection under the ~~then~~CCAA. ~~outstanding~~The ~~shares~~Company ofexpects that the ~~common~~DIP ~~stock.~~facility ~~Socius~~will ~~may~~be ~~elect~~available tofor ~~issue~~draw ~~secured~~down ~~promissory~~by ~~notes~~mid-March ~~for~~2012. The ~~the~~terms ~~purchase~~ of ~~the~~DIP ~~common~~financing ~~shares~~have yet to be finalized. ~~These~~ ~~promissory~~There ~~notes~~can ~~would~~be no assurance that this funding will be ~~for~~sufficient ato ~~five~~fund ~~year~~the ~~term~~Company’s operations and ~~would~~ongoing ~~bear~~creditors’ ~~interest~~obligations atduring anthe ~~annual~~period ~~rate~~that ofthe 2%Company may spend in creditor protection under the CCAA or until a plan is approved.

On February 22, 2012, the Court approved the sale of the Company’s non-core Eagles Nest asset to FAMA, an unrelated third party, for CDN$7.0 million. The approval followed a short Court-directed limited bidding process, and the Company ~~has~~signed ~~not~~a ~~sold~~Purchase ~~any~~and ~~Preferred~~Sale ~~Shares~~Agreement ~~under~~with FAMA. FAMA paid deposits in the ~~terms~~amount of ~~the~~CDN$50,000 ~~SPA~~and was required to pay an additional deposit of CDN$350,000 on February 24, 2012. ~~The~~ ~~SPA~~However, ~~automatically~~FAMA did not make the deposit and the agreement was terminated. ~~when~~On March 7, 2012, the ~~Company~~Court ~~filed~~approved a new bidding process for ~~CCAA~~the ~~protection~~Eagles Nest asset. Bids for the asset are to be submitted to the Monitor by 4 PM MST, March 12, 2012. The bids must be accompanied by an unconditional executed Purchase and Sale Agreement and a deposit representing 10% of the purchase price with closing to occur on or before March 30, 2012.

Effective December 20, 2011, Gordon Tallman and Pamela Wallin resigned from the Board of Directors. The Board is now composed of five members: independent directors Ronald Blakely (Chairman), Paul Ching and Brian MacNeill; OQI founder Christopher Hopkins; and T. Murray Wilson, who will not be standing for re-election at the next Annual General Meeting.

Liquidity and Capital Resources

The following discussion of liquidity and capital resources should be read in conjunction with the consolidated financial statements included in Part I, Item 1. “Financial Statements”. The consolidated financial statements have been prepared assuming that we will continue as a going concern.

~~At October 31, 2011, the Company held cash and cash equivalents totaling $4.5 million (April~~ 30~~, 2011 - $16.0 million).~~

InAt ~~July~~January ~~2011~~31, the Company commenced a $60 million rights offering under which the existing shareholders were given the right to purchase additional shares in the Company based on their pro-rata share ownership. However2012, ~~as described below, due to a potential sale of~~ the ~~Wallace Creek assets that would have impacted the~~ Company’s ~~financial~~held ~~position~~cash and ~~funding~~cash ~~requirements,~~equivalents ~~the~~totaling $601.8 million ~~rights~~(April ~~offering was cancelled on September 12~~30, 2011~~. Thereafter,~~ ~~the Company entered into a non~~-~~binding~~ ~~letter~~$16.0 ~~of intent (the "Letter of Intent"~~million) ~~for the sale of the Wallace Creek assets with a third party on September 25, 2011~~. On November 28, 2011, the third party notified the Company that they could not meet the terms of that Letter of Intent and negotiations were terminated. This transaction would have provided the Company with the capital required to complete the Axe Lake pilot and prove its commercial recoverability. After considering all available alternatives, on November 28, 2011 the Board of Directors of the Company authorized the Company to file for creditor protection under the CCAA. On November 29, 2011 the Company was granted an order from the Court providing creditor protection under CCAA.

~~There~~In ~~can~~July be2011, nothe ~~assurance~~Company ~~that~~commenced a $60 million rights offering under which the ~~Company~~existing ~~will~~shareholders bewere ~~able~~given the right to ~~maintain~~purchase ~~its~~additional ~~protection~~shares ~~under~~in the ~~CCAA~~Company based on their pro-rata share ownership. However, ~~implement~~as described below, due to a ~~plan~~potential insale of the ~~manner~~Wallace ~~contemplated~~Creek byassets ~~law~~that would have impacted the Company’s financial position and funding requirements, ~~implement~~the a$60 ~~transaction~~million orrights ~~recapitalization~~offering orwas ~~emerge~~cancelled ason ~~a solvent~~September ~~company~~12, 2011. Thereafter, Itthe isCompany ~~impossible~~entered tointo ~~predict~~a ~~with~~non-binding ~~certainty~~letter of intent (the ~~length~~ "Letter of ~~time~~Intent") ~~that~~for the ~~Company~~sale ~~may~~of ~~spend~~the inWallace ~~creditor~~Creek ~~protection~~assets ~~under~~with ~~CCAA~~a orthird ~~whether~~party aon ~~plan~~September ~~will~~25, ~~be approved~~2011. ~~The~~On ~~continuation~~November of28, ~~CCAA~~2011, the third party notified the Company that they could ~~materially~~not ~~adversely~~meet ~~affect~~the ~~operations~~terms of that Letter of Intent and ~~relationships~~negotiations were terminated. This transaction would have provided the Company with ~~creditors,~~the ~~customers~~capital required to complete the Axe Lake pilot and prove its commercial recoverability. After considering all available alternatives, ~~vendors~~on November 28, ~~service~~2011 ~~providers~~the Board of Directors of the Company authorized the Company to file for creditor protection under the CCAA. On November 29, ~~employees~~2011, ~~and~~the ~~regulators~~Company was granted an order from the Court providing creditor protection under the CCAA.

~~There~~The isCompany nohas ~~assurance~~secured ~~that~~a ~~Oilsands~~commitment ~~Quest~~for ~~can obtain Debtor-in-Possession (“~~DIP”) financing, ifof ~~required~~CDN$3.75 million, tofor ~~satisfy its obligations in~~ the ~~ordinary~~purpose ~~course. Based~~of onfunding ~~the~~operating ~~Company’s~~costs ~~cash~~and ~~flow~~other ~~projections~~expenses while the Company ~~has~~proceeds ~~determined~~with ~~that~~its ~~additional~~previously-announced ~~priority~~Solicitation ~~borrowings~~Process ~~are~~while ~~not~~under ~~necessary~~creditor ~~from~~protection. ~~the~~The ~~date~~DIP offinancing ~~its~~is ~~court~~a ~~filing~~twelve tomonth ~~December~~term ~~31,~~demand ~~2011.~~facility ~~Therefore,~~and ~~the~~will ~~Company~~be ~~has~~available ~~not made arrangements~~ for ~~DIP~~draw ~~financing~~down atby ~~this~~mid-March ~~time~~2012. ~~Although~~On ~~Oilsands~~February ~~Quest~~16, ~~reserves~~2012, ~~its rights to apply to~~ the Court ~~for~~approved ~~such~~the asecured DIP financing. ~~facility~~The ~~there~~terms isof nothe ~~assurance~~DIP ~~that such facility could be attained, should such~~ financing behave ~~required~~yet to ~~satisfy~~be ~~the Company’s ongoing obligations~~finalized.

~~There~~On ~~can~~February be22, no2012, ~~assurance~~the ~~that~~Court approved the ~~initial~~sale ~~period~~of ~~granted~~the byCompany’s ~~the~~non-core Eagles Nest asset to FAMA, an unrelated third party, for CDN$7.0 million. The approval followed a short Court-directed limited bidding process, and ~~any~~the ~~subsequent~~Company ~~extensions~~signed ~~thereof~~a Purchase and Sale Agreement with FAMA. FAMA paid deposits in the amount of CDN$50,000 ~~will~~and bewas ~~sufficient~~required to ~~present~~pay an additional deposit of CDN$350,000 on February 24, 2012. However, FAMA did not make the deposit and ~~finalize~~the aagreement ~~plan~~was terminated. ~~Should~~On ~~Oilsands~~March ~~Quest~~7, ~~lose~~2012, the ~~protection~~Court ofapproved a new bidding process for the ~~stay~~Eagles ~~under~~Nest asset. Bids for the ~~CCAA~~asset are to be submitted to the Monitor by 4 PM MST, ~~creditors~~March ~~may~~12, ~~immediately~~2012. The ~~enforce~~bids ~~rights~~must ~~and~~be ~~remedies~~accompanied ~~against~~by ~~Oilsands~~an ~~Quest~~unconditional executed Purchase and ~~its~~Sale ~~properties,~~Agreement ~~which~~and ~~may~~a ~~lead~~deposit torepresenting 10% of the ~~liquidation~~purchase ofprice with closing to occur on or before March 30, 2012. There can be no assurance that the ~~Company’s~~sale ~~assets~~will be concluded.

~~There~~On ~~can~~November be29, no2011, ~~assurance that~~ the ~~Company~~NYSE ~~can~~Amex ~~raise~~LLC ~~sufficient~~(“NYSE”) ~~funds~~halted totrading ~~carry~~in ~~out~~the ~~its~~Company’s ~~exploration~~common ~~and~~shares ~~development plans, meet its future obligations~~ and ~~alleviate~~imposed ~~doubt~~an ~~about~~ongoing ~~our~~suspension ~~ability~~in totrading ~~continue~~of asthe ~~a going concern~~shares. ~~The~~ ~~Company~~Accordingly, ~~cannot~~delay bein ~~certain~~the ~~that~~resumption ~~additional~~of ~~funds,~~trading ~~even~~on ifthe ~~available,~~NYSE ~~will~~reduces bethe onliquidity ~~acceptable~~of ~~terms.~~the ToCompany’s ~~the~~common ~~extent~~shares ~~additional~~and ~~funds~~limits ~~are~~the ~~raised~~Company’s byavailability ~~issuing~~to obtain equity ~~securities,~~financing. The orNYSE granted the Company ~~undergoes~~an aextension ~~restructuring~~until ~~under~~May ~~the CCAA~~18, ~~significant~~ ~~dilution~~2012 ~~may~~to beregain ~~experienced~~compliance bywith ~~our~~the ~~shareholders~~continued listing standards.

There can be no assurance that the DIP financing and the proceeds received from the sale of the Eagles Nest property will be sufficient to fund the Company’s operations and ongoing creditors’ obligations during the period that the Company may spend in creditor protection under the CCAA or until a plan is approved.

There can be no assurance that the period granted by the Court, and any subsequent extensions thereof, will be sufficient to present and finalize a plan. Should Oilsands Quest lose the protection of the stay under the CCAA which is currently in effect until May 18, 2012, creditors may immediately enforce rights and remedies against Oilsands Quest and its properties, which may lead to the liquidation of the Company’s assets.

There can be no assurance that the Company can raise sufficient funds to carry out its exploration and development plans, meet its future obligations and alleviate substantial doubt about our ability to continue as a going concern. The Company cannot be certain that additional funds, even if available, will be on acceptable terms. To the extent additional funds are raised by issuing equity securities, or the Company undergoes a restructuring under the CCAA, significant dilution may be experienced by our shareholders.

There can be no assurance that the Company will be able to maintain its protection under the CCAA, implement a plan in the manner contemplated by law, implement a transaction or recapitalization or emerge as a solvent company. It is impossible to predict with certainty the length of time that the Company may spend in creditor protection under the CCAA or whether a plan will be approved. The continuation of the CCAA could materially adversely affect operations and relationships with creditors, customers, vendors, service providers, employees, and regulators.

Results of Operations

Net loss

Three months ended ~~October~~January 31, ~~2011~~2012 as compared to three months ended ~~October~~January 31, ~~2010~~2011. The Company experienced a net loss of $4.52 million or $0.01 per share for the three months ended ~~October~~January 31, ~~2011~~2012 as compared to a net loss of $910.17 million or $0.03 per share for the three months ended ~~October~~January 31, ~~2010~~2011. The decline in the net loss in the current period as compared to the prior period is primarily ~~due~~caused toby the ~~decrease~~reduction inof ~~corporate~~exploration ~~costs,~~activity ~~mainly~~and ~~employee~~by ~~related~~the ~~costs~~recognition ~~and~~in ~~overall~~the ~~general~~three ~~and~~month ~~administration~~period ~~costs,~~ended asJanuary ~~part~~31, 2011 of a $5 million impairment loss recognized on the ~~Company’s~~Pasquia ~~cost~~Hills ~~reduction~~property ~~initiatives~~whereas ~~over~~none was recorded in the ~~past~~current ~~year~~period. ~~Employees~~In addition, employees’ salaries ~~decrease~~and ~~approximately~~other related costs decreased by $01.96 million during the period as compared to the same period last year ~~due~~following tothe ~~workforce~~Company’s ~~reductions~~cost ~~initiated~~reduction ininitiatives ~~September~~over ~~2010~~the ~~following~~past ~~the~~year. ~~announcement~~These ofemployee-related ~~the~~costs ~~review~~were ofpartially ~~strategic~~offset ~~alternatives.~~by ~~The~~increased ~~decline~~professional infees resulting from writing off fees associated with the ~~net~~Socius ~~loss~~financing isthat ~~also~~terminated ~~caused~~automatically byon aNovember ~~reduction~~29, in2011 ~~exploration~~upon ~~activity~~filing ~~which~~of the CCAA protection. Deferred income tax benefit was ~~partially~~not ~~offset~~recognized byduring anthe ~~increase~~current period as compared to $1.9 million recorded in ~~depreciation~~the ~~and~~same ~~accretion~~period last year.

~~Six months ended October~~ 31, 2011 as compared to six months ended October 31, 2010. The Company experienced a net loss of $10.3 million or $0.03 per share for the six months ended October 31, 2011 as compared to a net loss of $25.1 million or $0.08 per share for the six months ended October 31, 2010. The decrease in the net loss as compared to the same period last year is due to a reduction in exploration activity, a reduction in cost revisions related to asset retirement obligations and a reduction in impairment loss recognized on property and equipment. During the same period last year, the Company incurred $8.1 million of cost revisions related to asset retirement obligations to re-abandon a certain number of wells in the Axe Lake area and reclaim the airstrip, camp site, access roads and reservoir test site at the Company’s properties. In addition, the Company recognized an impairment loss of $2.5 million on the Saskatchewan Oil Sands Licenses during the same period last year. These licenses were relinquished in August 2011 as they had no future prospect of development.

Nine months ended January 31, 2012 as compared to nine months ended January 31, 2011. The Company experienced a net loss of $14.5 million or $0.04 per share for the nine months ended January 31, 2012 as compared to a net loss of $35.8 million or $0.10 per share for the nine months ended January 31, 2011. The decrease in the net loss as compared to the same period last year is due to a reduction in exploration activity, a reduction in cost revisions related to asset retirement obligations, a reduction in impairment loss on property and equipment as well as a reduction in employees salaries and stock based compensation resulting from the Company’s cost reduction initiatives over the past year. During the same period last year, the Company incurred $8.5 million of cost revisions related to asset retirement obligations to re-abandon a certain number of core holes in the Axe Lake area and reclaim the airstrip, camp site, access roads and reservoir test site at the Company’s properties. In addition, the Company’s impairment loss amounted to $7.3 million at January 31, 2011, to recognize a write down on the value of the Pasquia Hills property and the Saskatchewan Oil Sands Licenses. Deferred income tax benefit was not recognized during the current period as compared to $4.9 million recorded in the same period last year.

The Company expects to continue to incur operating losses and will continue to be dependent on additional sales of equity or debt securities and/or property sales or joint ventures to fund its activities in the future.

Exploration costs

Three months ended ~~October~~January 31, ~~2011~~2012 as compared to three months ended ~~October~~January 31, ~~2010~~2011. Exploration costs for the three months ended ~~October~~January 31, ~~2011~~2012 were $0.12 million (~~2010~~2011 - $12.78 million). Exploration expenditures in the three months ended ~~October~~January 31, ~~2011~~2012 decreased due to athe ~~reduction~~Company’s ~~in overall~~ drilling and exploration ~~activity~~programs ~~compared~~that toare currently put on hold during the ~~same~~Solicitation Process under CCAA. Exploration costs incurred in the current period ~~last~~relate ~~year~~primarily to maintaining the Company’s camp sites in Saskatchewan. The necessary capital resources are required in order to pursue our reservoir development and exploration activities in accordance to plan and to re-abandon the early exploration core holes to maintain the Axe Lake leases.

~~Six~~ Nine months ended ~~October~~January 31, ~~2011~~2012 as compared to ~~six~~ nine months ended ~~October~~January 31, ~~2010~~2011. Exploration costs for the ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012 were $0.78 million (~~2010~~2011 - $1316.42 million). Exploration expenditures in the ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012 include $0.5 million of cost revisions related to asset retirement obligations compared to $8.15 million incurred last year in relation to the re-abandonment of a certain number of core holes at Axe Lake and the reclamation of the airstrip, camp site, access roads and reservoir test site at the Company’s properties. In addition, exploration expenditures decreased due to athe ~~reduction~~Company’s ~~in overall~~ drilling and exploration ~~activity~~programs ~~compared~~that toare currently put on hold during the ~~same~~Solicitation ~~period~~Process ~~last~~under ~~year~~CCAA.

For a summary of the exploration activities conducted in the three and nine months ended January 31, 2012, please see “Operations Summary” above.

General and administrative

Corporate

Three months ended ~~October~~January 31, ~~2011~~2012 as compared to three months ended ~~October~~January 31, ~~2010~~2011. General and administrative expenses ~~settled with cash~~ for the three months ended ~~October~~January 31, ~~2011~~2012 were $32.17 million (~~2010~~2011 - $5.3.7 million). Expenditures in the three month period ended ~~October~~January 31, ~~2011~~2012 consist of salaries ($0.83 million), legal and other professional fees ($1.07 million) and general office costs ($10.36 million). General and administrative expenses in the three months ended ~~October~~January 31, ~~2010~~2011 consist of salaries ($2.40 million), legal and other professional fees ($10.79 million) and general office costs ($10.28 million). As a result of cost reduction efforts initiated in September 2010 following the announcement of a review of strategic alternatives, salaries and other employee related costs decreased by $1.67 million compared to the same period last year, of which approximately $0.75 million related to severance payments incurred because of workforce terminations. Compared to last year, salary levels decreased by $01.92 million over the 3 month period ended ~~October~~January 31, ~~2011~~2012. The ~~reduction~~increase in legal and professional fees for the three month period ended ~~October~~January 31, ~~2011~~2012 compared to the same period last year isresulted ~~explained~~primarily byfrom awriting ~~reduction~~off ~~in professional~~ fees associated with the ~~formal~~Socius ~~process~~financing ofthat ~~the~~terminated ~~strategic~~automatically ~~alternative~~on ~~review~~November ~~completed~~29, in2011 ~~June~~upon ~~2011.~~filing ~~During~~of the ~~current~~CCAA ~~period,~~protection. ~~the~~The ~~downsizing~~decrease ~~activities~~ in general office costs ~~were~~during ~~partially~~the ~~offset~~three months ended January 31, 2012 is mainly caused by the recognition ofat aApril ~~$0.6~~30, ~~million~~2011 and October 31, 2011 of an obligation under sublease contract ~~incurred~~to cover for the net loss expected on the lease agreements for the Calgary corporate ~~office~~offices.

20Nine months ended January 31, 2012 as compared to nine months ended January 31, 2011. General and administrative expenses for the nine months ended January 31, 2012 were $9.9 million (2011 - $12.8 million). Expenditures in the nine month period ended January 31, 2012 consist of salaries ($2.7 million), legal and other professional fees ($4.7 million) and general office costs ($2.5 million). General and administrative expenses in the nine months ended January 31, 2011 consist of salaries ($5.9 million), legal and other professional fees ($3.8 million) and general office costs ($3.1 million). Cost reduction efforts and downsizing initiatives implemented by the Company this past year explained primarily the reduction in salaries and general office costs incurred during the nine month ended January 31, 2012 compared to the same period last year. The increase in legal and professional fees for the nine month period ended January 31, 2012 compared to the same period last year resulted primarily from writing off fees associated with the Socius financing that terminated automatically on November 29, 2011 upon filing of the CCAA protection. Downsizing activities in general office costs were partially offset by the recognition of a $0.6 million obligation under sublease contract incurred for the Calgary corporate office.

~~Six months~~At ~~ended~~January ~~October~~ 31, ~~2011 as compared to six months ended October 31~~2012, ~~2010. General~~there ~~and administrative expenses settled with cash for the six months ended October 31, 2011~~ were ~~$7.2~~11 ~~million~~corporate ~~(2010~~employees -compared ~~$9.1~~to ~~million). Expenditures~~22 inemployees ~~the~~at ~~six~~January ~~month period ended October~~ 31, 2011 ~~consist of salaries ($2~~.4 million), legal and other professional fees ($2.8 million) and general office costs ($2.0 million). General and administrative expenses in the six months ended October 31, 2010 consist of salaries ($3.9 million), legal and other professional fees ($2.8 million) and general office costs ($2.4 million). Cost reduction efforts and downsizing initiatives implemented by the Company this past year explained primarily the reduction in salaries and general office costs incurred during the six month ended October 31, 2011 compared to the same period last year.

~~At October 31, 2011, there were 12 employees and no seasonal field employees, and at October 31, 2010, there were~~ 32 ~~employees including 5 seasonal field employees.~~

Stock-based compensation

Three and ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012 as compared to three and ~~six~~nine months ended ~~October~~January 31, ~~2010~~2011. Stock-based compensation expense for the three months ended ~~October~~January 31, ~~2011~~2012 was $0.106 million (~~2010~~2011 – ~~recovery of~~ $0.~~001~~05 million) and $0.1 million (~~2010~~2011 – $1.0 million) for the ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012 and consists of stock based compensation related to the issuance of options to directors, officers and employees. The decrease during the ~~six~~nine month period compared to the same period in the prior year results from fewer options remaining to vest including options that forfeited due to the reduction in employee headcount. A total of 12.6 million options were forfeited and 3.4 million options expired during the ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012.

Foreign exchange (gain) loss

Three and ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012 as compared to three and ~~six~~nine months ended ~~October~~January 31, ~~2010~~2011. A foreign exchange gain of $0.21 million (~~2010~~2011 - $0.1 million) during the three months ended ~~October~~January 31, ~~2011~~2012 and $0.34 million (~~2010~~2011 - loss of $0.21 million) during the ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012 resulted primarily from holding ~~more~~ U.S. funds in OQI ~~during~~Sask ~~the~~with ~~current~~a ~~period~~Canadian ~~compared~~dollar tofunctional ~~the~~currency ~~same period last year~~ when the value of the U.S. dollar appreciated against to the Canadian dollar.

Depreciation and accretion

Three and ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012 as compared to three and ~~six~~nine months ended ~~October~~January 31, ~~2010~~2011. Depreciation and accretion expense for the three months ended ~~October~~January 31, ~~2011~~2012 was $1.32 million (~~2010~~2011 - $1.1 million) and $23.68 million (~~2010~~2011 - $23.23 million) for the ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012. Depreciation expense relates to camp facilities, equipment and corporate assets which are being depreciated over their useful lives of 3 to 5 years. Accretion expense relates to the asset retirement obligation recognized on the re-abandonment of a certain number of ~~wells~~core holes in the Axe Lake area and on the airstrip, camp site, access roads and reservoir test sites which are being brought into income/loss over a period of 1 to 30 years. The increase during the three and ~~six~~nine month period ended ~~October~~January 31, ~~2011~~2012 compared to the same periods last year is due to the additional accretion on asset retirement obligation resulting from the re-abandonment of a certain number of ~~wells~~core holes in the Axe Lake area that was identified in the year ended April 30, 2010.

Impairment

Three and ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012 as compared to three and ~~six~~nine months ended ~~October~~January 31, ~~2010~~2011. ~~The~~Impairment ~~impairment~~ for the three months ended ~~October~~January 31, ~~2011~~2012 was $~~0.04~~nil ~~million~~ (~~2010~~2011 - $05.21 million) ~~and $0~~.04 ~~million~~Impairment ~~(2010 - $2.2 million)~~ for the ~~six~~nine months ended ~~October~~January 31, ~~2011. The~~2012 ~~impairment~~was ~~recognized~~$0.04 ~~during~~million ~~the~~(2011 ~~three~~- ~~and~~$7.3 ~~six~~million). Management ~~months~~recognized ~~ended~~a ~~October~~full ~~31,~~impairment ~~2011~~on ~~was due to~~ the ~~costs~~Pasquia ~~incurred~~Hills ~~that~~property ~~were~~and ~~related~~wrote todown ~~properties~~the ~~that~~remaining ~~are~~carrying ~~fully~~value ~~impaired.~~to ~~The~~zero ~~impairment~~during ~~for~~ the ~~six~~three months ended onJanuary ~~October~~ 31, ~~2010~~2011. ~~was~~The ~~recognized~~Company’s onimpairment ~~the~~loss ~~Saskatchewan~~of ~~Oil~~$7.3 ~~Sands~~million ~~Licenses~~at ~~due~~January to31, ~~their~~2011 ~~high~~includes ~~likelihood~~a ofwrite ~~relinquishment.~~down ~~These~~on ~~licenses~~the ~~were~~value ~~relinquished~~of inthe ~~August~~Pasquia ~~2011~~Hills asproperty ~~they~~and ~~had~~the noSaskatchewan ~~future~~Oil ~~prospect~~Sands ~~of development~~Licenses.

Interest and other income

Three and ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012 as compared to three and ~~six~~nine months ended ~~October~~January 31, ~~2010~~2011. Interest income for the three months ended ~~October~~January 31, ~~2011~~2012 was $0.01 million (~~2010~~2011 - $0.0307 million) and $0.0304 million (~~2010~~2011 - $0.0411 million) for the ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012. Interest income is earned because the Company pre-funds its activities and the resulting cash on hand is invested in short-term deposits.

Deferred income tax ~~expense (~~benefit)

Three months ended ~~October~~January 31, ~~2011~~2012 as compared to three months ended ~~October~~January 31, ~~2010~~2011. The deferred income tax benefit for the three months ended ~~October~~January 31, ~~2011~~2012 was $nil ~~million~~ (~~2010~~2011 - ~~expense of~~ $01.89 million) and $nil (~~2010~~2011 - $34.09 million) for the ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012. During the three and ~~six~~nine months ended ~~October~~January 31, ~~2011~~2012, no deferred income tax benefit was recognized since a full valuation allowance was taken on the taxable temporary differences associated with property and equipment capitalized on the balance sheet. At April 30, 2011, the deferred tax benefit associated with the impairment on undeveloped properties was recorded to the extent of the deferred tax liability amount on the balance sheet derived from the excess appreciated asset value over the tax basis of the Company’s net assets. ~~Therefore,~~In in addition to recording a full valuation allowance on all non-capital losses incurred in accordance with the Company’s accounting policy, a valuation allowance is now taken on taxable temporary differences associated with property and equipment capitalized on the balance sheet. The deferred income tax ~~expense~~benefit recognized in the three and nine months ended ~~October~~January 31, ~~2010~~2011 resulted from ~~asset~~tax ~~retirement~~benefits ~~liabilities~~on ~~that~~asset ~~were~~retirement ~~settled~~obligations ~~during the period~~ and ~~triggered~~impairment ~~the reversal of tax benefits previously~~ recognized on ~~asset retirement obligations~~properties.

Previously, the Company recognized a full valuation allowance on all non-capital losses and generated deferred tax benefits by expensing all exploration costs for accounting purposes while capitalizing these costs for income tax purposes. This resulted in a higher tax basis for the Company’s property and equipment when compared to their carrying value.

Reorganization expenses

Three and nine months ended January 31, 2012 as compared to three and nine months ended January 31, 2011. Reorganization expenses for the three months ended January 31, 2012 were $0.3 million (2011 - $nil) and $0.3 million (2011 - $nil) for the nine months ended January 31, 2012. Reorganization expenses represent the direct and incremental costs related to CCAA proceedings and included $0.22 million of professional fees directly related to the CCAA proceedings and $0.05 million of Court-approved obligations to certain key eligible employees deemed essential to the business during the CCAA proceedings.

Recently Issued Accounting Standards Not Yet Adopted

There have been no recent accounting pronouncements or changes in accounting pronouncements during the three months ended ~~October~~January 31, ~~2011~~2012, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K/A, that are of significance, or potential significance to the Company for the current reporting period.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or further effect on its financial condition, changes in financial condition, revenues or expenses, results of operations liquidity, capital expenditures or capital resources that are material to investors.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our quantitative and qualitative disclosures about market risk set forth in our form 10-K/A.

Item 4.

Controls and Procedures

Disclosure Controls and Procedures

We carried out an evaluation under the supervision of, and with the participation of our Chief Executive Officer and our Vice President and Controller, Principal Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended. Based on the evaluation as of ~~October~~January 31, ~~2011~~2012, our Chief Executive Officer and Vice President and Controller, Principal Accounting Officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15e under the Securities Exchange Act of 1934) were effective.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Vice President and Controller, Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

We regularly review our system of internal control over financial reporting. There were no changes in our internal control over financial reporting during the period covered by this report on Form 10-Q that have materially affected or is reasonably likely to materially affect, our internal control over financial reporting.

2134

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

On February 24, 2010, a derivative action entitled Make a Difference Foundation Inc. v. Hopkins, et al., Case No. 10-CV-00408, was filed in United States District Court for the District of Colorado by plaintiff Make a Difference Foundation, Inc. The derivative action names the following individual defendants: Christopher H. Hopkins, T. Murray Wilson, Ronald Blakely, Paul Ching, Brian MacNeill, Ronald Phillips, John Read, Gordon Tallman, Pamela Wallin, Thomas Milne and W. Scott Thompson. In addition, the Company is named as a nominal defendant. Plaintiff asserts, among other things, claims for waste and breaches of the fiduciary duty of loyalty and good faith by the defendants stemming from the Company's approval of the proposed sale of the Company's Pasquia Hills assets to Canshale Corp. The plaintiff seeks unspecified damages on behalf of the Company, restitution on behalf of the Company, and reasonable costs and expenses including counsel fees and experts' fees. The Company believes the claims are wholly without merit and filed a motion to dismiss the Complaint on May 18, 2010. Before the motion to dismiss was ruled upon, Plaintiff filed an amended complaint and a second amended complaint on July 15, 2010 and September 20, 2010, respectively. Defendants moved to dismiss the second amended complaint on September 29, 2010. On May 23, 2011, Plaintiff and Defendants filed a stipulated motion requesting the stay of all case deadlines pending further negotiation of a settlement agreement that would resolve the litigation. On August 11, 2011, the parties filed a Notice of Settlement Stipulation and Agreement. On September 2, 2011, the parties entered into an Amended Stipulation and Agreement of Settlement and Release, and plaintiff filed an Unopposed Motion for Order to Preliminarily Approve Derivative Litigation Settlement. The Court denied plaintiffs motion without prejudice on October 6, 2011, directing plaintiff to re-submit an amended motion for preliminary approval of settlement to the Court. On November 2, 2011, the Court granted plaintiff’s amended motion for preliminary approval of settlement. The Court has scheduled a Settlement Hearing for February 24, 2012, where the Court will determine whether to approve the proposed settlement. Additional information regarding the Settlement Hearing and the details of the pending settlement can be found at www.oilsandsquest.com.Contingency

AsOn ~~previously disclosed, on~~ February 24, ~~2011~~2010, a ~~putative~~derivative ~~class~~ action ~~complaint~~entitled ~~(the~~Make ~~"Original~~a ~~Complaint")~~Difference Foundation Inc. v. Hopkins, et al., Case No. 10-CV-00408, was filed ~~against~~in ~~the~~United ~~Company~~States ~~and~~District ~~certain~~Court ~~current~~for ~~and~~the ~~former~~District ~~officers~~ of ~~the~~Colorado ~~Company~~by onplaintiff ~~behalf~~Make ofa ~~investors~~Difference ~~who~~Foundation, ~~purchased~~Inc. The orderivative ~~sold~~action names the ~~Company's~~following ~~securities~~individual ~~between~~defendants: Christopher ~~August~~H. 14Hopkins, ~~2006~~T. ~~and~~Murray ~~July~~Wilson, 14Ronald Blakely, ~~2009~~Paul Ching, ~~alleging~~Brian ~~claims~~MacNeill, ofRonald ~~securities~~Phillips, ~~fraud~~John ~~under~~Read, ~~Section~~Gordon ~~10(b)~~Tallman, ofPamela ~~the~~Wallin, ~~Securities~~Thomas ~~Exchange~~Milne ~~Act~~and ofW. ~~1934~~Scott ~~and~~Thompson. In ~~Rule~~addition, ~~10b-5~~the ~~promulgated~~Company ~~thereunder~~is named as a nominal defendant. Plaintiff asserts, ~~and~~among ~~control~~other ~~person~~things, ~~liability~~claims for ~~such~~waste ~~fraud~~and ~~under~~breaches ~~Section~~of ~~20(a)~~the fiduciary duty of ~~the~~loyalty ~~same~~and ~~act,~~good ~~arising~~faith ~~out~~by ofthe defendants stemming from the Company's ~~accounting~~approval ~~for~~of ~~its~~the ~~acquisition~~proposed sale of anthe ~~interest~~Company's inPasquia ~~OQI~~Hills ~~Sask~~assets into ~~August~~Canshale ~~2006~~Corp. On The ~~May~~plaintiff ~~27,~~seeks ~~2011,~~unspecified ~~the~~damages ~~plaintiffs~~on inbehalf ~~that~~of ~~putative~~the ~~class~~Company, ~~action~~restitution ~~filed~~on anbehalf ~~amended~~of ~~complaint (~~the ~~"Amended~~Company, ~~Complaint")~~and ~~alleging~~reasonable ~~the~~costs ~~same~~and ~~legal~~expenses ~~causes~~including ofcounsel ~~action~~fees ~~but~~and ~~making~~experts' fees. The Company believes the ~~following~~claims ~~changes~~are ~~from~~wholly ~~the~~without ~~Original~~merit ~~Complaint: a)~~and ~~expanding~~filed ~~the~~a ~~putative~~motion ~~class~~to ~~period~~dismiss sothe ~~that~~Complaint iton ~~runs~~May ~~from~~18, ~~March~~2010. Before 20the ~~2006~~motion to ~~January~~dismiss 13was ruled upon, ~~2011;~~Plaintiff b)filed ~~naming~~an asamended ~~additional~~complaint ~~defendants~~and ~~eight~~a ~~individuals~~second ~~who~~amended ~~are~~complaint ~~current~~on orJuly ~~former~~15, ~~directors~~2010 ofand ~~the~~September ~~Company~~20, as2010, ~~well~~respectively. Defendants asmoved ~~two~~to ~~additional~~dismiss ~~corporate~~the ~~defendants,~~second ~~McDaniel~~amended &complaint ~~Associates~~on ~~Consultants~~September ~~Ltd~~29, 2010. On ~~and~~May TD23, ~~Securities~~2011, ~~Inc.;~~Plaintiff and c)Defendants ~~basing~~filed a stipulated motion requesting the ~~claimed~~stay ~~fraud~~of onall case deadlines pending further negotiation of a ~~new~~settlement ~~theory~~agreement that ~~the~~would ~~Company~~resolve ~~overstated~~ the ~~value~~litigation. On ofAugust ~~its~~11, ~~mineral~~2011, ~~rights~~the asparties filed a ~~result~~Notice of ~~misstatements~~Settlement ~~about,~~Stipulation ~~among~~and ~~other~~Agreement. On ~~things~~September 2, 2011, the ~~potential~~parties ~~for~~entered ~~extracting~~into ~~bitumen~~an ~~from~~Amended ~~oil~~Stipulation ~~sands~~and ~~lands~~Agreement ~~for~~of ~~which~~Settlement ~~the~~and ~~Company~~Release, ~~had~~and ~~exploration~~plaintiff ~~and~~filed ~~development~~an ~~permits. The~~Unopposed ~~Amended~~Motion ~~Complaint~~for ~~seeks~~Order ~~unspecified~~to ~~damages. The~~Preliminarily ~~Company believes~~Approve ~~the~~Derivative ~~suit~~Litigation isSettlement. ~~without~~The ~~merit~~Court ~~and~~denied ~~intends~~plaintiffs tomotion ~~defend~~without ~~itself~~prejudice ~~vigorously. On~~on ~~June~~October 6, 2011, ~~the~~directing ~~Company~~plaintiff ~~filed~~to are-submit an amended motion tofor ~~dismiss~~preliminary ~~the~~approval ~~Amended~~of ~~Complaint~~settlement to the Court. On ~~June~~November 202, 2011, the ~~plaintiffs~~Court ~~filed~~granted ~~their~~plaintiff’s ~~opposition~~amended tomotion for preliminary approval of settlement, which in sum involves the ~~motion~~implementation toof ~~dismiss. The~~a corporate governance change by the Company ~~filed~~and ~~its~~an ~~reply~~agreement toby the ~~plaintiffs'~~Company’s ~~opposition~~insurance oncarrier ~~June~~to ~~27,~~pay ~~2011~~Plaintiff’s ~~and~~counsel onan ~~July~~award ~~29,~~of ~~2011,~~fees in an amount determined by the court, ~~heard~~but ~~oral~~not ~~arguments~~more ~~and~~than ~~reserved~~$250,000 ~~decision~~(“Settlement”). On ~~August~~February 524, ~~2011~~2012, the ~~two~~Court ~~remaining~~conducted ~~defendants~~a ~~moved~~hearing to ~~dismiss~~determine ~~the~~whether ~~Amended~~to ~~Complaint.~~give Onfinal ~~September~~approval ~~16,~~to ~~2011,~~ the ~~Court~~Settlement ~~denied~~and to evaluate the ~~Company's~~request ~~motion~~for toattorneys’ ~~dismiss~~fees ~~the~~sought ~~Amended~~by ~~Complaint~~Plaintiff’s counsel. At Onthe ~~September~~conclusion 29of the February 24, ~~2011~~2012 hearing, the ~~defendants~~court ~~answered~~took these matters under advisement and overruled three objections to the ~~Amended~~Settlement ~~Complaint. Discover~~submitted isby ~~ongoing~~shareholders of the Company. The Company ~~believes~~has paid to date the ~~claims~~insurance ~~are~~deductible ~~without~~of ~~merit~~$250,000 and the remainder of the Company’s counsel fees will be covered by the Company’s insurance carrier.

OnAs ~~April~~previously 13disclosed, on February 24, 2011, a ~~derivative~~putative class action ~~entitled~~complaint ~~Proctor~~(the v."Original ~~Wilson,~~Complaint") etwas ~~al.,~~filed ~~Case~~against Nothe ~~2011CV2769~~Company ~~was~~and ~~filed~~certain incurrent ~~District~~and ~~Court,~~former ~~Denver~~officers ~~County,~~of ~~Colorado. The~~the ~~derivative~~Company ~~action~~on ~~names~~behalf of investors who purchased or sold the ~~following~~Company's ~~individual~~securities ~~defendants: T.~~between ~~Murray~~August ~~Wilson~~14, ~~Ronald~~2006 ~~Blakely,~~and ~~Paul~~July ~~Ching~~14, ~~Christopher~~2009, H.alleging ~~Hopkins,~~claims ~~Brian~~of F.securities ~~MacNeill,~~fraud ~~Ronald~~under ~~Philips,~~Section ~~John~~10(b) ~~Read,~~of ~~Gordon~~the ~~Tallman~~Securities Exchange Act of 1934 and ~~Pamela~~Rule ~~Wallin. In~~10b-5 ~~addition~~promulgated thereunder, ~~the~~ ~~Company~~and iscontrol ~~named~~person asliability for such fraud under Section 20(a) ~~nominal~~of ~~defendant. Plaintiff~~the ~~asserts~~same act, ~~among~~arising ~~other~~out ~~things,~~of ~~claims~~the Company's accounting for ~~breach~~its acquisition of ~~fiduciary~~an ~~duties,~~interest ~~unjust~~in ~~enrichment,~~OQI ~~abuse~~Sask ofin ~~control~~August 2006. On May 27, ~~gross~~2011, ~~mismanagement~~the ~~and~~plaintiffs ~~waste~~in ~~against~~that putative class action filed an amended complaint (the ~~defendants~~"Amended ~~relating~~Complaint") toalleging the ~~alleged~~same ~~failure~~legal tocauses ~~properly~~of ~~account~~action ~~for~~but making the ~~Company’s~~following ~~acquisition~~changes offrom the Original Complaint: a) ~~minority~~expanding ~~interest~~the inputative ~~Oilsands~~class ~~Quest~~period ~~Sask~~so ~~Inc.~~that ~~and~~it ~~the~~runs ~~Company’s~~from ~~restatement~~March of20 ~~its~~2006 ~~financial~~to ~~statements~~January ~~for~~13, ~~certain~~2011; ~~periods. The~~b) ~~plaintiff~~naming ~~seeks~~as ~~unspecified~~additional ~~damages~~defendants oneight ~~behalf~~individuals who are current or former directors of the Company as well as two additional corporate defendants, ~~restitution~~McDaniel & Associates Consultants Ltd. and TD Securities, Inc.; and c) basing the claimed fraud on ~~behalf~~a ofnew theory that the Company, ~~unspecified~~overstated ~~disgorgement~~the value of ~~profits~~its mineral rights as a result of misstatements about, ~~unspecified~~among ~~equitable~~other ~~relief~~things, ~~and~~the ~~reasonable~~potential ~~costs~~for ~~and~~extracting ~~expenses~~bitumen ~~including~~from ~~counsel~~oil ~~fees~~sands lands for which the Company had exploration and ~~experts'~~development ~~fees~~permits. ~~Plaintiff~~ The ~~sought~~Amended Complaint seeks unspecified damages and ~~obtained~~the ~~approval~~Company ~~from~~believes the ~~court~~suit tois ~~file~~without anmerit ~~amended~~and ~~complaint~~intends onto ~~September~~defend 8,itself ~~2011~~vigorously. On ~~October~~June 176, 2011, the ~~defendants~~Company filed a motion to dismiss the ~~amended~~Amended ~~complaint~~Complaint. ~~Plaintiffs’~~On ~~response~~June 20, 2011, the plaintiffs filed their opposition to the motion to dismiss. The isCompany ~~due~~filed its reply to the plaintiffs' opposition on ~~December~~June 1527, 2011 and on July 29, 2011, the court heard oral arguments and reserved decision. On ~~December~~August 15, 2011, the ~~plaintiff~~two ~~requested~~remaining ~~and~~defendants ~~was~~moved ~~granted~~to dismiss the Amended Complaint. On September 16, 2011, the Court denied the Company's motion to dismiss the Amended Complaint. On September 29, 2011, the defendants answered the Amended Complaint. As a ~~stay~~consequence of ~~all~~commencing US Chapter 15 proceedings~~. The~~, ~~Company~~the ~~believes~~case has been stayed on an interim basis until the ~~claims~~Court ~~are~~can ~~without~~hear ~~merit~~and decide the motion seeking a stay for the pendency of the US Chapter 15 proceedings.

On April 13, 2011, a derivative action entitled Proctor v. Wilson, et al., Case No 2011CV2769 was filed in District Court, Denver County, Colorado. The derivative action names the following individual defendants: T. Murray Wilson, Ronald Blakely, Paul Ching, Christopher H. Hopkins, Brian F. MacNeill, Ronald Philips, John Read, Gordon Tallman and Pamela Wallin. In addition, the Company is named as a nominal defendant. Plaintiff asserts, among other things, claims for breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement and waste against the defendants relating to the alleged failure to properly account for the Company’s acquisition of a minority interest in Oilsands Quest Sask Inc. and the Company’s restatement of its financial statements for certain periods. The plaintiff seeks unspecified damages on behalf of the Company, restitution on behalf of the Company, unspecified disgorgement of profits, unspecified equitable relief and reasonable costs and expenses including counsel fees and experts' fees. Plaintiff sought and obtained approval from the court to file an amended complaint on September 8, 2011. On October 17, 2011, the defendants filed a motion to dismiss the amended complaint. Plaintiffs’ response to the motion to dismiss is due on December 15, 2011. On December 1, 2011, the plaintiff requested and was granted a stay of all proceedings. On January 3, 2012, the plaintiff sought to lift the stay. By joint motion dated February 17, 2012, plaintiff agreed to hold the motion to lift stay in abeyance pending the outcome of the Chapter 15 proceedings. The Company believes the claims are without merit.

Item 1A.

Risk Factors

RISKS RELATED TO OUR BUSINESS

Our business activities, and the oil and gas industry in general, are subject to a variety of risks. If any of the following risk factors should occur, our profitability, financial condition or liquidity could be materially impacted. As a result, holders of our securities could lose part or all of their investment in Oilsands Quest Inc.

We, and many of our subsidiaries, are conducting proceedings under the CCAA. Our business, operations and financial position are subject to the risks and uncertainties associated with such proceedings.

There can be no assurance that the Company will be able to maintain its protection under the CCAA, implement a plan in the manner contemplated by law, implement a transaction or recapitalization or emerge as a solvent company. It is impossible to predict with certainty the length of time that the Company may spend in creditor protection under CCAA or whether a plan will be approved. The continuation of the CCAA proceedings could materially adversely affect operations and relationships with creditors, customers, vendors, service providers, employees, and regulators.

There is no assurance that Oilsands Quest can obtain Debtor-in-Possession (“DIP”) financing, if required, to satisfy its obligations in the ordinary course. Based on the Company’s cash flow projections the Company has determined that additional priority borrowings are not necessary from the date of its court filing to December 31, 2011. Therefore, the Company has not made arrangements for DIP financing at this time. Although Oilsands Quest reserves its rights to apply to the Court for such a DIP financing facility there is no assurance that such facility could be attained, should such financing be required to satisfy the Company’s ongoing obligations.35

~~There~~The ~~can~~Company behas nomade ~~assurance~~arrangements ~~that~~for DIP financing to satisfy its obligations during the ~~initial~~course ~~period~~of ~~granted~~the proceedings commenced by the ~~Court,~~Company ~~and~~under ~~any~~the ~~subsequent~~CCAA. ~~extensions~~The ~~thereof,~~Court ~~will~~approved bethese ~~sufficient~~arrangements toon ~~present~~February 16, 2012 and ~~finalize~~advances aunder ~~plan.~~the ~~Should~~DIP ~~Oilsands~~facility ~~Quest~~will ~~lose~~be available to the ~~protection~~Company ofonce ~~the~~documentation ~~stay~~with ~~under~~respect to the ~~CCAA,~~DIP ~~creditors~~agreement ~~may~~is ~~immediately~~finalized. ~~enforce~~However, ~~rights~~there ~~and~~is ~~remedies~~no ~~against~~assurance ~~Oilsands~~that ~~Quest~~such ~~and~~DIP ~~its~~financing ~~properties,~~facility ~~which~~will ~~may~~be ~~lead~~attained pursuant to the ~~liquidation~~terms and conditions of the ~~Company’s~~DIP ~~assets~~agreement.

There can be no assurance that a sale of the Company’s non-core assets is achievable or that such a sale would generate sufficient proceeds to satisfy the Company’s obligations during the course of the proceedings commenced by the Company under the CCAA. Therefore, there can be no assurance that the Company will be able to utilize the proceeds from a potential sale of its non-core assets to satisfy its ongoing obligations.

There can be no assurance that the period granted to date by the Court, and any subsequent extensions thereof, will be sufficient to present and finalize a plan. Should Oilsands Quest lose the protection of the stay under the CCAA, creditors may immediately enforce rights and remedies against Oilsands Quest and its properties, which may lead to the liquidation of the Company’s assets.

There can be no assurance that the Company can raise sufficient funds to carry out its exploration and development plans, meet its future obligations and alleviate doubt about our ability to continue as a going concern. The Company cannot be certain that additional funds, even if available, will be on acceptable terms. To the extent additional funds are raised by issuing equity securities, or the Company undergoes a restructuring under the CCAA, significant dilution may be experienced by our shareholders.

Due to our history of operating losses, we are uncertain that we will be able to maintain sufficient cash to accomplish our business objectives and to continue as a going concern

The consolidated financial statements have been prepared assuming that we will continue as a going concern. However, without additional funding, we may not be able to continue our operations beyond ~~January~~ June 2012. During the fiscal years ended April 30, 2011 and 2010, we suffered net losses of $316 million and $64 million, respectively. At ~~October~~January 31, ~~2011~~2012, there was stockholders’ equity of $~~123~~117.36 million, ~~negative~~ working capital of $51.61 million and a deficit accumulated during the development phase of $~~721~~726.10 million. There is no assurance that we can generate net income, generate revenues or successfully explore and exploit our properties.

Significant amounts of capital will be required to explore and maintain in good standing the lands in Saskatchewan and Alberta. The only source of future funding presently available to us is through the sale of additional equity capital, borrowing funds, or selling a portion of our interests in our assets. There is no assurance that any additional equity capital or borrowings required will be obtainable on terms acceptable to us, if at all. Failure to obtain such additional financing, could result in delays or indefinite postponement of further exploration and development of our projects. Equity financing, if available, may result in substantial dilution to existing shareholders. Our financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should we become unsuccessful in implementing these plans.

As a result of these risks, we have concluded there is substantial doubt related to our ability to continue as a going concern. Our financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should we become unsuccessful in implementing these plans.

Government Regulations and Retention of Permits, Leases and Licenses

The business of resource exploration and development is subject to substantial regulation under Canadian federal, provincial and local laws relating to the exploration for, and the development, upgrading, marketing, pricing, taxation, and transportation of oil sands bitumen and related products and other matters. Amendments to current laws and regulations governing operations and activities of oil sands exploration and development operations could have a material adverse impact on our business. In addition, there can be no assurance that income tax laws, royalty regulations, environmental regulations and government incentive programs related to the permits in Saskatchewan, oil sands exploration licenses in Saskatchewan, the permits in Alberta and the Eagles Nest Prospect and the oil sands industry generally, will not be changed in a manner which may adversely affect our progress and cause delays, or cause the inability to explore and develop, resulting in the abandonment of these interests.

2236

Alberta's new Land-Use Framework, which is to be implemented under the Alberta Land Stewardship Act ("ALSA"), sets out the Government of Alberta's approach to managing Alberta's land and natural resources to achieve long-term economic, environmental and social goals. ALSA contemplates the creation of regional plans which could amend or extinguish previously issued regulatory permits, licenses, approvals and authorizations in order to achieve or maintain an objective or policy resulting from the implementation of a regional plan. The Government of Alberta is expected to develop a regional plan for each of seven regions in the province and has identified the Lower Athabasca Regional Plan ("LARP") as a priority. The Company's properties in Alberta are within the LARP's boundaries. The LARP is expected to incorporate regional thresholds for air emissions, water use and land disturbance to control cumulative effects of industrial development, and guide future resource decisions while considering social and economic impacts. A draft LARP was returned for public comment on August 29, 2011. It is expected to be sent to the Alberta Cabinet for approval in mid 2012 but this may be delayed due to a provincial election.

In Saskatchewan, a new Environmental Management and Protection Act, 2010 has been passed by the Legislature but not yet proclaimed. The new Act ~~will~~includes ~~include~~ authority for a ~~the~~ new Saskatchewan Environmental Code, which adopts a new results-based regulatory framework for managing and protecting the environment. The code is presently the subject of public consultation. It is anticipated that the Act and the Code will be proclaimed in 2012.

It is possible that the LARP in Alberta and the new Act and Code in Saskatchewan may negatively impact our ability to conduct operations on certain properties or limit or prohibit development due to environmental limits and thresholds. In addition, enhanced operating practices required to be undertaken by us in response to the LARP and the new Act and Code may increase operating costs and such costs may further increase in the future if there are further changes ~~to the prescribed operating Practices~~.

The Species at Risk Act, or SARA, was enacted by the Government of Canada as a means to manage species of special concern to prevent them from becoming extinct, endangered or threatened. The woodland caribou has been designated as a species under threat in the Province of Alberta. Pursuant to the SARA, lands that fall within our oil sands leases have been designated as sensitive habitat for caribou. We have undertaken enhanced operating practices within the designated areas with a view to protecting the threatened caribou population.

Permits, leases, licenses and approvals are required from a variety of regulatory authorities at various stages of exploration and development. There can be no assurance that the various government permits, leases, licenses and approvals sought will be granted in respect of our activities or, if granted, will not be cancelled or will be renewed upon expiry. There is no assurance that such permits, leases, licenses and approvals will not contain terms and provisions which may adversely affect our exploration and development activities. ~~Our exploration permits in Saskatchewan do not give us the right to produce and will require conversion to a lease prior to the expiry of the permits.~~

On May 27, 2011, we received approval for the third and final possible one-year extensions of our exploration permits to May 31, 2012. We ~~are~~On ~~also~~July in15, ~~discussion~~2011, ~~with~~ the ~~crown~~Company toreceived ~~convert~~approval ~~these~~from ~~permits~~the toGovernment ~~licenses~~of ~~under~~Saskatchewan ~~the~~to ~~1969~~convert ~~regulations~~the ~~and~~Axe ~~then~~Lake toremaining ~~lease~~permits ~~prior~~ to ~~the~~15 ~~expiry~~year ~~of these permits~~leases. Currently, the Company is working with the regulators to assess an issue relating to the re-abandonment of early exploration core holes. It is possible that the outcome of such assessment could result in cancellation of the permits if the Company does not comply with the governing regulations or obtain waivers. Further, if the Company cannot re-abandon ~~remediate~~ these core holes to industry and regulatory standards, our ability to commercially develop the Axe Lake reservoir may be limited.

Certain First Nations and Métis people have treaty and aboriginal rights, and claim aboriginal title, in relation to our permit and lease lands in Alberta and Saskatchewan and other lands that are potentially affected by our activities. The Governments of Canada, Alberta and Saskatchewan have a duty to consult with those aboriginal people in relation to actions and decisions which may impact those rights and claims and, in certain cases, have a duty to accommodate their concerns. These duties have the potential to adversely affect our ability to obtain permits, leases, licenses and other approvals, or to ~~the~~obtain them on terms and conditions ofacceptable ~~those~~to ~~approvals~~us, which could adversely impact our progress and ability to explore and develop our properties.

Abandonment and Reclamation Obligations

We are responsible for compliance with terms and conditions of environmental and regulatory approvals and all laws and regulations regarding the abandonment of a project and reclamation of its lands at the end of its economic life, which abandonment and reclamation costs may be substantial. A breach of such approvals or laws may result in the issuance of remedial orders, the suspension or cancellation of approvals, the seizure of posted security or the imposition of fines and penalties, including an order for cessation of operations at the site until satisfactory remedies are made. All delineation wells are to be abandoned and reclaimed immediately and these costs are included with our exploration costs incurred. Our estimated abandonment and reclamation costs could change as the reclamation requirements will be a function of regulations in place at the time. Revisions to estimated asset retirement obligations can result from changes in retirement cost estimates and changes in the estimated timing of abandonment. In the future, we may determine it prudent or be required by applicable regulatory approvals or laws to establish and fund one or more abandonment and reclamation funds to provide for payment of future abandonment and reclamation costs.

We record the fair value of a liability for an asset retirement obligation when there is a legal obligation associated with the retirement of a tangible long-lived asset and the liability can be reasonably estimated. The legal obligation to perform the asset retirement activity is unconditional even though uncertainty may exist about the timing and/or method of retirement ~~settlement~~ that may be beyond the Company’s control. This uncertainty about the timing and/or method of ~~settlement~~retirement is factored into the measurement of the liability when sufficient information exists to reasonably estimate the fair value. The amount of asset retirement obligation recorded reflects the expected costs, taking into account the probability of particular scenarios. The difference between the upper end of the range of these assumptions and the lower end of the range can be significant, and consequently changes in these assumptions could have a material effect on the fair value of asset retirement obligations and future losses in a period of change.

IfThe ~~the~~ Company’s isobligations ~~unable~~with respect to asset retirement related to the reclamation of access roads on relinquished properties as well as the re-~~abandon~~abandonment ~~the~~of ~~early~~a ~~exploration~~certain number of core holes toat ~~industry~~Axe ~~and~~Lake ~~regulatory~~are ~~standards,~~considered itliabilities ~~could~~subject ~~result~~to incompromise. Liabilities subject to compromise refer to the ~~cancellation~~Company’s estimate of ~~leases~~known or ~~limit~~potential ~~our~~prepetition ~~ability~~claims to ~~develop~~be resolved in connection with entering into creditor protection. Such claims remain subject to future adjustments, and payment terms for liabilities subject to compromise will be established as part of a Court-approved plan for restructuring the ~~reservoir~~Company’s affairs. Future adjustments impacting amounts classified as liabilities subject to compromise depend on Court actions, further developments with respect to disputed claims, determinations of the secured status of certain claims, values of any collateral securing such claims, or other events.

As at October 31, 2011, we estimate the total undiscounted inflation-adjusted amount required to settle the asset retirement obligations in respect of the Company’s wells and facilities is approximately $43.1 million. This estimate includes the cost to re-abandon a number of wells at Axe Lake from the Company's early exploration core hole programs. It is possible that the Company, based on its current liquidity and future estimated cash flows, may not be able to comply with the requirements of the regulations, and the permits and leases may be cancelled as a result. 37

If the Company is unable to re-abandon the early exploration core holes to industry and regulatory standards or obtain waivers with respect there to, it could result in the cancellation of leases or limit our ability to develop the reservoir.

As at January 31, 2012, we estimate the total undiscounted inflation-adjusted amount required to settle the asset retirement obligations in respect of the Company’s wells and facilities is approximately $42.6 million. This estimate includes the cost to re-abandon a number of wells at Axe Lake from the Company's early exploration core hole programs. It is possible that the Company, based on its current liquidity and future estimated cash flows, may not be able to comply with the requirements of the regulations, and the permits and leases may be cancelled as a result.

If we fail to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the price of our common shares may be affected

We are required to maintain effective internal control over financial reporting under the Sarbanes-Oxley Act of 2002 and related regulations. Any material weakness in our internal control over financial reporting that needs to be addressed, disclosure of management’s assessment of our internal control over financial reporting, or disclosure of our public accounting firm’s report on internal control over financial reporting that reports a material weakness in our internal control over financial reporting may reduce the price of our common shares.

The restatement of our consolidated financial statements may result in litigation and government enforcement actions

We have restated our consolidated financial statements and other financial information for the years ended April 30, 2008 and 2007 and the interim periods from October 31, 2008 through January 31, 2009 primarily with respect to the accounting treatment of our August 2006 acquisition of a non-controlling interest (35.92%) of OQI Sask which together with our 64.08% interest resulted in a 100% interest in OQI Sask. We have also restated our consolidated financial statements and other financial information for the interim period ended October 31, 2009 with respect to accounting for stock-based compensation. The restatement of our prior financial statements may expose us to risks associated with litigation, regulatory proceedings and government enforcement actions, including the risk that the SEC may disagree with the manner in which we have accounted for and reported the financial impact of the restatement which could result in the Company having to further restate its prior financial statements, amend prior filings with the SEC, or take other actions not currently contemplated.

In addition, securities class action litigation has often been brought against companies who have been unable to provide current public information or who have restated previously filed financial statements. Such litigation is complex and could result in substantial costs, divert management’s attention and resources, and harm our business, financial condition and results of operations.

The impact of disruptions in the global financial and capital markets on our ability to obtain financing

The market events and conditions that transpired in 2008 and 2009, including disruptions in the international credit markets and other financial systems and the deterioration of global economic conditions, have, among other things, caused significant volatility in commodity prices. These events and conditions caused a loss of confidence in the broader U.S. and global credit and financial markets and resulted in the collapse of, and government intervention in, numerous major banks, financial institutions and insurers, and created a climate of greater volatility, less liquidity, widening of credit spreads, a lack of price transparency, increased credit losses and tighter credit conditions. Notwithstanding various actions by governments, concerns about the general condition of the capital markets, financial instruments, banks, investment banks, insurers and other financial institutions caused the broader credit markets to further deteriorate and stock markets to decline substantially. These factors have negatively impacted enterprise valuations and have impacted the performance of the global economy. Although credit markets, equity markets, commodity markets and the United States and global economies have somewhat stabilized (and in some instances experienced substantial recoveries), some prominent government officials, economists and market commentators have expressed concerns regarding the durability of the recovery over the near and medium term, particularly as the fiscal stimulus that was utilized by the world's governments to combat the global financial crises is withdrawn over time in the coming months and years.

We will continue to need further funding to achieve our business objectives. In the past, the issuance of equity securities has been the major source of capital and liquidity for us. The recent conditions in the global financial and capital markets have limited the availability of this funding. If the disruptions in the global financial and capital markets continue, debt or equity financing may not be available to us on acceptable terms, if at all. If we are unable to fund future operations by way of financing, including public or private offerings of equity or debt securities, our business, financial condition and results of operations will be adversely impacted. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses.

2338

Status and Stage of Reservoir Test Program

The reservoir test program is currently at the early stages of its planned implementation schedule. There is a risk that the program will not be completed on time or on budget or at all. Additionally, there is a risk that the program may have delays, interruption of operations or increased costs due to many factors, including, without limitation: breakdown or failure of equipment or processes; construction performance falling below expected levels of output or efficiency; design errors; challenges to, or inability to access in a timely or economic fashion; contractor or operator errors; non-performance by third-party contractors; labour disputes, disruptions or declines in productivity; increases in materials or labour costs; inability to attract sufficient numbers of workers; delays in obtaining, or conditions imposed by, regulatory approvals; changes in program scope; violation of permit requirements; disruption in the supply of energy; transportation accidents, disruption or delays in availability of transportation services or adverse weather conditions affecting transportation; unforeseen site surface or subsurface conditions; and catastrophic events such as fires, ~~earthquakes,~~ storms or explosions.

Our business plan is highly speculative and its success depends, in part, on exploration success on the permit, license and lease lands and the development of identified discoveries.

Our business plan is focused primarily on the exploration for and development of oil sands deposits on our permitted, licensed and leased lands in the Provinces of Saskatchewan and Alberta.

Exploration itself is highly speculative. We are subject to all of the risks inherent in oil sands exploration and development, including identification of commercial projects, selection of optimal recovery processes for successful production, operation and revenue uncertainties, market sizes, profitability, market demand, commodity price fluctuations and the ability to raise further capital to fund activities. There can be no assurance that we will be successful in overcoming these risks.

Access to Infrastructure

Production from our lease, license, and permit lands will depend upon certain infrastructure that does not currently exist in close proximity to where we currently anticipate to locate our initial projects and such infrastructure, if put in place, may be operated by others. Such infrastructure will include, without limitation, the following: pipelines for the transportation of natural gas and certain feedstock to our site and the transportation of bitumen and other petroleum products we produce to upgrading facilities and markets for sale; and electricity transmission and distribution systems for the provision of electricity. The failure to have any of this infrastructure in place on economic terms will negatively impact the operation of any potential commercial project and will adversely affect the ability to convert our resources into reserves.

Access to Markets

By the time we have a commercial project ready for start-up, it will likely have been preceded by other projects which began development at an earlier time and are more advanced in terms of production. As a result, preferred markets for our products may have already been taken up or upgraders or refiners may lack sufficient capacity to process our products in a timely or economic fashion.

Location of Discovery Areas

With the exception of Eagles Nest, all of Oilsands Quest’s prospective areas are located east of what has to date been considered the established bitumen resources that are exploitable by in situ production techniques in the Athabasca oil sands area. Similar to some other bitumen accumulations within the eastern portion of Alberta, the Axe Lake, Raven Ridge and portions of the Wallace Creek areas lack a distinct overlying shale formation. The absence of this may preclude the use of certain high-pressure in situ recovery methods, but the quality of the reservoirs and high bitumen saturations present at the Axe Lake, Raven Ridge and Wallace Creek areas provide the potential for extraction using a number of recovery methods, including SAGD. However, there can be no assurances that any such recovery method will be successful in enabling us to recover significant volumes of bitumen from our reservoirs. See "Status and Stage of Reservoir Test Program".

Independent Reviews

Although third parties have prepared reviews, reports and projections relating to the evaluation, viability and expected performance of our resources and plans for development thereof, no assurance can be given that these reports, reviews and projections and the assumptions on which they are based will, over time, prove to be accurate.

Personnel

The design, development and construction of the reservoir test program and any subsequent pilot and commercial projects will require experienced executive and management personnel and operational employees and contractors with expertise in a wide range of areas. No assurance can be given that all of the required personnel and contractors with the necessary expertise will be available. Should other oil sands projects or expansions proceed in the same time frame as Oilsands Quest programs and projects, we will have to compete with these other projects and expansions for qualified personnel and such competition may result in increases to compensation paid to such personnel or in a lack of qualified personnel. Any inability of Oilsands Quest to attract and retain qualified personnel may delay or interrupt the design, development and construction of, and commencement of operations at, the reservoir test program and any subsequent pilot and commercial projects. Sustained delays or interruptions could have a material adverse effect on the financial condition of Oilsands Quest.

Operational Hazards

Our exploration and development activities are subject to the customary hazards of operation in remote areas, such as fires, explosions, gaseous leaks, migration of harmful substances, blowouts and spills. A casualty occurrence might result in the loss of equipment or life, as well as injury, property damage or other liability. While we maintain limited insurance to cover current operations, our property and liability insurance may not be sufficient to cover any such casualty occurrences or disruptions. Equipment failures could result in damage to our facilities and liability to third parties against which we may not be able to fully insure or may elect not to insure because of high premium costs or for other reasons. Our operations could be interrupted by natural disasters such as forest fires or other events beyond our control. Losses and liabilities arising from uninsured or under-insured events could have a material adverse effect on our business, our financial condition and results of our operations.

Competitive Risks

The Canadian and international petroleum industry is highly competitive in all aspects, including the exploration for, and the development of, new sources of supply, the acquisition of oil interests and the processing, distribution and marketing of petroleum products.

The petroleum industry also competes with other industries in supplying energy, fuel and related products to consumers. Some of these industries benefit from lighter regulation, lower taxes and subsidies. In addition, certain of these industries are less capital intensive.

A number of competing companies are engaged in the oil sands business and are actively exploring for and delineating their resource bases. Some of our competitors have announced plans to begin production of synthetic crude oil, or to expand existing operations. If these plans are effected, they could materially increase the supply of synthetic crude oil and other competing crude oil products in the marketplace and adversely affect plans for development of our lands.

The Loss of current management may make it difficult for us to operate

Investors must rely upon the ability, expertise, judgment, discretion, integrity and good faith of our management and directors. The Company’s success is dependent upon its management and key personnel. We do not maintain key-man insurance for any of our employees. The unexpected loss or departure of any of our key officers and employees could be detrimental to our future success.

Fluctuations in U.S. and Canadian dollar exchange rates may have a material adverse impact

Commodity prices and costs related to the Company’s activities, if and when applicable, will generally be based on a U.S. dollar market price. Fluctuations in the U.S. and Canadian dollar exchange rate may cause a negative impact on revenue and costs and could have a material adverse impact on the Company.

THE BUSINESS OF OIL SANDS EXPLORATION IS SUBJECT TO MANY RISKS

Nature of Oil Sands Exploration and Development

Oil sands exploration and development are very competitive and involve many risks that even a combination of experience, knowledge and careful evaluation may not be able to overcome. As with any petroleum property, there can be no assurance that commercial deposits of bitumen will be produced from our permit lands in Saskatchewan and Alberta, oil sands exploration licenses in Saskatchewan, or the Eagles Nest Prospect. Furthermore, the marketability of any resource will be affected by numerous factors beyond our control. These factors include, but are not limited to, market fluctuations of prices, proximity and capacity of pipelines and processing equipment, equipment and labour availability and government regulations (including, without limitation, regulations relating to prices, taxes, royalties, land tenure, allowable production, importing and exporting of oil and gas, land use and environmental protection). The extent of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital.

The viability of our business plan, business operations, and future operating results and financial condition are and will be exposed to fluctuating prices for oil, natural gas, oil products and chemicals

Prices of oil, natural gas, oil products and chemicals are affected by supply and demand, which can fluctuate significantly. Factors that influence supply and demand include operational issues, natural disasters, weather, political instability, or conflicts, economic conditions and actions by major oil-exporting countries. Price fluctuations can have a material effect on our ability to raise capital and fund our exploration activities, our potential future earnings, and our financial condition. For example, in a low oil ~~and gas~~ price environment oil sands exploration and development may not be financially viable or profitable. Prolonged periods of low oil ~~and gas~~ prices, or rising costs, could result in our exploration projects being delayed or cancelled, as well as the impairment of certain assets.

Reserves and Resources

We have not yet established any reserves. There are numerous uncertainties inherent in estimating quantities of bitumen resources and reserves, including many factors beyond our control, and no assurance can be given that the recovery of bitumen will be realized. In general, estimates of resources and reserves are based upon a number of factors and assumptions made as of the date on which the resources and reserves estimates were determined, such as geological and engineering estimates which have inherent uncertainties, the assumed effects of regulation by governmental agencies and estimates of future commodity prices and operating costs, all of which may vary considerably from estimated results. All such estimates are, to some degree, uncertain and classifications of resources and reserves are only attempts to define the degree of uncertainty involved. For these reasons, estimates of reserves and resources, the classification of such resources and reserves based on risk of recovery, prepared by different engineers or by the same engineers at different times, may vary substantially.

Investors are cautioned not to assume that all or any part of a resource is economically or legally extractable.

ENVIRONMENTAL AND REGULATORY COMPLIANCE MAY IMPOSE SUBSTANTIAL COSTS ON US

Our operations are or will be subject to stringent federal, provincial and local laws and regulations relating to improving or maintaining environmental quality. Environmental laws often require parties to pay for remedial action or to pay damages regardless of fault. Environmental laws also often impose liability with respect to divested or terminated operations, even if the operations were terminated or divested many years ago.

Our exploration activities and drilling programs are or will be subject to extensive laws and regulations governing prospecting, development, production, exports, taxes, labor standards, occupational health, waste disposal, land use, protection and remediation of the environment, protection of endangered and protected species, operational safety, toxic substances and other matters. Exploration and drilling is also subject to risks and liabilities associated with pollution of the environment and disposal of waste products. Compliance with these laws and regulations will impose substantial costs on us and will subject us to significant potential liabilities. In addition, should there be changes to existing laws or regulations, our competitive position within the oil sands industry may be adversely affected, as many industry players have greater resources than we do.

We are required to obtain various regulatory ~~permits and~~ approvals in order to explore and develop our properties. The absence of a distinct overlying shale formation on portions of our leases may make it more difficult or costly to obtain regulatory approvals. There is no assurance that regulatory approvals for exploration and development of our properties will be obtained at all or with terms and conditions acceptable to us.

Third Party Liability and Environmental Liability

The Company’s operations could result in liability for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs and other environmental damage. We could be liable for environmental damages caused by previous owners. As a result, substantial liabilities to third parties or governmental entities may be incurred, and the payment of such liabilities could have a material adverse effect on our financial condition and results of operations. The release of harmful substances in the environment or other environmental damages caused by our activities could result in us losing our operating and environmental permits or inhibit us from obtaining new permits or renewing existing permits. We currently have a limited amount of insurance and, at such time as we commence additional operations, we expect to be able to obtain and maintain additional insurance coverage for our operations, including limited coverage for sudden environmental damages, but we do not believe that insurance coverage for environmental damage that occurs over time is available at a reasonable cost. Moreover, we do not believe that insurance coverage for the full potential liability that could be caused by environmental damage is available at a reasonable cost. Accordingly, we may be subject to liability or may lose substantial portions of our properties in the event of certain environmental damage. The Company could incur substantial costs to comply with environmental laws and regulations which could affect our ability to operate as planned.

Emissions Regulations

Development of our assets is expected to result in the emission of greenhouse gases ("GHGs") and other pollutants.

Canada has been an active participant in the United Nations Framework Convention on Climate Change (UNFCCC) since its establishment, and has signaled its desire to work with international partners to negotiate a new fair and effective international climate change agreement for the post-2012 period. On December 5, 2011 Canada announced that it would be withdrawing as a signatory to the Kyoto Protocol.

Previously Canada committed to reducing its economy-wide GHG emissions by 17% below 2005 levels by 2020, which is equivalent to reducing Canada’s 2020 emissions to 607 megatonnes (Mt). This target was set internationally in the Copenhagen Accord, and is aligned with that of the United States. Canada’s target was formally reiterated in the Cancun Agreement, adopted in December 2010.

Over the last several years, the federal Government has undertaken a number of initiatives to achieve domestic GHG reductions. These measures include regulations, codes and standards, targeted investments, incentives, tax measures and programs that directly reduce GHG emissions.

Going forward, the Government has announced that it will focus on a sector-by-sector regulatory approach, beginning with the largest sources of emissions. Given the high degree of economic integration between Canada and the U.S., Canada has stated that it will be aligned with future U.S. emissions reduction regulations where it is appropriate and in Canada’s best interests to do so. This ~~regulator~~regulatory agenda will continue to be supported by the targeted complementary measures designed to advance Canada’s transition to a clean energy economy.

Under Canada’s plan to address climate change, actions have been taken regarding two of the largest sources of GHG emissions: the electricity and transportation sectors.

The oil sands industry is expected to be a sector of the economy where the federal Government will regulate GHG emissions next. However, at this time it is not known how or when GHG emissions from the oil sands industry will be regulated or the reductions in emissions that will be required. We believe that it is reasonably likely that new federal legislation requiring GHG emissions will be enacted in Canada and that such federal legislation could have a material effect on the development of our assets.

25On April 20, 2007, the Government of Alberta passed the Climate Change and Emissions Management Amendment Act establishing a framework for GHG emission reductions. The Specified Gas Emitters Regulation created under the Act requires facilities that emit more than 100,000 tonnes of carbon dioxide equivalent ("CO2e") annually to reduce their emission intensity starting July 1, 2007 by 12 percent from 2003-2005 levels. New facilities in operation less than eight years are required to achieve these reductions over the fourth to eighth years of operation. These obligations may be met by in-house reductions, the purchase of certain emission reductions or offset credits or a monetary contribution to a provincial technology fund. We believe that the costs of complying with the Regulation could be material should our operations grow to emit more than 100,000 tonnes of CO2e annually.

On ~~April~~May 20, ~~2007~~2010, the ~~Government~~Saskatchewan Legislature passed The Management and Reduction of ~~Alberta~~Greenhouse ~~passed~~Gases ~~the~~Act ~~Climate~~but ~~Change~~has ~~and~~yet ~~Emissions~~to ~~Management~~proclaim ~~Amendment~~it into law. The Act ~~establishing~~sets a policy and regulatory framework for reducing GHG ~~emission~~emissions ~~reductions.~~in ~~The~~Saskatchewan ~~Specified~~and ~~Gas~~sets ~~Emitters~~a ~~Regulation~~provincial ~~created~~target ~~under~~of ~~the~~a ~~Act~~20% ~~requires~~reduction ~~facilities~~in ~~that~~GHG ~~emit~~emissions ~~more~~from ~~than~~2006 ~~100,000~~levels ~~tonnes~~by of2020. The ~~carbon~~specific ~~dioxide~~GHG ~~equivalent~~emission ~~("CO2e")~~reduction ~~annually~~requirements, toand ~~reduce~~the ~~their~~industries ~~emission~~required ~~intensity~~to ~~starting~~meet ~~July~~those 1reductions, ~~2007 by~~as 12well ~~percent~~as ~~from~~details ~~2003-2005~~on ~~levels.~~the ~~New~~methods ~~facilities~~by inwhich ~~operation~~reductions ~~less~~may ~~than~~be ~~eight~~achieved, ~~years~~are ~~will~~to be ~~required~~set toby regulations ~~achieve~~which ~~these~~have ~~reductions~~been ~~over~~released in draft for public consultation. The current draft of the ~~fourth~~regulations torequire ~~eight~~facilities ~~years~~which emit 50,000 tonnes of ~~operation.~~CO2 ~~These~~per ~~obligations~~year ~~may~~will be ~~met~~required to reduce GHG emissions by ~~in-house~~2% ~~reductions,~~per ~~the~~year ~~purchase~~over ofa ~~certain~~baseline emission ~~reductions~~level orfrom ~~offset~~2010 ~~credits~~to or2019. New afacilities ~~contribution~~constructed after 2006 that have emissions in excess of ~~$15~~50,000 ~~per~~tonnes ~~tonne~~or more of ~~GHG~~CO2e annually ~~emissions~~will also be required to aachieve ~~provincial~~emission ~~technology~~reduction ~~fund~~targets. We believe that the costs of complying with the ~~Regulation~~new regulations, if adopted, could be material ~~should~~if our operations grow to emit ~~more than 100~~50,000 tonnes or more of CO2e ~~annually~~.

On May 20, 2010, the Saskatchewan Legislature passed The Management and Reduction of Greenhouse Gases Act but has yet to proclaim it into law. The Act sets a policy and regulatory framework for reducing GHG emissions in Saskatchewan and sets a provincial target of a 20% reduction in GHG emissions from 2006 levels by 2020. The specific GHG emission reduction requirements, and the industries required to meet those reductions, as well as details on the methods by which reductions may be achieved, are to be set by further regulations. It is expected that facilities which emit 50,000 tonnes of CO2 per year will be required to reduce GHG emissions by 2% per year over a baseline emission level from 2010 to 2019. New facilities constructed after 2006 that have emissions in excess of 50,000 tonnes of CO2 annually will also be required to achieve emission reduction targets.

Future legislated GHG and industrial air pollutant emission reduction requirements and emission intensity requirements, or GHG and industrial air pollutant emission reduction or intensity requirements in future regulatory approvals, may require the restriction or reduction of GHG and industrial air pollutant emissions or emissions intensity from our future operations and facilities, payments to technology funds or purchase of emission reductions or offset credits. The reductions may not be technically or economically feasible for our operations and the failure to meet such emission reduction or emission intensity reduction requirements or other compliance mechanisms may materially adversely affect our business and result in fines, penalties and the suspension of operations. As well, equipment from suppliers which can meet future emission standards may not be available on an economic basis and other compliance methods of reducing emissions or emission intensity to levels required in the future may significantly increase our operating costs or reduce output. Emission reductions or offset credits may not be available for acquisition or may not be available on an economic basis. There is also the risk that provincial or federal governments, or both, could pass legislation which would tax such emissions.

American climate change legislation could negatively affect markets for crude and synthetic crude oil

Environmental legislation regulating carbon fuel standards in jurisdictions that import crude and synthetic crude oil in the United States could result in increased costs and/or reduced revenue. For example, both California and the United States federal governments have passed legislation which, in some circumstances, considers the lifecycle ~~greenhouse~~GHG ~~gas~~ emissions of purchased fuel and which may negatively affect our business, or require the purchase of emissions credits, which may not be economically feasible.

Proposed Export Restrictions

The Government of Canada previously announced that it will review and may restrict exports from Canada of bitumen and bitumen blend products to countries with less stringent GHG emissions limits than those which apply in Canada. Any export restrictions imposed with respect to bitumen or bitumen blend products may restrict the markets in which the Company may sell its bitumen and bitumen blend products, which may result in the Company receiving a lower price for its production, if and when applicable.

Royalty Regime

Any development of our resource assets will be directly affected by the royalty regime applicable. The economic benefit of future capital expenditures for the project is, in many cases, dependent on a satisfactory fiscal regime (royalties and taxes). The Government of Saskatchewan receives royalties on production of oil, gas and other minerals from lands in which it owns the relevant mineral rights. The Government of Saskatchewan owns the relevant mineral rights on the OQI Saskatchewan lands. The current royalty regime relating to bitumen production in Saskatchewan provides for a royalty of 1% of gross bitumen revenue and is payable until the project has recovered specified allowed costs. Once such allowed costs are recovered, a net royalty of 20% of operating income is payable.

The Government of Alberta receives royalties on production of natural resources from lands in which it owns the mineral rights. On October 25, 2007, the Government of Alberta announced a new royalty regime. The new regime introduced new royalties for conventional oil, natural gas and bitumen that became effective January 1, 2009 and are linked to commodity prices and production levels and apply to both new and existing oil sands projects and conventional oil and gas activities.

Under the new regime, the Government of Alberta increased its royalty share from oil sands production by introducing price-sensitive formulas which are applied both before and after specified allowed costs have been recovered. The gross royalty starts at one percent of gross bitumen revenue and increased, for every dollar that world oil price, as reflected by the West Texas Intermediate (“WTI”) crude oil price, is above CDN$120 per barrel or higher. The net royalty on oil sands starts at 25 percent of net bitumen revenue and increases for every dollar the WTI crude oil price is above CDN$55 per barrel to 40 percent when the WTI crude oil price is CDN$120 per barrel or higher. Prior to the payout of specified allowed costs, including certain exploration and development costs, operating costs and a return allowance, the gross royalty is payable. Once such allowed costs have been recovered, a royalty of the greater of: (a) the gross royalty and (b) the net royalty is payable. The Government of Alberta has announced that it intends to review and, if necessary, revise current rules and enforcement procedures with a view to clearly defining what expenditures will qualify as specified allowed costs.

There can be no assurance that the Governments of Alberta or Saskatchewan or the Government of Canada will not adopt a new fiscal regime or otherwise modify the existing fiscal regime (royalties and taxes) governing oil sands producers in a manner that could materially affect the financial prospects and results of operations of oil sands developers and producers in Alberta and Saskatchewan.

Title Risks

Aboriginal peoples have claimed aboriginal title and rights to a substantial portion of western Canada, and both First Nations and Métis peoples have commenced and could in the future commence actions claiming, among other things, aboriginal title and rights to our Alberta and Saskatchewan lands and other lands located in the vicinity of those lands. First Nations and Métis peoples have also stated that governments have not complied with their constitutionally mandated duty to consult with and accommodate First Nations and Métis in relation to decisions that enabled us to acquire and that are required to enable us to develop our Saskatchewan and Alberta lands, and have commenced and could in the future commence actions asserting such claims. Certain of these claims, if successful, could have a significant adverse effect on our ability to conduct our business, including impacting our ability to explore and develop by impacting our ability to obtain, retain or exercise rights under permits, leases, licenses and other approvals, and the terms of such approvals.

RISKS RELATING TO OUR COMMON STOCK

The Company’s listing on the NYSE Amex may continue to be halted and we may be unable to continue meeting the listing requirements of the NYSE Amex and may be delisted

On November 29, 2011, the NYSE Amex halted trading in Oilsands Quest’s common shares and imposed an ongoing suspension in trading of the shares. Delay in the resumption of trading on the NYSE or failure to retain the Company’s listing on the NYSE Amex or another stock exchange will drastically reduce the liquidity of the Company’s common shares. The NYSE granted the Company an extension until May 18, 2012 to regain compliance with the continued listing standards.

We have numerous outstanding options, warrants and commitments to issue shares, which may adversely affect the price of our common stock

As of ~~October~~January 31, ~~2011~~2012, we have reserved 17,~~963~~025,000 shares of our common stock for issuance upon exercise of outstanding options under plans at prices as low as $0.29 per share. The Company has also reserved 1,388,567 shares of common stock to be issued on settlement of debt of a former subsidiary. Pursuant to the Reorganization Agreement with OQI Sask dated August 14, 2006, the Company is required to issue up to 65,476,103 shares of its common stock for all of the OQI Sask Exchangeable Shares (including warrants and options to acquire OQI Sask Exchangeable Shares) issued upon the closing (the “Reorganization”). As of ~~October~~January 31, ~~2011~~2012, 46,550,148 OQI Sask Exchangeable Shares have already been exchanged for shares of our common stock and up to an additional 18,925,956 OQI Sask Exchangeable Shares may be exchanged for common stock. Any sale into the public market of our common stock purchased privately at prices below the current market price could be expected to have a depressive effect on the market price of our common stock.

Future sales of our common stock may cause our stock price to decline

~~Our~~The ~~stock~~value ~~price~~of our common stock may decline due to future sales of our shares or the perception that such sales may occur. The Board of Directors of the Company has discretion to determine the issue price and the terms of issue of shares of our common stock. Such future issuances may be dilutive to investors. Holders of shares of common stock have no pre-emptive rights under our articles of incorporation to participate in any future offerings of securities.

26On November 29, 2011, the NYSE Amex halted trading in Oilsands Quest’s common shares and imposed an ongoing suspension in trading of the shares. Delay in the resumption of trading on the NYSE or failure to retain the Company’s listing on the NYSE Amex or another stock exchange will drastically reduce the liquidity of the Company’s common shares. The NYSE granted the Company an extension until May 18, 2012 to regain compliance with the continued listing standards.

If we issue additional shares of common stock in private financings under an exemption from the registration requirements, then those shares will constitute “restricted shares” as defined in Rule 144 under the Securities Act of 1933 (the “1933 Act”). The restricted shares may only be sold if they are registered under the 1933 Act, or sold under Rule 144, or another exemption from registration under the 1933 Act.

Some of our outstanding restricted shares of common stock are either eligible for sale pursuant to Rule 144 or have been registered under the 1933 Act for resale by the holders. We are unable to estimate the amount, timing, or nature of future sales of outstanding common stock. Sales of substantial amounts of our common stock in the public market may cause the stock’s market price to decline.

Dividend Policy

The Company did not declare or pay cash or other dividends on its common stock during the past three fiscal years. Payment of dividends by the Company will depend upon the Company’s financial condition, results of operations, capital requirements and such other factors as the Board of Directors of the Company may deem relevant.

Our stock price can be extremely volatile

The trading price of our common stock has been and could continue to be subject to wide fluctuations in response to announcements of our business developments or those of our competitors, world commodity prices, periodic updates on our resource assessments, quarterly variations in operating results, and other events or factors. In addition, stock markets have experienced extreme price volatility in recent years. This volatility has had a substantial effect on the market prices of companies, at times for reasons unrelated to their operating performance. Such broad market fluctuations may adversely affect the price of our common stock.

Issuance of Preferred Stock and Our Anti-Takeover Provisions Could Delay or Prevent a Change in Control and May Adversely Affect our Common Stock

We are authorized to issue 10,000,000 shares of preferred stock which may be issued in series from time to time with such designations, rights, preferences and limitations as our Board of Directors may determine by resolution. The rights of the holders of our common stock will be subject to and may be adversely affected by the rights of the holders of any of our preferred stock that may be issued in the future. Issuance of a new series of preferred stock, or providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire, or discourage a third party from acquiring our outstanding shares of common stock. Each term for directors is three years. In addition to a staggered board, our Board of Directors adopted a stockholders rights plan in March 2006 and reserved 250,000 shares of Series A Junior Participating Preferred Stock. This stockholders rights plan could have the effect of discouraging, delaying or preventing an acquisition.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

(Removed and Reserved)

None.

Item 5.

Other Information

On September 12, 2011 Oilsands Quest received notice from the staff of the NYSE Amex LLC (the “Exchange”) that, based on their review of the Company’s Form 10-K/A for the fiscal year ended April 30, 2011 and discussions and correspondence with management, the Company is not in compliance with certain of the ~~NYSE'~~ Exchange’s continued listing standards as set forth in Part 10 of the ~~NYSE'~~Exchange’s Company Guide. Specifically, the ~~NYSE~~ Exchange noted that the Company is not in compliance with Section 1003(a)(iv) of the Company Guide because the Company has sustained losses which are so substantial in relation to the Company’s overall operations or its existing financial resources, or its financial condition has become so impaired that it appears questionable, in the opinion of the ~~NYSE~~Exchange, as to whether the Company will be able to continue operations and/or meet its obligations as they mature.

OnThe ~~October~~Company ~~12,~~was ~~2011,~~afforded the ~~Company~~opportunity ~~submitted~~to submit a plan ~~explaining~~of ~~how~~ compliance to the ~~Company intends~~Exchange toand ~~return~~on February 13, 2012 presented its plan to ~~full~~the ~~compliance~~Exchange. ~~with~~On February 24, 2012 the ~~NYSE’s~~Exchange ~~listing~~notified ~~requirements. The~~the Company ~~believed~~ that ~~with~~it accepted the ~~Socius~~Company's ~~financing~~plan of compliance and granted the ~~Wallace~~Company ~~Creek~~an ~~asset~~extension ~~sale~~until ~~pursuant~~May 18, 2012 to ~~the~~regain ~~Letter~~compliance ofwith ~~Intent Oilsands~~the ~~Quest~~continued ~~would~~listing ~~have~~standards. ~~secured~~The ~~the~~Company ~~necessary~~will ~~capital~~be subject to ~~move~~periodic ~~ahead~~review ~~with~~by ~~operations~~Exchange ~~and use~~Staff during the ~~resulting~~extension ~~reservoir~~period. ~~production~~Failure ~~data~~to make progress consistent with the plan or to ~~seek~~regain acompliance ~~joint~~with ~~venture~~the ~~partner,~~continued ~~strategic~~listing ~~investor,~~standards orby ~~purchaser~~the end of the ~~asset~~extension orperiod could result in the Company being delisted from the NYSE Amex.

~~Following~~Trading ~~the termination of negotiations on the Wallace Creek sale, the NYSE halted trading~~ in the common shares of ~~the~~Oilsands ~~Company~~Quest ~~(symbol:~~remains ~~BQI).~~suspended ~~On December~~while ~~2, 2011,~~ the NYSE ~~requested~~Amex ~~that~~determines ~~Company~~whether ~~submit~~to aresume ~~revised~~trading ~~plan~~or ~~by December 12, 2011. The NYSE may proceed~~ to delist the ~~company~~Company for failure to meet ~~the continued~~ listing requirements ~~of the NYSE~~ . The Company'’s ~~common~~ shares ~~will~~are ~~remain~~currently ~~suspended~~not ~~from~~traded ~~trading~~on ~~until~~an aactive ~~delisting occurs, or until the NYSE permits the resumption of trading~~market.

Item 6.

Exhibits

31.1 Certification of CEO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

31.2 Certification of Vice President and Controller, Principal Accounting Officer Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.1 Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.2 Certification of Vice President and Controller, Principal Accounting Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

	OILSANDS QUEST INC.
Date: December 9, 2011	By:	/s/ Garth Wong
Date: March 8, 2012	By:	/s/ Garth Wong
		Garth Wong, President and Chief Executive Officer
Date: December 9, 2011	By:	/s/ Annie Lamoureux
Date: March 8, 2012	By:	/s/ Annie Lamoureux
		Annie Lamoureux, Vice President and Controller, Principal Accounting Officer

27 45

Filing Compare · Oilsands Quest Inc