Rally Energy's Production Exceeds 5,700 boe/d

Rally Energy Corp.

Rally Energy Corp. said that its corporate production exit rate for the second quarter 2006 exceeded 5,700 boe/d. The production average in the second quarter 2006 was 4,574 boe/d, representing an increase of 67% over the Q1 2006 production of 2,741 boe/d.

Average production during the second quarter was 4,433 boe/d. Seven wells drilled during the second quarter resulted in seven oil wells. Drilling operations are ongoing with plans to drill another seven wells in Issaran during the third quarter.

Issaran field average oil price for the second quarter was US$41.60 per barrel, an increase of 21% over the first-quarter price of US$34.34 per barrel.

Based on successful early results of the thermal pilot project, Rally will proceed with its thermal expansion plan for the current pilot project by drilling seven additional steam wells in the fourth quarter of this year for a total of 10 cyclic steam stimulated wells. Engineering models are being developed to forecast steam-enhanced recovery in additional reservoir segments in the north half of the field. This effort is intended to add oil reserves and to expand the company’s area for thermal recovery in the Issaran concession. The proposed plan contemplates having steam injection commence for the expanded pilot prior to the end of 2006.

As previously reported, the Rally’s offer to acquire an additional 7.5% interest in the Safed Koh Concession in Pakistan has been accepted. The company is completing documentation and expects to close this transaction during the third quarter.

Rally, along with other working interest owners of Safed Koh block, have agreed upon a draft gas sales agreement with Sui Northern Gas Pipeline Limited. The draft agreement, along with a gas pricing agreement, has been submitted to the Government of Pakistan for approval. Sui Northern has also agreed to construct an 18-kilometer pipeline lateral to the field. The contract for the fabrication and field construction of the gas processing facility has been awarded to a Houston, Texas, engineering firm.

The operator has advised Rally that it has secured a drilling rig to drill two development wells and one exploration well starting in the fourth quarter of this year and that first gas production is still expected to be onstream before the end of this year.

Average production during the second quarter was 141 boe/d. Two successful gas and oil wells have been drilled and tested during the quarter at Valhalla and Gold Creek and are expected to add 200 boe/d of net production.

Rally has started the process of selling its Canadian assets and expects to complete sales transactions during the current quarter.

Rally Energy's working capital position improved significantly during the second quarter. With the completion of the new long-term credit facility from the International Finance Corp. (IFC), a division of the World Bank, all borrowings under Rally's short-term Canadian bank loan were paid out. At June 30, the corporation had drawn US$10 million of the available US$25 million IFC facility. Additionally, all of the remaining $1.3 million of convertible debentures either converted to common shares or were redeemed by June 30, 2006.

During the second quarter, 530,600 of the 4 million $1.60 Common Share Purchase Warrants were exercised. On July 5, 2006, the corporation advised the remaining 3,469,400 warrant-holders that, under the terms of the warrants, the expiry date of these warrants was accelerated to July 20, 2006, from Dec. 19, 2006. The expected proceeds resulting from exercise of the remaining warrants will provide $5.6 million to the company.

Rally also is pleased to announce the appointments of Al Stark as controller and Gamal Rezk as vice president of finance and administration of Scimitar Egypt, Rally Energy's wholly owned Egyptian subsidiary. A graduate of the University of Saskatchewan, Stark brings 16 years of oil and gas financial experience and will be located in Calgary. Rezk, a graduate of the University of Cairo, has 19 years of financial and administration experience and will be located in the company’s offices in Cairo.

Calgary-based Rally Energy is an oil and gas exploration, development, and production company. The corporation’s primary area of operations is in Egypt, where it has a 100% operating interest in the Issaran Oilfield, a significant heavy oil development opportunity with strong growth potential. In Pakistan, Rally holds a 22.5% interest in the Safed Koh Block, where it is participating in the development of a large natural gas/condensate discovery. In Canada, the company is active in Alberta and Saskatchewan with varied working interests in several producing properties.