Tekoil Extends Masters Agreement

Tekoil & Gas Corporation said that it has extended its previously announced Purchase and Sale Agreement to acquire certain oil and gas properties in Galveston Bay, Texas (the "Masters Acquisition") to on or before February 9, 2007. The company also said that it has authorized a leading New York-based financial institution ("Lender"), on a 60-day exclusive basis, to proceed with an accelerated due diligence investigation and to seek internal Lender credit approval for a currently contemplated US$50,000,000 multiple advance, senior secured four year credit facility (the "Facility"), with initial availability of US$25,000,000 in support of this acquisition.

The Company expects that the terms for the Facility will be substantially similar to those set out in the Summary of Indicative, Non-binding Terms and Conditions (the "Term Sheet") provided by Lender. However, the Term Sheet was based upon existing market conditions and is subject to change.

Included in the Term Sheet, among other terms, conditions and other provisions, is the Company's agreement to issue, at Closing, Warrants to purchase 900,000 common shares of the Company at a price of $0.50 per share for 5 years. The above described authorization required the Company to advance $50,000 against Lender's expenses and certain other customary terms. The Term Sheet also contemplates that the Facility will be conditioned upon the Company completing a minimum US$20,000,000 equity financing, with standard covenants and conditions, including satisfactory due diligence reviews and regulatory approval, and other conditions, which the potential Lender may deem appropriate.

Mr. Mark Western, Chairman of the Company, stated: "While we had hoped to complete the Masters Acquisition by now, we are delighted to have agreed terms for the Masters extension, having engaged a high quality Lender. However, a definitive agreement with the Lender must be finalized and Lender due diligence completed, and these as well as other conditions under the amended Purchase and Sale Agreement for the Masters Acquisition must be satisfied in order to close."

Houston-based Tekoil & Gas Corporation is a technology-driven company focused on the development, acquisition, stimulation, rehabilitation and asset improvement of small to medium-sized oil and gas fields.