Coastal Petroleum Regains Full Control of Shallow Gas Prospect Leases

Coastal Petroleum Company has regained full control of the leases covering its shallow gas prospect in its Valley County, Montana Leases, when Western Standard Energy Corp. did not exercise its option to purchase a 50% interest in approximately 37,000 acres of the leases.

Under the Agreement between the companies, Western Standard had 30 days after completion of the first test well on the leases to exercise its option. Completion efforts on that well, the Federal 1-19, were finished in early November and Coastal gave Western Standard the required notice at that time. Western Standard did not timely exercise its option and therefore it no longer has an interest in the Company's Montana leases.

Ware said, "We were prepared for Western Standard to decline to work with us to develop this shallow gas prospect, and we plan to move forward on it on our own once drilling season begins there in July." Western Standard still has its interest in four Lodgepole prospects in North Dakota that Coastal assigned to Western Standard.

The Federal 1-19 well confirmed that the prospect is indeed high and that natural gas is present. All that remains is to determine whether the gas is present in economic quantities. The well was drilled at the location recommended in a geologic report, written by a third party consulting geologist, to confirm the structure and test for gas. In the report, dated February 2, 2005, and later confirmed in September, 2007, it is estimated that the Starbuck East shallow gas prospect is a 34,000-acre closure and that it could allow for around 600 wells to be drilled with 80-acre spacing.

The report further estimates the potential recoverable resources to be approximately 220 BCF of gas from two zones. The well was not drilled deep enough to test one of the zones, the Phillips formation, but did reach the Eagle formation which showed gas. One of the five secondary objectives, the Judith River formation also showed gas. The Starbuck East shallow gas assembly is located within close proximity to the Northern Border Pipeline, which runs from Alberta, Canada to serve the Chicago market.

The Company is working with several investment firms to obtain funding so that it may continue exploration on its own, both in Montana and North Dakota. The Company has also acquired a Red River formation development prospect in Slope County, North Dakota.

The Company has laid out its 2009 Drilling Program, including plans to drill this Red River formation development prospect, three wells to test Lodgepole Reef prospects in Slope County, North Dakota, ten step-out wells on the Starbuck East prospect in Valley County, Montana and two wells in the other Valley County, Montana leases. The Drilling Program is contingent upon the Company obtaining the additional funding it is pursuing. The Company expects to see the benefit from its funding efforts materialize in the first quarter of 2009; which would then allow the Company to commence its 2009 Drilling Program in the second quarter of 2009.