Pegasi Energy Increases Proven Reserves by 47%

Pegasi, an East Texas based oil and gas exploration and production company, announced a 47% increase in its proven reserve category as of December 31, 2008, based on an independent engineer report prepared by James E. Smith & Associates, Inc. The increase is based on the previously reported purchase of an additional 10% Working Interest in its East Texas program, giving the Company an 80% interest, and the successful drilling of the Harris 2 and Childers 2 Cotton Valley wells. The acquisition and completion of the two wells increases Pegasi reserve base based on the December 31, 2008 reserve report as follows: P1 33.6 BCFE, P2 25.7 BCFE and P3 296.6BCFE. This is an increase of 19.52BCFE in the P1 category.

Total revenues for the year ended December 31, 2008 totaled $2,601,236, compared to $2,133,009 for the year ended December 31, 2007. Production revenues of oil and gas increased $366,975 for the year ended December 31, 2008 compared to the year ended December 31, 2007. This increase in revenues reflects the impact of higher sales volume for natural gas as well as an increase in sales prices for natural gas of about 74%. The numbers are preliminary and may change after the audit is complete.

"2008 was a year of significant accomplishments," stated Chairman Michael Neufeld. "After our initial public offering in December 2007, we were able to maintain and add to our leasehold position under extreme competitive conditions as a result of Bossier and Haynesville drilling in our project area."

To enhance our own gas marketing, we completed the expansion of our main gas trunkline and gathering lines which increased capacity for both Pegasi and third part sales. The two recently drilled Cotton Valley wells, reported earlier, demonstrated the presence of an exploitable oil column in the lower section of the Cotton Valley. The company is exploring different avenues of additional financing to exploit the oil potential. The company anticipates lower drilling and completion costs in 2009.