Admiral Bay Resources Reports Record Production for Fiscal 2009

Admiral Bay Resources has announced record production and proved reserves for the fiscal year ended July 31, 2009. The Company also announced it had sold a 50% interest in its Bourbon County, Kansas gas gathering system and agreed to amendments to its current credit facility.

Record Production and Reserves

Production before royalty averaged 3,556 Mcfpd compared to 2,376 Mcfpd in the prior fiscal year. Production costs were $ 2.70/mcf, a decrease of 25% from the prior year and G&A expense was $ 1.30/mcf, a decrease of 37%. Revenues (after royalties) plus hedge impact were $5.5 million, an increase of 5% over fiscal year 2008 as the Company's hedge position and higher production volumes offset sharply lower commodity prices. During fiscal 2009, natural gas prices averaged $3.66 per Mcf compared to $7.76 per Mcf in fiscal 2008.
Admiral Bay posted a net loss of $ 6.4 million in fiscal year 2009. That compares to a net loss of $ 8.2 million in fiscal year 2008. The improvement was due primarily to the non-cash change in the mark-to-market of the Company's natural gas hedges and lower financing fees offset by higher amortization and interest costs.

The annual reserve report prepared by Norwest Corporation reported gross Proved reserves of 66.1 Bcf (49.3 BCF net after royalty) with pre-tax net present value discounted at 10% ("PV-10") of $118.8 million. Reserves increased 15% and PV-10 value increased 1% from Fiscal Year 2008. The Company reported Probable and Possible reserves of 14.3 and 100.2 Bcf respectively net after royalty. Norwest's evaluation is based on multi-year forecast prices for natural gas (NYMEX) ranging from $4.69 in 2009 to $7.11 in 2013.

Admiral Bay's fiscal year 2009 capital expenditures were $5.6 million, including $1.8 million paid for the Thayer acquisition in May, 2009. Fiscal Year 2009 year-end reserves attributable to the Thayer acquisition were 10.9 Bcf net after royalty.

Admiral Bay had proved finding costs of $0.93/Mcf in Fiscal Year 2009. That compares to Admiral Bay's four year average all-in finding cost of $1.41/MCF, based on overall capital expenditures for the four year period of $36.9 million, including $7.1 million for acquisitions. The four year average full cycle finding & development cost (including future development costs of $18.4 million) was $2.12/Mcf.

"With record production, solid reserve growth and continued improvement in our cost structure, Admiral Bay continues to grow as a leading player in the Cherokee Basin," said Steve Tedesco, Admiral Bay's President and Chief Executive Officer. "While seriously depressed natural gas pricing impacted the value of our reserves, we were still able to post modest growth to overall reserve value. Although we have faced price challenges as we enter the new fiscal year, we remain focused on smart production and reserve growth and continued reduction in our basin-leading finding and development cost metrics."

Cherokee Basin Gathering System Sale

Admiral Bay also announced that the Company sold a 50% interest in its Bourbon County Pipeline to a third party for $500,000. Admiral Bay will retain the remaining 50% interest and will continue to operate the pipeline.

"The sale of an interest in the Bourbon County Pipeline provided Admiral Bay with capital which is being used to boost production through workover work on our core assets in the Cherokee Basin," added Tedesco. "At the same time, the terms of the transaction provided continued access to capacity on the Bourbon County system as well as operatorship of the pipeline. We will continue to look for ways to maximize the value of all of our assets as we focus on our core exploration and production business."

Amendments to Credit Facility

In addition, Admiral Bay announced it executed an amendment to its current credit agreement that provides the Company with flexible interest payment terms. In addition to other ministerial changes, the Amendment allows for a portion of the interest due to be paid "in-kind" ("PIK") through December 2009. Under the terms of the Amendment, the Company will pay a minimum of 5% of the interest due in cash with the option to PIK the balance of interest due at a rate of 10% for a total of 15%.

"We appreciate the continued support of our lenders in this period of unprecedented declines in natural gas prices," said Robert Carington, Admiral Bay Chief Financial Officer. "The ability to PIK a portion of our interest payments provides the Company with capital to maintain and strategically grow our production and reserve levels. Our lender's willingness to provide us with financial flexibility is an indication of their perception of the long-term value in our reserve base."