Rally Energy Corp.

Rally Energy Corp.

February 25, 2005 08:00 ET

Rally Energy Corp. Reports Operations Update and Closing of the Disposition of its PEI Interests


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: RALLY ENERGY CORP.

TSX VENTURE SYMBOL: RAL
FRANKFURT SYMBOL: RLE

FEBRUARY 25, 2005 - 08:00 ET

Rally Energy Corp. Reports Operations Update and
Closing of the Disposition of its PEI Interests

CALGARY, ALBERTA--(CCNMatthews - Feb. 25, 2005) - Rally Energy Corp.
(TSX VENTURE:RAL) (FWB:RLE)

Production and Operations

Rally Energy is pleased to report that fourth quarter product sales
averaged 2,304 boe/d, up approximately 10% from the third quarter. Oil
sales from the Issaran oilfield in Egypt averaged 2,267 bbls/d and
Western Canadian production averaged 37 boe/d. Since the beginning of
2005, the Corporation has drilled two new wells in Egypt and has tested
a significant Western Canadian light oil discovery that is expected to
come on stream by mid-year.

The Corporation's current production capacity is estimated to be
approximately 3,450 boe/d, with Egypt production capacity estimated at
approximately 3,000 bbls/d. Rally Energy's management is confident that
production and production capacity will increase materially during 2005
through a continuation of drilling programs in Egypt and in Western
Canada.

In Egypt, a combination of factors have contributed to temporary
shut-ins of significant production volumes since January of this year.
In order to drill wells to formations below current producing horizons,
wells in close proximity to new well drilling operations have been shut
in while drilling and completions proceed, a normal industry precaution.
In addition, equipment changes, repairs and re-work activities have been
conducted to further upgrade field operations. New well results
reinforce management's confidence that the Corporation's shareholders
will benefit from increasing production levels from continued drilling
activities in the Issaran oilfield.

Egypt: Ras Gharib Blend Oil Prices

During 2004, the average realized oil price for Issaran production was
Cdn$30.70/bbl (US$23.59/bbl), representing 81% of average Ras Gharib
blend prices. Late in 2004, the Corporation began to experience a
disconnect between Ras Gharib pricing and quoted Brent pricing, with Ras
Gharib prices failing to track Brent prices. (See Rally Energy's
November 29, 2004 Press Release.) This situation is not expected to
change in the foreseeable future since international heavy crude oils
continue to sell at significant discounts from light crude pricing
benchmarks. Taking this into consideration, the Corporation is currently
using an expected Ras Gharib blend price of US$20.00/bbl for 2005
budgeting purposes, with an assumed field price realization averaging
84% of Ras Gharib prices.

Western Canada: Alberta and Saskatchewan

Significant progress has been made in Western Canada. During 2004, the
Corporation continued with a program of selective farm-ins to satisfy
flow-through share obligations. This program has proved to be more
successful than was anticipated. Our focus has now shifted to developing
several new play areas. Our interest in one new discovery area is
particularly significant. We have expanded our land base in this new
discovery area and have several prospective step out and development
drilling locations which we intend to pursue during 2005. The
Corporation is currently producing approximately 50 boe/d in Western
Canada with an expectation that an additional 400 boe/d, consisting
primarily of light sweet oil, will be placed on-stream by mid-year from
existing wells. A preliminary estimate of Western Canadian drilling and
capital program expenditures in 2005 is at least $2.0 million. Due to
the significant accumulated tax pools held by the Corporation, a
flow-through share issue may be considered to fund this program.

Pakistan Operations, Safed Koh Block

In January 2005, re-entry activities commenced on Rodho Well No.3 in the
Safed Koh Block. The target depth of 2,758 meters was reached in early
February and the hole was cased. Initial well log data is encouraging.
Testing is expected to proceed imminently on the first of five
prospective gas zones to assess commercial production potential. No
material expenditures are expected to be incurred by Rally Energy in
connection with Rodho No. 3 drilling, completion and testing activities
since the Corporation is carried for its 22.5% interest on the first
US$1.6 million of expenditures on this well.

Closing of Disposition of Prince Edward Island Working Interests

On February 24, 2005, the Corporation completed the closing of the sale
of its PEI Interests to Shannon International Resources, Inc.
("Shannon"). Consideration received by Rally Energy consisted of:

a) 2,500,000 common shares of Shannon with a current quoted market value
of US$0.40 per share; and

b) 500,000 warrants, with a term of one year, each exercisable into one
Shannon common share at a price of US$0.85 per share.

Shannon's common shares trade on the NASD OTC Bulletin Board under the
symbol "SHIR".

Debenture Conversions in 2005

Since the beginning of 2005, $672,000 of Rally Energy's $6.0 million of
outstanding 12% Convertible Debentures have been converted to common
shares at a conversion price of $1.00 per share.


FORWARD LOOKING STATEMENTS

This press release may contain forward-looking statements including
expectations of future production, cash flow and earnings. These
statements are based on current expectations that involve a number of
risks and uncertainties, which could cause actual results to differ from
those anticipated. These risks include, but are not limited to: the
risks associated with the oil and gas industry (e.g., operational risks
in development, exploration and production; delays or changes in plans
with respect to exploration or development projects or capital
expenditures; the uncertainty of reserve estimates; the uncertainty of
estimates and projections relating to production, costs and expenses,
and health, safety and environmental risks), commodity price, price and
exchange rate fluctuation and uncertainties resulting from potential
delays or changes in plans with respect to exploration or development
projects or capital expenditures. Additional information on these and
other factors that could affect the Corporation's operations or
financial results are included in the Corporation's reports on file with
Canadian securities regulatory authorities: www.sedar.com.


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Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Rally Energy Corp.
    Lamont Tolley
    President & CEO
    (403) 538-0000
    (403) 538-3705 (FAX)
    or
    Rally Energy Corp.
    Douglas C. Urch
    Vice President, Finance & CFO
    (403) 538-0000
    (403) 538-3705 (FAX)
    Website: www.rallyenergy.com
    The TSX Venture Exchange has not reviewed and does not accept
    responsibility for the adequacy or accuracy of this release.