Financial Highlights

— Revenue of $4,098,000. Offshore production commenced in fourth quarter (Q4) 2008.

– $12,904,000 of earnings from Coastal Energy’s 36.1% investment in APICO LLC, whose primary asset is the Phu Horm gas field (FY 2007: $7,679,000). Coastal Energy received cash distributions totaling $16,619,000 from APICO in 2008.

— Total assets increased to $258.4 million at December 31, 2008 from $157.7 million at December 31, 2007

Operational Highlights:

— Offshore production from the company’s Songkhla field commenced in November 2008. Production averaged about 3,000 bopd in Q4 2008. Current offshore production from Songkhla is about 10,000 bopd.

— The Phu Horm gas field, in which the company has a net 12.6% indirect interest, was producing about 83 mmcf/d of gas for the year ended December 31, 2008. Phu Horm is currently producing in excess of 100 mmcf/d.

Randy Bartley, chief executive officer of Coastal Energy commented: The company made substantial progress in its development in 2008. We achieved our stated goal of first production from the Songkhla field. Coastal Energy is now producing about 10,000 bopd from Songkhla, bringing combined onshore and offshore production to 12,000 boepd. The commencement of offshore production has allowed the company to begin generating positive free cash flow. This has helped strengthen our working capital position. We also saw a significant increase in our proven and probable reserves as a result of our Q4 2008 drilling program.”

As we move further into 2009 we remain focused on our stated goal of continuing to develop our Gulf of Thailand concessions. In spite of an increasingly difficult macroeconomic environment, the company has been able to make remarkable progress in 2008 and in the start of 2009. Its goals have been met despite the challenges with which it has been presented. The Board has been strongly supportive of the way the management and the operations team have been able to reach targets, while keeping the needed flexibility to face a changing environment. With our continued focus and drive, we are confident 2009 will bring more successes and pave the way for further growth.

I would also like to thank John J. Murphy for his service to the company over the past two and one-half years. His advice and experience have been valuable to the company as it has progressed in its development.

Fourth Quarter 2008 Highlights

— On November 3, 2008, the company announced the successful flow test results of the Songkhla A-01 well. The Songkhla A-01 well was drilled to a total measured depth of 9,025 feet (2,750 meters) and logged about 125 feet (41 meters) of net pay with 20% porosity in the Lower Oligocene primary reservoir. The well produced in excess of 4,500 barrels of oil per day with no water production using an electric submersible pump (ESP)

— On November 12, 2008, the company announced that it had successfully completed drilling the Songkhla A-03 well. The Songkhla A-03 well was drilled to a total measured depth of 9,500 feet (2,895 meters) and logged about 110 feet (34 meters) of net pay with 18% porosity in the lower Oligocene primary reservoir. The well came in about 47 feet high compared to the A-01 well. After further evaluation, the company announced on December 15, 2008 that the A-03 interval contains 152 feet (46 meters) of net pay with 20% porosity

— On November 13, 2008, the company announced that it received government approval of its Environmental Impact Assessment (EIA) for the 75 square kilometer Songkhla production area in the Gulf of Thailand.

— On December 15, 2008, the company announced that it completed the Songkhla A-03 well and it was producing 5,000 barrels of oil per day with no water using an electric submersible pump (ESP)

— On December 15, 2008, the company also announced that it completed the Songkhla A-07 well. The A-07 well was drilled to a total measured depth of about 11,385 feet (3,470 meters) and logged about 136 feet (41 meters) of net pay with 16.5% porosity in the deeper Eocene reservoir. The entire interval has been tested and produced about 1,100 barrels of oil per day with about 1,100 barrels of water per day. Prior to the rig demobilization, remedial completion work was performed on the A-07 well to isolate the water production and to fully evaluate the well.

Other 2008 Highlights:

— On January 8, 2008, the company completed a public offering of 16,445,000 common shares (including the over-allotment of 2,145,000 common shares) of the company, at a price of $3.50 (CAD3.50) per common share, raising gross proceeds of $57.6 million (CAD57.6 million). Proceeds of this offering, net of issuance costs of $3.1 million were $54.5 million

— On February 26, 2008, the company acquired a 24,000 ton vessel for $8 million to be refurbished and put into service as a floating storage and off-loading unit in connection with the development of the company’s Gulf of Thailand properties

— On June 6, 2008, the company announced it had received Thai Government approval on the Production Area Application for the development of its Songkhla field in the Gulf of Thailand. The Approval covers an extended area of 75 square km which includes not only the Songkhla field, but numerous surrounding satellite structures. The extended production area is significant because it enables the company to fully exploit the prospects without the need to apply for additional government approvals.

— The company has reported $12.9 million as its share of earnings of significantly influenced investee, net of taxes. This represents $13.96 million (its 36.1% of Apico’s audited net income of $38.65 million) less $1.06 million for amortization of the company’s excess basis in Apico

— The Phu Horm gas field, in which the company has a net 12.6% indirect interest, had an average daily production of 83 mmcf/d for the year ended December 31, 2008.

During Q4 2008, the company achieved first production in the Gulf of Thailand. The initial production during this period took place utilizing the drilling rig as the production platform; and all costs incurred related to drilling were capitalized. Therefore the production expenses do not reflect the cost of a mobile offshore production unit (MOPU) which results in lower aggregate costs. In 2009, the company expects significantly increased production to more than offset increased production expenses resulting in a lower cost per bbl in 2009.

In general, the 2008 increase over 2007 is attributable to the growth and increased activities of the company. The largest driver of general and administrative expenses is personnel costs. Included in the salaries and benefits for 2008 and 2007 is non-cash, stock based compensation of $1.747 million and $0.811 million, respectively. In addition, the company increased its headcount during 2008 in anticipation of drilling and first production. At December 31, 2008 and 2007, the company had 32 and 24 full-time employees, respectively; and 24 and 4 full time contractors, respectively.

The company’s Thai subsidiary accrues income tax expense on its equity pick up of Apico’s book earnings at an investment tax rate of 30%. Effective April 1, 2008, it transferred its 25.5% interest in Apico, LLC (Note 8) at its net book value to one the company’s Cayman Island subsidiaries. This transfer triggered the filing of an investment tax return, which turned the cumulative non-current tax liability of $2.484 million into a current tax liability. In third quarter of 2008, the company made a $1.232 million estimated tax payment toward this tax liability. The Cayman Island subsidiary is not currently subject to income taxes.