Pearl Exploration and Production Ltd. provides the following operational and financial update.

Heavy oil is becoming an increasingly important component of world oil supply and Pearl has positioned itself strategically to take advantage of this shift. With a diverse portfolio of projects in heavy oil basins ranging from south-western Texas to northern Alberta, Pearl has taken advantage of low entry costs to acquire significant heavy oil resources. The use of enhanced and unconventional recovery techniques such as cyclic steam stimulation (CSS) and Steam-Assisted Gravity Drainage (SAGD), and water and polymer flooding are seen as keys to unlocking the value of these resources. Pearl is currently in the early stages of enhanced recovery pilot programs at several of the Company's fields. Successful pilots and ultimately initial development programs will prove the technical and commercial viability of our heavy oil assets and create substantial value for Pearl by converting significant portions of our large resource base into reserves.

Work continues on the advancement of the polymer flood pilot at Mooney with preliminary results from the pilot are still expected by Q1 2009. Plans for a field wide polymer flood implementation are expected to be finalized by Q2 2009 with implementation targeted as early as the end of 2009. The implementation of the waterflood continues with its initiation expected in Q4 2008 and continuing into the first half of 2009. In addition, work is underway on an increased delineation and development drilling program to extend the productive area to the west of the main field with the goals of increasing production and proven and probable reserves. We have recently installed an amine plant in Mooney to remove excess CO2 from our gas stream to allow us to ship to market without interruption to service due to non-spec gas. Due to this non-spec gas, production at Mooney was cut back for nine weeks beginning at the end of June by approximately 700 Boe/d, the majority of which is now back on production at this time. In September, Pearl also acquired a further six sections of prospective land to the east of the Mooney main field.

In Onion Lake our Cyclic Steam Stimulation (CSS) thermal pilot continues to show promising results. We completed the first production cycle on the first well earlier this month and results were significantly above our modeled expectations. Our second well began its first steam cycle on June 20th and its first production cycle on August 11th. Production from the second well experienced some operational issues and as such we are making adjustments to our operating procedures to optimize the pilot as we progress through the second and third cycles of the pilot. The first well is expected to begin its second steam cycle later this week.

At San Miguel, steam injection at the Steam Assisted Gravity Drainage (SAGD) pilot located within the Chittim "B" Field continues as expected. Temperature and pressure monitoring of the well pair indicates that the wells have entered SAGD mode and preliminary results are encouraging.

At Saner Ranch, pilot facility construction is proceeding on schedule with all major long lead items on site and mechanical completion expected to be completed in November. The Saner Ranch pilot includes both a vertical inverted five spot well pattern and a horizontal three well pattern utilizing a modified Fracture Assisted Steamflood Technology (FAST) process. Early injection of steam into the vertical inverted five spot pattern commenced on August 28th. The three horizontal wells were drilled in 1Q08 and will be completed prior to commencement of first steam/reservoir warm-up which is expected to commence in the horizontal pattern in October. Preliminary performance results from both patterns are anticipated during the first half of 2009.

By the end of the second quarter of 2009, Pearl expects to be in a position to select which of the three recovery techniques will be used to form the basis of a commercial development project, SAGD or one of the two modified FAST techniques. In parallel with this, various commercial parameters including the supply of fuel gas for steam and potential on site upgrading is expected to be finalized during this period.

At Blackrod, the Company closed a transaction on August 20th to acquire an additional 30% working interest in 3,886 contiguous hectares of oil sands leases in the project area. In addition we, along with our partner, also acquired a contiguous block of five sections of land to the north-east of our existing land holdings. Pearl now holds a 65% interest in 20 sections in the Blackrod project area.

Pearl and its joint venture partner continue to plan to drill 10 to 15 core wells this winter to further delineate the deposit and gather additional petrophysical and reservoir fluid characteristic data. The application for the required governmental approvals of the SAGD pilot project was submitted in May 2008 and is expected to be approved sometime in the first half of 2009. As such, the SAGD thermal pilot is expected to be operational in the second half of 2009. We are working closely with our partner to expedite the necessary regulatory approvals to allow for the construction of an all-season road.

In early September we entered into an agreement to vend in all of our Palo Duro assets into Tyner Resources and take back shares (26.4% of shares outstanding). We believe this is the best way to realize on the potential value of the resources in the Palo Duro basin as our financial and technical resources are almost exclusively focused on our 4 core heavy oil properties. This transaction is expected to close in October.

Pearl has also initiated a nine well drilling program in southern Saskatchewan at the Ear Lake and Salt Lake fields which is expected to be completed in November. Production from these wells is expected to be on prior to year end.

Production is now approximately 6,000 Boe/d. We currently expect production of approximately 6,000 to 7,000 Boe/d for the remainder of the year.

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