KOS Energy September 15, 2008 We are pleased to provide our investors with an update for Q3/2008. Our website will be completed in October 2008 but in the interim, you can obtain an excellent overview of your company’s growth potential at www.Estevan.com – this is a 3rd party website that was created for raising the awareness of KOS as a private company. There is also a Chinese version of the site available by clicking on the Chinese flag in the top right corner of that website. The websites are being used to generate leads for investment capital we may raise in the future. There is no current need for financing but we will still honor the $0.50 financing for existing shareholders until the end of September (where we are closing off our year end to accommodate audits and a public listing by year end).
Government research for Kentucky shows that less than 30% of all oil in the state was ever recovered and we believe that these wells are prime candidates for workover with our new downhole tool which allows horizontal jet drilling from the original vertical bore. This is explained in greater detail below. Our large acreage position in the south/central region does not consist of large random blocks of land. These were carefully chosen leases that are a few hundred acres on average (with a few blocks of one or two thousand acres). All the properties have older wells on them that were abandoned decades ago. They stopped producing or were shut in for a number of reasons (mainly economic with the low price of oil) but many leases might have several wells on a couple hundred acres. All indicated to be known producing regions and prime candidates for new drilling and workover with our new tool. Honesty and Business Ethics Critical to Success in Kentucky KOS began accumulating Kentucky leases in June and in just over 3 months we have been highly successful thanks to the hard work and reputation of our landmen and head of field operations. An entire generation is missing from the oilfield in Kentucky (most involved now are older than 50 or in their 20’s and just learning). Because the state is known to be oil rich with shallow wells, it was a magnet for oil promoters and crooks. Many landowners and investors were taken advantage of. We were able to get a very promising lease in a situation where the landowner would not talk to anyone oil related for the past 15 years. On her property we found 3 very shallow drill holes within a 6ft radius where the driller raised money and said he would drill 3 wells – he drilled 3 wells alright. Just enough to pocket several hundred thousand dollars and say he hit dry holes (photo to your right). This was a common scenario in the state.
Not only did we secure some great oil leases, but the neighbors in the area have been so impressed, they have approached “us” and we have secured a sizeable acreage position in this area. We are hoping to drill this property before year end. This is just one example of the proper way to do business in Kentucky and it is what we have based our business principals on. As part of an original land package we picked up, we received a 20% carried interest on 4 wells that were already funded to be drilled (and 50% on a 5th). In August those wells were drilled and hit oil on all 5. They were not big wells but appear will sustain about 5 to 10 bopd – although 1 is currently flowing 200 ft uphill at approx. 30 bopd. The flowing well hit a new formation for this county, so we have been accumulating surrounding leases for future drilling. We have also not used the jet drilling tool on these wells yet (the unit was not available when drilled) so the possibility exists over time to improve production significantly. Although KOS’s interest on these wells is the smallest we have, the early drilling success is very important as it clearly demonstrates the expertise of our field operations manager. June through August was focused on securing oil leases (before prices started to move), drilling these first wells, and negotiating with the owner of the new downhole jet drilling tool (a critical aspect of our business plan). Now that we have been very successful on all fronts and raised a bit more capital, we will start drilling our own wells in a couple weeks and working over old wells with horizontal jet drilling. New Technology and an Important Acquisition As most everyone will know, we secured the rights to a new jet drilling technology developed over the past 10 years by a well known physics professor from Kentucky. Our initial plan was to rent the truck he built until we had the capital to build our own (estimated at $1/2 million). The problem with this was getting access to the truck when he wasn’t using it for testing or out of state contracts. This month the Dr. was kind enough to sell us his truck (pictured left) for a tremendous price.
If we use acid mixed with very high pressure and are drilling horizontally (starting out from the vertical well bore) through an oil bearing formation, the jet drilling head will likely create a very large cavernous opening through which oil or gas can flow back to the vertical well bore for significantly enhanced recovery. At each level we would likely drill out 30 feet to a couple hundred feet in 4 directions and possibly at a few different levels depending upon where well logs show the oil formation exists.
In Summary
As a shareholder you will also be very pleased to know we have accomplished all of this while still maintaining a very tight share structure (just over 10 million shares outstanding). While more money would also mean more aggressive drilling, we are trying to manage our growth very carefully to avoid dilution. We still have access to an excellent shell on the CNQ and expect to be trading there before year end. The company has grown so fast these past few months that it has altered what the original business looked like and we decided to move our year end to Sept 30th to accompany the changes and the audits necessary for public listing. As much as we want to be public, we also do not want to rush anything. KOS (your company) has tremendous growth potential and we want to make sure everything is done properly at the earliest stages. This will benefit all of us in the long term. Towards the end of September we will start drilling our own 100% wells and utilizing this exciting new tool on both new wells and workovers. We are cautiously optimistic that this will result in rapid growth for KOS over the next year. There are inherent risks to anything in the oil & gas exploration business but we have done everything possible to mitigate risks and establish a strategy for significant growth. Please note that further investment at this stage is only open to the end of this month. Beyond that our next round of financing will depend upon public share price this winter. Should you have any questions, please do not hesitate to contact me by phone (1-877-278-6430) or email bbergstrom@kosenergy.com
Barry Bergstrom
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We have had a very busy summer and of particular importance, we are very pleased to report that the total number of oil & gas leases now under KOS control is over 30,000 and we are well on target to close out the year with almost 50,000 acres. Over 90% of these leases are owned 100% by KOS with royalty over-rides to the landowner that are less than 20%.
The majority of our leases are in the South/Central region of Kentucky but we are also building an exciting relationship with landowners in the Illinois Basin of Western Kentucky (a couple hours north of Bowling Green). We will have a significant controlling interest in these wells and will begin to develop them in early 2009. These are old wells from the 1950’s and 1960’s which in many cases produced 200 to 300 barrels of oil per day (bopd) in their early stages. 
The Dam over twenty years appears to be creating a waterflood situation and because the oil bearing formation is shallow, the pressure after all these years appears to be forcing the oil to surface in some areas and in a known direction. 
He will use a smaller unit for testing and we will likely share any out of state business when our yellow unit is free.
To accompany our new truck, we have also purchased a very large pump capable of 30,000 psi (photo right). 
In this photo to your left you will see where the professor’s jet drilling tool cut through solid rock using only water and about 2000 psi. If you picture this same rock as an oil bearing formation, a portion of it will be made of small holes, fractures, and oil. The individual hole in this photo may be several inches in diameter.
However, the professor who is an expert in physics and fluid dynamics believes this has the potential to change the face of oil exploration for wells below 3000ft (where multi-million dollar horizontal drilling is uneconomic), Jet drilling has been around for a decade or two but his advancements in the nozzle head (cutting tool) set this technology far apart from competition.
We have built a significant land position (and will continue to add more), have highly qualified employees, have committed access to a driller, and have cutting edge technology with our own truck/rig for unrestricted usage and low cost.
