Pegasi Energy Resources Corp. (PGSI) (the "Company") is pleased to announce the initial production results of its first horizontal well in Cass County, Texas. The completion of the Morse Unit # 1-H involved hydraulic fracturing of the well's 2,000 ft horizontal borehole in five stages. Baker Hughes field services performed the hydraulic fracturing operations in late June using their proprietary Frac-PointTM fracture completion system. The Company holds a 56% working interest in the well.

In its first five days of continuous production, the well produced a total of 1,404 Bbls of oil giving an average initial production rate of 281 Bbls of oil per day. The well has produced high quality, light, sweet oil with an API gravity greater than 40 degrees. There is associated gas production which has not been measured at this time.

CEO Michael Neufeld commented: "We are very satisfied with the results of our first horizontal well. The results of the Morse prove that horizontal wells can produce high quality oil from the Bossier shale in the mature Rodessa oil field of East Texas. The results of the 5-stage fracture completion of the Morse give us great confidence in our proposed strategy for the further development of the Cornerstone Project which will involve drilling horizontal wells of 3,000 to 5,000 ft in length. On the basis of the Morse's initial production results, we would expect these longer wells, which will be fractured in 15 to 25 stages, to achieve initial production rates of 840 to 1,400 Bbls of oil per day."