Dear Shareholders:

Last year was a tough year for both Admiral Bay and the Natural Gas Industry. When I joined Admiral Bay over four years ago I was asked to help it become a successful unconventional gas company. Over this time we have accomplished a lot, along with many changes in both assets and management of the Company.

Due to the nature of the company's assets, Admiral Bay has become a company focused on unconventional gas resources, being coal bed methane, shale gas and tight gas sands. A lot of hard work and commitment from our operating and management teams, our contractors and the dedication and support of our shareholders has got us to where we are today. While these were great achievements, despite difficulty, there is still much ahead to be done. We are pleased to report that with the Gas Rock debt facility and the termination of the “process”, we have begun moving forward in an expeditious manner and that we expect 2008 to be a far more productive year than 2007.

This past year has seen significant changes in the perception of the Natural Gas Industry that have substantially affected not only the industry, but the consumer and the investment community as well. No one could have predicted volatility of natural gas prices in 2006 and 2007. This has caused many micro-cap companies like Admiral Bay to go through difficult times due to lower prices at times and lack of investment by the financial community. Fortunately, unlike many other micro-cap companies, Admiral Bay is close to being cash flow positive and its projects are in areas that are adjacent to its markets. The petroleum industry and the world still continue to change with increased product demand from China and India. Despite the threat of a recession in the US, the country still is growing in terms of energy demands. Recent, changes in royalty and tax structure in Alberta and redirecting natural gas to tar sands production has caused a decline of 1.5 BCF in Canadian exports. The lack of investment in the Canadian sector and rapid decline in Mexican natural gas production is further eroding supply, creating a tight market and opportunity for Admiral Bay. Long term solutions such as compressed or liquefied natural gas (CNG or LNG) provide an artificial floor of US$6.50 or higher. Continued competition from Europe for this source of gas will only exacerbate the supply issue. Prices are predicted to remain above $6 if not $8 for the next few years. As conventional production continues to decline in North America, Admiral Bay's Proven, Probable and Possible Unconventional Reserves will become more and more valuable.

In the first twenty-four months of development, the Company went from zero production to over 1.5 MMCFGPD (million cubic feet gas per day). In the second twenty-four months production rates of 3 to 3.4 MMCFGPD was achieved. The “Process” started in December, 2006 by a potential suitor turned out to be a disingenuous offer that caused a loss of nine months of growth. The Company in the process minimized operations and development because of an uncertain future. The result of the “Process” was replacing the Macquarie debt facility with a more US based, more committed and focused debt facility from Gas Rock in Houston, Texas. The Company also allowed most of its acreage at Swordfish to expire rather then pay extensions, as the cost of taking new leases will be actually cheaper at this point. The land base in Kansas and Pennsylvania is now just over 112,000 net acres. The Company has drilled or reactivated over 250 gas wells, and has over 175 wells in production. The Company’s Proven Reserves have gone from zero in 2004 to 32.6 BCF in 2007, along with giving the Company total P3 reserves of 175+ Bcf. The Company has a significant base in place to see significant growth in the coming years.

The Company continues to focus its efforts and projects on unconventional gas, a source of gas which will ultimately provide North America with in excess of 50% of its supply over the next decade. Projects in Kansas and Pennsylvania fill Admiral Bay’s criteria of reasonable to excellent gas resources, good to excellent take away capacity, excellent gas markets, low land costs, and available services. Admiral Bay has been seeking new opportunities in proven and unproven basins elsewhere. Potential areas of focus for Admiral Bay are those that are early on, in development or concept stages. This allows Admiral Bay’s management team to utilize its expertise and experience to gain entry into plays at low costs to the Company.

The Company changed some Board members at its Annual General Meeting with the resignation of Ron Phillips and the addition of Bill Powers and Michel Del Buono. Ron had provided us with guidance in the New York financial community and his services were invaluable both in that capacity and as a member of the audit committee and we wish him well. Bill Powers has been a shareholder for sometime in Admiral Bay and recognizes that the Company has potential to grow to become either an MLP, take-over target or mid-size company. Mr. Powers was appointed Chairman of the Board, and is the Company’s largest shareholder with in excess of 10 million shares. He has considerable financial experience and understanding of the micro-cap market. Michel Del Buono is with Scion Capital, a large hedge fund out of San Jose California, provides excellent financial acumen and oversight. He is an engineer by training. Finally, Steve Little was hired in late 2007 as our Vice President of Operations and has been instrumental in getting production moving up.

The Company in late 2007 began a completion program specifically targeting the Summit and Excello (Mulky) carbonaceous shales in Mound Valley. We are quickly seeing the fruits of that program with increased sales at Mound Valley. This completion project will continue to be expanded at encompass all wells there and testing will occur at Shiloh and Devon. The company is still looking to move forward on a listing on a more senior stock exchange in both Canada and the United States over the next year.

The state of the industry, forecast for energy prices, and the assets of Admiral Bay bodes well for a bright and profitable future for the Company. In closing, I wish to sincerely thank our employees and consultants for their exceptional efforts on our behalf, and our existing and new shareholders for your interest and support. With that said, we look forward to reporting our progress as we move through rest of the year.

Steven A. Tedesco,
President, CEO and Director
February 8, 2008