MercoPress. South Atlantic News Agency

Desire Petroleum discussing rig contract.

Preliminary results for the year ended 31 December 2004

Following the successful Share Placing and Open Offer, details of which were sent to shareholders on 14 February 2005, conducted by Seymour Pierce Ltd, the Company's Nominated Advisor and Broker, the Company is now preparing to resume drilling in the North Falkland Basin. The Share Placing and Open Offer was substantially over subscribed and all 55,890,656 new shares were taken up. The new monies raised are not reflected in the Accounts for the year ended 31 December 2004, as they were raised post this date, and the Company now has, therefore, a much stronger balance sheet than that shown in these results.

As has been announced, Rockhopper Exploration Limited has agreed to farm-in for up to a 15% working interest in Tranches C and D by paying up to 30% of the costs of the proposed three-well drilling programme.

Given the importance and complexity of operating a drilling programme in the North Falkland Basin, it was further announced that Dr. Ian Duncan, already a non-executive director of the Company, had been made full-time Chief Executive and that Peak Well Management had been appointed to manage the drilling programme on the Company's behalf. Dr. Duncan and I, together with Robert Lyons, the Managing Director of Peak Well Management, have recently returned from a visit to the Falklands to initiate the drilling programme. There are many legal, operational and logistical factors to cover before drilling can commence and these will take from six to eight months to put in place. I am pleased to report that we continue to receive the fullest help and support from the Falkland Island Authorities and from their advisor, the British Geological Survey.

In my Chairman's letter accompanying the Placing and Open Offer, I indicated that the Company had put out invitations to tender for a rig contract to drill the three-well programme, and that, because of the high, current oil prices, the rig market had become very tight. This has been borne out by the response to the tender invitations. However, a number of the responses are now the subject of discussion and negotiation and your Board remains hopeful that drilling will re-commence in late 2005 or early 2006; shareholders will be kept informed of progress. The most important consideration will be not just the availability but also the suitability of the rig eventually contracted.

Although Dr. Duncan is the first full-time employee of Desire, it is not your Board's intention to build up staff numbers but, wherever possible, to outsource our requirements and maintain as low an overhead as possible. However, it has become clear that Dr. Duncan will need increased specialist support at Board level and the composition of the Board has been reorganised to reflect this. Dr. John Martin, Dr. David Quick and Ian Forrest will be retiring from the Board immediately following the Annual General Meeting on 24 May 2005. All three have given valuable service to the Company and I would like to thank them sincerely on behalf of all shareholders. As of 1 May 2005, Lewis Clifton, OBE and Andrew Windham will be joining the Board. Lewis Clifton is a resident of the Falkland Islands and will be playing an essential role both before and during the drilling programme, he was a member of the Board prior to the Company's merger with Gaelic Resources plc. Andrew Windham is a lawyer with considerable experience of all aspects of oil-company activity and already acts as a consultant to the Company. I would like to extend a warm welcome to both of them.

As a result of the appointment of Dr. Ian Duncan as Chief Executive, and of the other Board changes, Stephen Phipps will become Chairman of the Audit Committee and Andrew Windham will become Chairman of the Remuneration Committee.

Since the acquisition of the 3-D seismic survey in 2004, the Company has made steady progress towards the resumption of drilling in the North Falkland Basin. The 3-D seismic has had a major impact on the elucidation of the geology of the basin and continuing work on its interpretation is revealing additional drilling targets which can be added to the Company's prospect inventory. The Company is now entering a very important phase of its development and, given that we have no staff, I shall be relying very heavily on the input of my colleagues on the Board. As in previous years, it is the intention of the Remuneration Committee to recognise this input by allocating share options. I would like to thank all Board members for their continuing support in the Company's progress.

Yours sincerely,

Dr. Colin B. Phipps

Contacts: Dr. Ian Duncan, CEO, Desire Petroleum plc: [●] Ewan Leggat, Seymour Pierce Limited: 020 7107 8000