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Adulis Resources Inc (ADS)

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Friday 24 June, 2005

Adulis Resources Inc

Preliminary Results

Adulis Resources Inc.
24 June 2005

                             ADULIS RESOURCES INC.
                          ('Adulis' or 'the Company')

            Preliminary Results for the Year Ended 31 December 2004



Adulis Resources Inc. (TSX-V:ADE; AIM:ADS), the Colombia-focused independent oil
and gas exploration and production company, today announces its preliminary
results for the year ended 31 December 2004.



The Company also announces that it has posted the Annual Report for the year
ended 31 December 2004 to shareholders.  A copy of the Annual Report is
available from the Company's offices at Suite 920, 706-7th Avenue SW, Calgary,
Alberta, Canada T2P 0Z1 or from its website at www.adulisresources.com.



HIGHLIGHTS



  • In the first six months of 2004 the Company's focus was obtaining the
    environmental permits covering the proposed drilling locations in the
    Salinas Block, and acquiring interests in several blocks in the Llanos
    basin.



  • November 2004 saw the culmination the Company's corporate and fund raising
    activities with the purchase of Solana Petroleum Exploration Colombia 
    ('Solana') and the raising of $ 50 million, bringing the total raised in 
    2004 by Adulis to approximately $80 million.



  • The purchase of Solana added five large to medium potential targets and a
    number of smaller, low-risk projects, to the Company's existing assets.



  • The Company expects to be the most active exploration company in Colombia
    in 2005 in terms of the number of exploration wells in which it is
    participating.



  • The drilling programme comprises of at least 12 wells at a cost of $US 37
    MM within 18 months on mature prospects already identified and mapped and as
    many as 20 additional wells on exploration acreage already held by the
    company.



  • Drilling in early 2005 resulted in two dry holes and one discovery.  This
    discovery has led to one near-term development location and one additional
    exploratory well location planned for late 2005



Enquiries:


Adulis Resources     Stephen Newton        [email protected]           + 0057 1 629 1636
                     Ray Antony            [email protected]                           + 00 403 266 7512

Pelham Public        James Henderson       [email protected]                +4402077436673
Relations
                     Charles Vivian        [email protected]                 +4402077436672




PRESIDENT'S REPORT

Adulis Resources is well established and funded to meet its objective to build a
substantial Colombian-based oil and gas exploration and production company
through Solana Petroleum Exploration Colombia ('Solana'), a wholly owned
subsidiary. The Board of Directors believes that significant opportunities exist
within Colombia due to its favorable investment environment and abundance of oil
and natural gas opportunities. Management has implemented a cohesive strategy to
realize on the exciting potential that this country offers.

The opening up of large areas of Colombia previously reserved for the state oil
company and improved contract terms is reflected in the number of new contracts
signed:  38 in 2004 and 24 to date in 2005 versus 5 in 2003, the last year under
the previous policies.  The number of exploration wells is forecast to approach
25 in 2005 versus 17 in 2004 and 12 in 2003.

To fully exploit this opportunity, Adulis has implemented a focused exploration
strategy based on maintaining an evolving portfolio with higher risk, higher
return projects balanced by medium to smaller targets with commensurately lower
levels of risk.

In adhering to this strategy, Adulis has made considerable progress since the
acquisition of Bayford Investments Ltd. and the associated interest in the
Salinas Block in late 2003. The first six months of 2004 were dedicated to
obtaining the environmental permits covering the proposed drilling locations in
the Salinas Block, and acquiring interests in several blocks in the Llanos.
November 2004 saw the culmination of intense corporate and fund raising
activities with the purchase of Solana and the raising of $ 50 million. In 2004
the Company raised in total approximately $80 million.

Investors, which were comprised largely of United Kingdom and European
institutional fund managers, recognized the quality of the Adulis portfolio.
The fund raising in late 2004 was significantly oversubscribed. The latter means
that we are amply funded for all currently contemplated activities for 2005,
including analyzing the many new and exciting exploration and production
projects that are being offered to our Bogota office.

Adulis began 2005 with a ten well exploration program. Three of these wells have
been drilled to date with the first well being successful. This success will
result in the drilling of at least one development well and an additional
exploration well in 2005. Consequently, at least eight exploration wells remain
to be drilled during the next 12 months. Based on currently forecast drilling
plans, Adulis could be the most active participant in exploration drilling in
the country.

The Guayuyaco 1 well was drilled in a partnership with Argosy, a limited
partnership based in Houston, on the Guayuyaco Block in the Putumayo.  Adulis
will earn a 50% interest by paying 67% of the cost of this and one other
exploration well.  Oil flowed from three zones and it is expected that the
ongoing long term tests will allow the field to be declared commercial.  This is
important and highlights that this well could be a repeated play concept with
the potential to become a core area for the Company.  A seismic program is being
initiated to convert several higher impact leads into drillable structures and
negotiations are under way to obtain an exploration contract for an adjacent
area.

Adulis' purchase of Bayford Investments Ltd. provided access to two large
exploration plays in the Salinas Block on the Caribbean coast.  The first of
these plays, Sirruma, was drilled earlier this year.  Unfortunately, while the
play proved to be valid with turbidite sediments, a good seal and an abundance
of trapped gas being identified, the sands that would have provided a
commercially viable reservoir were not present.

In early April, drilling commenced on the second well on the Salinas Block,
Molino de Viento.  The forecast gas reserves in this structure would complement
existing reserves in the Guajira and target the domestic market and proposed
export markets to Venezuela and Panama that are currently being discussed by the
respective governments.

Adulis' purchase of Solana in late 2004 added five large to medium potential
targets in addition to a number of smaller, lower risk projects.  The first of
the wells, Guayabillas, was drilled in early 2005 in partnership with Ecopetrol,
the state oil company and, although several zones were tested, only traces of
heavy oil were detected.

Activities have been initiated on three of the four remaining structures in the
portfolio of projects with Ecopetrol. While the four wells are still scheduled
to be drilled this year, an unusually wet winter has delayed the construction of
some of the locations.

In April of this year, an 88 km seismic program was recorded in the Guachiria
block in the Llanos basin to more precisely define the sizes of a number of
leads and the optimum drilling locations.  Based on this interpretation, the
drilling program for the upcoming dry season will be finalized.

In Colombia, with the improvement in the contract terms and the opening up of
new tracts for exploration, we are seeing the advent of a class of geological
entrepreneurs, who have detailed backgrounds in specific Colombian basins and
play concepts that have been nurtured for many years.  As a result of Adulis'
aggressive approach to exploration and our ability to make quick decisions, a
significant number of these projects are being offered to us preferentially.
While, many of the projects do not fit our strategy careful evaluation of a
number of the play concepts has resulted in the recommendation to contract
several new areas.

Given our commitment to build a material oil and gas exploration and production
company within Colombia, we continue to review potential acquisition
opportunities, which could give us immediate production and increase our
presence within the country.

The Adulis organization is efficient, experienced and focused on a well defined
value adding strategy.  Targeted exploration is key to our success and we have a
very competent in-house team and consulting support composed of professionals
with considerable Colombian and international experience.  However, it is also
necessary to drill the exploration wells and to operate producing fields in a
safe, environmentally aware, cost effective manner and to be participative,
effective partners in those areas where we do not operate.

We have a core group of Colombian professionals who ensure that we are
successful in achieving these operating goals and actively supervise the
outsourcing of the non-core activities.  To ensure this occurs, the Company has
adopted health, safety, environmental and community relations standards and
policies that are well proven in the industry.  Management is now focused on
training and monitoring performance in all critical areas to ensure that the
standards we aim to achieve are fully adopted by all employees and contractors.

The Colombian economy continues to recover, growing 4% in 2004 versus an average
of 2.9 % over the prior three years.  There is continued concern by the
Colombian authorities related to the 17% revaluation of the Colombian Peso
against the US$ over the last two years.  In general, while this cushions the
effect of increased energy prices and the cost of other imported products, there
is a net negative effect on the export industries and employment in the export
sector.  The oil industry in Colombia has seen the US$ value of the goods and
services it purchases locally increase commensurate with this revaluation.

It is also anticipated that the availability of equipment and services will be
severely tested in the time of high oil prices. Such scarcity can be expected to
cause increases in costs, as has already been observed in the price of tubulars.
In order to minimize these effects, the company is forging alliances with the
service providers and looking well ahead in the contracting cycle to ensure
equipment is available when required.

The security situation continues to improve with all problem area key indicators
down compared to the prior year.

In summary, we believe that our portfolio of projects holds the promise of
significant upside.  We understand that despite the best efforts to reduce the
risks associated with exploration drilling, there will be dry holes.  However,
we firmly believe that the Company's exposure to several very prospective basins
in a country with attractive terms and a stable legal environment will be
successful.



STEPHEN T. NEWTON, President




REVIEW OF OPERATIONS

Adulis holds a 100% interest (subject to a 30% back-in right by Ecopetrol, the
Colombian state-owned oil company) in the Salinas Block of northeast Colombia.
In addition, Adulis holds additional acreage by virtue of its 100% ownership of
Solana.  Solana is a private Cayman Island registered company with a branch in
Colombia.  All of Solana's production and exploration assets are in Colombia,
where it operates the Guepaje Gas Field, presently producing 5MMCF/day and
participates in the producing Inchiyaco oil field, which produces approximately
250 Bopd gross.  Solana has varying interests in three company-operated
exploration areas totaling 66,000 hectares in addition to its participation in
the  Ramshorn (Nabors) / Ecopetrol Shared Risk Contract ('Ramshorn Package').
Solana also has a 35% net participating interest in an exploration/development
block in southern Colombia operated by a partner, Argosy Energy LLP.  A recent
discovery which has been made on this block, Guayuyaco 1, is now on a long-term
test for production.  The exploration areas held by the joint Adulis / Solana
entities are located throughout Colombia and are focused in the Guajira,
Magdalena, Llanos, Catatumbo and Putumayo Basins and are all close to producing
fields and infrastructure.



Alamo Prospect, Alamo Area, Catatumbo Basin

The Alamo prospect is located in the Catatumbo basin in the east central part
Colombia.  The Catatumbo basin, unlike the basin to the west, belongs, in a
geological sense, to the Maracaibo basin system of Venezuela.  The Maracaibo
basin has produced an estimated 37 billion barrels of oil to date, with 20
billion barrels estimated to remain to be produced (The Canadian Society of
Professional Geologists, 2002).

The well proposed to test this prospect is expected to penetrate to 4,800 feet.
Adulis will bear 38.4% of the cost of the initial well and 30% of the cost of
subsequent wells and will, in return,

earn a 26.25% interest in production subject to a sliding scale royalty in any
discovery made on this prospect.



Guariquies Prospect, De Mares Area, Upper Magdelena Basin

The Guariquies Prospect lies immediately to the east of several shallow fields
including the Peroles and Tesoro, which have been in production for many years.
In addition the Lisama Field to the north contains 70 MMbo of recoverable oil
and the Provincia Field also to the north contains 160 MMbo.  This prospect lies
in the Middle Magdalena Basin, which currently contains 23 oil fields with
recoverable reserves of three billion barrels of oil (American Association of
Petroleum Geologists Bulletin, 1996).

As a result of the large number of older fields in the basin, the production and
pipeline infrastructure in this part of Colombia is among the best developed in
the country.  Major pipelines connect this area of Colombia both to the Pacific
Coast, thereby providing export capability, and to the large refinery complex at
Bucaramanga nearby.  The well proposed to test the Guariquies prospect is
scheduled to be drilled to approximately 11,500 feet and to require
approximately 60 days to drill and approximately 25 days to test.

Adulis will bear 48 % of the cost of the initial well and 37.5 % of the cost of
subsequent wells and, in return, earn a 33.75 % interest, subject to a sliding
royalty in production in any discovery made on this prospect.



Guayuyaco Prospect

Guayuyaco is a recent discovery in which Adulis holds a 50% gross interest (35%
net). This structure is one of several identified on the block and it lies in an
area which already holds the producing; Mary, Linda, Toroyaco, and Miraflor
fields.

The Adulis share of the Guayuyaco 1 discovery well drilling cost was US$ 2.9
million.  A follow-up well to the Guayuyaco discovery is expected to be drilled
in mid-2005.

An additional prospect on the block has been scheduled for drilling before year
end 2005 and seismic data is planned prior to the commencement of drilling and
another four prospects remain unevaluated.



Molino De Viento Prospect, Salinas Block

The Molino de Viento prospect is located in the southern part of the Salinas
block of northeastern Colombia.

This area is south of the large Chuchupa and Ballena gas fields, which produce
more than 80% of the gas consumed in the country.  To the southeast of this
prospect, across the Venezuelan boundary, are found a number of large oil fields
which produce from fractured formations.

The prospect is formed by structural dip to the north, east and west and by
counter regional faulting to the south.

The Molino de Viento well spudded in April of 2005.  A well to test the Molino
de Viento prospect is expected to cost approximately $ US 2.2 million on a
dry-hole basis and $ US 3.8 million tested and completed.  Adulis would bear
100% of the cost of the initial well and 70% of the cost of subsequent wells in
the event that Ecopetrol, the state oil company, exercised its 30% back in
right.

Adulis would receive 70% of the production after the deduction of royalties
under such terms.



Malabares Prospect, Guachiria Block

The Malabares Prospect is located on the Guachiria Block which contains three
existing discoveries.  These are: Guacamayo, Guahibos and Bucaro.  The Guahibos
and Guacamayo discovery wells, each of which tested approximately 2,000 Bopd,
together produced approximately 1.1 million barrels of oil between 1988 and
1996, before being abandoned.

A third discovery, Bucaro, tested oil at 770 barrels per day; however, it has
not been commercially produced to date.  Adulis has recently entered into an
agreement with a Colombian company whereby that group will incur the cost of a
re-entry and re-completion at Bucaro and will, in return, recover twice its
costs and subsequently retain a small royalty position, with Adulis retaining
the balance of the profits.

Adulis holds a 100% interest in this block, which has recently been converted
from an Association Contract to a modified new style ANH contract.  Under the
terms of this latter agreement, Ecopetrol has relinquished its previously held
30% back in right in right and profit share in return for a royalty position.  A
well drilled in this prospect is expected to cost $US 1.3 million on a dry-hole
basis and $US 2.8 on a tested-and-completed basis.  Adulis would bear 100% of
the cost of this well and would, if it was successful, receive 100% of the
production, subject to the sliding scale state royalty and the Ecopetrol oil
royalty.  Solana drilled a well on this prospect in mid 2004; however, this well
encountered mechanical problems and no valid tests were possible for the primary
objectives.  Adulis has recently acquired the block immediately to the north of
the Guachira Block.  This is known to contain prospects on the same fault trend
which defines the Malabares Prospect.  The development of infrastructure at
Malabares would have a positive effect for the new recently acquired acreage.

Adulis has recently acquired the block immediately north of the Guachiria Block,
on the basis that the same structural elements which create the Malabares
discovery continue to the north, into new acreage.



Puma Prospect, El Pital Area, Putumayo Basin

The Puma prospect is located in the Putumayo basin of southwestern Colombia.
This area is known for its high quality reservoirs and generally good seismic
data quality and it is part of a larger basin which is centered in Ecuador to
the south, where a number of very large fields are found.  The area has an
export pipeline leading to the offshore loading terminal on the Pacific coast.

The Puma prospect is among the first slated for drilling under the terms of the
joint Ecopetrol/Ramshorn/Solana Risk Sharing Agreement and the location is now
under construction.  The Puma well is currently expected to spud in the second
quarter of 2005.

Adulis will pay 28.8% of the cost of the first well on the prospect and 22.5% of
any subsequent wells.  In the case of a discovery, Adulis will be entitled to
receive 18.75% of the oil produced subject to a sliding scale royalty.



Zeus Prospect, Rio Horta Area, Middle Magdalena Basin

The Zeus prospect is one of the largest undrilled prospects in Colombia and
represents an attractive exploration target with a considerable amount of well
control.  It is a deep prospect (18,000 ft.) and is expected to take 135 days to
drill, with a further 40 days for testing.  The well proposed to test the Zeus
prospect is the deepest, largest target and most expensive well planned to be
drilled among the Solana/Ramshorn Prospects.  Adulis will pay 48% of the cost of
the first well on this prospect and 37.5% of the costs of subsequent wells. In
the event of a discovery Adulis will obtain 33.75% of the production subject to
a sliding scale royalty.


CONSOLIDATED FINANCIAL STATEMENTS OF ADULIS RESOURCES INC.

YEARS ENDED DECEMBER 31, 2004 AND 2003



Unless otherwise noted, all currency amounts stated are in Canadian dollars.



Consolidated Statements of Loss and Deficit


                                                                                          2004                 2003
                                                                                            $                    $
REVENUE
           Oil and gas revenues, net of royalties                                      427,979               -
           Interest and other                                                          172,608                3,447
                                                                                       600,587                3,447

EXPENSES
           Operating                                                                   480,995               -
           General and administrative                                                1,252,174              170,306
           Depletion, depreciation and accretion                                     1,519,952              -
           Foreign exchange loss                                                       522,317               -
           Stock-based compensation                                                  1,148,726               54,822
           Write-off of mineral properties                                              -                   383,534
                                                                                     4,924,164              608,662

           Loss before taxes                                                       (4,323,577)            (605,215)
           Taxes                                                                       186,918                   -

           Net loss                                                                (4,510,495)            (605,215)

Deficit, beginning of year
           As previously reported                                                  (8,309,208)          (7,703,993)
           Change in accounting policy - stock-based
                compensation                                                         (131,573)                    -

           As restated                                                             (8,440,781)          (7,703,993)

           Deficit, end of year                                                   (12,951,276)          (8,309,208)
           Net loss per share, basic and diluted                                        (0.16)               (0.06)






Consolidated Balance Sheets


                                                                                   2004                        2003
                                                                                     $                           $
ASSETS
            CURRENT
                 Cash and cash equivalents                                   55,104,406                   2,855,865
                 Accounts receivable                                          5,482,997                      25,409
                 Prepaid expenses                                                76,292                      -
                                                                             60,663,695                   2,881,274
            Restricted cash                                                     900,000                     969,300
            Other advances                                                       -                            4,544
            Petroleum and natural gas properties                             45,304,339                   3,317,376
            Other capital assets                                                321,113                      -
                                                                            107,189,147                   7,172,494

LIABILITIES
            CURRENT
                 Bank loans                                                     100,135                      -
                 Accounts payable and accrued liabilities                     1,885,132                      78,448
                                                                              1,985,267                      78,448
            Asset retirement obligations                                        423,028                      -
            Future income taxes                                               6,100,000                      -
                                                                              8,508,295                      78,448

SHAREHOLDERS' EQUITY
            Share capital                                                   110,257,972                  15,279,615
            Contributed surplus                                               1,374,156                     123,639
            Deficit                                                        (12,951,276)                 (8,309,208)
                                                                             98,680,852                   7,094,046
                                                                            107,189,147                   7,172,494



APPROVED BY THE BOARD

Ray Antony, Director

Grant Howard, Director






Consolidated Statements of Cash Flow


                                                                                       2004                    2003
                                                                                          $                      $
SUMMARY OF ACTIVITIES
OPERATING ACTIVITIES
    Net loss                                                                    (4,510,495)               (605,215)
    Items not involving cash:
    Unrealized foreign exchange loss                                                165,648                  -
    Stock-based compensation                                                      1,148,726                  54,822
    Depletion, depreciation and accretion                                         1,519,952                  -
    Write-off of mineral properties                                                       -                 383,534
                                                                                (1,676,169)               (166,859)
    Changes in non-cash working capital                                           1,348,875                  24,389
    Non-cash working capital acquired on acquisition                              3,502,260                  -
                                                                                  3,174,966               (142,470)


FINANCING ACTIVITIES
  Proceeds from issuance of common shares                                       60,597,750               4,500,000
  Proceeds from exercise of warrants                                            12,195,000                  -
  Proceeds from exercise of options                                                 86,000                  -
  Share issuance costs                                                         (4,705,175)               (344,011)
                                                                                68,173,575               4,155,989


INVESTING ACTIVITIES
  Advances to agent                                                                 -                      (4,544)
  Additions to petroleum and natural gas properties                           (13,798,484)             (1,345,260)
  Changes in non-cash working capital                                          (4,997,623)                  -
  Proceeds received on acquisition of                                                    -               1,005,000
              Colombian exploration property
  Cash deficiency acquired on acquisition of subsidiary                          (168,202)                  -
  Proceeds on sale of Eritrean properties and subsidiary                            -                          500
  Additions to other capital assets                                              (305,126)                  -
                                                                              (19,269,435)               (344,304)


NET INCREASE IN CASH AND CASH EQUIVALENTS                                        52,079,106               3,669,215
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                      3,825,165                 155,950
CASH AND CASH EQUIVALENTS, END OF YEAR                                           55,904,271               3,825,165


Represented by:
   Cash and cash equivalents                                                     55,104,406               2,855,865
   Restricted cash                                                                  900,000                 969,300
   Bank loans                                                                     (100,135)                   -

                                                                                 55,904,271               3,825,165




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