Cotton Valley Eliminates $4.2 Million of Convertible Debt in Exchange for Properties and Equipment; Removal of Major Obstacle to Pending Regency Affiliates Subsidiary Acquisition.

DALLAS, TEXAS--(BUSINESS WIRE)--March 29, 1999--Cotton Valley Resources Corporation (AMEX: "KTN") (CDN: "CVZC") announced today that it has completed a transaction with the holders of the Company's 7% convertible debentures (the "Holders") to redeem their total outstanding amount of $4.2 million in long-term debt in exchange for the transfer and assignment of the Holders' collateral (well servicing equipment, horizontal drilling equipment and certain oil and gas leases) plus an additional 40% working interest in a certain portion of the Company's Cheneyboro leases in Navarro County, Texas.

"The closing of this transaction means that more than 20 million shares of market overhang from conversion rights at our current stock price will be eliminated, significantly reducing the dilution potential to current shareholders," said Gene Soltero, Chairman and CEO. According to Mr. Soltero, "This transaction also eliminates approximately $80,000 of interest and penalty charges we were incurring during 1998 because of delays in getting the underlying registration statement through the SEC. For the quarter ended December 31, 1998, the transferred inactive properties incurred a net operating loss of approximately $20,000 per month. Furthermore, Cotton Valley is no longer in default on the debentures and removed from any future liability. As a result of these key transactions, we have removed the largest potential obstacle to closing the recently announced acquisition of the subsidiary of Regency Affiliates, Inc. involving approximately 100 million tons of previously quarried and stockpiled aggregate rock."

The assets transferred included the well servicing rigs and horizontal drilling tools owned by the Company's Mustang subsidiaries as well as its interest in the Alden Field, Caddo County, Oklahoma, two small gas wells in Latimer County, Oklahoma, and approximately 3,200 net acres of oil and gas leases in the Cheneyboro Field, Navarro County, Texas. Assets remaining in Cotton Valley include 100% working interest in approximately 2600 acres of the Means (Queen Sand) Field, Andrews County, Texas, 100% working interest in approximately 6000 acres of the South Neill Field (Sears Ranch Prospect) in Nolan and Fisher Counties, Texas, approximately 1400 net acres in the Cheneyboro Field and a sizable inventory of used pumpjacks and other oilfield equipment.

Over the next few months, the Holders will seek buyers for the transferred assets, and the Company will have the right of first refusal to repurchase any of the major assets assigned to the Holders. The Holders will refund to the Company any amount of sales proceeds which exceeds $4.2 million plus interest from January 1, 1999 at 7% per annum. The amount of outstanding balance for refund purposes would also be reduced by 50% of the proceeds the Holders receive from sale of the 2 million shares of the Company's stock the Holders received in during 1998 as payment for interest, penalties and waiver fees. Any deficiency which may arise from the sale of the assets and shares will be borne by the Holders. For the quarter ended March 31, 1998 the Company will report an extraordinary loss on the transaction in the range of $7 million, which represents the amount by which the book value of the assets exceeds the outstanding balance on the debentures. Any refund (or reassignment back of assets) would be reported as an extraordinary gain in the period received.

The information in this news release includes certain forward looking statements that are based upon assumptions that in the future may prove not to have been accurate and are subject to significant risks and uncertainties, including statements to the future financial performance of the Company. Although the Company believes that the expectations reflected in its forward looking statements are reasonable, it can give no assurance that the expectations of any of its forward looking statements will prove to be correct.