"KFG Resources Ltd. Announces Coalbed Methane Project

Mr. Robert A. Kadane, President of KFG Resources Ltd., announced today that the Company's wholly-owned subsidiary, KFG Petroleum Corporation, Natchez, Mississippi, has farmed out 12,900 acres in Cataboula Parish, Louisiana, to a private company in Houston, Texas to conduct a six well pilot program for coalbed methane in coal seams of the Wilcox Formation.  The first well, the KFG-IPCO #1 has been drilled to 5,000 feet, encountering 24 feet of coal seams, which have been extensively cored and the well has been cased and perforated.  The decision has been made, starting immediately, to drill the remaining five wells in the pilot program.  The wells will be equipped for production and tested to determine volume deliverability before hooking up to the main pipeline in the area.  No estimates of deliverability and productivity can be made until completion of the pilot program and dewatering of the producing zones, which may take substantial time.  If the pilot program proves commercial, a development program will be expanded in Calendar 2005.  There is no cost to KFG during the initial six well pilot program and in any development wells unless and until KFG exercises its option to convert its overriding interest to a working interest.

Mr. Kadane noted that this acreage had been previously acquired by KFG in unrelated exploratory transactions.  The terms of this farmout are that KFG has delivered to the farmee an 80% net lease, reserving a 2.5% overriding royalty, which at the option of KFG after the completion of the pilot program, may be converted to a 17% working interest going forward. KFG has reserved all of the oil rights in this acreage and has the right to twin any of the farmee's wells that fmd oil.  At that point, the farmee has the option to back in after payout for a 25% working interest in such oil wells.  KFG would retain a 75% working interest after payout in all oil wells.  If commercial quantities of natural gas are found, other than coalbed methane, KFG has the option to back in after payout for a 25% working interest on an well-by-well basis.

The Company's common shares are listed on the TSX Venture Exchange, Vancouver, B.C., trading symbol "KFG".  For additional information, please contact Mr .Robert A. Kadane, President, at (303) 825-7080.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release."