GulfWest Energy Inc. Recapitalizes

Business Wire, Feb 28, 2005

HOUSTON -- GulfWest Energy Inc. (OTCBB:GULF)

--Raises approximately $42 million as the result of the issuance of Series G Convertible Preferred Stock of the Company and additional Series A Convertible Preferred Stock of its subsidiary GulfWest Oil & Gas Company

--Hires Allan D. Keel as new chief executive officer and Joe Grady as new chief financial officer

--Replaces three members of GulfWest's Board of Directors

--Amends various series of its preferred stock

--Restates financial results for the third quarter of 2005

GulfWest Energy Inc. (OTCBB:GULF) announced today that it has sold, in a private placement, 81,000 shares of its Series G Convertible Preferred Stock to OCM GW Holdings LLC (OCMGW), an affiliate of Oaktree Capital Management LLC, for an aggregate offering price of $40.5 million. In addition, GulfWest's subsidiary, GulfWest Oil & Gas Company (GOGC), issued in a private placement, 2,000 shares of its Series A Convertible Preferred Stock, having a liquidation preference of $1.0 million, to OCMGW for $1.5 million.

The Series G Convertible Preferred Stock bears a coupon of 8% per year. The Series G Preferred Stock has an aggregate liquidation preference of $40.5 million, and is senior to all of GulfWest's capital stock. GulfWest intends to redeem the currently outstanding 340 shares of Series F Preferred Stock for cash in connection with the transactions. For the first four years after issuance, GulfWest may defer the payment of dividends on the Series G Preferred Stock and these deferred dividends will also be convertible into GulfWest common stock at $0.90 per share. In addition, the Series G Preferred Stock is entitled to nominate and elect a majority of the members of the Board of Directors of GulfWest.

As part of this transaction, GulfWest has hired Allan Keel as its president and chief executive officer and Joe Grady as its chief financial officer. Also John Loehr has stepped down as GulfWest's chief executive officer and J. Virgil Waggoner has resigned as chairman of the Board of Directors. Furthermore, M. Scott Manolis, Thomas Kaetzer, Marshall A. Smith III have resigned from GulfWest's Board and Allan Keel, B. James Ford and Skardon Baker have joined GulfWest's Board of Directors. Messrs. Ford and Baker are affiliated with Oaktree Capital Management LLC. Messrs. Loehr and Waggoner will remain on GulfWest's Board of Directors.

In connection with these transactions, the terms of GOGC's Series A Preferred Stock have been amended such that by March 15, 2005, all such stock will either convert into a newly created Series H Convertible Preferred Stock of GulfWest on a one for one basis or into Common Stock at a conversion price of $0.35 per share. The Series H Convertible Preferred Stock has a liquidation preference of $500 per share and is required to be paid a dividend of 40 shares of Common Stock per share per year. In addition, the Series H Convertible Preferred Stock is convertible into Common Stock at a conversion price of $0.35 per share. Assuming all shares of Series A Preferred Stock convert to Series H Convertible Preferred Stock, the outstanding Series H Preferred Stock would have an aggregate liquidation preference of $4.875 million. The Series H Preferred Stock is senior to all of GulfWest's capital stock other than its Series F Preferred Stock and Series G Preferred Stock.

In addition, GulfWest amended the terms of its 9,000 shares of Series E Preferred Stock such that the coupon of 6% per year they bear may be deferred for the next four years and these deferred dividends will be convertible into Common Stock at conversion price of $0.90 per share. The initial liquidation preference of the Series E Preferred Stock of $500 per share remains convertible into Common Stock at $2.00 per share. The Series E Preferred Stock has an aggregate liquidation preference of $4.5 million, and is senior to all of GulfWest's capital stock other than its Series F Preferred Stock, Series G Preferred Stock and Series H Preferred Stock.

In connection with these transactions, GulfWest entered into employment agreements with Messrs. Keel and Grady, granted certain registration rights to the holders of Series G Preferred Stock and Series H Preferred Stock, and adopted an employee stock option plan with respect to 27 million shares of GulfWest's common stock. In addition, Virgil Waggoner has granted OCMGW a proxy to vote any shares of GulfWest capital stock at its next meeting of shareholders in favor of a merger pursuant to which GulfWest will become a Delaware corporation and will authorize sufficient additional shares of Common Stock for conversion of its outstanding convertible instruments.

Net proceeds of the offerings of approximately $38 million after expenses are being used for the repayment of debt and other liabilities and for general corporate purposes.

In addition, in February 2005, GulfWest determined that 281,000 options it issued should have been classified as variable options rather than intrinsic value options. As a result, it has restated its financial statements for the three months ended Sept. 30, 2005. This restatement has resulted in an additional accrual of $70,250 in compensation expense. The net effect of these revisions was to decrease total liabilities and stockholders' equity at, or for the quarter ended Sept. 30, 2004, by $70,250 and $70,250, respectively. Such revisions had minimal impact on GulfWest's consolidated statements of income, cash flows, comprehensive income or changes in stockholders' equity.