January 2008 Letter to Shareholders

Dear Shareholders:

We have begun accelerated production development atPleasant Valley and Moffat Ranch East with Temblor Valley West still being tested for increased production.

At PV, our No. 1 horizontal well came on flowing after the initial steaming cycle at more than 300 barrels of oil per day (BOD) through a 12/64” choke.  We restricted the flow during flowing and thereafter put it on pump at 200+/- BOD for now to avoid drawing sand into the wellbore, even though it could probably double that rate.  We will commence the second steam cycle on PV No. 1 next week for about a month before turning it on again for probably a longer and higher rate.  We are rigging up to drill four more horizontal wells by March 31 with the first commencing this week and have applied for a 20-well permit.

Our PV No. 2 vertical well is still being tested in deeper zones and, depending on its response, we may use some of the 20-well permit to drill additional deep vertical wells.  But our main focus for the near and intermediate term is horizontal drilling into the Upper Vaca Tar Sand formation to rapidly build production, revenues, reportable reserves, share value and reward our drilling partners and royalty owners.

At Moffat Ranch East, we are in the process of hooking up the 48-X new well into the natural gas sales line and expect to start production in the 1,000,000 cubic feet per day range even though this is just a fraction of the well’s capability, again to avoid drawing water and sand into the wellbore.  We expect to gradually increase that rate until it reaches its optimum level.  We will be reworking two existing shut-in wells and re-entering and recompleting one abandoned well left from prior operators to boost production before launching a multiple well drilling campaign at Moffat Ranch East.

In all wells at MRE and PV, we will start them slow, and then carefully increase the production rates until the optimum rates are reached (which may be more or less than the initial rate).

We have moved one of our big refurbished steam generators over to Temblor Valley West to begin steam frac-ing the five new Diatomite zone wells we have recently drilled.  The results will determine whether we drill more wells into that zone or come uphole to produce a different zone.

And we are finalizing permits and financing for our big target Oil King exploration prospect about 70 miles north of Bakersfield.

All of this accelerated production development is with the support of our TVOG Opus I Drilling Program LP and is being launched as “Operation Catapult” under the leadership of Robert Bell, TVOG Vice President of Operations and supervised by TVOG President, Joe Kandle.  The whole technical team is enthusiastic about the results of our test wells and confident our drilling and production efforts will yield aggressively increasing benefits even in this first quarter which we think will also strengthen our share value (you may have noticed some of our officers and directors are buying Tri-Valley stock).

Egan Gost, Manager of Special Projects, is now also our Director of Investor and Public Relations.  Tom Cunningham, 65, former Vice President and Chief Administrative Officer, retired January 15 and Milton J. Carlson, 78, a member of the Board of Directors since 1985, will retire from the Board in February.  We thank both of these gentlemen for their service through some very difficult times and helping build Tri-Valley to this point of exceptional growth and opportunity for the Company.  As always feel free to contact us with your questions.

                                                                Very truly yours,

                                                                F. Lynn Blystone

                                                                Chairman, President & CEO