Celtic Exploration Ltd. (CLT)
Interview with:
David J. Wilson, President and CEO
Business News, Financial News, Stocks, Money & Investment Ideas, CEO Interview
and Information on their
oil and gas exploration and production properties in Alberta, Canada.

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Being smaller has given Celtic Exploration a competitive edge and enabled them to act on acquisition opportunities quickly and grow their production

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Energy
Oil and Gas Producers
(CLT-Toronto Stock Exchange)

Celtic Exploration Ltd.

Suite 500,505-3rd Street S.W.
Calgary, AB, T2P 3E6
Phone: 403-201-9153


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David J. Wilson
President and Chief Executive Officer

Interview conducted by:
Lynn Fosse
Senior Editor

CEOCFOinterviews.com
January 2004

BIO:
David J. Wilson is President and Director and Chief Executive Officer of Celtic Exploration Ltd.  He graduated from Southern Alberta Institute of Technology in 1984 with an honors diploma in Petroleum Technology.  Prior to attending S.A.I.T., Mr. Wilson developed a keen interest in the oil and gas industry while working as an oil rig worker and driller for Red Arrow Drilling Ltd.  Mr. Wilson spent three years (1984-1987) at Computalog Gearhart Ltd., where he was a Completion Engineer responsible for completions ranging from shallow 400-meter perforating to deep, sour 3,000-meter completions.  In 1986, Mr. Wilson established Pronghorn Resources Ltd., a private oil and gas company.  During its eight years of operation, he was actively engaged in all aspects of exploration, development, acquisitions of oil and gas properties, and the day to day business of running a small oil and gas company.  In 1992, Mr. Wilson co-founded Genesis Exploration Ltd., and was responsible for corporate direction, daily operation of the corporation, management strategy, finance and acquisitions.  Genesis Exploration Ltd. which at the time was producing approximately 23,000 BOE/day was sold in April 2001 to Vintage Petroleum, Inc. from Tulsa, Oklahoma.   In September 2001, he became President and CEO of Desco Exploration Ltd. and the name was changed to Celtic Exploration Ltd.

Company Profile:
Celtic Exploration Ltd. (CLT: TSX) is a growing junior oil and gas exploration and production company formed in 2002 with the objective of building an oil and gas exploration and production company that would be able to flourish in today’s ever-changing environment. In the past decade, wild commodity price fluctuations have increased competition for the finite resources. With this in mind, the Company was formulated with a clear-cut yet flexible game plan that allows it to react quickly to the opportunities developing in today’s fast-changing environment.

The Company has set its initial capital expenditure budget for 2004 at $35.0 million. As new opportunities arise, the Company may increase this budget during the year. Celtic is well positioned financially and through a combination of cash flow from operations and unused bank lines has the ability to carry out and increase the capital program. Celtic Exploration’s current properties include production areas that are located in Alderson, Bow Island and Drumheller in southern Alberta, Ashmont in east central Alberta and Utikuma in northern Alberta. On September 1st , 2003, Celtic completed the acquisition of a new Beaverhill Lake property at Fox Creek, in West Central Alberta.

CEOCFOinterviews: Mr. Wilson, please give us a brief history of Celtic Exploration and tell us about the growth possibilities?

Mr. Wilson: “When we first started Celtic, we saw a chance to come into a market that didn’t have many small juniors set up and going. The presence of larger companies and royalty trusts had increased and there was a lack of intermediate sized companies. We saw a real opportunity to come in and not have nearly as much competition as we would have had back six or seven years ago when all the intermediate companies were competing. When we started Celtic, we had just a shell company with no production; we raised some equity and made a few small acquisitions. We also were quite active with the drill bit. Today which is about a year and four months later, we are currently over 3000 BOEs a day, so we are off to a nice start. With the commodity pricing the way it is, and the opportunities that we have been able to acquire over the last sixteen months, we should be able to continue to grow this company at a rapid pace.”

CEOCFOinterviews: Will you please tell us a bit about the properties, why you have chosen them and what you are looking for in general?

Mr. Wilson: “We are relatively spread out throughout Alberta; we don’t have any production in British Columbia or Saskatchewan. In Alberta, we have properties from the southern portion to the north-central areas. The way we choose the properties is not geographically but more on how much upside we think there is in the area and the property. If we do an acquisition, we don’t do it to just add production to become bigger, but we do the acquisition because we think we can get the property producing two or three times as much as it is currently. Two or three years later, instead of producing two or three hundred barrels a day from the new property, we hope to be at five hundred or a thousand. We have been able to do that for the most part on anything that we have purchased.”

CEOCFOinterviews: What insight allow you to see that you will be able to produce, whereas the present owner does not?

Mr. Wilson: “It is no different from any other industry; real estate is a good example where someone will own a house and have it up for sale, and one party will come in and look at it and say it is junk and the next person comes in and sees that if they put some wall paper up and build a new room here and put new carpet in, then it will really be something. He does that and he sells it for twice as much as he buys it for. I think oil and gas is no different; you look at a property differently than someone else does. It is not a proven science; it is more of an art. You look at something and see it completely different than the previous owner; something he was not able to pick up on. In many cases the previous owner was a big company and the property just didn’t catch his radar screen or in some cases a royalty trust that didn’t want to spend any money on the property. There are a few different reasons why you are able to pick up these properties that have not been exploited.”

CEOCFOinterviews: Will you tell us about the people at Celtic?

Mr. Wilson: “I co-founded a company prior to this called Genesis Exploration; it was a very similar game plan to what we are running here. We took a shell company with no production and ended up selling it for almost a billion dollars after about seven or eight years. We got real good people involved right from the start; you didn’t have to manage them and they could take the ball and run with it. To that end, it is exactly what we have done over here and even more so this time around. Not only do we have good sound technical people, but we also have brought people in with a sound business sense as well. On the managerial side the people that we have brought in have run their own public companies or they have been in similar positions previously at a public company so that they bring good business savvy with them as well as their technical expertise.”

CEOCFOinterviews: Will you tell us about some of the properties you are working?

Mr. Wilson: “We have a light oil property up in the Otter/Red Earth area, where we are drilling six wells targeting light oil in the Granite Wash formation. We are using two methods, one is by re-entering old well bores and drilling out horizontally.  We will drill two of those of which the first has just finished. Secondly, we are drilling four vertical wells.   All these wells are drilled off of 3-D seismic and we have good seismic control. This will keep us busy here through the first quarter. In addition to that, we have a high impact project that we are doing in an area called Fox Creek; where we are targeting light oil and gas out of the BeaverHill Lake formation.  It is an older pool that we purchased from one of the majors and we are going to do some horizontal re-entries into the zone and are trying to access some reserves that were not previously accessed. We have had some good success on the first well, and we are now in the process of drilling the second well. We will be putting that on test within a week or two, and will continue the program by drilling a third well. It is going to be an interesting project that will add some significant reserves and production.”

CEOCFOinterviews: Some of the projects you own outright and some you only own a piece.  What is your strategy in the area?

Mr. Wilson: “What we try to do is get as high a working interest as we can. We would much rather be doing something at 100% than 50%. The one high impact property at Fox Creek, we are 100% working interest and at Otter we are 50% working interest. It comes down to the method used to tie up the land; in some cases we have no alternative other than to bring a partner because they may already own the land and you are farming into their land creating a built-in partner. For the most part our mindset is that we would like to do everything at 100% if possible.”

CEOCFOinterviews: On your website you address flexibility and dealing with the ever-changing environment; what does that mean in concrete terms?

Mr. Wilson: “Being a smaller company, we are able to act on opportunities quickly. If something came up tomorrow that we don’t have in our budget, we would be able to do whatever it takes to act on that opportunity whether it be raising additional funds, re-allocate existing funds or what ever is required, we will have the ability to act on it. Unlike a larger company where they have to get everything approved a year in advance for this years’ budget, we are very much opportunity driven. Last year we increased our capital budget four times as we came upon opportunities and I expect this year will be similar. We have started out with a thirty-five million dollar budget. As we see new things arise, that budget will probably increase.”

CEOCFOinterviews: Will you tell us about the financial condition of the company?

Mr. Wilson: “We have an extremely clean balance sheet. At the end of 2003, it looks like we are going to be around nine million in debt, and this coming year we are looking at a cash flow of approximately twenty-five million dollars. We are probably in the point three or point four times debt to cash flow ratio, which is quite low for our industry. That gives us dry powder if we come across acquisitions or if we want to increase our drilling program.”

CEOCFOinterviews: Are there newer technologies that you are able to take advantage of in the drilling procedure?

Mr. Wilson: “What we do a lot of is drill horizontal wells. In the case of Fox Creek, for example, they are quite deep about 3000 meters and it is a sour corrosive environment. Back ten years ago there were not a lot of those type of wells being drilled and even now, there are not many of the deeper sour wells being drilled horizontally. We have had good success doing it and have been able to do it inexpensively.”

CEOCFOinterviews: How much oil as opposed to gas do you do?

Mr. Wilson: “We currently are half-and-half. We are opportunity driven and we base all of our decisions on economics. If it is an oil property that we think we can make a good return on, we will go ahead and carry out the project and the same goes for a gas project.  It is not that we are choosing our opportunities based on the idea that we have to be fifty percent gas and fifty percent oil, but we are doing it strictly on economics.”

CEOCFOinterviews: Does the macro energy picture play a part for you?

Mr. Wilson: “With the high commodity prices it makes your economics much more feasible on what would normally be projects that might be more marginal. You are able to go a little deeper in the prospect pile and do some of the projects that you may not have done if oil was at twenty dollars a barrel and gas was three dollars a gigajoule, and that makes more opportunities available. In the macro picture, something that is interesting over the last few years is that so many of the majors are moving out of the western Canadian sedimentary basin, which takes away some of the competition and at the same time, the royalty trust organizations have come in and bought up a lot of the intermediates. The royalty trusts don’t really give you a lot of competition at land sales and on the drilling side because they are more interested in buying producing assets. It gives us a window where we see some of the competition taken away that would have normally been there if the bigger companies were still around.”

CEOCFOinterviews: What challenges do you see in the future and how are you ready?

Mr. Wilson: “I think the biggest challenge is when commodity prices get higher, you will get more junior companies starting up and that will create more competition and make land prices higher and acquisition prices higher. We will have to look at more opportunities before we actually find something that we are able to purchase so we will have to be more diligent as the competition increases. We have continued to add people so that we are in a position whereby we can continue to make that manpower available to do those things.”

CEOCFOinterviews: In closing, why should potential investors be interested and what should they know that perhaps they don’t realize when they first look at the company?

Mr. Wilson: “We are going to continue the rapid growth rate. If you look at where we started sixteen months ago and where we are today; every quarter we have grown production significantly. Even more importantly, we have grown production on a per-share basis significantly and you are creating value when you do that. I think we can continue to do that over the next three or four years. We have a good prospect basis to grow on, and the people that know how to grow a company efficiently and quickly. I think that most importantly, all the people here have done it before and have been successful at it, so you are looking at proven management.”

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