JAN ALSTON - PURCELL ENERGY LTD (PEL:TSE)
CEO Interview - published 12/15/2003

DOCUMENT # WAF623

JAN M. ALSTON is President & Chief Executive Officer of Purcell Energy
Ltd. A native Calgarian, Mr. Alston attended high school in England.
From 1975 to 1981 he studied at the University of Alberta and received
his Bachelor of Arts and Law degrees. Since 1982 Mr. Alston practiced
corporate law in the areas of business law, securities regulation and
corporate finance. Between 1982 and 1986 he was an associate of Beaumont
Church in Calgary. Subsequently, he consulted to a private predecessor
of Purcell Energy in the late 1980s which led him into the oil and gas
business. Mr. Alston was appointed President and C.E.O. of Purcell in
1989. It was the big potential of Purcell's Fort Liard natural gas
property that interested him in the corporation in the early 1990s. Mr.
Alston has a wide range of experience in business administration,
securities regulation, finance, and oil and gas management.

Sector: oil & gas Drilling & exploration

TWST: Could you give us an overview of your company?


Mr. Alston: Purcell Energy was created just a little more than 10 years
ago out of the amalgamation of two junior Canadian oil and gas
companies. During the past 10 years, we've built the company up from an
initial production level of a few hundred barrels of oil equivalent per
day to the current level approaching 6,000 barrels of oil equivalent per
day.

TWST: How have you accomplished that?


Mr. Alston: Our primary strategy for growth is exploration. We had a
major project in the southern Northwest Territories of Canada in an area
called Fort Liard that we persuaded ChevronTexaco to farm in and drill
in the late 1990s. That was the key growth driver for us, because it was
a very successful project.

TWST: Could you give us an inventory of the properties that you have and
bring us up to date with your acquisition of BelAir Energy?


Mr. Alston: I'll start with the major projects that we have underway.
The largest property that we have is the Fort Liard gas property. The
production is from very prolific deep gas wells in what we call the
foothills of Canada. The reason I say prolific is because the wells
started production at anywhere from 70 million to 75 million cubic feet
per day of raw gas and the Fort Liard property ended up being about 70%
of the production and assets of Purcell. We also had a number of other
relatively small properties in Western Canada. These properties are
primarily southeast Saskatchewan oil properties and Alberta gas
properties. One of the benefits we saw in acquiring BelAir Energy
Corporation was that it would broaden the production base of the
company. We recognized that we were very concentrated on the Fort Liard
property, and a lot of our investors saw that as a concentration risk
for the company. So we saw buying BelAir as a way to broaden the
production base of the company and also to give us some lower risk
development drilling and exploitation activities. This offsets the fact
that Purcell is a natural gas explorer in some of the riskier areas of
western Canada, primarily in northeast British Columbia and western
Alberta.

TWST: What are the attributes of the combined company?


Mr. Alston: The key for Purcell has been to balance out not only the
risk profile on the exploration side but also the production profile,
since Fort Liard is such a big part of Purcell. Now after the BelAir
acquisition, Fort Liard has been reduced to about 40% of Purcell's
production from the existing four wells. This deal worked very well.
Another positive aspect is that both companies are primarily natural gas
producers and the combined company continues to be about 80% weighted to
natural gas production. The other 20% of our production is oil and
natural gas liquids. A third component that was complementary was the
undeveloped land position. Purcell has very extensive land holdings of
undeveloped acreage and the BelAir deal brought land in areas that
provide more all-year access. One of the aspects of operating in Canada,
of course, is that many of the northern areas are accessible for
drilling only in the winter months. So the activity is restricted to
those four or five months in the winter when the muskeg is frozen. A
fourth positive is that BelAir operated the majority of its production
and this will give Purcell more control over the timing of its
exploration and development activities.

TWST: So you are saying that the production from the existing properties
of the two companies combined is approximately going to be 6,000 barrels
of equivalent per day. What about the prospects for drilling high-impact
exploratory wells in the properties that have not been exploited to the
fullest, as of yet?


Mr. Alston: Purcell is unique in western Canada today in the junior oil
and gas company category. We are very much an explorer and I often say
that we explore with a capital 'E'. We are exploring in full-cycle areas
that take many years to develop. We are looking for significant gas
reserves. This is different from a lot of the very junior companies in
western Canada right now that are perhaps buying assets and exploiting
them or, in many cases, pursuing shallow gas production. There's nothing
wrong with that ' it can come onstream very quickly and work very well.
But we at Purcell have really  gone down a path or strategy where we are
looking for long-term big gas reserves. A perfect example of that is an
area that we are active in called Tenaka, in northeast British Columbia.
Here we have struck a joint venture with Anadarko Canada on a very large
block of land. We started assembling our land position there almost
three years ago and we were able to get a head start on the competition.
Anadarko was active in the area just to the east of us with their Adsett
gas pool, and this is probably a 150 to 200 Bcf natural gas pool that
Anadarko acquired through their purchase of Berkley Petroleum in Canada
three years ago. So a year ago we struck a joint venture with Anadarko,
the first joint venture on about 23 sections of land, and we shot a big
3-D seismic program over it. Anadarko is now committed to drill two or
three wells, deep gas tests, this winter starting in January 2004 on
this joint venture, and we have about a one-third interest in that joint
venture. We also have just finalized the terms of a second joint venture
on about 48 sections of land, again with Anadarko where we are pooling
acreage with them immediately south of the first joint venture, and
we'll be shooting a 3-D seismic program over that joint venture as well
this coming winter. So it's a very exciting area for us. It's the kind
of thing that can add significant gas production over the next year or
two for Purcell.

TWST: Could you describe a realistic scenario two years from now?


Mr. Alston: I think the first thing we have as an overriding goal is to
build up Purcell to a significant level of production, and then we feel
that the best way to capture the value for our shareholders is to sell
the company at a certain stage. Although we are not targeting a specific
time or event that would trigger that, we think maybe several years out,
it might be two years, it might be three, we will have built up Purcell
to a significant production level, hopefully above 10,000 barrels of oil
equivalent per day. That would be an appropriate time to capture the
value for our shareholders. But we don't just focus on that specific
goal. We also are looking to continue building the company from a long-
term perspective. We are continuing to assemble land positions in
northeast British Columbia on longer-term gas projects that would be
very attractive to some of the larger independents years out, who will
need that kind of land base to explore and add new areas to their
portfolio. We will be drilling a lot of wells. In the next year, we have
more than 50 wells of different types on the books. Some are the high-
impact type, such as the wells we will be participating in with Anadarko
in Tenaka in northeast BC. Our prospect inventory goes all the way to
lower risk, more modest reward types of activities in central Alberta
and in Saskatchewan. Right now we are drilling a high-impact gas well at
an area called Lochend just northwest of Calgary. This well is testing a
2,800-meter  deep target that has the potential for 10 to 20 Bcf of gas.
We are operating  that well at a 50% working interest.

TWST: Could you describe the balance sheet of the combined company? Do
you have the financing in place to accomplish all of your goals?


Mr. Alston: When we looked at the combination with BelAir we saw that
the balance sheet would be a bit burdened with debt. The combined debt
of the two companies would perhaps have been C$70 million or C$75
million, with 2004 anticipated cash flow something in the order of C$35
to C$40 million. We felt that this was a little bit too much debt on the
balance sheet. So what we did in the summer in combination with closing
the BelAir transaction on September 4, 2003, was close a C$20 million
financing at C$2.45 per share. A majority of that financing was by US
institutional investors. We find there is a lot of interest in the
United States in what we are doing. After that financing, we are now in
a position where the debt is substantially below 2 times the expected
cash flow for next year for the combined company, the 'New Purcell' as
we call it. This provides us with sufficient flexibility to fund from
cash flow and a combination of debt, if necessary, for ongoing
activities.

TWST: What are the reserves of the combined company, and do you have any
hedging strategy to counteract the volatility in prices of natural gas
and oil?


Mr. Alston: Our current internal estimate of the reserves of the
combined company on a proved basis is about 15 million barrels of oil
equivalent. That's the proved reserve base and the established reserves
base, which includes a component of 50% risked probable reserves, is
approximately 19 million barrels of oil equivalent. On the 6,000 BOE per
day current production level our reserve life index is about 8.7 years
on the established reserves. We have a very solid reserve base. With
respect to the hedging strategies, we are aware that we have been in a
very robust energy price environment for the last few years. The oil
price has done very well. As we produce primarily natural gas, (as I
mentioned before, about 80% of our production is natural gas), we do
some hedging. We have a number of contracts in place over the next four
to five months that provide some downside protection on the natural gas
price here in Alberta. About 40% of our gas for the winter months is
hedged and the pricing on that is in Canadian dollars. It varies, but
it's all in the money right now, which is I guess a sign that prices
have softened a little bit and we are finding some support from those
contracts. After the winter, starting in April 2004 and going through to
next October of 2004, we have some other contracts in place on the gas
side that perhaps protect about one quarter of our gas production.  So
we feel that in the industry right now, depending on the type of winter
we have, the natural gas storage is adequate and there could be some
softness in the spring and summer depending on the usage of natural gas
this winter. So that's why we've done those hedge contracts just to
protect the downside a little bit.

TWST: What should investors expect from you in the short-term and what
are your long-term goals?


Mr. Alston: The issues that face our investors and our shareholders are
that  firstly, Purcell had gone through a cycle in the past year and a
half where we had some relatively short-term production issues at Fort
Liard, which Chevron has been working on and correcting. For example, we
drilled a big development well at Fort Liard earlier this year that has
worked very well. And we have two additional development wells at Fort
Liard to be drilled by ChevronTexaco in 2004. One well is spudding in
January and the other is starting in May. These wells will cost each
about C$10 million wells and Purcell has a 24% interest in each of them.
These two development wells are being drilled on 3-D seismic into the
pool. Expected production for each well is about 25 million cubic feet
per day of raw gas. So that's coming up, but because of the consequence
of going through the setback in production, Purcell has been discounted
in the marketplace because of the concentration in Fort Liard that I
previously spoke about. And on the acquisition of BelAir, the market is
waiting to see how that combination comes together. So  typically in
these sorts of situations, it takes a little bit of time, one or two
quarters to show the investment community what the combination looks
like and what has been achieved. Also, at the same time, we've been
seeing a fair number of BelAir shareholders using the liquidity to sell
their stock. So that's being absorbed. So the perceptions by investors
on Purcell right now include some uncertainty as to the outcome of the
BelAir combination. Looking forward, are we going to grow that
production? With the portfolio of drilling prospects that we have in the
next five months through the winter season, we are going to participate
in about 23 wells of varied risks, and the investors have to keep their
eye open for increasing production and reserves coming from that
drilling program as a short-term boost to the fortunes of Purcell.
Ultimately, adding reserves and production at reasonable cost will boost
the bottom line for Purcell.

TWST: Could you describe the integration process that you're going
through with the BelAir acquisition?


Mr. Alston: One of the attractions of BelAir was that the senior
management and technical people had made the decision to move on. So we
were not burdened with people who we might have had to lay off. So at
the end of the day, we simply took some junior technical and
administrative support staff from BelAir. We see significant G&A savings
from integrating the two companies. BelAir's production prior to the
merger was about half of Purcell's, but their G&A structure was similar.
So we see savings in that regard. I can say that after the last few
months of working on the integration and now that Purcell actually
controls the BelAir assets, we are very pleased with what we've seen.
There were no nasty surprises, which sometimes can occur in these merger
situations, and we are seeing some very good synergies  in integration.
We'll end up with a cost structure that is that much more efficient with
the higher critical mass of the combined company. So the transition is
going very smoothly. Purcell will also benefit from an enhanced income
tax horizon. The income tax pools that BelAir had are accretive to the
combined entity so that Purcell's cash tax horizon has been pushed out a
year or two, probably to 2005 or 2006.

TWST: So essentially the Purcell management is going to be, for all
practical purposes, the management of the combined company?


Mr. Alston: Yes. We have added some senior people both on the management
side and on the technical side to complement the staff that we had
previously, and we've been able to attract a number of very seasoned,
experienced oil and gas technical people from other companies, because
they can see the prospects and the critical mass that we've now put
together at the new Purcell. It's very competitive to attract quality
people, but Purcell, with its leverage to its high-impact exploration,
is very attractive. We are finding it is not a problem to attract very
talented people into our organization.

TWST: Beside the fact that you have to perform the duties of a CEO, what
is your expertise?


Mr. Alston: I have developed a particular expertise over the past 10 to
15 years in the oil and gas business. I think that there is a place for
the generalist, in a sense for the person that's looking at the big
picture, understanding the oil and gas business, thinking globally, and
looking to the future. And somewhat of a tough place to go, I think, is
to go where the crowd is not ' to go and do things that are not the
flavor of the day in the  oil and gas business or the investment
community, to look for opportunities ahead of the herd. It takes
tenacity and perseverance and one has to have a commitment to that
because, in the short run, there are lots of doubters. There can be a
tremendous amount of criticism when one is not doing what the  crowd is
doing. So, if anything, I think I have the ability to look beyond what
the crowd's doing, and try and see opportunity outside of the box.

TWST: Does the financial market understand what you're trying to
accomplish at the company?


Mr. Alston: I would say that at the present time, particularly in
Calgary, which is interesting because this is a very tight oil and gas
community, I'm  not sure that they have bought into our strategy,
because it is quite different from what many junior companies are doing.
So I think it's a question of us delivering the goods and showing
through production and financial results the winning strategy that we
have. However, it does take time and, particularly in the exploration
game, it can take many years for projects to come to fruition. A case in
point is the Fort Liard project. In the middle of the 1990s, there were
plenty of skeptics about the type of project that we had and whether or
not it would ever work. In fact, it worked much better than even we
ourselves had expected. I think that's a good example of going into a
project area where certainly I think much of the industry was skeptical,
until it was a success.

TWST: What sort of investor relations programs have you conceived to get
your message out to shareholders and potential shareholders?


Mr. Alston: We've been getting some exposure in the United States. Our
major  shareholders actually are US-based institutions in New York and
Boston. We also work hard at getting the message out to the retail
investors, the investment representatives and the brokers. We're
constantly working to get before new audiences so that we can present
the Purcell story and the tremendous potential that we have. We are also
working hard to attract a following among the Canadian oil and gas
analysts. Increasing coverage will help to get the Purcell story out.

TWST: In summary, what are the key investment messages that you would
like to get across to your shareholders?


Mr. Alston: I think that the first and foremost message is that Purcell
is a  value situation. In other words, our net asset value is
substantially above the current trading price of the stock and so
investors have that comfort zone. When investors go in and purchase
Purcell stock, they don't need to worry about the value that's behind
the share price. Currently, we're around  C$2.50 on the Toronto Stock
Exchange and our net asset value is estimated to  be above C$4. So I
think that provides a lot of downside protection.  And then the second
thing is that we now have a combination of low, medium and high risk
activity that's going to build the company, and particularly in the
high-impact side of things, investors can own Purcell and basically get
for free all of the potential of our high-impact drilling that's
underway and coming up in the next six to nine months.

TWST: Any other points of discussion you wish to bring in that I may
have left out?


Mr. Alston: I think that only to say that another unique feature of
Purcell is that we tend to joint venture with a lot of the more
significant players in Calgary, in the Oil Patch, and that really is a
result of our being in those areas where the larger companies are
active. So in addition to our joint ventures with ChevronTexaco at Fort
Liard and Anadarko at Tenaka, we also have joint ventures with EnCana,
with Talisman, with Husky, and companies like that in the Canadian Oil
Patch. We believe this says a great deal about the caliber of the
projects Purcell has on the go today.

TWST: Thank you (WT).


JAN M. ALSTON
 President & CEO
 Purcell Energy Ltd.
 2810, 605 5th Avenue SW
 Calgary, Alberta T2P 3H5
 (403) 269-5803
 (403) 264-1336 - FAX
 www.purcellenergy.com e-mail: purcellenergy.com

Copyright 2003 The Wall Street Transcript Corporation
All Rights Reserved


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