Kelso Energy Increases Acreage Position in Western Canada

Mr. D. Hugh Gillard, President and CEO of Kelso is pleased to report that Kelso has recently increased production and expanded its undeveloped exploration acreage in key areas targeted by the company.

Kelso estimates its December 2005 exit rate to be about 120 boepd, plus 20 boepd temporarily shut in, for total productive capability of 140 boepd. This is up from 80 boepd in the previous quarter. Kelso was also successful during the most recent quarter in acquiring six key parcels of Crown land covering three separate prospects.

Boundary Lake, British Columbia

At Boundary Lake, where Kelso holds a 33.34% working interest, the operator drilled two natural gas wells both of which were successful and tied in. One of the wells was completed in both the Boundary Lake and Coplin zones while the second well was completed in the Coplin zone. The two wells commenced production in mid-December and averaged 115 boepd net to Kelso (2.073 mmcfd gross) for the sixteen days in December and were producing 90 boepd net as at December 31, 2005. The existing 9-21 well, has been temporality shut in pending approval of a "good engineering practise" application. It is anticipated that this well, which was producing 20 boepd net (390 mcfd gross) when shut in, will re-commence production by March 1, 2006.

Legal, Alberta

At Legal Kelso participated in the second well of a farm-in opportunity whereby Kelso will earn a 50% working interest in certain Crown and Freehold lands, targeting multiple zones in the Mannville section at depths of up to 1,200 metres. The well was drilled and cased in November and is currently being evaluated. As previously announced, the first well was drilled in late September but was dry and abandoned.

New Exploration Prospects

At the recent Alberta Crown land sale, Kelso successfully acquired two key sections of land which it had posted. The two prospects, one in Hollow and one in Weasel North, are supported by extensive 2D and 3D seismic and have drillable locations.

These two acquisitions, combined with the four section Gough Lake acquisition in October, has resulted in Kelso achieving its new prospect strategy as outlined with its most recent equity issue. Kelso has a 50% interest and is the operator of all three internally generated prospects.

With the new crown land acquisitions Kelso now has a working interest in 22,000 gross acres of land, including 7,250 net undeveloped acres, containing at least six drillable locations. At least two wells are expected to be drilled during the first quarter of calendar 2006.