President's Message

During the quarter, three new Kakwa wells were brought on production. Leveraging

the strong commodity prices, we recorded adjusted funds flow from operations(1)

of over $12 million for the period.

Protecting our legal rights is our top priority after the Government of Quebec

announced its plans to enact Bill 21 and revoke our licenses without meaningful

compensation. We filed our primary claim in the Superior Court of Quebec this

winter. Our litigation counsel recently engaged one of the Big 4 accounting

firms as an expert witness to quantify our damages. Based on the value of the

multi-Tcf discovery in excess of several billion dollars (on a risk adjusted

basis), we expect this claim will be substantially larger than the notional $100

million the Government has suggested as a settlement. We are also supporting

other stakeholders including First Nations and Quebec royalty holders to ensure

their rights are also protected against the Government's actions.

Our investee company, Red Leaf, where we hold a 40% equity interest, also made

progress on their new technology with a successful third-party review completed

July. The granting of the final permit for a short line railroad terminating on

their land is also very good news for Red Leaf and its refinery permit in the

Uinta Basin in Utah.

Highlights

o Average daily production of 1,909 boe/d and adjusted funds flow from

operations of $12.2 million for the quarter

o Government of Quebec announced plans to enact Bill 21 and revoke exploration

licenses

o Red Leaf completes third-party engineering validation of new design

Contrary to other Western nations with natural gas resources, the Quebec

Government seems to remain unwilling to consider exporting Clean Gas and

alleviating the European energy crisis. This continues to surprise us as well as

many of our Norwegian shareholders. This also conflicts with the recent comments

by the Canadian Government that it is assessing expanding infrastructure to

export energy to Europe. With an approved LNG export facility at Becancour, less

than ten kilometres from our acreage, we could be an integral part of both this

infrastructure and the supply. Though we remain realistic, the upcoming visits

to Canada by the German Chancellor and the President of the European Union to

'secure key partnerships on energy security, critical minerals and clean tech'

might prompt the Quebec Government to reconsider their plans.

The Canadian Government also noted that this infrastructure could then be used

for exporting hydrogen in the long-term. This would align with the growing

number of industrial hubs producing and consuming hydrogen and natural gas that

are transforming existing energy systems, as reported this spring by the World

Economic Forum. We remain convinced that our leading-edge project that

integrates carbon capture, carbon recycling and zero-emission hydrogen, could

deliver on the promise of eliminating emissions while providing both clean

natural gas and hydrogen.

We respectfully reiterate that the policy of the Government of Quebec appears to

be out of touch with the current geopolitical situation and with 21st century

energy systems and technology. Recent polls have shown that the people of Quebec

seem more knowledgeable and they consistently show a majority in favour of

developing local natural gas. We are still struggling with the rationale for the

Quebec Government's course of action in the name of climate change given these

indisputable environmental, economic and strategic benefits.

Although demonstrating the benefits of Red Leaf's technology has taken longer

than expected, we took a step closer with the review by a third-party

engineering firm, Hatch, of their new re-design. Among other things, Hatch

reviewed the material and energy balance, kinetic model, product composition,

loading and unloading as well as preliminary cost estimates for the commercial

plant. They concluded that 'the basic concept is sound and that there is a clear

path to commercialization.' They also concurred with management that a scaled

version of the commercial plant producing over 200 bbl/d will validate and

optimize the current design and improve readiness for commercial development. We

are working with them to find investors and partners for this small commercial

demonstration plant.

Operating & Financial

Our results reflect both the increased volumes and higher commodity prices in

the quarter. With the three new wells tied-in, production for the quarter

averaged 1,909 boe/d (2021: 1,479 boe/d) and 1,600 boe/d for the first half of

the year (2021: 1,579 boe/d). Production volumes in the second half of the year

will be impacted by an unplanned compressor outage at Kakwa in the third quarter

as well as natural declines, partly offset by the planned conversion of our

royalty volumes to working interest volumes at Kakwa North.

We generated $12.2 million of adjusted funds flow from operations for the

quarter and $16.5 million year to date. As capital spending was limited in the

quarter, we recorded a working capital surplus of $10.6 million at the end of

the period. We anticipate this will grow with limited capital spending for the

remainder of this year.

Outlook

While the legal process in Quebec is likely to be protracted, we are committed

to seeing this through. It has been a 20-year investment to make a world class

discovery, engineer it to eliminate emissions almost entirely and secure social

acceptability. The Quebec Government's decision to seek a summary dismissal of

our case has only strengthened our resolve.

If prices remain strong and wells continue to have quick payouts, the operators

of our Kakwa joint ventures could resume drilling late in the fourth quarter.

For the remainder of this year, we plan to build up our cash reserves to fully

participate in these programs to grow our production.

Michael Binnion