Annual 2022 :

Operating & Financial

With three (0.75 net) wells brought on production at Kakwa Central this year, our volumes increased over the last year. The higher volumes also reflect the conversion of the Kakwa North royalty interest into a working interest in the fourth quarter. Higher prices generated adjusted funds flow from operations of $26.3 million. Net of capital investment of $11.6 million in 2022, this resulted in a working capital surplus of $24.5 million. This surplus also includes the refund of $7.7 million in restricted cash from the Quebec Government. Pending a ruling on our claim to have Bill 21 declared invalid, we are segregating these funds internally as we are responsible for reclamation costs under the pre-existing regulations in Quebec.

We only participated in one (0.25 net) of the two (0.50 net) wells drilled by the operator at Kakwa Central this winter. The expected return on our capital for the second well was challenged by lower commodity prices, inflation in well costs and their proposed completion design that might not maximize recoveries. As a result, we expect our production will experience natural declines this year prior to the commencement of the Kakwa North drilling program of up to three (1.5 net) wells late this fall.

Outlook

With our current liquidity, we are well positioned to participate in the proposed drilling at Kakwa North. If the operator drills three (1.5 net) wells, we could see our production materially increase in the second half of next year by over 1,500 boe/d.

We have redoubled our efforts in Quebec. As we follow the legal process, we have met with several European countries on how our project can provide near-zero emissions natural gas delivered through a permitted LNG export facility in Quebec to improve their energy security. We have encouraged them to engage with the Quebec Government on a path forward. We have discussed with Government of Quebec and local business and other groups how our project could be a solution to their energy crisis. Though the timeline and outcome of these initiatives is far from certain, we remain committed to crystallizing value for our discovery. We have also made significant progress with our high impact projects in the Kingdom of Jordan and Utah. Our future is now less dependent on the Quebec Utica.

Highlights
• Strong financial position with a working capital surplus of close to $25 million and an unutilized credit facility of $16 million
• Conversion of royalty interest in Kakwa North farm-in wells add 700 boe/d in the fourth quarter
• Government of Quebec enacts Bill 21 to revoke oil and gas exploration licenses
• Before tax NPV-10% of total proved and probable reserves unchanged at $270 million even with a 10% decrease in volumes to 30 MMBoe
• Average daily production of 1,714 boe/d and adjusted funds flow from operations of $26.3 million

Outlook

With our current liquidity, we are well positioned to participate in the proposed drilling at Kakwa North. If the operator drills three (1.5 net) wells, we could see our production materially increase in the second half of next year by over 1,500 boe/d.

We have redoubled our efforts in Quebec. As we follow the legal process, we have met with several European countries on how our project can provide near-zero emissions natural gas delivered through a permitted LNG export facility in Quebec to improve their energy security. We have encouraged them to engage with the Quebec Government on a path forward. We have discussed with Government of Quebec and local business and other groups how our project could be a solution to their energy crisis. Though the timeline and outcome of these initiatives is far from certain, we remain committed to crystallizing value for our discovery. We have also made significant progress with our high impact projects in the Kingdom of Jordan and Utah. Our future is now less dependent on the Quebec Utica.

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