QEC: Q2 2022 MD&A and Financial Results

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
President and Chief Executive Officer

(1)	Refer to Non-GAAP Measures disclosures included in the Management's
Discussion and Analysis