QEC: Questerre 2Q 2026 Report including Financial Statements & MD&A

President's Message 

This quarter, we advanced the three core assets in our portfolio.

The successful HCCOTM test in Brazil is a major proof point for our oil shale
refining technology. In May, we demonstrated the homogeneous charge of
low-temperature oxygen in our working gas using a commercial-scale vessel. An
extended test is the next step to establish the commercial parameters required
to implement our HCCO process in the existing Petrosix refinery. We expect the
process could materially reduce internal fuel usage, which currently represents
nearly 15% of our production.

In June, our preferred shares, representing defined economic rights linked to
our Quebec assets under either a settlement or development scenario, were listed
on Euronext Growth in Oslo under the ticker QGAS. Depending on the outcome,
these rights provide shareholders with 95% of the net proceeds from a settlement
or a 50% carried interest in the future development of our Utica discovery.
Shortly after the shares started trading, as noted below, the Quebec government
formally recognized the strategic importance of natural gas. This supports our
efforts to work with government and industry toward a commercial solution for
developing the discovery.

We also completed the sale of our minority working interest at Kakwa Central.
Consideration for the assets, which were producing approximately 650 boe per
day, was $23.5 million in cash and the assumption of associated reclamation
obligations. The proceeds will primarily fund future development at Kakwa North
and the expansion of our operated assets in Saskatchewan.

Highlights
o	Successful HCCO test using a commercial-scale vessel at the PX Energy facility
o	Preferred shares listed for trading on Euronext Growth under the ticker QGAS
o	Sale of the Kakwa Central assets for $23.5 million in cash
o	Like for like average production increased in the second quarter to 5,700 boe
per day from 5,530 boe per day last quarter (overall production reduced from
6,180 boe per day following the Kakwa disposition of 650 boe per day) 
o	Adjusted funds flow from operations of $18.3 million, including $6.9 million
related to deferred sales revenue, compared to net cash from operating
activities of $9.4 million
o	Working capital deficit reduced to $19.1 million at June 30, 2026 from $49.6
million at March 31, 2026 including cash and cash equivalents of $44.2 million

Oil Shale

The successful HCCO test advances both our long-term technology strategy and our
efforts to improve the near-term profitability of PX Energy.

Low-temperature oxygen is key to the patented Homogeneous Charged Continuous
Oxidation or HCCO process. Conventional processes, including the one currently
used by PX Energy, generate heat externally to the main processing vessel, known
as a retort. HCCO instead generates heat internally as injected oxygen reacts
with residual carbon on the spent shale and with lighter hydrocarbons.

This eliminates the need for external heat-generation facilities, reducing
capital costs by an estimated 40% per barrel. It also create a pure stream of
carbon dioxide that can potentially be used for sequestration or enhanced oil
recovery.

This was the first demonstration in a commercial-scale vessel measuring more
than 10 metres in diameter and 30 metres tall. The largest previous test was
conducted in a vessel measuring less than one metre in diameter and four metres
tall. Supported by Red Leaf Resources, our team in Brazil designed, implemented
and safely completed the test in less than two months. Over a two-week period,
we precisely controlled the rate of oxidation, experienced no runaway
temperatures and achieved even, homogeneous heat distribution without hot spots.

We believe this test will improve the Technology Readiness Level of the HCCO
process from 4 to 6 on a scale where 9 represents ready for commercial use. We
are incorporating the results into the design of a commercial-scale HCCO test.

Our next step is an extended test with continuous oxygen injection to establish
commercial operating parameters and determine how much internal fuel consumption
can be reduced. We estimate the reduction could be as high as 15% of existing
usage, split approximately equally between fuel oil and gas.

Another priority for the team has been restoring the efficiency of the existing
retort. Retort efficiency declined during the current quarter to just over 75%
from a historical level of approximately 90%. The decline reflects
agglomeration, or a buildup of shale on the vessel walls, following an improper
restart after scheduled maintenance. This remedial maintenance work is underway
during the shutdown.

Higher oil prices, while increasing revenue, have also made it more difficult
for some customers to meet their minimum volume commitments under our
take-or-pay contracts, as cheaper, lower-quality fuel oil has competed for
market share in southern Brazil. We continue to collect cash for shortfall
volumes but have incurred additional transportation and storage costs as a
result. We are working with the affected customer to recover these costs and
help them meet their contractual commitments, although arbitration may
ultimately be required to resolve the issue. Of note our customers met 100% of
their minimum contract volumes in the month of July as oil prices fell from
their highs in April and winter demand increases. 

Quebec

The Government of Quebec has formally acknowledged that natural gas will remain
important to the province's energy needs through 2050.

As Hydro-Québec rations electricity allocations for major industrial users, the
Quebec Integrated Energy Resource Management Plan 2026-2050 - Our Plan for
Quebec's Energy Future, or "PGIRE," confirms that electricity alone cannot meet
Quebec's growing energy demand. Released in early July, the PGIRE states that
natural gas will remain part of Quebec's energy mix and play a strategic role as
the province gradually decarbonizes its energy system.(1)

The PGIRE also notes that Énergir, the provincial natural gas distribution
company, sources its supply almost entirely from Canadian producers under
existing contracts. Physically, however, close to half of the gas consumed in
Quebec originates in the United States, reflecting the flow of supply from
Western Canada and the United States through Ontario and into Quebec.

Our Utica discovery remains a shovel-ready solution to Quebec's emerging energy
challenges. It is positioned to provide reliable energy for baseload industrial
demand and peak winter heating while relieving pressure on the electricity grid.
It could also reduce Quebec's reliance on imported natural gas and high-cost
renewable natural gas while supporting economic growth. Designed with a
low-emissions footprint, locally produced natural gas from the Utica could
reduce greenhouse gas emissions compared with imported natural gas at a cost of
less than one-third to one-fifth that of imported renewable natural gas(2).

We look forward to resuming discussions with the Government of Quebec following
the provincial election this October.

We are also proactively advancing our legal action to protect shareholder
rights. At a case management hearing in May, we pushed for an expedited path to
a trial on the merits of our case and the quantum of economic damages. The Court
established deadlines for the next pre-trial motions, which should allow a
hearing date to be scheduled next year.

Operating and Financial

Production averaged 5,700 boe per day in the second quarter, compared to 6,180
boe per day in the first quarter with the disposition completed in May. This
reflects the lower volumes from Canada following the Kakwa Central disposition,
partly offset by a modest increase in production from Brazil.

Higher oil prices contributed to revenue increasing to $50 million for the
quarter and $93 million year to date.
Operating costs in Brazil were approximately $3 million higher than in the
previous quarter. This includes $2 million for additional energy costs and an
additional $1 million was incurred for increased purchases of waste oil as
feedstock to supplement our production due to the lower efficiency of the retort
in the quarter. Costs were also incurred for the transportation and storage of
under-lifted oil volumes under our sales contracts. 

The net finance income for the quarter was $5.9 million and year to date was an
expense of $4.6 million. Most of these amounts are non-cash and relate to
interest expense and changes in the embedded derivative of the secured bonds
that are ring-fenced to PX Energy and its assets. Our cash interest expense in
the quarter was $8.5 million including $5 million in accrued interest on the
bonds. Interest expense on the bonds in 2026 is added to the principal and not
payable in cash until next year. We have the option to continue to add interest
to principal in 2027 if oil prices fall below US$65 per barrel. 

We reported net income of $27.8 million for the quarter, including a $17.5
million gain on the Kakwa Central disposition. Year-to-date net income was $10.0
million, including a first-quarter loss of $17.8 million. Adjusted funds flow
from operations was $18.3 million for the quarter and included $6.9 million
related to minimum sales contracts. Year to date, our adjusted funds flow from
operations was $39.1 million and included $13.7 million related to minimum sales
contracts.

Our working capital deficit at the end of the quarter was $19.1 million,
compared with $49.6 million at the end of the first quarter. In addition, the
long term debt on our balance sheet is solely the PX Energy secured bonds. These
bonds mature in April 2028, and we can extend it until April 2030 for an
additional fee.

Outlook

Improving the profitability of PX Energy remains our near-term priority.

The current maintenance will restore plant operations and should increase our
production volumes by over 10%. We expect to be fully operational by the end of
August, or three to four weeks since the shutdown. During this time, we are
managing our oil inventory to satisfy current sales and our contractual
commitments. 

We are on track to realize $11 million in cost savings this year and are
targeting a further  $11 million through a second round of cost reductions. On
the revenue side, our goal is to diversify our market exposure. Potential new
markets include marine fuel supply, which may be better suited to the
characteristics of our product. These and other initiatives are intended to
build a $10 million reserve to fund the scheduled plant turnaround next spring
that will take about a month to complete. 

The successful HCCO test advances both our efforts to improve the near-term
profitability of PX Energy and our long-term technology strategy. This
technology is key to unlocking the significant oil shale resources under our
licenses but we must remain profitable in the interim.

The proceeds from the Kakwa Central disposition will support the future
development of Kakwa North and the expansion of our operated assets in
Saskatchewan.

The release of Quebec's long term energy plan marked an important turning point.
The discussion is no longer whether natural gas has a role in Quebec's future,
but where that gas should come from. Polling conducted by the Quebec Energy
Association confirms that Quebecers prefer locally produced natural gas to
imports when it is developed using best production practices. We believe our
Utica discovery represents the best opportunity to provide that supply while
strengthening Quebec's economy, improving energy security and supporting
lower-emission development.
 
Michael Binnion 
President and Chief Executive Officer


Forward Looking Advisory
Please refer to the section Forward Looking Statements in the Management
Discussion and Analysis regarding the forward-looking information provided in
this President's Message.

Footnotes:
(1)	https://www.quebec.ca/gouvernement/ministeres-organismes/economie/publicatio
ns/plan-ressources-energetiques
(2)	https://energir.com/en/business/customer-centre/billing-and-pricing/pricing
he forward-looking information provided in\
this President's Message.\
\
Footnotes:\
(1)	https://www.quebec.ca/gouvernement/ministeres-organismes/economie/publicatio\
ns/plan-ressources-energetiques\
(2)	https://energir.com/en/business/customer-centre/billing-and-pricing/pricing\