President's Message

Our production averaged over 3,000 boe per day in the quarter after the tie-in
of the three (1.5 net) Kakwa North wells. We are assessing both owned and
third-party processing capacity for these existing volumes and future growth. A
follow-up drilling program is now scheduled for the second half of next year.

Interest is growing in our natural gas discovery as a secure and reliable supply
in Quebec, particularly among industrial gas users. It is also being considered
as the supply for the 550 MW Becancour thermal power plant as it may be
converted to produce power for peak demand periods. As we work towards a
business solution, we are also following the legal process to protect our
shareholders' rights. We recently filed an application for leave to appeal a
decision by the Quebec Court of Appeal to reinstate certain provisions of Bill
21 prior to our hearing on the merits of the case.

In July, we announced an agreement to acquire PX Energy, a Brazil-based oil
shale and refining company. This acquisition brings valuable operating expertise
to advance our oil shale assets including our resources in Jordan and our
investment in Red Leaf. We plan to spin out our Quebec assets into a new vehicle
so it stays unaffected by this transaction.

Highlights
o Kakwa North wells tied-in and on production
o Questerre filed leave to appeal to the Supreme Court of Canada following
Quebec Court of Appeal ruling on Bill 21
o Average daily production of 3,091 boe per day for the quarter, almost doubling
production from the same period last year
o Net cash from operating activities of $6.3 million and adjusted funds flow
from operations of $5 million despite significantly lower realized prices

Quebec

Positioning our discovery as a cost-effective and near-term solution for the
province's energy needs is slowly gaining traction. At a meeting of industrial
gas users in May, there was interest in using local gas to mitigate the reliance
on imports and reduce transportation costs. We believe it is for these same
reasons that the operator of the Becancour power plant is considering us as a
supplier of natural gas. Our test wells are less than 10 kilometres away from
their facility and could be brought on production in under one year.

The Government of Quebec recently adopted Bill 69 under closure. This bill
requires a long-term inventory of energy sources and demands be analyzed. We
have asserted that local natural gas should be included as part of the inventory
of energy supply available in Quebec to meet its future energy needs.

We continued to follow the process to protect our shareholders' rights. During
the quarter we applied to the Supreme Court of Canada for leave to appeal a
recent decision by the Quebec Court of Appeal on our file. This
decision reinstated key provisions of Bill 21 including the requirement to
abandon wells. We also continued to advance our main case on the constitutional
validity of Bill 21. The Superior Court recently approved our request to
question key Government witnesses this fall in advance of setting a date for the
trial.

PX Energy

Our proposed acquisition of PX Energy could bring us closer to commercializing
our oil shale assets. Over 30 years, PX Energy has developed extensive
experience with oil shale mining, production and refining operations and
produced over 4,500 boe per day in the first quarter. Plans to grow production
to over 6,000 boe per day are in place pending capital investment. PX also
offers an ideal location to pilot the Red Leaf technology with existing mining
operations, utilities and other services necessary for a large scale
demonstration facility. Closing of this transaction is subject to, among other
things, the restructuring of outstanding debt of US$80 million in bonds and US$8
million in convertible notes.

Operating & Financial

Production for the quarter nearly doubled over last year and averaged 3,091 boe
per day. Year to date, production averaged 2,412 boe per day this year compared
to 1,612 boe per day last year.
The impact of the higher production volumes on revenue was largely offset by the
lower oil and liquids prices this year. Higher royalties and other expenses
contributed to cash flow from operations of $6.3 million in the quarter (2024:
$3.1 million) and adjusted funds flow from operations of $5.0 million (2024:
$4.5 million).
Year to date capital spending totalled $18.9 million and mainly reflected the
costs associated with the new wells at Kakwa. This was funded entirely by
existing working capital. At the end of the quarter, the Company had a working
capital surplus of $13.2 million and no drawdowns under its credit facility.

Outlook

We are still committed to a business and political solution in Quebec. To this
end, we are ramping up our efforts to promote the benefits of our project to the
province and to consumers. At the same time, we are working diligently to
protect our shareholders' rights. Following the questioning of Government
witnesses this fall, we expect a trial date to be set for next year.

Michael Binnion
President and Chief Executive Officer