President's Message

The challenges for the Quebec energy markets continue to evolve. 

Bill 69, requiring an integrated electricity and gas management plan, could
renew interest in natural gas as a transition fuel in Quebec. During the public
consultation process this quarter, we advocated for local natural gas production
as an essential part of the energy mix through the Quebec Energy Association.
With the technical review by the Quebec Ministry of Economy, Innovation and
Energy complete, our application for a carbon storage pilot is advancing through
the approval process. Carbon capture could contribute to meeting Quebec's
climate goals with the on-going consumption of natural gas. 

We also committed to developing our Kakwa North acreage this quarter. A three
(1.5 net) well program started in October. We expect them to be completed early
next year and on-stream by the second quarter. This follows the three (0.75 net)
well program on our Kakwa Central acreage this spring with the wells coming on
production late in the third quarter.

Highlights
o	Expert witness report filed for legal claim in Quebec
o	Three (1.5 net) well program approved at Kakwa North and three (0.75 net)
wells tied-in at Kakwa Central 
o	Average daily production of 1,913 boe per day with adjusted funds flow from
operations of $3.4 million

Utica, Quebec

The magnitude of the electricity energy shortage in Quebec and its impact on the
economy, including the costs to consumers in the province, was highlighted in
recent editorials in one of Canada's national newspapers.

With the anticipated supply shortfall in 2027, the Montreal Economic Institute
noted that the Government of Quebec rejected industrial development projects
requiring over 20,000 megawatts of power in the last year. The provincial
utility plans to add just under half of this demand or 9,000 megawatts through
an investment of over $150 billion in the next decade in hydro and wind power.
This represents a three-fold increase in annual investment at a cost of over
$17,000 per Quebec resident. 

In a separate editorial, Normand Mousseau, a director at the Trottier Energy
Institute in Quebec, noted that despite these planned additions, a failure to
renew the Churchill Falls supply agreement that provides nearly 15% of the
province's electricity supply could leave them in a deficit position again. He
added that although the province has capped increases in residential rates to
3%, it is 'untenable and can only lead to disturbances when rates will have to
catch up with reality.' He concludes, 'that will require a real public
discussion about the energy transition.' Concurrently, to meet their GHG targets
by 2035, a leading ENGO has called for energy sobriety to reduce demand, noting
that Quebecers are among the highest per capita consumers of energy globally. 

In our brief submitted to the parliamentary committee on Bill 69, we noted the
scale of our natural gas discovery, its potential role in addressing this energy
deficit and supplying the energy needed for new industries. Based on the
independent assessment of our resources, we estimate the natural gas could
generate electricity equivalent to several decades of output from Churchill
Falls, the second largest hydroelectric dam in Canada. 

With very competitive supply costs estimated by the Canadian Energy Research
Institute in a 2015 report, our natural gas could be brought on production much
sooner than the planned renewable projects including hydro and wind farms. In
the short-term, this local natural gas could immediately replace imported
natural gas that supplies the 550 MW Becancour co-gen power plant that provides
peaking power during the winter. 

Another benefit would include a contribution to reducing emissions. As we noted
previously, a 2010 estimate by the local gas distribution company, GazMetro, now
known as Energir, suggested that, on a business-as-usual basis, replacing
imported gas with local gas would reduce emissions by 440,000 tonnes of carbon
dioxide equivalent annually. Based on this estimate, the blockade of local
natural gas for over a decade could have materially increased Canadian
emissions.

Though we are hopeful the Government of Quebec sees these benefits and considers
local production as part of the energy mix, protecting our legal rights remains
a priority. As part of this process, we filed our independent report on our
potential economic losses in October. The report estimates the economic losses
to us if our licenses are successfully revoked under three different scenarios
with the estimates ranging between $700 million and $4,800 million. Please refer
to our press release of October 3, 2024. A copy of the report is available on
the disclosure system in Norway and on SEDAR+ in Canada.  

Red Leaf Resources Inc. 

Our investee, Red Leaf, continues to advance its proprietary technology to
produce oil from shale and its assets in the Uintah Basin in Utah.

In addition to engineering for a small demonstration project in the Kingdom of
Jordan, they are assessing the possibility for a similar project in the US with
a partner. Commissioning of its lab-scale pilot producing two barrels per day
was completed and a first test is scheduled before year-end. The growing demand
for high performance data centres and challenges accessing sufficient power is
also creating opportunities for their land in the basin. They are in the early
stages of validating access on these lands to all essential infrastructure,
including low-cost power at scale, for a possible data centre. 

Operating & Financial

The new wells at Kakwa contributed to higher production volumes in the quarter
over the last year. With no new wells in the first two quarters, year to date
production declined and averaged 1,712 boe per day compared to 1,866 boe per day
last year.

Lower commodity prices offset in part by lower operating expenses contributed to
adjusted funds flow from operations of $3.4 million in the quarter (2023: $3
million) and $10.9 million (2023: $12.6 million) year to date. After deducting
capital expenditures of $13.1 million year to date, the Company's working
capital surplus was $27.6 million at the end of the quarter. 

Outlook

The new wells at Kakwa North are expected to come on production in the second
quarter next year, contributing to a growth in volumes. 

Our legal claim for the illegal revocation of our licenses is one avenue to
realizing the value from our Quebec Utica discovery. Though the third-party
estimates are significant relative to our current market cap, in our view, they
are substantially lower than the economic potential of our discovery if we are
allowed to develop it. 

We are still pursuing a business and political solution. Requiring no government
funding, local natural gas is a cheaper, quicker and scalable solution to the
looming energy shortage in the province. Combined with our carbon storage pilot
it could help meet emissions reduction goals. In the absence of consuming the
gas locally, with access to tidewater, they could export this gas as demand for
LNG by both Europe and Asia grows.
 
Michael Binnion 
President and Chief Executive Officer