President's Message

As we advance our high-impact projects, we are growing our conventional assets.

Three (0.75 net) wells were completed at Kakwa Central this quarter and should
be on production late August. A new completion design and improved water
handling lowered costs by 20% over last year to about $14 million per well.
Using a similar approach, the operator at Kakwa North plans to drill three (1.5
net) wells this fall. We will review the final programs to assess our
participation. If successful, these wells could materially grow our production
next year.

Our carbon storage pilot application in Quebec is well advanced. A program to
find government funding for this project is underway. In what could be a
positive development, the Government of Quebec tabled Bill 69 on the responsible
governance of energy resources in response to the impending electric energy
shortfall. It requires an integrated plan for managing both electricity and
natural gas supply in the province. The added natural gas supply requirement
appears very positive and demonstrates a recognition of the long-term need for
natural gas supply in Quebec.

The Government of Quebec enacted Bill 21 shortly before the last election. Yet
just under two years later, the energy situation has renewed interest in natural
gas. At a Montreal Board of Trade event this May, the Minister of Economy,
Innovation and Energy was clear that hydroelectricity alone will not decarbonize
the province and noted the need for other energy sources including natural gas
and nuclear. On the subject of natural gas, he added, "We currently consume, in
Quebec, the equivalent of 7,000 megawatts of natural gas. To think that there
will be no more natural gas tomorrow morning, that will not happen." This
follows comments earlier this year where he noted that, while natural gas has
environmental concerns, Quebec has large resources of natural gas.

Our application for a carbon storage pilot seeks to address these concerns,
largely related to emissions. In the bigger picture, carbon storage can be
integral to the province meeting its climate targets and helping us advance our
plans for a low-emissions industrial park. Our next step is to assess available
federal and provincial funding programs with the goal of securing approval for
our pilot later this year.

In tandem with pursuing a business and political solution, we continue to
protect our legal position. Examination of Government representatives will be
scheduled this year before setting a trial date for the hearing on the merits of
our case. Our next court hearing is scheduled for October to hear the appeal by
the Attorney General of the Superior Court's ruling on suspending key elements
of Bill 21.

Another goal for this year is to help our investee, Red Leaf, find a partner to
fund a field demonstration project for their technology to produce oil from
shale. A leading prospect is a group of Jordanian companies that are in the
steel fabrication business. 

The design for this project will be based on a new lab pilot. This lab pilot
will produce about two barrels of oil per day on a batch basis and demonstrate
the technology design in a small scale operation. Red Leaf is also building a
prototype to assess how their core technology can be applied to the much larger
market for industrial heat applications. 

Operating & Financial

Natural declines contributed to lower production volumes this year compared to
last year when we tied-in one (0.25 net) well. Production averaged 1,559 boe per
day in the second quarter of 2024 compared to 1,978 boe per day in the second
quarter of 2023. Year to date, production was 1,612 boe per day for 2024
compared to 1,884 boe per day in the first half of 2023. Based on our reserve
report on a total proved basis, the three new wells are anticipated to add 500
net boe per day over the first year.

Reduced revenue from lower production volumes partly offset by a crown royalty
credit contributed to adjusted funds flow from operations of $4.5 million for
the quarter and $7.4 million for the first half of the year. Net of capital
spent to drill and complete the three (0.75 net) wells, our working capital
surplus reduced from $30 million last quarter to $27.6 million. 

Outlook

We are looking forward to the new wells at Kakwa North. This area accounts for
over three quarters of our proved and probable reserves as of last year end. The
cash we built up over the last two years will fund the program this year and
retain our financial flexibility to fund future programs. Another three to five
well program could follow in 2025 based on this year's wells.

Significant financial assistance from the provincial and federal government will
be necessary to advance our pilot project in Quebec. It presents a real-world
and cost-effective opportunity to prove the province's carbon storage potential
and how natural gas, including our discovery, could be a permanent part of their
energy supply.
 
Michael Binnion 
President and Chief Executive Officer