President's Message

Three wells at Kakwa North were completed this quarter. Including flush volumes,
our daily production has averaged over 3,500 boe per day since the tie-in in
early April(1). We plan to participate in a follow-up three (1.5 net) well
program that could begin this fall.

Securing energy supplies and diversifying markets is a priority in Canada
following the seismic shift in US trade policy. This is especially true in
Quebec where imports account for nearly half their total energy demand(2). There
is a growing consensus in the province that energy infrastructure, including
pipelines and LNG export facilities, should be revisited. Our discovery could
provide a secure supply of natural gas and help solve their existing electrical
energy shortage while reducing Canadian and global emissions. 

We are following the legal process to protect our shareholders' rights. At a
recent hearing, the Justice approved our request to interview several key
Government representatives including current and former ministers. The Attorney
General is requesting leave to appeal this decision. 

In January, Red Leaf completed a larger-scale lab test of its process, producing
just over one barrel of oil per day. This technical validation will revise the
design and goals for the small-scale commercial project. As a result, the
recently appointed special committee of the Red Leaf Board has recommended
discontinuing the letter of intent with a potential partner in Jordan to allow
for an update of the project design.

Highlights

o	Kakwa North wells completed in the quarter and on production in early April
bringing production to
        over 3,500 boe per day
o	Red Leaf completes larger-scale pilot demonstration of technology 
o	Average daily production of 1,729 boe per day and net cash flow from operating
activities of $3.4 million 
        and adjusted funds flow from operations of $3.5 million

Quebec

In response to the tariffs put forward by the US administration, the Federal
government and provinces agreed on the importance of a national trade and energy
corridor(3). At a meeting of provincial premiers and the Prime Minister in
March, when asked specifically about oil and gas pipelines, the Premier of
Quebec noted 'We're open to these kind of projects' though social acceptability
is still required(4). More recently, leadership candidates for the Quebec
Liberal party also noted their openness to oil and gas projects to boost
Canada's energy independence(5). 

While local production was not yet mentioned, the Government of Quebec is now
looking to natural gas to alleviate the near-term electricity shortage. The
provincial utility is assessing the conversion of an existing combined cycle
natural gas power plant to provide power during peak demand periods. This plant
requires 150 MMcf/d of natural gas or nearly one quarter of current winter
consumption in Quebec.

During the winter, demand for power generally peaks with demand for natural gas.
With limited pipeline capacity, imports required for this plant would increase
the pressure on a system that already often curtails supply for customers on
interruptible service. In discussions with the plant operator, we have
highlighted that our local gas, less than ten kilometres away from their
facility, would eliminate the transportation bottleneck, be more reliable, less
expensive and reduce overall global emissions.

The legal process in Quebec has been slow but steady. The Attorney General is
preparing their expert witness report to be produced this fall. Subject to the
possible leave to appeal, our preliminary questioning of key Government
representatives has been ordered by the Court and is to take place this
September and October. To this end, we expect the collaboration of the Attorney
General to respond to our pre-examination requests during the summer. 

Operating & Financial

Production for the quarter averaged over 1,700 boe per day, about 10% lower than
the prior quarter and up slightly from the same period last year. Higher oil and
liquids prices contributed to cash flow from operations of $3.4 million and
adjusted funds flow from operations of $3.5 million for the first quarter
compared to $2.6 million and $3 million respectively last year.
 
Our capital expenditures for the quarter totalled nearly $18 million, mainly
representing the remaining drilling and completion costs for our new Kakwa North
wells. This was funded by our existing working capital. We ended the quarter
with a surplus of $9.2 million and our credit facility remaining undrawn. 

Outlook

We look forward to the next drilling program at Kakwa North, assuming the wells
continue to meet expectations and oil prices do not deteriorate further.
Sustaining existing production volumes will require additional drilling given
the high initial declines from these wells.
Although Bill 21 was introduced nearly three years ago we remain hopeful for a
business and political solution. Our goal for this year is to improve energy
literacy in Quebec and how our project can meet their energy security needs. We
are also firmly following the timelines for our legal claim with the goal of
establishing a trial date for the main case next year.
 
Michael Binnion 
President and Chief Executive Officer

1.	Consisting of 8.4 MMcf/d of natural gas and 2,129 bbls/d of condensate and
estimated natural gas liquids
2.	https://www.canadianenergycentre.ca/big-vulnerability-how-ontario-and-quebec-
became-reliant-on-u-s-oil-and-gas/
3.	https://tj.news/new-brunswick/feds-provinces-agree-to-create-national-trade-a
nd-energy-corridor
4.	https://www.theglobeandmail.com/politics/article-quebec-premier-says-opinion-
is-shifting-in-province-on-oil-and-gas/
5.	https://boereport.com/2025/05/03/quebec-liberal-leadership-hopefuls-say-theyr
e-open-to-fossil-fuel-projects/