President's Message

Quebec is holding public consultations on a hydroelectricity shortage in the
next two to three years. We are re-engaging with the Government on how our Clean
Gas could be part of the solution. Our scalable, shovel-ready project can help
mitigate the risks of curtailments and price spikes, all while retaining
Quebec's competitiveness in attracting new industries and helping meet their GHG
emissions reductions targets. The Government of Quebec also proposed a stay of
enforcement related to Bill 21. There is a hearing scheduled this October to
extend this stay.

Red Leaf also advanced both their technology and their permitted wax processing
facility in the Uintah Basin in Utah during the quarter. A pre-FEED study on the
facility was completed and includes a Class IV capex estimate as well as an
estimate to incorporate carbon capture directly in the design. Collaborating
with local Jordanian companies, Red Leaf also began the design for a scaled
version of their commercial production facility.

Highlights
o	Hearing to suspend revocation of licenses under Bill 21 in Quebec scheduled
for October 2023
o	Red Leaf completes pre-FEED study for wax processing facility in Uintah Basin,
Utah
o	Average daily production of 1,978 boe/d with adjusted funds flow from
operation of $5.3 million

In May, at a speech to the Montreal Chamber of Commerce, Minister Fitzgibbon
commented that Quebec's (hydroelectric) surpluses have 'melted like glaciers'
and that 'for the next ten years, it will be tight and choices will have to be
made. 'The state-owned utility, Hydro-Quebec, in its 2023-2032 Supply Plan
confirmed that surpluses will be depleted after 2026. It further notes it will
need more than 100 terawatt hours - more than half its annual generating
capacity - to reach the province's goal of being carbon neutral by 2050. 

The public hearings on clean energy development in Quebec are to assess possible
solutions including new wind turbines and additional dams which, as Minister
Fitzgibbon noted, 'can easily take 10-15 years'. The Government was focused on
energy conservation. In the meantime, residential and industrial consumers could
experience price spikes during peak demand periods. Demand would need to be
curtailed if additional electricity cannot be imported or alternatives such as
natural gas sourced, particularly in the event of a natural disaster or other
catastrophe.

Our Clean Gas discovery could help fill this gap, providing a standby source of
power during peak demand. As an example, an under-utilized gas power plant in
the Becancour area, adjacent to our lands, was used nearly 20 times during the
winter of 2021-2022 to meet power needs during peak periods. Clean Gas could
also provide power to support the growing energy needs of new industries like
battery manufacturers and is a more efficient and inexpensive source of heat for
industrial consumers. Moreover, when the market and infrastructure develop in
the future, it can produce zero-emissions hydrogen as well. 

It also has the potential to match the scale of large hydroelectric dams. We
estimate our multi-Tcf natural gas discovery could contain as much energy as
several decades of output from Churchill Falls, the second largest hydroelectric
dam in Canada. If the gas was used to generate electricity, it could produce as
much energy for 60 to 90 years.

As we ramp up our government relations efforts, we responded to the Government's
request for pilot projects to fight climate change. We recently presented our
application that was originally submitted nearly two years ago. The application
is to test the carbon storage potential of a sub-surface formation covered by
our licenses.

Concurrently, we are continuing to protect our legal rights. In June, the
Justice agreed to defer a ruling on the Attorney General's motion to dismiss our
claims until a hearing on the merits of our case next year. This deferred ruling
will follow the upcoming hearing this October related to suspending certain
elements of Bill 21 including the requirement to abandon wells, provide
proprietary data to the Government of Quebec and, most importantly, the
revocation of our licenses. We are also updating our damages report to assess
several scenarios including the value to the Government of Quebec if it
developed our discovery on its own.

We were pleased to see Red Leaf begin to engineer the design of a small-scale
commercial project for a group of local companies in Jordan. This would be the
first demonstration of this technology and among the first of its kind to
produce oil at scale and on a continuous basis. We look forward to working with
them and leveraging their local expertise that includes engineering design and
fabrication capability to reduce overall costs.

There remains strong interest by lubricant manufacturers in the base oil
feedstock from Red Leaf's proposed wax processing facility. In addition to
securing offtake agreements with these manufacturers and supply contracts from
producers, we also need to engage a qualified engineering firm to manage the
construction risks. While the business case remains robust, we are looking for a
strategic partner as this is a complex downstream market opportunity. This will
also be important to secure project financing. 

Operating & Financial

Production volumes averaged 1,978 boe/d for the quarter (2022: 1,909 boe/d) with
one (0.25 net) Kakwa well on-stream and 1,884 boe/d for the first half of the
year (2022: 1,600 boe/d). With a 30% reduction in realized prices, operating
netbacks reduced by 50% to $34 per boe compared to $76 per boe last year. This
contributed to adjusted funds flow from operations of $5.3 million for the
quarter (2022: $12.2 million) and $9.6 million year to date (2022: $16.5
million).

Net of capital expenditures of $2.5 million in the quarter (2022: $2.8 million),
our working capital surplus was $28 million at the end of the period including
$35.2 million in cash and equivalents. 

Outlook
A strong cash position and our undrawn credit facility are essential to fund
future drilling at both Kakwa joint ventures, subject, of course, to commodity
prices. We could see up to three (0.75 net) wells spud at Kakwa Central this
fall and up to three (1.5 net) at Kakwa North in late 2024 or early 2025. We
have also segregated $7 million of our available cash to fund abandonment
liabilities in Quebec. 

We are still working towards a business and political solution in Quebec. We are
hopeful that the Government engages with us on a path forward. But we are
mindful they could choose a different course, and sidestep our project, and risk
the impact to their economy. To this end, our legal claim allows us to keep all
options open towards realizing the ultimate value of our discovery.
 
Michael Binnion
President and Chief Executive Officer