Calima Energy : June 2022 Quarterly Activities and Cashflow

28 July 2022

June 22 Quarterly Activities & Cash Flow Report

ASX Code: CE1 OTCQB: CLEMF

Calima Energy Limited (ASX: CE1) ("Calima" or "the Company") is a Canadian production- focused energy company developing its oil plays at Brooks and Thorsby in southern and central Alberta and a significant undeveloped Montney acreage position at Tommy Lakes in NE British Columbia. Calima is dedicated to responsible corporate practices, and places high value on adhering to strong Environmental, Social and Governance ("ESG") principles.

Directors

Jordan Kevol (Managing Director)

Glenn Whiddon (Executive Chairman)

Mark Freeman (Finance Director)

Karl DeMong (NED)

P.L. Tetley (NED)

Capital Structure

		ASX Code					CE1
		Share Price					16 cents
		Shares					612 million
		Market Cap					A$98 million
		Options
		0.20c exp 30/4/2024					2.5 million
		0.20c exp 30/4/2026					13.8 million
		Performance S/h					28.5 million
	Realised Energy Prices		Avg Q2		Current
		WTI (US$)
			$96.24		$95.88
		WCS (A$)		$133.67		$117.21
		AECO A$/GJ		$8.49		$6.58

HIGHLIGHTS

	Q1 22	Q2 2022	%
Production (boe)	356,058	349,403	(1.9)
Average Daily Production	3,870	3,839	(3.1)
Revenue (A$)	$30,952,639	$37,013,000	19.6
Adjusted EBTDA	$17,941,377	$22,622,325	26.5
Hedge Losses	$4,985,975	$8,496,415	70.4
Capital Expenditure	$16,536,834	$10,409,423	(36.8)
Free Cash Flow	($3,571,472)	$3,716,486	205.1

Q2 22 Exploration and Development Update:

Q2 2022 quarter produced the highest quarterly production and revenue with >A$37 million gross revenue reflecting an increase by 20% and Adjusted EBTDA up by 26.5% (excluding hedge losses) as compared to the Q1 22 quarter. Q3 drilling costs of $10.5 million were brought forward due to rig and service availability resulting in net cash inflows totalling A$3.7 million. The Company forecasted Q2 production of 4,100 boe/d. Due to unseasonal rain, coil tubing sand clean outs on Leo #1 and Leo #2 caused by downhole sand build‐up and facilities downtime (scheduled 3rd party gas processing turn‐around and an unscheduled replacement of the main compressor at the 2‐29 oil battery) production was below guidance at 3,839 boe/d. With the recent drilling, production is forecasted for Q3 to average approximately 4,150 boe/d.

• Gemini Sunburst Program - Geminin #8 and #9 wells were drilled in June and placed on production in July. Current production is ~185 boe/d.
• Pisces Glauconitic Program - Pisces #4 and #5 wells were drilled and are currently awaiting fracture stimulation. Production expected late August 2022 post clean up.
• Leo Sparky program - Leo #4 well was drilled in January and successfully frac'd and is on an extended production test with the well currently cleaning up.
• Brooks field interconnect pipeline - The 19km pipeline has been operating as expected with costs savings offsetting loan repayments. This pipeline has reduced tie‐in and operating costs on the Gemini (#5, #6, #7, & #8) and Pisces (#3 and #4) programs along with ongoing economic benefits for all wells connected and future wells to be drilled.
• Waterflood Expansion J2J Pool - The waterflood pool continues to show encouraging results as the pool is re‐pressured. Oil production stabilised in H1 and has since increased by ~55 boe/d to ~210 boe/d. The waterflood is a source of stable long term cash flow expected to enhance oil production and recovery as the field continues to re‐ pressurise.

Corporate:

• Distributions - the A$2.5m capital return to shareholders will be paid prior to 30 September 2022.
• Share Buy‐Back - as at 28 July 2022, a total of 4,551,221 shares have been bought back at an average price of $0.1679 each.
• C$27 million credit facility was renewed and varied for shareholder capital returns.

1. The Company had ZERO drawn on the facility as at June 30, 2022

Calima Energy Ltd ABN: 17 117 227 086
Suite 4, 246-250 Railway Parade, West Leederville WA 6007: [phone]
Fax: + 61 8 6500 3275 Email: [e-mail] www.calimaenergy.com	FOLLOW US

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KEY PERFORMANCE METRICS AND OUTLOOK

Quarterly Zoom Webinar - Upcoming conference call timing: Investor Call ‐ 29th July @ 9:00 am (AWST), 11:00 am (AEST) - Register here ‐ https://bit.ly/3Jarfmy

Calima's Board plans to have a finalized Q4 capex budget in the coming weeks but in the interim the below numbers are illustrative of a 4 well drilling program in Brooks. The following table summarises the Company's current outlook for H2 2022 and includes the recently drilled Gemini and Pisces wells and the Leo #4 well.

		Actual	Actual	Projected	Total
		Q1 22	Q2 22	H2	2022
	Production Sales
	Oil (bbl)	249,514	228,054	494,545	972,113
	Natural gas (Mcf)	603,173	685,800	1,602,541	2,891,514
	Natural gas liquids (bbl)	6,016	7,049	14,452	27,517
	Sales volumes (gross boe)	356,058	349,403	776,087	1,481,549
	Sales volumes (boe/d)	3,963	3,839	4,218	4,059
	Liquids percentage	72%	67%	66%	68%
Financial (A$ million)
	Sales Revenue	$30.9	$37.0	68.3	136.3
	Royalties	(5.6)	(7.1)	(12.9)	(25.7)
	Operating Costs	(6.3)	(5.4)	(12.3)	(23.9)
	G&A and Interest	(1.1)	(1.8)	(5.1)	(8.1)
	Adjusted EBTDA	17.9	22.6	37.9	78.6
	Hedge Losses	(5.0)	(8.5)	(5.2)	(18.7)
	Cash Flow from Operations	12.9	14.1	32.7	59.8
	Capital Expenditure	(16.5)	(10.4)	(17.9)	(44.9)
	Free Cash Flow	(3.6)	3.7	14.7	14.9
	Free Cash Flow without Hedge Losses	1.4	12.2	20.0	33.6
	Buy Back/Capital Distribution	‐	(0.5)	(5.0)	(5.5)
	Commodity/FX prices
	Oil (A$/bbl)	108.54	133.67	110.36	115.41
	Natural gas (A$/Mcf)	5.56	8.49	7.89	7.55
	Natural gas liquids (A$/bbl)	77.27	100.12	80.12	84.65
	AUD / CAD	0.92	91.25	0.89	0.90

Notes to financial forecast

1. Calima is funding development from production revenue and periodic drawdowns from the revolving credit facility
2. Non recuring hedging losses for 2022 are projected at A$19.9 million. All current swap hedges expire by December 31, 2022.
3. Capital expenditure for the H2 2022 includes an additional 2 Sunburst wells and 2 Glauconitic wells, additionally capital costs for
   2022 included non‐recurring items:
4. 1. Brooks 19km Pipeline which cost ~A$4.2 million
   2. Additional capital expenditure in Q1 incurred as part of the ramp‐up of production.
5. The Company expects sustaining capital expenditure (the amount necessary to maintain production) at $A25‐$35 million per annum.
6. Based on production revenue being maintained for the calendar year of 2023 the Company anticipates that Free Cash Flow will be ~$45‐50 million after sustaining capital costs are accounted for.
7. Projected Free Cash Flow in H2 assumes an average oil price received of A$110.36/bo (equates to US$95 WTI minus differential of ~C$27.77 to WCS) with average royalty rates of 19%, and operating costs and G&A assumptions based off historical financial performance.
8. Calima has tax losses of ~C$177 million that can be offset against Brooks and Thorsby taxable revenue, accordingly taxes have not been reflected in the above analysis.

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Quarterly Production and Adjusted EBTDA

		EBTDA ($'000)			Daily Prod. (boe/d)
							22,622	19,282
				17,951			18,694
	8,158	8,909
3,446	3,290	3,202		3,963	3,839	4,152	4,283
1,982
Q2 2021	Q3 2021	Q4 2021	Q1 2022	Q2 2022	Q3 2022	Q4 2022

EXPLORATION AND DEVELOPMENT UPDATE

The Company is currently in the final stages of a 5 (net 4) well campaign. The following table summarizes the results of the Company's current drilling program:

	Well name	Working	Target	Spud	Drill	Lateral	On	Cum.	Status
2022		Interest	formation	Date	days	length (m)	Production	Production
Brooks	Pisces #4	100%	Glauconitic	22/6	9	1,750	~mid August	n/a		Drilled awaiting Frac
Brooks	Pisces #5	50%	Glauconitic	2/7	6	1,420	~mid August	n/a		Drilled awaiting Fra	c
Brooks	Gemini #8	100%	Sunburst	1/6	10	670	July	n/a		Producing
Brooks	Gemini #9	100%	Sunburst	12/6	10	529	July	n/a		Producing
Thorsby	Leo #4	50%	Sparky	19/1	11	2,473	late July	n/a		Production testing
										underway

* Vertical well

• 2 Well Gemini Program - Gemini #8 and #9 were drilled, completed and placed on production in July 22 with the wells currently averaging production of 185 boe/d. Sunburst wells are considered true conventional wells, as they do not require fracture stimulation to produce. Gemini #8 and #9 were drilled, completed and tied in for a total of C$3.2 million. Both wells were on lease tie‐in's and Gemini #8 tied into the Company's new pipeline completed in March 2022. Based on current production, type‐curve results at current commodity prices, these wells are expected to pay out in ~12 months and have a reserve life of >10 years.
• 2 well Pisces Program ‐ Pisces #4 and #5 were drilled in June and July. These wells are Glauconitic Formation wells. Both wells are currently being fracture stimulated and expected to commence flowback production mid August 2022 and Pisces #4 tied into the Company's new pipeline completed in March 2022:
• • Pisces #4 (100% WI) was a follow‐up to one of the best performing Glauconitic wells that Blackspur drilled (15‐ 36 well; drilled 2018). 15‐36 commenced production in September 2018 with an IP30 of 507 bopd and has produced 130,000 bbls of oil to date.
  • Pisces #5 (50% WI) is a follow up to a well drilled by Blackspur in 2014 (04‐05 well). The 04‐05 well was an early generation Glauconitic, fracture stimulated well with an IP30 of 213 bopd and has produced 85,000 barrels of oil to date. Due to technology advancements with respect to horizontal multi‐stage fracturing and a higher number of planned frac stages compared to the 04‐05 well, Calima expects Pisces #5 to outperform.
• Leo #4 - The Leo #4 is a step‐out oil well that was drilled at Holborn (North Thorsby) in January 2022 and stimulated in the 2nd quarter. The well was drilled into the Sparky Formation and outfitted with a 52 stage frac liner. The well is currently undergoing an extended production test with initial production results pending.
• Waterflood Expansion J2J Pool - The J2J Sunburst pool was discovered in 2003 and developed using vertical wells with horizontal drilling introduced by Blackspur in 2014. Recent efforts to inject water into the field as a method of secondary enhanced oil recovery (EOR) has started and is seeing encouraging results with production increases and re‐pressuring of the field underway. A conversion of a standing well to a water injector was completed in the quarter and the field pressures are showing signs of increasing. The 1P reserves in the J2J pool are ~2 Mmboe with corporate expectations that production profiles will begin to increase over time. Third party modeling based on reservoir parameters indicate the pool has the potential to generate a 2‐3 fold production increase over the next 24‐36 months, to date we have seen an increase of approximately 55 boe/d to 210 boe/d currently. Calima continues to monitor performance closely with planned future capital including additional water sources and injectors followed by new producers. The next stage of development is planned for Q4 pending ongoing monitoring and success.

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Montney Maximisation Initiatives

The Company continues its search for a methodology to unlock value in its large‐scale gas Montney resource play in Northeast British Columbia (NEBC). Discussions have been ongoing with various parties in Canada, Australia, and UK. These parties have all expressed interest in various combinations of farm‐ins, joint ventures, and outright sales of the project. With continued strong natural gas prices across the globe, the large‐scale nature of Calima's Montney resource continues to garner interest from third parties. Calima is committed to finding a way to create value for shareholders with respect to the Montney, and due to the long tenure related to the remaining acreage (expiry 2029), the Company will be patient to find a deal that is appropriate. With Canada's first LNG terminal on schedule to export LNG from the West Coast of British Columbia in 2025, Calima is well positioned having such a large resource of natural gas reserves in the jurisdiction that will eventually supply the LNG Canada terminal.

HEDGING

As previously announced, the Company's swap hedge book expires 31 December 2022. A summary of the Swap hedges for

Q3 and Q4 are as follows:

	C$ WTI		C$ WCS/WTI	C$ AECO	Hedge Loss
	Swaps		Differential Swaps	Swaps	@ Market(1)
Term(1)	bbl/d		C$/bbl	bbl/d		C$/bbl	Gj/d	C$/Gj	C$ million
Q3	1,163	$	90.76	1,264	$	(18.22)	2,427	2.87	$3.6
Q4	665	$	93.27	665	$	(17.93)	1,022	3.55	$1.5

1. Based on WTI US$100, WCS/WTI diff C$19 and AECO C$5

The Company has recently implemented a revised hedging policy that provides both exposure to upside and protection from downside oil price movements in the form of a put‐call collar topping up our coverage for Q4 2022. The collars implemented for Q4 are 250 bo/d at a cost of US$2.80/bbl with premiums payable monthly on settled barrels with the following coverage:

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Market	Net Received
>$130	the Company nets $130/bbl
between $130 and $95	The Company sells at market
between $95 and $75	The Company sells at $95
Market below $75	The Company sells at market plus $25/bbl

Environmental, Social and Governance ("ESG")

The Company's inaugural ESG report was completed in the quarter and lodged on 14 June 2022, the report involved a comprehensive strategic review of our ESG objectives and targets. The Company continues to pursue reductions in carbon emissions to meet or exceed regulatory requirements. Specifically, the elimination of high methane emission pneumatics and chemical pumps in 100% of our facilities.

Health, safety, and environment (HSE) continues to be a priority for the Company, and we are proud to achieve another straight quarter of no employee downtime from injury or event. During the quarter our leading HSE indicators tracking corporate performance were all significantly above corporate targets on items including operator competencies, monthly vehicle inspections, and contractor spot checks. During the quarter Calima completed the plug and abandonment of 2 wells that will count toward the AER's new Licensee Management Program and our annual mandatory closure target of ~$440,000.

Jordan Kevol, President & CEO:

We are pleased to report another successful and strongly profitable quarter for the company. The second quarter is typically a quiet quarter on the operations side as we navigate spring break‐up conditions. However, by June 1st Calima was able to get moving in the field and got a head start on its Q3 operations program. In the month of June, Calima successfully completed, via fracture stimulation, its Leo #4 step‐out well at Holborn. That well has since been tied in and brought on production for initial testing purposes. We also began our Q3 drilling campaign early, with the spud of Gemini #8 on June 1st. Gemini #8 and #9 are on production, and we expect Pisces #4 and #5 to be completed and on production by mid‐August. As oil and gas prices remain strong, we are please to be bringing on new volumes of hydrocarbons in both of our core operating areas. Our continued combination of sustainable production, and cash flow growth, coupled with our recently implemented shareholder returns program should make Calima an attractive investment for our current and future shareholders"

Corporate

Returns to Shareholders

• Calima will be making its inaugural half year return to shareholders of A$2.5m prior to 30 September 2022. This represents a ~5% return to shareholders on an annual basis. The Company is currently preparing a notice of meeting to approve the capital return.
• the Company's buy back has successfully bought back 4,551,521 shares at a cost of $764,376, averaging at $0.1679 per share.

Board Composition

The Company is currently reviewing the mark‐up of the board and assessing additions to ensure the appropriate skill sets.

Bank Line Annual Review and Redetermination

National Bank of Canada completed its semi‐annual review in the quarter approving revolving credit facility of A$28.7M (C$27.0M). The credit facility provides the Company with a low cost (~4%) of capital that can be used to fund working capital requirements and longer‐term investment programs. The facility is a demand loan and is subject to a semi‐annual borrowing base review. The facility is utilised to fund day‐to‐day working capital requirements associated with the Company's ongoing operations and development programs. As at 30 June 2022, the facility was undrawn.

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