Prairie Provident Resources : Q1 2024 MD&A

Prairie Provident Resources Inc.

Management's Discussion and Analysis

For the Three Months Ended March 31, 2024

Dated: May 15, 2024

Advisories

In this management's discussion and analysis ("MD&A"), unless otherwise indicated or the context otherwise requires, the terms "we", "us", "our", "PPR", "Prairie Provident" and "the Company" refers to Prairie Provident Resources Inc., as parent corporation, together with its wholly-owned subsidiaries, Prairie Provident Resources Canada Ltd., Lone Pine Resources Inc., Lone Pine Resources (Holdings) Inc., Arsenal Energy USA Inc. and Arsenal Energy Holding Ltd.

The following MD&A of PPR provides management's analysis of the Company's results of operations, financial position and outlook as at and for the three months ended March 31, 2024. This MD&A is dated May 15, 2024 and should be read in conjunction with the unaudited condensed interim consolidated financial statements for the three months ended March 31, 2024 (the "Interim Financial Statements"), the audited consolidated financial statements of PPR as at and for the year ended December 31, 2023 (the "2023 Annual Financial Statements") and the 2023 annual MD&A (the "Annual MD&A"). Additional information relating to PPR, including the Company's December 31, 2023 Annual Information Form, is available on SEDAR+ at www.sedarplus.ca.

All financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

Unless otherwise noted, all financial information provided herein is reported in Canadian dollars. Production volumes are presented on a working-interest basis, before royalties.

This MD&A contains forward-looking statements and non-IFRS measures. Readers are cautioned that the MD&A should be read in conjunction with the Company's disclosures under the headings "Forward-Looking Statements" and "Non-IFRS Measures" included at the end of this MD&A.

Abbreviations

The following is a list of abbreviations that may be used in this MD&A:

bbl	barrel	P&D	production and development
bbl/d	barrels per day	PSU	performance share unit
boe	barrels of oil equivalent	DSU	deferred restricted share unit
boe/d	barrels of oil equivalent per day	RSU	restricted share unit
Mboe	thousands of barrels of oil equivalent	WTI	West Texas Intermediate
MMboe	millions of barrels of oil equivalent	USD	U.S. dollars
Mcf	thousand cubic feet	CAD	Canadian dollars
Mcf/d	thousand cubic feet per day	US	United States
mmbtu	million British Thermal Units	CDN	Canadian
GJ	gigajoule
AECO	AECO "C" hub price index for Alberta natural gas
CGU	cash-generating-unit
DD&A	depreciation, depletion and amortization
E&E	exploration and evaluation
GAAP	generally accepted accounting principles
G&A	general and administrative

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Prairie Provident Resources Inc. MD&A Q1-2024

Financial and Operational Summary

	Three Months Ended
	March 31,
($000s except per unit amounts)	2024	2023
Production Volumes
Crude oil and condensate (bbl/d)	1,495	2,270
Natural gas (Mcf/d)	6,498	8,180
Natural gas liquids (bbl/d)	58	100
Total (boe/d)	2,636	3,733
% Liquids	59 %	63 %
Average Realized Prices
Crude oil and condensate ($/bbl)	80.75	84.63
Natural gas ($/Mcf)	2.64	3.06
Natural gas liquids ($/bbl)	85.21	62.47
Total ($/boe)	54.17	59.83
Operating Netback ($/boe)1
Realized price	54.17	59.83
Royalties	(7.80)	(10.21)
Operating costs	(34.36)	(36.16)
Operating netback	12.01	13.46
Realized gain (loss) on derivatives	(2.02)	(1.77)
Operating netback, after realized gain (loss) on derivatives	9.99	11.69

First Quarter 2024 Financial & Operational Highlights

• Production averaged 2,636 boe/d (59% liquids) in the quarter, which was 29% or 1,097 boe/d lower than Q1 2023, primarily due to capital constraints, wells requiring service and natural declines. The sale of the Evi CGU also contributed to the decrease, as the Company owned the CGU for only two of the three months in the quarter. Production from the Evi CGU averaged 491 boe/d for Q1 2024 compared to 792 boe/d for Q1 2023.
• Operating netback1 for Q1 2024 was $2.9 million ($12.01/boe) before the impact of realized losses on derivatives, and $2.4 million ($9.99/boe) after realized losses on derivatives, a 36% and a 39% decrease, respectively, relative to Q1 2023. Q1 2024 operating expense was $34.36/boe, a decrease of $1.80/boe from Q1 2023 driven by lower production, partially offset by increases in electricity costs and property and production taxes.
• Net loss totaled $4.6 million in Q1 2024, a $12.6 million decrease compared to Q1 2023. The decrease was primarily due to non-cash gains of $13.5 million resulting from the Company's recapitalization plan in 2023. In addition, the decrease was impacted by lower oil and gas revenue, partially offset by lower expenses and a gain on property dispositions as compared to the same quarter of 2023.
• Adjusted funds flow ("AFF")1 excluding $1.0 million of decommissioning settlements, totaled $(1.9) million ($nil per basic and diluted share) in Q1 2024, a 12.9% decrease from the same quarter of 2023, primarily the result of lower commodity prices.
• In October 2023, the Company announced the strategic asset dispositions of its Evi CGU and certain non-core Provost assets. These assets were recorded as assets held for sale as at December 31, 2023 and were subsequently sold in the first quarter of 2024, resulting in net cash proceeds of $24.2 million, after closing adjustments. Of the proceeds received, $20.0 million (US$14.8 million) was used to reduce advances under the Revolving Facility, with the remainder used to increase the Company's working capital. A gain of $2.3 million was recorded related to the disposition for the three months ended March 31, 2024.
• The Company remained active in its decommissioning program with $1.0 million spent on settlements during the first quarter of 2024.

______________________________

• Operating netback, AFF, working capital (deficit), net debt and net capital expenditures are non-GAAP financial measures and are defined below under "Non- GAAP and Other Financial Measures".

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Prairie Provident Resources Inc. MD&A Q1-2024

Results of Operations

Production

	Three Months Ended
	March 31,
	2024	2023
Crude oil and condensate (bbl/d)	1,495	2,270
Natural gas (Mcf/d)	6,498	8,180
Natural gas liquids (bbls/d)	58	100
Total (boe/d)	2,636	3,733
Liquids Weighting	59 %	63 %

Average production for the three months ended March 31, 2024 was 2,636 boe/d (59% liquids), a decrease of 29%, compared to the same period in 2023. The decrease was primarily driven by the sale of the Company's Evi CGU in early March 2024, wells requiring servicing and natural declines.

Revenue

	Three Months Ended
	March 31,
($000s, except per unit amounts)	2024	2023
Revenue
Oil and condensate	10,987	17,291
Natural gas	1,559	2,252
Natural gas liquids	450	562
Oil and natural gas revenue	12,996	20,105
Average Realized Prices
Oil and condensate ($/bbl)	80.75	84.63
Natural gas ($/Mcf)	2.64	3.06
Natural gas liquids ($/bbl)	85.21	62.47
Total ($/boe)	54.17	59.83
Benchmark Prices
Crude oil - WTI ($/bbl)	103.76	102.89
Crude oil - Edmonton Light Sweet ($/bbl)	95.45	99.04
Crude oil - WCS ($/bbl)	72.81	69.33
Natural gas - AECO daily index - 5A ($/Mcf)	2.18	3.23
Exchange rate - US$/CDN$	0.74	0.74

PPR's first quarter 2024 revenue decreased by 35% or $7.1 million from the first quarter of 2023, principally due to a decrease in production volumes and a reduction in realized crude oil and natural gas prices, as well as from the sale of the Company's Evi CGU. Oil and condensate revenue for the first quarter of 2024 decreased by 36%, compared to the corresponding period in 2023, primarily due to a 34% decrease in oil and condensate production volumes, as well as from the sale of the Evi CGU. PPR's product prices generally correlate to changes in the benchmark prices. The average WTI price increased by 1% or $0.87/bbl from the first quarter of 2023; however, Canadian oil differentials were mixed compared to the first quarter of last year. In the first quarter of 2024, the WCS to WTI differential was $25.95/bbl (Q1 2023 - $33.56/bbl), and the Edmonton Light Sweet to WTI differential widened to $8.31/bbl (Q1 2023 - $3.85/bbl). First quarter 2024 conventional natural gas revenue decreased by 31% or $0.7 million, compared to the same quarter in 2023, reflecting a 14% decrease in realized natural gas prices and a 21% decrease in production volumes.

Average realized prices per boe for the first quarter of 2024 decreased by 9% or $5.66/boe compared to the same period in 2023. The decrease was due to a reduction in the realized prices of both oil and condensate, and natural gas, which were partially offset by rises in the realized prices of natural gas liquids.

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Prairie Provident Resources Inc. MD&A Q1-2024

Royalties

	Three Months Ended
	March 31,
($000s, except per boe)	2024	2023
Royalties	1,871	3,432
Per boe	7.80	10.21
Percentage of revenue	14.4 %	17.1 %

The Company pays royalties to respective provincial governments and landowners in accordance with the established royalty regime. A large portion of PPR's royalties are paid to the Crown, which are based on various sliding scales that are dependent on incentives, production volumes and commodity prices.

First quarter 2024 royalties decreased by $1.6 million compared to the corresponding period in 2023, primarily due to lower production volumes and commodity pricing. Royalties per boe decreased $2.41 per boe as royalties rates from higher productivity wells have reduced in correlation to production volumes over the last 12 months.

Commodity Price and Risk Management

PPR enters into derivative risk management contracts to manage exposure to commodity price fluctuations and to protect and provide certainty on a portion of the Company's cash flows. In addition, PPR's credit facilities require the Company to maintain certain level of hedges on a rolling 24 month basis. Currently, these credit conditions related to hedging have been waived, however, PPR considers hedging to be an effective means to manage cash flows from operations and plans to reintroduce a hedging-based risk management program in the near future.

	Three Months Ended
	March 31,
($000s)	2024	2023
Realized loss on derivatives	(485)	(594)
Unrealized gain on derivatives	416	2,110
Total gain (loss) on derivatives	(69)	1,516
Per boe
Realized loss on derivatives	(2.02)	(1.77)
Unrealized gain on derivatives	1.73	6.28
Total gain (loss) on derivatives	(0.29)	4.51

Realized losses and gains on derivative risk management contracts represent the cash settlements of outstanding contracts while unrealized gains and losses on derivative risk management contracts reflect changes in the mark-to-market positions of outstanding contracts in the current period. Both realized and unrealized gains and losses on derivative contracts vary based on fluctuations related to the specific terms of outstanding contracts in the related period including contract types, contract quantities and fluctuations in underlying commodity reference prices.

The unrealized gain on derivatives recognized for the three months ended March 31, 2024 was the result of the Company's remaining derivative contracts settling during the quarter and the unwinding of the Company's mark-to-market position as of December 31, 2023.

The Company's realized prices are exposed to fluctuations in the US dollar and Canadian dollar exchange rate, which serve as natural hedges to the US dollar denominated debt.

As at March 31, 2024, the Company has no commodity derivatives.

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Prairie Provident Resources Inc. MD&A Q1-2024

Operating Expenses

	Three Months Ended
	March 31,
($000s, except per boe)	2024	2023
Total operating expenses	8,242	12,147
Per boe	34.36	36.16

During the three months ended March 31, 2024, operating expenses decreased by 35% or $4.2 million, from the same period in 2023, largely as a result of the sales of Evi, lower production volumes and electricity costs and partially offset by increases to property and production taxes.

On a per boe basis, total operating expense for the three months ended March 31, 2024 decreased $1.80 or 5% compared to the three months ended March 31, 2023 for the reasons noted above.

Operating Netback

	Three Months Ended
	March 31,
($ per boe)	2024	2023
Revenue	54.17	59.83
Royalties	(7.80)	(10.21)
Operating costs	(34.36)	(36.16)
Operating netback	12.01	12.01
Realized loss on derivatives	(2.02)	(1.77)
Operating netback, after realized gain (loss) on
derivatives	9.99	11.69

PPR's operating netback after realized losses on derivatives was $9.99/boe for the three months ended March 31, 2024, representing a decrease of $1.70/boe compared with the same period in 2023. The decrease was a result of a decrease in realized pricing of $5.66/boe and an increase in the realized loss on derivatives of $0.25/boe, partially offset by a decrease in royalties of $2.41/boe, and a decrease of operating expense of $3.05/boe.

General and Administrative Expenses ("G&A")

	Three Months Ended
	March 31,
($000s, except per boe)	2024	2023
Gross cash G&A expenses	2,005	2,946
Gross share-based compensation expense	17	72
Less amounts capitalized	(67)	(19)
Net G&A expenses	1,955	2,999
Per boe	8.15	8.93

For the three months ended March 31, 2024, gross cash G&A decreased by $0.9 million or 32%, compared to the same period in 2023. The first quarter decrease is primarily due to decreases in staffing levels and professional fees when compared to the first quarter of 2023.

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Prairie Provident Resources Inc. MD&A Q1-2024

Changes in gross share-based compensation expense relate to the number of units granted, the timing of grants, the fair value of units on the grant date, the vesting period over which the related expense is recognized and the timing and quantity of forfeitures. Gross stock-based compensation decreased by a nominal amount for the three months ended March 31, 2024 compared with the same period in 2023. There were no new grants issued under the Company's share-based compensation program during the three months ended March 31, 2024.

Capitalized G&A varies with the composition and compensation levels of technical departments and their time attributed to capital projects.

Finance Costs

	Three Months Ended
	March 31,
($000s, except per boe)	2024	2023
Cash interest expense	2,324	2,806
Deferred interest expense	562	1,586
Non-cash interest on debt modification and warrant liabilities	23	833
Amortization of financing costs	-	34
Non-cash interest on lease liabilities	205	11
Accretion - decommissioning liabilities	773	812
Accretion - other liabilities	-	1
Total finance cost	3,887	6,083
Interest Expense (defined below) per boe	12.03	13.07
Non-cash interest and accretion expense per boe	4.18	5.03

Deferred interest expense is interest expense which has been added to the principal balance of borrowings outstanding and will be repaid under the terms of principal repayments in accordance with the underlying borrowing agreements. Cash interest expense and deferred interest expense (collectively, "Interest Expense") is primarily comprised of interest incurred related to the Company's outstanding borrowings. The decrease in Interest Expense of $1.5 million for the three months ended March 31, 2024, compared to the same period in 2023, is primarily related to the repayment of $20.0 million (US$14.8 million) of the USD Revolving Facility during the quarter.

The weighted average effective interest rate for the three months ended March 31, 2024 was 15.0% (2023 - 8.5%) and excludes non-cash interest on debt, amortization of financing costs, non-cash interest on financing leases and accretion expense.

Loss (Gain) on Foreign Exchange

	Three Months Ended
	March 31,
($000s)	2024	2023
Realized loss on foreign exchange	522	15
Unrealized loss (gain) on foreign exchange	35	(77)
Loss (gain) on foreign exchange	557	(62)

Foreign exchange (gains) losses incurred in the three months ended March 31, 2024 and 2023, related largely to the translation impact on US dollar denominated borrowings (see "Capital Resources and Liquidity" section below).

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Prairie Provident Resources Inc. MD&A Q1-2024

Exploration and Evaluation ("E&E") Expense

	Three Months Ended
	March 31,
($000s, except per boe)	2024	2023
Exploration and evaluation expense	-	28
Per boe	-	0.08
E&E expenses are comprised of undeveloped land expires and surrendered leases.

Depletion and Depreciation

	Three Months Ended
	March 31,
($000s, except per boe)	2024	2023
Depletion and depreciation	2,539	4,508
Depreciation on right-of-use assets	85	316
Total depletion expense	2,624	4,824
Per boe	10.94	14.36

Depletion and depreciation rates are subject to change based on changes in the carrying value of the asset base, changes in future development costs, reserve updates and changes in production by area. Depletion expenses are calculated using depletion rates and production volumes applicable to each depletable unit. The decrease in depletion expense in the three months ended March 31, 2024 compared to the same period of 2023, was primarily due to the disposition of the Company's Evi CGU and certain non-core Provost assets, as well as production declines.

Impairment Loss (Reversal)

	Three Months Ended
	March 31,
($000s)	2024	2023
E&E impairment reversal - decommissioning asset recovery	(51)	-
P&D impairment - decommissioning asset loss	509	-
Total impairment loss	458	-

During the three months ended March 31, 2024, the Company recognized an impairment loss of $0.5 million related to changes in decommissioning liabilities of certain properties that had zero carrying value (2023 - nil).

Net (Loss) Income

	Three Months Ended
	March 31,
($000s except per share)	2024	2023
Net (loss) income	(4,602)	7,853
Per share - basic	(0.01)	0.06
Per share - diluted	(0.01)	0.05

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Prairie Provident Resources Inc. MD&A Q1-2024

Net loss for the first quarter of 2024 was $4.6 million, compared to net income of $7.9 million in the same quarter of 2023. The decrease in net income of $12.6 million was primarily due to non-cash gains of $13.5 million resulting from the Company's recapitalization plan in 2023. In addition, the decrease was impacted by lower oil and gas revenue, which was partially offset by lower expenses and a gain on property dispositions as compared to the same quarter of 2023.

Net Capital Expenditures1,2

	Three Months Ended
	March 31,
($000s)	2024	2023
Drilling and completion	38	-
Equipment, facilities and pipelines	59	198
Land and seismic	443	28
Capitalized overhead and other	48	-
Total capital expenditures	588	226
Asset dispositions (net of acquisitions)	(24,243)	(178)
Net capital expenditures	(23,655)	48

• Net capital expenditures include expenditures on E&E assets.

• Net capital expenditures are non-IFRS measures and are defined below under "Other Advisories"

Capital expenditures prior to acquisitions or dispositions for the three months ended March 31, 2024, were $0.6 million and primary related to Lease retention.

In the first quarter of 2023, capital expenditures prior to acquisitions or dispositions were $0.2 million as the Company focused on refinancing its debt.

Gain on Property Dispositions

At October 31, 2023, the Company classified its Evi CGU and certain non-core Provost assets as assets held for sale following the announcement of the two strategic asset sales on October 30, 2023. Immediately prior to classification as held for sale an impairment loss of $3.0 million was recorded on the Company's Evi CGU to reduce its carrying amount to its fair value less costs of disposal. During the first quarter of 2024, the Company completed its disposition resulting in net cash proceeds of $24.2 million. Of the proceeds received, $20.0 million (US$14.8 million) was used to reduce advances under the Revolving Facility, with the remainder used to increase the Company's working capital. A gain of $2.3 million was recorded related to the disposition for the three months ended March 31, 2024.

Decommissioning Liabilities

PPR's decommissioning liabilities at March 31, 2024 were $70.8 million (December 31, 2023 - $71.8 million, excluding liabilities associated with assets held for sale) to provide for future remediation, abandonment and reclamation of PPR's oil and gas properties. The decrease of $1.0 million from year-end 2023 was primarily due to dispositions of $0.7 million and settlements of decommissioning obligations of $1.0 million, partially offset by $0.8 million of accretion.

Changes in estimates result in a corresponding increase or decrease in the carrying amount of the related assets except for certain assets with a zero carrying value, in which case, the amount is immediately recognized in the income statement.

The Company estimated the undiscounted and inflation-adjusted future liabilities to be approximately $178.7 million (December 31, 2023 - $187.7 million) spanning over the next 55 years, based on an inflation rate of 1.8% (December 31, 2023 - 1.8%). Of the estimated undiscounted future liabilities, $22.1 million is estimated to be settled over the next five years.While the

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Prairie Provident Resources Inc. MD&A Q1-2024

provision for decommissioning liabilities is based on management's best estimates of future costs, discount rates, timing and the economic lives of the assets, there is uncertainty regarding the amount and timing of incurring these costs.

Capital Resources and Liquidity

Capital Resources

Working Capital

At March 31, 2024, the Company had a working capital deficit (as defined in "Other Advisories" below) of $8.0 million (December 31, 2023 - $8.0 million). The lack of change in the working capital deficit from December 31, 2023 resulted from a decrease in expenditures related to capital activity during the quarter and decreases in accounts payables for derivative settlements related to decreased commodity prices at the end of the first quarter as compared to the end of the prior year, partially offset by decreased accrued revenue, also related to commodity price decreases. The sale of the Evi CGU also contributed to the decrease with a reduction in revenue and operating costs occurring as a result of the disposition.

Revolving Facility

The Revolving Facility has a maturity date of July 1, 2024. Borrowings under the Revolving Facility are repayable at the Company's election at par plus accrued interest and any applicable breakage costs. Repayments generally will not affect the aggregate commitment or borrowing base under the Revolving Facility, except in certain extraordinary circumstances where a repayment will reduce the borrowing base. The Revolving Facility is denominated in USD, but accommodates CAD advances up to $46.8 million. As at March 31, 2024, the Company had $nil (2023 - $nil) available borrowing capacity as the lender indicated no additional draws were possible. All notes were issued at par by PPR Canada and are guaranteed by Prairie Provident Resources Inc. and certain of its other subsidiaries and secured by a US$200 million debenture.

The next scheduled borrowing base re-determination will occur before July 1, 2024 and will be based on the December 31, 2023 reserves evaluation, without limiting the lenders' right to require a redetermination at any time. No additional draws on the facility are permitted without consent of the lenders, in their sole discretion. The determination of the borrowing base is made by the lenders, in their sole discretion, taking into consideration the estimated value of PPR's oil and natural gas properties in accordance with the lenders' customary practices for oil and gas loans. If a borrowing base deficiency exists because of a re- determination, the lender is required to notify the Company of such shortfall. The Company may repay the shortfall amount by either making one installment within 90 days or six equal consecutive monthly installments beginning within 30 days after the Company's receipt of the borrowing base deficiency notice. Amounts borrowed under the Revolving Facility bear interest based on reference bank lending rates in effect from time to time, plus an applicable margin. Applicable margins per annum are 950 basis points and standby fees on any undrawn borrowing capacity are 87.5 basis points per annum.

The following table provides a breakdown of borrowings drawn against the Revolving Facility:
	March 31,	December 31,
($000s)	2024	2023
USD Advances (USD $4.3 million (December 31, 2023 - USD $19.0 million))1	5,770	25,129
CAD Advances (USD $30.0 million (December 31, 2023 - USD $30.0 million))2	40,530	40,530
CAD Deferred Interest (US$0.4 million (December 31, 2023 - USD $0.4 million)2	543	543
Revolving Facility (USD $49.4 million (December 31, 2023 - USD $49.4 million))	46,843	66,202

• Converted using the month end exchange rate of $1.00 USD to $1.36 CAD as at March 31, 2024 and $1.00 USD to $1.32 CAD as at December 31, 2023.
  2 Converted using the exchange rate at the time of borrowing of $1.00 USD to $1.35 CAD.

The change in borrowings from year-end 2023 were primarily due to the partial repayment of the USD Revolving Facility during the quarter with proceeds from the sale of the Company's Evi CGU and certain Provost assets.

As at March 31, 2024 and December 31, 2023, PPR had outstanding letters of credit of $4.1 million. The letters of credit are issued by a financial institution at which PPR posted a cash deposit to cover letters of credit. The related deposit is classified as restricted cash on the statement of financial position and the balance is invested in short-term market deposits with maturity dates of one year or less when purchased.

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Prairie Provident Resources Inc. MD&A Q1-2024