Southern Energy : Q1 2023 MD&A

Management's Discussion and Analysis of

SOUTHERN ENERGY CORP.

For the three months ended March 31, 2023 and 2022 (U.S. Dollars)

Southern Energy Corp

Management's Discussion and Analysis

For the three months ended March 31, 2023 and 2022

Management's Discussion and Analysis

The following Management's Discussion and Analysis ("MD&A") of financial results is provided by the management of Southern Energy Corp. ("Southern" or the "Company") and should be read in conjunction with the Company's unaudited condensed interim consolidated financial statements for the three months ended March 31, 2023 and 2022 (the "Financial Statements"), which have been prepared in accordance with IAS 34 - Interim Financial Reporting of the International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

The Company's presentation currency is the United States ("U.S.") dollar. The functional currency of Southern Energy Corp. is Canadian ("CAD") dollars, and its results and balance sheet items are translated to U.S. dollars for the purposes of this MD&A and the Financial Statements, in accordance with the Company's foreign currency translation accounting policy. The functional currencies of the Company's foreign subsidiaries are U.S. dollars.

Throughout this MD&A, "crude oil" or "oil" refers to light and medium crude oil product types as defined by National Instrument 51‐101 Standards of Disclosure for Oil and Gas Activities ("NI 51‐101"). References to "NGLs" throughout this MD&A comprise pentane, butane, propane, and ethane, being all NGLs as defined by NI 51‐101. References to "natural gas" throughout this MD&A refers to conventional natural gas as defined by NI 51‐101.

This MD&A is dated May 30, 2023.

About Southern

Southern is a natural gas exploration and production company with assets in Mississippi characterized by

1. stable, low‐decline production base, a significant low‐risk drilling inventory and strategic access to the best commodity pricing in North America. Southern has a primary focus on acquiring and developing conventional natural gas and light oil resources in the southeast Gulf States of Mississippi, Louisiana, and East Texas (the "Southeast Gulf States"). Southern's mission is to build a socially responsible and environmentally conscious natural gas and light oil company in the Southeast Gulf States. In these areas, Southern has access to major pipelines, significant Company‐owned infrastructure, year‐round access to drill, and the ability to shift focus between natural gas or crude oil development as commodity prices fluctuate; all factors that contribute to mitigating corporate risk. Southern's goal is to continually grow shareholder value through organic growth opportunities and strategic, accretive acquisitions.

The Company's management team has a long and successful history of working together as a team and have created significant shareholder value through accretive acquisitions, optimizations of existing natural gas and oil fields and the utilization of re‐development strategies utilizing horizontal drilling and multi‐ staged fracture completion techniques. Southern's head office is located in Calgary, Alberta, Canada.

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Southern Energy Corp

Management's Discussion and Analysis

For the three months ended March 31, 2023 and 2022

FIRST QUARTER HIGHLIGHTS

• Generated $1.7 million of Adjusted Funds Flow from Operations (see "Reader Advisories - Specified Financial Measures") in Q1 2023 ($0.01 per share basic and diluted)
• Net loss of $1.1 million in Q1 2023 ($0.01 loss per share - basic and diluted), compared to a net loss of $1.9 million in Q1 2022
• Petroleum and natural gas sales were $5.2 million in Q1 2023
• Maintained balance sheet strength with Net Debt2 to Adjusted Funds Flow from Operations ratio of 1.2x on a trailing twelve month basis down from 2.6x in the first quarter of 2022
• Q1 2023 average production of 15,643 Mcfe/d (95% natural gas), an increase of 36% from the same period in 2022 (see "Production Summary" below for a breakdown by product type)
• Average realized natural gas and oil prices for Q1 2023 of $3.25/Mcf and $75.73/bbl, respectively, reflecting the benefit of strategic access to premium‐priced U.S. sales hubs in a geographic region with strong industrial and power generation natural gas demand
• Drilled six net wells at Gwinville in Q1 2023 from three padsites, with each subsequent pad drilling operation resulting in fewer drilling days per well depth adjusted (see "Operations Update" for more information)
• 2022 Year End Reserves Upgrade:

• 1. Highlights of the Company's year end independent oil and gas reserves evaluation as at December 31, 2022 (the "NSAI Report") prepared by independent qualified reserves evaluator Netherland, Sewell & Associates, Inc. ("NSAI") include:
  2. • an increase in proved developed producing ("PDP") reserves of 25% to 6.2 MMboe
     • an increase in total proved ("1P") reserves of 44% to 14.1 MMboe
     • an increase in total proved plus probable ("2P") reserves by 31% to 25.5 MMboe in 2022
     • before‐tax net present value ("NPV") of 2P reserves, discounted at 10% ("NPV10"), of $142.5 million (an increase of 61% on year end 2021)
• Top performing energy stock in the 2023 TSX Venture 50™ based on equal weighting of performance during 2022 across three key indictors: market capitalization growth, share price appreciation, and trading volume

SUBSEQUENT EVENTS

• As announced on May 23, 2023, Southern entered into a strategic and highly synergistic purchase and sale agreement to acquire ~400 boe/d (99% natural gas) for cash consideration of $3.2 million in Gwinville with an expected close date of June 1, 2023 (the "Gwinville Acquisition")

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Southern Energy Corp

Management's Discussion and Analysis

For the three months ended March 31, 2023 and 2022

Summary of Financial Information

		Three months ended March 31,
(000s, except $ per share)		2023		2022
Petroleum and natural gas sales	$	5,189	$	5,925
Net loss		(1,120)		(1,855)
Net loss per share
Basic		(0.01)		(0.02)
Fully diluted		(0.01)		(0.02)
Adjusted funds flow from operations (1)		1,745		2,234
Adjusted funds flow from operations per share (1)
Basic		0.01		0.03
Fully diluted		0.01		0.03
Capital expenditures		34,892		6,872
Weighted average shares outstanding
Basic		138,591		78,153
Fully diluted		138,591		78,153
As at period end
Basic common shares outstanding		139,010		78,200
Total assets		108,609		48,534
Non‐current liabilities		14,543		11,777
Net debt (1)	$	(19,731)	$	(10,745)

Notes:

1. See "Reader Advisories - Specified Financial Measures"

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Southern Energy Corp

Management's Discussion and Analysis

For the three months ended March 31, 2023 and 2022

Operations Update

On March 29, 2023, the Company concluded operations on the current drilling campaign which included seven new horizontal wells into three separate productive horizons from three distinct padsites in the Gwinville Field. The program added three Upper Selma Chalk wells, two Lower Selma Chalk wells and two City Bank wells. The drilling campaign was initially planned for 13 horizontal wells, but the Company paused the capital program in response to the weaker natural gas pricing in the first quarter of the year to maintain balance sheet discipline.

Southern is extremely happy with the field execution performance from this program, highlighted by drilling efficiencies which saw the average time from spud to total depth of the Selma Chalk wells reduced from approximately 20 days in Southern's three well appraisal program in 2022 to below 10 days by the final padsite in Q1 2023. The majority of the wells in the program came in at or below the initial drilling and completion cost estimates, despite more than 80% of the cost structure being fixed due to long term contracts for materials and major services locked in during the highly inflationary second half of 2022. With the learnings and efficiencies achieved in this campaign, Southern is planning for all future horizontal drilling in Gwinville to utilize an optimized wellbore design change that will remove the intermediate casing string and all associated costs which the Company expects will reduce the per‐well drilling costs by 20‐25%. This will allow the Company to reinitiate its organic growth plans at lower future gas prices than what was previously contemplated.

Comparing key performance indicators from the drilling and completion operations in this program to the appraisal program from 2022, Southern achieved a 6% reduction in drilling costs per lateral foot (down to $644/ft) and a greater than 22% reduction in completion costs per lateral foot (down to $615/ft). Further, compared to the early generation horizontal activity between 2005 and 2009 on the asset by the previous operator, one of the largest independent upstream oil and natural gas companies in the U.S., on an inflation adjusted basis, Southern achieved a greater than 30% reduction in both drilling and completion costs per lateral foot.

The Company continues to flow back its first City Bank Hz well at Gwinville 18‐10 #1, with load fluid recovery of approximately 13%. Based on historical vertical and early generation horizontal well completions in the City Bank reservoir in Gwinville, peak gas rates are not expected until the load fluid recovery is closer to 20+%, which is expected to be towards the end of Q2 2023. Gas rates are encouraging and continue to improve and Southern is excited to provide further operational updates in Q2 2023 as the modern generation City Bank type curve results are established.

Remediation plans for the 18‐10 #3 Upper Selma Chalk well that experienced a mechanical integrity issue with the production casing during completion operations continue to be finalized, with field execution expected in late Q2 2023. The 18‐10 #3 well was drilled to a total lateral length of 5,091 ft, achieved 80% of the lateral placed in the targeted porosity zone and was successfully completed in 44 stages prior to the mechanical issue.

The four wells that are awaiting completion include the first two Lower Selma Chalk laterals, along with the second City Bank lateral and one Upper Selma Chalk lateral. These four wells are some of Southern's longest laterals to‐date. They were drilled with an average lateral length of approximately 5,400 ft and were steered within the high‐graded intervals for an average of 95% of the wellbore length. The two

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