Southern Energy : Q2 2023 MD&A

Management's Discussion and Analysis of

SOUTHERN ENERGY CORP.

For the three and six months ended June 30, 2023 and 2022 (U.S. Dollars)

Southern Energy Corp

Management's Discussion and Analysis

For the three and six months ended June 30, 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 and six months ended June 30, 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 August 18, 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 employing 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 and six months ended June 30, 2023 and 2022

SECOND QUARTER HIGHLIGHTS

• Generated $0.2 million of Adjusted Funds Flow from Operations (see "Reader Advisories - Specified Financial Measures") in Q2 2023, excluding $0.5 million of one‐time transaction costs and general and administrative costs (see "General & Administrative and Transaction Costs" for more details)
• Net loss of $3.8 million in Q2 2023 ($0.03 net loss per share - basic and diluted), compared to net earnings of $2.8 million in Q2 2022
• Petroleum and natural gas sales of $3.7 million in Q2 2023 and $8.9 million for the six months ended June 30, 2023
• On June 1, 2023, Southern completed a strategic and highly synergistic acquisition in Gwinville of approximately 400 boe/d (99% natural gas) for cash consideration of $3.2 million (the "Gwinville Acquisition")
• Q2 2023 average production of 15,907 Mcfe/d (96% natural gas), an increase of 12% from Q2 2022 (see "Production Summary" below for a breakdown by product type)
• Average realized natural gas and oil prices for Q2 2023 of $2.18/Mcf and $72.83/bbl compared to $7.53/Mcf and $109.01/bbl in Q2 2022

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Southern Energy Corp

Management's Discussion and Analysis

For the three and six months ended June 30, 2023 and 2022

Summary of Financial Information

	Three months ended June 30,	Six months ended June 30,
(000s, except $ per share)		2023		2022		2023		2022
Petroleum and natural gas sales	$	3,741	$	10,311	$	8,930	$	16,236
Net (loss) earnings		(3,767)		2,838		(4,887)		983
Net (loss) earnings per share
Basic		(0.03)		0.03		(0.04)		0.01
Fully diluted		(0.03)		0.03		(0.04)		0.01
Adjusted funds flow from operations (1)		(366)		3,590		1,379		5,824
Adjusted funds flow from operations per share (1)
Basic		(0.00)		0.04		0.01		0.07
Fully diluted		(0.00)		0.04		0.01		0.06
Capital expenditures and acquisitions		5,292		10,104		40,184		16,976
Weighted average shares outstanding
Basic		139,039		83,302	138,816		80,742
Fully diluted		139,039		101,011	138,816		91,796
As at period end
Basic common shares outstanding		139,041		89,537	139,041		89,537
Total assets		104,075		58,347	104,075		58,347
Non‐current liabilities		20,961		10,013		20,961		10,013
Net debt (1)	$	(26,158)	$	(12,814)	$	(26,158)	$	(12,814)

Notes:

1. See "Reader Advisories - Specified Financial Measures"

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Southern Energy Corp

Management's Discussion and Analysis

For the three and six months ended June 30, 2023 and 2022

Operations Update

With the successful closing of the Gwinville Acquisition on June 1, 2023, all figures for the three and six months ended June 30, 2023, only include one month of results from the acquisition.

As previously reported in the Company's announcement on May 30, 2023, the Company concluded operations on the latest 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 that has persisted throughout Q2 2023. Of the seven wells that were drilled, only the three wells from the 18‐10 padsite were completed with the other four wells (two on the 14‐06 pad and two on the 13‐13 pad) remaining as uncompleted, waiting on more supportive natural gas prices.

The four wells that are awaiting completion include the first two Lower Selma Chalk laterals, along with the second City Bank lateral and one of the Upper Selma Chalk laterals. 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 padsites can be brought on production within a matter of weeks once completion operations are resumed. At current strip pricing, Southern will consider commencing completion operations in Q4 2023.

The Company continues to flow back its first City Bank horizontal well at Gwinville 18‐10 #1, with load fluid recovery of approximately 20%. The well was brought on‐line in late February 2023 with gas rates increasing to approximately 600 Mcf/d and having remained flat for the past few months. The Company believes that the most plausible explanation for the lower than expected gas rate is due to fracture communication with an offset well which had previously been produced from the deeper Tuscaloosa formation from the 1940'‐1960's. It is expected that production will remain flat and/or increase as more load fluid is recovered and bottom hole pressure can be decreased, and that the overall recovery from the well should not be materially impacted. In future operations in City Bank horizontal wells, Southern will likely choose to create a buffer zone around the vintage abandoned Tuscaloosa wells by eliminating proximal frac stages to avoid any potential communication. The Company is very excited to complete the 13‐13 City Bank horizontal well where it does not foresee any of these potential issues.

Remediation plans for the 18‐10 #3 Upper Selma Chalk well that experienced a mechanical integrity issue with the production casing during completion operations have been finalized and services contracted to commence operations in late Q3 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.

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