Mr. J.H.T. Riddell reports

TRILOGY ENERGY CORP. PROVIDES UPDATE ON Q4 2016 OPERATIONS, 2017 HEDGING PROGRAM AND 2017 GUIDANCE

Trilogy Energy Corp. is providing an update on its fourth quarter 2016 Montney and Duvernay operations, its current hedging program, and annual guidance for 2017.

Highlights:

• Trilogy's 2016 annual production averaged approximately 21,800 barrels of oil equivalent per day, with an exit rate in December, 2016, of approximately 23,800 barrels of oil equivalent per day.
• Trilogy is estimating net capital expenditures of approximately $72.8-million for 2016, which includes $29.7-million in the fourth quarter of 2016.
• Trilogy's board of directors approved a 2017 capital budget of $130-million. Management expects the capital program to be financed entirely out of funds flow from operations.
• For 2017, Trilogy is forecasting its capital expenditures to be less than its projected funds flow from operations while growing its production approximately 10 per cent over 2016 average production to approximately 24,000 barrels of oil equivalent per day, based on current strip pricing and taking into account current company hedges.
• The company plans to invest approximately $60-million into the Kaybob Montney oil pool in 2017 to drill 15 horizontal net wells, complete 18 net wells and complete infrastructure projects that will reduce continuing operating costs in this area.
• Trilogy also plans to invest approximately $25-million into the Presley gas pool in 2017 to drill, complete and tie in 5.25 net wells.
• The balance of the capital budget will be primarily allocated to developing Trilogy's Duvernay assets in the second half of the year, with lesser amounts allocated to infrastructure, workovers, tie-ins and projects designed to reduce operating costs.
• The company is estimating funds flow from operations for 2016 of $56.5-million, which includes a provision in the fourth quarter of 2016 of $5.1-million in connection with the company's previously reported Kaybob emulsion release and approximately $2.5-million on third party downward revenue adjustments for prior-year production allocations.

Q4 2016 operating update

Trilogy's average production during the fourth quarter of 2016 is expected to be approximately 22,600 barrels of oil equivalent per day, resulting in annual 2016 average production of approximately 21,800 barrels of oil equivalent per day, with production in December, 2016, being approximately 23,800 barrels of oil equivalent per day. During the quarter, Trilogy recorded a $5.1-million provision for the Kaybob emulsion release reported in October, 2016, and a $2.5-million provision for a third party downward revenue adjustment relating to prior-year production allocations. Third party revenue adjustments negatively impacted full-year 2016 average production by an estimated 115 barrels of oil equivalent per day.

Funds flow from operations for the fourth quarter is approximately $22.4-million. Excluding one-time adjustments for the emulsion release ($5.1-million) and revenue allocation ($2.5-million), fourth quarter 2016 funds flow from operations was expected to be approximately $30-million.

Montney update

Based on the encouraging completion results from its first quarter 2016 Montney horizontal oil wells, the company elected to increase its Montney drilling activity in 2016 from the two wells that were initially planned to a total of 12 wells for the year. Nine of these wells were completed prior to the end of 2016, and the remaining three will be completed in 2017.

Improvements to Trilogy's Montney oil well drilling and completion program resulted in well costs declining by approximately 30 per cent, while productivity generally increased. Cost savings were achieved in the drilling operations through the utilization of multiwell pads and high performance mud motor drilling. The change from hydrocarbon-based fracture stimulations to water-based fracture stimulations significantly reduced completion costs, and allowed the company to economically increase proppant volume and decrease stage spacing.

Trilogy varied sand volumes per stage from 10 tonnes per stage in its original horizontal Montney oil wells to as much as 20 tonnes per stage in recent wells. At the same time, stage spacing was reduced from 75 metres per stage in the original wells to 50 metres to 65 metres in the recent wells. Incorporating the efficiencies from its 2016 Montney drilling and completion program, Trilogy plans to drill 15 horizontal Montney oil wells and complete 18 wells in 2017.

The attached table summarizes production results from the nine horizontal Montney oil wells that were drilled, completed and brought on production in 2016. The variable results reflect the evolution of completion techniques described above.

                    Cum      Cum     Average     Average    Average        Sand     Stage    Total             
                    oil      gas    oil rate    gas rate      prod       tonnes   spacing     prod           
                  (mbbl)   (mmcf)     (bbl/d)    (mmcf/d)   (boe/d)   per stage        (m)    days     On prod date

02/12-6-64-18W5      68      175         300         0.8       433           10        75      227     May 12, 2016
5-6-64-18W5         101      267         464         1.2       664           20        75      216   March 18, 2016
10-31-64-18W5        13        5         152         0.1       169           20       100       85   Sept. 23, 2016
02/1-1-64-19W5       46       57         830         1.0       997           20        75       55    Oct. 16, 2016
2-1-64-19W5          13        6         415         0.2       448           20        65       30    Oct. 20, 2016
02/2-1-64-19W5       43       39         958         0.9     1,108           20        75       45    Oct. 17, 2016
02/5-6-64-18W5       65       90       1,197         1.7     1,480           13        50       54    Nov. 12, 2016
02/4-6-64-18W5       26       20         966         0.7     1,082           20        50       27    Nov. 11, 2016
03/4-6-64-18W5       11       13         400         0.5       483           20        50       27    Nov. 14, 2016

Duvernay update

Trilogy successfully drilled, completed and tied in two (two net) horizontal Duvernay wells in 2016. Each well was drilled and completed on a single-well pad at a cost of approximately $10.2-million per well. The significant reduction in costs relative to previous wells reflects improvements in efficiencies and operational performance during the drilling and completion operations.

The 02/16-17-61-19W5 well was placed on production on Nov. 10, 2016, and has produced for 63 days since that time, producing an aggregate of 17 million barrels of condensate and 194 million cubic feet of natural gas. Production is currently restricted through a downhole choke which will be pulled once surface flowing pressures stabilize. Liquids recovery from this well has been variable since coming on production relative to other Duvernay wells operated by Trilogy and other producers in the area. This well's condensate gas ratio will be monitored closely over the next few months to confirm that it normalizes in the expected range of approximately 125 barrels per million cubic feet.

The 12-21-63-17W5 well was brought on production on Dec. 21, 2016, and has produced an aggregate of nine million barrels of crude oil/condensate (42-degree API, density of 814 kilograms per cubic metre) and 8.9 million cubic feet of natural gas in the past 17 days. The well is expected to decline from current rates, and Trilogy is forecasting the well to stabilize within the initial six to 12 producing months.

                    Cum      Cum        Average     Average    Average    Condensate    Sand   Total       
                    oil      gas       oil/cond    gas rate       prod     gas ratio    conc    prod    
                  (mbbl)   (mmcf)   rate (bbl/d)    (mmcf/d)    (boe/d)    (bbl/mmcf)   (t/m)   days    On prod date

2/16-17-61-19W5    17.0      194            280         3.2        813            88      2.2     61   Nov. 10, 2016
12-21-63-17W5       9.0      8.9            532         0.5        615         1,010      2.2     17   Dec. 21, 2016

2017 hedge update

Trilogy has hedged approximately 31 per cent of its forecast 2017 production to lock in expected returns from wells drilled in its 2017 capital spending program. Details of the hedges are as follows:

• Hedged 30,000 million British thermal units per day of natural gas for calendar 2017 at New York Mercantile Exchange $3.44 (U.S.);
• Hedged 2,000 barrels per day of crude oil for calendar 2017 at NYMEX $71.17;
• Collared 500 barrels per day of crude oil for calendar 2017 between $38 and $57.50 (U.S.) West Texas Intermediate;
• Collared 500 barrels per day of crude oil for calendar 2017 between $42 and $52.90 (U.S.) WTI;
• Locked in $1.3-million (U.S.) hedging gain for 2017 from the sale and repurchase of certain hedging contracts; the gain is expected to be realized evenly over calendar 2017.

2017 annual guidance

Trilogy plans to execute a 2017 capital spending budget that is within anticipated 2017 cash flow based on Trilogy's 2017 production expectations and forecasted pricing. Certain projects that were originally planned for 2017 were accelerated into December, 2016, to improve efficiencies and take advantage of operational opportunities.

Based on the results from the company's 2016 Montney oil and gas drilling programs, Trilogy is budgeting capital expenditures of approximately $60-million to drill 15 horizontal Montney net oil wells, complete 18 net wells and develop additional infrastructure in the Kaybob Montney oil pool in 2017. Trilogy will also be allocating approximately $25 million in capital to drill 6 (5.25 net) wells into the Presley Montney gas pool, including three extended reach lateral wells and three one-mile laterals. The balance of the 2017 capital program will be allocated to Trilogy's Duvernay assets, infrastructure and other projects designed to reduce operating costs. The level of capital to be allocated to Duvernay projects will be reflective of commodity prices and will be weighted to the second half of 2017.

Given the foregoing, Trilogy is providing 2017 annual guidance as shown in the attached table.

Average production         24,000 boe/d (approximately 35 per cent oil and natural gas liquids)
Average operating costs                                                              $8.50/boe                       
Capital expenditures                                                              $130-million                    

About Trilogy

Trilogy is a petroleum- and natural-gas-focused Canadian energy corporation that actively develops, produces and sells natural gas, crude oil and natural gas liquids.

We seek Safe Harbor.