Mr. Geoff Clark reports

ACCELEWARE LTD. REPORTS FIRST QUARTER 2023 FINANCIAL AND OPERATING RESULTS

Acceleware Ltd. has released its financial and operating results for the three months ended March 31, 2023 (all figures are in Canadian dollars unless otherwise noted) (Q1 2023). Acceleware's quarter-end results reflect contributions from the company's two business units, radio frequency (RF) heating for industrial applications using the company's proprietary Clean Tech Inverter (CTI) including enhanced oil recovery (RF XL), and high-performance computing (HPC) scientific software. This news release should be read in conjunction with the company's unaudited interim condensed financial statements and the accompanying notes for the three months ended March 31, 2023, and management's discussion and analysis (MD&A) thereto, together with the audited financial statements for the year ended Dec. 31, 2022, notes, and MD&A thereto, all of which are available on Acceleware's website or on SEDAR.

Highlights

In Q1 2023, the company continued to make progress on the workover for the pilot test of RF heating technology at Marwayne, Alta., and based on observations to date, remains confident that RF XL will become viable as a critical technology in the effort to decarbonize heavy oil and oil sands production. Initial data analysis, backed up with subsequent "history-matching" simulations and further analyses, provide strong evidence that the operation of the RF XL pilot in 2022 resulted in sustained RF heating of the formation around the heating well prior to a pause in operations for a maintenance workover. The final timing and cost of the workover remain dependent on availability of service rigs, supply chain availability and the successful deployment of upgraded components. Please refer to the RF XL pilot update section below for more information and to the MD&A for a complete RF XL pilot update.

The company had cash on hand of $1.0-million (Dec. 31, 2022 -- $1.1-million), up to $1.4-million (Dec. 31, 2022 -- $1.4-million) of amounts committed but not yet received or receivable from three major oil sands producers, and negative working capital, excluding cash, of $2.0-million (Dec. 31, 2022 -- $1.8-million). The company actively manages its cash flow requirements with a combination of cash generated from operations, external financing and capital raising activities.

In addition, recent highlights during the three months ended March 31, 2023, included:

• Upon inspection of the subsurface components of the RF XL system during the workover, the Acceleware operations team identified additional opportunities to upgrade certain components. Replacement components were received, quality control tested to electrical and mechanical specifications, and are now ready for installation;
• Oil production resumed in late Q1 2023; however, production will be shut in when workover operations are active at site;
• Acceleware continued to invest in developing and protecting new intellectual property with the total number of patents issued, allowed, applied for or in development growing from 44 at the end of 2022 to a total of 50 now;
• On Feb. 22, 2023, Acceleware and Aurora Hydrogen announced the award of $2-million from Alberta Innovates to Aurora Hydrogen for a collaborative project. The $5.5-million joint development will work to develop a new method of methane pyrolysis, utilizing RF energy from Acceleware's CTI to heat Aurora's unique reactor. Negotiations with Aurora regarding project execution are under way.

RF XL project update

In December, 2022, the severed DTS was successfully fished, and in-well inspection was performed. Upon inspection of the extracted subsurface components of the RF XL transmission line, management implemented an upgrade and modification program intended to improve the performance of the RF XL heating system at high RF power and high temperature. Replacement components have been received, quality control tested to electrical and mechanical specifications, and are ready for installation.

During in-well inspection of the non-removable RF XL transmission line components, the operations team identified subsurface components that required repairs. After analysis by the operations team, service provider partners and operating partners, management decided to move forward with a solution that is expected to be completed in Q2 2023. While downhole operations carry a degree of risk, Acceleware has worked to mitigate that risk by developing a repair plan using standard downhole repair technologies and selecting proven service providers to ensure the best opportunity for success. Upon successful completion of these final workover steps, RF XL components and DTS will be reassembled, and heating operations will resume. Acceleware will implement the workover steps in a staged process whereby the initial stage would result in approximately 50 per cent of maximum power being available, performance assessed and the second stage will then be implemented to achieve full power.

Upgrades to the RF XL heating system successfully completed as part of the workover included:

• RF energy transmission system design improvements -- leading to better electrical performance and higher tolerance for adverse downhole conditions; and
• CTI operation and control software enhancements -- improving the resilience and performance of the CTI.

Learnings from pilot operations and the workover are expected to result in additional intellectual property that will further refine the RF XL system including version 2.0 designs for the CTI and the downhole system that will improve future deployability, performance and economics.

Including updated estimates for the workover, Acceleware anticipates an increase of $1-million to the net cost of the RF XL pilot from $26-million to $27-million. Net cost includes estimated gross costs of $27-million to $28-million offset by an estimated $1.0-million to $2.0-million in proceeds from the sale of produced oil. Estimated proceeds from the sale of produced oil have been determined for the economic life of the RF XL pilot well. There is uncertainty in estimating proceeds from the sale of produced oil due to fluctuating oil prices and simulated production volumes. Operating and maintenance cost estimates remain subject to fluctuating commodity prices, in particular electricity, supply chain disruption costs, and any additional unforeseen mechanical or electrical engineering costs that could still potentially be encountered in a complex, commercial-scale pilot program of this nature. While the RF XL pilot heating phase was planned for at least six months, this period will be extended in light of the workover to allow Acceleware to capture additional information on the operation of the technology and its efficiency.

Financial summary

Overall spending in Q1 2023 remained conservative as the company continued to determine thoughtful and cost-conscious next steps in the workover for the RF XL pilot. Construction work on the RF XL pilot was completed in early March, 2022, followed by commencement of operations which continued throughout most of 2022. A workover program began in late 2022 and continues to date. RF XL pilot expenses as at March 31, 2023, were approximately $26.7-million (Dec. 31, 2022 -- $25.9-million). The remaining cash committed but not yet received from SDTC and ERA, including holdbacks receivable, was $500,000 as at March 31, 2023 (Dec. 31, 2022 -- $1.0-million receivable from SDTC, ERA and Alberta Innovates), and amounts committed but not yet received or receivable from three major oil sands producers were $1.4-million as at March 31, 2023 (Dec. 31, 2022 -- $1.4-million).

Quarter in review

Revenue of $100,000 was generated in the three months ended March 31, 2023, compared with $100,000 in the three months ended March 31, 2022 (Q1 2022) and $100,000 in the previous quarter ended Dec. 31, 2022 (Q4 2022). Revenue in Q1 2023 included consulting services revenue as well as software and maintenance revenue. Revenue continues to be lower for the HPC segment due to less demand for FDTD and seismic software. Acceleware did not receive any data revenue payments during Q1 2023 for the RF XL pilot compared with $400,000 in Q1 2022 and $200,000 in Q4 2022, all of which were recorded in deferred revenue. Data revenue equal to the amount recorded in deferred revenue will be recognized as revenue at the end of the RF XL pilot or when the data contracts are terminated, whichever is earlier.

Total comprehensive loss for Q1 2023 was $300,000 compared with a comprehensive loss of $1.9-million for Q1 2022 and a comprehensive loss of $1.3-million for Q4 2022. Comprehensive loss in Q1 2023 and Q4 2022 was impacted by changes in value of the derivative financial instruments embedded within the convertible debenture. These fluctuations are driven primarily by the fluctuation in the company's share price. Additionally, R&D expenses were lower in Q1 2023 and Q4 2022 compared with Q1 2022 due to a lower level of operating activity on the RF XL pilot during the workover.

Gross research and development expenses incurred in Q1 2023 were $800,000 compared with gross R&D expenses in Q1 2022 of $2.6-million and $1.2-million in Q4 2022. R&D spending was lower in Q1 2023 compared with Q1 2022 as the company was completing the final construction stage of the RF XL pilot in Q1 2022. R&D expenses were lower in Q1 2023 as compared with Q4 2022 due to a lower level of activity on the workover. Additionally, there were fluctuations in recognized government assistance. The government of Alberta's Innovation Employment Grant to support research and development was effective Jan. 1, 2021, and provides a grant of up to 20 per cent of eligible R&D expenses incurred in Alberta. This new grant effectively replaces Alberta's 10-per-cent scientific research and experimental development refundable tax credit that was eliminated as of Dec. 31, 2019. The company met the eligibility criteria, claimed eligible R&D expenditures for 2021, and received and recognized $400,000 in Q1 2023. In Q4 2022 there was $900,000 government assistance received and recognized related to the workover, and $1.1-million government assistance recognized in Q1 2022 related to the RF XL pilot. Government assistance offsets gross R&D costs.

General and administrative (G&A) expenses incurred in Q1 2023 were $300,000 compared with $500,000 in Q1 2022 and $600,000 in Q4 2022. There were additional legal and professional fees incurred in connection with the private placements in Q1 2022 and Q4 2022. Additionally, non-cash payroll-related costs were lower in Q1 2023 compared with Q1 2022 due to the timing of option grants. The company continues to prioritize cost control given uncertain economic conditions.

About Acceleware Ltd.

Acceleware is an innovator of clean-tech decarbonization technologies comprising two business units: radio frequency heating technology and seismic imaging software.

Acceleware is piloting RFXL, its patented low-cost, low-carbon production technology for heavy oil and oil sands that is materially different from any heavy oil recovery technique used today. Acceleware's vision is that electrification of heavy oil and oil sands production can be made possible through RFXL, supporting a transition to much cleaner energy production that can quickly bend the emissions curve downward. With clean electricity, Acceleware's RFXLtechnology could eliminate greenhouse gas (GHG) emissions associated with heavy oil and oil sands production. RFXL uses no water, requires no solvent, has a small physical footprint, can be redeployed from site to site and can be applied to a multitude of reservoir types. Acceleware is also actively developing partnerships for RF heating of other industrial applications using the company's proprietary CTI.

Acceleware and Saa Dene Group (co-founded by Jim Boucher) have created Acceleware-Kisastwew to raise the profile, adoption and value of Acceleware technologies. The shared vision of the partnership is to improve the environmental and economic performance of the energy sector by supporting ideals that are important to indigenous peoples, including respect for land, water and clean air.

The company's seismic imaging software solutions are state of the art for high-fidelity imaging, providing the most accurate and advanced imaging available for oil exploration in complex geologies. Acceleware is a public company listed on Canada's TSX Venture Exchange under the trading symbol AXE.

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