Mr. Neil Roszell reports

HEADWATER EXPLORATION INC. ANNOUNCES FIRST QUARTER FINANCIAL RESULTS, OPERATIONS UPDATE AND DECLARES QUARTERLY DIVIDEND

Headwater Exploration Inc. has released its financial results for the three months ended March 31, 2023, has provided an operations update and has declared a quarterly dividend. Selected financial and operational information is outlined herein and should be read in conjunction with the unaudited interim condensed financial statements and the related management's discussion and analysis. These filings will be available at SEDAR and the company's website.

First quarter 2023 highlights:

• Declared second cash dividend of 10 cents per common share and returned $23.5-million to shareholders in April, 2023;
• Production averaged 17,004 barrels of oil equivalent per day (consisting of 14,777 barrels per day of heavy oil, 12.8 million cubic feet per day of natural gas and 91 bbl/d of natural gas liquids), representing an increase of 37 per cent from the first quarter of 2022;
• Realized adjusted funds flow from operations of $59.2-million (25 cents per share, basic);
• Achieved an operating netback inclusive of financial derivatives of $44.60 per boe and an adjusted funds flow netback of $38.75 per boe;
• Achieved net income of $30.0-million (13 cents per share, basic);
• Executed a $69.5-million capital expenditure program inclusive of 31.5 net sections of land in the West Nipisi area, and drilled 24 crude oil wells including nine exploration wells in Greater Peavine and West Nipisi;
• As at March 31, 2023, Headwater Exploration had adjusted working capital of $70.5-million, working capital of $77.4-million and no outstanding bank debt.

Operations update

Marten Hills West

Headwater Exploration has continued to experience exceptional success in the Marten Hills West area. Over the last 18 months, production has grown from fewer than 100 bbl/d to current levels of approximately 5,000 bbl/d. A total of 17 wells have been drilled into the Marten Hills West pool this year. To date, eight of these wells are on production at an average 30-day initial production (IP) rate of 250 bbl/d. The remaining nine wells are currently in various stages of load recovery.

Key highlights of the drilling program are as follows: The 02/06-13-075-02W5 well has achieved an IP50 of 295 bbl/d. This well has validated its geotechnical interpretation of a continued southern extension of this pool. The 00/01-03-76-02W5 well has achieved an IP15 of 170 bbl/d, proving an eastern extension of its pool boundaries. A third stepout well at 00/14-16-075-02W5 came off load recovery May 3 and is currently producing 400 bbl/d, validating a further western extension of its pool boundaries. The culmination of these tests continues to validate the scope of the Marten Hills West Clearwater A pool, which is interpreted to have the potential to be larger than its Marten Hills core pool.

Testing of enhanced oil recovery is progressing on the Marten Hills West Clearwater A pool. Its first pilot injector has been on injection for 50 days with encouraging results. Its second injection well at 16-22-75-02W5 is currently being produced as an oil well and will commence injection early in the third quarter of 2023.

Excitement around the Marten Hills West area continues to grow. The Headwater Exploration team has identified three additional prospective Clearwater zones that are currently untested. It is in the process of licensing locations to test these zones and anticipates having results prior to year-end.

West Nipisi

Subsequent to its last update on March 9, Headwater Exploration has continued expanding the pool boundaries on this new Clearwater discovery. A three-leg multilateral well drilled at 01-05-078-09W5 has achieved an IP45 of 110 bbl/d and extended the play to the southern edge of Headwater Exploration's lands. Current production from this area has exceeded 750 bbl/d.

Headwater Exploration has identified multiple Clearwater prospects on the recently acquired 31.5 sections of land and is currently preparing to license two tests that are expected to be drilled later this year.

Greater Peavine

Its first two Peavine exploration wells were shut in for the majority of April due to spring breakup but have recently returned to production. Consistent with its expectations for the area, the wells are each producing at 75 to 100 bbl/d.

Its first exploration well at Seal, 13-06-083-15W5, has achieved an IP50 of 70 bbl/d of 13-degree API oil with a low water cut, which has confirmed economic hydrocarbons in the area.

Headwater Exploration remains extremely encouraged about the multizone potential of this area, and has plans to return and test two additional Clearwater sands in the fourth quarter. Given the large oil resource throughout the area, Headwater Exploration has plans to test fishbone multilateral wells as a method to enhance productivity and improve recovery factor throughout this area.

Marten Hills core

The core area continues to produce consistently at approximately 11,000 boe/d. The enhanced oil recovery implemented to date has resulted in approximately 2,800 bbl/d of stabilized oil production. As its implementation of water flood continues throughout 2023, it is expected that the stabilized production within the core area will continue to grow.

McCully

McCully contributed $12.1-million in free cash flow through the first quarter of 2023. Headwater Exploration's structured hedging program for its McCully asset has protected the asset's cash flow against the highly volatile gas pricing experienced this winter. Consistent with prior years and to optimize adjusted funds flow, Headwater Exploration shut in production May 1, 2023, to await next winter's premium pricing season.

Second quarter dividend

The board of directors of Headwater Exploration has declared a quarterly cash dividend to shareholders of 10 cents per common share payable on July 17, 2023, to shareholders of record at the close of business on June 30, 2023. This dividend is an eligible dividend for the purposes of the Income Tax Act (Canada).

Outlook

Although it continues to see extreme volatility in commodity prices, Headwater Exploration's positive working capital provides it the optionality to continue to execute on its focused business plan of shareholder returns through strong production growth and its stable dividend stream. For 2023, it remains committed to its previously guided capital budget of $200-million to achieve average annual production of 18,000 boe/d.

Its success across its Clearwater asset base increases the depth of Headwater Exploration's drilling inventory, providing the pathway for continued success in the future.

Headwater Exploration focuses on total shareholder returns through a combination of growth and return of capital through a consistent and growing dividend stream. Based on current strip pricing and its projected growth rate, it anticipates having the optionality to increase its quarterly dividend in 2024 and beyond.

Additional corporate information can be found in the company's corporate presentation and on Headwater Exploration's website.

Alberta wildfire update

To date, Headwater Exploration's operations have not been impacted by the Alberta wildfires. The company continues to closely monitor the wildfires in the region and is ready to take immediate action as necessary to ensure the safety of its personnel.

Headwater Exploration would like to thank its staff, industry partners, emergency responders and firefighters, who are protecting the communities.

We seek Safe Harbor.