Mr. Neil Roszell reports

HEADWATER EXPLORATION INC. ANNOUNCES 2024 BUDGET AND OPERATIONS UPDATE

Headwater Exploration Inc. has released its preliminary 2024 budget and an operations update.

Following a thorough evaluation of its land acquisition strategy and exploration successes, the board has granted approval for the 2024 preliminary budget as outlined below. The budget is designed to allow Headwater Exploration to be resilient to the current environment and opportunistic on expanding its prospects while achieving top-tier total returns for its shareholders:

• Capital expenditures of $180-million:
  • Maintenance and growth capital: $135-million;
  • Water flood capital: $25-million;
  • Exploration capital: $20-million;
• Quarterly dividend of 10 cents per common share, representing an approximate 6.2-per-cent yield;
• Annual production of 20,000 barrels of oil equivalent per day, representing 11-per-cent year-over-year production per-share growth;
• Adjusted funds flow from operations of $275-million at $70 (U.S.) per barrel West Texas Intermediate.

Its 2024 capital budget includes:

• 60 wells within its maintenance and growth capital program;
• 12 multileg injection wells and associated facilities within its water flood capital;
• Approximately 10 exploration wells across its Clearwater assets and other lands.

Its 2024 budget contemplates delivering 11-per-cent production growth in addition to an approximate 6.2-per-cent dividend yield while maintaining an approximate $58-million positive exit adjusted working capital balance. With recent volatility in WTI and visibility to expanded Western Canadian Select egress, growth capital will be allocated to the second half of 2024 with fourth quarter rates expected to be in excess of 21,500 barrels of oil equivalent per day into an anticipated stronger commodity price environment.

Exploration expenditures

The budget contemplates $20-million for new play exploration. The 10 scheduled exploration wells will validate six new play concepts inclusive of two within the Clearwater fairway and four on the lands that have been acquired outside of the Clearwater fairway.

Enhanced oil recovery

By early 2025, it will have the entire nine-section Marten Hills core area under secondary recovery. It is highly encouraged by the results to date, having approximately 3,000 bbl per day of oil stabilized from the current six sections supported. The 2024 enhanced oil recovery capital program within the core is expected to expand its stabilized production to more than 4,000 bbl per day.

At Marten Hills West, its two pilot water floods continue to provide encouraging results. To date, the pilots have stabilized approximately 200 bbl/d of oil production. In 2024, it will implement the next phase of enhanced oil recovery by placing a full section under secondary recovery, which is expected to stabilize an additional 300 bbl/d of oil production. As it looks beyond 2024, this next phase of water flood implementation will provide the technical learnings to roll out enhanced oil recovery across Marten Hills West.

Operations update

Marten Hills West

New pool exploration and stepouts in the Clearwater A have continued in the fourth quarter as it further delineates its Marten Hills West asset base. A new Clearwater A test at 00/01-09-075-02W5 has achieved a 15-day initial production rate of 147 bbl/d, which provides a one-mile extension to its southern pool boundaries. In addition, it recently drilled and turned to production a four-mile stepout to the east at 00/03-15-075-01W5, which provided favourable indications while drilling.

Exploration tests in the untested Clearwater E, F and G pools are all drilled and at various stages of production. The Clearwater E test at 02/13-15-076-02W5 was placed on production Nov. 28 and is currently producing backload fluid. The Clearwater F test at 00/14-19-076-02W5 achieved a 20-day initial production rate of 73 bbl/d with increasing water cuts postload recovery. This well exhibited strong fluid inflow, setting up a future updip test of the Clearwater F pool. The Clearwater G test at 00/02-30-075-01W5 has achieved a 45-day initial production rate of 150 bbl/d.

Seal

Results from the Fahler B and Fahler D exploration tests continue to be above expectations, setting up an expanded 2024 follow-up program. The 03/13-06-083-15W5 Fahler B well has achieved a 60-day initial production rate of 130 bbl/d. The 00/07-07-083-15W5 Fahler D StingWray fan well has achieved a 30-day initial production rate of 130 bbl/d, which is a 65-per-cent improvement over the original eight-leg multilateral discovery well at 00/13-06-083-15W5. Its 2024 program contemplates five to 10 delineation wells, which will include further tests of its StingWray well design.

McCully

McCully was placed back on production Dec. 1 to align with its aggressive hedging profile. Approximately 80 per cent of its December, 2023, to March, 2024, volumes are hedged at $18.50 per thousand cubic feet, which is expected to provide approximately $16-million of free cash flow over the winter producing season.

We seek Safe Harbor.