Mr. Ian Atkinson reports

SOUTHERN ENERGY CORP. ANNOUNCES FIRST QUARTER 2023 FINANCIAL AND OPERATING RESULTS

Southern Energy Corp. has provided its first quarter financial and operating results for the three months ended March 31, 2023. Selected financial and operational information is outlined below and should be read in conjunction with the company's unaudited consolidated financial statements and related management's discussion and analysis (the MD&A) for the three months ended March 31, 2023, which are available on the company's website and have been filed on SEDAR. All figures referred to in this news release are denominated in U.S. dollars, unless otherwise noted.

First quarter 2023 highlights

• Generated $1.7-million of adjusted funds flow from operations in Q1 2023 (one cent per share basic and diluted);
• Net loss of $1.1-million in Q1 2023 (one-cent loss per share basic and diluted), compared with a net loss of $1.9-million in Q1 2022;
• Petroleum and natural gas sales were $5.2-million in Q1 2023;
• Maintained balance sheet strength with net debt to adjusted funds flow from operations ratio of 1.2 times on a trailing 12-month basis down from 2.6 times in the first quarter of 2022;
• Average production of 15,643,000 cubic equivalent per day (2,607 barrels of oil equivalent per day) (95 per cent natural gas) during Q1 2023, an increase of 36 per cent from the same period in 2022;
• Average realized natural gas and oil prices for Q1 2023 of $3.25 per thousand cubic feet and $75.73 per barrel, respectively, reflecting the benefit of strategic access to premium-priced U.S. sales hubs in a geographic region with strong industrial and power generation natural gas demand;
• Drilled six net wells at Gwinville in Q1 2023 from three pad sites, with each subsequent pad drilling operation resulting in fewer drilling days per well depth adjusted.
• 2022 year-end reserves upgrade:
  • Highlights of the company's year-end independent oil and gas reserves evaluation as at Dec. 31, 2022 (the NSAI report), prepared by independent qualified reserves evaluator Netherland, Sewell & Associates Inc. (NSAI) include:
    • An increase in proved developed producing (PDP) reserves of 25 per cent to 6.2 million barrels of oil equivalent;
    • An increase in total proved (1P) reserves of 44 per cent to 14.1 million boe;
    • An increase in total proved plus probable (2P) reserves by 31 per cent to 25.5 million boe in 2022;
    • Before-tax net present value (NPV) of 2P reserves, discounted at 10 per cent (NPV10), of $142.5-million (an increase of 61 per cent on year-end 2021).
• Top performing energy stock in the 2023 TSX Venture 50 based on equal weighting of performance during 2022 across three key indictors: market capitalization growth, share price appreciation and trading volume.

Subsequent events

• As announced on May 23, 2023, Southern entered into a strategic and highly synergistic purchase and sale agreement to acquire about 400 boe/d (99 per cent natural gas) for cash consideration of $3.2-million in Gwinville with an expected close date of June 1, 2023.

Ian Atkinson, president and chief executive officer of Southern, commented:

"Q1 2023 was a great operational quarter for Southern as we wrapped up our seven-horizontal-well drilling program at Gwinville, with improved drilling time and cost-efficiencies, which will lead to future cost savings when we reignite our organic growth at more supportive commodity prices. We are encouraged by the outlook of supply and demand dynamics for U.S. natural gas and are well set to immediately capitalize on gas prices with production behind pipe which can be brought on stream in a very short time scale. Additionally, we are extremely excited to consolidate the Gwinville field with the recently announced asset acquisition. This acquisition, which will be seamlessly incorporated with our current operations and staff, provides significant cost synergies, stable, low-decline production and additional high-quality drilling locations to complement our current drilling inventory. These are precisely the type of accretive transactions that we are looking for to expedite reaching our goal to reach 25,000 boe/d. As a low-cost producer attracting premium pricing, we feel that we have the right assets in the right locations that will provide long-term value to shareholders and continue to look for further comparable opportunities."

                             FINANCIAL HIGHLIGHTS
                          (in thousands of dollars)

                                                 Three months ended March 31,
                                                     2023               2022          

Petroleum and natural gas sales                    $5,189             $5,925  
Net (loss)                                         (1,120)            (1,855)
Net (loss) per share                               
Basic                                               (0.01)             (0.02)
Fully diluted                                       (0.01)             (0.02)
Adjusted funds flow from operations                 1,745              2,234  
Adjusted funds flow from operations per share       
Basic                                                0.01               0.03  
Fully diluted                                        0.01               0.03  
Capital expenditures                               34,892              6,872  

Operational update

On March 29, 2023, the company concluded operations on the current drilling campaign which included seven new horizontal wells into three separate productive horizons from three distinct pad sites 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 in the first quarter of the year to maintain balance sheet discipline.

Southern is extremely happy with the field execution performance from this program, highlighted by drilling efficiencies which saw the average time from spud to total depth of the Selma Chalk wells reduced from approximately 20 days in Southern's three-well appraisal program in 2022 to below 10 days by the final pad site in Q1 2023. The majority of the wells in the program came in at or below the initial drilling and completion cost estimates, despite more than 80 per cent of the cost structure being fixed due to long-term contracts for materials and major services locked in during the highly inflationary second half of 2022. With the learnings and efficiencies achieved in this campaign, Southern is planning for all future horizontal drilling in Gwinville to utilize an optimized wellbore design change that will remove the intermediate casing string and all associated costs which the company expects will reduce the per-well drilling costs by 20 to 25 per cent. This will allow the company to reinitiate its organic growth plans at lower future gas prices than what was previously contemplated.

Comparing key performance indicators from the drilling and completion operations in this program with the appraisal program from 2022, Southern achieved a 6-per-cent reduction in drilling costs per lateral foot (down to $644 per foot) and a greater than 22-per-cent reduction in completion costs per lateral foot (down to $615/ft). Further, compared with the early generation horizontal activity between 2005 and 2009 on the asset by the previous operator, one of the largest independent upstream oil and natural gas companies in the United Stats, on an inflation adjusted basis, Southern achieved a greater than 30-per-cent reduction in both drilling and completion costs per lateral foot.

The company continues to flow back its first City Bank Hz well at Gwinville 18-10 No. 1, with load fluid recovery of approximately 13 per cent. Based on historical vertical and early generation horizontal well completions in the City Bank reservoir in Gwinville, peak gas rates are not expected until the load fluid recovery is closer to over 20 per cent, which is expected to be toward the end of Q2 2023. Gas rates are encouraging and continue to improve and Southern is excited to provide further operational updates in Q2 2023 as the modern generation City Bank type curve results are established.

Remediation plans for the 18-10 No. 3 Upper Selma Chalk well that experienced a mechanical integrity issue with the production casing during completion operations continue to be finalized, with field execution expected in late Q2 2023. The 18-10 No. 3 well was drilled to a total lateral length of 5,091 ft, achieved 80 per cent of the lateral placed in the targeted porosity zone and was successfully completed in 44 stages prior to the mechanical issue.

The four wells that are awaiting completion include the first two Lower Selma Chalk laterals, along with the second City Bank lateral and one Upper Selma Chalk lateral. 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 per cent of the wellbore length. The two pad sites can be brought on production within a matter of weeks once completion operations are resumed. At current strip pricing, Southern could commence completion operations in Q4 2023.

Outlook

With a moderated capital program due to low commodity prices, Southern has left four drilled, uncompleted wells (DUCs) that can be quickly completed and brought on line through Southern's 100-per-cent-owned equipment at higher natural gas prices. After closing the above-mentioned acquisition anticipated on June 1, 2023, Southern expects to have approximately $14.5-million of unused capacity on its senior secured term loan, which can be utilized to complete the DUCs at supportive natural gas prices.

As part of its risk management and sustainability strategy, Southern has entered into both a fixed basis and a fixed price swap in order to mitigate some of the volatility of the natural gas prices going forward. In Q1 2023, Southern entered into a basis swap transaction to secure a premium to Nymex of 32 cents per million British thermal units on 1,000 MMBtu/d from April 1, 2023, to Oct. 31, 2023. Subsequent to March 31, 2023, Southern entered into a fixed price hedge on 1,000 MMBtu/d of production at a price of $3.88/MMBtu from Jan. 1, 2024, to Dec. 31, 2025. To further protect against the volatility, the company continues to monitor the basis differential prices and is prepared to hedge additional basis exposure at elevated basis premiums.

Southern thanks all of its stakeholders for their continuing support and looks forward to providing future updates on operational activities and continuing to create shareholder value.

Qualified person's statement

Gary McMurren, chief operating officer, who has over 22 years of relevant experience in the oil industry, has approved the technical information contained in this announcement. Mr. McMurren is registered as a professional engineer with the Association of Professional Engineers and Geoscientists of Alberta and received a bachelor of science degree in chemical engineering (with distinction) from the University of Alberta.

About Southern Energy Corp.

Southern Energy is a natural gas exploration and production company characterized by a stable, low-decline production base, a significant low-risk drilling inventory and strategic access to premium 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 company's management team has a long and successful history working together and have created significant shareholder value through accretive acquisitions, optimization of existing oil and natural gas fields, and the utilization of redevelopment strategies utilizing horizontal drilling and multistaged fracture completion techniques.

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