Mr. Ian Atkinson reports

SOUTHERN ENERGY CORP. ANNOUNCES CLOSING OF SYNERGISTIC ASSET ACQUISITION TO CONSOLIDATE THE GWINVILLE FIELD AND RESTRICTED SHARE AWARD GRANT

Southern Energy Corp. has closed its acquisition of the remaining producing acreage in the Gwinville field in Jefferson Davis county in Mississippi from PetroTX Energy LLC for a cash purchase price of $3.2-million, as previously announced on May 23, 2023.

Ian Atkinson, president and chief executive officer of Southern, commented: "We are very pleased to close this highly accretive acquisition. Our team has already begun optimizing the newly consolidated assets, including through marketing opportunities, with additional volumes and access to the Florida gas transmission sales point, which is currently receiving a strong premium to NYMEX Henry Hub, and the rationalization of operating costs. We will continue to achieve synergies through the further reduction of operating costs and through additional marketing opportunities. This transaction demonstrates our ability to execute high-value growth opportunities at all stages in the commodity cycle and we will look to build on this through organic development of the Gwinville area in the future."

Details of the transaction

The assets are currently producing approximately 400 barrels of oil equivalent per day (boe/d) (99 per cent natural gas) of high-working-interest production at a less-than-8-per-cent projected annual decline from over 8,500 acres of held-by-production acreage and include significant redevelopment opportunities in the Selma Chalk formation.

The company anticipates that the operating cost savings of the asset of more than 30 per cent will be realized almost immediately, primarily driven by the consolidation of infrastructure, staff and services in the Gwinville field. The transaction is consistent with the company's strategy to consolidate stable, low-decline, cash-flowing assets that have been historically undercapitalized at highly attractive and accretive metrics.

Transaction highlights:

• PDP (proved developed probable) PV10 (present value at 10 per cent) value of $7.7-million, including operations synergies, representing a PDP PV34 valuation or a nearly 60-per-cent discount to PDP PV10:
  • This includes expected operational synergies with a PV10 value of more than $5-million;
• Cash flow for the next 12 months of $900,000, representing a cash flow multiple of 3.6 times; 2022 cash flow of $3.7-million, representing a cash flow multiple of 0.9 times;
• Flowing production (WI (working interest)) addition per boe/d acquired of $7,800 ($1,300 per thousand cubic feet equivalent per day (mcfe/d)), on an annual basis;
• 1.8 million barrels of oil equivalent (mmboe) PDP reserves (WI) addition at implied price of $1.76 per barrel of oil equivalent (boe);
• Potential 2P reserves (WI) addition of 14.5 million boe; 20-plus net Selma Chalk drilling locations identified;
• Projected 7-per-cent increase to sales gas volumes through fuel gas reduction;
• Estimated operating cost savings of more than 30 per cent expected to be achieved through synergies with the company's current Gwinville acreage;
• 239 total/204 producing (net) wells with low future plugging liability associated with the assets.

PDP reserves, 2P reserves and PV10 in respect of the assets have been internally estimated by the company's internal qualified reserves evaluator (QRE) and prepared in accordance with National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities, and the most recent publication of the Canadian Oil and Gas Evaluation Handbook (COGEH). Internally estimated means an estimate that is derived by the company's internal QRE and prepared in accordance with NI 51-101. All internal estimates contained in this news release have been prepared effective as of June 1, 2023. Reserves values are based on working interest reserves of the assets before deduction of royalties and without including any of royalty interest reserves.

The consideration of $3.2-million was financed through existing capacity from the senior secured term loan with Southern's current lender, which is highly supportive of the transaction. Southern still has approximately $14.5-million of capacity remaining on the credit facility after closing the transaction, which provides ample funds to complete the four drilled but uncompleted wells from the Gwinville drilling program when natural gas prices are supportive.

Restricted share award grant

Southern has granted restricted share awards (RSAs) to certain employees, officers and directors of the company as part of Southern's overall compensation and employee retention program, in accordance with the terms of the company's share award incentive plan. For more information regarding the company's compensation philosophy and practices, please see Southern's management information circular dated May 1, 2023, which is available on the company's SEDAR profile.

Southern has granted an aggregate of 1,255,800 RSAs, of which 837,500 were issued to directors and persons discharging managerial responsibilities (PDMR) of the company, as set out in the attached table. The RSAs vest as to one-third on each of the first, second and third anniversary dates of the grant date. On the vesting dates of such RSAs, the holder is entitled to receive a cash payment or its equivalent in fully paid common shares of the company, at the company's discretion, equal to the closing market value per common share on the TSX Venture Exchange on the business day prior to such payment.

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 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. Its management team has a long and successful history working together, and has 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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