Mr. Ian Atkinson reports

SOUTHERN ENERGY CORP. ANNOUNCES SECOND QUARTER 2023 FINANCIAL RESULTS AND PROVIDES GWINVILLE OPERATIONAL UPDATE

Southern Energy Corp. has released its second quarter financial and operating results for the three and six months ended June 30, 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 (MD&A) for the three and six months ended June 30, 2023, which are available on the company's website and have been filed under the company's profile on SEDAR+.

All figures referred to in this news release are denominated in United States dollars, unless otherwise noted.

Second quarter 2023 highlights:

• Generated $200,000 of adjusted funds flow from operations in Q2 2023, excluding $500,000 of one-time transaction costs, and general and administrative costs;
• Net loss of $3.8-million in Q2 2023 (three cents net loss per share basic and diluted), compared with net earnings of $2.8-million in Q2 2022;
• Petroleum and natural gas sales of $3.7-million in Q2 2023 and $8.9-million for the six months ended June 30, 2023;
• On June 1, 2023, Southern completed a strategic and highly synergistic acquisition in Gwinville of approximately 400 boe/d (barrels of oil equivalent per day) (99 per cent natural gas) for cash consideration of $3.2-million;
• Q2 2023 average production of 15,907 Mcfe/d (thousand cubic feet equivalent per day) (2,651 boe/d) (96 per cent natural gas), an increase of 12 per cent from Q2 2022. Current field sales production is approximately 2,900 boe/d (96 per cent natural gas), with four new horizontal wellbores awaiting completion operations. Once Southern commits to completing these two pad sites, it is expected that all four wells could be on production within approximately eight weeks;
• Average realized natural gas and oil prices for Q2 2023 of $2.18/Mcf (thousand cubic feet) and $72.83/bbl (barrel) compared with $7.53/Mcf and $109.01/bbl in Q2 2022. The current NYMEX (New York Mercantile Exchange) strip price forecast for the remainder of 2023 is averaging approximately $3.10/MMBtu (million British thermal units), a 47-per-cent increase compared with the benchmark price in Q2 2023.

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

"Our focus for Q2 2023 was primarily on completing and integrating the Gwinville acquisition. We have started, and will continue, to maximize operational synergies of the assets, as well as position the company for the return to growth as commodity prices continue to improve. In addition to considerable synergistic value and high-quality drilling inventory, the Gwinville acquisition provides Southern with access to sell gas into the Florida Gas Transmission system where, similar to Transco Zone 4, we are realizing continuous premium pricing to the NYMEX natural gas price. As the warm summer temperatures in the southern U.S. have elevated natural gas power demand, and we now head into a period of slowing production growth due to lack of capital spending by the industry and incremental demand from additional LNG [liquified natural gas] export capacity, we are encouraged by the outlook of supply and demand dynamics for U.S. natural gas. Southern is well positioned to capitalize on natural gas prices with production behind pipe which can be brought on stream in a short time frame.

"We remain committed to reaching our goal of 25,000 boe/d and continue to assess opportunities to grow inorganically, further building shareholder value as commodity prices continue to recover to a point where we plan to relaunch our organic growth program."

Gwinville development update

As previously reported in the company's announcement on May 30, 2023, the company concluded operations on the latest 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 that has persisted throughout Q2 2023. Of the seven wells that were drilled, only the three wells from the 18-10 pad site were completed with the other four wells (two on the 14-06 pad and two on the 13-13 pad) remaining as uncompleted, waiting on more supportive natural gas prices.

The four wells that are awaiting completion include the first two Lower Selma Chalk laterals, along with the second City Bank lateral and one of the Upper Selma Chalk laterals. These four wells are some of Southern's longest laterals to date. They were drilled with an average lateral length of approximately 5,400 feet 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 will consider commencing completion operations in Q4 2023.

The company continues to flow back its first City Bank horizontal well at Gwinville 18-10 No. 1, with load fluid recovery of approximately 20 per cent. The well was brought on-line in late February, 2023, with gas rates increasing to approximately 600 Mcf/d and having remained flat for the past few months. The company believes that the most plausible explanation for the lower-than-expected gas rate is due to fracture communication with an offset well which had previously been produced from the deeper Tuscaloosa formation from the 1940s to 1960s. It is expected that production will remain flat and/or increase as more load fluid is recovered and bottom hole pressure can be decreased, and that the overall recovery from the well should not be materially impacted. In future operations in City Bank horizontal wells, Southern will likely choose to create a buffer zone around the vintage abandoned Tuscaloosa wells by eliminating proximal frac stages to avoid any potential communication. The company is very excited to complete the 13-13 City Bank horizontal well, where it does not foresee any of these potential issues.

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, have been finalized and services contracted to commence operations in late Q3 2023. The 18-10 No. 3 well was drilled to a total lateral length of 5,091 feet, 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.

Gwinville acquisition integration

Southern has been very successful in quickly integrating the acquired assets in Gwinville over the first few months following closing of the transaction on June 1, 2023. Immediate cost savings in the form of labour and supervision redundancies, as well as reduced maintenance contracts have been realized. Southern is currently in the process of installing the necessary pipeline infrastructure to consolidate the two gathering systems, allowing the company to run one central compressor station versus the five that were running before the transaction. These synergies will not only remove costly rental compression and allow Southern to monetize spare owned compressors, but will also eliminate approximately 250 Mcf/d of fuel gas and associated emissions, and add this gas directly to sales volumes. The company expects this fieldwork to be completed by the end of Q3 2023.

The company plans to work over a number of acquired wellbores that have significant upside production potential, also expected to be completed by the end of Q3 2023.

Additionally, marketing arrangements assumed from the previous operator have given Southern access to the Florida Gas Transmission Zone No. 3 that was not previously available. During Q3 2023, Southern has thus far been able to sell as much as 4,000 MMBtu/day into the system, which has had an average premium to Henry Hub/NYMEX over that period of approximately 40 cents to 60 cents/MMBtu. The company will continue to maximize its exposure to this sales delivery point, as much as possible, to optimize its field netbacks.

Outlook

Southern has four high-impact, 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, greatly improving per-Mcfe operating expenses expected in Q4 2023. This will allow Southern to react quickly to changing commodity prices to maximize returns. Additionally, the company currently has $11.5-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 continuously monitors both the price of NYMEX as well as the basis differentials in order to mitigate some of the volatility of natural gas prices. Southern's current commodity hedge program includes:

• Fixed basis swap on 1,000 MMBtu/d at a 32-cent/MMBtu premium to NYMEX from April 1, 2023, to Oct. 31, 2023;
• Fixed price swap on 1,000 MMBtu/d at a price of $3.88/MMBtu from Jan. 1, 2024, to Dec. 31, 2025;
• Costless collar on 2,000 MMBtu/d with a floor of $3/MMBtu and a ceiling of $3.98/MMBtu from Sept. 1, 2023, through March 31, 2024.

Southern will continue to monitor NYMEX prices and the basis differential prices, and is prepared to hedge additional volumes in a tactical manner going forward.

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

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. 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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