Mr. Ian Atkinson reports

SOUTHERN ENERGY CORP. ANNOUNCES PROPOSED EQUITY FUNDRAISING

Southern Energy Corp. intends to conduct an equity fundraise to raise aggregate gross proceeds of at least $5-million (U.S.) (approximately 4.1 million British pounds or $6.9-million), at a price of 15.5 pence (the placing price) or 26 cents per common share (the prospectus price).

The fundraising consists of a placing of new common shares to new and existing institutional investors (the placing), a concurrent public offering of new common shares in Canada (the prospectus offering), and a subscription by certain directors and members of the company's senior management.

The fundraising will launch immediately following the release of this announcement. Stifel Nicolaus Europe Ltd. and Tennyson Securities, a trading name of Shard Capital Partners LLP, are acting as joint bookrunners in connection with the placing. Stifel Nicolaus Canada Inc. is acting as lead agent and sole bookrunner in connection with the prospectus offering.

Overview of the fundraising:

• Southern intends to conduct a $5-million (U.S.) equity fundraise to accelerate the completion of its four drilled and uncompleted (DUC) wells, drilled as part of its Q1 2023 drilling campaign on its Gwinville acreage.
• The accelerated completion of the DUC wells is anticipated to be accretive to Southern through the addition of approximately $20.5-million (U.S.) in proved developed producing (PDP) NPV10 (net present value discounted at 10 per cent) value.
• The company expects the DUC wells, once completed, to have initial production (IP30) rates of approximately 5.6 million cubic feet per day per well, with expected ultimate recovery per well of approximately 4.3 billion cubic feet;
• The DUC wells are forecast to have a per-well payback period of approximately 12 months, with an associated IRR (internal rate of return) of 108 per cent and NPV10 of $4.4-million (U.S.) per well.
• Subject to the successful completion of the DUC wells and achieving production rates as set out herein (and assuming one completion a quarter* and strip commodity pricing as at Oct. 5, 2023), Southern would expect to generate next 12 months total operating cash flow of approximately $20-million (U.S.), resulting in an annualized net debt to EBITDA (earnings before interest, taxes, depreciation and amortization) ratio of approximately 1.0 times in Q4 2024, with next 12 months corporate free cash flow expected to increase to approximately $13-million (U.S.), an increase of approximately 114 per cent on a per-share basis following the planned fundraising.
• Completion of the DUC wells provides Southern with a significant platform for organic growth, with production expected to reach up to 4,700 barrels of oil equivalent per day in 2024, an increase of 39 per cent per share, including the fundraising, and with PDP reserves expected to increase by 12 per cent per share.
• The company has identified over 100 additional horizontal drilling targets at Gwinville, which it will target for development in appropriate gas price environments. Based on the expected drilling and completion costs for new wells of $5.5-million (U.S.), future wells are expected to achieve an approximately 30-per-cent IRR at a natural gas price of $3.78 (U.S.) per million British thermal units.
• The net proceeds from the fundraising will be used alongside existing cash, cash flows and undrawn debt facilities to finance the completion of the DUC wells at a cost of approximately $3-million (U.S.) per well.
• The fundraising consists of the following:
  • A placing of new common shares to new and existing institutional investors at the placing price: The placing will be conducted through an accelerated bookbuild process, which will launch immediately following the release of this announcement. The placing is subject to the terms and conditions set out in an appendix to this announcement.
  • A concurrent prospectus offering of new common shares on a best-effort agency basis at the prospectus price: The prospectus offering will be conducted pursuant to the terms and conditions of an agency agreement to be entered into between the company, Stifel Canada, as sole bookrunner and lead agent, Canaccord Genuity Corp., Eight Capital and Haywood Securities Inc. The size of the prospectus offering will be determined in the context of the market at the time of entering into a definitive agency agreement between the company and the agents.
  • A subscription for new common shares at the placing price by certain directors and members of the company's senior management.
• The prospectus offering will be conducted pursuant to the company's Canadian base shelf prospectus dated Nov. 18, 2022. A prospectus supplement relating to the prospectus offering will be filed in each of the provinces of Canada, other than Quebec. Copies of the prospectus supplement and accompanying base shelf prospectus will be available under the company's profile on SEDAR+. The prospectus offering is expected to close on or around Nov. 9, 2023.
• The number of placing shares and prospectus shares to be issued will be determined by the company following completion of the bookbuild in consultation with the joint bookrunners and Stifel Canada.
• The bookbuild is currently expected to close no later than 8 a.m. GMT on Nov. 2, 2023, but the joint bookrunners and the company reserve the right to close the bookbuild earlier or later, without further notice.

* It is noted that timing of the completions is subject to final confirmation following appointment of contractors and may differ from this illustrative schedule.

Ian Atkinson, president and chief executive officer of Southern, commented: "I am pleased to announce our proposed fundraising today, which will facilitate the acceleration of Southern's work program, specifically the completion of our four drilled and uncompleted wells in our Gwinville acreage in Mississippi. After pausing our previous capital program at the end of Q1 2023 due to the drop in natural gas prices, we are excited to soon be back in the field at Gwinville to take advantage of the recent increase in Henry Hub natural gas pricing and bring these four uncompleted wells into production. We have made a significant capital investment in the four DUC wells and will now be in a position to realize the material cash flow generation from these wells as we rapidly increase production in a short time scale. Our current cost estimates to complete these wells suggests at least a 10- to 15-per-cent drop from the cost levels seen in Q1 2023, due to lower industry activity levels, which will help drive superior returns.

"We continue to see an increasingly positive macro environment for the U.S. natural gas market, and we believe that Southern is firmly positioned to capitalize on the opportunity presented to us through this structural imbalance. Today's capital raise will enable us to increase our exposure to the opportunity as we see gas prices react to increasing export capacity through the U.S. Gulf Coast region and increasing natural-gas-fired power in the U.S. I look forward to allocating the raised capital to our portfolio of highly productive and profitable assets and increasing shareholder value as we enter a resurgent U.S. natural gas market."

Details of the fundraising

The placing is being conducted through an accelerated bookbuild process to eligible institutional investors and will launch immediately following the release of this announcement. The company expects to close the bookbuild no later than 8 a.m. GMT on Nov. 2, 2023, but the joint bookrunners and the company reserve the right to close the bookbuild earlier or later, without further notice.

Details of the results of the placing will be announced as soon as practicable after the close of the bookbuild. The placing is not being underwritten. The placing is conditional on minimum gross proceeds of $5-million (U.S.) being raised pursuant to the fundraising. The placing shares, when issued, will be fully paid and will rank pari passu in all respects with the company's existing common shares.

This announcement should be read in its entirety. Investor attention is drawn to the detailed terms and conditions of the placing. By choosing to participate in the placing and by making an oral and legally binding offer to acquire placing shares, investors will be deemed to have read and understood this announcement in its entirety (including the appendix) and to be making such offer on the terms and subject to the conditions of the placing contained herein and to be providing the representations, warranties and acknowledgments contained in the terms and conditions.

The prospectus offering is expected to close on or about Nov. 9, 2023, subject to customary closing conditions, including the approval of the TSX Venture Exchange.

The company intends that the placing will be conducted in conjunction with the prospectus offering.

Certain of the directors and members of the company's senior management team have indicated their intention to participate in the fundraising.

Application will be made to: (a) the London Stock Exchange PLC for admission of the placing shares and the prospectus shares to trading on AIM (Alternative Investment Market); and (b) the TSX-V for listing of the placing shares and the prospectus shares for trading on the facilities of the TSX-V. Expected timing for admission of the placing shares to trading on AIM and the prospectus shares to trading on the TSX-V is as set out in the expected timetable of principal events herein. Final confirmation of the expected timing for admission of the placing shares and prospectus shares will be confirmed in due course and is subject to a number of conditions, including, without limitation, the entering into of a definitive agency agreement and receipt of all regulatory approvals, including the approval of the TSX-V.

Without prior written approval of the TSX-V and compliance with all applicable Canadian securities laws, the placing shares may not be sold, transferred, hypothecated or otherwise traded on or through the facilities of the TSX-V or otherwise in Canada or to or for the benefit of a Canadian resident until the date that is four months and a day after the date of issuance.

Qualified person statement

Gary McMurren, chief operating officer, who has over 23 years of relevant experience in the oil industry, has reviewed and 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 in chemical engineering (with distinction) from the University of Alberta.

Share capital

Southern's common shares are listed/quoted on the TSX-V and AIM and trade under the symbol SOU and SOUC, respectively. The volume-weighted average trading price of Southern's common shares on the TSX-V was 43 cents for the six months ended June 30, 2023. As at June 30, 2023, and as of the date hereof, there are 139,041,285 and 139,088,160 common shares outstanding, respectively.

We seek Safe Harbor.