2024 ANNUAL REPORT

QUESTERRE ENERGY CORPORATION

CONTENTS

President’s Message

Page

1

Management’s Discussion & Analysis

Page

5

Consolidated Financial Statements

Page

31

Notes to the Consolidated

Financial Statements

Page

41

QUESTERRE ENERGY CORPORATION

is an energy technology and

innovation company. It is leveraging its expertise gained through early

exposure to low permeability reservoirs to acquire significant high-quality

resources. We believe we can successfully transition our energy portfolio.

With new clean technologies and innovation to responsibly produce and use

energy, we can sustain both human progress and our natural environment.

Questerre is a believer that the future success of the oil and gas industry

depends on a balance of economics, environment and society. We are

committed to being transparent and are respectful that the public must be

part of making the important choices for our energy future. Questerre’s

common shares are traded on the Toronto Stock Exchange and Oslo Stock

Exchange under the symbol QEC

.

2024 Annual Report

1

President’s Message

The world took a pivotal turn on January 20, 2025, with a new administration in the United States.

The energy shortage in Quebec and, more recently, the prospect of tariffs on energy to the United

States and their broader impacts revitalizes interest in our discovery. To us, they highlight the

importance of maintaining a pragmatic and flexible approach while protecting our shareholders’ legal

rights.

We participated in drilling programs at both Kakwa joint ventures last year as part of our strategy to

build our assets outside Quebec. The Kakwa North wells were tested in March. Over a one week

period, the wells produced over 2,000 boe per day net to Questerre

(1)

. While encouraging, these rates

are not necessarily indicative of long-term performance or ultimate recovery. The wells should be tied-

in and on production by the end of April. We are being more selective in our participation in future

wells, particularly at Kakwa Central, to ensure we maximize returns given current commodity prices.

On the technical front, Red Leaf made meaningful progress. They completed a pilot-scale lab test

producing over one barrel of oil and proving the rock mechanics inside the capsule. The engineering

for a small-scale project in Jordan was also finalized. However, the costs were higher than expected

and Red Leaf requires additional funding to conclude an agreement to advance this opportunity. Going

forward, we recently appointed a special committee of the Red Leaf board to negotiate this

agreement directly with the consortium in Jordan.

•

Submitted expert witness report on economic losses for legal claim in Quebec

•

Participated in six (2.25 net) wells at Kakwa including three (0.75 net) wells on production and

three (1.50 net) wells awaiting completions at year-end

•

Average daily production of 1,756 boe per day, net cash from operating activities of $13.7

million and adjusted funds flow from operations of $14.6 million

•

Total proved and probable reserves declined by 10% to 23.8 MMboe with a before tax NPV-

10% of $195.3 million unchanged from last year

The 2023 loss of the Volkswagen battery plant by Quebec in part due to insufficient power supply

was, perhaps, an early warning of the impending energy shortage in the province

(2)

.

In response, the Government introduced Bill 69 last year. Among other changes to the regulatory

regime, it included the requirement for integrated resource management plans for electricity and

natural gas every six years. The provincial utility also announced plans to invest a minimum of $100

billion over the next decade in hydro and wind power to increase capacity and meet future demand

(3)

.

While these initiatives support their 2050 goal of carbon neutrality, concerns about the costs to

industrial and residential consumers are growing. The Alliance for Quebec’s Energy Competitiveness

estimates under Bill 69 rates for large industrial users could increase by 60% over ten years

(4)

.

2

Questerre Energy Corporation

Normand Mousseau, director of the Trottier Energy Institute noted ‘the Government has capped

residential rate increases to 3% per annum. While that can work for a few years, it is untenable and

can only lead to disturbances when rates will have to catch up with reality

(5)

.

These concerns have been exacerbated by the impact of tariffs on competitiveness and have led to

the delay in implementing Bill 69 according to Quebec’s energy minister

(6)

. The Bill is still under

consideration by Quebec’s National Assembly. Though we expect final passage of the Bill by the end

of spring, new amendments and the political debate could delay its adoption.

We remain committed to a political and business solution because local gas production is the simplest

and most proximal solution to Quebec’s energy and environmental goals. It can help with energy

affordability, security, and reliability. One example of the benefit of local gas is supplying the 550MW

natural gas fired power plant at Becancour that currently provides peaking power during the winter.

We estimate that a total of six wells per year over eight years could supply the natural gas for this

power plant for ten years.

Perhaps more pressing is the threatened trade war with the United States. Local gas could replace

imports from the U.S., which currently supplies nearly half of Quebec’s natural gas

(7)

.

We are equally committed to protecting our shareholders’ rights and those of impacted stakeholders.

Our claim against the Government for the attempted revocation of our licenses without just

compensation is proceeding on the Court schedule. Questioning of the Government’s witnesses

should commence this summer. We anticipate a trial date could be set for next year.

Our production for the year averaged 1,756 boe per day, a 5% decrease from last year. These volumes

include the three (0.75 net) wells at Kakwa Central but exclude the three (1.5 net) wells at Kakwa

North that were completed during the first quarter of 2025.

These slightly lower production volumes along with slightly lower realized prices, offset by lower

royalty and operating expenses contributed to cash flow from operating activities of $13.7 million and

adjusted funds flow from operations of $14.6 million compared to $16.3 million and $15.9 million

respectively last year. Although we are advancing a pilot project with Red Leaf, we impaired the

carrying value of our Jordan assets as our exclusive rights are set to expire this May if we do not have

a new agreement before then. We are optimistic these rights could be extended if the pilot project

proceeds.

We financed our capital expenditures of $20.6 million through a combination of our net cash from

operating activities and cash on hand. At year-end, we held $31.8 million in cash and cash equivalents

and an unutilized credit facility of $16 million. Our committed capital expenditures for 2025 are

estimated at $14.4 million and largely reflect the completion and tie-in costs for the Kakwa North

wells. We intend to fund these costs through our existing resources.

Our plans for projects to lower emissions including our carbon storage pilot in Quebec and, more

2024 Annual Report

3

broadly, our hub concept remain contingent on government funding. We recognize that these, and

the timeline for net-zero targets globally may be impacted by the recent changes enacted by the U.S.

Government. These include suspending funding under the

and their

withdrawal from the Paris climate agreement.

As energy security and independence return as a priority, we hope the Government of Quebec

recognizes the role our discovery can play. As Canada seeks to diversify its energy markets, our

discovery can also provide the baseload supply of natural gas for possible LNG exports from Quebec.

In the interim, we are following the legal process for our claim.

Michael Binnion

President and Chief Executive Officer

1.

Consisting of 4,970 MMcf/d of natural gas and 1,298 bbls/d of condensate and estimated natural gas liquids.

2.

https://ici.radio-canada.ca/nouvelle/1963459/investissement-vw-canada-usine-batteries-saint-thomas-fitzgibbon-entrevue

3.

https://www.hydroquebec.com/data/a-propos/pdf/action-plan-2035.pdf

4.

https://www.theglobeandmail.com/business/article-industry-group-demands-quebec-reverse-course-on-planned-

electricity/

5.

https://www.theglobeandmail.com/business/commentary/article-hydro-quebecs-ambitious-plans-will-come-at-great-cost-

to-consumers-and/

6.

https://www.montrealgazette.com/news/provincial-news/article567140.htm

l

7.

https://www.canadianenergycentre.ca/big-vulnerability-how-ontario-and-quebec-became-reliant-on-u-s-oil-and-gas/

4

Questerre Energy Corporation

Environmental, Social and Governance

Questerre believes the oil and gas industry can go from laggards to leaders on the global environment.

From today to 2050, the world’s population is estimated to grow from 7.6 billion to almost 10 billion

who will expect a better standard of living

(1)

. We believe providing the increased energy needed

tomorrow, with lower environmental impacts than today, is the challenge of our times. Transforming

our energy consumption to lower emissions is essential to meeting this challenge.

Our project in Quebec was designed with a goal to significantly reduce emissions associated with the

production of natural gas. We are also assessing how to reduce other environmental impacts. It is an

example of the steps needed to meet this global challenge.

It requires a new way of thinking to become leaders on environmental issues. Our industry plays a

vital role in today’s energy systems. We have the experience, expertise, capital and technology to

help address the world’s energy and environmental challenges. Delivering on projects like ours in

Quebec is just one example of how our industry can be leaders on transforming our global energy

systems.

Questerre is proactively working with communities and First Nations for local benefits. For example,

we have committed to share of our profits with them. We have also engaged with local First Nations

to include them in our contracting and benefits program.

People know they need energy to maintain progress for their families and communities. They want

to know the providers of that energy are being responsible and sustainable in the way it is supplied.

1.

https://www.un.org/en/desa/world-population-projected-reach-98-billion-2050-and-112-billion-

2100#:~:text=The%20current%20world%20population%20of,Nations%20report%20being%20launched%20today

2024 Annual Report

5

Management’s Discussion and Analysis

This Management’s Discussion and Analysis (“MD&A”) was prepared as of March

26, 2025 and

should be read in conjunction with the audited consolidated financial statements of Questerre Energy

Corporation (“Questerre” or the “Company”) as at and for the

years ended December 31, 2024 and

2023. Additional information relating to Questerre, including Questerre’s Annual Information Form

for

the

year ended December 31, 2024, dated March 26, 2025 (“AIF”), is available on SEDAR+ under

Questerre’s profile at www.sedarplus.ca.

Questerre is an energy technology and innovative company actively involved in the acquisition,

exploration and development of oil and gas projects, and, in specific, non-conventional projects such

as tight oil, oil shale, shale oil and shale gas. Questerre is committed to the economic development

of its resources in an environmentally conscious and socially responsible manner. The Company’s

Class

“A” Common voting shares (“Common Shares”) are listed on the Toronto Stock Exchange and

the Oslo Stock Exchange under the symbol “QEC”.

Basis of Presentation

Questerre presents figures in the MD&A using accounting policies within the framework of

International Financial Reporting Standards (“IFRS”) as issued by the International Accounting

Standards Board, representing generally accepted accounting principles (“GAAP”). All financial

information is reported in Canadian dollars, unless otherwise noted.

Forward-Looking Statements

Certain statements contained within this MD&A constitute forward-looking statements. These

statements relate to future events or our future performance. All statements other than statements

of historical fact may be forward-looking statements. Forward-looking statements are often, but not

always, identified using the use of words such as “anticipate”, “assume”, “believe”, “budget”,

“can”, “commitment”, “continue”, “could”, “estimate”, “expect”, “forecast”, “foreseeable”,

“future”, “intend”, “may”, “might”, “plan”, “potential”, “project”, “will” and similar expressions.

These statements involve known and unknown risks, uncertainties and other factors that may cause

actual results or events to differ materially from those anticipated in such forward-looking statements.

Management believes the expectations reflected in those forward-looking statements are reasonable,

but no assurance can be given that these expectations will prove to be correct and such forward-

looking statements included in this MD&A should not be unduly relied upon. These statements speak

only as of the date of this MD&A.

This MD&A contains forward-looking statements including, but not limited to, those pertaining to the

following:

•

drilling plans and the development and optimization of producing assets;

•

the judicial plans to achieve a hearing of the Company’s claim made in connection with Quebec’s

Bill 21;

•

working collaboratively to find a political and business solution with the Government of Quebec;

6

Questerre Energy Corporation

•

future production of oil, natural gas and natural gas liquids;

•

future commodity prices in light of decisions by OPEC and its allies, including Saudi Arabia and

Russia on production levels, the war in Ukraine, and the conflict in the Middle East;

•

legislative and regulatory developments in the Province of Quebec;

•

the enhancement of existing production through workovers and expanding the pilot secondary

recovery scheme at Antler;

•

the transfer of wells drilled in 2025 from the proved undeveloped to the proved producing

category;

•

the need for additional LNG facilities to materially improve natural gas prices;

•

hedging policy;

•

liquidity and capital resources;

•

the negotiation by a special committee of the Red Leaf board of an agreement to fund and

advance a small-scale demonstration project in Jordan;

•

the Company’s plans to utilize the Red Leaf technology for its project in Jordan;

•

the Company’s negotiations and finalization of a concession agreement in Jordan;

•

the Company’s compliance with the terms of its credit facility;

•

timing of the next review of the Company’s credit facility by its lender;

•

ability of the Company to meet its foreseeable obligations;

•

capital expenditures and the funding thereof;

•

impacts of capital expenditures on the Company’s reserves;

•

commitments and Questerre’s participation in future capital programs;

•

risks and risk management;

•

potential for equity and debt issuances and farm-out arrangements;

•

counterparty creditworthiness;

•

the timing of receivables from joint venture partners;

•

flow-through shares and use of proceeds and renunciation and indemnity obligations associated

therewith;

•

insurance;

•

use of financial instruments; and

•

critical accounting estimates.

The actual results could differ materially from those anticipated in these forward-looking statements

as a result of the risk factors set forth below and elsewhere in this MD&A, the AIF, and the documents

incorporated by reference into this document:

•

Potential tariffs and counter tariffs on trade with the United States and other countries;

•

Quebec’s Bill 21, the revocation of licenses in Quebec and potential compensation;

•

volatility in market prices for oil, natural gas liquids and natural gas due to, among other things,

the production agreements between OPEC and its allies, including Saudi Arabia and Russia, on

production levels, the war in Ukraine, and the conflict in the Middle East;

•

access to capital;

•

general economic conditions;

2024 Annual Report

7

•

the terms and availability of credit facilities;

•

counterparty credit risk;

•

changes or fluctuations in oil, natural gas liquids and natural gas production levels;

•

liabilities inherent in oil and natural gas operations;

•

adverse judicial rulings, regulatory rulings, orders and decisions;

•

attracting, retaining and motivating skilled personnel;

•

uncertainties associated with estimating oil and natural gas reserves and resources;

•

insufficient advancement by Red Leaf in the engineering of its proprietary process;

•

competition for, cost and availability of, among other things, capital, acquisitions of reserves,

undeveloped lands, equipment, skilled personnel and services;

•

incorrect assessments of the value of acquisitions and targeted exploration and development

assets;

•

fluctuations in foreign exchange or interest rates;

•

stock market volatility, market valuations and the market value of the securities of Questerre;

•

failure to realize the anticipated benefits of acquisitions;

•

actions by governmental or regulatory authorities, including changes in royalty structures and

programs, and income tax laws or changes in tax laws and incentive programs relating to the oil

and gas industry;

•

limitations on insurance;

•

changes in environmental, tax, or other legislation applicable to the Company’s operations, and

its ability to comply with current and future environmental and other laws; and

•

geological, technical, drilling and processing problems, and other difficulties in producing oil,

natural gas liquids and natural gas reserves.

Statements relating to reserves are by their nature deemed to be forward-looking statements, as they

involve the implied assessment, based on certain estimates and assumptions that the reserves

described can be profitably produced in the future.

The discounted and undiscounted net present values of future net revenue attributable to reserves

do not represent the fair market value thereof.

Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking

statements contained in this MD&A and the documents incorporated by reference herein are

expressly qualified by this cautionary statement. We do not undertake any obligation to publicly

update or revise any forward-looking statements except as required by applicable securities law.

Certain information set out herein with respect to forecasted results is “financial outlook” within the

meaning of applicable securities laws. The purpose of this financial outlook is to provide readers with

disclosure regarding the Company’s reasonable expectations as to the anticipated results of its

proposed business activities. Readers are cautioned that this financial outlook may not be appropriate

for other purposes.

8

Questerre Energy Corporation

BOE Conversions

Barrel of oil equivalent (“boe”) amounts may be misleading, particularly if used in isolation. A boe

conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas

to one barrel of oil, and is based on an energy equivalent conversion method application at the burner

tip and does not necessarily represent an economic value equivalency at the wellhead. Given that the

value ratio based on the current price of crude oil as compared to natural gas is significantly different

from the energy equivalent of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an

indication of value.

Non-GAAP Measures

This document contains certain financial measures, as described below, which do not have

standardized meanings prescribed under GAAP. As these measures are commonly used in the oil and

gas industry, the Company believes that their inclusion is useful to investors. The reader is cautioned

that these amounts may not be directly comparable to measures for other companies where similar

terminology is used.

This document contains the term “adjusted funds flow from operations”, which is an additional non-

GAAP measure. The Company uses this measure to help evaluate its performance.

As an indicator of the Company’s performance, adjusted funds flow from operations should not be

considered as an alternative to, or more meaningful than, net cash from operating activities as

determined in accordance with GAAP. The Company’s determination of adjusted funds flow from

operations may not be comparable to that reported by other companies.

2024

2023

Net cash from operating activities

$

13,673

$

16,317

Change in non

-cash working capital

886

(462)

Adjusted funds flow from operations

$

14,559

$

15,855

This document also contains the terms “operating netbacks”, “cash netbacks” and “working capital

surplus”, which are non-GAAP measures.

Questerre considers adjusted funds flow from operations to be a key measure as it demonstrates the

Company’s ability to generate the cash necessary to fund operations and support activities related to

its major assets.

Operating and cash netbacks, as presented, do not have any standardized meaning prescribed by

GAAP and may not be comparable with the calculation of similar measures for other entities.

Operating netbacks have been defined as revenue less royalties, transportation and operating costs.

Cash netbacks have been defined as operating netbacks less general and administrative costs.

Netbacks are generally discussed and presented on a per boe basis.

2024 Annual Report

9

The Company also uses the term “working capital surplus”. Working capital surplus, as presented,

does not have any standardized meaning prescribed by GAAP, and may not be comparable with the

calculation of similar measures for other entities. Working capital surplus, as used by the Company,

is calculated as current assets less current liabilities excluding any outstanding risk management

contracts and lease liabilities.

10

Questerre Energy Corporation

Select Annual Information

2024

2023

2022

Financial ($ thousands, except as noted)

Petroleum and Natural Gas Revenue

36,927

41,701

51,751

Adjusted Funds Flow from Operations

(1)

14,559

15,855

26,738

Cash Flow from Operations

13,673

16,317

28,810

Basic and Diluted ($/share)

0.03

0.04

0.03

Net Income (Loss)

(7,329)

(23,708)

14,067

Basic and Diluted ($/share)

(0.02)

(0.06)

0.03

Capital Expenditures

20,640

10,148

11,591

Working Capital Surplus

(2)

23,091

29,866

24,007

Total Assets

170,723

172,346

196,486

Shareholders' Equity

138,629

143,667

166,128

Common Shares Outstanding (thousands)

428,516

428,516

428,516

Weighted average - basic (thousands)

428,516

428,516

428,516

Weighted average - diluted (thousands)

431,715

430,294

430,524

Operations (units as noted)

Average

Production

Crude Oil and Natural Gas Liquids (bbls/d)

1,021

1,056

1,020

Natural Gas (Mcf/d)

4,411

4,749

4,167

Total (boe/d)

1,756

1,848

1,715

Average Sales Price

(3)

Crude Oil and Natural Gas Liquids ($/bbl)

91.92

94.01

121.58

Natural Gas ($/Mcf)

1.65

3.02

6.10

Total ($/boe)

57.45

61.83

82.67

Netback ($/boe)

Petroleum and Natural Gas Revenue

(4)

57.45

61.83

82.67

Royalties Expense

(4)

(4.32)

(8.89)

(7.72)

Percentage

8%

14%

9%

Operating Expense

(4)

(23.58)

(23.84)

(24.47)

Operating Netback

29.55

29.10

50.51

General and Administrative Expense

(4)

(8.60)

(7.54)

(7.07)

Cash Netback

20.95

21.56

43.43

Wells Drilled

Gross

6.00

2.00

1.00

Net

2.25

1.35

0.25

(1)

Adjusted Funds Flow from Operations is a non-GAAP measure defined as cash flows from operating activities before changes in

non-cash operating working capital.

(2)

Refer to the Current Assets and Current Liabilities in the Balance Sheet for the years ended December 31, 2024 and 2023.

(3)

Refer to Note 15 in the Consolidated Financial Statements for the years ended December 31, 2024 and 2023.

(4)

Refer to Consolidated Statement of Comprehensive Loss and Comprehensive Loss for the years ended December 31, 2024 and

2023.

2024 Annual Report

11

Highlights

•

Submitted expert witness report on economic losses for legal claim in Quebec

•

Participated in six (2.25 net) wells at Kakwa including three (0.75 net) wells on production and

three (1.50 net) wells awaiting completions at year-end

•

Average daily production of 1,756 boe per day, net cash from operating activities of $13.7

million and adjusted funds flow from operations of $14.6 million

•

Total proved and probable reserves declined by 10% to 23.8 MMboe with a before tax NPV-

10% of $195.3 million unchanged from last year

2024 Activities

Kakwa, Alberta

Questerre participated in development drilling at both the Kakwa Central and Kakwa North joint

ventures during 2024.

Capital invested in Kakwa totalled $19.3 million for the year (2023: $3.6 million) with daily production

averaging 1,452 boe/d (2023: 1,536 boe/d) comprising of 4.4 MMcf/d of natural gas (2023: 4.7

MMcf/d) and 719 bbl/d of condensate and natural gas liquids (2023: 753 bbl/d). Total proved and

probable reserves as of December 31, 2024, were estimated at 22.5 MMBoe (2023: 25.0 MMBoe)

with a before tax NPV-10% of $180.6 million (2023: $178.6 million). The Company currently holds

40,320 (17,700 net) acres in the Kakwa area.

At Kakwa Central, the operator drilled, completed and tied-in three wells during 2024. Questerre holds

a 25% working interest in all three wells. The operator subsequently commenced a follow-up three

well program in the fall. Questerre elected to forego participation in this entire program due to the

proposed inter-well spacing that is expected to impact overall well recoveries.

At Kakwa North, the operator commenced a three well program in the fall of 2024. Questerre elected

to participate in the program and holds a 50% interest in all three wells. The wells were completed in

the first quarter of 2025. Subject to results, the Company anticipates a follow-up drilling program could

commence later this year.

The Company plans to participate in future drilling programs at Kakwa North and Kakwa Central

subject to, among other things, commodity prices, and the costs and design of the proposed drilling

and completion programs.

Antler, Saskatchewan

Consistent with prior years, activities at Antler focused on optimizing existing production and

expanding the pilot secondary recovery scheme to increase recovery of the oil in place.

$0.8 million was invested at Antler during the year to expand the pilot secondary recovery scheme.

(2023: $5.5 million). Daily production averaged 250 bbl/d (2023: 239 bbl/d). Total proved and probable

reserves as at December 31, 2024 were estimated at 1.2 MMBbls (2023: 1.3 MMBbls) with a before

12

Questerre Energy Corporation

tax NPV-10% of $21.9 million (2023: $23.3 million). The Company currently holds 12,560 net acres in

the area.

In 2025, the Company expects to continue its work to enhance existing production through workovers

and expanding the pilot secondary recovery scheme.

The Company’s primary objective remains the implementation of a business and political solution for

the development of its natural gas discovery in the province. Concurrently, it is protecting its legal

rights following the enactment in August 2022 of Bill 21,

(“Bill 21”).

In February 2024, the Company submitted its application for a carbon storage pilot project to the

Quebec Ministry of Economy, Innovation and Energy under Bill 21. The project includes a

comprehensive program to assess the carbon storage potential including injection and monitoring

wells, compression facilities and a pipeline to an adjacent industrial park. This included infrastructure

will facilitate the transition to a commercial project.

Through the Quebec Energy Association, the Company participated in the public consultation for Bill

69,

introduced in June 2024. The centerpiece of the proposed legislation is an integrated

resource management plan to promote energy development in Quebec. Among other things, it will

establish for electric power and natural gas markets, policy directions, objectives and targets regarding

supply, energy infrastructure and innovation.

Following the permission granted to the Attorney General of Quebec to appeal the Quebec Superior

Court (Civil Division) ruling in January 2024 suspending key provisions of Bill 21 pending a hearing on

the merits of the case, Questerre and other license holders filed a joint motion for review and

annulment of the judgement granting the application for the leave to appeal (the “Motion”). In October

2024, the Quebec Court of Appeal heard the Motion and the appeal by the Attorney General. The

Company is awaiting a decision from the Court of Appeal.

In October 2024, in connection with its claim against the Government of Quebec, the Company filed

an independent report on potential economic losses. Based on the scope and subject to the

restrictions, qualifications and major assumptions, under various scenarios, all of which are set out in

the report, the report estimates the economic losses if the licenses are successfully revoked under

three different scenarios with estimates ranging from $700 million to $4.8 billion. Please refer to our

press release of October 3, 2024. A copy of the report is available on the disclosure system in Norway

and on SEDAR+ in Canada.

The Company is proceeding with the main hearing on the merits of the case in accordance with

procedural rules in Quebec, including its debate on the constitutional validity of Bill 21. The

questioning of key Government representatives is expected to take place this summer to be followed

by the establishment of a trial date for the hearing.

2024 Annual Report

13

The Company continued to assist its investee, Red Leaf Resources Inc. (“Red Leaf”), advance their

assets in the Unitah Basin and their proprietary technology that incorporates carbon capture to

produce oil from organic rich material.

Red Leaf is a private Utah based company whose principal assets include its proprietary technology

to produce oil from organic material, oil shale leases in the state of Utah and approximately US$10

million in unrestricted cash as of December 31, 2024. It also holds freehold surface rights as well as

carbon sequestration rights and a permit for a wax processing facility in the oil-producing Uintah Basin

in the state of Utah. The Company currently owns approximately 41% of the common share capital

of Red Leaf.

Red Leaf completed the engineering design for a small-scale demonstration project for a consortium

of local companies in Jordan. Red Leaf requires additional funding to conclude an agreement to

advance this opportunity. A special committee of the Red Leaf board has been appointed to negotiate

this agreement directly with the consortium. In early 2025, the company completed a pilot-scale lab

test producing over one barrel of oil and demonstrating the rock mechanics within the vessel. The

company continues to evaluate broader applications of their technology beyond the production of oil

from shale.

Questerre intends to utilize the Red Leaf technology for its project in the Kingdom of Jordan.

Discussions with the Government of Jordan for this small-scale commercial project and the related

negotiations for the concession agreement for the project remain ongoing. Questerre has been

advised that its exclusive rights to the project will expire in May 2025 subject to the execution of a

new agreement with the government prior thereto.

During 2024, the Company participated in six (2.25 net) wells at Kakwa including three (0.75 net) wells

at Kakwa Central and three (1.5 net) wells at Kakwa North. In the prior year, the Company drilled one

net operated well at Antler and participated in one (0.35 net) well at Pierson.

Production

2024

2023

Oil

and

Natural

Oil

and

Natural

Liquids

Gas

Total

Liquids

Gas

Total

(bbls/d)

(Mcf/d)

(boe/d)

(bbls/d)

(Mcf/d)

(boe/d)

Alberta

724

4,411

1,459

753

4,749

1,545

Saskatchewan and Manitoba

297

–

297

303

–

303

1,021

4,411

1,756

1,056

4,749

1,848

Note: Oil and liquids include light & medium crude oil and natural gas liquids. Natural gas includes conventional and shale gas.

For the year ended December 31, 2024, production volumes declined by 5% over the prior year and

averaged 1,756 boe per day.

14

Questerre Energy Corporation

Consistent with prior years, Kakwa accounts for over 80% of corporate volumes. Natural declines

from this area were largely offset by three (0.75 net) new wells at Kakwa Central that were completed

and tied-in during the third quarter. While Kakwa North accounted for only 30% of corporate volumes

in 2024, it is anticipated the volumes will increase in 2025 following the tie in of three (1.5 net) wells

that were completed in March 2025.

The product mix at Kakwa is equally split between natural gas and liquids that include condensate.

Aggregated with the light oil production from Saskatchewan and Manitoba, the Company’s liquids

weighting is close to 60%, unchanged from prior years. Production volumes from these areas

remained largely flat with well workovers mitigating the impact of natural declines.

With no additional wells currently planned for the remainder of 2025, the Company’s production

volumes should decline over the second half of the year. Subject to the timing of a possible drilling

program at Kakwa North this fall, the Company could see incremental volumes added in the second

quarter of 2026.

2024 Financial Results

2024

2023

Oil

and

Natural

Oil

and

Natural

Liquids

Gas

Total

Liquids

Gas

Total

Alberta

$

23,820

$

2,736

$

26,556

$

25,418

$

5,486

$

30,904

Saskatchewan and Manitoba

10,371

–

10,371

10,797

–

10,797

$

34,191

$

2,736

$

36,927

$

36,215

$

5,486

$

41,701

Note: Oil and liquids include light & medium crude oil and natural gas liquids. Natural gas includes conventional and shale gas.

Petroleum and natural gas revenue declined by 12% over the prior year with just over 40% of the

decline due to the lower production volumes and the remainder due to lower commodity prices.

2024

2023

Benchmark prices:

Natural Gas - AECO 5A, daily spot ($/GJ)

1.38

2.64

Crude Oil - Canadian Light Sweet Blend ($/bbl)

97.54

100.39

Realized prices:

Natural Gas ($/Mcf)

1.65

3.02

Crude Oil and Natural Gas Liquids ($/bbl)

91.92

94.01

Note: Oil and liquids include light & medium crude oil and natural gas liquids. Natural gas includes conventional and shale gas.

Crude oil prices declined by under 3% over the prior year. The benchmark West Texas Intermediate

averaged US$75.72 per barrel compared to US$77.62 per barrel last year.

2024 Annual Report

15

Prices were supported in the first half of the year by the extension of voluntary supply cuts by OPEC+

members of just over 2.2 million barrels per day and the risk of the Middle East conflict expanding

into a regional war. Later in the year, concerns arose about the strength of the demand recovery in

China and the risk of increasing supply from non-OPEC countries including the U.S., Canada and Brazil.

In 2025, prices will likely reflect the fallout from trade disputes involving the U.S., Canada, Mexico,

China and the European Union. In the first quarter, this was partly offset by the weakening in the

Canadian dollar relative to the US dollar.

The startup of the TMX pipeline expansion in May 2024 helped diversify market access for Canadian

crude and improved the differentials for heavier grades. The differential between WTI and Canadian

condensate prices increased to US$2.78 per barrel from US$1.03 per barrel last year, in part due to

the increase in liquids rich gas production for the startup of LNG Canada export facility.

For the year ended December 31, 2024, Questerre’s realized price for crude oil and natural gas liquids

averaged $91.92 per barrel (2023: $94.01 per barrel) compared to the benchmark Canadian Mixed

Sweet Blend that averaged $97.54 per barrel (2023: $100.39 per barrel).

Natural gas prices also declined in 2024. During the year the benchmark Henry Hub averaged US$2.19

per MMBtu compared to US$2.54 per MMBtu last year. Canadian natural gas prices declined more

materially with the benchmark AECO 5A averaging $1.38 per GJ compared to $2.64 per GJ last year.

A warmer than expected winter and persistent supply in the United States continued to outpace

demand including exports via LNG and pipelines to Mexico. In Canada the increased supply and

limited storage was compounded by the lack of LNG export facilities, substantially increasing the

differential between the Henry Hub and AECO prices. While the startup of LNG Canada in mid-2025

is expected to help strengthen prices, additional export facilities are likely needed to further increase

demand.

Including the higher heat content gas from Kakwa, the Company’s realized natural gas prices averaged

$1.65 per Mcf (2023: $3.02 per Mcf).

2024

2023

Alberta

$

1,989

$

5,081

Saskatchewan and Manitoba

787

914

$

2,776

$

5,995

% of Revenue:

Alberta

7%

16%

Saskatchewan and Manitoba

8%

8%

Total Company

8%

14%

Royalties decreased substantially over the prior year due mainly to the credits received in Alberta for

processing the Crown’s share of production through Company facilities. As a percentage of revenue,

this decreased from 14% last year to 8% this year.

16

Questerre Energy Corporation

Excluding these credits, royalty expense on production in Alberta was $5.7 million (2023: $6.4 million),

representing a royalty rate of 22% (2023: 21%). Royalties on production in Saskatchewan and

Manitoba declined commensurate with the lower petroleum sales during the year.

2024

2023

Alberta

$

11,379

$

11,499

Saskatchewan and Manitoba

3,108

4,050

Quebec

671

533

$

15,158

$

16,082

$/boe:

Alberta

21.31

20.39

Saskatchewan and Manitoba

28.55

36.61

Total Company

$

23.58

$

23.84

Gross operating costs decreased by just over 5% reflecting lower costs in Saskatchewan and

Manitoba. On a unit of production basis, this remained relatively stable at approximately $24 per boe.

In Alberta, operating costs at Kakwa remained relatively flat over the prior year with similar production

volumes. In Saskatchewan, the decrease in operating costs is attributable to lower workover costs

compared to last year. Operating costs in Quebec reflect the costs associated with maintaining the

Company’s assets in the province and increased nominally due to consulting expense and rentals.

2024

2023

General and

administrative expenses, gross

$

5,886

$

5,356

Capitalized expenses and overhead recoveries

(356)

(270)

General and administrative expenses, net

$

5,530

$

5,086

Gross General & Administrative expenses (“G&A”) increased by 10% to $5.9 million from $5.4 million

last year. Higher expenses were incurred in several categories, including legal fees, consulting and

government and public relations related to the Company’s project in Quebec and salaries and

directors’ fees. Capitalized expenses are overhead costs associated with the Company’s projects in

Alberta and Jordan.

For the year ended December 31, 2024, the Company recorded depletion, depreciation, and accretion

expense of $12.5 million (2023: $12.6 million) with depletion accounting for over 90% of this amount.

On a unit of production basis this increased to $18.39 per boe from $17.60 per boe last year. The

reduction due to lower production volumes was offset by the increase in the carrying value of its

assets on a boe basis.

2024 Annual Report

17

In 2024, the Company assessed its property, plant, and equipment (“PP&E”) assets for indicators of

impairment or impairment reversals. With respect to the Kakwa cash generating unit (“CGU”) an

indicator of impairment was identified as a result of the reduction in the volume of reserves due to

technical revisions. The result of the impairment test, based on a fair value less costs of disposal

(“FVLCD”) assessment of the Kakwa CGU was that no impairment or impairment reversals were

recorded. The estimates of FVLCD were determined using a discount rate of 15.8% and forecasted

after tax cash flows based on proved plus probable reserves, with escalating prices, royalties,

operating costs and future development costs. No indicators of impairment or impairment reversals

were identified for the other CGUs in 2024.

In 2023, based on a review of indicators of impairment conducted, the Company’s Western Canada

CGUs were tested in accordance with the Company’s accounting policy. The recoverable amount of

the CGUs was estimated based on the higher of the FVLCD and value in use (“VIU”) using a

discounted cash flow model. Due to a decrease in future gas prices, an increase in the future operating

costs reducing the value of the reserves and a 11% reduction in reserves, the Company recorded an

impairment expense in 2023 of $23.7 million. Of this amount, the Antler CGU recorded an impairment

expense of $5.3 million based on a FVLCD assessment and the Kakwa CGU recorded an impairment

expense of $18.4 million based on a VIU assessment. No impairments were recorded for the

Company’s other CGUs.

In 2024, the Company assessed the carrying value of its exploration and evaluation (“E&E”) assets.

Due to the pending expiry of its exclusivity rights in the absence of a new agreement with the

Government of Jordan, the Company recorded an impairment of its E&E assets in Jordan for $7.9

million. No other impairment was recorded in the current year. In 2023 the Company recorded $0.8

million of impairment expense at Antler.

Pursuant to the Company’s share option plan, an optionee may request that the Company purchase

all or any part of the then vested options of the optionee, for an amount equal to the market price of

the Common Shares less the exercise price of the option shares. Notwithstanding the foregoing, the

Company may, at its sole discretion, decline to accept and, accordingly, has no obligations with

respect to the exercise of this put right at any time. Any cash settled options are cancelled.

The Company recorded share-based compensation expense of $1.1 million (2023: $1.4 million) net of

$0.3 million (2023: $0.2 million) in expense that was capitalized during the year.

Questerre holds approximately 41% of the equity capital of Red Leaf. The Company uses the equity

method of accounting for its ownership of Red Leaf. Under this method, the Company records its

proportionate share of Red Leaf’s net loss and any impairment or reversals of previously recorded

impairments are recognized through the income statement.

The Company recorded an expense of $0.5 million (2023: $1.2 million) related to its investment in

Red Leaf. For more information, please see Note 7 to the Financial Statements.

18

Questerre Energy Corporation

The Company earned interest and other income of $1.1 million for the year ended December 31,

2024. The interest was earned on its cash and term deposits that totalled $31.8 million at year-end.

In the prior year, other income included $1.5 million of interest that was earned on its cash and term

deposits.

In 2024, the Company recorded other comprehensive income of $0.9 million (2023: $0.4 million loss)

related to the change in foreign exchange rates. A gain of $0.4 million in the current year (2023: $0.1

million loss) was attributable to the change in the US dollar denominated investment in Red Leaf. The

Company also incurred a gain of $0.5 million (2023: $0.3 million loss) due to the appreciation in the

Jordanian dinar impacting its dinar-denominated assets in Jordan.

For the year ended December 31, 2024, the Company recorded a net loss of $7.3 million compared

to a net loss of $23.7 million in the prior year. Compared to last year, the loss in the current year is

due to lower petroleum and natural gas revenue offset by lower expenses including impairment.

Including other comprehensive income (loss), the Company reported a total comprehensive loss of

$6.4 million compared to a loss of $24.1 million last year.

The Company reported cash flow from operating activities of $13.7 million (2023: $16.3 million). The

variance over the prior year is attributed to the lower adjusted funds flow from operations and a

decrease in the non-cash working capital in the current year compared to an increase last year.

Consistent with higher capital spending, the cash used in investing activities increased to $16.9 million

from $10.8 million last year. Expenditures increased by $10.5 million to $20.6 million and the Company

recorded an increase in non-cash working capital in the current year compared to a decrease last year.

For both current and prior years, cash used in financing activities relates to the principal portion of the

lease payments.

2024

2023

Alberta

$

19,357

$

3,616

Saskatchewan, Manitoba and Jordan

1,283

6,532

Total

$

20,640

$

10,148

Notes: Capital expenditures exclude certain non-cash items such as share-based compensation and asset retirement obligations.

For the year ended December 31, 2024, the Company incurred capital expenditures of $20.6 million

2024 Annual Report

19

as follows:

•

In Alberta, $11.7 million for drilling, completing and tying-in three (0.75 net) wells on the

Kakwa Central joint venture and $7.6 million for drilling three (1.50 net) wells at Kakwa

North;

•

In Saskatchewan, $0.8 million was primarily spent on the pressure maintenance scheme;

and

•

The remaining $0.5 million was spent on other assets including Jordan.

For the year ended December 31, 2023, the Company incurred capital expenditures of $10.1 million

as follows:

•

In Alberta, $3.6 million to finish drilling, complete and tie-in one (0.25 net) well on the

Kakwa Central joint venture;

•

In Saskatchewan, $5.5 million was spent to drill, complete and tie-in one well and

recompletions for the pressure maintenance scheme; and

•

$1 million was spent to drill, complete and tie-in one (0.35 net) well in Manitoba and on other

assets.

Fourth Quarter 2024 Results

In the fourth quarter of 2024, petroleum and natural gas revenue declined slightly to $9.6 million from

$9.7 million last year. This was due to lower realized commodity prices that were almost completely

offset by a 5% increase in production volumes in the quarter.

Both crude oil and natural gas prices declined over the prior year and preceding quarter. This was

offset in part by the differential between WTI and Canadian condensate prices that was a premium in

the quarter compared to a discount last year.

Operating costs increased over the same period in the prior year and preceding quarter. In the fourth

quarter, operating costs totalled $3.9 million compared to $3.5 million last year. With costs relatively

flat in Saskatchewan and Manitoba, the change is mainly due to higher operating costs from the new

wells at Kakwa.

Including impairment expense relating to its E&E assets in Jordan, the Company reported a net loss

of $8.1 million (2023: $26 million loss) and total comprehensive loss of $7.5 million (2023: $26.3

million) for the quarter. Despite lower expenses in the current year, the loss is largely due to the

impairment expense. In the prior year, the loss was higher due to higher impairment expense.

In the fourth quarter, net cash from operating activities was $3.8 million (2023: $5.2 million). This

reflects the higher adjusted funds flow from operations of $3.7 million (2023: $3.2 million) and a

smaller increase in non-cash working capital of $0.1 million compared to $1.9 million last year. Net

cash used in investing activities increased to $7.9 million over $3.4 million in the prior year due to

higher capital spending associated with Kakwa North wells. There was no change in the net cash

used in financing activities over the prior year.

20

Questerre Energy Corporation

Liquidity and Capital Resources

The Company’s objectives when managing its capital are firstly to maintain financial liquidity, and

secondly to optimize the cost of capital at an acceptable risk to sustain the future development of the

business.

The Company continues to manage its financial liquidity through ensuring capital expenditures can be

financed through a combination of cash flow from operations, existing cash and available debt

facilities.

At December 31, 2024, and 2023, there were no material borrowings under its credit facility and the

Company is compliant with all its covenants under the credit facilities. Under the terms of the credit

facilities, the Company has provided a covenant that it will maintain an Adjusted Working Capital Ratio

greater than 1.0. The ratio is defined as current assets (excluding unrealized hedging gains and

including undrawn Credit Facility A availability) to current liabilities (excluding bank debt outstanding

and unrealized hedging losses). The Adjusted Working Capital Ratio at December 31, 2024 was 3.92

(2023: 5.76) and the covenant was met. See Note 13 of the Financial Statements.

While the credit facilities were maintained at $16 million, the facilities could be reduced at their next

review scheduled during the second quarter of 2025. The credit facilities are a demand facility and

can be reduced, amended or eliminated by the lender for reasons beyond the Company’s control.

Should the credit facilities be reduced or eliminated, the Company would need to seek alternative

credit facilities or consider the issuance of equity to enhance its liquidity. In the current market, the

Company may be unable to secure additional financing on acceptable terms, if at all. The Company

believes that it has access to sufficient financial liquidity to meet its foreseeable obligations in the

normal course of operations over the next 12 months.

The Company is committed to the 2025 future development costs associated with proved reserves

in its independent reserves assessment as of December 31, 2024. It anticipates that, as a result,

reserves associated with wells drilled in 2025 will be transferred from the proved undeveloped to the

proved producing category.

For a detailed discussion of the risks and uncertainties associated with the Company’s business and

operations, see the Risk Management section of the MD&A and the AIF.

The Company is authorized to issue an unlimited number of Common Shares. The Company is also

authorized to issue an unlimited number of Class “B” Common voting shares and an unlimited

number of preferred shares, issuable in one or more series. At December 31, 2024, there were no

Class “B” common voting shares or preferred shares outstanding.

2024 Annual Report

21

The following table provides a summary of the outstanding Common Shares and options as at the

date of the MD&A and the current and preceding

fiscal year end.

March

26,

December

31,

December

31,

2025

2024

2023

Common Shares

428,516

428,516

428,516

Stock Options

38,920

38,295

38,140

Weighted average Common Shares

Basic

428,516

428,516

Diluted

431,715

430,294

A summary of the Company’s stock option activity during the

years ended December 31, 2024 and

2023 follows:

December

31,

2024

December

31,

2023

Weighted

Weighted

Number

of

Average

Number

of

Average

Options

Exercise

Options

Exercise

Price

Price

Outstanding, beginning of period

38,140

$

0.26

35,298

$

0.28

Granted

6,950

0.25

6,000

0.24

Forfeited

(620)

0.27

–

–

Expired

(6,175)

0.29

(3,158)

0.48

Outstanding, end of period

38,295

$

0.25

38,140

$

0.26

Exercisable, end of period

29,704

$

0.25

28,153

$

0.25

Commitments

A summary of the Company’s net commitments at December 31, 2024 follows:

2025

2026

2027

Total

Transportation and Processing

$

2,515

$

1,566

$

545

$

4,626

To maintain its capacity to execute its business strategy, the Company expects that it will need to

continue the development of its producing assets. There will also be expenditures in relation to G&A

and other operational expenses. These expenditures are not yet commitments, but Questerre expects

to fund such amounts primarily out of cash flow from operations and its available cash and credit

facilities.

Risk Management

Companies engaged in the petroleum and natural gas industry face a variety of risks. For Questerre,

these include risks associated with commodity prices, exploration and development drilling as well as

22

Questerre Energy Corporation

production operations, foreign exchange and interest rate fluctuations. Unforeseen significant

changes in such areas as markets, prices, royalties, interest rates, government regulations and global

economic conditions could have an impact on the Company’s future operating results and/or financial

condition. While Management realizes that all the risks may not be controllable, Questerre believes

that they can be monitored and managed. For more information, please refer to the “Risk Factors”

and “Industry Conditions” sections of the AIF and Note

6 to the audited consolidated financial

statements for the

year ended December 31, 2024.

Volatility in the oil and gas industry is a major risk facing the Company. Market events and conditions,

including global oil and natural gas supply and demand, actions taken by OPEC and non-OPEC

member countries’ decisions on production growth and spare capacity, including recent decisions by

Saudi Arabia and Russia, on production growth and spare capacity, market volatility and disruptions,

weakening global relationships, the war in Ukraine, conflict between the U.S. and Iran, isolationist and

punitive trade policies including potential trade disputes involving Canada, Mexico, China, the

European Union and the U.S., hostilities in the Middle East, Ukraine and Taiwan, U.S. shale

production, sovereign debt levels and political upheavals in various countries including growing anti-

fossil fuel sentiment, the implementation of new export tariffs or import taxes on Canadian energy

resources in the U.S. have caused significant volatility in commodity prices. Russia’s invasion of

Ukraine has led to sanctions being levied against Russia by the international community and may

result in additional sanctions or other international action, any of which may have a destabilizing effect

on commodity prices and global economies more broadly. These events and conditions have been a

factor in the decrease in the valuation of oil and gas companies and a decrease in confidence in the

oil and gas industry. These difficulties have been exacerbated in Canada by political and other actions

resulting in uncertainty surrounding regulatory, tax and royalty changes and other environmental

regulations.

In addition, the difficulties in obtaining the necessary approvals to build pipelines and other facilities

to provide better access to markets for the oil and gas industry in Western Canada has led to additional

uncertainty and reduced confidence in the oil and gas industry in Western Canada. Lower commodity

prices may also affect the volume and value of the Company’s reserves especially as certain reserves

become uneconomic. In addition, lower commodity prices have previously reduced the Company’s

cash flow leading to a reduction in funds available for capital expenditures. As a result, the Company

may not be able to replace its production with additional reserves and both the Company’s production

and reserves could be reduced on a year over year basis. Any decrease in value of the Company’s

reserves may reduce the borrowing base under its credit facilities, which, depending on the level of

the Company’s indebtedness, could result in the Company having to repay all or a portion of its

indebtedness. Given the current market conditions and the lack of confidence in the Canadian oil and

natural gas industry, the Company may have difficulty raising additional funds in the future to raise

funds on unfavourable and highly dilutive terms.

Another significant risk for Questerre as a junior exploration company is access to capital. The

Company attempts to secure both equity and debt financing on terms it believes are attractive in

2024 Annual Report

23

current markets. Management also endeavors to seek participants to farm-in on the development of

its projects on favorable terms. However, there can be no assurance that the Company will be able

to secure sufficient capital if required or that such capital will be available on terms satisfactory to the

Company.

As future capital expenditures will be financed out of adjusted funds flow from operations, borrowings

and possible future equity sales, the Company’s ability to do so is dependent on, among other factors,

the overall state of capital markets and investor appetite for investments in the energy industry, and

the Company’s securities. To the extent that external sources of capital become limited or unavailable,

or available but on onerous terms, the Company’s ability to make capital investments and maintain

existing assets may be impaired, and its assets, liabilities, business, financial condition and results of

operations may be materially and adversely affected. Based on current funds available and expected

adjusted funds flow from operations, the Company believes it has sufficient funds available to fund

its projected capital expenditures. However, if adjusted funds flow from operations is lower than

expected, or capital costs for these projects exceed current estimates, or if the Company incurs major

unanticipated expense related to development or maintenance of its existing properties, it may be

required to seek additional capital to maintain its capital expenditures at planned levels. Failure to

obtain any financing necessary for the Company’s capital expenditure plans may result in a delay in

development or production on the Company’s properties.

Questerre faces several financial risks over which it has no control, such as commodity prices,

exchange rates, interest rates, access to credit and capital markets, as well as changes to government

regulations and tax and royalty policies.

The Company uses the following guidelines to address financial exposure:

•

Internally generated cash flow provides the initial source of funding on which the Company’s

annual capital expenditure program is based.

•

Equity, including flow-through shares, if available on acceptable terms, may be raised to fund

acquisitions and capital expenditures.

•

Debt may be utilized to expand capital programs, including acquisitions, when it is deemed

appropriate and where debt retirement can be controlled.

•

Farm-outs of projects may be arranged if management considers that a project requires too

much capital or where the project affects the Company’s risk profile.

Credit risk represents a potential financial loss to the Company if a customer or counterparty to a

financial instrument fails to meet or discharge their obligation to the Company. Credit risk arises from

the Company’s receivables from joint venture partners and oil and gas marketers. In the event such

entities fail to meet their contractual obligations to the Company, such failures may have a material

adverse effect on the Company’s business, financial condition, results of operations and prospects.

Credit risk also arises from the Company’s cash and cash equivalents. In the past, the Company

manages credit risk exposure by investing in Canadian banks and credit unions. Management does

not expect any counterparty to fail to meet its obligations.

24

Questerre Energy Corporation

Poor credit conditions in the industry may impact a joint venture partner’s willingness to participate in

the Company’s ongoing capital program, potentially delaying the program and the results of such

program until the Company finds a suitable alternative partner if possible.

Substantially all of the accounts receivable are with oil and natural gas marketers and joint venture

partners in the oil and natural gas industry and are subject to normal industry credit risks. The

Company generally extends unsecured credit to these customers and therefore, the collection of

accounts receivable may be affected by changes in economic or other conditions. Management

believes the risk is mitigated by entering into transactions with long-standing, reputable counterparties

and partners.

Accounts receivable related to the sale of the Company’s petroleum and natural gas production are

paid in the following

month from major oil and natural gas marketing and infrastructure companies

and the Company has not experienced any credit loss relating to these sales to date. Pursuant to IFRS

9, the Company made a provision of $0.04 million at December 31, 2024, for its expected credit losses

related to its accounts receivable.

Receivables from joint venture partners are typically collected within one to three

months after the

joint venture bill is issued. The Company mitigates this risk by obtaining pre-approval of significant

capital expenditures.

The Company has issued and may continue in the future to issue flow-through shares to investors.

The Company has historically used its best efforts to ensure that qualifying expenditures of Canadian

Exploration Expense ("CEE") are incurred in order to meet its flow-through obligations. In 2017, the

Federal Government amended the law regarding what expenses constitute CEE. Generally, oil and

gas drilling expenses are now Canadian Development Expense rather than CEE. In the event that the

Company has CEE expenditures reclassified under audit by the Canada Revenue Agency or fails to

incur expenditures required under a flow-through share agreement, the Company may be required to

liquidate certain of its assets in order to meet the indemnity obligations under flow-through share

subscription agreements.

Exploration and development drilling risks are managed through the use of geological and geophysical

interpretation technology, employing technical professionals and working in areas where those

individuals have experience. For its non-operated properties, the Company strives to develop a good

working relationship with the operator and monitors the operational activity on the property. The

Company also carries appropriate insurance coverage for risks associated with its operations.

The Company may use financial instruments to reduce corporate risk in certain situations. Questerre’s

hedging policy is up to a maximum of 40% of total production at management’s discretion.

As at December 31, 2024, the Company had no outstanding commodity risk management contract in

place.

2024 Annual Report

25

The oil and natural gas industry is currently subject to environmental regulations pursuant to provincial

and federal legislation. Environmental legislation provides for restrictions and prohibitions on releases

of emissions and regulation on the storage and transportation of various substances produced or

utilized in association with certain oil and natural gas industry operations, which can affect the location

and operation of wells and facilities, and the extent to which exploration and development is

permitted. In addition, legislation requires that well and facility sites are abandoned and reclaimed to

the satisfaction of provincial authorities. As well, applicable environmental laws may impose

remediation obligations with respect to property designated as a contaminated site upon certain

responsible persons, which include persons responsible for the substance causing the contamination,

persons who caused the release of the substance and any past or present owner, tenant or other

person in possession of the site. Compliance with such legislation can require significant

expenditures, and a breach of such legislation may result in the suspension or revocation of necessary

licenses and authorizations, civil liability for pollution damage, the imposition of fines and penalties or

the issuance of clean-up orders. The Company mitigates the potential financial exposure of

environmental risks by complying with the existing regulations and maintaining adequate insurance.

For more information, please refer to the “Risk Factors” and “Industry Conditions” sections of the

AIF.

Climate change policy is evolving at regional, national and international levels, and political and

economic events may significantly affect the scope and timing of climate change measures that are

ultimately put in place. The federal and certain provincial governments have implemented legislation

aimed at incentivizing the use of alternative fuels and in turn reducing carbon emissions. The taxes

placed on carbon emissions may have the effect of decreasing the demand for oil and natural gas

products and at the same time, increasing the Company’s operating expenses, each of which may

have a material adverse effect on the Company’s profitability and financial condition. Further, the

imposition of carbon taxes puts the Company at a disadvantage with the Company’s counterparts

who operate in jurisdictions where there are less costly carbon regulations.

Interest rate risk is the risk that changes in the applicable interest rates for its credit facilities will

impact the Company’s interest expense. At December 31, 2024, and 2023 the Company had

effectively no amounts drawn down on its credit facilities with an effective rate of 7.74% (2023:

7.95%).

Critical Accounting Estimates

The preparation of the consolidated financial statements requires management to make judgments,

estimates and assumptions that affect the application of accounting policies and the reported

amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

These estimates and judgments have risk of causing a material adjustment to the carrying amounts

of assets and liabilities within the next financial

year.

26

Questerre Energy Corporation

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognized in the

year in which the estimates are revised and in any future

years

affected.

All of Questerre’s petroleum and natural gas reserves are evaluated and reported on by independent

petroleum engineering consultants in accordance with

and the COGE Handbook. For further information, please refer to

“Statement of Reserves Data and Other Oil and Gas Information” in the AIF.

The estimation of reserves is a subjective process. Forecasts are based on engineering data, projected

future rates of production, commodity prices and the timing of future expenditures, all of which are

subject to numerous uncertainties and various interpretations. The Company expects that its

estimates of reserves will change to reflect updated information. Reserve estimates can be revised

upward or downward based on the results of future drilling, testing, production levels and changes in

costs and commodity prices. These estimates are evaluated by independent reserve engineers at

least annually.

Proved and probable reserves are estimated using independent reserve engineer reports and

represent the estimated quantities of crude oil, natural gas and natural gas liquids which geological,

geophysical and engineering data demonstrate with a specified degree of certainty to be recoverable

in future

years from known reservoirs and which are considered commercially producible. If

probabilistic methods are used, there should be at least a 50

percent probability that the quantities

actually recovered will equal or exceed the estimated proved plus probable reserves and there should

be at least a 90

percent probability that the quantities actually recovered will equal or exceed the

estimated proved reserves.

Reserve estimates impact a number of the areas, in particular, the valuation of property, plant and

equipment and the calculation of depletion.

A CGU is defined as the lowest grouping of assets that generate identifiable cash inflows that are

largely independent of the cash inflows of other assets or groups of assets. The allocation of assets

into CGUs requires significant judgment and interpretations. Factors considered in the classification

include geography and the way management monitors and makes decisions about its operations.

The Company assesses its oil and natural gas properties, including exploration and evaluation assets,

for possible impairment or reversal of previously recognized impairments if there are events or

changes in circumstances that indicate that carrying values of the assets may not be recoverable or

indications that previously recognized losses should be reversed. Determining if there are facts and

circumstances present that indicate that carrying values of the assets may not be recoverable requires

management’s judgment and analysis of the facts and circumstances.

2024 Annual Report

27

The recoverable amounts of CGUs have been determined based on the VIU and the FVLCD. The key

assumptions the Company uses in estimating future cash flows for recoverable amounts are

anticipated future commodity prices, expected production volumes, the discount rate, future

operating and development costs and recent land transactions. Changes to these assumptions will

affect the recoverable amounts of the CGUs and may require a material adjustment to their related

carrying value.

Determination of the Company’s asset retirement obligation is based on Government regulations,

operator estimates, internal estimates using current costs and technology in accordance with existing

legislation and industry practice and must also estimate timing, a risk-free rate and inflation rate in the

calculation. These estimates are subject to change over time and, as such, may impact the charge

against profit or loss. The amount recognized is the present value of estimated future expenditures

required to settle the obligation using a risk-free rate. The associated abandonment and retirement

costs are capitalized as part of the carrying amount of the related asset. The capitalized amount is

depleted on a unit of production basis in accordance with the Company’s depletion policy. Changes

to assumptions related to future expected costs, risk-free rates and timing may have a material impact

on the amounts presented.

The Company has a stock option plan enabling employees, officers and directors to receive Common

Shares or cash at exercise prices equal to the market price or above on the date the option is granted.

Under the equity settled method, compensation costs attributable to stock options granted to

employees, officers or directors are measured at fair value using the Black-Scholes option pricing

model. The assumptions used in the calculation are: the volatility of the stock price, risk-free rates of

return and the expected lives of the options. A forfeiture rate is estimated on the grant date and is

adjusted to reflect the actual number of options that vest. Changes to assumptions may have a

material impact on the amounts presented.

Deferred tax assets are recognized when it is considered probable that deductible temporary

differences will be recovered in the foreseeable future. To the extent that future taxable income and

the application of existing tax laws in each jurisdiction differ significantly from the Company’s

estimate, the ability of the Company to realize the deferred tax assets could be impacted.

The determination of the Company’s income and other tax assets or liabilities requires interpretation

of complex laws and regulations. All tax filings are subject to audit and potential reassessment after

the lapse of considerable time. Accordingly, the actual income tax asset or liability may differ

significantly from that estimated and recorded by management.

28

Questerre Energy Corporation

Questerre has investments in certain private companies, including Red Leaf, which it classifies as an

equity investment and assesses for indicators of impairment at each period end. The primary risk

related to the investment in Red Leaf is the decline in the net current assets of the company without

a sufficient advancement in the engineering for their proprietary technology or their refinery project.

Design and Evaluation of Internal Controls over Financial Reporting and Disclosure Controls

and Procedures

Questerre is required to comply with National Instrument 52-109 “

” (“NI 52-109”) and is required to make specific disclosures with

respect to NI 52-109 as follows:

•

The Company has designed and evaluated the effectiveness of Disclosure Controls and

Procedures (“DC&P”). The President and Chief Executive Officer and the Chief Financial

Officer have concluded that DC&P are designed appropriately and are operating effectively as

at December 31, 2024.

•

The Chief Executive Officer and the Chief Financial Officer have designed, or caused to be

designed under their supervision, internal controls over financial reporting (“ICFR”), in order

to provide reasonable assurance regarding the reliability of financial reporting and the

preparation of financial statements for external purposes in accordance with IFRS. The Chief

Executive Officer and the Chief Financial Officer have evaluated the effectiveness of the

Company’s ICFR as at December 31, 2024, and have concluded that such ICFR have been

designed appropriately and are operating effectively.

•

The Company reports that no changes were made to ICFR during the quarter ended

December 31, 2024, that have materially affected or are reasonably likely to materially affect

the Company’s ICFR.

It should be noted that a control system, including the Company’s disclosure and internal controls and

procedures, no matter how well conceived can provide only reasonable, but not absolute, assurance

that the objectives of the control system will be met, and it should not be expected that the disclosure

and internal controls and procedures will prevent all errors or fraud.

2024 Annual Report

29

Quarterly Financial Information

December

31,

September

30,

June

30,

March

31,

2024

2024

2024

2024

Production (boe/d)

1,887

1,913

1,559

1,664

Average Realized Price ($/boe)

55.43

53.75

62.36

59.43

Petroleum and Natural Gas Revenue

9,622

9,460

8,847

8,998

Adjusted Funds Flow from Operations

(1)

3,703

3,428

4,455

2,973

Cash Flow from

Operations

3,844

4,060

3,141

2,628

Net Profit (Loss)

(8,143)

(273)

1,262

(175)

Basic and Diluted ($/share)

(0.02)

–

–

–

Capital Expenditures, net of acquisitions and

dispositions

7,543

3,433

7,034

2,630

Working

Capital Surplus

23,091

27,608

27,620

30,211

Total Assets

170,723

178,731

179,248

172,968

Shareholders' Equity

138,629

145,887

145,941

144,148

Weighted Average Common Shares Outstanding

Basic (thousands)

428,516

428,516

428,516

428,516

Diluted (thousands)

432,473

431,804

431,327

429,270

(1) Adjusted Funds Flow from Operations is a non-GAAP measure defined as cash flows from operating activities before changes in

non-cash operating working capital.

December

31,

September

30,

June

30,

March

31,

2023

2023

2023

2023

Production (boe/d)

1,794

1,830

1,978

1,790

Average Realized Price ($/boe)

59.04

63.71

59.46

65.38

Petroleum and Natural Gas Revenue

9,743

10,725

10,702

10,531

Adjusted Funds Flow from Operations

(1)

3,209

3,034

5,335

4,277

Cash Flow from

Operations

5,154

2,382

4,133

4,648

Net Profit (Loss)

(26,003)

(337)

1,692

946

Basic and Diluted ($/share)

(0.06)

–

–

–

Capital Expenditures, net of acquisitions and

dispositions

3,588

845

2,469

3,246

Working

Capital Surplus

29,866

30,191

28,013

25,085

Total Assets

172,346

197,716

201,213

199,264

Shareholders' Equity

143,667

169,636

169,444

167,371

Weighted Average Common Shares Outstanding

Basic (thousands)

428,516

428,516

428,516

428,516

Diluted (thousands)

428,516

428,516

431,100

431,064

(1) Adjusted Funds Flow from Operations is a non-GAAP measure defined as cash flows from operating activities before changes in

non-cash operating working capital.

30

Questerre Energy Corporation

The general trends over the last eight quarters are as follows:

•

Petroleum and natural gas revenues and adjusted funds flow from operations have fluctuated with

production volumes and realized commodity prices. Revenue has generally declined in 2024 as a

result of a 7% drop in realized commodity prices in 2024 compared to 2023.

•

Production volumes reflect the capital investment in wells at Kakwa in preceding quarters.

•

The level of capital expenditures over the quarters has varied largely due to the timing and number

of wells drilled and completed. In the fourth quarter of 2023, $3 million was also invested at Antler.

•

The working capital position has generally increased when capital expenditures and other

investments have been lower than adjusted funds flow from operations and cash from financing

activities.

•

Shareholders equity generally decreased as a result of net loss incurred in the last six quarters.

Off-Balance Sheet Transactions

The Company did not engage in any off-balance sheet transactions during the

year ended December

31, 2024.

2024 Annual Report

31

Management’s Report

The consolidated financial statements of Questerre Energy Corporation were prepared by

management in accordance with International Financial Reporting Standards. The financial and

operating information presented in this annual report is consistent with that shown in the consolidated

financial statements.

Management has designed and maintains a system of internal accounting controls that provide

reasonable assurance that all transactions are accurately recorded, that the financial statements

reliably report the Company’s operations and that the Company’s assets are safeguarded. Timely

release of financial information sometimes necessitates the use of estimates when transactions

affecting the current accounting period cannot be finalized until future periods. Such estimates are

based on careful judgments made by management.

Ernst & Young LLP, an independent firm of Chartered Professional Accountants, has been engaged

to audit the consolidated financial statements of the Company and provide an independent opinion.

They have conducted an independent examination of the Company’s accounting records in order to

express their opinion on the consolidated financial statements.

The Board of Directors is responsible for ensuring that management fulfills its responsibilities for

financial reporting and internal control. The Board of Directors exercises this responsibility through its

Audit Committee. The Audit Committee, which consists of non-management directors, has met with

Ernst & Young LLP and management in order to determine that management has fulfilled its

responsibilities in the preparation of the consolidated financial statements. The Audit Committee has

reported its findings to the Board of Directors, who have approved the consolidated financial

statements.

Michael Binnion

Jason D’Silva

Calgary, Alberta

March

26, 2025

32

Questerre Energy Corporation

Independent Auditor’s Report

Opinion

We have audited the consolidated financial statements of Questerre Energy Corporation (the

Company) which comprise the consolidated balance sheet as at December 31, 2024 and 2023, and

the consolidated statement of net loss and comprehensive loss, consolidated statement of changes

in equity and consolidated statement of cash flows for the years then ended, and notes to the

consolidated financial statements, including material accounting policy information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material

respects, the consolidated financial position of the Company as at December 31, 2024 and 2023, and

its consolidated financial performance and its consolidated cash flows for the years then ended in

accordance with International Financial Reporting Standards (IFRSs).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our

responsibilities under those standards are further described in the

section of our report. We are independent of the

Company in accordance with the ethical requirements that are relevant to our audit of the consolidated

financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance

with these requirements. We believe that the audit evidence we have obtained is sufficient and

appropriate to provide a basis for our opinion.

Key Audit Matter

Key audit matters are those matters that, in our professional judgment, were of most significance in

the audit of the consolidated financial statements of the current period. This matter was addressed

in the context of the audit of the consolidated financial statements as a whole, and in forming the

auditor’s opinion thereon, and we do not provide a separate opinion on this matter.

For the matter

below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the

section

of

our

report,

including

in

relation

to

this

matter.

Accordingly, our audit included the performance of procedures designed to respond to our

assessment of the risks of material misstatement of the consolidated financial statements. The

results of our audit procedures, including the procedures performed to address the matter below,

provide the basis for our audit opinion on the accompanying consolidated financial statements.

2024 Annual Report

33

Key audit matter

How our audit addressed the key audit matter

As at

December 31, 2024

, the carrying amount of

property, plant and equipment in the Western

Canada operating

segment was $116.7

million.

Property, plant and equipment is tested for

impairment only when circumstances indicate that

the carrying amount of a Cash Generating Unit

(“CGU”) may exceed its recoverable amount. As

impairment indicators existed

in the Kakwa

CGU in

the Western Canada operating segment, property,

plant and equipment for

the Kakwa CGU was

tested for impairment.

For the year ended

December 31, 2024

, an

impairment test was performed resulting in nil

impairment being

recorded with respect to

property, plant and equipment in the Kakwa CGU.

Refer to Note 2(e) for a description of the

Company’s estimates and judgements relating to

impairment and to Note 3(f) for a description of the

Company’s impairment of non

-financial

assets

accounting policy. Refer to Note 8 for the

Company’s

property,

plant

and

equipment

impairment disclosures.

Auditing the Company’s estimated recoverable

amount for

the Kakwa

CGU was complex due to

the subjective nature of the underlying inputs and

assumptions and the significant effect changes in

these could have on the recoverable amount.

Additionally, the evaluation of this estimate

required specialized skills and knowledge.

The

primary inputs noted in the fair value less cost of

disposal

model

was

forecasted

production,

escalated pricing, royalties, operating costs, future

development costs and an after

-tax di

scount rate.

Determining the amount of impairment requires an

estimate of a CGU’s respective recoverable

amount. The recoverable amount of the CGU

was

determined using

a

fair value less costs of disposal

To test the Company's estimated recoverable

amount of the Kakwa CGU within the Western

Canada operating segment, we performed the

following procedures, among others:

•

Evaluated

management’s

experts’

competence, capability and objectivity as

well as obtained an understanding of the

work

they

performed.

The

appropriateness of their work as audit

evidence was evaluated by considering

the relevance and reasonableness of the

methods and assumptions utilized;

•

Involved our internal valuation specialists

to assess the methodology applied, and

the various inputs utilized in determining

the after-tax discount rate by referencing

current

industry,

economic,

and

comparable company information, as well

as company and cash-flow specific risk

premiums;

•

With the assistance of our internal

valuation specialists, we compared the

market capitalization to net assets and

observed

quantitative

and

qualitative

reconciliations using market data and

transactions;

•

Compared

forecasted

benchmark

commodity

pricing

against

historical

realized prices and to other third-party

price forecasts;

•

Assessed

forecasted

production,

royalties, operating costs, and future

development costs by comparing them to

historical results; and

•

Evaluated the adequacy of the impairment

note disclosure included in Note 8 of the

34

Questerre Energy Corporation

model based on expected after-tax future net cash

flows from the production of proved plus probable

reserve volumes using forecast commodity prices

and costs, discounted using market

-

based rates.

Proved plus probable reserves were determined by

the Company’s independent petroleum engineers

(management’s experts).

accompanying

consolidated

financial

statements in relation to this matter.

Other Information

Management is responsible for the other information. The other information comprises:

•

Management’s discussion and analysis

•

Annual Report, other than the financial statements and our auditor’s report thereon

Our opinion on the consolidated financial statements does not cover the other information and we do

not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the

other information, and in doing so, consider whether the other information is materially inconsistent

with the consolidated financial statements or our knowledge obtained in the audit or otherwise

appears to be materially misstated.

We obtained Management’s discussion and analysis and the Annual Report prior to the date of this

auditor’s report. If, based on the work we have performed, we conclude that there is a material

misstatement of this other information, we are required to report that fact in this auditor’s report. We

have nothing to report in this regard

.

Responsibilities of management and those charged with governance for the consolidated

financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial

statements in accordance with IFRSs, and for such internal control as management determines is

necessary to enable the preparation of consolidated financial statements that are free from material

misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the

Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going

concern and using the going concern basis of accounting unless management either intends to

liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting

process

.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial

statements as a whole are free from material misstatement, whether due to fraud or error, and to

2024 Annual Report

35

issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance

but is not a guarantee that an audit conducted in accordance with Canadian generally accepted

auditing standards will always detect a material misstatement when it exists. Misstatements can arise

from fraud or error and are considered material if, individually or in the aggregate, they could

reasonably be expected to influence the economic decisions of users taken on the basis of these

consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise

professional judgment and maintain professional skepticism throughout the audit. We also:

•

Identify and assess the risks of material misstatement of the consolidated financial

statements, whether due to fraud or error, design and perform audit procedures responsive

to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis

for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher

than for one resulting from error, as fraud may involve collusion, forgery, intentional

omissions, misrepresentations, or the override of internal control.

•

Obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing

an opinion on the effectiveness of the Company’s internal control.

•

Evaluate the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by management.

•

Conclude on the appropriateness of management’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty exists

related to events or conditions that may cast significant doubt on the Company’s ability to

continue as a going concern. If we conclude that a material uncertainty exists, we are required

to draw attention in our auditor’s report to the related disclosures in the consolidated financial

statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are

based on the audit evidence obtained up to the date of our auditor’s report. However, future

events or conditions may cause the Company to cease to continue as a going concern.

•

Evaluate the overall presentation, structure and content of the consolidated financial

statements, including the disclosures, and whether the consolidated financial statements

represent the underlying transactions and events in a manner that achieves fair presentation.

•

Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the

financial information of the entities or business units within the group as a basis for forming

an opinion on the consolidated financial statements. We are responsible for the direction,

supervision and review of the audit work performed for the purposes of the group audit. We

remain solely responsible for our audit opinion.

36

Questerre Energy Corporation

We communicate with those charged with governance regarding, among other matters, the planned

scope and timing of the audit and significant audit findings, including any significant deficiencies in

internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with

relevant ethical requirements regarding independence, and to communicate with them all

relationships and other matters that may reasonably be thought to bear on our independence, and

where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters

that were of most significance in the audit of the consolidated financial statements of the current

period and are therefore the key audit matters. We describe these matters in our auditor’s report

unless law or regulation precludes public disclosure about the matter or when, in extremely rare

circumstances, we determine that a matter should not be communicated in our report because the

adverse consequences of doing so would reasonably be expected to outweigh the public interest

benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Robert Mitchell.

Chartered Professional Accountants

Calgary, Canada

March

26, 2025

2024 Annual Report

37

Consolidated Balance Sheets

December

31,

December

31,

Note

2024

2023

Assets

Current Assets

Cash and cash equivalents

5

$

31,791

$

35,038

Accounts receivable

6

3,242

3,016

Deposits and prepaid expenses

1,402

1,419

36,435

39,473

Right

-of-use assets

19

128

180

Investments

7

4,359

4,471

Property, plant and equipment

8

116,695

115,935

Exploration and evaluation assets

9

13,106

12,287

$

170,723

$

172,346

Liabilities

Current Liabilities

Accounts payable and accrued liabilities

$

12,496

$

9,387

Lease liabilities

19

56

58

Current portion of asset retirement obligation

12

799

184

Credit Facilities

6,13

49

36

13,400

9,665

Lease liabilities

19

83

134

Asset retirement obligation

12

18,611

18,880

32,094

28,679

Shareholders' Equity

Share capital

14

429,878

429,878

Contributed surplus

29,283

27,908

Accumulated other comprehensive income (loss)

896

(20)

Deficit

(321,428)

(314,099)

138,629

143,667

$

170,723

$

172,346

Commitments (note 20)

Signed on behalf of the Board of Directors

Bjorn Inge Tonnessen, Director

Dennis Sykora, Director

38

Questerre Energy Corporation

Consolidated Statements of Net Loss and Comprehensive Loss

For

the

year ended December

31,

Note

2024

2023

Revenue

Petroleum and natural gas revenue

15

$

36,927

$

41,701

Royalties

(2,776)

(5,995)

Petroleum and natural gas revenue, net of royalties

34,151

35,706

Expenses

Direct operating

15,158

16,082

General and administrative

5,530

5,086

Depletion, depreciation and accretion

8,12,19

12,485

12,631

Impairment

8,9

7,863

24,449

Loss on equity investment

7

474

1,232

Lease expiries

9

–

139

Share based compensation

11

1,115

1,367

Interest and other income

(1,145)

(1,572)

41,480

59,414

Loss before taxes

(7,329)

(23,708)

Deferred tax (recovery) expense

10

–

–

Net loss

(7,329)

(23,708)

Other Comprehensive Income (Loss), Net of Tax

Foreign currency translation adjustment

554

(267)

Income (loss) on foreign exchange on investments

7

362

(93)

916

(360)

Total Comprehensive Loss

$

(6,413)

$

(24,068)

Net Loss per Share

Basic and diluted

14

$

(0.02)

$

(0.06)

2024 Annual Report

39

Consolidated Statements of Changes in Equity

For

the

year ended December

31,

2024

2023

Share Capital

Balance, beginning and end of year

$

429,878

$

429,878

Contributed Surplus

Balance, beginning of year

27,908

26,301

Share based compensation

1,375

1,607

Balance, end of year

29,283

27,908

Accumulated Other Comprehensive Income (Loss)

Balance, beginning of year

(20)

340

Other comprehensive income (loss)

916

(360)

Balance, end of year

896

(20)

Deficit

Balance, beginning of year

(314,099)

(290,391)

Net loss

(7,329)

(23,708)

Balance, end of year

(321,428)

(314,099)

Total Shareholders' Equity

$

138,629

$

143,667

40

Questerre Energy Corporation

Consolidated Statements of Cash Flows

For

the

years

ended

December

31,

Note

2024

2023

Operating Activities

Net loss

$

(7,329)

$

(23,708)

Adjustments for:

Depletion, depreciation and accretion

8,12,19

12,485

12,631

Impairment

8,9

7,863

24,449

Lease expiries

9

–

139

Loss on equity investment

7

474

1,232

Share based compensation

11

1,115

1,367

Deferred tax (recovery) expense

10

–

–

Abandonment expenditures

12

(49)

(255)

14,559

15,855

Change in non

-cash working capital

18

(886)

462

Net cash from

operating activities

13,673

16,317

Investing Activities

Property, plant and equipment expenditures

8

(4,046)

(4,650)

Exploration and evaluation expenditures

9

(16,594)

(5,498)

Change in non

-cash working capital

18

3,785

(666)

Net cash used in investing activities

(16,855)

(10,814)

Financing Activities

Principal portion of lease payments

19

(65)

(58)

Repayment of credit facilities

13

–

3

Net cash used in financing

activities

(65)

(55)

Change in cash and cash equivalents

(3,247)

5,448

Cash and cash equivalents, beginning of year

35,038

29,590

Cash and cash equivalents, end of year

$

31,791

$

35,038

2024 Annual Report

41

Notes to the Consolidated Financial Statements

For the years ended December 31, 2024, and 2023

address of its registered office is 1650, 801 Sixth Avenue SW, Calgary, Alberta.

3.

2024 Annual Report

43

accounted for under the equity method.

for adoption for accounting periods beginning on or after January 1, 2027.

2024, this priority amount is approximately US$1.8 million.

2024 Annual Report

59

recorded an impairment expense of $18.4 million based on a VIU assessment.

impairment expense of $0.8 million in 2023 in Antler, Saskatchewan.

life is based on historical information.

equity to enhance its liquidity. The next scheduled review will be in the second quarter of 2025.

Common Shares outstanding calculation as their effect would have been anti-dilutive.

66

Questerre Energy Corporation

compensation expense.

2024 Annual Report

67

DIRECTORS

Michael Binnion

Mireille Fontaine

Hans Jacob Holden

Jauvonne Kitto

Dennis Sykora

Bjorn Inge Tonnessen

OFFICERS

Michael Binnion,

President and

Chief Executive Officer

John Brodylo,

VP Exploration

Jason D’Silva,

Chief Financial Officer

Rick Tityk,

VP Land

BANKERS

Canadian Western Bank

200, 606 Fourth Street SW

Calgary, Alberta T2P 1T1

LEGAL COUNSEL

Borden Ladner Gervais LLP

1900, 520 Third Avenue SW

Calgary, Alberta T2P 0R3

TRANSFER AGENT

Computershare Trust

Company of Canada

800, 324 Eighth Avenue SW

Calgary, Alberta T2P 2Z2

DNB Bank ASA

Dronning Eufemias gate 30

0191 Oslo, Norway

AUDITORS

Ernst and Young LLP

2200, 215 Second Street SW

Calgary, Alberta T2P 1M4

CORPORATE INFORMATION

INDEPENDENT

RESERVOIR ENGINEERS

McDaniel & Associates Consultants Ltd.

2000, 525 Eighth Avenue SW

Calgary, Alberta T2P 1G1

GLJ Ltd.

1920, 401 Ninth Avenue SW

Calgary, Alberta T2P 3C5

HEAD OFFICE

1650 AMEC Place

801 Sixth Avenue SW

Calgary, Alberta T2P 3W2

Telephone: (403) 777-1185

Facsimile: (403) 777-1578

Web: www.questerre.com

Email: info@questerre.com

STOCK INFORMATION

Toronto Stock Exchange

Oslo Stock Exchange

Symbol: QEC

QUESTERRE

ENERGY CORPORATION

1650 AMEC Place

801 Sixth Avenue SW

Calgary, Alberta T2P 3W2

Telephone: (403) 777-1185

Facsimile: (403) 777-1578

Web: www.questerre.com

Email: info@questerre.com