2025 Annual Report

1

President’s Message

Following the acquisition of PX Energy, we now have a clear path to commercially developing oil

shale. It is an integrated production platform to advance the Red Leaf patented technology to produce

oil from shale. As we assess the options for a small scale commercial pilot, our goal is to restructure

the business into a profitable operation.

The acquisition was a catalyst to consolidate our equity ownership of Red Leaf Resources and spin

out our Quebec assets. We purchased the remaining interest of Red Leaf through a common share

exchange and the acquisition of its preferred shares. Among the other assets we acquired, we now

own the HCCO® technology that incorporates carbon capture directly into the process and their oil

shale leases in the state of Utah.

The spin out of our Quebec assets was completed when we issued a new class of preferred shares

in January 2026 to hold the rights to these assets. A path to producing our discovery remains our

main goal because it could help solve their energy shortage. We are also protecting our shareholder

rights by following the legal process for our claim.

•

Closed acquisition of PX Energy, an integrated oil shale company in southern Brazil

•

Consolidated ownership of Red Leaf Resources

•

Spun-out of Quebec assets through share reorganization

•

Average daily production of 3,711 boe per day, net cash from operating activities of $5.8

million and adjusted funds flow from operations of $11.1 million

•

Total proved and probable reserves for PX Energy are xxxMMBOE with a NPV 10% of xxxx

•

Total proved and probable reserves for our Canadian assets declined by less than 10% to 22.4

MMboe with a before tax NPV 10% of $133.3 million

Oil Shale

We plan to restructure PX Energy into a cash flowing business backstopped by long life reserves

and

a sustainable balance sheet

.

The first step is to restore the company’s financial health. The acquisition of PX Energy came with a

significant working capital deficit and long term debt. Additionally, we assumed several other liabilities

as part of our consideration and there are legacy issues with the vendors, debtors and prospective

joint venture partners. Some of these issues may require litigation to ultimately right size the balance

sheet.

The business could also benefit from a new approach. With over thirty years’ under a Brazilian

supermajor, the company had a long-established management structure and business and operating

procedures. These include a strong HSE culture and focus on safety which is essential for an operation

with close to 1,000 employees and contractors on site. By applying a private sector approach, we

intend to improve profitability in a business with annual revenue of over $130 million. In the first

2

Questerre Energy Corporation

quarter of this year, a restructured management team has identified cost savings of to $10 million.

We are targeting an additional $10 million by the end of this year.

We are also looking at opportunities to grow revenue. These include debottlenecking initiatives to

increase oil sales volumes by replacing fuel consumed in the process with cheaper alternatives. In

addition to the oil produced from shale, approximately one third of production volumes come from

processing refinery waste, commonly known as oil sludge. Although competitive, this business has

good margins. We intend to build out this business by diversifying our supply sources, seeking

premium pricing for our products and expanding our processing capacity.

With access to an existing mine, utilities and processing facilities, PX Energy’s site in Brazil could

materially reduce our original estimates of $30 million to $50 million for a test facility. As a first step,

we are planning to evaluate a key component of the HCCO® technology using existing equipment

on location. We estimate this could cost just over $2.5 million and increase production by over 300

barrels per day.

We are actively promoting our natural gas discovery to help solve Quebec’s economic challenges.

The energy shortage in Quebec appears to be growing. The provincial utility has become ‘a net

importer of power in a reversal from past years’ reflecting growing demand and reduced supply, in

part caused by a drop in its northern water reservoirs

(1)

. As it plans to invest C$200 billion in increasing

renewable energy supply, associations representing consumers, small and medium sized businesses

and large industrial users have collectively expressed their concerns about sharp increases in prices

(2)

.

In January this year, the provincial utility announced its plans to convert the natural gas fired

Becancour power plant to meet peak demand during the winter using renewable natural gas

(3)

. We

have continued to advocate for our gas to supply this plant that lies less than ten kilometers from our

discovery wells. Our gas can also be a secure and reliable source of natural gas for the province. It

currently engaged in a trade dispute with the United States that supplies 50% of its needs

(4)

.

Longer term, our gas could also provide the supply for LNG exports from Quebec. The recent contract

between Germany and Qatar suggests Europe continues to look for more secure supplies of energy

following the Russian invasion of Ukraine.

The legal process to protect our legal rights has been moving forward, albeit slower than many

shareholders expect. During the year, we completed the questioning of key Government witnesses

including current and former members of the Executive Council of Quebec. In January, the Justice

approved Questerre to advance as ‘test case’ to expedite the process. Subject to any appeal by the

Attorney General of Quebec and other pre-trial motions, we are hopeful to have a hearing date for the

main trial set this year.

Our volumes increased this year following the tie-in of three (1.5 net) wells at Kakwa North and the

incremental production from PX Energy after the acquisition closed at the end of the third quarter.

2025 Annual Report

3

Average production for the year was 3,711 boe per day compared to 1,756 boe per day last year. In

the fourth quarter, our production averaged 7,046 boe per day with 4,411 boe per day from Brazil.

Even with lower realized commodity prices, revenue for our Canadian operations increase to $45.5

million with adjusted funds flow from operations of $_ million, excluding costs related to the PX Energy

acquisition. For the quarter, our operations in Brazil generated $ 31.9 million in revenue and $_ million

in adjusted funds flow from operations.

Our consolidated working capital position reflects the working capital deficit of PX Energy of $7.6

million and the non-recourse debt and other obligations assumed as part of the PX Energy acquisition.

Though our cost-cutting initiatives at PX Energy and assuming commodity prices remain above

US$65 per barrel, we expect this deficit to be reduced to $_ million by year-end

.

Outlook

We are focused on restructuring PX Energy into a company with a stronger balance sheet, and

profitable at lower oil prices, despite the recent run-up in prices. Testing the

HCCO®

technology at

scale is also a priority through a field pilot in Brazil or possibly Jordan. This could lead to a commercial

scale project that, with success, could turn oil shale resources into reserves.

Although we are advancing our legal claim, we are still pursuing a business and political solution in

Quebec. At a recent speech to the Quebec Board of Trade in February, the head of the province’s

largest bank argued that Quebec should develop its natural gas resources

(5)

. A leading candidate for

the current ruling party also expressed support for assessing local gas development

(6)

. We are

optimistic that this reflects a broader sentiment and eventually provides a path to realizing the value

of our discovery

.

Michael Binnion

President and Chief Executive Officer

Footnotes:

(1)

https://www.theglobeandmail.com/business/article-hydro-quebec-electricity-net-importer-water-reservoirs-demand/

(2)

https://montreal.citynews.ca/2026/03/01/hydro-quebec-projects-drive-up-electricity-prices/

(3)

https://news.hydroquebec.com/news/press-releases/all-quebec/quebec-energy-security-hydro-quebec-confirms-next-steps-use-power-plant-

becancour-during-peak-periods.html

(4)

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

(5)

https://www.offshore-energy.biz/germanys-sefe-nails-down-8-year-lng-offtake-with-south-american-firm/

(6)

https://www.lesaffaires.com/bourse/actualites-boursieres/il-ne-faut-pas-fermer-la-porte-a-lexploitation-du-gaz-naturel-dit-le-pdg-de-la-banque-

nationale/

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

2025 Annual Report

5

Management’s Discussion and Analysis

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

26, 2026, 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 December2025, 2025 and

2024. Additional information relating to Questerre, including Questerre’s Annual Information Form

for

the

year ended December 31, 2025, dated March 26, 2026 (“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”. The Company’s Series 2 Preferred Shares are

not currently listed for trading.

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;

6

Questerre Energy Corporation

•

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

•

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;

2025 Annual Report

7

•

general economic conditions;

•

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.

2025

2024

Net cash from operating activities

$

9,237

$

13,093

Transaction costs

3,276

–

Change in non-cash working capital

7,830

886

Adjusted funds flow from operations

$

20,343

$

13,979

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.

2025 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

2025

2024

2023

Financial ($ thousands, except as noted)

Petroleum and Natural Gas Revenue

77,346

36,927

41,701

Adjusted Funds Flow from Operations

(1)

20,343

13,979

15,855

Cash Flow from Operations

9,237

13,093

16,317

Basic and Diluted ($/share)

0.04

0.03

0.04

Net Income (Loss)

(31,998)

(7,329)

(23,708)

Basic and Diluted ($/share)

(0.07)

(0.02)

(0.06)

Capital Expenditures

25,358

20,640

10,148

Working Capital Surplus

(2)

(24,831)

23,091

29,866

Total Assets

434,887

170,723

172,346

Shareholders' Equity

123,688

138,629

143,667

Common Shares Outstanding (thousands)

445,764

428,516

428,516

Weighted average - basic (thousands)

445,763

428,516

428,516

Weighted average - diluted (thousands)

449,948

431,715

430,294

Operations (units as noted)

Average Production

Crude Oil and Natural Gas Liquids (bbls/d)

2,337

1,021

1,056

Natural Gas (Mcf/d)

8,243

4,411

4,749

Total (boe/d)

3,711

1,756

1,848

Average Sales Price

(3)

Crude Oil and Natural Gas Liquids ($/bbl)

79.80

91.92

94.01

Crude Oil - Brent ($USD/bbl)

86.18

—

—

Natural Gas ($/Mcf)

2.35

1.65

3.02

Total ($/boe)

57.10

57.45

61.83

Netback ($/boe)

Petroleum and Natural Gas Revenue

(4)

57.10

57.45

61.83

Royalties Expense

(4)

(4.71)

(4.32)

(8.89)

Percentage

8%

8%

14%

Operating Expense

(4)

(33.91)

(23.58)

(23.84)

Operating Netback

18.48

29.55

29.10

General and Administrative Expense

(4)

(6.39)

(8.60)

(7.54)

Cash Netback

12.09

20.95

21.56

Wells Drilled

Gross

2.00

6.00

2.00

Net

2.00

2.25

1.35

(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, 2025 and 2024.

(3)

Refer to Note 15 in the Consolidated Financial Statements for the years ended December 31, 2025 and 2024.

(4)

Refer to Consolidated Statement of Comprehensive Loss and Comprehensive Loss for the years ended December 31, 2025 and

2024.

2025 Annual Report

11

Highlights

•

Closed acquisition of PX Energy, an integrated oil shale company in southern Brazil with

production of 4,411 boe per day

•

Consolidated ownership of Red Leaf Resources

•

Spun-out of Quebec assets through share reorganization

•

Average daily production of 3,711 boe per day, net cash from operating activities of $5.8

million and adjusted funds flow from operations of $11.1 million

•

Total proved and probable reserves for PX Energy are xxxMMBOE with a NPV 10% of xxxx

•

Total proved and probable reserves for our Canadian assets declined by less than 10% to 22.4

MMboe with a before tax NPV 10% of $133.3 million.

2025 Activities

Oil Shale

To advance its strategy to commercial develop oil shale, the Company completed the acquisition of

Paraná Xisto S.A. (“PX Energy”) (the “Acquisition”) and consolidated its equity interest in Red Leaf

Resources Inc. (“Red Leaf”).

PX Energy is an integrated oil shale production and refining company in southern Brazil. Its assets

include downstream production expertise that complement the Company’s experience with upstream

resource development and technology assessment. The acquisition of the remaining equity interest in Red

Leaf provides access to its proprietary technology to produce oil from oil shale that incorporates carbon

capture.

Completed in September 2025, the Acquisition consisted of the purchase of 100% of the equity

capital of PX Energy. It was concluded through the purchase of all issued and outstanding shares of

its parent company, Forbes Resources Brazil Holding SA (“FRBH”) from the vendors through a wholly

owned subsidiary of the Company.

PX Energy has over thirty years of operations and utilizes a technology to produce oil from oil shale

developed by a Brazilian integrated energy company. The Acquisition provides a platform of producing

oil shale operations, including mining, processing and refining facilities as well as oil shale reserves

and resources. Total proved and probable reserve as of December 31, 2025, were _ MMbbls with an

NPV-10% of $ million. Average daily production from PX Energy for the fourth quarter was over 4,000

boe per day.

Consideration

The consideration for the Acquisition includes the issuance of 15 million Common Shares (post the

Quebec Spinout – see Corporate) subject to a lock-up and voting agreement (the “First Tranche

Common Shares”) with a deemed value of $5.0 million and contingent equity consideration of two

additional tranches of 25 million Common Shares with an estimated fair value of $13.9 million as

detailed below:

12

Questerre Energy Corporation

•

25 million Common Shares subject to the achievement of US$30 million in free cash flow or

the completion of an equity issue by the Company of $25 million at a price of $0.50 per

Common Share no later than September 30, 2027;

•

25 million Common Shares subject to the achievement of US$40 million in free cash flow or

the completion of an equity issue by the Company of $25 million at a price of $1.00 per

Common Share no later than September 30, 2028.

Pursuant to the agreement between the Company and the vendors (the “Acquisition Agreement”),

the Company has notified the vendors it is seeking a purchase price adjustment of US$_ million,

representing the difference between the closing working capital and target working capital as defined

under the Acquisition Agreement. As a result, the Company’s position is that no additional

consideration is payable to the vendors, including the issuance of the First Tranche Shares. The

Vendors have advised the Company that they are disputing this amount and are seeking issuance of

the First Tranche Shares. The Company intends to follow the procedure outlined under the Acquisition

Agreement including the appointment of an independent auditor to resolve any disputes related to

the assessment of the closing working capital.

The consideration for the Acquisition also included the assumption by the Company’s subsidiary of

the vendor’s obligations under a business combination agreement (“BCA“) as amended, with a

special purpose acquisition company (“SPAC”). Pursuant to the BCA, the Company’s wholly owned

subsidiary has assumed the obligation to combine with the SPAC in a go public transaction. The BCA

is subject to conditions precedent including receipt of regulatory approvals, the filing of a

Proxy/Registration Statement with the Securities and Exchange Commission and the completion of

this transaction prior to December 31, 2026. Under the BCA, the Company’s subsidiary assumed

obligations related to the SPAC, along with other liabilities, with an estimated fair value of $7.6 million.

Related to the SPAC and subject to the issuance of the First Tranche Common Shares and associated

transactions, the Company’s subsidiary will assume convertible promissory notes originally issued by

the vendor in the principal amount of $15.2 million. The notes bear interest at 12% per annum and

are due on December 31, 2026. PX Energy has issued a US$5 million guarantee for these notes.

Subject to conditions precedent in the BCA and the closing of the SPAC transaction, the notes are

convertible into common shares of the SPAC. If the SPAC transaction does not proceed, the notes

are due and payable or convertible into equity of the Company’s subsidiary. Liabilities acquired under

the acquisition included US$80 million in senior secured callable bonds issued by FRBH with a

maturity date of April 24, 2028. The bonds have a face value of US$80 million and an acquisition date

fair value of US$64 million. The carrying amount will accrete from US$64 million to US$80 million with

the accretion recognized on the income statement as finance costs at the effective interest rate.

Interest will also be recognized as incurred. The bonds are secured by a fiduciary assignment of the

equity of PX Energy and security over the assets of PX Energy.

In conjunction with the closing of the Acquisition, the holders of bonds representing a requisite

majority agreed to amend the terms of the bonds as follows:

2025 Annual Report

13

Interest dropped from 16% per annum to 10% per annum effective August 1, 2025. All accrued and

unpaid interest up to December 31, 2025, converts into shares in the SPAC transaction. If the SPAC

transaction does not proceed, no interest is payable in 2025. Thereafter, interest is payable quarterly

based on Brent pricing ranging from 4% based on Brent pricing under US$55 per barrel to 20% based

on Brent pricing greater than US$95 per barrel with interest not to exceed 16% over the term of the

bonds. Interest in 2026 may be payable in cash or in kind at the issuer’s election with interest in 2027

onwards payable in kind if Brent prices are below US$65 per barrel.

Concurrent with the Acquisition, the Company entered a binding term sheet with Nice Capital

Holdings Ltda. (“Nice”) for a 50/50 joint venture for the ownership and management of PX Energy

(the “Joint Venture”). After yearend, the Company was advised by Nice that the term sheet for a

50/50 joint venture to develop PX Energy expired in accordance with its terms.

In December, the Company consolidated its ownership of Red Leaf through an exchange of Red Leaf

common shares for Questerre Common Shares and the acquisition of the Red Leaf preferred shares

for. Red Leaf is a private US-based technology company whose principal assets include its patented

HCCO® oil-shale processing technology, oil shale mineral leases in the State of Utah, title to over

7,000 acres in the Uintah Basin in the State of Utah and cash and investments of over US$9 million.

Prior to the acquisition, Questerre held approximately 38% Red Leaf’s common equity capital and

17% of its preferred equity capital.

Total consideration was $8.6 million and consisted of the issuance of 20.4 million Questerre Common

Shares to Red Leaf common shareholders with a deemed value of $0.31 per Common Share and $2.2

million cash to acquire Red Leaf preferred shares not held by the Company.

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

Discussions with the Government of Jordan for a demonstration of the technology and the related

negotiations for the concession agreement for the project remain ongoing. Through the execution of

a new agreement with the Government of Jordan, the Company seeks to renew its exclusive rights

to this project.

For 2026, the Company plans to optimize the operations of PX Energy to improve profitability and

assess options to demonstrate the Red Leaf technology at scale.

During the year, Questerre participated in a three (1.5 net) well program at Kakwa North and elected

not to participate in the three (0.75 net) well program at Kakwa Central.

Capital invested in Kakwa totaled $18.8 million for the year (2024: $19. 3 million) with daily production

averaging 2,350 boe/d (2024: 1,452 boe/d) comprising of 7.3 MMcf/d of natural gas (2024: 4.4

MMcf/d) and 1,142 bbl/d of condensate and natural gas liquids (2024: 719 bbl/d). Total proved and

probable reserves as of December 31, 2025, were estimated at 21.1 MMBoe (2024: 22.5 MMBoe)

with a before tax NPV-10% of $124.3 million (2024: $180.6 million). The Company currently holds

14

Questerre Energy Corporation

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

At Kakwa North, the operator finalized a three well program during the year. The wells were brought

on-stream in the second quarter. The operator is assessing a follow-up drilling program that could

commence in the fall of 2026.

At Kakwa Central, the operator commenced a three well program in the fall of 2025. Questerre elected

to forego participation in this entire program due to the proposed inter-well spacing that is expected

to impact overall well recoveries.

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.

In Antler, consistent with prior years, activities focused on optimizing existing production and

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

$5.1 million was invested at Antler during the year to expand the pilot secondary recovery scheme

and drill two wells. (2024: $0.8 million). Daily production averaged 207 bbl/d (2024: 250 bbl/d). Total

proved and probable reserves as at December 31, 2025, were estimated at 1.2 MMBbls (2024: 1.2

MMBbls) with a before tax NPV-10% of $17.4 million (2024: $21.9 million). The Company currently

holds 14,730 net acres in the area.

In 2026, the Company expects to continue its work to enhance existing production through workovers

and expanding the pilot secondary recovery scheme while assessing future drilling locations.

Quebec

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”).

Discussions remain ongoing with the Quebec Ministry of Economy, Innovation and Energy, for the

Company’s carbon storage pilot project application 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. The Company is seeking

Government funding for this pilot project. The Company is participating in the consultation process

for new regulations proposed by the province related to carbon sequestration legislation.

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

69,

(“Bill 69”). Bil 69 included the requirement for an integrated resource management plan to

promote energy development in Quebec. Among other things, it established for electric power and

natural gas markets, policy directions, objectives and targets regarding supply, energy infrastructure

and innovation. In June 2025, the Government of Quebec enacted Bill 69 under closure.

2025 Annual Report

15

During the third quarter, the Company was advised that the Supreme Court of Canada declined to

hear its application to appeal the decision from the Quebec Court of Appeal on the stay of application

of Bill 21. The ruling by the Quebec Court of Appeal in May 2025 annulled a decision by the Quebec

Superior Court justice in January 2024 suspending key provisions of Bill 21. The Government of

Quebec is now permitted to enforce the specific provisions related to the abandonment and

reclamation of existing wells.

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 was completed in the fall of 2025. Subject to

completion of pre-trial motions and other procedural matters, the Company is seeking a date for the

main hearing in 2026.

In January 2026, the Company completed the spin out its Quebec-based assets (the “Quebec

Spinout”) through a reorganization of its capital. The reorganization consisted of the exchange of one

old Common Shares for one new Common Share and one Series 2 Preferred Share. The Preferred

Share entitle shareholders to the economic benefits of the Quebec assets and the Common Shares

represent ownership of the remaining assets of the Company. The Company is assessing options to

have the Preferred Shares listed for trading.

Production

2025

2024

Oil and

Natural

Oil and

Natural

Liquids

Gas

Total

Liquids

Gas

Total

(bbls/d)

(Mcf/d)

(boe/d)

(bbls/d)

(Mcf/d)

(boe/d)

Canada

1,387

7,266

2,598

1,021

4,411

1,756

Brazil

950

977

1,113

–

–

–

2,337

8,243

3,711

1,021

4,411

1,756

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

The tie-in of three (1.5 net) new wells at Kakwa North and the acquisition of PX Energy contributed to

production volumes doubling over the prior year.

Production from Kakwa continues to account for over 90% of volumes from Canada. With the addition

of incremental production from Brazil in the fourth quarter, Kakwa now accounts for 63% of Company

volumes. Including light oil production from the Company’s assets in Saskatchewan and Manitoba,

production grew 110% over the prior year with an approximately equal weighting between oil and

liquids and natural gas. The production volumes in Brazil reflect the acquisition of PX Energy that

closed at the end of the third quarter. Production is primarily heavy crude oil and includes both

volumes from the mining and processing of oil shale and the processing of refinery waste.

16

Questerre Energy Corporation

For the remainder of this year, the Company anticipates its production volumes will decline nominally

with no new wells to come onstream at Kakwa offset by stable production volumes from Brazil.

2025 Financial Results

2025

2024

Oil and

Natural

Oil and

Natural

Liquids

Gas

Total

Liquids

Gas

Total

Canada

$

40,411

$

5,052

$

45,463

$

34,191

$

2,736

$

36,927

Brazil

29,870

2,013

31,883

–

–

–

$

70,281

$

7,065

$

77,346

$

34,191

$

2,736

$

36,927

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 increased by 111% over the prior year even with 60% of a decline

due to the lower commodity prices. Revenue from Brazil reflects petroleum and natural gas sales in

the fourth quarter following the closing of the PX Energy acquisition.

2025

2024

Benchmark prices:

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

1.40

1.38

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

85.71

97.54

Brent Crude ($/bbl)

96.66

–

Realized prices:

Natural Gas ($/Mcf)

2.35

1.65

Crude Oil and Natural Gas Liquids ($/bbl)

79.80

91.92

Brent Crude ($/bbl)

86.18

–

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

Crude Oil

The WTI price decreased 17% to US$64.86 per barrel compared to US$75.72 per barrel in 2024. The

decreases are primarily due to OPEC+ unwinding voluntary production cuts, leading to an oversupply

in the global market and bearish sentiment.

For the year ended December 31, 2025, the Company’s realized price for crude oil and natural gas

liquids in Canada averaged $79.80 per barrel (2024: $91.92 per barrel) compared to the benchmark

Canadian Mixed Sweet Blend that averaged $85.71 per barrel (2024: $97.54 per barrel).

In Brazil, the Company’s oil and liquids production, consisting primarily of a premium heavy fuel oil, is

based on Brent pricing with applicable premiums as published by the state controlled energy

company. Realized prices are based on produced volumes less volumes utilized in the production

process and reflect applicable discounts offered to customers for transportation. For the year ended

2025 Annual Report

17

December 31, 2025, Brazil’s realized price for crude oil and natural gas liquids averaged $86.47 per

barrel compared to the benchmark Brent Crude Oil that averaged $96.66 per barrel. Brazil realized

price for crude oil and natural gas liquids is primarily influenced by the price of Brent crude.

In North America, natural gas prices increased over the prior year with growing production in the

United States being offset by increased demand including from higher LNG exports. The

commissioning of Canada’s first LNG export facility also contributed to optimism about improved

prices in Canada. Notwithstanding, prices in Canada declined substantially in the summer and turned

negative as supply exceeded takeaway capacity

For the year ended December 31, 2025, the AECO daily spot price increased 16% to an average of

$1.40 per Mcf compared to $1.38 per Mcf in 2024.

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

$2.35 per Mcf (2024: $1.65 per Mcf).

2025

2024

Canada

$

5,475

$

2,776

Brazil

908

–

$

6,383

$

2,776

% of Revenue:

Canada

8%

8%

Brazil

3%

0%

Total Company

8%

8%

Royalties on production in Canada increased commensurate with production. As a percentage of

revenue, this remained unchanged from the prior year at 8%. The royalty rate on production from

Brazil was 3% for the year reflecting a flat rate on 10% on the value of oil shale production and a 2%

royalty on production volumes related to waste oil processing (TBC with PX).

2025

2024

Canada

$

21,822

$

15,158

Brazil

24,111

–

Total Company

$

45,933

$

15,158

$/boe:

Canada

33.91

23.58

Brazil

59.37

–

Total Company

$

33.91

$

30.61

18

Questerre Energy Corporation

Gross operating costs increased by over $30 million to $46 million in 2025. Over 75% of this increase

is attributable to the PX Energy assets acquired at the end of the third quarter of the year.

In Canada, operating costs at Kakwa, Alberta, specifically transporting and disposing of produced

water increased by $0.4 million with production from new wells. On a unit of production basis, this

increase from $30.61 per boe to $34.06 per boe.

In Brazil, operating costs are largely fixed and include mining, refining and energy costs. During the

quarter, they averaged $59.88 per boe.

2025

2024

Canada general and administrative expenses

$

9,912

$

5,530

Brazil general and administrative expenses

2,017

–

Transaction costs from acquisition

(3,276)

–

General and administrative expenses, net

$

8,653

$

5,530

Gross General & Administrative expenses (“G&A”) nearly double to $8.7 million from $5.5 million last

year. Just over 50% of this increase of $6.4 million or $3.3 million relates to transaction costs for PX

Energy acquisition. Post the acquisition, the Company incurred $2 million in ongoing G&A costs.

Compared to last year, the Company also saw an increase in wages and costs related to its Quebec

assets.

For the year ended December 31, 2025, the Company recorded depletion, depreciation, and accretion

expense of $25.9 million (2024: $12.5 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.

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 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

2025 Annual Report

19

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 million (2024: $1.1 million) net of

$0.3 million (2024: $0.3 million) in expense that was capitalized during the year.

Questerre previously held approximately 38% of the outstanding equity interest in Red Leaf. Prior to,

the Company acquired the remaining 62% equity interest, resulting in Questerre obtaining 100%

ownership and control of Red Leaf. Accordingly, Red Leaf has been fully consolidated from the

acquisition date. As a result of remeasuring the Company’s previously held equity interest to fair value

at the acquisition date, a gain of $1.0 million was recognized. Further details regarding the transaction

are provided in Note 6 to the Financial Statements.

The Company earned interest income of $3.3 million and other income of $2.4 million for the year

ended December 31, 2025 while expensing $11.8 million for the year ended. In the prior year, other

income included $1.1 million of interest that was earned on its cash and term deposits.

In 2025, the Company recorded other comprehensive income of $4.9 million (2024: $0.6 million)

related to the change in foreign currency translation adjustments.

For the year ended December 31, 2025, the Company recorded a net loss of $18.3 million compared

to a net loss of $7.3 million in the prior year. Compared to last year, the loss in the current year is

reduced by a deferred tax recovery offsetting with increased in overall increase in expenses plus a

new finance expenses from PX Energy.

Including other comprehensive income, the Company reported a total comprehensive loss of $13.5

million compared to a loss of $6.8 million last year.

The Company reported cash flow from operating activities of $13.6 million (2024: $13.7 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.

20

Questerre Energy Corporation

Consistent with higher capital spending, the cash used in investing activities increased to $25.9 million

from $16.9 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.

2025

2024

Canada

$

24,048

$

20,640

Brazil

1,310

–

Total

$

25,358

$

20,640

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

For the year ended December 31, 2025, the Company incurred capital expenditures of $25.6 million

as follows:

•

In Canada, $24.2 million was incurred to finish drilling, completing and tying-in three (1.5

net) wells in Kakwa and two (100% net) wells in Antler; and

•

In Brazil, $1.4 million was spent on debottlenecking processing facilities.

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

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.

Fourth Quarter 2025 Results

In the fourth quarter of 2025, petroleum and natural gas revenue increased to $42.8 million from $9.6

million last year. The increase in revenue is primarily attributable to the acquisition of PX Energy

and its producing assets in Brazil that closed at the end of the third quarter. Petroleum and

natural gas revenue attributable to assets in Canada increased/decreased $_ million over the

prior year with higher production volumes offsetting the impact of lower prices (TBC).

The acquisition of PX Energy also contributed to the increase in operating costs for the fourth

quarter. The acquired assets in Brazil accounted for $_ million with the remainder representing

the costs attributable to its assets in Canada. Operating costs in Canada increased over the prior

quarter and same period last year due to higher water transportation and disposal costs at Kakwa

2025 Annual Report

21

(TBC).

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.

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, 2025, and 2024, 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, 2025 was 2.55

(2024: 3.92) 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 2026 future development costs associated with proved reserves

in its independent reserves assessment as of December 31, 2025. It anticipates that, as a result,

reserves associated with wells drilled in 2026 will be transferred from the proved undeveloped to the

proved producing category.

22

Questerre Energy Corporation

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, 2025, there were no

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

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,

2026

2025

2024

Common Shares

452,213

445,764

428,516

Stock Options

47,885

35,790

38,295

Weighted average Common Shares

Basic

445,763

428,516

Diluted

449,948

431,715

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

years ended December 31, 2025 and

2024 follows:

December 31, 2025

December 31, 2024

Weighted

Weighted

Number of

Average

Number of

Average

Options

Exercise

Options

Exercise

Price

Price

Outstanding, beginning of period

38,295

$

0.25

38,140

$

0.26

Granted

6,675

0.23

6,950

0.25

Forfeited

(8,855)

0.22

(620)

0.27

Expired

(325)

0.16

(6,175)

0.29

Outstanding, end of period

35,790

$

0.25

38,295

$

0.25

Exercisable, end of period

28,288

$

0.26

29,704

$

0.25

Commitments

A summary of the Company’s net commitments at December 31, 2025 follows:

2026

2027

2028

Transportation and Processing

$

2,219

$

1,094

$

0

2025 Annual Report

23

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

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

1

6 to the audited consolidated financial

statements for the

year ended December 31, 2025.

The Company operates in an industry that is highly sensitive to commodity prices, market access,

regulatory developments and the availability of capital. Questerre’s financial performance and cash

flow are substantially dependent on crude oil and natural gas prices, which remain volatile and are

affected by factors beyond the Company’s control, including global supply and demand, OPEC+

production decisions, geopolitical conflict, sanctions, trade policy, inflation, interest rates, foreign

exchange movements, transportation constraints and general economic conditions. In 2025, oil

markets remained sensitive to geopolitical and trade uncertainty and expectations of supply growth

exceeding demand growth.

A sustained decline in commodity prices, or widening price differentials, could reduce the Company’s

cash flow from operations, limit funds available for capital expenditure and adversely affect the

economic viability and value of its reserves and development opportunities. This may impair the

Company’s ability to replace production, advance projects and maintain financial flexibility.

In Canada, the Company remains exposed to Western Canadian pricing dynamics, natural gas market

conditions, infrastructure availability and evolving regulatory and environmental requirements.

Although the Trans Mountain Expansion has improved crude oil market access and reduced certain

export constraints, the Canadian oil and natural gas industry continues to face risks relating to

transportation availability, permitting timelines and emissions-related regulation, including methane

requirements.

Access to capital is also a significant risk for the Company. As a junior exploration and production

company, Questerre relies on cash flow from operations, debt and equity financing and strategic

arrangements to fund its activities. There can be no assurance that sufficient capital will be available

when required or that it will be available on acceptable terms. If the Company is unable to obtain

24

Questerre Energy Corporation

sufficient capital, it may be required to defer, reduce or restructure planned capital programs or other

strategic initiatives.

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.

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, 2025, for its expected credit losses

related to its accounts receivable.

2025 Annual Report

25

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, 2025, the Company had no outstanding commodity risk management contract in

place.

Environmental Regulation and Risk

The Company’s operations are subject to extensive environmental laws and regulations in the

jurisdictions in which it operates. These requirements govern, among other things, emissions, water

use, waste handling, site restoration, abandonment and reclamation, and remediation of

contaminated properties. Compliance with these requirements may increase capital expenditures,

operating costs and administrative obligations, and may affect the timing and economics of the

Company’s exploration, development and production activities. Failure to comply could result in

penalties, the suspension or revocation of approvals, remediation orders or other liabilities.

For Questerre, these risks are particularly relevant in Canada, where environmental and climate-

related regulation continues to evolve. In Alberta, the Company remains exposed to changing

emissions and methane requirements, including the TIER regime and enhanced methane rules that

will require additional compliance, monitoring and operational costs over time. In Québec, the

regulatory environment remains highly restrictive for hydrocarbon development. Québec has revoked

exploration and production licences and requires the permanent closure and restoration of wells drilled

under those licences, which may limit the Company’s ability to realize value from those assets and

may increase closure and reclamation obligations.

26

Questerre Energy Corporation

More broadly, climate-related policy, carbon regulation, methane requirements and changing

stakeholder expectations may increase the Company’s costs, reduce operational flexibility and affect

the competitiveness and economic viability of certain projects. These developments may also affect

reserve values, access to capital and the Company’s ability to advance portions of its asset base.

While the Company seeks to manage these risks through compliance, operational planning and

ongoing monitoring of regulatory developments, there can be no assurance that future environmental

or climate-related measures will not have a material adverse effect on its business, financial condition

and results of operations.

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

AIF.

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market

interest rates. Following the PX Energy acquisition, the Company is exposed to variable-rate risk

through the senior secured bonds acquired as part of that transaction.

Under the terms of the bonds, all accrued and unpaid interest up to December 31, 2025 converts into

shares if the contemplated SPAC transaction is completed. If the SPAC transaction does not proceed,

no interest is payable in 2025. Thereafter, interest is payable quarterly at variable rates determined by

reference to Brent crude oil prices, ranging from 4% when Brent is below US$55 per barrel to 20%

when Brent exceeds US$95 per barrel, subject to an overall cap such that interest does not exceed

16% over the term of the bonds. Interest in 2026 may be settled in cash or in kind at the issuer’s

election. From 2027 onward, interest is payable in kind if Brent prices are below US$65 per barrel.

The maturity of the bonds may also be extended for up to two additional one-year terms for a fee

equal to 2% of principal for each extension.

At December 31, 2025, the Company’s exposure to variable-rate debt under these bonds was US$80

million (2024 – nil). As a result, changes in Brent pricing may affect the amount and timing of interest

payable and, in certain periods, whether interest is settled in cash or in kind. The Company monitors

this exposure in assessing its financing costs and expected liquidity requirements.

At December 31, 2025, and 2024, the Company’s credit facilities outstanding balance was essentially

nil.

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.

2025 Annual Report

27

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.

28

Questerre Energy Corporation

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.

2025 Annual Report

29

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, 2025.

•

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, 2025, 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, 2025, 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.

30

Questerre Energy Corporation

Quarterly Financial Information

December 31,

September 30,

June 30,

March 31,

2025

2025

2025

2025

Production (boe/d)

7,046

2,926

3,091

1,729

Average Realized Price ($/boe)

65.93

44.32

48.62

58.66

Petroleum and Natural Gas Revenue

42,740

11,801

13,675

9,130

Adjusted Funds Flow from Operations

(1)

6,551

2,813

5,005

3,543

Cash Flow from Operations

(6,825)

1,294

6,288

3,359

Net Profit (Loss)

(28,266)

(5,334)

(677)

4

Basic and Diluted ($/share)

(0.06)

(0)

–

–

Capital Expenditures, net of acquisitions and

dispositions

4,198

2,248

1,048

17,864

Working Capital Surplus

(22,981)

(40,330)

13,157

9,202

Total Assets

434,887

384,853

169,976

181,519

Shareholders' Equity

123,688

135,053

138,355

139,006

Weighted Average Common Shares

Outstanding

Basic (thousands)

429,083

428,516

428,516

428,516

Diluted (thousands)

434,968

434,523

431,505

431,700

(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,

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.

2025 Annual Report

31

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.

32

Questerre Energy Corporation

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

2025 Annual Report

33

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.

34

Questerre Energy Corporation

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 discount 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

2025 Annual Report

35

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

36

Questerre Energy Corporation

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.

2025 Annual Report

37

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

38

Questerre Energy Corporation

Consolidated Balance Sheets

December 31,

December 31,

Note

2025

2024

Assets

Current Assets

Cash and cash equivalents

7

$

25,419

$

31,791

Accounts receivable

16

11,160

3,242

Inventory

8

8,522

–

Deposits and prepaid expenses

6,410

1,402

51,511

36,435

Right-of-use assets

15

1,459

128

Investments

6

–

4,359

Property, plant and equipment

9

361,350

116,695

Intangible assets

11

5,452

–

Exploration and evaluation assets

10

5,599

13,106

Restricted cash

7

3,521

–

Other non current assets

5,995

–

$

434,887

$

170,723

Liabilities

Current Liabilities

Accounts payable and accrued liabilities

16

$

32,240

$

12,545

Advances from customers

5,329

–

Taxes and Contribution

988

–

Share issuance for acquisition

5

3,203

–

SPAC Convertible Notes

13

–

–

Lease liabilities

15

1,850

56

Asset retirement obligations

6,14

2,616

799

Other current liabilities

28,266

–

74,492

13,400

Lease liabilities

15

485

83

Taxes and Contribution

4,918

Deferred tax liability

1,970

–

Contingent consideration of acquisition of previous subsidiary

57,392

–

Secured debt

13

115,943

–

Other long term liabilities

16

28,434

–

Asset retirement obligation

6,14

27,565

18,611

311,199

32,094

Shareholders' Equity

Share capital

18

435,225

429,878

Contributed surplus

44,427

29,283

Accumulated other comprehensive income (loss)

(2,408)

896

Deficit

(353,556)

(321,428)

123,688

138,629

$

434,887

$

170,723

Signed on behalf of the Board of Directors

Bjorn Inge Tonnessen, Director

Dennis Sykora, Director

2025 Annual Report

39

Consolidated Statements of Net Loss

For the year ended December 31,

Note

2025

2024

Revenue

Petroleum and natural gas revenue

19

$

77,346

$

36,927

Royalties

(6,383)

(2,776)

Petroleum and natural gas revenue, net of royalties

70,963

34,151

Expenses

Operating

45,933

15,158

General and administrative

8,653

5,530

Depletion, depreciation and accretion

9,11,14

32,746

11,905

Impairment

10

–

7,863

Loss (gain) on equity investment

5,507

580

Transaction costs

3,276

–

Share based compensation

17

1,009

1,115

Other operating income

(2,412)

–

92,324

42,625

Finance income

21

3,259

1,145

Finance expense

21

(16,175)

–

Loss before taxes

$

(34,277)

$

(7,329)

Deferred tax recovery

12

(2,279)

–

Net loss

$

(31,998)

$

(7,329)

Net Loss per Share

Basic and diluted

18

$

(0.07)

$

(0.02)

40

Questerre Energy Corporation

Consolidated Statements of Comprehensive Loss

For the year ended December 31,

Note

2025

2024

Net loss

$

(31,998)

$

(7,329)

Other Comprehensive Income, Net of Tax

Foreign currency translation adjustment

(3,304)

554

Income on foreign exchange on investment

–

362

(3,304)

916

Total Comprehensive Loss

$

(35,302)

$

(6,413)

2025 Annual Report

41

Consolidated Statements of Changes in Equity

For the year ended December 31,

2025

2024

Share Capital

Balance, beginning of year

$

429,878

$

429,878

Shares issued for acquisition

5,346

–

Balance, beginning and end of year

$

435,224

$

429,878

Contributed Surplus

Balance, beginning of year

29,283

27,908

Shares issued for acquisition

14,135

Share based compensation

1,009

1,375

Balance, end of year

44,427

29,283

Accumulated Other Comprehensive Income (Loss)

Balance, beginning of year

896

(20)

Other comprehensive income (loss)

(3,304)

916

Balance, end of year

(2,408)

896

Deficit

Balance, beginning of year

(321,428)

(314,099)

Net loss

(31,998)

(7,329)

Balance, end of year

(353,426)

(321,428)

Total Shareholders' Equity

$

123,817

$

138,629

42

Questerre Energy Corporation

Consolidated Statements of Cash Flows

For the years ended December 31,

Note

2025

2024

Operating Activities

Net loss

$

(31,998)

$

(7,329)

Adjustments for:

Depletion and depreciation

8,12,19

32,746

11,325

Accretion of asset retirement

5,507

580

Impairment

10

–

7,863

Gain (loss) on equity investment

7

5,507

580

Share based compensation

17

829

1,115

Foreign currency translation

(573)

–

Finance income

Finance expense

21

16,199

–

Other operating income

20

–

–

Deferred tax expense

10

(2,279)

–

Other items not involving cash

96

–

Abandonment expenditures

14

(1,072)

(49)

24,962

14,085

Change in non-cash working capital

(7,828)

(886)

Net cash from operating activities

17,134

13,199

Investing Activities

Property, plant and equipment expenditures

9

(9,349)

(4,046)

Exploration and evaluation expenditures

10

(16,009)

(16,594)

Cash acquired from asset acquisition

9

10,792

–

Cash acquired through business combination

1,404

–

Change in non-cash working capital

18

–

3,785

Net cash used in investing activities

(13,162)

(16,855)

Financing Activities

Contingent liability

(2,160)

–

Principal portion of lease payments

19

(293)

(65)

Net cash used in financing activities

(2,453)

(65)

Change in cash and cash equivalents

1,519

(3,721)

Cash and cash equivalents, beginning of year

31,795

35,038

Cash and cash equivalents, end of year

$

33,314

$

31,317

2025 Annual Report

43

Notes to the Consolidated Financial Statements

For the years ended December 31, 2025, and 2024

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

its proprietary technology with an initial focus on oil shale.

3.

2025 Annual Report

45

accounted for under the equity method.

effective January 1, 2027, using the retrospective approach.

During 2025, inventory of XX was recorded as an expense.

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

impairments were recorded for the Company’s other CGUs in 2025.

64

Questerre Energy Corporation

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

2025 Annual Report

69

70

Questerre Energy Corporation

assess the Company’s funding requirements and financial flexibility.

life is based on historical information.

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

78

Questerre Energy Corporation

2025 Annual Report

79

compensation expense.

80

Questerre Energy Corporation

the same rights and obligations as the Common Shares.