2025 ANNUAL REPORT

QUESTERRE ENERGY CORPORATION

CONTENTS

President’s Message

Page

1

Management’s Discussion & Analysis

Page

7

Consolidated Financial Statements

Page

43

Notes to the Consolidated

Financial Statements

Page

48

QUESTERRE ENERGY CORPORATION

is an energy technology and

innovation company focused on responsibly developing oil and gas

resources. It is leveraging its expertise gained through early exposure to

low permeability reservoirs to acquire significant high-quality resources. We

believe we can successfully transition our energy portfolio. With new clean

technologies and innovation to responsibly produce and use energy, we can

sustain both human progress and our natural environment.

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

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

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

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

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

Exchange under the symbol QEC

.

2025 Annual Report

1

President’s Message

I have spent thirty years operating in places where the geology is difficult, the politics are complex, and

the path forward is rarely straight - Turkey, Ukraine, Georgia, Quebec, and Papua New Guinea. Each of

those experiences taught me something that the next one required. Looking back, I can see the thread

clearly now, even when I couldn't at the time.

That thread has brought our experienced international board and team here.

Since the oil crisis of the 1970s, the industry has pursued a way to unlock oil shale - one of the largest

hydrocarbon systems ever identified, with resource potential measured in trillions of barrels

(1)

. Driven by

energy security concerns that have once again come to the forefront, this effort has spanned decades. Yet

oil shale has consistently resisted commercial development. The reasons are geological, technological,

economic, and political - all at once. That is exactly the kind of problem we have been preparing to solve.

This year, Questerre marked a meaningful step toward solving this problem. Through the acquisition of PX

Energy and the consolidation of our ownership in Red Leaf Resources, with full control of the patented

HCCO® technology, we now have the assets, the platform, and the technical capabilities we believe we

need to advance this resource toward commercial development.

This is more than a turnaround opportunity. It transforms Questerre into an oil shale operator with

production and cash flow, extensive infrastructure, and a highly capable team experienced in oil shale

development. While we optimize the existing operations and technology, the acquisition provides a unique

platform to advance the next generation of technology in an operating environment rather than through

stand-alone pilot projects.

Since closing the PX Energy acquisition, our focus has been on stabilizing operations, improving

performance, implementing safety reporting, and reducing costs. We have identified $10 million in annual

savings and are targeting a further $10 million through operational efficiencies.

Concurrently, we plan to test a key element of the new process inside the existing Petrosix retort vessel

in the second quarter of this year. With success, this could improve heat and mass balance, increase

product yields and reduce internal fuel consumption for the existing technology. Based on our budget, this

can be funded through internally generated cash flow as we anticipate this could cost less than 10% of a

field pilot. It can also be implemented much sooner than a new field pilot. This demonstration at scale

would be a significant step toward transitioning to the new technology, and ultimately commercialization.

The energy shortage in Quebec is growing and public debate on local gas production has reopened

(2)

. While

development has been blocked by policy restrictions, the current energy crisis and growing focus on

security of supply are reinforcing the importance of local resources. Independent studies, including a peer-

reviewed assessment by CIRAIG

(3)

(the International Reference Center for Life Cycle Assessment and

Sustainable Transition) and the Government of Quebec's Strategic Environmental Assessment, support

the view that impacts can be responsibly managed. Based on this work, we believe this project could be

one of the most significant opportunities to deliver a net reduction in greenhouse gas emissions in Canada.

2

Questerre Energy Corporation

What gives me confidence is not just the assets; it is the people. In Brazil, we inherited a team of close to

one thousand people who have successfully operated one of the world's most complex oil shale

processing facilities for forty years. They did not lack capability. They lacked strategic direction. We have

addressed that by providing senior leadership with deep refining expertise. They will work alongside an

organization that already knows this technology better than almost anyone on earth. In Quebec, we bring

over thirty years of accumulated knowledge - the geology, the legal background, the political landscape -

and the relationships that only come with that kind of history.

Questerre has entered a new phase. With a strengthened operational platform, growing production, and

full control of our technology, we are focused on disciplined execution - delivering value from our Brazilian

operations while advancing our pathway toward commercial oil shale development.

Highlights

Completed the acquisition of PX Energy, establishing Questerre as an oil shale operator with production,

infrastructure, and a technical team experienced in oil shale development.

Consolidated ownership of Red Leaf Resources and secured full control of the proprietary HCCO®

technology — a low-temperature oxy-fuel process that converts organic material into liquid hydrocarbons

with integrated carbon capture and minimal water use.

Public debate re-opened on the Quebec Utica, one of the most significant undeveloped natural gas

resources in Eastern Canada. Through a corporate reorganization, approximately 95% of the value

associated with this project is now reflected in a preferred tracking share, for which we are evaluating a

separate public listing.

Restructured management and cost initiatives PX Energy delivered close to $3 million in adjusted funds

from operating and approximately $5 million in cash flow used in operating activities in the fourth quarter.

Fourth quarter production increased to 7,000 boe per day. Revenue grew to $77.1 million for the year -

$45.4 million from Canadian operations and $31.7 million from Brazil following the PX Energy acquisition

with net cash from operating activities of $12.6 million and adjusted funds flow from operations of $15.7

million.

Oil Shale

Our goal is to restructure PX Energy into a cash-flowing business supported by long-life reserves and a

sustainable balance sheet.

2025 Annual Report

3

Prior to our acquisition, PX Energy was generating average monthly adjusted operating cash flows of

approximately $0.3 million, a level that contributed to its financial distress. In our first quarter after closing,

operational improvements drove that figure to just over $1.0 million per month. We assumed full

management control on January 3, 2026, and anticipate the quarter ending March 31, 2026, will continue

to show further material improvement. Strengthening oil prices, if sustained, will add to that. Fuel oil, which

represents approximately 75% of our revenue, had an official posted price of US$140 per barrel as of

March 24, 2026.

The PX Energy Petrosix facility in São Mateus do Sul, originally developed by Petrobras, represents

hundreds of millions of dollars of invested capital. The access to an existing mine, utilities, and processing

facilities creates the opportunity to demonstrate the next generation HCCO technology at a substantially

lower cost than we originally planned. Utilizing the existing processing facility for this test further reduces

costs. It should provide an important proof point at near-commercial scale while optimizing and improving

profitability of the existing operations.

We are also pursuing opportunities to grow revenue through debottlenecking initiatives and optimizing fuel

inputs. Approximately one-third of volumes are derived from processing waste oil, which takes advantage

of excess heat from the retort. This is a competitive business with attractive margins and meaningful

expansion potential.

Processing this waste oil reduces our overall emissions footprint. In addition, we are creating a permanent

forest reserve as part of our mine reclamation plan, contributing to biodiversity in the area and creating a

carbon sink. The HCCO technology embeds carbon capture and allows us to reduce our environmental

footprint further. We will look at potential carbon sequestration reservoirs to support future development

with this technology to operate at low net emissions.

The acquisition included legacy commercial and financial issues with vendors, creditors, and potential joint

venture partners. Some matters may require litigation to resolve. We are managing these actively as part

of the broader restructuring.

Quebec

Our Utica shale gas discovery remains one of the most significant undeveloped gas resources in Eastern

Canada. The province has become a net importer of power for the last three months

(4)

, reflecting increasing

demand and constraints on supply.

Globally, many jurisdictions facing similar challenges have turned to natural gas as part of their policy

response. Germany is increasing LNG imports. Argentina is accelerating domestic shale development to

become an LNG supplier

(5)

. Quebec has the same opportunity, and we have the resource to meet it.

We continue to advance both a legal and political pathway to development. During the year, we completed

the questioning of key government witnesses, including current and former members of the government.

In January, the Court approved Questerre to proceed as a test case to expedite the process. Subject to

any appeals and remaining pre-trial matters, we expect a hearing date to be set this year.

4

Questerre Energy Corporation

During the year, we also received notice from the Government of Quebec of its intention to enforce Bill

21, including requirements related to well abandonment and demonstrating liquidity of approximately $11

million. 75% of these costs are to be covered by the Government under Bill 21. We have this liquidity and

are working to meet these requirements.

Operating and Financial

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

addition of PX Energy production following the close of the acquisition at the end of the third quarter drove

average production to 3,711 boe per day, compared to 1,756 boe per day last year. In the fourth quarter,

production averaged over 7,000 boe per day, including over 4,400 boe per day from Brazil.

Revenue increased to $77.1 million for the year — $45.4 million from Canadian operations and $31.7 million

from Brazil. Higher volumes helped offset lower Canadian commodity prices. We reported adjusted funds

flow from operations of $15.7 million, excluding $3.3 million of acquisition-related costs.

Our consolidated working capital position reflects the $52 million working capital deficit and non-recourse

debt assumed as part of the PX Energy acquisition. With cost reduction initiatives underway and

commodity prices above US$65 per barrel, we expect this deficit to be materially reduced by year-end.

Outlook

Our near-term priorities are clear: stabilize and grow cash flow from Brazilian operations, prove up the new

technology at near-commercial scale, and pursue both legal and political pathways to development in

Quebec.

The HCCO® pilot, using the existing Petrosix facility, will provide a critical proof point at a substantially

lower costs than a greenfield pilot. Success would represent a significant step toward converting oil shale

resources into reserves and establishing the commercial case for the technology. It also improves the

efficiency of our existing operations and improves our margins.

In Quebec, recent public commentary and policy discussions reflect a growing recognition that local natural

gas has a role to play in addressing the province's energy needs

(6)

. We are encouraged by that shift and

continue to work toward a hearing date being set this year.

The opportunity in front of us is real. We are more committed than ever to delivering it.

Michael Binnion

President and Chief Executive Officer

2025 Annual Report

5

Forward Looking Advisory

Please refer to the section Forward Looking Statements in the Management Discussion and Analysis

regarding the forward-looking information provided in this President’s Message.

Footnotes:

(1)

https://www.usgs.gov/centers/central-energy-resources-science-center/science/oil-shale

(2)

https://www.journaldemontreal.com/2026/03/21/geopolitique-de-lenergie

(3)

https://questerre.wpenginepowered.com/wp-content/uploads/2024/12/CIRAIG-Clean-gas-initiative-LCA-wo-appendices.pdf

(4)

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

(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/

6

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

7

Management’s Discussion and Analysis

This Management’s Discussion and Analysis (“MD&A”) was prepared as of March 31, 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 December 31, 2025 and 2024. Additional

information relating to Questerre, including Questerre’s Annual Information Form

for the

year ended

December 31, 2025, dated March 31, 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:

•

anticipated benefits of the Acquisition to the Company and its shareholders, including any

operational and economic synergies;

•

the issuance of the Common Shares as consideration for the Acquisition;

8

Questerre Energy Corporation

•

the consideration payable pursuant to the Acquisition;

•

the appointment of an auditor to resolve any disputes related to the assessment of the closing

working capital pursuant to the Acquisition;

•

the assumption of convertible promissory notes;

•

the interest payable on the senior secured callable bonds issued by FRBH and any extensions

thereof;

•

the use of arbitration to resolve disputes pursuant to the term sheet with the prospective joint

venture partner;

•

the completion of the transactions contemplated in the BCA, if closed;

•

the assumption of debt in connection with the Acquisition;

•

the achievement of the performance milestones attached to the contingent consideration payable

pursuant to the Acquisition, and the timing thereof, if at all;

•

the utilization of Red Leaf technology;

•

drilling plans and the development and optimization of producing assets;

•

the impact of drilling at Kakwa Central on overall well recoveries;

•

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

Bill 21 and the seeking of a date for the main hearing in 2026;

•

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

•

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

•

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

recovery scheme while assessing future drilling locations;

•

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

•

the Company plans for a carbon storage pilot project under Bill 21 and the funding thereof;

•

hedging policy;

•

liquidity and capital resources;

•

the financial liquidity of PX Energy;

•

the assessment of options to demonstrate the Red Leaf technology;

•

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

•

discussions with the Government of Jordan for a concession agreement;

•

the restructuring of the balance sheet and the optimization of the operations of PX Energy;

•

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;

2025 Annual Report

9

•

the finding of acquisitions;

•

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:

•

PX Energy operations are in Brazil and may be adversely affected by changes in foreign

government policies and legislation, social instability or other factors not in the control of

Questerre;

•

the synergies expected from the Acquisition not being realized;

•

the dispute regarding the First Tranche Shares and the working capital pursuant to the Acquisition

Agreement;

•

the outcome of resolution of any dispute pursuant to the term sheet with a prospective joint

venture partner;

•

loss of key personnel of PX Energy in connection with the Acquisition;

•

the impact of the senior secured callable bonds on FRBH and PX Energy;

•

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;

•

the impact of the convertible promissory notes and other liabilities to be assumed in connection

with the Acquisition;

•

the impact of transactions contemplated in the BCA;

•

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

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

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

•

access to capital;

•

general economic conditions;

•

the terms and availability of credit facilities;

•

counterparty credit risk;

10

Questerre Energy Corporation

•

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 land, 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.

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

2025 Annual Report

11

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

$

12,618

$

13,673

Transaction costs related to PX Energy

3,276

–

Change in non-cash working capital

(214)

890

Adjusted funds flow from operations

$

15,680

$

14,563

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

surplus/(deficit),” 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.

The Company also uses the term “working capital surplus/(deficit)”. Working capital surplus/(deficit), 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/(deficit), as used by the

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

contracts and lease liabilities.

12

Questerre Energy Corporation

Select Annual Information

2025

2024

2023

Financial ($ thousands, except as noted)

Petroleum and Natural Gas Revenue

77,136

36,927

41,701

Adjusted Funds Flow from Operations

(1)

15,680

14,563

15,855

Cash Flow from Operations

12,618

13,673

16,317

Basic and Diluted ($/share)

0.03

0.03

0.04

Net Loss

(78,935)

(7,329)

(23,708)

Basic and Diluted ($/share)

(0.18)

(0.02)

(0.06)

Capital Expenditures

25,619

20,640

10,148

Working Capital (Deficit) Surplus

(2)

(51,971)

23,035

29,866

Total Assets

395,262

170,723

172,346

Shareholders' Equity

76,659

138,629

143,667

Common Shares Outstanding (thousands)

445,764

428,516

428,516

Weighted average - basic (thousands)

429,083

428,516

428,516

Weighted average - diluted (thousands)

433,267

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)(5)

Crude Oil and Natural Gas Liquids ($/bbl)

79.80

91.92

94.01

Crude Oil - Brent ($/bbl)

85.26

—

—

Natural Gas ($/GJ)

2.38

1.65

3.02

Total ($/boe)

56.95

57.45

61.83

Netback ($/boe)

Petroleum and Natural Gas Revenue

(4)

56.95

57.45

61.83

Royalties Expense

(4)

(4.71)

(4.32)

(8.89)

Percentage

8%

8%

14%

Operating Expense

(4)

(34.97)

(23.58)

(23.84)

Operating Netback

17.27

29.55

29.10

General and Administrative Expense

(4)

(6.67)

(8.60)

(7.54)

Cash Netback

10.60

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 22 in the Consolidated Financial Statements for the years ended December 31, 2025 and 2024.

(4) Refer to Consolidated Statement of Comprehensive Loss for the years ended December 31, 2025 and 2024.

(5) Prices per boe are based on sales volumes representing produced volumes less volumes consumed in internal processes.

2025 Annual Report

13

Highlights

•

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

of 4,411 boe per day in the fourth quarter and total proved and probable reserves of 12.6 MMboe

with a before tax NPV-10% of $372 million

•

Consolidated ownership of Red Leaf Resources

•

Spin-out of economic value of Quebec assets through share reorganization

•

Average daily production of 3,711 boe per day, net cash from operating activities of $12.6 million

and adjusted funds flow from operations of $15.7 million

•

Total proved and probable reserves for our Canadian assets declined 6% by volume to 22.4

MMboe and with lower future prices, declined 32% in value to a before tax NPV-10% of $133.3

million at December 31, 2025 resulting in an impairment expense of $49.8 million

2025 Activities

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 ownership of its proprietary technology under development to produce oil from oil shale that

incorporates carbon capture with efficient water usage.

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 reserves as of December 31, 2025, were 12.6 MMboe with a before

tax NPV-10% of $372 million. Average daily production from PX Energy for the fourth quarter was over

4,000 boe per day.

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 by a wholly-owned subsidiary

of the Company.

14

Questerre Energy Corporation

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:

•

25 million Common Shares (“Second Tranche Common Shares”) subject to the achievement of

US$30 million in free cash flow within any twelve month period between the closing of the

Acquisition and September 30, 2027, 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 (“Third Tranche Common Shares”) subject to the achievement of

US$40 million in free cash flow within any twelve month period between the closing of the

Acquisition and September 30, 2028, 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$18.7 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. As of December 31, 2025, the First Tranche Common Shares had not been issued. The

obligation to issue the shares has been recorded as a liability.

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 US 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

precedent conditions including receipt of regulatory approvals, the filing of a Proxy/Registration Statement

with the US 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 upon 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

2025 Annual Report

15

in senior secured callable bonds issued by FRBH with a maturity date of April 26, 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 detailed below. These amendments may need to be formalized

in an amending agreement to the Bond terms.

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

interest up to December 31, 2025, will be payable in 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. Additionally, the tenure of the bond can be extended for

two – one year terms in exchange for a fee of 2% of the nominal amount for each extension.

Interest on the bonds has accrued at 10% effective August 1, 2025 and will be subject to the terms of the

amendment detailed above.

Concurrent with the Acquisition, the Company executed a binding term sheet with a prospective partner

(the “Partner”) for a 50/50 joint venture for the ownership and management of PX Energy (the “Joint

Venture”). In January 2026, the Company was advised by the Partner that the term sheet expired in

accordance with its terms. In March, the Partner notified the Company that it was seeking a penalty of

US$20 million for alleged breaches by the Company pursuant to the term sheet. The Company has advised

the Partner that its claim is wholly without merit and it is reserving its legal rights against the Partner and

its affiliates for among other things, breach of the term sheet. Pursuant to the term sheet, the matter will

be submitted for arbitration pursuant to the ICC rules should either of the parties make a formal claim

thereunder.

Red Leaf Resources Inc.

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

cash. 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 on a fully diluted basis

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

16

Questerre Energy Corporation

million cash to acquire Red Leaf preferred shares not held by the Company. As at December 31, 2025, the

portion of consideration related to the preferred shares remains unpaid and has been recognized as a

current liability of $2.2 million.

Questerre intends to utilize the Red Leaf technology for its project in 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 which expired

in May 2025.

For 2026, the Company plans to restructure the balance sheet and optimize the operations of PX Energy

to improve profitability and financial liquidity. It is also assessing 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 1,145 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 40,320 (17,700 net) acres in

the Kakwa area.

At Kakwa North, the operator finalized a three (1.5 net) 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.

At Antler Saskatchewan, 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 100% wells brought on production in the fourth quarter (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.

2025 Annual Report

17

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.

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 legislation proposed by the

province related to carbon sequestration legislation.

Through the Quebec Energy Association, the Company participated in the public consultation for Bill 69,

An Act to ensure the responsible governance of energy resources and to amend various legislative

provisions (“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.

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. In March

2026, the Company was advised the Government is seeking proof of solvency of $11.4 million for the

estimated gross abandonment and reclamation costs for these wells. The government is responsible for

75% of these costs. The Company intends to work collaboratively with the Government to meet its

obligations on a reasonable and timely basis.

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 economic spin out of its Quebec-based assets (the “Quebec

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

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

entitle holders to the economic benefits of the Quebec assets and the Common Shares represent

18

Questerre Energy Corporation

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

Preferred Shares listed for trading.

The Company’s facilities with a Canadian chartered bank were maintained at $16 million for the year. The

credit facilities include a revolving operating demand facility of $16 million can be used for general corporate

purposes, ongoing operations, and capital expenditures within Canada. Any borrowing under the credit

facilities, with the exception of letters of credit, bears interest at the bank’s prime interest rate and an

applicable basis point margin. The facilities are secured by a debenture with a first floating charge over all

Western Canadian assets of the Company and a general assignment of books debts.

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 contributed to production

volumes doubling over the prior year.

Production from Kakwa, Alberta 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 one third of

Company volumes. Production in Canada including light oil production from the Company’s assets in

Saskatchewan and Manitoba, grew nearly 50% over the prior year with an approximately equal weighting

between oil and liquids and natural gas. The production volumes in Brazil reflect the Acquisition that closed

at the end of the third quarter and are primarily heavy crude oil. These include both volumes from the

mining and processing of oil shale and the processing of refinery waste. Additional products include natural

gas liquids and sulphur.

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 relatively stable production volumes from Brazil.

2025 Annual Report

19

2025 Financial Results

Petroleum and Natural Gas Revenue

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

29,554

2,119

31,673

–

–

–

$

69,965

$

7,171

$

77,136

$

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.

Consistent with increased production volumes, revenue doubled over the last year. In Canada, lower

realized oil prices were largely offset by the increase in production volumes. Revenue from Brazil reflects

petroleum and natural gas sales in the fourth quarter following the closing of the PX Energy acquisition.

Pricing

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

Crude Oil - Brent Crude ($/bbl)

96.66

110.35

Realized prices:

Natural Gas ($/GJ)

2.38

1.65

Crude Oil and Natural Gas Liquids ($/bbl) - Canada

79.80

91.92

Crude Oil and Natural Gas Liquids ($/bbl) - Brazil

85.26

–

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

Global crude oil prices declined over the prior year with the benchmark WTI and Brent prices decreasing

by 12%. A bearish sentiment throughout the year reflected the potential impacts of proposed tariffs by the

US administration, including a possible trade war with China, and OPEC+ unwinding their voluntary

production cuts during the year.

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, prices for the Company’s oil production, primarily a premium heavy crude oil, is based on Brent

with applicable premiums. Realized prices per barrel are based on produced volumes less volumes utilized

in the production process. Reflecting production for the fourth quarter since the Acquisition closed, Brazil’s

realized price for crude oil and natural gas liquids averaged $85.26 per barrel compared to the benchmark

20

Questerre Energy Corporation

Brent for the period that averaged $96.66 per barrel. Realized price for natural gas liquids is primarily based

on by the price of Brent.

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 to an average of $1.40 per

GJ compared to $1.38 per GJ in 2024. Including the higher heat content gas from Kakwa, the Company’s

realized natural gas prices averaged $2.38 per GJ (2024: $1.65 per GJ).

Royalties

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 the increase in volumes. 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 5% on the value of oil shale production and a 2% royalty on

production volumes related to refinery waste oil processing.

Operating Costs

2025

2024

Canada

$

21,822

$

15,158

Brazil

25,544

–

Total Company

$

47,366

$

15,158

$/boe:

Canada

$

23.01

$

23.58

Brazil

62.90

–

Total Company

$

34.97

$

23.58

2025 Annual Report

21

In Canada, operating costs increased over the prior year with higher production volumes. At Kakwa,

Alberta, specifically transportation and disposal of produced water increased by $1.9 million with

production from new wells.

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

General and Administrative Expenses

2025

2024

Canada general and administrative expenses

$

9,912

$

5,530

Brazil general and administrative expenses

2,393

–

Transaction costs from acquisition

(3,276)

–

General and administrative expenses, net

$

9,029

$

5,530

Approximately 75% of the increase in Canadian General & Administrative expenses (“G&A”) relates to

transaction costs of $3.3 million for the Acquisition. Post the Acquisition, the Company incurred $2.4 million

in ongoing G&A costs related to PX Energy. Compared to last year, the Company also saw an increase in

G&A expense related to its Quebec assets.

Depletion, Depreciation, and Impairment

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

$29.7 million (2024: $11.9 million) with depletion accounting for over 80% of this amount. Of this amount,

$17.3 million related to production from Canada and $12.4 million related to production from Brazil.

On a unit of production basis this expense increased to $21.90 per boe from $18.52 per boe last year

mainly driven by a higher depletion rate on its Brazil assets. In Canada, on a unit of production basis

depletion and depreciation remained largely unchanged at $18.31 per boe. In Brazil, on a unit of production

basis, depletion and depreciation was $30.28 per boe.

In 2025, the Company assessed its property, plant, and equipment (“PP&E”) assets for indicators of

impairment or impairment reversals. With respect to the Kakwa and Antler cash generating units (“CGU”)

an indicator of impairment was identified as a result of a reduction in forward commodity prices. The result

of the impairment test, based on a fair value less costs of disposal (“FVLCD”) assessment, was an

impairment expense of $44.2 million related to the Kakwa CGU and an impairment expense of $5.6 million

related to the Antler CGU. The estimates of FVLCD were determined using a discount rate of 15% 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 or its exploration and evaluation (“E&E”) assets in 2025.

In 2024, the Company assessed the carrying value of its E&E assets. Due to the pending expiry of its

exclusivity rights in the absence of a new agreement with the Government of Jordan, the Company

recorded an impairment of its E&E assets in Jordan for $7.9 million. No other impairment was recorded in

the prior year.

22

Questerre Energy Corporation

Share Based Compensation

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 $0.2

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

cash settlement of 5.9 million expiring options for a payment of $0.2 million in the first quarter of 2025.

Equity Investment

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

The Company

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

control of Red Leaf during the year. 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 $2.4 million was recognized. Further details regarding the transaction are

provided in Note 6 to the Financial Statements.

Finance income and expenses

The Company earned finance income of $1.9 million (2024: $1.1 million) while expensing $14.8 million

(2024: almost nil) for the year ended December 31, 2025. The income mainly relates to foreign exchange

gain and expense mainly relates to interest on US $80 million secured bonds and related foreign exchange

losses. See Note 24 of the Financial Statements for further details.

Other Comprehensive Income (Loss)

In 2025, the Company recorded other comprehensive loss of $3.5 million (2024: $0.9 million gain) related

to the change in foreign currency translation adjustments.

Net Loss and Total Comprehensive Loss

For the year ended December 31, 2025, the Company recorded a net loss of $78.9 million compared to a

net loss of $7.3 million in the prior year. The higher current year loss is mainly due to the impairment

expense and higher expenses in all categories which was offset by deferred tax recovery of $2.1 million.

Including other comprehensive loss, the Company reported a total comprehensive loss of $82.5 million

compared to a loss of $6.4 million last year.

Cash Flow from Operating Activities

The Company reported cash flow from operating activities of $12.6 million (2024: $13.7 million). The

variance over the prior year is attributed to the lower cash flow from operations which was offset by an

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

2025 Annual Report

23

Cash Flow used in Investing Activities

The cash used in investing activities increased to $18.8 million from $16.9 million last year. Current year

investing activities included capital expenditures of $25.6 million which was offset by cash acquired from

the business combination and asset acquisition of $12 million.

Cash Flow used in Financing Activities

Cash used in financing activities for the current year and prior year mainly relates to principal portion of the

lease payments.

Capital Expenditures

2025

2024

Canada

$

24,068

$

20,640

Brazil

1,551

–

Total

$

25,619

$

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 million was incurred to finish drilling, completing and tying-in three (1.5 net) wells

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

•

In Brazil, $1.6 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 $42.5 million from $9.6

million last year. The increase in revenue of $31.7 million 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 $1.2 million over the prior year with higher

production volumes offsetting the impact of lower prices.

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

acquired assets in Brazil accounted for $25.5 million with the remainder representing the costs attributable

to its assets in Canada of $6.5 million. Operating costs in Canada increased over the prior quarter and same

period last year due additional producing wells at Kakwa.

24

Questerre Energy Corporation

Including impairment expense of $49.8 million relating to its PP&E assets in both the Kakwa and Antler

CGUs, the Company reported a net loss of $75.1 million (2024: $8.1 million loss) and total comprehensive

loss of $72.9 million (2024: $8.1 million) for the quarter. In the prior year, the loss was due to the impairment

expense in E&E.

In the fourth quarter, net cash from operating activities was $1.7 million (2024: $3.5 million from operation

activities). This reflects the cash flow from operations of $4.2 million (2024: $3.7 million) and an increase

in non-cash working capital of $2.1 million compared to $0.2 million last year. Net cash from investing

activities was $5 million due to cash acquired as part of business combination compared to net use of $7.5

million in the prior year due to higher capital spending associated with Kakwa North wells. Minimal cash

was used in financing with an increase in lease payments from $0.02 million to $0.2 million in the current

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.

As December 31, 2025, the Company had cash and cash equivalents of $25.4 million, available undrawn

credit facilities of $16 million and a working capital deficit of $52 million. Total debt of $100.8 million

exceeded the Company’s existing liquidity (cash plus available undrawn capacity) by approximately $59.4

million.

The amounts above include a working capital deficit of $63.6 million related to its Brazil assets. Of this

amount over 44% or $27.8 million relates to the Acquisition. Subject to the terms of related agreements,

this amount includes the assumption of the assumed liabilities of the vendor of $22.8 million as well as $5

million related to equity issuance, currently recorded as liability, for the Acquisition. The Company has

implemented costs cutting measures in Brazil to improve profitability of its operations post the Acquisition.

It is anticipated these measures will improve cash flow from operations to fund this working capital deficit.

At December 31, 2025, there were no material borrowings under its Canadian credit facility. 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 14 of the Financial Statements. The Company’s credit facility

are to be used solely for its Western Canadian assets. As such, calculation of covenants above exclude

any amounts related to Acquisition. The Company breached the covenant to notify the lender of the

establishment of wholly owned subsidiaries for the Acquisition and the issuance of Common Shares for

the remaining equity interest in Red Leaf. A waiver was granted by the lender on March 31, 2026.

2025 Annual Report

25

In connection with the Acquisition, the Company acquired liabilities including senior secured bonds issued

by FRBH with a maturity date of April 26, 2028. The bonds have a face value of US$80 million and an

acquisition date fair value of US$64 million. 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 related to

interest and maturity with such changes taking effect on the closing of the Acquisition. The Company

believes that the amendments to the secured debt terms provide sufficient flexibility under a range of

commodity price environments to support the financial liquidity of PX Energy. See Note 14 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 2026. 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.

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.

Share Capital

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.

26

Questerre Energy Corporation

March 31,

December 31,

December 31,

2026

2025

2024

Common Shares

452,213

445,764

428,516

Series 2 Preferred Shares

452,213

–

–

Stock Options

40,110

35,790

38,295

Weighted average Common Shares

Basic

429,083

428,516

Diluted

433,267

431,715

As part of the Acquisition, the Company is obligated to issue 15 million Class “A” common voting shares

with a deemed value of $5.0 million. As at December 31, 2025, these shares had not yet been issued and

the related amount has been recognized as a current liability.

The consideration also includes contingent equity consideration comprised of two additional tranches of

25 million Common Shares. At the acquisition date, these contingent shares were measured at an

estimated fair value of $13.9 million and have been classified as equity and recorded in contributed surplus.

In January 2026, the Company completed the economic 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 Share for one new Common Share and one Series 2 Preferred Share. The Preferred Shares

entitle holders to the economic benefits of the Quebec assets and the Common Shares represent

ownership of the remaining assets of the Company.

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

(2,880)

0.22

(620)

0.27

Expired

(325)

0.16

(6,175)

0.29

Exercised

(5,975)

0.20

–

–

Outstanding, end of period

35,790

$

0.25

38,295

$

0.25

Exercisable, end of period

28,288

$

0.26

29,704

$

0.25

2025 Annual Report

27

Commitments

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

2026

2027

Total

Transportation and Processing

$

2,153

$

1,043

$

3,196

Refinery maintenance contract

$

15,897

$

1,199

$

17,096

Supply contracts

$

6,149

$

–

$

6,149

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

9 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.

These risks are particularly acute in Brazil, where Questerre’s assets and operations are located and where

current sales are derived from crude oil production. Brazilian laws and policies affecting foreign trade, the

oil and gas fiscal regime and investment may change, and conducting business often entails numerous

procedural requirements and formalities that can cause unexpected or lengthy delays; failure to comply

28

Questerre Energy Corporation

may call into question the validity of corporate acts. Management cannot predict the impact of additional

corporate or regulatory formalities that may be adopted, including whether they would materially increase

costs or restrict operations. Questerre’s financial condition and results of operations therefore depend to

a significant extent on macroeconomic, political and regulatory conditions in Brazil and on exchange rates

between the Brazilian reais, the U.S. dollar, and Canadian dollar any of which—individually or in

combination—could have a material adverse effect on the Company.

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 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.

2025 Annual Report

29

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.

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.

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

30

Questerre Energy Corporation

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.

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.

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.

2025 Annual Report

31

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.

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.

Petroleum and Natural Gas Reserves

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.

Cash Generating Units

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.

32

Questerre Energy Corporation

Impairment of Property, Plant and Equipment, Exploration and Evaluation Assets and

Goodwill

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

goodwill, for possible impairment or reversal of previously recognized impairments, other than goodwill, 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. Goodwill is tested for

impairment annually.

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.

Asset Retirement Obligation

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.

Share Based Compensation

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.

Income Tax Accounting

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

2025 Annual Report

33

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.

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. The Acquisition closed on September 26,

2025, and the results of the acquired companies have been included since that date and Management has

identified deficiencies in preliminary assessments of their internal controls over financial reporting.

Management is developing a plan to address these deficiencies in 2026.

34

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)

65.61

44.32

48.62

58.66

Petroleum and Natural Gas Revenue

42,530

11,801

13,675

9,130

Adjusted Funds Flow from Operations

(1)

4,322

2,813

5,005

3,543

Cash Flow from Operations

1,680

1,294

6,288

3,359

Net Profit (Loss)

(75,066)

(5,334)

(677)

4

Basic and Diluted ($/share)

(0.17)

–

–

–

Capital Expenditures, net of acquisitions and

dispositions

4,459

2,248

1,048

17,864

Working Capital Surplus (Deficit)

(2)

(51,971)

(40,330)

13,157

9,202

Total Assets

395,262

384,853

169,976

181,519

Shareholders' Equity

76,659

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.

(2) Working capital surplus is a non-GAAP measure calculated as current assets less current liabilities excluding the current portion

of risk management and lease liabilities.

2025 Annual Report

35

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

23,035

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.

(2) Working capital surplus is a non-GAAP measure calculated as current assets less current liabilities excluding the current portion

of risk management and lease liabilities.

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

•

The Acquisition increased the working capital deficit, total assets & liabilities effective the end of

the third quarter of 2025 and production, revenue, cash flow from operations and net profit in

fourth quarter.

•

Excluding the Acquisition, petroleum and natural gas revenues and adjusted funds flow from

operation in Canada have fluctuated with production volumes and realized commodity prices.

Revenue has generally increased in 2025 as a result of higher production volumes despite a 7%

drop in realized commodity prices last year.

•

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 Canada.

•

Excluding the Acquisition, 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.

36

Questerre Energy Corporation

•

Shareholders equity generally decreased as a result of net loss incurred by the Company.

Off-Balance Sheet Transactions

The Company did not engage in any off-balance sheet transactions during the year ended December 31,

2025.

2025 Annual Report

37

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

President and Chief Executive Officer

Chief Financial Officer

Calgary, Alberta

March 31, 2026

38

Questerre Energy Corporation

INDEPENDENT AUDITOR’S REPORT

To the shareholders of Questerre Energy Corporation

Opinion

We have audited the consolidated financial statements of Questerre Energy Corporation and its

subsidiaries (the Group) which comprise the consolidated balance sheets as at December 31, 2025 and

2024, and the consolidated statements of net loss, consolidated statements of comprehensive loss,

consolidated statements of changes in equity and consolidated statements 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 Group as at December 31, 2025 and 2024, 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 Group 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 matters

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. These matters were 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 these matters. For each matter below, our

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

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the

consolidated financial statements section of our report, including in relation to these matters. 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 matters below, provide the basis for our audit opinion

on the accompanying consolidated financial statements.

2025 Annual Report

39

Key Audit Matter

How our audit addressed the key audit matter

As described in Note 5 to the consolidated financial

statements, on September 26, 2025, the Group

acquired 100% of the issued and outstanding

shares of Forbes Resources Brazil Holdings SA

(“FRBH”) for a total consideration of $41.7 million.

The cost of the acquisition was allocated to the fair

values of the assets acquired and liabilities

assumed as at the acquisition date. The preliminary

purchase price allocation included property, plant &

equipment (“PP&E”) of $209.2 million at the

acquisition date.

The estimated acquisition-date fair value of the

PP&E involves significant estimates, including the

estimate of reserves and the related cash flows

(including revenue growth rates, operating margins

and capital expenditures) and the discount rate.

Additionally, the acquisition involved contingent

consideration which has to be fair valued.

Significant auditor judgment was required to

evaluate the results of our audit procedures

regarding the cash flows and the related discount

rate.

To test the Group’s determination of consideration

and preliminary estimates of fair values of the PP&E

we performed the following procedures, among

others:

•

Read the purchase agreement to obtain an

understanding of the key terms and

conditions and to identify the necessary

accounting considerations.

•

Involved our valuation specialists to assess

the Group’s methodology for calculating the

contingent consideration.

•

Compared

projections

to

historical

performance and to available external data

for

revenue

growth

rates,

operating

margins and capital expenditures and

performed sensitivity analysis on significant

assumptions used.

•

With

assistance

of

our

valuations

specialists,

we

evaluated

the

appropriateness of the Group’s discount

rate by comparing to market and other data

and assessed the reasonableness of the

Group’s estimate of the acquisition-date fair

value of PP&E by comparing the Group’s

estimate to market metrics and other

external data.

Evaluated

the

adequacy

of

the

business

combinations note disclosure included in Notes 3

and 5 of the consolidated financial statement in

relation to this matter.

We draw attention to notes 3 and 9 to the

consolidated financial statements. Producing oil

shale and oil and gas producing assets included in

property, plant and equipment (“PP&E”) are

Our approach to addressing the matter included

the following procedures:

40

Questerre Energy Corporation

depleted on a unit-of-production basis over a

combination of proved and probable reserves taking

into account estimated future development costs

necessary to bring those reserves into production.

The Group had $275.9 million of PP&E at December

31, 2025. Depletion and depreciation expense was

$29.7 million for the year ended December 31,

2025.

Proved and probable reserves were evaluated by

the Group’s independent petroleum engineers

(management’s

expert).

Key

assumptions

developed by management used to determine

reserves

include

forward

commodity

price

estimates, expected future rates of production,

royalty costs and future development expenditures.

We considered this a key audit matter due to the

significant judgments by management, including

the use of management’s expert, and a high degree

of auditor judgment, subjectivity and effort in

performing

procedures

relating

to

the

key

assumptions.

•

Tested

how

management

determined

reserves, which included the following:

•

The

competence,

capabilities

and

objectivity of management’s expert was

evaluated,

the

work

performed

was

understood and the appropriateness of the

work as audit evidence was evaluated. The

procedures

performed

also

included

evaluation of the methods and assumptions

used by management’s expert, tests of

data used by management’s expert and an

evaluation of their findings.

•

Evaluated

the

reasonableness

of

key

assumptions

used,

including

expected

future rates of production, royalty costs and

future

development

expenditures

by

considering current and past performance

of

the

Group

and

whether

these

assumptions

were

consistent

with

evidence obtained in other areas of the

audit, as applicable.

•

Evaluated the reasonableness of forward

commodity price estimates by comparing

those forecasts with third party industry

forecasts.

•

Recalculated the unit-of-production rates

used to calculate depletion and depreciation

expense.

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.

2025 Annual Report

41

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 Group’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 Group or to cease

operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’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 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 Group’s internal control.

•

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by management.

42

Questerre Energy Corporation

•

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 Group’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 Group 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.

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 31, 2026

2025 Annual Report

43

Consolidated Balance Sheets

December 31,

December 31,

Notes

2025

2024

Assets

Current Assets

Cash and cash equivalents

7

$

25,419

$

31,791

Accounts receivable

19

11,160

3,242

Inventory

8

8,593

–

Deposits and prepaid expenses

6,408

1,402

51,580

36,435

Investments

6

–

4,359

Property, plant and equipment

9

275,924

116,695

Exploration and evaluation assets

10

5,599

13,106

Intangible assets

11

5,452

–

Right-of-use assets

16

1,459

128

Restricted cash

7

3,521

–

Other non current assets

13

5,766

–

Goodwill

5

45,961

–

$

395,262

$

170,723

Liabilities

Current Liabilities

Accounts payable and accrued liabilities

19

$

44,752

$

12,545

Advances from customers

19

13,367

–

Contingent consideration for original acquisition of PX Energy

17,19

3,259

–

Share issuance liability for acquisitions

5,6,19

8,153

–

Current liabilities related to business combination

5

22,760

–

Lease liabilities

16

988

56

Asset retirement obligations

15

2,945

799

Other current liabilities

18

7,327

–

103,551

13,400

Lease liabilities

16

485

83

Contingent consideration for original acquisition of PX Energy

17

13,228

–

Secured debt

14

100,755

–

Other long term liabilities

18

10,187

–

Asset retirement obligation

15

33,100

18,611

Deferred tax liability

12

57,297

–

318,603

32,094

Shareholders' Equity

Share capital

21

435,225

429,878

Contributed surplus

21

44,427

29,283

Accumulated other comprehensive income (loss)

(2,630)

896

Deficit

(400,363)

(321,428)

76,659

138,629

$

395,262

$

170,723

Signed on behalf of the Board of Directors

Signed

(Signed) Bjorn Inge Tonnessen, Director

(Signed) Dennis Sykora, Director

44

Questerre Energy Corporation

Consolidated Statements of Net Loss

For the year ended December 31,

Notes

2025

2024

Revenue

Petroleum and natural gas revenue

22

$

77,136

$

36,927

Royalties

(6,383)

(2,776)

Petroleum and natural gas revenue, net of royalties

$

70,753

$

34,151

Expenses

Operating

47,366

15,158

General and administrative

9,029

5,530

Depletion and depreciation

9,11,16

29,660

11,905

Impairment

9

49,795

7,863

Accretion

15

2,817

580

(Gain) loss on equity investment

6

(2,388)

474

Transaction costs

5

3,276

–

Share based compensation

20

1,009

1,115

Other gains

23

(1,613)

–

$

138,951

$

42,625

Finance income

24

1,902

1,149

Finance expense

24

(14,780)

(4)

Loss before taxes

$

(81,076)

$

(7,329)

Deferred tax recovery

12

(2,141)

–

Net loss

$

(78,935)

$

(7,329)

Net Loss per Share

Basic and diluted

21

$

(0.18)

$

(0.02)

2025 Annual Report

45

Consolidated Statements of Comprehensive Loss

For the year ended December 31,

Notes

2025

2024

Net loss

$

(78,935)

$

(7,329)

Other Comprehensive (loss) Income, Net of Tax

Foreign currency translation adjustment

$

(3,526)

$

554

Income on foreign exchange on investment

–

362

(3,526)

916

Total Comprehensive Loss

$

(82,461)

$

(6,413)

46

Questerre Energy Corporation

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 (Note 6)

5,347

–

Balance, beginning and end of year

435,225

429,878

Contributed Surplus

Balance, beginning of year

$

29,283

$

27,908

Contingent consideration for business combination classified as equity

(Note 5)

13,941

–

Share based compensation

1,203

1,375

Balance, end of year

44,427

29,283

Accumulated Other Comprehensive (Loss) Income

Balance, beginning of year

$

896

$

(20)

Other comprehensive (loss) income

(3,526)

916

Balance, end of year

(2,630)

896

Deficit

Balance, beginning of year

$

(321,428)

$

(314,099)

Net loss

(78,935)

(7,329)

Balance, end of year

(400,363)

(321,428)

Total Shareholders' Equity

$

76,659

$

138,629

2025 Annual Report

47

Consolidated Statements of Cash Flows

For the year ended December 31,

Notes

2025

2024

Operating Activities

Net loss

$

(78,935)

$

(7,329)

Adjustments for:

Depletion and depreciation

9,11,16

29,660

11,905

Accretion of asset retirement

15

2,817

580

Impairment

9,10

49,795

7,863

(Gain) loss on equity investment

6

(2,388)

474

Share based compensation

20

829

1,115

Net finance expense

24

12,878

(1,149)

Deferred tax recovery

12

(2,141)

–

Other items not involving cash

27

1,773

–

Cash taxes paid

(473)

–

Cash interest (paid) received

(339)

1,149

Abandonment expenditures

15

(1,072)

(49)

12,404

14,559

Change in non-cash working capital

27

214

(890)

Net cash from operating activities

$

12,618

$

13,669

Investing Activities

Property, plant and equipment expenditures

9

(9,611)

(4,046)

Exploration and evaluation expenditures

10

(16,008)

(16,594)

Cash acquired from asset acquisition

6

10,792

–

Cash acquired through business combination

5

1,228

–

Payment made by subsidiary for contingent consideration

17

(2,160)

–

Restricted cash

177

–

Change in non-cash working capital

27

(3,266)

3,785

Net cash used in investing activities

(18,848)

(16,855)

Financing Activities

Principal portion of lease payments

16

(243)

(65)

Net cash used in financing activities

(243)

(65)

Effect of foreign exchange on cash and cash equivalents

101

–

Change in cash and cash equivalents

(6,473)

(3,251)

Cash and cash equivalents, beginning of year

31,791

35,038

Cash and cash equivalents, end of year

$

25,419

$

31,787

The notes are an integral part of these consolidated financial statements

Notes to the Consolidated Financial Statements

For the years ended December 31, 2025, and 2024

48

Questerre Energy Corporation

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

developing, its proprietary technology to produce oil from organic material, primarily oil shale.

50

Questerre Energy Corporation

3.

has rights to the net assets of the arrangement. Joint ventures are accounted for under the equity method.

.

thereunder The Company remains the 100% owner and operator of PX Energy.

68

Questerre Energy Corporation

During 2025, inventory of $2.1 million was recorded as an expense through operating expenses.

In 2024, the company recorded no impairment for any of the CGUs

recorded for the Company’s CGUs in 2025.

2025 Annual Report

71

can be recovered accordingly to the life-time of the asset.

liquidity. The next scheduled review will be in the second quarter of 2026.

of US$1.4 million to secure its abandonment and reclamation obligation in the State of Utah.

2025 Annual Report

77

remeasurement.

80

Questerre Energy Corporation

the Company’s funding requirements and financial flexibility.