Mr. Anthony Marino reports

TENAZ ENERGY CORP. ANNOUNCES ACQUISITION OF EUROPEAN GAS ASSETS

Tenaz Energy Corp. has signed an agreement to acquire 100 per cent of the issued and outstanding shares of XTO Netherlands Ltd. from XH LLC, a wholly owned subsidiary of ExxonMobil Corp. Closing of the acquisition is expected to occur in third quarter 2023. Tenaz will not be issuing equity in connection with the acquisition.

The acquisition generates the following advantages for Tenaz:

• Expands upstream and mid-stream free cash flow by consolidating ownership in existing Netherlands assets;
• Significantly increases positive adjusted working capital;
• Accretive on key per-share measures, including production, reserves, cash flow and free cash flow;
• Increases exposure to high-margin Dutch title transfer facility gas;
• Demonstrates ability to transact with an international major in a geographic region of focus.

Acquired assets

Upstream assets

The acquisition increases Tenaz's working interest in each of the L10/L11a, K9, K12 and N7b licence blocks. Upon completion, its interest in the producing licences will increase as follows:

• L10/L11a: from 11.35 per cent to 21.43 per cent;
• K9a and K9b: from 8.44 per cent to 15.94 per cent;
• K9c: from 6.49 per cent to 12.26 per cent;
• K12: from 5.67 per cent to 10.71 per cent;
• N7b: from 9.45 per cent to 17.86 per cent.

Tenaz's interest in the undeveloped F10, F11a, F17 and F18 licences remains unchanged as a result of the acquisition as does its interest in the producing L10-O field, in which XTO elected not to participate when drilled.

Mid-stream assets

Tenaz will also acquire an additional 10.1-per-cent ownership interest in Noordgastransport BV, bringing its total interest to 21.4 per cent and making it the second-largest shareholder of NGT. Tenaz expects to receive distributions from its ownership in NGT through annual dividends. The most recent dividend declared to the NGT shareholder group attributable to 2022 results was $27.0-million (18.4 million euros), continuing a history of paying dividends to shareholders for over 20 consecutive years. Decommissioning costs for NGT are provisioned and held within NGT's working capital.

Carbon reduction project

The entity to be acquired does not hold rights to the L10 carbon capture and storage project, which is currently being evaluated by the L10 partner group. Tenaz holds an 11.35-per-cent interest in the CCS project, which remains unchanged as a result of the acquisition.

Reserves volumes and net present value

McDaniel & Associates Consultants Ltd. has completed an independent assessment of the reserves associated with the assets and has assigned 664,000 barrels of oil equivalent (99 per cent natural gas) of total proven plus probable reserves as at July 1, 2023. McDaniel's evaluation projects that the upstream assets will have a remaining productive life of 13 years. McDaniel's assessment of after-tax net present value, discounted at 10 per cent, of the 2P reserves on the most recent consultant average price forecast equates to $7.4-million (5.1 million euros), after taking into account estimated decommissioning costs.

Working capital increase

In addition to the licence interests and NGT equity held by XTO, XH will leave approximately $46.5-million (32.0 million euros) of positive adjusted working capital, which includes a cash balance of approximately $61.8-million (42.8 million euros), in the acquired entity at closing. These amounts reflect an economic effective date for the acquisition of Jan. 1, 2023, and include expected cash flows for the first half of 2023.

Production and funds flow

The acquired assets are expected to produce approximately 450 to 500 barrels of oil equivalent per day during 2023, which would represent an increase of 20 per cent to production per share relative to the midpoint of Tenaz's 2023 production guidance. Based upon year-to-date results plus forecasted cash flows at strip pricing for the rest of 2023 as at June 23, 2023, funds flow from operations for full-year 2023 would be $7.4-million (5.1 million euros). The portion of the projected production and FFO which will be recognized in its 2023 results will depend on the timing of closing of the acquisition.

Decommissioning security

Present value of decommissioning liability associated with the acquired assets is estimated to be approximately $29.2-million (20.1 million euros). At close, $15.3-million (10.5 million euros) of the acquired cash within XTO will be pledged as decommissioning security in accordance with the decommissioning security agreements applicable to the acquired interests.

Updated 2023 guidance

Capital expenditures for the acquired assets are estimated to be $1-million to $2-million during the second half of 2023. As capital requirements for Tenaz's existing Netherlands assets are currently running below the low end of the guidance range, Tenaz is not adjusting its consolidated capex guidance at this time.

The production increase from the acquisition will depend on the timing of closing. Assuming that the closing occurs during third quarter 2023, the anticipated calendar 2023 production increase would be approximately 100 to 200 boe/d.

Consequently, Tenaz is updating its previously announced 2023 capital and production guidance.

                      2023 CAPITAL AND PRODUCTION GUIDANCE

Pro forma 2023                        Previous 2023 guidance   Updated 2023 guidance

Production (boe/d)                               2,200-2,300             2,300-2,500        
Capital expenditure (1) ($ million)                  $20-$24                 $20-$24            

Advisers

Tenaz engaged with ATB Financial, Ernst & Young, Torys LLP, Lawson Lundell LLP, Heussen Advocaten & Notarissen, McDaniel & Associates and Gallagher Energy Risk Services on the acquisition.

About Tenaz Energy Corp.

Tenaz is an energy company focused on the acquisition and sustainable development of international oil and gas assets capable of returning free cash flow to shareholders. Tenaz has domestic operations in Canada along with offshore natural gas assets in the Netherlands. The domestic operations consist of a semi-conventional oil project in the Rex member of the Upper Mannville group at Leduc-Woodbend in central Alberta. The Netherlands natural gas assets are located in the Dutch sector of the North Sea.

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