Mr. Anthony Marino reports

TENAZ ENERGY CORP. ANNOUNCES Q2 2023 RESULTS AND NETHERLANDS RESOURCE ASSESSMENT

Tenaz Energy Corp. has released its financial and operating results for the three and six months ended June 30, 2023, and has provided a resources summary with an effective date of July 1, 2023, of its independent resources report on the resource potential of its Dutch North Sea (DNS) assets, prepared by McDaniel and Associates Consultants Ltd.

The unaudited interim condensed consolidated financial statements and related management's discussion and analysis (MD&A) are available on SEDAR+ and on Tenaz's website. Select financial and operating information for the three and six months ended June 30, 2023, appear below and should be read in conjunction with the related financial statements and MD&A.

A webcast presentation to accompany this release is available on Tenaz's website.

Highlights

Second quarter operating and financial results:

• In June, Tenaz announced the signing of an agreement to purchase XTO Netherlands Ltd., increasing the company's position in the Dutch North Sea (DNS). Tenaz closed the XTO acquisition in early July, 2023. Accordingly, it will recognize the operating and financial results from the XTO assets beginning with its Q3 2023 report. In June, 2023, production from the XTO assets were approximately 475 boe/d (barrels of oil equivalent per day), with total Netherlands production at approximately 1,250 boe/d.
• The XTO acquisition also increased Tenaz's ownership in the NGT mid-stream assets to 21.4 per cent, making Tenaz the second-largest shareholder in NGT. Tenaz considers the NGT infrastructure as integral for Netherlands energy security and the transition to cleaner energy in Europe.
• Production volumes averaged 1,903 boe/d in Q2 2023, 19 per cent lower than Q1 2023 and 70 per cent higher than Q2 2022. Production was lower compared with Q1 2023 due to facility turnarounds in both Canada and Netherlands. Production was higher than Q2 2022 due to the acquisition of a private company with Netherlands assets at the end of 2022 and continued organic growth in Tenaz's Leduc-Woodbend field in Canada. Production acquired from XTO was not included in Q2 2023 results, with closing occurring after the end of the quarter.
• Production volumes averaged 2,119 boe/d in first half of 2023, 100 per cent higher than the first six months of 2022. Production was higher due to the acquisition of Netherlands assets at the end of 2022 and development activity in Canada.
• Funds flow from operations (FFO) for the second quarter was $3.4-million, 54 per cent lower than Q1 2023 and 60 per cent higher than Q2 2022. Lower quarter-over-quarter FFO resulted from lower production and higher expenses due to facility turnarounds, coupled with lower prices for TTF natural gas.
• FFO for the six months ended June 30, 2023, was $10.6-million, 244 per cent higher than in the comparable 2022 period. Higher 2023 FFO primarily resulted from contributions from the new Netherlands assets.
• Free cash flow in the first half of 2023 was $4-million, compared with negative free cash flow of $1.1-million in the first six months of 2022, with improved contributions from both the Netherlands and Canadian assets.
• Net income for Q2 2023 was a loss of $800,000, as compared with profit of $2.9-million in Q1 2023 and profit of $800,000 in Q2 2022. Lower net income resulted from lower production and higher expenses due to turnarounds in both Canada and the Netherlands, as well as transaction costs for closed and prospective merger and acquisition activities. First-half 2023 net income of $2.1-million was lower than net income of $4.3-million in the first half of 2022, primarily because a $4.2-million impairment reversal was recorded in Q1 2022.
• Tenaz ended the quarter with positive adjusted working capital (net debt) of $17.1-million, an increase of $3.1-million over year-end 2022 as a result of the free cash flow generated in the first six months of 2023. Subsequent to the end of the quarter, as a part of the XTO acquisition, Tenaz acquired positive adjusted working capital of $46.7-million (subject to postclosing adjustments).
• Tenaz's normal course issuer bid (NCIB) retired 716,000 common shares (2.5 per cent of basic common shares) at an average cost of $2.25 per share during the first six months of 2023. As of the end of July, 2023, the company has retired 1.22 million common shares (4.3 per cent of basic common shares) at an average cost of $2.07 per share. During Q3 2023, it intends to apply for the renewal of its NCIB program for an additional year.

Budget and outlook:

• Capital expenditures during the second quarter totalled approximately $6-million, as Canadian drilling was initiated ahead of schedule. First-half 2023 capital expenditures totalled $6.7-million. Annual guidance for capital expenditures remains unchanged at $20-million to $24-million.
• The company's planned 2023 Canadian development program is under way with four gross (3.35 net) wells now drilled and completions in progress. The four wells are expected to be tied in at the end of Q3 2023.
• Production in the second half of 2023 is expected to increase as both Canada and the Netherlands are off turnarounds, XTO volumes are recognized, and the new Leduc-Woodbend wells are expected to come on-line at the end of Q3 2023. Annual production guidance, as updated following the XTO acquisition, is unchanged at 2,300 to 2,500 boe/d.

Netherlands resources:

• Tenaz engaged McDaniel to independently evaluate and prepare a report on the resource potential of the company's DNS assets. The resource report has an effective date of July 1, 2023, and was prepared in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities and uses the resources and reserves definitions, standards and procedures set forth in the Canadian Oil and Gas Evaluation Handbook (COGEH). The resource report includes contingent and prospective resources attributable to the acquisitions of the Netherlands offshore assets completed on Dec. 20, 2022, and the recent acquisition of XTO completed on July 3, 2023.
• The unrisked low, best and high estimates for Tenaz's share of contingent resources are 2.4 million, 4.3 million and 6.9 million boe (mmboe), respectively, with a risked mean of 4.5 mmboe. McDaniel conducted an economic analysis of the best estimate case for the contingent resources using the three consultant average forecast prices and costs as of July 1, 2023. The resource report indicates after-tax net present values discounted at 10 per cent for the best estimate contingent resources (2C) of $86-million (58.5 million euros).
• The unrisked low, best and high estimates for Tenaz's share of prospective resources are 8.9 mmboe, 19.8 mmboe and 48.5 mmboe, respectively, with a risked mean of 10.2 mmboe after applying chance of discovery on a prospect-by-prospect basis.

President's message

"We are pleased to provide this update along with our results for the second quarter of 2023. During Q2 2023, we advanced our overseas acquisition strategy, conducted turnarounds on our facilities in both Canada and Netherlands, and initiated our 2023 development program in Canada. We also commissioned an independent assessment by McDaniel of the resource potential in our Netherlands assets.

"As announced prior to the end of Q2 2023, we acquired additional Netherlands assets from XTO with an effective date of Jan. 1, 2023, closing this acquisition in early July, 2023. As of our last data in June, 2023, these assets are producing at the midpoint of their expected range of 475 boe/d. In combination with our earlier acquisition of a private company in December, 2022, our total production rate in Netherlands as of June was approximately 1,250 boe/d. In the XTO purchase, we also increased our shareholding in the NGT mid-stream system by 10.1 per cent, bringing our ownership in this high-reliability gathering business to 21.4 per cent.

"Production averaged 1,903 boe/d in Q2 2023, down 19 per cent from our Q1 2023 levels. The main driver of the quarter-over-quarter decrease was facility turnaround work conducted in both Canada and Netherlands, during which time production was idled. The operator of our Dutch North Sea assets completed its annual maintenance and integrity management campaign, resulting in 26 days of downtime during April and May. Following the shutdown, production has been delivering on the prior expectations for these predictable reservoirs. The shutdown was timed to coincide with seasonally low demand for European natural gas. In Canada, we also conducted turnarounds at our two processing facilities, including an expansion of gas compression capacity at one facility to accommodate future production increases.

"Despite the turnarounds, Q2 2023 production was still 70 per cent higher than in Q2 2022, due to successful drilling in Canada in the second half of 2022 and the first Netherlands acquisition. First half 2023 production was 2,119 boe/d, up 100 per cent from the first half of 2022, including an organic increase of 36 per cent in Canada.

"We generated FFO of $3.4-million in Q2 2023, 54 per cent below Q1 2023, primarily due to lower production as a result of the turnarounds. FFO for Q2 2023 was 60 per cent higher than in Q2 2022, driven by higher production, including the impact of the first Netherlands acquisition.

"We were able to get an earlier start than expected on our four-gross-well (3.35 net) drilling program at Leduc-Woodbend in Canada, taking advantage of availability of suitable drilling services and dry weather at the beginning of June. As a result, capital expenditures (capex) in Canada was $4.2-million in Q2 2023, reflecting drilling of the first two wells. Because of wet weather in early July, our rig move to the next pad was delayed, and the program is back on its original schedule to deliver production at the end of Q3 2023. Netherlands capex was $1.7-million in Q2 2023, roughly evenly split between exploration and development (E&D) investment for facilities and technical work by the operator on the potential for carbon capture and storage (CCS).

"Free cash flow in the first half of 2023 was $4-million, compared with negative free cash flow of $1.1-million in the first six months of 2022, with improved contributions from both our Netherlands and Canadian assets.

"Looking forward, our production guidance for full-year 2023 for both assets remains as previously announced, with Canada at 1,450 to 1,550 boe/d and Netherlands at 850 to 950 boe/d, for a corporate total of 2,300 to 2,500 boe/d. Capital guidance of $20[-million] to $24-million also remains unchanged.

"With respect to liquidity, positive adjusted working capital (net debt) was $17.1-million as at June 30, 2023. This working capital balance was prior to the addition of approximately $46.7-million through the XTO acquisition. In addition, we remain undrawn on our $10-million bank facility.

"Our normal course issuer bid (NCIB) program retired 716,000 common shares (2.5 per cent of basic common shares) at an average cost of $2.25 per share during the first six months of 2023. As of the end of July, 2023, we have retired 1.22 million common shares (4.3 per cent of basic common shares) at an average cost of $2.07 per share. During Q3 2023, we plan to apply for the renewal of our NCIB program for an additional year.

"Due to warm weather last winter and increased storage levels this summer, pricing for European natural gas (as referenced by the TTF index) was lower in Q2 2023. Despite higher storage levels, there is uncertainty about the ability to meet demand for a typical winter in 2023 to 2024, which is likely to support prices and maintain elevated volatility in the coming months. One of the main sources of supply for Europe is now imported LNG [liquified natural gas], and the competitive global landscape for LNG supply creates risks in the near to medium term. In addition, there is significant uncertainty regarding long-term supply replacement for historical imports of Russian gas, and risk of interruption of the remaining Russian deliveries into Europe. Consequently, forward TTF prices are at a meaningful premium to the prompt price of $16.24 per mcf [thousand cubic feet]. The forward price for Q4 2023 is $20.21 per mcf, with calendar 2024 at $22.50. Our view is that the presence of European natural gas in our product mix is differentiating and advantageous to Tenaz.

"Our other major product is Canadian oil, for which WTI is currently priced at $83 (U.S.) per bbl with WCS differentials contracting to approximately $16 (U.S.) per bbl. Our crude typically sells at the WCS price without the addition of diluent. While Canadian natural gas is a less significant product in our mix, a meaningful portion of our AECO gas exposure is fixed for summer 2023 at prices above current market levels.

"We view our recently closed acquisitions as examples of our approach to finding real value in the overseas M&A market for producing properties. These transactions reflect our philosophy of issuing as little equity as possible, while still improving our balance sheet and liquidity. Our team of technical and finance professionals is dedicated to securing additional value-adding acquisitions and is fully aligned with the rest of our shareholder group in pursuit of our shared success. As we have previously stated, we can make no guarantees regarding the certainty or timing of the next transaction, but we are optimistic about bringing additional assets into the portfolio in the future. When we do so, we are confident that our acquisition investment will be consistent with our stated financial and strategic goals. We appreciate the support of our shareholders as we pursue realization of the Tenaz vision.

"Signed,

"Anthony Marino

"President and chief executive officer

"Aug. 10, 2023"

Netherlands resource report

Further to the integration of assets Tenaz has acquired in the DNS, it engaged McDaniel to independently assess the resource potential of the assets beyond the reserve volumes that it currently recognizes. The resource report showed the potential on the company's licences with undeveloped oil and gas discoveries that qualify as contingent resources and exploration upside in the form of prospective resources.

The resource report has an effective date of July 1, 2023, and was prepared in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities and uses the resources and reserves definitions, standards and procedures set forth in the Canadian Oil and Gas Evaluation Handbook (COGEH). The resource report includes contingent and prospective resources attributable to the acquisitions of the Netherlands offshore assets completed on Dec. 20, 2022, and on July 3, 2023.

Contingent resources reflect the undeveloped Rembrandt and Vermeer oil discoveries operated by Wintershall Noordzee BV and two undeveloped natural gas discoveries on the Neptune Energy Netherlands BV-operated licences. The unrisked low, best and high estimates for Tenaz's share of contingent resources are 2.4, 4.3 and 6.9 mmboe, respectively, with a risked mean of 4.5 mmboe. McDaniel conducted an economic analysis of the best estimate case for the contingent resources using the average of the price decks of three independent engineering firms, GLJ Ltd., Sproule Associates Limited and McDaniel & Associates Consultants Ltd. (the "Consultant Average Price Forecast") at July 1, 2023. The Resource Report indicates after-tax net present values discounted at 10 per cent for the best estimate contingent resources (2C) of $86.0-million ( euros58.5-million). Contingent volumes and economic estimates do not reflect any scaling factor for chance of development.

Prospective resources reflect 21 exploration prospects on our licenses that are operated by Wintershall and Neptune. The unrisked low, best, and high estimates for Tenaz's share of prospective resources are 8.9 mmboe, 19.8 mmboe and 48.5 mmboe, respectively, with a risked mean of 10.2 mmboe after applying chance of discovery on a prospect-by-prospect basis. Prospective volumes do not reflect any scaling factor for chance of development.

In Tenaz's current position as non-operator, it is unable to guarantee that any of these resource projects will be pursued. Nonetheless, the resource report illustrates that there is the potential for investment activity on these blocks beyond the project slate included in its reserve report as of Dec. 31, 2022.

The attached tables summarize the volumes and economic values in the resource report.

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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