Mr. Brad Docherty reports

SOURCE ROCK ROYALTIES ACQUIRES ALBERTA HEAVY OIL GROSS OVERRIDING ROYALTY IN 126,000 ACRES OF OIL SANDS LEASES

Source Rock Royalties Ltd. has acquired a 0.75-per-cent non-convertible no deductions gross overriding royalty (GORR) in approximately 126,000 acres (197 sections) of 100-per-cent working interest and largely contiguous oil sands leases in Alberta (the GORR lands) for a purchase price of $4-million, which was financed from Source Rock's existing cash balance. The GORR lands represent greater than a 60-per-cent increase to Source Rock's total gross royalty acreage. The GORR lands are operated by a team that has successfully developed the lands for six years.

Production from the GORR lands averaged approximately 3,300 bbl/d (barrels per day) of heavy oil for January to September, 2026, from one formation. Portions of the GORR lands have potential for heavy oil production from various secondary zones, including the Clearwater, the Bluesky and/or the Pekisko platform formations. The GORR lands are in an area that is actively being explored and developed by several intermediate operators, and recent Crown land sale activity adjacent to the GORR lands has accelerated materially. In addition to the continuing development of the primary producing zone, and potentially evaluating secondary zones on the GORR lands, the operator is also actively advancing enhanced recovery initiatives with the goal of increasing oil production from older active wells and improving total volumes of oil recovered.

In connection with the acquisition, the operator has committed to drill 10 horizontal wells (each a commitment well) on the GORR lands prior to Sept. 30, 2028 (the drilling commitment deadline), with an initial three-well drilling program under way. Source Rock is entitled to non-performance damages for each commitment well not drilled before the drilling commitment deadline, however the drilling commitment deadline is subject to extension provisions if the Cushing, OK West Texas Intermediate light oil spot price declines materially for extended periods of time. In addition, if production from the GORR lands increases to specified levels between 4,000 bbl/d and 5,000 bbl/d for specified periods of time on or before June 30, 2029, Source Rock may be required to pay up to an additional $1.2-million to the operator.

President's message

We are very excited to significantly expand our heavy oil royalty lands in Alberta with an experienced operator. The GORR lands provide exposure to base production, primary zone drilling growth, secondary zone upside potential and an opportunity for the implementation of enhanced recovery technologies. Completing the acquisition with a portion of our cash balance provides non-dilutive production and revenue growth, as well as added future value optionality in our royalty portfolio.

Since completing our initial public offering in March, 2022, for net proceeds of approximately $12.4-million, we have now deployed $22-million on royalty and Crown mineral lease acquisitions in Alberta and Saskatchewan while also paying $15-million (34 cents per share) in dividends. We have achieved approximately 350-per-cent growth in our gross royalty and mineral lease acreage without any additional equity dilution by prudently and strategically recycling the cash flow generated from our high margin business model. We will continue to pursue additional oil royalty acquisitions with the goal of further increasing our base royalty production and expanding our undeveloped royalty lands.

Brad Docherty, president and chief executive officer

Cassels Brock & Blackwell LLP acted as legal counsel to Source Rock with respect to the acquisition.

About Source Rock Royalties Ltd.

Source Rock is a pure-play oil and gas royalty company with an existing, oil-focused portfolio of royalty interests concentrated in southeast Saskatchewan, central Alberta and west-central Saskatchewan, as well as ownership in oil sands and petroleum and natural gas leases in Alberta. Source Rock targets a balanced growth and yield business model, using funds from operations to pursue accretive royalty acquisitions and to pay dividends. By leveraging its niche industry relationships, Source Rock identifies and acquires both existing royalty interests and newly created royalties through collaboration with industry partners. Source Rock's strategy is premised on maintaining a low-cost corporate structure and achieving a sustainable and scalable business, measured by growing funds from operations per share and maintaining a strong netback on its royalty production.

We seek Safe Harbor.