Altima Energy Inc. — Management Reports 2020

Apr 29, 2020

ALTIMA RESOURCES LTD. MANAGEMENT DISCUSSION AND ANALYSIS PERIOD ENDED FEBRUARY 29, 2020

Date prepared: April 28, 2020

GENERAL

This management discussion and analysis (“MDA”) covers the operations of Altima Resources Ltd. (“Company”) for the period ended February 29, 2020 and should be read in conjunction with the audited consolidated financial statements for the year ended November 30, 2019 and the condensed consolidated interim unaudited financial statements for the three months ended February 29, 2020. The financial statements together with this MDA are intended to provide investors with a reasonable basis for assessing the financial performance of the Company.

Except as described in Note 2 to the financial statements, the accounting policies in these condensed interim financial statements are the same as those applied in the Company’s financial statements for the year ended November 30, 2019.

Additional information related to the Company is available for view on the company’s website at www.altimaresources.com, on SEDAR at www.sedar.com, or by requesting further information from the Company’s head office in Vancouver.

FORWARD LOOKING STATEMENTS

Information contained in this MDA that is not historical fact may be considered “forward looking statements”. These forward looking statements sometimes include words to the effect that management believes or expects a stated condition or result. All estimates and statements that describe the Company’s objectives, goals or plans are forward looking statements. Since forward looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including such variables as new information regarding recoverable reserves, changes in demand for and commodity prices of crude oil and natural gas, legislative, environmental and other regulatory or political changes, competition in areas where the Company operates, and other factors discussed herein. Readers are cautioned not to place undue reliance on this forward looking information.

NATURE OF BUSINESS

The Company was incorporated under the Company Act of British Columbia and is engaged in the acquisition, exploration and development of petroleum and natural gas properties in Western Canada and has not yet determined whether all the properties contain reserves that are economically recoverable. The recoverability of amounts shown for petroleum and natural gas properties is dependent upon the discovery of economically recoverable reserves of the Company’s interest in the petroleum and natural gas properties, the ability of the Company to obtain necessary financing to complete the development of the properties and upon future profitable production or proceeds from the disposition thereof.

The Company is a public company listed on the TSX Venture Exchange under the symbol ARH.

Corporate development

The years 2016 and 2015 will be remembered as one of the most challenging periods the Global oil and gas industry has faced. The Canadian sector was not immune, and all oil and gas explorers and producers were increasingly challenged on many fronts. Provincial and Federal governments were slow to react and the uncertainty of a clear future resulted in great unpredictability for the path forward. Oversupply and negative pricing of oil and natural gas resulted in funds from operations declining materially and balance sheet strength and liquidity became of utmost importance. The Company was not immune to these challenges, and the confluence of negative events significantly stressed our business strategy.

Commodity prices declined close to 50 percent through 2015 substantially reducing revenues from oil, natural gas, and natural gas liquids which profoundly impacted cash flow. The Company’s focus shifted through 2015 and continuing into 2016 and beyond from capital investment in exploration and production growth to cost reductions, operating efficiencies, and financial reorganization. Despite progress on cost reductions, the collapse in commodity prices eroded cash flow to negative operating levels as well as affecting the market value of Altima shares.

Further low commodity prices continued throughout 2019. The Company prioritizes the preservation and strengthening of its balance sheet through a diligent focus on reductions in all areas of spending, including operating, financing and administrative costs. Developing oil and natural gas resources requires a long-term commitment.

During fiscal 2019 the Company pursued the acquisition of long-life assets with bookable reserves with the intention to capitalize on developments the Canadian oil and gas industry during 2018 and 2019 of increased market access, oil price differential and changes to the regulatory processes.

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ALTIMA RESOURCES LTD. MANAGEMENT DISCUSSION AND ANALYSIS PERIOD ENDED FEBRUARY 29, 2020

The Company will continue to focus on collaboration with a broad range of engaged stakeholders to achieve enduring success in reserve and cash flow development.

During the period ended February 29, 2020, global factors have had a significant impact on the Canadian and global oil and gas industry. The industry is currently in a state of oversupply due to increased production by the major producing nations, coupled with the decrease in demand for oil due to the impact of travel restrictions as a result of the novel corona virus causing significant price decreases.

Petroleum and natural gas properties

The Company’s exploration program is focused on both conventional and resource based deeper multi-zone gas and gas condensate targets in Western Canada. As at the period ended February 29, 2020, the Company has title to two operable wells in Alberta. During the year ended November 30, 2019, due to economic conditions, the Company recorded an impairment of petroleum and natural gas properties of $347,198, these assets are retained by the Company and remain producible.

During the prior year, the Company entered into a purchase and sale agreement with an arm’s length third party (the “Vendor”) to acquire oil gas and processing assets (the “Assets”) in the province of Alberta. The Assets are comprised of a number of nonoperated working interests and non-operated facility interests with third party processing revenues. The working interest and processing facility interests are in or servicing very long-life wells and units, most of which have been producing for many decades and have historically produced very large volumes of oil and gas. The Assets have bookable reserves for well over a decade of continued production.

In consideration for the acquisition, the Company has agreed to pay a sum of $785,000 in cash on closing. The closing was scheduled for October 2019. In early October 2019, the Company paid a non-refundable deposit of $142,500 to the Vendor. As at November 30, 2019, due to the status of the agreement, the Company has recorded an impairment of the acquisition deposit paid of $142,500. The Company is continuing negotiations with the vendor regarding the terms of the purchase and application of the deposit against the remaining balance due.

In February 2018, the Company advanced $50,000 to Crimson Oil and Gas Ltd. (“Crimson”), the loan is unsecured and bears interest of 10% per annum, payable monthly commencing May 1, 2018. During the year ended November 30, 2019, the Company advanced a further $90,000 to the acquisition target.

Subsequent to the period ended February 29, 2020, on April 1, 2020, the Company completed the acquisition of Crimson, the acquisition advance will become additional consideration for the purchase. In consideration for the purchase of Crimson, the Company issued a promissory note of $750,000 due on or before November 30, 2020.

Crimson has two major properties and a number of smaller assets in Alberta and British Columbia. The Red Earth oil property has production capabilities of approximately 100 barrels of oil per day along with an inventory of four well reactivations and recompletions. The Whiskey Creek liquids rich natural gas property has two good recompletion opportunities tied in to its pipeline.

As at the date of these interim financial statements, the values attributable to Crimson’s identifiable assets and liabilities, which consist primarily of accounts receivable, prepaid expenses, petroleum and natural gas properties, exploration and evaluation assets, goodwill, accounts payable and accrued liabilities, decommissioning provision, had not been determined as the initial accounting had yet to be completed.

SELECTED ANNUAL INFORMATION

The following table provides a brief summary of the Company’s financial operations for the prior three fiscal years.

	Years ended November 30,	Years ended November 30,
	2019	2018	2017
	-$ -	-$ -	-$ -
Revenue	93,673	321,761	326,221
Net income (loss) and comprehensive income (loss)	(1,074,700)	989,240	4,194,184
Income (loss) per share	(0.03)	0.03	0.20
Total assets	175,816	502,132	2,849,726
Total long-term liabilities	218,375	217,483	90,224
Total equity (deficiency)	(3,471,206)	(2,396,506)	(4,306,518)

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ALTIMA RESOURCES LTD. MANAGEMENT DISCUSSION AND ANALYSIS PERIOD ENDED FEBRUARY 29, 2020

Year ended November 30, 2019:

In the year ended November 30, 2019, the Company had a net loss of $1,074,700 compared to a net income of $989,240 in 2018. In prior years, the Company incurred gains on settlement of the convertible debenture of $nil (2017 – $4,804,102) and on sale of petroleum and natural gas properties of $nil (2018 - $1,403,920) and impairment reversal on petroleum and natural gas properties of $nil (2018 - $161,333); which contributed to reported net income in prior years.

In the current year, due to economic conditions, the Company recorded an impairment of petroleum and natural gas properties of $347,198, these assets are retained by the Company and remain producible. The Company also recorded an impairment of acquisition deposit of $142,500. These factors contributed to the variability in net loss/income in the comparative periods.

Year ended November 30, 2018:

In the year, the Company had a net income of $989,240 compared to a net income of $4,194,184 in 2017. This decrease is a result of several main components of variance including gain on settlement of convertible debenture $nil (2017 - $4,804,102), impairment on petroleum and natural gas properties of $161,333 – reversal (2017 - $60,861 loss), gain on sale of petroleum and natural gas properties of $1,403,920 (2017 - $nil), offset by a decrease in operating loss of $578,192 (2017 - $584,155).

In order to manage the Company’s working capital deficiency, continue operations, fund its expenditure commitments, and provide adequate working capital for ongoing activities, the Company will continue to depend on equity financing through existing and new shareholders, third party financing, continued support from its trade creditors, and cost sharing arrangements to fund its work programs and operations.

SUMMARY OF QUARTERLY RESULTS

The following is a summary of selected financial information compiled from the quarterly unaudited financial statements for eight quarters ending February 29, 2020.

	Feb.29, 2020	Nov.30, 2019	Aug. 31, 2019	May 31, 2019
	**-$- **	**-$- **	**-$- **	**-$- **
Revenue	40	19,407	57,871	10,196
Total assets	185,857	175,816	578,251	598,159
Working capital deficiency	3,468,983	3,392,833	2,947,167	2,842,434
Long-term liabilities	225,523	218,375	218,152	217,929
Shareholders’ deficiency	3,554,504	3,471,206	2,801,319	2,665,363
Net income (loss)	(83,298)	(669,887)	(135,956)	(140,776)
Net income(loss) per share	(0.00)	(0.02)	(0.00)	(0.00)
	Feb.28, 2019	Nov. 30, 2018	Aug. 31, 2018	May 31, 2018
	**-$- **	**-$- **	**-$- **	**-$- **
Revenue	6,199	21,073	94,219	85,696
Total assets	489,084	502,132	343,420	356,737
Working capital deficiency	2,706,881	2,584,023	2,397,415	2,317,677
Long-term liabilities	217,706	217,483	90,359	90,314
Shareholders’ deficiency	2,524,587	2,396,506	2,307,474	2,211,791
Net income (loss)	(128,081)	315,968	(95,683)	(157,204)
Net income(loss) per share	(0.00)	0.01	(0.00)	(0.00)

In November 30, 2018, the significant variances attributing to the increase in net income of $315,968 includes impairment reversal of petroleum and natural gas properties of $161,333, and an adjustment to the booked value of the re-acquisition of certain property interests of $405,000, offset by costs commensurate with regular ongoing operations.

In November 30, 2019, the significant variances attributing to the increase in net loss of $669,887 include impairment of an acquisition deposit of $142,500, and the impairment on petroleum and natural gas properties of $347,198.

In February 29, 2020, the Company realized a recovery of historical operating expenses contributing to the reduction in net loss in the period.

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ALTIMA RESOURCES LTD. MANAGEMENT DISCUSSION AND ANALYSIS PERIOD ENDED FEBRUARY 29, 2020

Comparison of operating results

During the three months ended February 29, 2020, the Company had a net loss of $83,298 compared to a net loss of $128,081 in 2019. Significant variances in the results for the two years are outlined in the following table:

	Feb.29,	2020	Feb	28, 2019
		-$ -		-$ -
Revenue		40		6,199

In the current period the Company’s wells are not operating, the Company has plans to change production plants to a deep cut production facility that will enable to Company to realize higher unit prices on its liquids production. The changeover requires work that is currently curtailed due to spring breakup conditions at site. The decrease in the current period is a result of these factors.

factors.
Recovery of operating costs	(38,486)	-
In the current period, the Company realized a recovery of historical operating expenses.
Interest	8,164	450
The increase in interest in the current period due to the interest-bearing loans from shareholders and related parties during the
currentperiod and interest incurred on certain accountspayable.
Property investigation	4,106	9,123
The decrease in property investigation expenses in the current period is due to a timing difference of expenses related to
insurance.
Foreign exchange loss (gain)	5,546	(1,454)
The increase in foreign exchange is a result of foreign denominated liabilities and the fluctuation in exchange		rates between
the US and Canadian dollars.
Transfer agent filing fees	945	8,981
The decrease in transfer agent filing fees is a result of a decrease in transfer agent fees in	the current period due to timing of
AGM expenses and sustainingfees.

LIQUIDITY AND CAPITAL RESOURCES

At February 29, 2020, the Company had $45,855 (November 30, 2019 - $35,814) in cash and receivables, a working capital deficiency of $3,468,983 (November 30, 2019 - $3,392,833), and had a cumulative deficit of $34,521,909 (November 30, 2019 – $34,438,611).

For the period ended February 29, 2020 significant cash flows were as follows:

Funds used in operating activities for the period was $53,119. Net loss for the period of $83,298 included non-cash transactions totaling $28,245. Changes in non-cash working capital included a total increase in receivables of $3,160, and increases in accounts payable and accruals of $13,849, and in amounts due to related parties of $47,736.

Funds provided by financing activities of $60,000 were comprised of convertible debenture subscriptions.

In October 4, 2019, the Company announced a private placement to raise up to $6,000,000 through the issuance of convertible debentures (the “Debentures”). The Company also confirmed that existing debt of approximately $2,500,000 in the Company will be converted into Debentures as part of the private placement, and therefore the private placement of Debentures is expected to result in up to $3,500,000 of additional proceeds to the Company.

The Debentures will be transferable and will bear interest at 6% per annum, maturing September 30, 2022. Up to the maturity date, only interest on the Debentures will be repaid, with the first semi-annual interest payment being due on March 31, 2020. The Debentures may be pre-paid at any time by the Company after March 31, 2020. Any outstanding principal amount and accrued interest will be due and payable on the maturity date.

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ALTIMA RESOURCES LTD. MANAGEMENT DISCUSSION AND ANALYSIS PERIOD ENDED FEBRUARY 29, 2020

The Debentures will be convertible at the option of the holder into Units (the “Unit”), each Unit to be comprised of one common share and one-half share purchase warrant at a price of $0.05 per Unit in the first year, and thereafter at $0.10 per Unit until the maturity date (3 years from the issuance date). Each full warrant entitles the holder to purchase one share for a period of two years from the closing date at a price of $0.15 per share.

During the year ended November 30, 2019, the Company received $10,000 in convertible debenture subscription receipts. During the period ended February 29, 2020, the Company received additional subscription receipts of $60,000.

TRANSACTIONS WITH RELATED PARTIES

The Company had the following transactions with related parties in the years indicated:

	Feb.29, 2020	Feb.28, 2019
	-$ -	-$ -
Management fees paid or accrued to directors, or companies controlled by directors_3_ 28,500		28,500
Office facilities and miscellaneous charges accrued to companies controlled by a director
or an officer_3,4,6_	51,000	51,000
1Stephen Watts, Director	_4_Richard Barnett, Director, CFO	and Secretary
_2_Jurgen Wolf, Director	_5_Whistler Oil & Gas Pty.
_3_Joe DeVries, Director, and Interim CEO	_6_Simco Services Inc.

The Company has identified all of the directors and officers as its key management personnel. The remuneration for these key management personnel, which include the amounts disclosed above, was as follows:

	Feb.29, 2020	Feb.28, 2019
	-$ -	-$ -
Short-term employee benefits – management,administrative,and consultingfees_3,4_	34,500	34,500

These transactions were recorded at their exchange amounts, which are the amounts agreed upon by the transacting parties. Except where previously indicated, the amounts due to related parties bear no interest and are due on demand.

Liabilities to related parties consist of:

	Feb,29, 2020	Nov. 30, 2019
	- $ -	- $ -
Management, consulting, exploration and administrative fees payable presented as amounts
payable to related parties or companies controlled by directors or officers_3, 4 ,6_	896,300	840,365
Loan payable_1, 6_	406,269	391,864
Interestpayable on loan_1,6_	30,269	22,604
1Stephen Watts, Director	_4_Richard Barnett, Director, CFO	and Secretary
_2_Jurgen Wolf, Director	_5_Whistler Oil & Gas Pty.
_3_Joe DeVries, Director, and Interim CEO	_6_Simco Services Inc.

During the period ended February 29, 2020 the Company accrued interest of $7,666 (February 28, 2019 - $nil) on amounts due to a director and a company controlled by a director and officer.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has not entered into any off-balance sheet arrangements during the three months ended February 29, 2020 and as at the current date.

Outstanding Share Data: As at February 29, 2020, and at the current date, the Company has 34,474,949 common shares issued and outstanding.

Outstanding Option Data: As at February 29, 2020, and at the current date, there are no stock options outstanding.

Outstanding Warrant Data: As at February 29, 2020, and at the current date, there are no warrants outstanding.

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ALTIMA RESOURCES LTD. MANAGEMENT DISCUSSION AND ANALYSIS PERIOD ENDED FEBRUARY 29, 2020

DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure. The Company's Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of February 29, 2020 that our disclosure controls and procedures are effective to provide reasonable assurance that material information related to the Company, is made known to them by others within those entities. It should be noted that disclosure controls and procedures cannot prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

The Chief Executive Officer and Chief Financial Officer of the Company are responsible for designing internal controls over financial reporting (“ICFR”) or causing them to be designed under their supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian generally accepted accounting principles. We have designed controls for this process and have conducted an evaluation which has identified potential weaknesses in such controls. Due to the limited number of staff, it is not feasible to attain complete segregation of incompatible duties. Weaknesses in the Company’s internal controls over financial reporting allow for a greater likelihood that a material misstatement would not be prevented or detected.

The company is not required to certify the design and evaluation of its ICFR and has not completed such an evaluation, and inherent limitations on the ability of the certifying officers to design and implement, on a cost-effective basis, ICFR for the company may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.

Management and the Board of Directors mitigate the risk of material misstatement in financial reporting by performing a detailed review of operational and financial reports. It is not possible to provide absolute assurance that this risk can be eliminated.

FINANCIAL RISKS AND CAPITAL MANAGEMENT

The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s primary exposures to credit risks are on its cash held in bank accounts, receivables and loan receivable. The majority of cash is deposited in bank accounts held with major banks in Canada.

As most of the Company’s cash is held by a bank there is a concentration of credit risk. This risk is managed by using a major bank that is a high credit quality financial institution, as determined by rating agencies. The Company’s exposure to credit risk on receivables is influenced mainly by the individual characteristics of each customer or joint venture partner. As the Company sells its petroleum products through a large marketer, it is also exposed to a concentration risk. Trade receivables from petroleum products marketers are normally received within 30 days of the month following production. At February 29, 2020, the Company has $nil trade receivables, and the full receivable was due from a government agency.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its obligations as they become due. As at February 29, 2020, the Company has a working capital deficiency of $3,468,983. The Company's ability to continue as a going concern is dependent on management's ability to renegotiate the terms of the secured debenture and raise the required funding through future debt or equity issuances. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investing and financing activities. Management and the Board of Directors are actively involved in the review, planning and approval of significant expenditures and commitments.

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ALTIMA RESOURCES LTD. MANAGEMENT DISCUSSION AND ANALYSIS PERIOD ENDED FEBRUARY 29, 2020

Commodity Price Risk

Commodity price risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for petroleum and natural gas are impacted by not only the relationship between the Canadian and United States dollars, but also world economic events that dictate the levels of supply and demand. Fluctuations may be significant .

Foreign currency exchange risk

Foreign currency exchange risk is the risk that the future fair value of cash flows of a financial instrument will fluctuate because of changes in the foreign exchange rates. The Company’s financial results are reported in Canadian dollars while it holds a significant portion of its debt denominated in US dollars. The assets, liabilities and expenses that are denominated in US Dollars will be affected by changes in the exchange rate between the Canadian dollar and the US Dollar.

If the Canadian dollar changes by one percent against the US dollar, with all other variables held constant, the impact on the Company’s foreign denominated financial instruments would result in a nominal change in profit or loss.

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is nominally exposed to interest rate risk

Capital Management

The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern such that it can provide returns for shareholders and benefits for other stakeholders.

The Company considers the items included in shareholders’ equity as capital. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust its capital structure, the Company may issue new shares, sell assets to settle liabilities or return capital to its shareholders. The Company is not exposed to externally imposed capital requirements other than on its secured convertible debt, settled in the current period. There have been no changes to the Company’s capital management during the period ended February 29, 2020.

Classification of financial instruments

The following table summarizes information regarding the carrying values of the Company’s financial instruments for the years then ended:

	Feb.29, 2020	Nov.30, 2019
	-$ -	-$ -
Fair value through profit or loss	25,554	18,673
Assets at amortized cost	140,000	140,000
Liabilities	3,514,838	3,428,647

(a) Fair value through profit or loss includes cash

(b) Assets include receivables, and loan receivable at amortized cost

(c) Liabilities include accounts payable and accrued liabilities, amounts due to related parties, advances and convertible debenture subscription at amortized cost.

RECENT PRONOUNCEMENTS

Certain new standards, interpretations and amendments to existing standards are not yet effective as of February 29, 2020. See Note 2 of the February 29, 2020 financial statements for details.

DIRECTORS

Certain directors of the Company are also directors, officers and/or shareholders of other companies that are similarly engaged in the business of acquiring, developing and exploring oil and gas properties. Such associations may give rise to conflicts of interest from time to time. The directors of the Company are required to act in good faith with a view to the best interests of the Company and to disclose any interest which they may have in any project opportunity of the Company. If a conflict of interest arises at a meeting of the board of directors, any directors in a conflict will disclose their interests and abstain from voting in such matters. In determining whether or not the Company will participate in any project or opportunity, the directors will primarily consider the degree of risk to which the Company may be exposed and its financial position at the time.

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