Cavvy Energy Ltd. — Interim / Quarterly Report 2021

Aug 12, 2021

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CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Unaudited, in thousands of Canadian dollars		June 30, 2021	December 31, 2020
Assets
Current assets
Cash and cash equivalents		9,740	11,069
Restricted cash		2,193	1,995
Accounts receivable	(Note 12)	45,810	44,900
Prepaid expenses and deposits		5,114	5,364
Inventories		23,866	23,882
		86,723	87,210
Security deposits		600	790
Interests in associates		3,698	3,698
Property, plant and equipment	(Note 5)	477,577	514,727
Exploration and evaluation assets	(Note 6)	5,275	3,255
Right-of-use assets		1,817	2,971
Total assets		575,690	612,651
Liabilities
Current liabilities
Accounts payable and accrued liabilities		127,320	98,845
Current portion of decommissioning obligations	(Note 8)	4,434	4,434
Current portion of lease liabilities		1,317	2,032
Other amountspayable		1,514	1,514
		134,585	106,825
Other amounts payable	(Note 14)	5,164	14,898
Term debt	(Note 7)	232,383	219,555
Decommissioning obligations	(Note 8)	226,144	266,006
Lease liabilities		494	983
Total liabilities		598,770	608,267
Shareholder's equity
Share capital	(Note 9)	274,322	274,322
Contributed surplus		12,658	12,374
Warrants	(Note 9)	1,349	-
Accumulated other comprehensive income		3,127	2,619
Deficit		(314,098)	(284,668)
Equity attributable to equity holders of the company		(22,642)	4,647
Non-controllinginterests		(438)	(263)
Total shareholders' equity		(23,080)	4,384
Total liabilities and shareholders' equity		575,690	612,651

Commitments (Note 15)

See accompanying notes to the unaudited condensed consolidated financial statements

PIERIDAE ENERGY 1

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CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

		Three months ended June 30,	Three months ended June 30,	Six months	ended June 30,
Unaudited, in thousands of Canadian dollars, except per share amounts		2021	2020	2021	2020
Revenue
Petroleum and natural gas	(Note 10)	71,397	54,261	153,118	119,012
Royalties		(3,872)	(1,382)	(7,694)	(4,012)
		67,525	52,879	145,424	115,000
Other income		1,287	634	2,322	1,283
Thirdparty processing		3,833	6,926	8,646	13,728
		72,645	60,439	156,392	130,011
Realized gain on risk management contracts		-	8,223	-	12,708
Unrealized loss on risk management contracts		-	(83)	-	(166)
		72,645	68,579	156,392	142,553
Expenses
Operating		53,870	45,422	112,090	96,404
Transportation		4,331	3,939	8,982	7,775
General and administrative		5,676	6,386	11,612	11,397
Development	(Note 14)	(4,862)	4,129	3,742	8,878
Finance	(Note 11)	13,917	11,775	27,425	23,321
Depletion and depreciation	(Note 5)	9,519	10,170	21,832	19,504
Share-based compensation		130	143	284	318
Foreign exchange gain (loss)		122	8	30	(170)
Share of net loss of associates		-	3	-	6
		82,703	81,975	185,997	167,433
Net loss		(10,058)	(13,396)	(29,605)	(24,880)
Other comprehensive income, net of income tax
Foreign currencytranslationgain(loss)		151	269	508	(465)
Total comprehensive loss		(9,907)	(13,127)	(29,097)	(25,345)
Net loss attributable to
Equity holders of the Company		(10,025)	(13,365)	(29,430)	(24,849)
Non-controlling interests		(33)	(31)	(175)	(31)
Net loss per share attributable to equity holders of the Company
Basic		(0.06)	(0.09)	(0.19)	(0.16)
Diluted		(0.06)	(0.09)	(0.19)	(0.16)

PIERIDAE ENERGY 2

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

					Accumulated
					Other	Total Equity	Non-
		Contributed			Comprehensive	Attributable to	Controlling
Unaudited, in thousands of Canadian dollars	Share Capital	**Surplus **	Warrants	Deficit	Income(Loss)	Equity Holders	**Interests **	Total Equity
As at December 31, 2019	274,799	10,458	933	(184,076)	2,363	104,477	(162)	104,315
Share-based compensation	64	318	-	-	-	382	-	382
Net loss attributable to equityholders of the Company	-	-	-	(24,849)	(464)	(25,313)	(31)	(25,344)
As at June, 30 2020(Note 9)	274,863	10,776	933	(208,925)	1,899	79,546	(193)	79,353
As at December 31, 2020	274,322	12,374	-	(284,668)	2,619	4,647	(263)	4,384
Share-based compensation		284	-	-	-	284	-	284
Issuance of warrants	-	-	1,349	-	-	1,349	-	1,349
Net loss attributable to equityholders of the Company	-	-	-	(29,430)	508	(28,922)	(175)	(29,097)
As at June 30, 2021(Note 9)	274,322	12,658	1,349	(314,098)	3,127	(22,642)	(438)	(23,080)

PIERIDAE ENERGY 3

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three months ended June 30,	Three months ended June 30,	Six months ended June 30,	Six months ended June 30,
Unaudited, in thousands of Canadian dollars		2021	2020	2021	2020
Operating activities
Net loss		(10,058)	(13,396)	(29,605)	(24,880)
Unrealized loss on risk management contracts		-	83	-	33
Depletion and depreciation	(Note 5)	9,519	10,170	21,832	19,504
Accretion of financing costs	(Note 11)	5,944	3,867	11,470	7,355
Interest expense		1,568	-	3,107	-
Accretion of decommissioning obligations		-	212	-	423
Share-based compensation		130	143	284	318
Change in provisions		-	1,969	-	1,969
Unrealized loss (gain) on foreign exchange		-	8	-	(170)
Share of net loss of associates		-	3	-	6
Other amounts payable		(8,607)	-	(9,734)	-
Settlement of decomissioning obligations	(Note 8)	(291)	(1,538)	(1,677)	(663)
Changes in non-cash workingcapital	(Note 13)	13,888	(3,534)	27,416	518
Cash(used in) provided byoperatingactivities		12,093	(2,013)	23,093	4,413
Investing activities
Additions to property, plant and equipment	(Note 5)	(17,006)	495	(21,553)	(434)
Additions to exploration and evaluation assets	(Note 6)	(953)	(759)	(2,020)	(1,859)
Proceeds from asset disposition		-	-	(54)	-
Changes in non-cash workingcapital	(Note 13)	2,788	-	605	-
Cash(used in) provided byinvestingactivities		(15,171)	(264)	(23,022)	(2,293)
Financing activities
Issuance of share capital, net of costs		-	-	-	64
Restricted cash		-	(1,237)	(198)	(725)
Repayment of term debt		-	-	(400)	-
Payments on lease obligations		(649)	(695)	(1,310)	(1,368)
Cash(used in) provided byfinancingactivities		(649)	(1,932)	(1,908)	(2,029)
Increase (decrease) in cash and cash equivalents		(3,727)	(4,209)	(1,837)	91
Cash and cash equivalents, beginning of period		13,316	14,044	11,069	9,567
Effect of foreign exchange on cash		151	640	508	817
Cash and cash equivalents, end ofperiod		9,740	10,475	9,740	10,475
Cash paid:
Interestpaid in cash		6,271	7,683	12,428	14,099

PIERIDAE ENERGY 4

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

Pieridae Energy Limited (the "Company" or "Pieridae") is a publicly traded, Canadian based Company in the business of developing, producing and processing natural gas, and the production of natural gas liquids ("NGL’s"). It is also engaged in the development of a fully integrated liquefied natural gas ("LNG") project to be built in Goldboro, Nova Scotia. The common shares of Pieridae trade on the Toronto Stock Exchange ("TSX") under the symbol PEA. The Company was incorporated on May 29, 2012 under the laws of Canada. It is headquartered at 3100, 308 - 4th Avenue SW, Calgary, Alberta, T2P 0H7.

Many of the Company’s oil and natural gas activities involve jointly owned assets. The consolidated financial statements reflect only the Company’s proportionate interest in such activities and are comprised of the Company and its subsidiaries.

These interim financial statements were approved by the Board of Directors of Pieridae on August 11, 2021.

2. Basis of presentation

These unaudited condensed interim consolidated financial statements (“interim financial statements”) and the notes thereto have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements, including International Accounting Standard 34, Interim Financial Reporting (“IAS 34”). These interim financial statements have been prepared following the same accounting policies and methods of computation as the Company’s annual consolidated financial statements as at and for the year ended December 31, 2020. Certain information and disclosures normally required to be included in the notes to the annual financial statements have been condensed or omitted. Accordingly, these interim financial statements should be read in conjunction with the annual consolidated financial statements as at and for the year ended December 31, 2020. Comparative amounts have been reclassified to match the current period presentation. There were no changes to the Company’s operating segments during the period.

As at June 30, 2021 the Company had negative equity of $23.1 million, and current liabilities exceeded current assets by $47.9 million. During the six months ended June 30, 2021, the Company generated a net loss of $29.6 million and had a commitment due in October 2021 related to its Credit Agreement, refer to note 7. Additionally, the Company has been unable to meet key conditions necessary to make a final investment decision on the Goldboro LNG Project which would have facilitated near-term financial flexibility. These factors impact the Company’s ability to secure further financing and indicate the existence of material uncertainties that may cast significant doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not reflect adjustments in the carrying value of assets and liabilities, revenue or expenses, nor the statement of financial position classification that could be necessary if the going concern assumption was not valid. Such adjustments could be material.

The Company is working to streamline its operating costs and management has engaged a third party to advise on strategic alternatives to position the Company toward a more sustainable economic condition. Management believes that the Company will be able to continue as a going concern and the interim financial statements have been prepared on a going concern basis using the historical cost convention, which contemplates the realization of assets and settlements of liabilities in the normal course of operations for the foreseeable future. If for any reason the Company is unable to continue as a going concern, this could materially impact the Company’s ability to realize assets and to discharge its liabilities in the normal course of business.

Significant accounting judgments and estimates

The preparation of these interim financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, revenue and expenses, and related disclosures with respect to contingent assets and liabilities. Pieridae bases judgments, estimates and assumptions on current facts, historical experience and various other factors that are reasonable under the circumstances. The economic environment could also impact certain judgments, estimates and discount rates necessary to prepare these interim financial statements, including significant estimates and judgments used in assessing for impairment indicators in the current economic environment. Actual results could differ materially from estimates and assumptions. Pieridae reviews estimates and underlying assumptions on an ongoing basis and make revisions as determined necessary by management. Such revisions are recognized in the period in which the estimates are revised and may impact future periods as well.

PIERIDAE ENERGY 5

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Critical accounting judgments and estimates used in preparing the interim financial statements are described in Pieridae's consolidated financial statements for the year ended December 31, 2020. Current conditions have increased the complexity in making judgments, estimates and assumptions used to prepare the interim financial statements, particularly related to the following:

(i) Impairment of petroleum and natural gas assets

For the purposes of determining whether impairment of petroleum and natural gas assets has occurred, and the extent of any impairment or its reversal, the key assumptions the Company uses in estimating future cash flows are forecasted petroleum and natural gas prices, expected production volumes and anticipated recoverable quantities of proved and probable reserves. These assumptions are subject to change as new information becomes available. Changes in economic conditions can also affect the rate used to discount future cash flow estimates. Changes in the aforementioned assumptions could affect the carrying amounts of assets.

3. New Accounting Policies and Standards

New accounting standards and amendments not yet adopted

There are currently no not-yet-effective IFRS or IFRIC interpretations that are expected to have a material impact on the Company.

4. Segmented Financial Information

The Company has two operating segments: Upstream and LNG (includes LNG and corporate activities). Upstream assets include materials inventory acquired as part of the Acquisition on October 16, 2019. As at June 30, the Company held $23.9 million (December 31, 2020 - $23.9 million) of materials inventory.

Segmented Information				Three months ended	June 30,
		Upstream		LNG		Consolidated
Unaudited, in thousands of Canadian dollars	C	2021	2020	2021	2020	2021	2020
Revenue
Petroleum and natural gas		71,397	54,261	-	-	71,397	54,261
Royalties		(3,872)	(1,382)	-	-	(3,872)	(1,382)
		67,525	52,879	-	-	67,525	52,879
Other income		1,287	634	-	-	1,287	634
Third party processing		3,833	6,926	-	-	3,833	6,926
		72,645	60,439	-	-	72,645	60,439
Realized gain on risk manangement contracts		-	8,223	-	-	-	8,223
Unrealized loss on risk management contracts		-	(83)	-	-	-	(83)
		72,645	68,579	-	-	72,645	68,579
Expenses
Operating		53,870	45,422	-	-	53,870	45,422
Transportation		4,331	3,939	-	-	4,331	3,939
General and administrative		3,715	2,366	1,961	4,020	5,676	6,386
Development (Note 14)		-	-	(4,862)	4,129	(4,862)	4,129
Finance		13,822	11,775	95	-	13,917	11,775
Depletion and depreciation		9,339	9,988	180	182	9,519	10,170
Share-based compensation		73	51	57	92	130	143
Foreign exchange loss (gain)		(32)	8	154	-	122	8
Share of net loss of associates		-	3	-	-	-	3
		85,118	73,552	(2,415)	8,423	82,703	81,975
Net income(loss)		(12,473)	(4,973)	2,415	(8,423)	(10,058)	(13,396)

PIERIDAE ENERGY 6

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Segmented Information			Six months ended	June 30,
	Upstream		LNG		Consolidated
Unaudited, in thousands of Canadian dollars	2021	2020	2021	2020	2021	2020
Revenue
Petroleum and natural gas	153,118	119,012	-	-	153,118	119,012
Royalties	(7,694)	(4,012)	-	-	(7,694)	(4,012)
	145,424	115,000	-	-	145,424	115,000
Other income	2,322	1,283	-	-	2,322	1,283
Third party processing	8,646	13,728	-	-	8,646	13,728
	156,392	130,011	-	-	156,392	130,011
Realized gain on risk manangement contracts	-	12,708	-	-	-	12,708
Unrealized loss on risk manangement contracts	-	(166)	-	-	-	(166)
	156,392	142,553	-	-	156,392	142,553
Expenses
Operating	112,090	96,404	-	-	112,090	96,404
Transportation	8,982	7,775	-	-	8,982	7,775
General and administrative	8,210	5,556	3,402	5,841	11,612	11,397
Development (Note 14)	-	-	3,742	8,878	3,742	8,878
Finance	27,088	23,321	337	-	27,425	23,321
Depletion and depreciation	21,473	19,150	359	354	21,832	19,504
Share-based compensation	160	123	124	195	284	318
Foreign exchange loss (gain)	21	(170)	9	-	30	(170)
Share of net loss of associates	-	6	-	-	-	6
	178,024	152,165	7,973	15,268	185,997	167,433
Net loss	(21,632)	(9,612)	(7,973)	(15,268)	(29,605)	(24,880)
	June 30,	December
As at	2021	31, 2020
Upstream assets	503,222	536,715
LNG assets	7,232	14,451
Corporate assets	65,236	61,485
Total consolidated assets	575,690	612,651

PIERIDAE ENERGY 7

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5. Property, Plant and Equipment

($ 000s)
Cost	June 30, 2021	December 31, 2020
Balance, January 1	594,556	516,575
Additions	21,553	13,269
Change in decommissioning obligations (Note 8)	(38,185)	65,253
Business acquisition	-	(541)
Balance, end ofperiod	577,924	594,556
Accumulated Depletion and Depreciation	June 30, 2021	December 31, 2020
Balance, January 1	79,829	21,527
Depletion and depreciation	20,518	41,426
Impairment	-	16,876
Balance, end ofperiod	100,347	79,829
Net Book Value	June 30, 2021	December 31, 2020
Balance, January 1	514,727	495,048
Balance, end ofperiod	477,577	514,727

Future development costs of Pieridae’s proved and probable reserves of $226.0 million (December 31, 2020 - $226.0 million) were included in the depletion calculation for the three and six months ended June 30, 2021.

At June 30, 2021, the Company determined that no indicators of impairment or impairment reversal exist in any of the Company’s CGUs.

At December 31, 2020, impairment indicators existed on the Company’s Northern and Central CGUs due to declines in reserves and forecasted commodity prices. An impairment test was performed and an impairment of $16.9 million was recognized on the Company’s Northern CGU as the estimated recoverable amount exceeded its carrying value. The impairment resulted from decreases in estimated future net revenues, mainly due to lower forecasted oil and natural gas prices. No impairment was recognized on the Company’s Central CGU.

6. Exploration and Evaluation Assets

($ 000s)	June 30, 2021	December 31, 2020
Balance, January 1	3,255	1,077
Additions	2,020	2,178
Balance, end ofperiod	5,275	3,255

Exploration and evaluation (“E&E”) assets consist of the Company’s undeveloped land, seismic and exploration projects, which are pending the determination of technical feasibility and commercial viability. At June 30, 2021 and December 31, 2020, no impairment indicators were identified related to the Company’s E&E assets.

7. Term Debt

($ 000s)	June 30, 2021	December 31, 2020
Balance, January 1	219,555	202,913
Accretion of financing costs	9,721	15,085
Interestpaid in kind	3,107	1,557
Balance, end ofperiod	232,383	219,555

In July 2020, the Company received a $6 million guarantee facility from Export Development Canada which was increased to $8 million in June 2021. This guarantee facility provides for 100% guarantee to the issuing banks of the Company’s existing and future letter of credit of which $6.0 million was drawn at June 30, 2021 (December 31, 2020 – $4.9 million).

In October 2019, the Company entered into a $206.0 million senior secured fully drawn non-revolving term loan facility (the "Credit Agreement"). The Credit Agreement bears interest at a fixed rate of 12.0% per annum, accrued daily and payable quarterly

PIERIDAE ENERGY 8

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in cash. Additional interest of 3.0% per annum is payable quarterly in cash or, at the option of the Company and subject to the lender’s approval, payable in kind (“PIK”) by way of accruing to the principal outstanding. The Credit Agreement is repayable in full on October 16, 2023, however, the Company may repay the principal in whole or in part any time prior to October 16, 2023 upon 90 days written notice to the agent, without penalty. The Company incurred $6.0 million of closing costs on closing of the Credit Facility, which were accounted for as transaction costs and netted against the value of the loan to be amortized over 48 months.

Under the terms of the Credit Agreement, unless the Company exercises a purchase right, but not an obligation, to acquire certain petroleum and natural gas properties from the lender for a purchase price of $45.0 million in cash on or before October 16, 2021, the Company will pay a deferred fee in the amount of $50.0 million to the agent. Pieridae is currently providing for the eventual payment of the deferred fee, and is accreting the $50.0 million value as a deferred charged over 48 months and recognizing these amounts as a finance expense.

On March 23, 2021, a waiver was provided by the agent and lender to amend the requirement to hedge at least 60% of production volumes on an 18-month rolling average to 38% for March, 49% for April to September and 60% for October 2021 and onwards. In addition, the financial covenant of $200 million minimum market capitalization threshold commencing June 30, 2021 was removed. Associated with this amendment, Pieridae issued 5,000,000 common share purchase warrants to the lender at an exercise price equal to $0.70 per common share with an expiration date of March 31, 2026, refer to Note 9.

During and subsequent to the quarter ended June 30, 2021, the Company executed certain amendments to the Credit Agreement in order to allow for temporary amendments or waivers of certain covenants, as described below. Under the terms of the amended Credit Agreement:

• (i) a minimum adjusted monthly working capital ratio of 1:1 was waived and temporarily reduced to 0.80:1 for the periods between August 2021 to October 2021 and 0.90:1 for November 2021. The amended working capital ratio covenant is calculated on an adjusted basis for 2021 to, among other things, normalize for the impact of planned gas processing facility turnarounds.

• (ii) Minimum of 60% of production on an 18-month rolling average hedge requirement was waived for the periods July 2021 through September 2021.

• (iii) the project milestone final investment decision date of June 30, 2021 was removed.

As at June 30, 2021 the Company was in compliance with, or had received waivers from the lender for, all covenants.

For the three and six months ended June 30, 2021, the Company elected to PIK the 3.0% interest resulting in $1.6 million (June 30, 2020 – nil) and $3.1 million addition to the principal outstanding at June 30, 2021. The effective interest rate on the Company’s term debt for the year ended June 30, 2021 was 21.4% (December 31, 2020 – 21.8%).

8. Decommissioning Obligations

($ 000s)	June 30, 2021	December 31, 2020
Balance, January 1	270,440	206,520
Additions	-	2,674
Change in estimates	-	(1,823)
Change in discount rate	(38,185)	64,402
Settlement of obligations	(1,677)	(2,173)
Accretion	-	840
Balance, end ofperiod	230,578	270,440
Expected to be incurred within one year	4,434	4,434
Expected to be incurred beyond oneyear	226,144	266,006

The Company’s decommissioning obligations result from net ownership interests in petroleum and natural gas assets including well sites, gathering systems and processing facilities. The Company estimates the total undiscounted amount of cash flows required to settle its decommissioning obligations is approximately $237.7 million (December 31, 2020 - $237.7 million).

The Company used an observable, market-based and inflation adjusted risk-free real rate of return to estimate the present value of the decommissioning obligation. At June 30, 2021, the Company used a risk-free discount rate of 0.11% (December 31, 2020 – -0.28%). The change in the risk-free real rate of return resulted in a reduction in cost estimate of $38.2 million in property, plant and equipment and exploration and evaluation assets.

PIERIDAE ENERGY 9

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9. Share Capital

Issued and Outstanding Common Shares

Issued and Outstanding Common Shares
	June	30, 2021	December	31, 2020
($ 000s except share amount)	Common shares	Amount	Common shares	Amount
Balance, January 1	157,641,871	274,322	157,561,174	274,799
Shares issued on Shell acquisition	-	-	-	(541)
Share-based compensation	-	-	80,697	-
Share issue costs(net of tax)	-	-	-	64
Balance, end ofperiod	157,641,871	274,322	157,641,871	274,322

Warrants

On March 31, 2021, the Company issued 5,000,000 common share purchase warrants at an exercise price equal to $0.70 per common share warrant (refer to Note 7). The Black-Scholes pricing model was used with the following assumptions to calculate the fair value of $1.3 million for the warrants on issue date at March 31, 2021:

Risk-free interest rate	0.99%
Option life (years)	5.0
Volatility	84.10%

Net loss per share – Basic and Diluted

Net loss per share – Basic and Diluted
	Three months ended		Six months ended
		June 30		June 30
($ 000s except share amount)	2021	2020	2021	2020
Net loss for theperiod attributable to equityholders of the Company	(10,025)	(13,365)	(29,430)	(24,849)
Weighted average number of common shares (000s of shares)	157,642	157,642	157,642	157,626
Dilutive effect of options	-	-	-	-
Weighted average common shares,diluted(000s of shares)	157,642	157,642	157,642	157,626
Net lossper shares – basic and diluted	(0.06)	(0.09)	(0.19)	(0.16)

10. Petroleum and Natural Gas Sales

The Company’s major revenue sources are comprised of sales from the production of natural gas, condensate, natural gas liquids and sulphur. The sale of these products is recognized when control of the product transfers to the customer and the cash collection is reasonably probable, upon delivery of the product. The sale of produced commodities occurs under contracts of varying terms of up to one year. Revenues are typically collected on the 25th day of the month following sale. Product sales are based on fixed or variable price contracts. Transaction prices for variable priced contracts are based on benchmark commodity prices and other variable factors, including quality differentials and location. The Company’s petroleum and natural gas revenues are set out below.

	Three months ended	Three months ended	Six months ended	Six months ended
		June 30		June 30
($ 000s)	2021	2020	2021	2020
Natural Gas	45,838	35,521	96,677	76,271
Condensate	16,127	11,505	32,727	29,071
NGL	6,343	5,368	17,636	11,166
Sulphur	3,089	1,867	6,078	2,504
Totalpetroleum and naturalgas sales	71,397	54,261	153,118	119,012

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11. Finance Expense

11. Finance Expense
	Three months ended		Six months ended
		June 30		June 30
($ 000s)	2021	2020	2021	2020
Interest expense	7,933	7,706	15,875	15,545
Accretion of financing costs	5,944	3,867	11,470	7,355
Interest income	(7)	(40)	(12)	(72)
Accretion of decommissioning obligations (Note 8)	-	212	-	423
Interest on lease liabilities	47	30	92	70
Total finance expense	13,917	11,775	27,425	23,321

12. Financial Instruments and Risk Management

Fair Values

The Company’s risk management contracts, if any, are classified as Level 2 in the three-level fair value measurement hierarchy. Fair values for risk management contracts are determined using external counterparty information, which is compared to observable market data. At June 30, 2021, the Company did not enter into any financial risk management contracts.

Term Debt is classified as amortized costs and determined using internal information inherent to the Credit Agreement. At June 30, 2021, the fair value of term-debt is $210.1 million (December 31, 2020 - $206.0 million) compared to a carrying value of $232.4 million (December 31, 2020 - $219.6 million).

Certain non-derivative financial instruments measured at amortized cost including cash and cash equivalents, trade receivables and trade payables have carrying amounts that approximate their fair value due to the nature of the item or the short time to maturity. These instruments would be classified as Level II of the fair value hierarchy.

The Company has exposure to counterparty credit risk, liquidity risk and market risk. Pieridae recognizes that effective management of these risks is a critical success factor in managing organization and shareholder value. Risk management strategies, policies and limits ensure risks and exposures are aligned to the Company’s business strategy and risk tolerance. The Board of Directors is responsible for providing risk management oversight and oversees how management assesses and monitors risk. The following analysis provides an assessment of those risks as at June 30, 2021.

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s receivable from partners in jointly owned assets, natural gas marketers and counterparties to derivative financial contracts. As at June 30, 2021, the Company did not have any financial risk management contracts.

The carrying amount of accounts receivable represents the maximum credit exposure. As at June 30, 2021 and December 31, 2020, the Company’s accounts receivables consisted of:

($ 000s)	June 30, 2021	December 31, 2020
Petroleum and natural gas marketers	27,328	26,968
Partners in jointly owned assets	16,330	16,232
Other(primarily government entities)	2,152	1,700
Total	45,810	44,900

As at June 30, 2021 and December 31, 2020, the Company’s accounts receivables were aged as follows:

($ 000s)	June 30, 2021	December 31, 2020
Current (less than 90 days)	37,916	36,454
Past due(more than 90 days)	7,894	8,446
Total	45,810	44,900

The Company has assessed the past due receivables and determined that no provision is required as at June 30, 2021.

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Liquidity and funding risk

Liquidity and funding risk is the risk that the Company may be unable to obtain sufficient cash or its equivalent in a timely and cost-effective manner in order to meet its commitments as they become due. The Company’s objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements as they become due. The Company manages its liquidity risk by forecasting cash flows over a 12-month rolling time period to identify and allocate capital requirements. As at June 30, 2021, the Company’s current liabilities exceed current assets by $47.9 million. The Company is currently looking at strategic alternatives to ensure there is sufficient cash to cover its commitments, including the deferred fee due in October 2021. Refer to notes 2 and 7. These alternatives could include any or a combination of modifications to Pieridae’s capital structure, cost reduction strategies, strategic alliances, and/or rationalization of assets.

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market conditions. Market risk comprises three types of risk: commodity price risk, interest rate risk and currency risk.

a. Commodity price risk

The Company’s petroleum and natural gas production is directly subject to fluctuations in commodity prices. Fluctuations in commodity prices, both absolute and associated with changes in the Canadian to U.S. dollar exchange rate, and specifically the prices for natural gas, condensate and NGL’s, could have significant impact on the Company’s cash flows and its ability to sustain its operations. Such an exposure may impact the Company’s operating cash flows, and its ability to attract the necessary investment to maintain operations.

The Company utilizes fixed price delivery contracts and derivative financial instruments as part of its overall risk management strategy to assist in managing the exposure to commodity price risk and the cost of power. Physical contracts are considered normal sales contracts and are not recorded at fair value but recognized in petroleum and natural gas revenue as contracts are settled. These financial instruments are not used for trading or speculative purposes.

The Company had the following fixed price physical commodity sales contracts in place at June 30, 2021.

Type of contract	Quantity	Time Period	Contract Price
Fixed Price - Natural Gas	205,000 GJ/d	Jul 2021	CAD $2.55/GJ
Fixed Price - Natural Gas	200,000 GJ/d	Aug 2021	CAD $2.47/GJ
Fixed Price - Natural Gas	147,500 GJ/d	Sep 2021	CAD $2.43/GJ
Fixed Price - Natural Gas	172,500 GJ/d	Oct 2021	CAD $2.59/GJ
Fixed Price - Natural Gas	72,500 GJ/d	Nov – Dec 2021	CAD $3.12/GJ
Fixed Price - Natural Gas	60,000 GJ/d	Jan – Mar 2022	CAD $3.01/GJ
Fixed Price - Natural Gas	76,000 GJ/d	Apr – Oct 2022	CAD $2.24/GJ
Fixed Price - Natural Gas	7,500 GJ/d	Nov 2022 – Mar 2023	CAD $2.66/GJ
Fixed Price - Condensate	1,500 Bbl/d	July– Dec 2021	CAD$54.95/Bbl

The Company did not have any commodity derivative contracts in place, or associated realized gains or losses for the three and six months ended June 30, 2021 (June 30, 2020 – realized gains of $12.7 million).

b. Interest rate risk

Interest rate risk is the risk that future cashflows will fluctuate as a result of changes in market interest rate. While the Company’s interest rate exposure under its Credit Agreement is fixed, any new or additional debt could be subject to higher interest rates. Recently central banks have been cutting rates, resulting in historically low risk-free interest rates, however any future rate increases could have an impact on the economics of future debt financings associated with Pieridae’s capital management plan.

c. Currency risk

Currency risk is the risk that cashflows will fluctuate as a result of changes in foreign currencies and the Canadian dollar. Certain of the Company’s cashflows, primarily in relation to development expenses incurred on the Goldboro LNG project, are subject to currency risk. Associated accounts payable, accrued liabilities and commitments are denominated in US dollars, UK pound sterling and Euro. To date, the Company has not entered into any foreign currency transactions or financial instruments to manage currency risks, thus the sensitivities on 5% movement on Canadian/ US foreign exchange on such contracts are nil.

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13. Presentation in Consolidated Statements of Cash Flows

The following table provides a detailed breakdown of certain line items contained within cashflow from operating and investing activities:

	Three months ended	Three months ended	Six months ended	Six months ended
		June 30		June 30
($ 000s)	2021	2020	2021	2020
Accounts receivable	1,529	8,777	(910)	(319)
Prepaid expenses and deposits	637	(498)	440	(1,732)
Inventories	118	497	16	526
Accountspayable and accrued liabilities	14,392	(12,310)	28,475	2,043
Total change in non-cash working capital	16,676	(3,534)	28,021	518
Relating to:
Operating activities	13,888	(3,534)	27,416	518
Investingactivities	2,788	-	605	-

14. Other Amounts Payable

During the second quarter of 2021, a liability of $7.5 million due to a third-party, contingent upon the execution of an engineering, procurement, construction and commissioning (“EPCC”) contract within a specifically designed scope was determined to be extremely unlikely, thus the full amount was reversed to development expense.

The remaining balance is comprised of other amounts payable to third parties that extend beyond one year. In April 2020, the Company entered into an arbitration agreement with a third party to resolve an on-going commercial dispute. The matter was settled in November 2020 and resulted in the recognition of a total liability of $14.4 million. At June 30, 2021, the remaining amounts of $5.2 million was classified as long term and $4.1 million was classified as current in accounts payable and accrued liabilities.

15. Commitments

($ 000s)	2021	2022	2023	2024	Thereafter	Total
Interest on term debt	65,930	31,600	25,020	-	-	122,550
Firm transportation	4,803	9,088	3,017	1,010	1,169	19,087
Total	70,733	40,688	28,037	1,010	1,169	141,637

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