EV Technology Group Ltd — Proxy Solicitation & Information Statement 2020

Apr 27, 2020

MANAGEMENT INFORMATION CIRCULAR APRIL 21, 2020

FOR THE ANNUAL GENERAL AND SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 21, 2020

INFORMATION REGARDING CONDUCT OF MEETING

Solicitation of Proxies

This management information circular ("Circular") is furnished in connection with the solicitation by the management of Blue Sky Energy Inc. (the "Corporation" or "Blue Sky") of proxies to be used at the annual general and special meeting (the "Meeting") of holders of common shares ("Shareholders") of the Corporation to be held on May 21, 2020 and at any postponement(s) or adjournment(s) thereof for the purposes set forth in the accompanying notice of meeting ("Notice of Meeting"). References in this Circular to the "Meeting" include references to any postponement(s) or adjournment(s) thereof. It is expected that the solicitation will be primarily by mail but proxies may also be solicited through other means by employees, consultants and agents of the Corporation. The cost of solicitation by management will be borne by the Corporation.

The board of directors of the Corporation (the "Board") has by resolution fixed the close of business on April 13, 2020 as the record date for the meeting (the "Record Date") being the date for the determination of the registered holders of common shares (the "Common Shares") entitled to notice of and to vote at the Meeting and any adjournment(s) thereof (the "Shareholders"). The Board has by resolution fixed 10:00 a.m. (Toronto time) on May 19, 2020, or 48 hours (excluding Saturdays, Sundays and holidays) before any adjournment(s) of the Meeting, as the time by which proxies to be used or acted upon at the Meeting or any adjournment(s) thereof shall be deposited with the Corporation's transfer agent. The proxy cut-off time may be waived or extended by the Board or a person authorized by the Board in its sole discretion without notice.

Due to the current and rapidly evolving COVID-19 pandemic, the Corporation asks that shareholders consider the advice and instructions of the Public Health Agency of Canada (www.canada.ca/en/public-health.html) when deciding whether to attend the Meeting in person. As of the date of this Circular, the government of the Province of Ontario has enacted a declaration of emergency, as a result of which gatherings of more than five people are prohibited. Access to the Meeting will, subject to the Corporation's by-laws, be limited to essential personnel and registered shareholders and duly appointed proxyholders entitled to attend and vote at the Meeting. Depending upon the status of the pandemic at the time, the Corporation encourages registered shareholders and duly appointed proxyholders to not attend the Meeting in person. As always, the Corporation encourages shareholders to vote their common shares prior to the Meeting following the instructions set out in the form of proxy or voting instruction form received by such shareholders. The Corporation may take additional precautionary measures in relation to the Meeting in response to further developments with the COVID-19 pandemic. In the event it is not possible or advisable to hold the Meeting in person, the Corporation will announce alternative arrangements for the Meeting as promptly as practicable, which may include holding the Meeting entirely by electronic means, telephone or other communication facilities.

These securityholder materials are being sent to both registered and non-registered owners of the securities. If you are a non-registered owner, and the issuer or its agent has sent these materials directly to you, your name and address and information about your holdings of securities, have been obtained in accordance with applicable securities regulatory requirements from the intermediary holding on your behalf. By choosing to send these materials to you directly, the issuer (and not the intermediary holding on your behalf) has assumed responsibility for (i) delivering these materials to you, and (ii) executing your proper voting instructions. Please return your voting instructions as specified in the request for voting instructions.

The Corporation shall make a list of all persons who are registered holders of Common Shares on the Record Date and the number of Common Shares registered in the name of each person on that date. Each Shareholder is entitled to one vote on each matter to be acted on at the Meeting for each Common Share registered in his name as it appears on the list.

Unless otherwise stated, the information contained in this management information circular is as of the Record Date. All dollar amount references in this Circular, unless otherwise indicated, are expressed in Canadian dollars.

Appointment and Revocation of Proxies

The persons named in the enclosed form of proxy are officers and/or directors of the Corporation. A shareholder desiring to appoint some other person or Corporation to represent him at the meeting may do so by inserting such person's name in the blank space provided in that form of proxy or by completing another proper form of proxy and, in either case, depositing the completed proxy at the office of the transfer agent of the Corporation indicated on the enclosed envelope not later than the times set out above.

In addition to revocation in any other manner permitted by law, a Shareholder may revoke a proxy given pursuant to this solicitation by depositing an instrument in writing (including another proxy bearing a later date) executed by the Shareholder or by an attorney authorized in writing at 65 Queen Street West, Suite 805, Toronto, Ontario M5H 2M5 at any time up to and including the last business day preceding the day of the Meeting.

Voting of Proxies

Common Shares represented by properly executed proxies in favour of persons designated in the printed portion of the enclosed form of proxy will be voted for each of the matters to be voted on by Shareholders as described in this Circular or withheld from voting or voted against if so indicated on the form of proxy and in accordance with the instructions of the Shareholder on any ballot that may be called for. In the absence of such election, the proxy will confer discretionary authority to be voted in favour of each matter set out in the form of proxy for which no choice has been specified. The enclosed form of proxy confers discretionary authority upon the persons named therein with respect to amendments or variations to matters identified in the Notice of Meeting or other matters which may properly come before the Meeting. At the time of printing this Circular, management of the Corporation knows of no such amendments, variations or other matters to come before the Meeting. However, if any other matters that are not now known to management should properly come before the Meeting, the proxy will be voted on such matters in accordance with the best judgement of the named proxies.

Non-Registered Holders

Only registered Shareholders or the persons they appoint as their proxies are permitted to vote at the Meeting. However, in many cases, shares beneficially owned by a holder who is not a registered Shareholder (a "Non-Registered Holder") are registered either: (i) in the name of an intermediary with whom the Non-Registered Holder deals in respect of the Common Shares such as, among others, banks, trust companies, securities dealers or brokers and trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar plans (an "Intermediary"); or (ii) in the name of a clearing agency (such as The Canadian Depository for Securities Limited of which the Intermediary is a participant). In accordance with the requirements of National Instrument 54-101 of the Canadian Securities Administrators, the Corporation will distribute copies of the Notice of Meeting, form of proxy and this Circular to the clearing agencies and Intermediaries for onward distribution to Non-Registered Holders.

Intermediaries are then required to forward the materials to the appropriate Non-Registered Holders. Non-Registered Holders will be given, in substitution for the proxy otherwise contained in proxy-related materials, a request for voting instructions (the "Voting Instructions Form") which, when properly completed and signed by the Non-Registered Holder and returned to the Intermediary, will constitute voting instructions which the Intermediary must follow.

The purpose of this procedure is to permit Non-Registered Holders to direct the voting of the Common Shares they beneficially own. Should a Non-Registered Holder who receives the voting instructions form wish to vote at the Meeting in person (or have another person attend and vote on behalf of the Non-Registered Holder), the Non-Registered Holder should so indicate in the place provided for that purpose in the Voting Instructions Form and a form of legal proxy will be sent to the Non-Registered Holder. In any event, Non-Registered Holders should carefully follow the instructions of their Intermediary set out in the Voting Instructions Form.

Voting Securities and Principal Holder Thereof

The authorized capital of the Corporation consists of an unlimited number of Common Shares. As of the Record Date, the Corporation had 30,884,961 Common Shares issued and outstanding.

To the knowledge of the directors and officers of the Issuer, as at the Record Date, no person beneficially owns, directly or indirectly, or exercises control or direction over securities carrying more than 10% of the voting rights attached to the Common Shares, other than Avar Shahzad Ali (who holds 5,407,485 Common Shares, being 18.02% of the issued and outstanding Common Shares), Forbes & Manhattan, Inc. (which holds 5,300,000, being 17.16% of the issued and outstanding Common Shares), Aberdeen International Inc. (which holds 4,156,680 Common Shares being 13.45% of the issued and outstanding Common Shares and Ahmed Said (who holds 3,975,000 Common Shares, being 12.8% of the issued and outstanding Common Shares ).

Interest of Persons in Matters to be Acted Upon

No director or executive officer of the Corporation, nor any person who had held such a position since the beginning of the last completed financial year end of the Corporation, no nominee director nor any respective associates or affiliates of the foregoing persons has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise in any matter to be acted upon at the Meeting other than the election of directors and as possible recipients of stock options under the Corporation's stock option plan (the "Stock Option Plan").

DIRECTORS AND EXECUTIVE COMPENSATION

Compensation of Officers

The Corporation does not have a formal pre-determined compensation plan. Rather, the Corporation informally assesses the performance of the named executive officers ("NEOs") and considers a variety of factors generally, when determining compensation levels. For the financial year ended July 31, 2019, the objective of the Corporation's compensation strategy was to ensure that compensation for its NEOs was sufficiently attractive to recruit, retain and motivate high performing individuals to assist the Corporation in achieving its goals.

Compensation for the NEOs is composed primarily of three components: base fees, performance bonuses and stock based compensation.

Base Fees:

Base Fees form an essential component of the Corporation's compensation strategy as they are key to the Corporation remaining competitive, are fixed and therefore not subject to uncertainty, and can be used as the base to determine other elements of compensation and benefits.

In determining the base fees of the NEOs, the Board considers the following:

• (a) the recommendations of the President and Chief Executive Officer of the Corporation (other than with respect to the compensation of the President and Chief Executive Officer);
• (b) the particular responsibilities related to the position;
• (c) the experience, expertise and level of the executive officer;
• (d) the executive officer's length of service to the Corporation; and
• (e) the executive officer's overall performance based on informal feedback.

There is no mandatory framework that determines which of the above-referenced factors may be more or less important and the emphasis placed on any of these factors is at the discretion of the Board and may vary among the executive officers. The Corporation does not engage in benchmarking and did not focus on any particular performance metric.

Bonus Payments:

The purpose of the Corporation's bonus program is to provide the NEOs with the opportunity to receive a cash incentive that is broadly related to the progress of the Corporation and individual performance. The Corporation does not utilize a set of formal objective measures to determine bonus entitlements, rather, bonus payments to NEOs are determined in a discretionary manner on a case by case basis. In addition, no specific weights are assigned to any criteria individually, rather, the performance of the Corporation is broadly considered as a whole when determining the level of bonuses (if any) to be paid. In addition, the Corporation does not focus on any particular performance metric. The Board did not award any bonuses during the year ended July 31, 2019.

Long-Term Incentives:

The Board believes that granting stock options to officers, directors, consultants and employees pursuant to the Corporation's Stock Option Plan encourages retention and more closely aligns the interests of such key personnel with the interests of shareholders while at the same time not drawing on the cash resources of the Corporation.

The Corporation does not utilize a set of formal objective measures to determine long-term incentive entitlements, rather, long-term incentive grants, such as stock options to NEOs are determined in a discretionary manner on a case by case basis, but having consideration to the number of options previously granted. There are no other specific quantitative or qualitative measures associated with option grants and no specific weights are assigned to any criteria individually, rather, the performance of the Corporation is broadly considered as a whole when determining the amount of stock based compensation (if any) to be granted and the Corporation does not focus on any particular performance metric.

The Board believes that the compensation paid to each NEO during the most recently completed fiscal year was commensurate with the NEO's position, experience and performance.

President & Chief Executive Officer Compensation

The Board:

• (a) reviews the compensation of the President & Chief Executive Officer and makes recommendations; and
• (b) reviews, and if appropriate recommends for approval, any agreements between the Corporation and the President & Chief Executive Officer, including terms in the event of a change of control or other special circumstances, as appropriate.

The components of the President and Chief Executive Officer's compensation are the same as those that apply to the other senior executive officers of the Corporation, namely base salary, bonus and long-term incentives in the form of stock options.

The Board reviews and ensures that the compensation of the President and Chief Executive Officer complies with the principles underlying the Corporation's overall compensation philosophy.

Compensation of Directors

The compensation paid to directors of the Corporation is determined on a case-by-case basis with reference to the role that each director provides to the Corporation. Directors may receive cash bonuses and, in addition, are entitled to participate in the Stock Option Plan, which is designed to give each option holder an interest in preserving and maximizing shareholder value. Such grants are determined by an informal assessment of an individual's current and expected future performance, level of responsibilities and the importance of his/her position and contribution to the Corporation.

Summary Compensation Table

The following table summarizes the compensation paid during the two financial years ended July 31, 2019 and July 31, 2018 in respect of the individuals who were carrying out the role of the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO" and, together with the CEO, the "NEOs") of the Issuer and each of the directors of the Corporation during such financial years. No other offier, employee or consultant of the Corporation received total compensation of $150,000 or greater in the years ended July 31, 2019 or July 31, 2018.

	Table of Compensation Excluding Compensation Securities
Name andprincipalposition	Year	Salary,ConsultingFee, RetainerorCommission($)	Bonus ($)	Committee orMeeting Fees	Value ofPerquisites($)	Value of all othercompensation($)(1)	Totalcompensation($)
Ahmed SaidPresident, CEOand Director(2)	20192018	150,000150,000	NILNIL	NILNIL	NILNIL	NIL60,758	150,000210,758
Paul BozokiCFO	20192018	NILNIL	NILNIL	NILNIL	NILNIL	NIL30,379	NIL30,379
Scott MooreDirector	20192018	NILNIL	NILNIL	NILNIL	NILNIL	NIL30,379	NIL30,379
PierrePettigrewDirector	20192018	NILNIL	NILNIL	NILNIL	NILNIL	NIL30,379	NIL30,379

SUMMARY COMPENSATION TABLE

Ronald Hite	2019	NIL	NIL	NIL	NIL	NIL	NIL
Director	2018	NIL	NIL	NIL	NIL	30,379	30,379

Notes:

• (1) The value of options vested in the fiscal years ended July 31, 2018 and July 31, 2019 were calculated using the Black-Scholes Model.
• (2) Compensation has been paid or accrued as consulting fees under an independent contractor agreement with Mr. Ahmed Said as described under the heading "Executive Compensation – Termination of Employment, Change in Responsibilities and Employment Contracts" of this Circular. Mr. Said does not receive any additional compensation in his capacitya s director of the Corporation.

Stock Options and Other Compensation Securities

The following table sets out all compensation securities granted or issued to each NEO and director by the Corporation for services provided or to be provided, directly or indirectly, to the Corporation in the most recently completed financial year.

	Compensation Securities
Name andposition	Type ofcompensationsecurity	Number ofcompensationsecurities,number ofunderlyingsecurities, andpercentage ofclass	Date ofissue orgrant	Issue,conversionor exerciseprice ($)	Closingprice ofsecurity orunderlyingsecurity ondate ofgrant ($)	Closingprice ofsecurity orunderlyingsecurity atyear end($)	Expiry Date
Ahmed SaidPresident,CEO andDirector	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Paul BozokiCFO	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Scott MooreDirector	N/A	N/A	N/A	N/A	N/A	N/A	N/A
PierrePettigrewDirector	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Ronald HiteDirector	N/A	N/A	N/A	N/A	N/A	N/A	N/A

Exercise of Stock Options

No NEO or director of the Corporation exercised stock options or compensation securities in the most recently completed financial year.

Stock Option Plans and Other Incentive Plans

Options are granted pursuant to the Stock Option Plan and in accordance with the rules of the TSX Venture Exchange. The Stock Option Plan is administered by the Board. See below under the heading "Stock Option Plan."

Securities Authorized for Issuance Under Equity Compensation Plans

The table below sets out the outstanding options under the Stock Option Plan, being the Corporation's only compensation plan under which Common Shares are authorized for issuance, as of July 31, 2019.

Number of securities to	Weighted-average	Number of securities
be issued upon exercise	exercise price of	remaining available
of outstanding options,	outstanding options,	under equity
warrants and rights	warrants and rights	compensation plans

			reflected in column (a))as of July 31, 2019
Plan Category	(a)	(b)	(c)
Equity compensationplans approved bysecurity holders	1,105,000	Nil	1,983,496
Equity compensationplans not approved bysecurity holders	Nil	Nil	Nil
TOTAL	1,105,000	Nil	1,983,496

Defined Benefit or Actuarial Plan

The Corporation does not currently have a defined benefit or actuarial plan under which benefits are determined primarily by final compensation (or average final compensation) and years of services.

Employment, Consulting and Management Agreements

The following describes the respective consulting agreements entered into by the Corporation and the NEO.

Name	Monthly Fees	Severance on Termination	Severance on Change ofControl(1)
Ahmed Said,President, ChiefExecutive Officer andDirector	$12,500	$150,000	$450,000

Notes:

(1) Severance upon a change of control becomes payable In the event of a Change of Control of the Corporation and within one year following the date of the Change of Control the Corporation or the officer elects to terminate the agreement.

As used herein, "Change in Control" shall be defined as the occurrence of any one or more of the following events:

(1) the acquisition, directly or indirectly, by any person (person being defined as an individual, a corporation, a partnership, an unincorporated association or organization, a trust, a government or department or agency thereof and the heirs, executors, administrators or other legal representatives of an individual and an associate or affiliate of any thereof as such terms are defined in the Canada Business Corporations Act) or group of persons acting jointly or in concert, as such terms are defined in the Securities Act, Ontario of: (A) shares or rights or options to acquire shares of the Corporation or securities which are convertible into shares of the Corporation or any combination thereof such that after the completion of such acquisition such person would be entitled to exercise 50% or more of the votes entitled to be cast at a meeting of the shareholders of the Corporation; (B) shares or rights or options to acquire shares, or their equivalent, of any material subsidiary of the Corporation or securities which are convertible into shares of the material subsidiary or any combination thereof such that after the completion of such acquisition such person would be entitled to exercise 50% or more of the votes entitled to be cast a meeting of the shareholders of the material subsidiary; or (C) more than 50% of the material assets of the Corporation, including the acquisition of more than 50% of the material assets of any material subsidiary of the Corporation; or

(2) as a result of or in connection with: (A) a contested election of directors; or (B) a consolidation, merger, amalgamation, arrangement or other reorganization or acquisitions involving the Corporation or any of its Affiliates and another corporation or other entity, the nominees named in the most recent management information circular of the Corporation for election to the Corporation's board of directors do not constitute a majority of the Corporation's board of directors.

Ahmed Said

The Corporation entered into a contract with Ahmed Said effective April 1, 2012, as amended on September 1, 2012, pursuant to which Mr. Said agreed to provide management consulting services as the President and Chief Executive Officer of the Corporation. Mr. Said is entitled to compensation for the provision of such services at base fees of $12,500 per month, subject to quarterly review by the Board, plus any such increments thereto, bonuses and grants of options under the Stock Option Plan as the Board may from time to time determine. This agreement may be terminated at any time for just cause without notice or payment in lieu of notice and without payment of any termination fees. In the event of termination without cause, Mr. Said is entitled to the equivalent of twelve months in base fees in the form of a lump sum payment within 30 days of the termination date. In the event of a Change of Control (as defined above) of the Corporation, the Corporation and Mr. Said each have a twelve month period following such "Change of Control" to elect to terminate the agreement. In the event of such election, the Corporation shall, within 30 days of such election, make a lump sum termination payment to Mr. Said that is equivalent to 36 months base fees plus an amount that is equivalent to all cash bonuses paid to Mr. Said in the 36 months prior to the Change of Control.

Other than as disclosed above or herein, the Corporation has no compensatory plan or arrangement in respect of compensation received or that may be received by the NEOs in the Corporation's most recently completed or current fiscal year to compensate such executive officers in the event of the termination of employment (resignation, retirement, Change of Control) or in the event of a change in responsibilities following a Change of Control.

Other Arrangements

Other than as disclosed below or elsewhere in this Circular, none of the officers or directors of the Corporation were compensated by the Corporation during the financial year ended July 31, 2019 pursuant to any other arrangement or in lieu of any standard compensation arrangement.

Neil Said

The Corporation entered into a contract with Neil Said effective June 13, 2011 pursuant to which Mr. Said agreed to provide management consulting services as the Corporate Secretary of the Corporation. Mr. Neil Said is entitled to compensation for the provision of such services at base fees of $2,777.77 per month subject to quarterly review by the Board, plus any such increments thereto, bonuses and grants of options under the Stock Option Plan as the Board may from time to time determine. This agreement continues on a month to month basis and may be terminated at any time for just cause without notice or payment in lieu of notice and without payment of any termination fees. In the event of termination without cause, Mr. Neil Said is entitled to be paid the equivalent of two (2) months of base fees in the form of a lump sum payment within 30 days of the termination date. In the event of a Change of Control of the Corporation (as defined above), the Corporation and Mr. Neil Said each have a twelve month period following such Change of Control to elect to terminate the agreement. In the event of such election, the Corporation shall, within 30 days of such election, make a lump sum termination payment to Mr. Neil Said that is equivalent to 18 month base fees plus an amount that is equivalent to all cash bonuses paid to Mr. Neil Said in the 18 months prior to the Change in Control.

Indebtedness of Directors and Executive Officers

As at the Record Date and during the financial year ended July 31, 2019, no director or executive officer of the Corporation (and each of their associates and/or affiliates) was indebted, including under any securities purchase or other program, to (i) the Corporation or its subsidiaries, or (ii) any other entity which is, or was at any time during the financial year ended July 31, 2019, the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by the Corporation or its subsidiaries.

Directors' and Officers' Insurance and Indemnification

The Corporation maintains insurance for the benefit of its directors and officers against liability in their respective capacities as directors and officers. As of the Record Date, the Corporation has purchased in respect of directors and officers an aggregate of $2 million in coverage and the premiums for such insurance were $9,000.

Subject to the limitations contained in the Business Corporation Act (Ontario), the Corporation shall indemnify a director or officer, a former director or officer, or another individual who acts or acted at the Corporation's request as a director or officer or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, investigative or other proceeding in which the individual involved because of that association with the Corporation or other entity, if (a) the individual acted honestly and in good faith with a view to the best interests of the Corporation or, as the case may be, to the best interests of the other entity for which the individual acted as a director or officer or in a similar capacity at the Corporation's request; (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that the individual's conduct was lawful; and (c) a court or other competent authority has not judged that the individual has committed any fault or omitted to do anything that the individual ought to have done.

Interest of Informed Persons in Material Transactions

No informed person (as such term is defined under applicable securities laws) of the Corporation or nominee (and each of their associates or affiliates) has had any direct or indirect material interest in any transaction involving the Corporation since August 1, 2018 or in any proposed transaction which has materially affected or would materially affect the Corporation or its subsidiaries other than as may be disclosed herein.

STOCK OPTION PLAN

Stock Option Plan

The Corporation is engaged in the development and exploration of oil and gas projects in foreign jurisdictions. The ability of the Corporation to develop and explore oil and gas projects is dependent upon its ability to recruit and retain skilled management and operators. The Corporation believes that weighting compensation to options better aligns the interests of management with the interests of shareholders and is consistent with the Corporation's growth strategy.

Accordingly, the Corporation has adopted the Stock Option Plan. The Stock Option Plan was approved by the shareholders of the Corporation at its last annual meeting. A copy of the Stock Option Plan is attached hereto as Schedule "B". The following is a summary of the terms of the proposed Stock Option Plan, which is qualified in its entirety by the provisions of the Stock Option Plan.

Under Policy 4.4 of the TSX Venture Exchange, "rolling" stock option plans must receive approval of the shareholders on a yearly basis. Accordingly, Shareholders will be asked to pass an ordinary resolution approving the Corporation's stock option plan (the "Plan") details of which are set forth below.

Pursuant to the Stock Option Plan, the Corporation may grant up to that number of stock options that equals 10% of the number of issued and outstanding common shares of the Corporation at the time of the stock option grant, from time to time. This percentage is consistent with the historically approved stock option plans of the Corporation and the Corporation believes that it is competitive with industry peers. As of the Record Date, there were 1,105,000 stock options outstanding under the Corporation's existing stock option plan. The Stock Option Plan provides that the Corporation cannot grant stock options to any one person representing more than 5% of the outstanding common shares of the Corporation in any 12 month period; the number of shares reserved for issuance on exercise of options to any consultant shall not exceed 2% of the outstanding shares in any 12 month period; and the aggregate number of shares reserved for issuance pursuant to options to employees and those individuals conducting investor relations activities shall not exceed 2% of the issued and outstanding shares in any 12-month period.

Under the Stock Option Plan, stock options may be granted to directors, officers, employees, and certain consultants of the Corporation and designated affiliates. The Stock Option Plan is designed to advance the interests of the Corporation by encouraging directors, officers, employees, and eligible consultants to have equity participation in the Corporation through the acquisition of Common Shares. In determining the terms of each grant of stock options, consideration is given to the participant's present and potential contribution to the success of the Corporation.

The terms and conditions of each option granted under the Stock Option Plan will be determined by the Board. Options will be priced in the context of the market and in compliance with applicable securities laws and TSX Venture Exchange guidelines. Consequently, the exercise price for any stock option shall not be lower than the market price of the underlying common shares at the time of grant. Vesting terms will be determined at the discretion of the Board. The Board shall also determine the term of stock options granted under the Stock Option Plan, provided that no stock option shall be outstanding for a period greater than five years.

The Stock Option Plan provides for amendment procedures that specify the kind of amendments to the Stock Option Plan that will require shareholder approval. The Board believes that except for certain material changes to the Stock Option Plan it is important that the Board has the flexibility to make changes to the Stock Option Plan without shareholder approval. Such amendments could include making appropriate adjustments to outstanding options in the event of certain corporate transactions, the addition of provisions requiring forfeiture of options in certain circumstances, specifying practices with respect to applicable tax withholdings and changes to enhance clarity or correct ambiguous provisions.

The Stock Option Plan does not provide for the transformation of stock options granted under the Stock Option Plan into stock appreciation rights involving the issuance of securities from the treasury of the Corporation.

Directors, officers, employees and certain consultants shall be eligible to receive stock options under the Stock Option Plan. Upon the termination of an optionholder's engagement with the Corporation, the cancellation or early vesting of any stock option shall be in the discretion of the Board. In general, the Corporation expects that stock options will be cancelled 90 days following an optionholder's termination from the Corporation. Stock options granted under the Stock Option Plan shall not be assignable.

The Corporation will not provide financial assistance to any optionholder to facilitate the exercise of options under the Plan.

CORPORATE GOVERNANCE POLICIES

The Corporation and the Board recognize the importance of corporate governance to the effective management of the Corporation and to the protection of its stakeholders, particularly shareholders. The Corporation's approach to significant issues of corporate governance is designed with a view to ensuring that the business and affairs of the Corporation are effectively managed so as to enhance Shareholder value. The Board fulfills its mandate directly and through its audit committee and at regularly scheduled meetings or as required. The directors are kept informed of the Corporation's operations at regular meetings and through reports and discussions with management on matters within their particular areas of expertise.

The Corporation believes that its corporate governance practices are in compliance with applicable Canadian requirements. The Corporation has considered the applicable requirements and believes that its approach is appropriate and works effectively for the Corporation and its shareholders.

Board of Directors

Pursuant to National Instrument 58-101 – Corporate Governance, a director is independent if the director has no direct or indirect relationship with the issuer which could, in the view of the issuer's board of directors, be reasonably expected to interfere with the exercise of a member's independent judgment. Certain directors are deemed to have a material relationship with the issuer by virtue of their position or relationship with the Corporation. The Board is currently comprised of three members, two of whom the Board has determined are independent. In assessing whether a director is independent for these purposes, the circumstances of each director have been examined in relation to a number of factors.

Messrs. Moore, Hite and Pettigrew are each considered to be independent. Mr. Said is not considered independent as he is the President and Chief Executive Officer of the Corporation. If elected at the meeting, Mr. Bustos will be considered to be independent.

Other Public Corporation Directorships

Name	Directorships with Other Reporting Issuers
Scott Moore	Questcap Inc.
	Euro Sun Mining Inc.
	Fura Gems Inc.
Ahmed Said	N/A
Ronald Hite	N/A
Pierre Pettigrew(1)	African Gold Group, Inc.
	Belgravia Capital International Inc.
	Black Iron Inc.
	Sulliden Mining Capital Inc.
	Troilus Gold Corp.

To the best of the Corporation's knowledge and based on publicly available information, the diectors of the Corporation are currently also directors of the reporting issuers set out below:

Notes:

(1) Mr. Pettigrew will not be standing for re-election at the Meeting

Board Mandate

The duties and responsibilities of the Board are to supervise the management of the business and affairs of the Corporation, and to act with a view towards the best interests of the Corporation. In discharging its mandate, the Board is responsible for the oversight and review of:

• the strategic planning process of the Corporation;
• identifying the principal risks of the Corporation's business and ensuring the implementation of appropriate systems to manage these risks;
• succession planning, including appointing, training and monitoring senior management;
• a communications policy for the Corporation to facilitate communications with investors and other interested parties; and
• the integrity of the Corporation's internal control and management information systems.

The Board discharges certain its responsibilities directly and through its Audit Committee.

Ethical Business Conduct

Code of Business Conduct and Ethics

The Board is apprised of the activities of the Corporation and ensures that it conducts such activities in an ethical manner. The Board of Directors encourages and promotes an overall culture of ethical business conduct by promoting compliance with applicable laws, rules and regulations; providing guidance to consultants, officers and directors on an as-needed basis to help them recognize and deal with ethical issues; promoting a culture of open communication, honesty and accountability; and ensuring awareness of disciplinary actions for violations of ethical business conduct.

Orientation and Continuing Education

The Board is responsible for ensuring that new directors are provided with an orientation and education program, which includes written information about the duties and obligations of directors, the business and operations of the Corporation, documents from recent Board meetings, and opportunities for meetings and discussion with senior management and other directors. Directors are expected to attend all meetings of the Board and are also expected to prepare thoroughly in advance of each meeting in order to actively participate in the deliberations and decisions.

The Board recognizes the importance of ongoing director education and the need for each director to take personal responsibility for this process. The Board notes that it has benefited from the experience and knowledge of individual members of the Board in respect of evolving governance regime and principles. The Board ensures that all directors are apprised of changes in the Corporation's operations and business.

Nomination of Directors

The Board is largely responsible for identifying new candidates for nomination to the Board. The process by which candidates are identified is through recommendations presented to the Board, which establishes and discusses qualifications based on the needs of the Corporation, corporate law and regulatory requirements as well as education and experience related to the business of the Corporation.

Compensation

The Board is responsible for determining the compensation of the directors and CEO of the Corporation. The process by which compensation is determined includes an informal comparative analysis of the market for such services and recommendations presented to the Board. The Board reviews and discusses proposals received by the CEO of the Corporation regarding the compensation of management and the directors.

Board Assessments

The Board and its individual directors are assessed on an informal basis continually as to their effectiveness and contribution. All directors are free to make suggestions for improvement of the practices of the Board at any time and are encouraged to do so.

AUDIT COMMITTEE

The purposes of the Audit Committee are to assist the Board's oversight of: the integrity of the Corporation's financial statements; the Corporation's compliance with legal and regulatory requirements; the qualifications and independence of the Corporation's independent auditors; and the performance of the independent auditors and the Corporation's internal audit function.

National Instrument 52-110 – Audit Committees (the "Instrument") relating to the composition and function of audit committees applies to every TSX Venture Exchange listed corporation, including the Corporation. The Instrument requires the Corporation to have a written audit committee Charter and to make the disclosure required by Form 52-110F2, which includes disclosure of the text of the audit committee charter in the management information circular of the Corporation wherein management solicits proxies from the security holders of the Corporation for the purpose of electing directors to the Board.

Please see Schedule "A" for the text of the Audit Committee Charter.

Composition of the Audit Committee

The Corporation's Audit Committee is comprised of three directors, Pierre Pettigrew (Chair), Scott Moore and Ronald Hite. Each member of the Audit Committee is considered to be financially literate and independent, as such term is defined in the Instrument.

Relevant Education and Experience

From January 1996 to February 2006, the Honourable Pierre Pettigrew led a number of senior departments in the Government of Canada. Among other positions, he has served as the Minister of Foreign Affairs, Minister for International Trade, Minister of Human Resources Development and Minister of International Cooperation. Pierre Pettigrew presently works with Deloitte & Touche, LLP as Executive Advisor, International and he serves as a director of several public companies. Pierre Pettigrew is also the Government of Canada's Special Envoy for the CanadaEuropean Union Trade Agreement (CETA). Mr. Pettigrew holds a Bachelor of Arts degree from the University of Quebec in Trois-Rivieres, a Master's of Philosophy in International Relations from the University of Oxford and in 2008 he graduated of the Directors Education Program of the Rotman School of Management, University of Toronto.

Mr. Moore is an experienced business executive with over 20 years in the resource and durable goods sector. Mr. Moore was the president and chief executive of Franc-Or Resources Corporation from July 2008 until November 2009. From mid-2003 until November 2005, Mr. Moore was a senior manager at WBM, the distribution division of Weyerhaeuser. He holds a BA from the University of Toronto and an MBA from the Kellogg School of Management.

Lieutenant General Hite retired July 1, 1997 from the United States Army after 33 years of service. During his military career, General Hite held several senior military leadership positions and is a Vietnam War veteran. His last active duty assignment was as Military Deputy to the Assistant Secretary of the Army for Research, Development, and Acquisition, the Senior Military Advisor to the Army Acquisition Executive and the Army Chief of Staff on all research, development, and acquisition programs and related issues. He testified as a principal military witness for Research, Development, and Acquisition appropriations with Congress, supervised the Army's Program Executive Officer System, and also served as the Director, Army Acquisition Corps. Upon retirement from active duty, General Hite joined Cypress International, in Alexandria, Virginia, and retired as the Chairman and CEO in January 2005. He holds a BA in Chemistry and a MS in Management Science, and is a graduate of several senior-level military schools.

Audit Committee Oversight

At no time since the commencement of the Corporation's most recently completed financial year has there been a recommendation of the Audit Committee to nominate or compensate an external auditor which was not adopted by the Board.

Reliance on Certain Exemptions

At no time since the commencement of the Corporation's most recently completed financial year has the Corporation relied on either (a) an exemption in section 2.4 of the Instrument; or (b) an exemption from the Instrument, in whole or in part, granted under Part 8 (Exemptions) of the Instrument. As the Corporation is listed on the TSX Venture Exchange, it is relying on the exemption provided in section 6.1 of the Instrument, with respect to parts 3 (Composition of the Audit Committee) and 5 (Reporting Obligations) of the Instrument.

Pre-Approval Policies and Procedures

The Audit Committee has not adopted specific policies and procedures for the engagement of nonaudit services.

External Auditor Service Fees

McGovern Hurley LLP are the external auditors of the Corporation and were appointed on July 18, 2013. The aggregate fees billed and estimated to be billed by the external auditors for the last fiscal year is set out in the table below. "Audit Fees" includes fees for audit services including the audit services completed for the Corporation's subsidiaries. "Audit Related Fees" includes fees for assurance and related services by the Corporation's external auditor that are reasonably related to the performance of the audit or review of the Corporation's financial statements and not reported under Audit Fees including the review of interim filings and travel related expenses for the annual audit. "Tax Fees" includes fees for professional services rendered by the external auditor for tax compliance, tax advice, and tax planning. "All Other Fees" includes all fees billed by the external auditors for services not covered in the other three categories.

			Tax
Year	Audit Fees	Audit Related Fees	Fees	All Other Fees
2018	$35,000	$15,000	$3,200	NIL
2019	$25,000	NIL	$3,500	NIL

MATTERS TO BE CONSIDERED

Financial Statements

The audited financial statements and the management and discussion analysis for the fiscal year ended July 31, 2019, together with the auditor's report thereon, and the unaudited interim financial statements and the management and discussion analysis for the six months ended January 31, 2020 will be presented to Shareholders for review at the Meeting and were mailed to Shareholders with the Notice of Meeting and this Circular. No vote by the Shareholders is required with respect to this matter.

Election of Directors

The Board currently consists of four directors. The Corporation has nominated four persons (the "Nominees") for election as a director at the Meeting, with Mr. Pettigrew not standing for re-election and Mr. Buston as a new new nominee. At the Meeting, shareholders of the Corporation will be asked to elect each individual Nominee as a director.

The following table provides the names of the Nominees and information concerning such Nominees. The persons in the enclosed form of proxy intend to vote for the election of the Nominees. Management does not contemplate that any of the Nominees will be unable to serve as a director.

Information in the table below regarding the number of Common Shares of the Corporation beneficially owned, directly or indirectly, or over which control or direction is exercised by the Nominees is based upon information furnished by the respective Nominee and is as at the Record Date.

Name and Municipality ofResidence	Principal Occupation	Director Since	Number of CommonShares BeneficiallyOwned or Over whichControl isExercised(1)
Ahmed Said	President of the	May 26, 2011	3,975,000
Calgary, Alberta	Corporation
G. Scott Moore(2)	President of Euro Sun	September 11, 2012	Nil
Toronto, Ontario	Mining Inc.
Ronald Hite(2)	International Consultant	January 17, 2017	Nil
Fall Branch, Tennessee
Orlando Bustos	VP Corporate	New nominee	Nil
Toronto, Ontario	Development of Flora
	Growth Corp.

Notes:

(1) The Corporation has relied exclusively on the respective Nominee for this information.

(2) Member of the Audit Committee.

All of the Nominees are presently directors of the Corporation. Biographical information for each of the nominated directors are set out below:

Mr. Said's background includes operational and senior management roles in the oil and gas industry, both domestically and internationally. His recent focus has included corporate strategy development and host government negotiations. Mr. Said was previously employed as Chairman, President & Chief Executive Officer by Magnolia Colombia Ltd. Mr. Said holds a Bachelor of Science degree in Engineering from the University of Calgary, Canada.

Mr. G. Scott Moore is currently the President and Chief Executive Officer of Euro Sun Mining Inc., a TSX listed mining exploration company, since 2016, and is also President and Chief Executive Officer of Copper One Inc., a TSXV listed junior mining exploration company, since February 2013. Mr. Moore also serves as the Chief Operating Officer of Forbes & Manhattan, Inc., a Toronto-based merchant bank, a position he has held since May 2012. Mr. Moore has also acted as a selfemployed consultant since January 2005. Mr. Moore is an experienced business executive with over 20 years in the resource and durable goods sector. Mr. Moore holds a Bachelor of Arts degree from the University of Toronto and an MBA from the Kellogg School of Management.

Lieutenant General Hite retired in 1997 from the United States Army after 33 years of service. During his military career, General Hite held several senior military leadership positions and is a Vietnam War veteran. His last active duty assignment was as Military Deputy to the Assistant Secretary of the Army for Research, Development, and Acquisition, the Senior Military Advisor to the Army Acquisition Executive and the Army Chief of Staff on all research, development, and acquisition programs and related issues. He testified as a principal military witness for Research, Development, and Acquisition appropriations with Congress, supervised the Army's Program Executive Officer System, and also served as the Director, Army Acquisition Corps. Upon retirement from the military, General Hite joined Cypress International in Alexandria, Virginia where he retired as Chairman and CEO in 2015.

Orlando Bustos has several years of diverse financial and capital markets experience. Mr. Bustos brings experience in venture capital and investments from Flora Growth Corp. Additionally, Mr. Bustos worked closely with Forbes & Manttan Inc.'s, a global private merchant bank, portfolio companies on strategy and corporate development projects. Previously, Mr. Bustos worked in Deloitte's Global M&A Group providing companies M&A, capital raising and strategic advisory (2014 –2016). Mr. Bustos also held corporate finance roles in large international corporations including Nutrien, the largest agriculture company in Canada. Mr. Bustos obtained a BBA (Finance) with a Joint Major in Economics from the Beedie School of Business at Simon Fraser University.

The persons in the enclosed form of proxy intend to vote for the election of the Nominees. Management does not contemplate that any of the Nominees will be unable to serve as a director. Unless authority to do so is withheld, the persons named in the accompanying proxy intend to vote for the election of each of the Nominees. If prior to the Meeting any of such Nominees is unable to or unwilling to serve, the persons named in the accompanying form of proxy will vote for another nominee or nominees in their discretion if additional nominations are made at the Meeting. Each Nominee elected will hold office until his successor is elected at the next annual meeting of the Corporation, or any postponement(s) or adjournment(s) thereof, or until his successor is elected or appointed.

No proposed director is to be elected under any arrangement or understanding between the proposed director and any other person or corporation, except the directors and executive officers of the Corporation acting solely in such capacity.

The Board of Directors recommends that shareholders vote in favour of electing each of the directors as set forth above. PROXIES RECEIVED IN FAVOUR OF MANAGEMENT WILL BE VOTED FOR THE ELECTION OF EACH DIRECTOR.

Cease Trade Orders or Bankruptcies

Other than as set forth below, no director or executive officer of the Corporation is, or within ten years prior to the date hereof has been, a director, chief executive officer or chief financial officer of any company (including the Corporation) that, (i) was subject to a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days, that was issued while the director or executive officer was acting in the capacity as director, chief executive officer or chief financial officer; or (ii) was subject to a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days, that was issued after the director or executive officer ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer:

Messrs. Ahmed Said and Scott Moore ceased to be officers/director of Sagres Energy Inc. prior to a cease trade order being issued against the company in September 2013. The cease trade order was issued after Messrs. Ahmed Said and Scott Moore ceased to be directors/officers of Sagres but which resulted from an event that occurred while they were acting in the capacity as directors/officers of Sagres.

No director or executive officer of the Corporation is or has been, within the ten years before the date of this Circular, a director or executive officer of any company (including the Corporation) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed director.

No director or executive officer has, within the ten years before the date of this Circular, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director or executive officer.

Other than as set forth above, no proposed director has been subject to (i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or (ii) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable shareholder in deciding whether to vote for a proposed director.

Appointment of Auditors

Unless authority to do so is withheld, the persons named in the accompanying proxy intend to vote for the appointment of McGovern Hurley LLP as auditors of the Corporation until the close of the next annual meeting of shareholders of the Corporation and to authorize the directors to fix their remuneration. McGovern Hurley was first appointed as auditors of the Corporation on July 18, 2013.

PROXIES RECEIVED IN FAVOUR OF MANAGEMENT WILL BE VOTED FOR THE APPROVAL OF THE APPOINTMENT OF MCGOVERN HURLEY LLP AS THE CORPORATION'S AUDITORS AND AUTHORIZING THE BOARD OF DIRECTORS TO FIX THEIR REMUNERATION, UNLESS THE SHAREHOLDER HAS SPECIFIED IN THE PROXY THAT HIS OR HER SHARES ARE TO BE VOTED AGAINST SUCH A RESOLUTION.

Approval of Stock Option Plan

The Stock Option Plan is designed to advance the interests of the Corporation by encouraging employees, officers and consultants to have equity participation in the Corporation through the acquisition of Common Shares. A copy of the Stock Option Plan is attached at schedule "B' hereto.

The Corporation is required to obtain the approval of its Shareholders to any stock option plan that is a "rolling" plan yearly at the Corporation's annual meeting of Shareholders. Accordingly, at the Meeting, Shareholders will be asked to approve the following ordinary resolution approving the Stock Option Plan:

"BE IT RESOLVED THAT:

• 1. the Stock Option Plan of the Corporation, as described in the management information circular of the Corporation dated April 21, 2020 is hereby approved; and
• 1. any director or officer of the Corporation is hereby authorized to execute (whether under the corporate seal of the Corporation or otherwise) and deliver all such documents and to do all such other acts and things as such director or officer may determine to be necessary or advisable to give effect to the true intent of these resolutions."

PROXIES RECEIVED IN FAVOUR OF MANAGEMENT WILL BE VOTED FOR THE APPROVAL OF THE STOCK OPTION PLAN UNLESS A SHAREHOLDER HAS SPECIFIED IN THE PROXY THAT THE COMMON SHARES ARE TO BE VOTED AGAINST SUCH ORDINARY RESOLUTION.

Additional Information

Additional information relating to the Corporation may be found under the profile of the Corporation on SEDAR at www.sedar.com. Additional financial information is provided in the Corporation's audited financial statements and related management's discussion and analysis for the financial year ended July 31, 2019, which can be found under the profile of the Corporation on SEDAR. Shareholders may also request these documents by email nsaid@forbesmanhattan.com or by contacting the secretary of the Corporation by telephone at (416) 309-2963.

Board of Directors Approval

The contents of this Circular and the sending thereof to the shareholders of the Corporation have been approved by the Board.

BY ORDER OF THE BOARD OF DIRECTORS

(signed) "Ahmed Said" Chief Executive Officer

Toronto, Ontario April 21, 2020

SCHEDULE "A"

FORM 52-110F2 AUDIT COMMITTEE DISCLOSURE

Audit Committee Charter

(Implemented pursuant to National Instrument 52-110)

This Charter has been adopted by the Board in order to comply with the Instrument and to more properly define the role of the Committee in the oversight of the financial reporting process of the Corporation. Nothing in this Charter is intended to restrict the ability of the Board or Committee to alter or vary procedures in order to comply more fully with the Instrument, as amended from time to time.

PART 1

Purpose: The purpose of the Committee is to:

• a) significantly improve the quality of the Corporation's financial reporting;
• b) assist the Board to properly and fully discharge its responsibilities;
• c) provide an avenue of enhanced communication between the Board and external auditors;
• d) enhance the external auditor's independence;
• e) increase the credibility and objectivity of financial reports; and
• f) strengthen the role of the outside members of the Board by facilitating in depth discussions between Members, management and external auditors.

1.1 Definitions

"accounting principles" has the meaning ascribed to it in National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency;

"Affiliate" means a company that is a subsidiary of another company or companies that are controlled by the same entity;

"audit services" means the professional services rendered by the Corporation's external auditor for the audit and review of the Corporation's financial statements or services that are normally provided by the external auditor in connection with statutory and regulatory filings or engagements;

"Board" means the board of directors of the Corporation;

"Charter" means this audit committee charter;

"Corporation" means Blue Sky Energy Inc.;

"Committee" means the committee established by and among certain members of the Board for the purpose of overseeing the accounting and financial reporting processes of the Corporation and audits of the financial statements of the Corporation;

"Control Person" means any person that holds or is one of a combination of persons that holds a sufficient number of any of the securities of the Corporation so as to affect materially the control of the Corporation, or that holds more than 20% of the outstanding voting shares of the Corporation, except where there is evidence showing that the holder of those securities does not materially affect control of the Corporation;

"executive officer" means an individual who is:

• a) the chair of the Corporation;
• b) the vice-chair of the Corporation;
• c) the President of the Corporation;
• d) the vice-president in charge of a principal business unit, division or function including sales, finance or production;
• e) an officer of the Corporation or any of its subsidiary entities who performs a policymaking function in respect of the Corporation; or
• f) any other individual who performs a policy-making function in respect of the Corporation;

"financially literate" has the meaning set forth in Section 1.3;

"immediate family member" means a person's spouse, parent, child, sibling, mother or father-inlaw, son or daughter-in-law, brother or sister-in-law, and anyone (other than an employee of either the person or the person's immediate family member) who shares the individual's home;

"independent" has the meaning set forth in Section 1.2;

"Instrument" means National Instrument 52-110;

"MD&A" has the meaning ascribed to it in the National Instrument;

"Member" means a member of the Committee;

"National Instrument 51-102" means National Instrument 51-102 Continuous Disclosure Obligations;

"non-audit services" means services other than audit services;

1.2 Meaning of Independence

• 1. A Member is independent if the Member has no direct or indirect material relationship with the Corporation.
• 1. For the purposes of subsection 1, a material relationship means a relationship which could, in the view of the Board, reasonably interfere with the exercise of a Member's independent judgement.
• 1. Despite subsection 2 and without limitation, the following individuals are considered to have a material relationship with the Corporation:
  • a) a Control Person of the Corporation;
  • b) an Affiliate of the Corporation; and

c) an employee of the Corporation.

1.3 Meaning of Financial Literacy -- For the purposes of this Charter, an individual is financially literate if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Corporation's financial statements.

PART 2

2.1 Audit Committee – The Board has hereby established the Committee for, among other purposes, compliance with the Instrument.

2.2 Relationship with External Auditors – The Corporation will henceforth require its external auditor to report directly to the Committee and the Members shall ensure that such is the case.

2.3 Committee Responsibilities

1. The Committee shall be responsible for making the following recommendations to the Board:

• a) the external auditor to be nominated for the purpose of preparing or issuing an auditor's report or performing other audit, review or attest services for the Corporation; and
• b) the compensation of the external auditor.

1. The Committee shall be directly responsible for overseeing the work of the external auditor engaged for the purpose of preparing or issuing an auditor's report or performing other audit, review or attest services for the Corporation, including the resolution of disagreements between management and the external auditor regarding financial reporting.

This responsibility shall include:

• a) reviewing the audit plan with management and the external auditor;

• b) reviewing with management and the external auditor any proposed changes in major accounting policies, the presentation and impact of significant risks and uncertainties, and key estimates and judgements of management that may be material to financial reporting;

• c) questioning management and the external auditor regarding significant financial reporting issues discussed during the fiscal period and the method of resolution;

• d) reviewing any problems experienced by the external auditor in performing the audit, including any restrictions imposed by management or significant accounting issues on which there was a disagreement with management;

• e) reviewing audited annual financial statements, in conjunction with the report of the external auditor, and obtaining an explanation from management of all significant variances between comparative reporting periods;

• f) reviewing the post-audit or management letter, containing the recommendations of the external auditor, and management's response and subsequent follow up to any identified weakness;

• g) reviewing interim unaudited financial statements before release to the public;

• h) reviewing all public disclosure documents containing audited or unaudited financial information before release, including any prospectus, the annual report, the annual information form and management's discussion and analysis;

• i) reviewing any evaluation of internal controls by the external auditor, together with management's response;

• j) reviewing the terms of reference of the internal auditor, if any;

• k) reviewing the reports issued by the internal auditor, if any, and management's response and subsequent follow up to any identified weaknesses; and

• l) reviewing the appointments of the Chief Financial Officer and any key financial executives involved in the financial reporting process, as applicable.

1. The Committee shall pre-approve all non-audit services to be provided to the Corporation or its subsidiary entities by the issuer's external auditor.

2. The Committee shall review the Corporation's financial statements, MD&A and annual and interim earnings press releases before the Corporation publicly discloses this information.

3. The Committee shall ensure that adequate procedures are in place for the review of the Corporation's public disclosure of financial information extracted or derived from the Corporation's financial statements, and shall periodically assess the adequacy of those procedures.

4. When there is to be a change of auditor, the Committee shall review all issues related to the change, including the information to be included in the notice of change of auditor called for under National Policy 31, and the planned steps for an orderly transition.

5. The Committee shall review all reportable events, including disagreements, unresolved issues and consultations, as defined in the National Instrument, on a routine basis, whether or not there is to be a change of auditor.

6. The Committee shall, as applicable, establish procedures for:

• a) the receipt, retention and treatment of complaints received by the issuer regarding accounting, internal accounting controls, or auditing matters; and
• b) the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters.

1. As applicable, the Committee shall establish, periodically review and approve the Corporation's hiring policies regarding partners, employees and former partners and employees of the present and former external auditor of the issuer, as applicable.

2. The responsibilities outlined in this Charter are not intended to be exhaustive. Members should consider any additional areas which may require oversight when discharging their responsibilities.

2.4 De Minimis Non-Audit Services – The Committee shall satisfy the pre-approval requirement in subsection 2.3(3) if:

a) the aggregate amount of all the non-audit services that were not pre-approved is reasonably expected to constitute no more than five per cent of the total amount

of fees paid by the issuer and its subsidiary entities to the issuer's external auditor during the fiscal year in which the services are provided;

• b) the Corporation or the relevant subsidiary of the Corporation, as the case may be, did not recognize the services as non-audit services at the time of the engagement; and
• c) the services are promptly brought to the attention of the Committee and approved by the Committee or by one or more of its members to whom authority to grant such approvals has been delegated by the Committee, prior to the completion of the audit.

2.5 Delegation of Pre-Approval Function

1. The Committee may delegate to one or more independent Members the authority to preapprove non-audit services in satisfaction of the requirement in subsection 2.3(3).

2. The pre-approval of non-audit services by any Member to whom authority has been delegated pursuant to subsection 1 must be presented to the Committee at its first scheduled meeting following such pre-approval.

PART 3

3.1 Composition

• 1. The Committee shall be composed of a minimum of three Members.
• 1. Every Member shall be a director of the issuer.
• 1. The majority of Members shall be independent.
• 1. Every audit committee member shall be financially literate.

PART 4

4.1 Authority – Until the replacement of this Charter, the Committee shall have the authority to:

• a) engage independent counsel and other advisors as it determines necessary to carry out its duties;
• b) set and pay the compensation for any advisors employed by the Committee;
• c) communicate directly with the internal and external auditors; and
• d) recommend the amendment or approval of audited and interim financial statements to the Board.

PART 5

5.1 Disclosure in Information Circular -- If management of the Corporation solicits proxies from the security holders of the Corporation for the purpose of electing directors to the Board, the Corporation shall include in its management information circular the disclosure required by Form 52-110F2 (Disclosure by Venture Issuers).

PART 6

6.1 Meetings

• 1. Meetings of the Committee shall be scheduled to take place at regular intervals and, in any event, not less frequently than quarterly.
• 1. Opportunities shall be afforded periodically to the external auditor, the internal auditor, if any, and to members of senior management to meet separately with the Members.
• 1. Minutes shall be kept of all meetings of the Committee.

SCHEDULE "B"

STOCK OPTION PLAN

BLUE SKY ENERGY INC. (the "Company")

STOCK OPTION PLAN

1. STATEMENT OF PURPOSE

1.1 Principal Purposes – The principal purposes of the Plan are to provide the Company with the advantages of the incentive inherent in share ownership on the part of employees, officers, directors and consultants responsible for the continued success of the Company; to create in such individuals a proprietary interest in, and a greater concern for, the welfare and success of the Company; to encourage such individuals to remain with the Company; and to attract new employees, officers, directors and consultants to the Company.

1.2 Benefit to Shareholders – The Plan is expected to benefit shareholders by enabling the Company to attract and retain skilled and motivated personnel by offering such personnel an opportunity to share in any increase in value of the Shares resulting from their efforts.

2. INTERPRETATION

2.1 Defined Terms – For the purposes of this Plan, the following terms shall have the following meanings:

• (a) "Act" means the Securities Act (Ontario), as amended from time to time;

• (b) "Associate" shall have the meaning ascribed to such term in the Act;

• (c) "Board" means the Board of Directors of the Company;

• (d) "Change in Control" means:

• (i) a takeover bid (as defined in the Act), which is successful in acquiring Shares,

• (ii) the change of control of the Board resulting from the election by the members of the Company of less than a majority of the persons nominated for election by management of the Company,

• (iii) the sale of all or substantially all the assets of the Company,

• (iv) the sale, exchange or other disposition of a majority of the outstanding Shares in a single transaction or series of related transactions,

• (v) the dissolution of the Company's business or the liquidation of its assets,

• (vi) a merger, amalgamation or arrangement of the Company in a transaction or series of transactions in which the Company's shareholders receive less than 51% of the outstanding shares of the new or continuing corporation, or

• (vii) the acquisition, directly or indirectly, through one transaction or a series of transactions, by any Person, of an aggregate of more than 50% of the outstanding Shares;

  • (e) "Committee" means a committee of the Board appointed in accordance with this Plan, or if no such committee is appointed, the Board itself;
  • (f) "Company" means Blue Sky Energy Inc., a company incorporated under the laws of the Province of Ontario;
  • (g) "Consultant" means an individual, other than an Employee, senior officer or director of the Company or a Subsidiary Company, or a Consultant Company, who;

• (i) provides ongoing consulting, technical, management or other services to the Company or a Subsidiary Company, other than services provided in relation to a distribution of the Company's securities,

• (ii) provides the services under a written contract between the Company or a Subsidiary Company and the individual or Consultant Company,

• (iii) in the reasonable opinion of the Company spends or will spend a significant amount of time and attention on the affairs and business of the Company or a Subsidiary Company, and

• (iv) has a relationship with the Company or a Subsidiary Company that enables the individual or Consultant Company to be knowledgeable about the business and affairs of the Company;

  • (h) "Consultant Company" means, for an individual Consultant, a company of which the individual is an employee or shareholder, or a partnership of which the individual is an employee or partner;
  • (i) "Date of Grant" means the date specified in the Option Agreement as the date on which the Option is effectively granted;
  • (j) "Disability" means any disability with respect to an Optionee which the Board, in its sole and unfettered discretion, considers likely to prevent permanently the Optionee from:

• (i) being employed or engaged by the Company, a Subsidiary Company or another employer, in a position the same as or similar to that in which he was last employed or engaged by the Company or a Subsidiary Company; or

• (ii) acting as a director or officer of the Company or a Subsidiary Company;

  • (k) "Disinterested Shareholder Approval" means an ordinary resolution approved by a majority of the votes cast by members of the Company at a shareholders' meeting, excluding votes attaching to Shares beneficially owned by Insiders to whom Options may be granted and Associates of those persons;
  • (l) "Effective Date" means the effective date of this Plan, which is the later of the day of its approval by the shareholders of the Company and the day of its acceptance for filing by the Exchange if such acceptance for filing is required under the rules or policies of the Exchange;
  • (m) "Eligible Person" means:

• (i) an Employee, senior officer or director of the Company or any Subsidiary Company,

• (ii) a Consultant,

• (iii) an individual providing Investor Relations Activities for the Company;

• (iv) a company, all of the voting securities of which are beneficially owned by one or more of the persons referred to in (i), (ii) or (iii) above

  • (n) "Employee" means:

• (i) an individual who is considered an employee under the Income Tax Act (Canada) (i.e. for whom income tax, employment insurance and CPP deductions must be made at source),

• (ii) an individual who works full-time for the Company or a Subsidiary Company providing services normally provided by an employee and who is subject to the same control and direction by the Company or a Subsidiary Company over the details and methods of work as an employee of the Company or a Subsidiary Company, but for whom income tax deductions are not made at source,

• (iii) an individual who works for the Company or a Subsidiary Company, on a continuing and regular basis for a minimum amount of time per week, providing services normally provided by an employee and who is subject to the same control and direction by the Company or a Subsidiary Company over the details and methods of work as an employee of the Company or a Subsidiary Company, but for whom income tax deductions are not made at source;

  • (o) "Exchange" means the stock exchange or over the counter market on which the Shares are listed;
  • (p) "Exchange Act" means the United States Securities Exchange Act of 1934, as amended;
  • (q) "Fair Market Value" means, where the Shares are listed for trading on an Exchange, the last closing price of the Shares before the Date of Grant on the Exchange which is the principal trading market for the Shares, as may be determined for such purpose by the Committee, provided that, so long as the Shares are listed only on the TSXVE, the "Fair Market Value" shall not be lower than the last closing price of the Shares before the Date of Grant less the maximum discount permitted under the policies of the TSXVE;
  • (r) "Guardian" means the guardian, if any, appointed for an Optionee;
  • (s) "Insider" shall have the meaning ascribed to such term in the Act;
  • (t) "Investor Relations Activities" means any activities or oral or written communications, by or on behalf of the Company or a shareholder of the Company that promote or reasonably could be expected to promote the purchase or sale of securities of the Company, but does not include:

• (i) the dissemination of information provided, or records prepared, in the ordinary course of business of the Company

• (A) to promote the sale of products or services of the Company, or

• (B) to raise public awareness of the Company,

that cannot reasonably be considered to promote the purchase or sale of securities of the Company,

• (ii) activities or communications necessary to comply with the requirements of

• (A) applicable securities laws,

• (B) the rules and policies of the TSXVE, if the Shares are listed only on the TSXVE, or the by-laws, rules or other regulatory instruments of any other self-regulatory body or exchange having jurisdiction over the Company,

• (iii) communications by a publisher of, or writer for, a newspaper, magazine or business or financial publication, that is of general and regular paid circulation, distributed only to subscribers to it for value or to purchasers of it, if

• (A) the communication is only through the newspaper, magazine or publication and

• (B) the publisher or writer receives no commission or other consideration other than for acting in the capacity of publisher or writer, or

• (iv) activities or communications that may be otherwise specified by the TSXVE, if the Shares are listed only on the TSXVE;

  • (u) "Option" means an option to purchase unissued Shares granted pursuant to the terms of this Plan;
  • (v) "Option Agreement" means a written agreement between the Company and an Optionee specifying the terms of the Option being granted to the Optionee under the Plan;
  • (w) "Option Price" means the exercise price per Share specified in an Option Agreement, adjusted from time to time in accordance with the provisions of Sections 6.3 and 10;
  • (x) "Optionee" means an Eligible Person to whom an Option has been granted;
  • (y) "Person" means a natural person, company, government or political subdivision or agency of a government; and where two or more Persons act as a partnership, limited partnership, syndicate or other group for the purpose of acquiring, holding or disposing of securities of an issuer, such syndicate or group shall be deemed to be a Person;
  • (z) "Plan" means this 2020 Stock Option Plan of the Company;
  • (aa) "Qualified Successor" means a person who is entitled to ownership of an Option upon the death of an Optionee, pursuant to a will or the applicable laws of descent and distribution upon death;

• (bb) "Shares" means the common shares in the capital of the Company as constituted on the Date of Grant, adjusted from time to time in accordance with the provisions of Section 10;

• (cc) "Subsidiary Company" shall mean a company which is a subsidiary of the Company;

• (dd) "Term" means the period of time during which an Option may be exercised; and

• (ee) "TSXVE" means the TSX Venture Exchange.

3. ADMINISTRATION

3.1 Board or Committee – The Plan shall be administered by the Board or by a Committee appointed in accordance with Section 3.2.

3.2 Appointment of Committee – The Board may at any time appoint a Committee, consisting of not less than three of its members, to administer the Plan on behalf of the Board in accordance with such terms and conditions as the Board may prescribe, consistent with this Plan. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase the size of the Committee and appoint additional members, remove members (with or without cause) and appoint new members in their place, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan. In the absence of the appointment of a Committee by the Board, the Board shall administer the Plan.

3.3 Quorum and Voting – A majority of the members of the Committee shall constitute a quorum, and, subject to the limitations in this Section 3, all actions of the Committee shall require the affirmative vote of members who constitute a majority of such quorum. No member of the Committee who is a director to whom an Option may be granted may participate in the decision to grant such Option (but any such member may be counted in determining the existence of a quorum at any meeting of the Committee in which action is to be taken with respect to the granting of an Option to him).

3.4 Powers of Board and Committee – The Board shall from time to time authorize and approve the grant by the Company of Options under this Plan, and any Committee appointed under Section 3.2 shall have the authority to review the following matters in relation to the Plan and to make recommendations thereon to the Board;

• (a) administration of the Plan in accordance with its terms,

• (b) determination of all questions arising in connection with the administration, interpretation and application of the Plan, including all questions relating to the value of the Shares,

• (c) correction of any defect, supply of any information or reconciliation of any inconsistency in the Plan in such manner and to such extent as shall be deemed necessary or advisable to carry out the purposes of the Plan,

• (d) prescription, amendment and rescission of the rules and regulations relating to the administration of the Plan;

• (e) determination of the duration and purpose of leaves of absence from employment which may be granted to Optionees without constituting a termination of employment for purposes of the Plan,

• (f) with respect to the granting of Options:

• (i) determination of the employees, officers, directors or consultants to whom Options will be granted, based on the eligibility criteria set out in this Plan,

• (ii) determination of the terms and provisions of the Option Agreement which shall be entered into with each Optionee (which need not be identical with the terms of any other Option Agreement) and which shall not be inconsistent with the terms of this Plan,

• (iii) amendment of the terms and provisions of an Option Agreement, provided the Board obtains:

• (A) the consent of the Optionee, and

• (B) if required, the approval of any stock exchange on which the Shares are listed,

• (iv) determination of when Options will be granted,

• (v) determination of the number of Shares subject to each Option,

• (vi) determination of the vesting schedule, if any, for the exercise of each Option, and

  • (g) other determinations necessary or advisable for administration of the Plan.

3.5 Obtain Approvals – The Board will seek to obtain any regulatory, Exchange or shareholder approvals which may be required pursuant to applicable securities laws or Exchange rules.

3.6 Administration by Committee – The Committee shall have all powers necessary or appropriate to accomplish its duties under this Plan. In addition, the Committee's administration of the Plan shall in all respects be consistent with the Exchange policies and rules.

4. ELIGIBILITY

4.1 Eligibility for Options – Options may be granted to any Eligible Person.

4.2 Insider Eligibility for Options – Notwithstanding Section 4.1, if the Shares are listed only on the TSXVE, grants of Options to Insiders shall be subject to the policies of the TSXVE.

4.3 No Violation of Securities Laws – No Option shall be granted to any Optionee unless the Committee has determined that the grant of such Option and the exercise thereof by the Optionee will not violate the securities law of the jurisdiction in which the Optionee resides.

5. SHARES SUBJECT TO THE PLAN

5.1 Number of Shares – The maximum number of Shares issuable from time to time under the Plan is that number of Shares as is equal to 10% of the number of issued Shares at the Date of Grant of an Option. The maximum number of Shares issuable under the Plan shall be adjusted, where necessary, to take account of the events referred to in Section 10.

5.2 Expiry of Option – If an Option expires or terminates for any reason without having been exercised in full, the unpurchased Shares subject thereto shall again be available for the purposes of the Plan.

5.3 Reservation of Shares – The Company will at all times reserve for issuance and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

6. OPTION TERMS

6.1 Option Agreement – Each Option granted to an Optionee shall be confirmed by the execution and delivery of an Option Agreement and the Board shall specify the following terms in each such Option Agreement:

• (a) the number of Shares subject to option pursuant to such Option, subject to the following limitations if the Shares are listed only on the TSXVE:
• (i) the number of Shares reserved for issuance pursuant to Options to any one Optionee shall not exceed 5% of the issued Shares in any 12-month period (unless the Company has obtained Disinterested Shareholder Approval to exceed this number),
• (ii) the number of Shares reserved for issuance under Options granted to Insiders at any point in time exceeding 10% of the issued Shares (unless the Company has obtained Disinterested Shareholder Approval);
• (iii) the number of Shares reserved for issuance pursuant to Options to any one Consultant shall not exceed 2% of the issued Shares in any 12-month period, and
• (iv) the aggregate number of Shares reserved for issuance pursuant to Options to Employees and those individuals conducting Investor Relations Activities shall not exceed 2% of the issued Shares in any 12-month period;
  • (b) the Date of Grant;
  • (c) the Term, provided that, if the Shares are listed only on the TSXVE, the length of the Term shall in no event be greater than five years following the Date of Grant for all Optionees;
  • (d) the Option Price, provided that the Option Price shall not be less than the Fair Market Value of the Shares on the Date of Grant;
  • (e) subject to Section 6.2 below, any vesting schedule upon which the exercise of an Option is contingent;
  • (f) if the Optionee is an Employee, Consultant or an individual providing Investor Relations Activities for the Company, a representation by the Company and the Optionee that the Optionee is a bona fide Employee, Consultant or an individual providing Investor Relations Activities for the Company, as the case may be, of the Company or a Subsidiary Company; and
  • (g) such other terms and conditions as the Board deems advisable and are consistent with the purposes of this Plan.

6.2 Vesting Schedule – The Board, as applicable, shall have complete discretion to set the terms of any vesting schedule of each Option granted, including, without limitation, discretion to:

(a) permit partial vesting in stated percentage amounts based on the Term of such Option; and

(b) permit full vesting after a stated period of time has passed from the Date of Grant.

Notwithstanding anything contained herein, Options granted to individuals providing Investor Relations Activities shall vest in stages over a period of not less than 12 month with no more than one quarter of such Options vesting in any three month period.

6.3 Amendments to Options – Amendments to the terms of previously granted Options are subject to regulatory approval, if required. If required by the Exchange, Disinterested Shareholder Approval shall be required for any reduction in the Option Price of a previously granted Option if the Optionee is an Insider of the Company at the time of the proposed reduction in the Option Price.

6.4 Uniformity – Except as expressly provided herein, nothing contained in this Plan shall require that the terms and conditions of Options granted under the Plan be uniform.

7. EXERCISE OF OPTION

7.1 Method of Exercise – Subject to any limitations or conditions imposed upon an Optionee pursuant to the Option Agreement or Section 6 hereof, an Optionee may exercise an Option by giving written notice thereof, specifying the number of Shares in respect of which the Option is exercised, to the Company at its principal place of business at any time after the Date of Grant until 4:00 p.m. (Toronto time) on the last day of the Term, such notice to be accompanied by full payment of the aggregate Option Price to the extent the Option is so exercised. Such payment shall be in lawful money (Canadian funds) by cash, cheque, bank draft or wire transfer. Payment by cheque made payable to the Company in the amount of the aggregate Option Price shall constitute payment of such Option Price unless the cheque is not honoured upon presentation, in which case the Option shall not have been validly exercised.

7.2 Issuance of Certificates – Not later than the third business day after exercise of an Option in accordance with Section 7.1, the Company shall issue and deliver to the Optionee a certificate or certificates evidencing the Shares with respect to which the Option has been exercised. Until the issuance of such certificate or certificates, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to such Shares, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the certificate is issued, except as provided by Section 10 hereof.

7.3 Compliance with U.S. Securities Laws – As a condition to the exercise of an Option, the Board may require the Optionee to represent and warrant in writing at the time of such exercise that the Shares are being purchased only for investment and without any then-present intention to sell or distribute such Shares. At the option of the Board, a stop-transfer order against such Shares may be placed on the stock books and records of the Company and a legend, indicating that the stock may not be pledged, sold or otherwise transferred unless an opinion of counsel is provided stating that such transfer is not in violation of any applicable law or regulation, may be stamped on the certificates representing such Shares in order to assure an exemption from registration. The Board may also require such other documentation as may from time to time be necessary to comply with United States' federal and state securities laws. The Company has no obligation to undertake registration of Options or the Shares issuable upon the exercise of the Options.

7.4 Withholding Taxes Etc.: For certainty and notwithstanding any other provision of the Plan, the Corporation or any Designated Affiliate may take such steps as it considers necessary or appropriate for the deduction or withholding of any taxes or other amounts which the Corporation or any Designated Affiliate is required by any law or regulation of any governmental authority whatsoever to deduct or withhold in connection with any Common Share issued pursuant to the Plan.

8. TRANSFERABILITY OF OPTIONS

8.1 Non-Transferable/Legending – Except as permitted by applicable securities laws and the policies of the Exchange, and as provided otherwise in this Section 8, Options are non-assignable and non-transferable. If the Shares are listed only on the TSXVE, then, in addition to any resale restrictions under applicable securities laws if the Option Price is based on a discount from the last closing price of the Shares on the TSXVE, the Option Agreement and the certificates representing the Shares issued on the exercise of such Option shall bear the TSXVE legend with a four-month hold period commencing on the Date of Grant.

8.2 Death of Optionee – Subject to Section 8.3, if the employment of an Optionee as an Employee of, or the services of a Consultant providing services to, the Company or any Subsidiary Company, or the employment of an Optionee as an individual providing Investor Relations Activities, or the position of the Optionee as a director or senior officer of the Company or any Subsidiary Company, terminates as a result of such Optionee's death, any Options held by such Optionee shall pass to the Qualified Successor of the Optionee and shall be exercisable by such Qualified Successor until the earlier of a period of not more than one year following the date of such death and the expiry of the Term of the Option.

8.3 Disability of Optionee – If the employment of an Optionee as an Employee of, or the services of a Consultant providing services to, the Company or any Subsidiary Company, or the employment of an Optionee as an individual providing Investor Relations Activities for the Company, or the position of the Optionee as a director or senior officer of the Company or any Subsidiary Company, is terminated by reason of such Optionee's Disability, any Options held by such Optionee that could have been exercised immediately prior to such termination of employment or service shall be exercisable by such Optionee, or by his Guardian, for a period of not more than one year following the date of such following the termination of employment or service of such Optionee. If such Optionee dies within that period of not more than one year, any Option held by such Optionee that could have been exercised immediately prior to his or her death shall pass to the Qualified Successor of such Optionee, and shall be exercisable by the Qualified Successor until the earlier of a period of not more than one year following the death of such Optionee and the expiry of the Term of the Option.

8.4 Vesting – Options held by a Qualified Successor or exercisable by a Guardian shall, during the period prior to their termination, continue to vest in accordance with any vesting schedule to which such Options are subject.

8.5 Deemed Non-Interruption of Employment – Employment shall be deemed to continue intact during any military or sick leave or other bona fide leave of absence if the period of such leave does not exceed 90 days or, if longer, for so long as the Optionee's right to reemployment with the Company or any Subsidiary Company is guaranteed either by statute or by contract. If the period of such leave exceeds 90 days and the Optionee's reemployment is not so guaranteed, then the Optionee's employment shall be deemed to have terminated on the ninety-first day of such leave.

9. TERMINATION OF OPTIONS

9.1 Termination of Options – To the extent not earlier exercised or terminated in accordance with Section 8, an Option shall terminate at the earliest of the following dates:

• (a) the termination date specified for such Option in the Option Agreement;

• (b) where the Optionee's position as an Employee, a Consultant, a director or a senior officer of the Company or any Subsidiary Company, or an individual providing Investor Relations Activities for the Company, is terminated for cause, the date of such termination for cause;

• (c) where the Optionee's position as an Employee, a Consultant, a director or a senior officer of the Company or any Subsidiary Company or an individual providing Investor Relations Activities for the Company terminates for a reason other than the Optionee's Disability or death or for cause, not more than 90 days after such date of termination; PROVIDED that if an Optionee's position changes from one of the said categories to another category, such change shall not constitute termination or cessation for the purpose of this Subsection 9.1(c); and

• (d) the date of any sale, transfer, assignment or hypothecation, or any attempted sale, transfer, assignment or hypothecation, of such Option in violation of Section 8.1.

9.2 Lapsed Options – If Options are surrendered, terminate or expire without being exercised in whole or in part, new Options may be granted covering the Shares not purchased under such lapsed Options. If an Option has been surrendered in connection with the regranting of a new Option to the same Optionee on different terms than the original Option granted to such Optionee, then, if required, the new Option is subject to approval of the Exchange.

9.3 Exclusion From Severance Allowance, Retirement Allowance or Termination Settlement – If the Optionee retires, resigns or is terminated from employment or engagement with the Company or any Subsidiary Company, the loss or limitation, if any, pursuant to the Option Agreement with respect to the right to purchase Option Shares which were not vested at that time or which, if vested, were cancelled, shall not give rise to any right to damages and shall not be included in the calculation of nor form any part of any severance allowance, retiring allowance or termination settlement of any kind whatsoever in respect of such Optionee.

10. ADJUSTMENTS TO OPTIONS

10.1 Alteration in Capital Structure – If there is any change in the Shares through or by means of a declaration of stock dividends of the Shares or consolidations, subdivisions or reclassifications of the Shares, or otherwise, the number of Shares available under the Plan, the Shares subject to any Option and the Option Price therefor shall be adjusted proportionately by the Board and, if required, approved by the Exchange, and such adjustment shall be effective and binding for all purposes of the Plan.

10.2 Effect of Amalgamation, Merger or Arrangement – If the Company amalgamates, merges or enters into a plan of arrangement with or into another corporation, including without limitation any statutory procedure following a take-over bid, any Shares receivable on the exercise of an Option shall be converted into the securities, property or cash which the Optionee would have received upon such amalgamation, merger or arrangement if the Optionee had exercised the Option immediately prior to the record date applicable to such amalgamation, merger or arrangement, and the exercise price shall be adjusted proportionately by the Board and such adjustment shall be binding for all purposes of the Plan.

10.3 Acceleration on Change in Control – Upon a Change in Control, all Options excluding options held by an individual providing Investor Relations Activities shall become immediately exercisable, notwithstanding any contingent vesting provisions to which such Options may have otherwise been subject.

10.4 Acceleration of Date of Exercise – Subject to the approval of the Exchange, if required, the Board shall have the right to accelerate the date of vesting of any portion of any Option which remains unvested.

10.5 Determinations to be Binding – If any questions arise at any time with respect to the Option Price or exercise price or number of Option Shares or other property deliverable upon exercise of an Option following an event referred to in this Section 10, such questions shall be conclusively determined by the Board, whose decisions shall be final and binding.

10.6 Effect of a Take-Over – If a bona fide offer (the "Offer") for Shares is made to an Optionee or to shareholders generally or to a class of shareholders which includes the Optionee, which Offer constitutes a take-over bid within the meaning of the Act, the Company shall, immediately upon receipt of notice of the Offer, notify each Optionee of full particulars of the Offer, whereupon any Option held by an Optionee other than an individual providing Investor Relations Activities may be exercised in whole or in part, notwithstanding any contingent vesting provisions to which such Options may have otherwise been subject, by the Optionee so as to permit the Optionee to tender the Shares received upon such exercise (the "Optioned Shares") to the Offer. If:

• (a) the Offer is not completed within the time specified therein; or
• (b) all of the Optioned Shares tendered by the Optionee pursuant to the Offer are not taken up and paid for by the offeror pursuant thereto;

the Optioned Shares or, in the case of clause (b) above, the Optioned Shares that are not taken up and paid for, may be returned by the Optionee to the Company and reinstated as authorized but unissued Shares and with respect to such returned Optioned Shares, the Option shall be reinstated as if it had not been exercised. If any Optioned Shares are returned to the Company under this Section, the Company shall refund to the Optionee any Option Price paid for such Optioned Shares.

11. APPROVAL, TERMINATION AND AMENDMENT OF PLAN

11.1 Shareholder Approval – This Plan, if the Shares are listed only on the TSXVE, is subject to Disinterested Shareholder Approval on a yearly basis at the Company's next ensuing annual general meeting.

11.2 Power of Board to Terminate or Amend Plan – Subject to the approval of the Exchange, if required, the Board may terminate, suspend or discontinue the Plan at any time or amend or revise the terms of the Plan; provided, however, that, except as provided in Section 10, the Board may not do any of the following without obtaining, within 12 months either before or after the Board's adoption of a resolution authorizing such action, approval by the Company's shareholders at a meeting duly held in accordance with the applicable corporate laws:

• (a) increase the maximum number of Shares which may be issued under the Plan;
• (b) materially modify the requirements as to eligibility for participation in the Plan; or
• (c) materially increase the benefits accruing to participants under the Plan;

however, the Board may amend the terms of the Plan to comply with the requirements of any applicable regulatory authority, or as a result of changes in the policies of the Exchange relating to director, officer and employee stock options, without obtaining the approval of the Company's shareholders.

11.3 No Grant During Suspension of Plan – No Option may be granted during any suspension, or after termination, of the Plan. Amendment, suspension or termination of the Plan shall not, without the consent of the Optionee, alter or impair any rights or obligations under any Option previously granted.

12. CONDITIONS PRECEDENT TO ISSUANCE OF SHARES

12.1 Compliance with Laws – Shares shall not be issued with respect to an Option unless the exercise of such Option and the issuance and delivery of such shares shall comply with all relevant provisions of law, including, without limitation, any applicable United States' state securities laws, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations thereunder and the requirements of any Exchange or automated interdealer quotation system of a registered national securities association upon which such Shares may then be listed or quoted, and such issuance shall be further subject to the approval of counsel for the Company with respect to such compliance, including the availability of an exemption from registration for the issuance and sale of such Shares. The inability of the Company to obtain from any regulatory body the authority deemed by the Company to be necessary for the lawful issuance and sale of any Shares under this Plan, or the unavailability of an exemption from registration for the issuance and sale of any Shares under this Plan, shall relieve the Company of any liability with respect to the non-issuance or sale of such Shares other than with respect to a refund of any Option Price paid.

13. USE OF PROCEEDS

13.1 Use of Proceeds – Proceeds from the sale of Shares pursuant to the Options granted and exercised under the Plan shall constitute general funds of the Company and shall be used for general corporate purposes, or as the Board otherwise determines.

14. NOTICES

14.1 Notices – All notices, requests, demands and other communications required or permitted to be given under this Plan and the Options granted under this Plan shall be in writing and shall be either delivered personally to the party to whom notice is to be given, in which case notice shall be deemed to have been duly given on the date of such personal delivery; telecopied, in which case notice shall be deemed to have been duly given on the date the telecopy is sent; or mailed to the party to whom notice is to be given, by first class mail, registered or certified, return receipt requested, postage prepaid, and addressed to the party at his or its most recent known address, in which case such notice shall be deemed to have been duly given on the tenth postal delivery day following the date of such mailing.

15. MISCELLANEOUS PROVISIONS

15.1 No Obligations to Exercise – Optionees shall be under no obligation to exercise Options granted under this Plan.

15.2 No Obligation to Retain Optionee – Nothing contained in this Plan shall obligate the Company or any Subsidiary Company to retain an Optionee as an employee, officer, director or consultant for any period, nor shall this Plan interfere in any way with the right of the Company or any Subsidiary Company to reduce such Optionee's compensation.

15.3 Binding Agreement – The provisions of this Plan and of each Option Agreement with an Optionee shall be binding upon such Optionee and the Qualified Successor or Guardian of such Optionee.

15.4 Use of Terms – Where the context so requires, references herein to the singular shall include the plural, and vice versa, and references to a particular gender shall include either or both genders.

15.5 Headings – The headings used in this Plan are for convenience of reference only and shall not in any way affect or be used in interpreting any of the provisions of this Plan.

15.6 No Representation or Warranty – The Company makes no representation or warranty as to the future value of any Shares issued in accordance with the provisions of this Plan.

15.7 Income Taxes – As a condition of and prior to participation in the Plan any Optionee shall on request authorize the Company in writing to withhold from any remuneration otherwise payable to such Optionee any amounts required by any taxing authority to be withheld for taxes of any kind as a consequence of such Optionee's participation in the Plan.

15.8 Compliance with Applicable Law – If any provision of the Plan or any Option Agreement contravenes any law or any order, policy, by-law or regulation of any regulatory body or stock exchange or over the counter market having authority over the Company or the Plan, then such provision shall be deemed to be amended to the extent required to bring such provision into compliance therewith.

15.9 Conflict – In the event of any conflict between the provisions of this Plan and an Option Agreement, the provisions of this Plan shall govern.

15.10 Governing Law – This Plan and each Option Agreement issued pursuant to this Plan shall be governed by the laws of the Province of Ontario.

15.11 Time of Essence – Time is of the essence of this Plan and of each Option Agreement. No extension of time will be deemed to be, or to operate as, a waiver of the essentiality of time.

15.12 Entire Agreement – This Plan and the Option Agreement sets out the entire agreement between the Company and the Optionees relative to the subject matter hereof and supersedes all prior agreements, undertakings and understandings, whether oral or written.

16. EFFECTIVE DATE OF PLAN

.

16.1 Effective Date of Plan – This Plan shall be effective on the later of the day of its approval by the shareholders of the Company given by way of ordinary resolution and the day of its acceptance for filing by the Exchange.

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CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2019 and 2018

(Expressed in Canadian Dollars)

Independent Auditor's Report

To the Shareholders of Blue Sky Energy Inc.

Opinion

We have audited the consolidated financial statements of Blue Sky Energy Inc. and its subsidiaries (the "Company"), which comprise the consolidated statements of financial position as at July 31, 2019 and 2018, and the consolidated statements of income (loss) and comprehensive income (loss), consolidated statements of changes in shareholders' deficiency and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at July 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards ("IFRS").

Basis for opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material uncertainty related to going concern

We draw attention to Note 1 in the consolidated financial statements, which indicates that as of July 31, 2019, the Company's current liabilities exceeded its current assets. As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that material uncertainties exist that cast significant doubt on the Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other information

Management is responsible for the other information. The other information comprises Management's Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the

consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

We obtained Management's Discussion and Analysis prior to the date of this auditor's report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risks of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our

auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement partner of the audit resulting in this independent auditor's report is Glen McFarland.

McGovern Hurley LLP

Chartered Professional Accountants Licensed Public Accountants

Toronto, Ontario October 23, 2019

BLUE SKY ENERGY INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

($ Canadian)	July 31, 2019	July 31, 2018
ASSETS
Current
Cash	$555	$6,442
Amounts receivable (Note 4)	12,032	18,697
Prepaid expenses and deposits	738	2,213
Total assets	$13,325	$27,352
LIABILITIES
CurrentAccounts payable and accrued liabilities (Notes 6 and 12)	$1,665,232	$1,050,284
Loans payable (Note 6)	328,911	298,911
Discontinued operations (Notes 6 and 7)	-	4,717,906
Total liabilities	$1,994,143	$6,067,101
SHAREHOLDERS' DEFICIENCY
Common shares (Note 8(b))	$2,840,921	$2,840,921
Contributed surplus (Note 8(c))	802,375	765,069
Deficit	(5,624,114)	(10,703,419)
Accumulated other comprehensive income	-	1,057,680
Total shareholders' deficiency	$(1,980,818)	$(6,039,749)
Total liabilities and shareholders' deficiency	$13,325	$27,352

Nature and continuance of operations (Note 1) Commitments and contingencies (Note 11)

APPROVED ON BEHALF OF THE BOARD ON OCTOBER 23, 2019:

Signed "Ahmed Said" , DIRECTOR

Signed "Scott Moore" , DIRECTOR

BLUE SKY ENERGY INC. CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

	Year ended
($ Canadian)	July 31, 2019	July 31, 2018
Expenses
Wages, salaries and consulting fees (Note 12)	$486,091	$486,121
Professional fees	33,377	163,241
General office expenses	74,951	48,082
Travel expenses	-	30,602
Share based compensation (Notes 8(c) and 12)	44,648	335,041
Shareholder communications and filing fees	34,729	31,648
Foreign exchange (gain)	(171)	(106)
Total expenses before other income and expenses	673,625	1,094,629
Other income and expenses
Interest (expense)	(29,998)	(29,994)
(Loss) before discontinued operations	(703,623)	(1,124,623)
Gain on disposal of discontinued operations (Note 7)	4,804,947	-
(Loss)/ income from discontinued operations (Note 7)	(87,041)	711,290
Net income from discontinued operations	4,717,906	711,290
Net income/(loss) for the year	4,014,283	(413,333)
Other comprehensive income from discontinued operations
Foreign currency translation (Note 7)	1,057,680	-
Comprehensive income/ (loss) for the year	$5,071,963	$(413,333)
Basic and diluted (loss) from continuing operations per share	$(0.02)	$(0.04)
Basic and diluted income from discontinued operations per share	$0.15	$0.02
Basic and diluted comprehensive income (loss) per share	$0.16	$(0.01)

Weighted average number of common shares outstanding basic and diluted 30,884,961 30,884,961

See accompanying notes to the consolidated financial statements

BLUE SKY ENERGY INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY

($ Canadian)	Common Shares		ContributedSurplus	Deficit	AccumulatedOtherComprehensiveIncome	Shareholders'Deficiency
	#	$	$	$	$	$
Balance, July 31, 2018	30,884,961	2,840,921	765,069	(10,703,419)	1,057,680	(6,039,749)
Option vesting (Note 8(c))	-	-	44,648	-	-	44,648
Expiry of options (Note 8(c))	-	-	(7,342)	7,342	-	-
Income for the year	-	-	-	4,014,283	-	4,014,283
Other comprehensive income for the year	-	-	-	1,057,680	(1,057,680)	-
Balance, July 31, 2019	30,884,961	2,840,921	802,375	(5,624,114)	-	(1,980,818)
Balance, July 31, 2017	30,884,961	2,840,921	430,028	(10,290,086)	1,057,680	(5,961,457)
Option vesting (Note 8(c))	-	-	335,041	-	-	335,041
Loss for the year	-	-	-	(1,124,623)	-	(1,124,623)
Income from discontinued operations (Note 7)	-	-	-	711,290	-	711,290
Balance, July 31, 2018	30,884,961	2,840,921	765,069	(10,703,419)	1,057,680	(6,039,749)

BLUE SKY ENERGY INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended
($ Canadian)		July 31, 2019	July 31, 2018
CASH (USED IN) PROVIDED BY:
OPERATING ACTIVITIES
Net income/ (loss)	$	4,014,283	$	(413,333)
Items not involving cash:
Interest accrued (Note 6)		30,000		30,000
Share-based compensation (Note 8(c))		44,648		335,041
Gain on disposal of discontinued operations (Note 7)	(4,804,947)			-
		(716,016)		(48,292)
Net change in non-cash working capital		623,259		594,241
Continued operating activities		(92,757)		545,949
Discontinued operations (Note 7)		87,041		(711,290)
Net cash flows provided by (used in) operating activities		(5,716)		(165,341)
Effect of exchange rate change		(171)		(106)
CHANGE IN CASH DURING THE YEAR		(5,887)		(165,447)
CASH, beginning of the year		6,442		171,889
CASH, end of the year	$	555	$	6,442

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2019 and 2018

1. NATURE AND CONTINUANCE OF OPERATIONS

Blue Sky Energy Inc. (the "Company" or "Blue Sky") is a public company and trades on the TSX Venture Exchange ("TSXV") under the symbol "BSI". The Company was continued into Ontario, Canada on September 27, 2013 with a registered office address of 65 Queen Street West, Suite 805, Toronto, ON, M5H 2M5. Blue Sky is an international oil and gas exploration company, primarily engaged in exploring potential opportunities in the domestic and international oil and gas sector with a focus on competitive and stable energy jurisdictions.

Going concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the payment of liabilities in the ordinary course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.

The business of exploration for oil and gas involves a high degree of risk and there can be no assurance that current exploration programs will result in profitable oil and gas operations. The Company's continued existence is dependent upon the acquisition of oil and gas properties, preservation of its interest in the underlying properties, the discovery of economically recoverable reserves, the achievement of profitable operations, or the ability of the Company to raise alternative financing, if necessary, or alternatively upon the Company's ability to dispose of its interests on an advantageous basis. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern.

The Company does not have any operating assets that generate revenues, does not have proven reserves and incurred a net income of $4,014,283 during the year ended July 31, 2019 (July 31, 2018 – net loss of ($413,333)). As at July 31, 2019, the Company had a working capital deficiency of $1,980,818 (July 31, 2018 - $6,039,749). Consequently, the Company's ability to continue as a going concern is dependent on the Company's ability to obtain additional financing if, as and when required, and, ultimately, the attainment of profitable operations or the profitable sale of the Company's exploration interests.

These consolidated financial statements do not give effect to adjustments that would be necessary and could be material to the carrying values and classifications of assets and liabilities should the Company be unable to continue as a going concern.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies used in the preparation of these consolidated financial statements.

Statement of compliance

The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") and interpretations of the International Financial Reporting Interpretations Committee.

Basis of presentation

The consolidated financial statements of the Company have been prepared on an accrual basis and are based on historical costs, modified where applicable. The consolidated financial statements are presented in Canadian dollars unless otherwise noted.

BLUE SKY ENERGY INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2019 and 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of consolidation

These consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiary Sonoro Energy Iraq B.V. ("Sonoro Iraq"). Água Grande Exploração e Produção de Petróleo Ltda ("Agua Grande") was deconsolidated on October 19, 2018 (see Note 7).

Subsidiaries consist of entities over which the Company is exposed to, or has rights to, variable returns as well as the ability to affect those returns through the power to direct the relevant activities of the entity. Subsidiaries are fully consolidated from the date control is transferred to the Company and are deconsolidated from the date control ceases. The consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Company and its subsidiary after eliminating inter-entity balances and transactions.

The Company's oil and natural gas activities involved jointly controlled operations. The consolidated financial statements include the Company's proportionate share of the related exploration and evaluation costs incurred.

Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the consolidated financial statements.

Foreign currency translation

The functional currency of an entity is the currency of the primary economic environment in which the entity operates. The functional currency of the Canadian parent company is the Canadian dollar. The Company's operating subsidiary, Agua Grande, has a Canadian dollar functional currency. The Company's subsidiary, Sonoro Iraq, has a functional currency of the Iraqi Dinar. The reporting currency of the Company is the Canadian dollar.

For individual subsidiary accounts, transactions in foreign currencies are recorded in the functional currency at exchange rates prevailing on the dates of the transactions. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated at the period end exchange rates. Revenues and expenses are translated at the exchange rates approximating those in effect on the date of the transactions. Exchange gains and losses arising on translation are included in profit and loss.

For presentation of the Company's consolidated accounts, if the functional currency of the Company or its subsidiary is different from the presentation currency as at the reporting date, the assets and liabilities are translated into the presentation currency at the rate ruling at the statement of financial position date and the statement of loss and comprehensive loss is translated using the average exchange rate for the period. The foreign exchange differences are taken directly to a separate component of equity. On disposal of a foreign entity the deferred cumulative amount recognized in equity relating to the particular operation is recognized in the consolidated statements of loss and comprehensive loss.

Use of estimates and judgments

The preparation of the Company's consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.

Exploration and evaluation expenditures

Pre-exploration costs

Costs that are incurred prior to obtaining the legal right to explore, develop or extract resources are recognized as expenses in the consolidated statement of loss.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2019 and 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Exploration and evaluation expenditures (continued)

Exploration and evaluation expenditures

Exploration and evaluation costs are those expenditures incurred on projects where the Company has a legal right to explore and for which technical feasibility and commercial viability have been determined. These costs are initially capitalized as exploration and evaluation assets and include acquisition of rights to explore, exploration drilling, and any other activities relating to evaluation of technical feasibility and commercial viability of extracting oil and gas resources. The Company expenses items that are not directly attributable to exploration and evaluation assets.

Expenditures that are capitalized are recorded at cost. Costs that are capitalized are accumulated in cost centers by well, field or exploration area pending determination of technical feasibility and commercial viability.

When technical feasibility and commercial viability is determinable, exploration and evaluation assets attributable to those reserves are first tested for impairment and then reclassified from exploration and evaluation assets to a separate category within property and equipment referred to as oil and natural gas development and production assets. The Company recognized an impairment of exploration and evaluation expenditures of $nil during the year ended July 31, 2019 (July 31, 2018 - $nil).

Provisions

General

Provisions are recognized when (a) the Company has a present obligation (legal or constructive) as a result of a past event, and (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain.

The expense relating to any provision is presented in the consolidated statement of operations, net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost in the consolidated statement of operations.

Onerous contracts

Onerous contracts are present obligations arising under onerous contracts that are recognized and measured as provisions. An onerous contract is considered to exist where the Company has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

Decommissioning obligations

The Company records a liability for the fair value of legal or constructive obligations associated with the decommissioning of long-lived tangible assets in the period in which they are incurred. The decommissioning liability is recognized at the present value of the estimated future cash flow associated with the decommissioning of the applicable assets or properties. On recognition of the liability there is a corresponding increase in the carrying amount of the related asset known as the decommissioning cost, which is depleted on a unit-ofproduction basis over the life of the reserves. The liability is adjusted each reporting period to reflect the passage of time using the discount rate, with the interest charged to earnings, and for revisions to the estimated future cash flows. Actual costs incurred upon settlement of the obligations are charged against the liability.

As at July 31, 2019 and 2018 the Company did not have any decommissioning obligations.

BLUE SKY ENERGY INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2019 and 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Joint arrangements

A joint arrangement is defined as one over which two or more parties have joint control, which is the contractually agreed of sharing of control over an arrangement. This exists only when the decisions about the relevant activities (being those that significant affect the returns of the arrangement) require the unanimous consent of the parties sharing control. There are two types of joint arrangements, joint operations ("JO") and joint ventures ("JV"). A JO is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement. A JV is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. The Company did not have any joint arrangements during the years ended July 31, 2019 and 2018.

Cash

Cash includes cash on hand and deposits held with banks that have a maturity of less than three months at the date they are acquired. The Company did not have any cash equivalents as at July 31, 2019 and 2018.

Financial assets and liabilities

Accounting policy under IFRS 9 applicable from August 1, 2018

Financial assets

Initial recognition and measurement

Non-derivative financial assets within the scope of IFRS 9 are classified and measured as "financial assets at fair value", as either FVPL or FVOCI, and "financial assets at amortized costs", as appropriate. The Company determines the classification of financial assets at the time of initial recognition based on the Company's business model and the contractual terms of the cash flows.

All financial assets are recognized initially at fair value plus, in the case of financial assets not at FVPL, directly attributable transaction costs on the trade date at which the Company becomes a party to the contractual provisions of the instrument.

Financial assets with embedded derivatives are considered in their entirety when determining their classification at FVPL or at amortized cost.

Subsequent measurement – financial assets at amortized cost

After initial recognition, financial assets measured at amortized cost are subsequently measured at the end of each reporting period at amortized cost using the Effective Interest Rate ("EIR") method. Amortized cost is calculated by taking into account any discount or premium on acquisition and any fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the consolidated statements of income (loss). The Company measures cash and amounts receivable at amortized cost.

Subsequent measurement – financial assets at FVPL

Financial assets measured at FVPL include financial assets management intends to sell in the short term and any derivative financial instrument that is not designated as a hedging instrument in a hedge relationship. Financial assets measured at FVPL are carried at fair value in the consolidated statements of financial position with changes in fair value recognized in other income or expense in the consolidated statements of income (loss). The Company does not measure any financial assets at FVPL.

Subsequent measurement – financial assets at FVOCI

Financial assets measured at FVOCI are non-derivative financial assets that are not held for trading and the Company has made an irrevocable election at the time of initial recognition to measure the assets at FVOCI. The Company does not measure any financial assets at FVOCI.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2019 and 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial assets and liabilities (continued)

After initial measurement, investments measured at FVOCI are subsequently measured at fair value with unrealized gains or losses recognized in other comprehensive income or loss in the consolidated statements of comprehensive income (loss). When the investment is sold, the cumulative gain or loss remains in accumulated other comprehensive income or loss and is not reclassified to profit or loss.

Dividends from such investments are recognized in other income in the consolidated statements of income (loss) when the right to receive payments is established.

Derecognition

A financial asset is derecognized when the contractual rights to the cash flows from the asset expire, or the Company no longer retains substantially all the risks and rewards of ownership.

Impairment of financial assets

The Company's only financial assets subject to impairment are amounts receivable, which are measured at amortized cost. The Company has elected to apply the simplified approach to impairment as permitted by IFRS 9, which requires the expected lifetime loss to be recognized at the time of initial recognition of the receivable. To measure estimated credit losses, accounts receivable have been grouped based on shared credit risk characteristics, including the number of days past due. An impairment loss is reversed in subsequent periods if the amount of the expected loss decreases and the decrease can be objectively related to an event occurring after the initial impairment was recognized.

Financial liabilities

Initial recognition and measurement

Financial liabilities are measured at amortized cost, unless they are required to be measured at FVPL as is the case for held for trading or derivative instruments, or the Company has opted to measure the financial liability at FVPL. All financial liabilities are recognized initially at fair value.

Subsequent measurement – financial liabilities at amortized cost

After initial recognition, financial liabilities measured at amortized cost are subsequently measured at the end of each reporting period at amortized cost using the EIR method. Amortized cost is calculated by taking into account any discount or premium on acquisition and any fees or costs that are an integral part of the EIR. The Company's financial liabilities include accounts payable and accrued liabilities, and loans payable, which are each measured at amortized cost.

Subsequent measurement – financial liabilities at FVPL

Financial liabilities measured at FVPL include any derivative financial instrument that is not designated as a hedging instrument in a hedge relationship. Financial a measured at FVPL are carried at fair value in the consolidated statements of financial position with changes in fair value recognized in other income or expense in the consolidated statements of loss. The Company does not measure any financial liability as financial liability at FVPL.

Derecognition

A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires with any associated gain or loss recognized in other income or expense in the consolidated statements of income (loss).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2019 and 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial assets and liabilities (continued)

The accounting policy under IAS 39 for the comparative information presented in respect of financial assets and liabilities, excluding derivative instruments related to hedging activities, was similar to the accounting policy adopted in 2018, with the following exceptions:

Accounting policy under IAS 39 applicable prior to August 1, 2018

The accounting policy under IAS 39 for the comparative information presented in respect of financial assets and liabilities, excluding derivative instruments related to hedging activities, was similar to the accounting policy adopted in 2019, with the following exceptions:

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument to another entity. Upon initial recognition all financial instruments, including derivatives, are recognized in the statement of financial position at fair value. Subsequent measurement is then based on the financial instruments being classified into one of the following categories: fair value through profit or loss, held-to-maturity, loans and receivables, available-for-sale, or other financial liabilities.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and such assets are recognized initially at fair value and subsequently on an amortized basis using the effective interest method, less any impairment losses. Loans and receivables are included in current assets, except for maturities greater than 12 months after the end of the reporting period, which are classified as non-current assets.

All other financial liabilities are recognized initially at fair value plus any direct attributable transaction costs on the date at which the Company becomes a party to the contractual provisions of the instrument. Subsequent to initial recognition, the Company's financial liabilities are measured at amortized cost using the effective interest rate method. The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.

The Company will assess at each reporting period whether any financial assets, other than those classified as held-for-trading, are impaired. An impairment loss, if any, is recorded immediately in profit or loss. Financial assets will be considered impaired if management determines such amounts are or will become uncollectable.

The Company measures and recognizes embedded derivatives separately from the host contracts when the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract, when it meets the definition of a derivative and when the entire contract is not measured at fair value. Embedded derivatives are recorded at fair value. The Company has not entered into any contracts with embedded derivatives during the year ended July 31, 2019 and 2018.

Share capital

Proceeds from the issuance of common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity.

Share based payments

Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The Company has issued options to acquire common shares to directors, officers, employees and consultants of the Company. These options are accounted for using the fair-value method which estimates the value of the options at the date of the grant using the Black-Scholes option pricing model. The fair-value thus established is recognized as compensation expense over the vesting period of the options with an equivalent increase to contributed surplus. The amount in contributed surplus relates to unexpired awards which have vested and when exercised the value in contributed surplus is transferred to common shares. A forfeiture rate is estimated on the grant date and is subsequently adjusted to reflect the actual number of options that vest.

BLUE SKY ENERGY INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2019 and 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Interest income

Interest income is reported on an accrual basis using the effective interest method.

Finance costs

Finance costs include interest expenses and other costs in association to borrowing funds as well as any expense relating to accretion incurred in relation to Blue Sky's decommissioning obligations (if any). All applicable borrowing costs attributable to qualifying assets, which are assets that take more than twelve months to construct, are to be capitalized along with the corresponding asset until that asset is ready for use. All other borrowing costs are recognized in net loss as incurred.

Income taxes

Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Income (loss) per share

Basic income (loss) per share is calculated using the weighted average number of shares outstanding during the period. Diluted income (loss) per share is calculated by assuming that any proceeds from the exercise of dilutive stock options and warrants would be used to repurchase common shares at the average market price during the period, with the incremental number of shares being included in the denominator of the diluted loss per share calculation. The diluted income (loss) per share calculation excludes any potential conversion of options and warrants that would be anti-dilutive.

Discontinued Operations

A discontinued operation is a component of the Company's business, the operations and cash flows of which can be clearly distinguished and which:

• represents a separate major line of business or geographical area of operations;
• is part of single co-ordinated plan to dispose of a separate major line of business;
• is a subsidiary acquired exclusively with a view to re-sale.

Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as heldfor-sale. When an operation is classified as discontinued operation, the comparative consolidated statement of income (loss) and comprehensive income (loss) is re-presented as if the operation had been discontinued from the start of the comparative year.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2019 and 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Accounting pronouncements not yet adopted

Certain pronouncements were issued by the IASB or the IFRIC that are mandatory for accounting periods on or after August 1, 2019 or later periods. Many are not applicable or do not have a significant impact to the Company and have been excluded. The following have not yet been adopted and are being evaluated to determine their impact on the Company's consolidated financial statements.

IFRS 16, Leases ("IFRS 16") was issued in January 2016. It replaces the previous leases Standard, IAS 17 Leases, and related Interpretations. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases. It eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. IFRS 16 is effective for fiscal year ends commencing January 1, 2019.

IFRIC 23 – Uncertainty Over Income Tax Treatments ("IFRIC 23") was issued in June 2017 and clarifies the accounting for uncertainties in income taxes. The interpretation committee concluded that an entity shall consider whether it is probable that a taxation authority will accept an uncertain tax treatment. If an entity concludes it is probable that the taxation authority will accept an uncertain tax treatment, then the entity shall determine taxable profit (tax loss), tax bases, unused tax losses and credits or tax rates consistently with the tax treatment used or planned to be used in its income tax filings. If an entity concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the entity shall reflect the effect of uncertainty in determining the related taxable profit (tax loss), tax bases, unused tax losses and credits or tax rates. IFRIC 23 is effective for annual periods beginning on or after January 1, 2019. Earlier adoption is permitted.

IAS 1 – Presentation of Financial Statements ("IAS 1") and IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors ("IAS 8") were amended in October 2018 to refine the definition of materiality and clarify its characteristics. The revised definition focuses on the idea that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The amendments are effective for annual reporting periods beginning on or after January 1, 2020. Earlier adoption is permitted.

Other Accounting changes

During the year ended July 31, 2019, the Company adopted a number of new IFRS standards, interpretations, amendments and improvements of existing standards. These included IFRS 2 and IFRIC 22. These new standards and changes did not have any material impact on the Company's consolidated financial statements.

Effective August 1, 2018, the Company adopted IFRS 9, Financial Instruments, which resulted in changes in accounting policies as described below. In accordance with the transitional provisions in this standard, the Company adopted this standard retrospectively without restating comparatives, with the cumulative impact adjusted in the opening balances as at August 1, 2018. There were no material effects on opening balances at August 1, 2018 with respect to the adoption of this policy.

IFRS 9, Financial Instruments

IFRS 9 replaces International Accounting Standard ("IAS") 39, Financial Instruments: Recognition and Measurement. IFRS 9 introduces new requirements for the classification, measurement and impairment of financial assets and hedge accounting. It establishes two primary measurement categories for financial assets: (i) amortized cost and (ii) fair value either through profit or loss ("FVPL") or through other comprehensive income ("FVOCI"); establishes criteria for the classification of financial assets within each measurement category based on business model and cash flow characteristics; and eliminates the existing held for trading, held to maturity, available for sale, loans and receivable and other financial liabilities categories. IFRS 9 also introduces a new expected credit loss model for the purpose of assessing the impairment of financial assets and requires that there be a demonstrated economic relationship between the hedged item and hedging instrument.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2019 and 2018

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

IFRS 9, Financial Instruments (continued)

The following table shows the previous classification under IAS 39 and the new classification under IFRS 9 for the Company's financial instruments:

	Financial instrument classification
	Under IAS 39	Under IFRS 9
Financial assets
Cash	Loans and receivables	Amortized cost
Amounts receivable	Loans and receivables	Amortized cost
Financial liabilities
Accounts payable and accrued liabilities	Other financial liabilities	Amortized cost
Loans payable	Other financial liabilities	Amortized cost

The Company adopted IFRS 9 retrospectively without restating comparatives and therefore the comparative information in respect of financial instruments for the year ended July 31, 2018 was accounted for in accordance with the Company's previous accounting policy under IAS 39. See significant accounting policies which outline the current and previous accounting policies pertaining to financial instruments.

3. CRITICAL JUDGEMENTS AND ESTIMATION UNCERTAINTIES

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and related notes to the financial statements. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results could differ from those estimates and these estimates could be material.

The areas which require management to make significant judgments, estimates and assumptions in determining carrying values include, but are not limited to:

Assets' carrying values and impairment charges

In the determination of carrying values and impairment charges, management looks at the higher of recoverable amount or fair value less costs to sell in the case of assets and at objective evidence, significant or prolonged decline of fair value on financial assets indicating impairment. These determinations and their individual assumptions require that management make a decision based on the best available information at each reporting period.

Share-based payments and warrants

Management determines costs for share-based payments using market-based valuation techniques. The fair value of the market-based and performance-based share awards are determined at the date of grant using generally accepted valuation techniques. Assumptions are made and judgment used in applying valuation techniques. These assumptions and judgments include estimating the future volatility of the stock price, expected dividend yield, future employee turnover rates and future employee stock option exercise behaviors and corporate performance. Similar calculations are made in order to value warrants. Such judgments and assumptions are inherently uncertain. Changes in these assumptions affect the fair value estimates.

BLUE SKY ENERGY INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2019 and 2018

3. CRITICAL JUDGEMENTS AND ESTIMATION UNCERTAINTIES (continued)

Income, value added, withholding and other taxes

The Company is subject to income, value added, withholding and other taxes. Significant judgment is required in determining the Company's provisions for taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. The determination of the Company's income, value added, withholding and other tax liabilities requires interpretation of complex laws and regulations. The Company's interpretation of taxation law as applied to transactions and activities may not coincide with the interpretation of the tax authorities. All tax related filings are subject to government audit and potential reassessment subsequent to the financial statement reporting period. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the tax related accruals and deferred income tax provisions in the period in which such determination is made.

Contingencies and provisions

Contingencies can be either possible assets or possible liabilities arising from past events which, by their nature, will only be resolved when one or more future events not wholly within our control occur or fail to occur. The assessment of such contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events. In assessing loss contingencies related to legal proceedings that are pending against us or un-asserted claims, that may result in such proceedings or regulatory or government actions that may negatively impact our business or operations, the Company and its legal counsel evaluate the perceived merits of any legal proceedings or un-asserted claims or actions as well as the perceived merits of the nature and amount of relief sought or expected to be sought, when determining the amount, if any, to recognize as a contingent liability or assessing the impact on the carrying value of assets. Contingent assets are not recognized in the consolidated financial statements.

Foreign Currency Determination

Under IFRS, each entity must determine its own functional currency, which becomes the currency that entity measures its results and financial position in. Judgment is necessary in assessing each entity's functional currency. In determining the functional currencies of the Company and its subsidiaries, the Company considered many factors, including the currency that mainly influences sales prices for goods and services, the currency of the country whose competitive forces and regulations mainly determine the sales prices, and the currency that mainly influences labour material and other costs for each consolidated entity.

4. AMOUNTS RECEIVABLE

Amounts receivable balances as at July 31, 2019 and 2018 consist of amounts receivable from the Government of Canada for Harmonized Sales Taxes (HST).

5. EXPLORATION AND EVALUATION EXPENDITURES

On November 29, 2016, the Company acquired from Sonoro Energy International Holdings B.V. (the "Vendor") all the issued and outstanding shares of Sonoro Iraq, a company incorporated in the Netherlands and the designated operator and holder of the license agreement with the Al-Salah ad Din Provincial Government of Iraq for bitumen exploration and asphalt production (the "Salah ad Din License") defined in the license as hydrocarbons with an API gravity of less than 25 degrees.

On March 15, 2017, the Company announced that it had received a letter from the Republic of Iraq Salah Ad Din Investment Commission confirming the resumption of work and removal of Force Majeure status related to the Asphalt License that the Company controls through its subsidiary, Sonoro Iraq, subject to securing an investment license. Once the investment license is granted, the Company can plan a new work program. To date, the Company is still waiting for the grant of the investment license.

There were no exploration and evaluation expenditures for the years ended July 31, 2019 and 2018.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2019 and 2018

6. TRADE AND OTHER PAYABLES

	July 31, 2019	July 31, 2018
Accounts payable other	$1,164,843	$704,449
Accrued liabilities	500,389	345,835
Total accounts payable and accrued liabilities	$1,665,232	$1,050,284
Loans payable	328,911	298,911
Discontinued operations	-	4,717,906
Balance, period end	$1,994,143	$6,067,101

The Company incurred an unsecured loan from Aberdeen International Inc. on May 10, 2017 of $50,000 which was subsequently increased to $250,000 on May 15, 2017 with an original maturity date of July 5, 2017. Interest accrues at 12% annually. The loan maturity was extended until December 31, 2017 with the payment of an arrangement fee of $12,500. The loan was further extended, is due on demand, and at July 31, 2019, the loan balance including accrued interest and arrangement fees was $328,911 (July 31, 2018 - $298,911).

A loan of $62,500 from 2227929 Ontario Inc. is included in accounts payable and accrued liabilities as at July 31, 2019 (July 31, 2018 - $35,000). It is non-interest bearing and due on demand.

7. DISCONTINUED OPERATIONS

On November 9, 2017, the Company signed an agreement to dispose of its wholly owned Brazilian subsidiary, Agua Grande, to Umeq Al-Nahrain for General Trading, Import & Export Ltd., an Iraqi corporation, for a nominal $1. The transaction closed on October 19, 2018 at which time the subsidiary was deconsolidated and a non-cash gain of $4,804,947 was recognized on the consolidated statement of income (loss).

The liabilities related to this subsidiary were deconsolidated on the consolidated statements of financial position as at July 31, 2019 and was part of discontinued operations on July 31, 2018. The Company's liabilities associated with discontinued operations are comprised of the following:

Liabilities	As atJuly 31, 2019		As atJuly 31, 2018
Accounts payable trade - Block 166	$	-	$	1,028,762
Accounts payable trade		-		50,655
Payroll & social contributions		-		3,310
Taxes payable		-		5,444
Accrued vacation payroll		-		5,471
Provisions		-		3,624,264
	$	-	$	4,717,906

The operating results related to this subsidiary have been included in discontinued operations in the consolidated statements of income (loss) and comprehensive income (loss) and the consolidated statements of cash flow for the years ended July 31, 2019 and 2018.

	Year endedJuly 31, 2019	Year endedJuly 31, 2018
(Loss)/ IncomeForeign exchange (loss)/ gain on translation	$(87,041)	$711,290
	$(87,041)	$711,290

For the years ended July 31, 2019 and 2018

8. CAPITAL STOCK

a. Authorized

Unlimited number of common shares, without par value Unlimited number of 1st and 2nd preferred shares, without par value, issuable in series

b. Common shares issued

	Number of shares	Amount
Balance at July 31, 2017 and 2018,
July 31, 2019	30,884,961	$2,840,921

There were no new common shares issued for the years ended July 31, 2019 and 2018.

c. Contributed surplus

The Company has granted options for the purchase of common shares to its directors, officers, consultants and employees. The aggregate number of shares that may be issuable pursuant to options granted under the Stock Option Plan will not exceed 10% of the issued common shares of the Company at the date of grant. No more than 5% of the issued shares of the Company may be granted to any one optionee, and no more than 2% of the issued shares of the Company may be granted to any one consultant or person engaged in investor relations activities in any 12 month period. The options are non-transferable and non-assignable and may be granted for a term not exceeding five years. The exercise price of the options may not be less than the market price of the Blue Sky common shares at the time of the option grant.

On February 8, 2017, 1,105,000 options were granted. The options vest evenly over a two year period.

As at July 31, 2019, the following stock options were outstanding:

Number of	Number of	Grant	Expiration	Exercise			Grant date
options	options	date	date	price	Estimated	Expected	Expected	Expected	Risk-free
outstanding	exercisable				fair value	volatility	life	dividend	interest
					vested		(years)	yield	rate
995,000	995,000	8-Feb-17	8-Feb-22	$0.80	$ 730,513	154%	5	0%	1.01%
50,000	50,000	8-Feb-17	8-Feb-22	$1.00	$ 36,324	154%	5	0%	1.01%
50,000	50,000	8-Feb-17	8-Feb-22	$1.50	$ 35,538	154%	5	0%	1.01%
1,095,000	1,095,000			$0.84	$ 802,375		5

During the year ended July 31, 2019, 10,000 options expired, unexercised. For the year ended July 31, 2018, no options were exercised or expired. There are 1,095,000 options outstanding as at July 31, 2019. The weighted average remaining life of the options is 2.53 years (July 31, 2018 – 3.53 years).

	Number ofstock options	Weighted averageexercise price ($)
Balance, July 31, 2017 and 2018	1,105,000	0.84
Expired	(10,000)	0.80
Balance, July 31, 2019	1,095,000	0.84

BLUE SKY ENERGY INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2019 and 2018

9. INCOME TAXES

a. Provision for income taxes

Major items causing the Company's effective income tax rate to differ from the combined Canadian federal and provincial statutory rate of 26.5% (2018– 26.5%) were as follows:

	2019	2018
	$	$
(Loss) before discontinued operations and income taxes	(703,623)	(1,124,623)
Expected income tax (recovery) based on statutory rate	(186,000)	(298,000)
Adjustment to expected income tax benefit:
Permanent differences and other	12,000	138,000
Change in unrecorded tax asset	174,000	160,000
Deferred income tax provision (recovery)	-	-

b. Deferred income tax balances

Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Company can use the benefits.

Deferred income tax assets have not been recognized in respect of the following deductible temporary differences:

	2019$	2018$
Non-capital loss carry-forwards	6,322,000	5,663,000
Capital loss carry-forwards	1,941,000	1,941,000
Total	8,263,000	7,604,000

As at July 31, 2019, the Company has estimated non-capital loss for Canadian income tax purposes of approximately $6,322,000 (2018 - $5,663,000) available to use against future taxable income. The non-capital tax losses expire between 2031 and 2039.

2031	$670,000
2032	1,326,000
2033	1,097,000
2034	504,000
2035	433,000
2036	219,000
2037	628,000
2038	786,000
2039	659,000
	$6,322,000

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2019 and 2018

10. NET INCOME (LOSS) PER SHARE

The number of shares used to calculate the basic and diluted net loss from continuing operations per share and the basic and diluted income from discontinued operations per share for the years ended July 31, 2019 and 2018 included the weighted average number of Blue Sky common shares outstanding of 30,884,961 respectively plus nil shares related to the dilutive effect of the conversion of stock options as the stock options would be anti-dilutive.

11. COMMITMENTS AND CONTINGENCIES

Sonoro Iraq acquisition

On November 29, 2016, the Company acquired Sonoro Iraq. See Note 5. In consideration for the acquisition, the Company will make the following contingent payments to the Vendor, totaling $4 million:

• $1 million on first production of petroleum and asphalt;
• $1 million once production hits 15,000 barrels per day;
• $1 million once production hits 40,000 barrels per day; and
• $1 million once production hits 80,000 barrels per day.

All production is as defined in the Salah ad Din License dated October 2, 2010. In the event that no production is achieved related to the Salah ad Din License agreement, no consideration or payments shall be owing or payable to the Vendor. As triggering events have not taken place as at July 31, 2019, these amounts have not been recorded in these consolidated financial statements.

Management contracts

The Company is party to certain management and independent contractor contracts. These contracts require payments of approximately $1,170,000 to be made upon the occurrence of a change in control to the officers of the Company. As a triggering event has not taken place, the contingent payments have not been reflected in these consolidated financial statements. The Company is also committed to payments upon termination of approximately $398,000 pursuant to the terms of these contracts.

Contingencies

Oil and gas operations are subject to extensive controls and regulations imposed by various levels of government that may be amended from time to time. The Company's operations may require licenses and permits from various governmental authorities in the countries in which it operates. There can be no assurance that the Company will be able to obtain all necessary licenses and permits that may be required to carry out exploration and development of its projects.

Environmental

The Company's exploration and evaluation activities are subject to laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company believes its operations are materially in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2019 and 2018

12. RELATED PARTY DISCLOSURES

Key management personnel compensation

In addition to their contracted fees, executive officers participate in the Company's share option program. Certain executive officers are subject to a mutual termination notice ranging from three to twelve months. See Note 11. Key management personnel compensation comprised:

	Year endedJuly 31, 2019	Year endedJuly 31, 2018
Short term employee benefits	$164,556	$183,333
Share-based payments	28,337	212,652
	$192,893	$395,985

Included in accounts payable and accrued liabilities as at July 31, 2019, is $476,389 (July 31, 2018 - $320,833) owing to key management personnel for business and operational consulting services. Such amounts are unsecured, non-interest bearing, with no fixed terms of repayment.

See Note 6 for outstanding loan payable owing to Aberdeen International Inc., an entity which owns common shares of the Company.

13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Fair value

Blue Sky's financial instruments as at July 31, 2019, consists of cash, amounts receivable, accounts payable and accrued liabilities and loans payable and the amounts reflected in the consolidated statements of financial position approximate fair value due to the short-term maturity of these instruments.

Financial instruments recorded at the reporting date at fair value are classified into one of three levels based upon the fair value hierarchy. Items are categorized based on inputs used to derive fair value based on:

Level 1 - quoted prices that are unadjusted in active markets for identical assets or liabilities;

Level 2 - inputs other than quoted prices included in level 1 that are observable for the asset/liability either directly or indirectly; and

Level 3 - inputs for the instruments are not based on any observable market data.

The Company had no financial instruments recorded at fair value in the consolidated statements of financial position at July 31, 2019 and 2018.

Fair value estimates are made at the relevant transaction date, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties in significant matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

Risk Management Overview

The Company has exposure to credit, liquidity and market risks from its use of financial instruments. This note provides information about the Company's exposure to each of these risks, the Company's objectives, policies and processes for measuring and managing risk. Further quantitative disclosures are included throughout these consolidated financial statements.

Credit risk

Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company's receivables from joint venture partners.

The carrying amount of accounts receivable represents the maximum credit exposure. As at July 31, 2019 the Company's total receivable was $12,032 (July 31, 2018 - $18,697). There were no derivative instruments held at July 31, 2019 and 2018.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2019 and 2018

13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

Market risk

Market risk is the risk that changes in market conditions, such as commodity prices, interest rates, and foreign exchange rates, will affect the Company's net income or the value of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximizing the Company's returns.

(i) Commodity price risk

Commodity price risk is the risk that 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 dollar, as outlined below, but also global economic events that dictate the levels of supply and demand. Lower commodity prices can also reduce the Company's ability to raise capital. As the Company is not generating revenues, commodity price risk does not directly impact the Company's financial results.

(ii) Foreign exchange risk

Foreign currency exchange rate risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in foreign exchange rates.

As at July 31, 2019, the Company had the following assets and liabilities denominated in foreign currencies:

July 31, 2019	USD$		Euro
Cash	$55	$$	-
Accounts payable	(25)		(363)
	$30	$$	(363)

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with the financial liabilities. The Company's financial liabilities consist of accounts payable, accrued liabilities and loans payable.

The Company prepares annual capital expenditure budgets, which are monitored and updated as considered necessary. Financial modeling is used to provide economic outlooks and the Company utilizes authorizations for expenditures on projects to monitor capital expenditures.

Accounts payable and accrued liabilities consist of invoices payable to trade suppliers for office, field operating activities and capital expenditures. The Company processes invoices within a normal payment period. Accounts payable have contractual maturities of less than one year.

The Company has an unsecured loan from Aberdeen International Inc. bearing a 12% annual interest rate.

Sensitivity analysis

The Company has, for accounting purposes, designated its cash and amounts receivable as loans and receivables which are measured at amortized cost. Accounts payable, accrued liabilities and loans payable are classified for accounting purposes as other financial liabilities, which are measured at amortized cost. As of July 31, 2019, both the carrying and fair value amounts of the Company's financial instruments are approximately equivalent due to the short term maturity of these instruments.

The sensitivity analysis shown in the notes below may differ materially from actual results. Based on management's knowledge of and experience with the financial markets, the Company believes the following movements are "reasonably possible" over a one year period:

(i) Cash is subject to floating interest rates. As at July 31, 2019, if interest rates had decreased/increased by 1% with all other variables held constant, there would not have been a material impact to the income (loss) for the year ended July 31, 2019 given the low level of cash on hand throughout this year.

For the years ended July 31, 2019 and 2018

13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

Sensitivity analysis (continued)

(ii) Cash, accounts payable and accrued liabilities and provisions denominated in US dollar or European Euros are subject to foreign currency risk. As at July 31, 2019, had the US dollar and Euros weakened/strengthened by 5% against the Canadian dollar with all other variables held constant, there would have been a change of approximately $25 in the Company's net income (loss).

14. CAPITAL MANAGEMENT

The Company considers the aggregate of its common shares, contributed surplus and deficit as capital. The Company's objective, when managing capital, is to ensure sufficient resources are available to meet day to day operating requirements and to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders.

At July 31, 2019, the Company has no cash-generating operations; therefore, the only source of cash flow is generated from financing activities. The Company's officers and senior management are in the process of searching for additional business opportunities. Potential business activities are appropriately evaluated by senior management and a formal review and approval process has been established at the Board of Director level. The Company may enter into new financing arrangements to meet its objectives for managing capital, until such time as a viable business activity is operational and the Company can thereby internally generate sufficient capital to cover its operational requirements.

The Company's officers and senior management take full responsibility for managing the Company's capital and do so through quarterly meetings and regular review of financial information. The Company's Board of Directors is responsible for overseeing this process.

The Company is not subject to any capital requirements imposed by a lending institution or regulatory body, other than of the TSXV which requires adequate working capital or financial resources of the greater of (i) $50,000 and (ii) an amount required in order to maintain operations and cover general and administrative expenses for a period of 6 months.

As of July 31, 2019, the Company may not be compliant with the policies of the TSXV. The impact of this violation is not known and is ultimately dependent on the discretion of the TSXV.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

For the year ended July 31, 2019

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

This Management's Discussion and Analysis ("MD&A") relates to the financial position and results of Blue Sky Energy Inc. ("Blue Sky" or the "Company") for the year ended July 31, 2019. This MD&A should be read in conjunction with the consolidated financial statements for the year ended July 31, 2019. Unless otherwise noted, all references to currency in this MD&A are in Canadian dollars.

All financial statement information discussed in this MD&A have been prepared using International Financial Reporting Standards ("IFRS") applicable to a going concern, which contemplates the realization of assets and the payment of liabilities in the ordinary course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they come due.

The Company's certifying officers are responsible for ensuring the consolidated financial statements do not contain any untrue statement of material fact or omit a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made. The Company's officers certify that the consolidated financial statements fairly present, in all material respects, the financial condition, result of operations and cash flows, of the Company as of the date hereof. The Board of Directors approves the consolidated financial statements and ensures that management has discharged its financial responsibilities. The Board of Directors' review is accomplished principally through the Audit Committee, which meets periodically to review all financial reports, prior to filing.

This MD&A is as of October 23, 2019. The reader should be aware that historical results are not necessarily indicative of future performance.

OVERVIEW

Blue Sky Energy Inc. is an independent Canadian oil and gas exploration company focused on pursuing the exploration, evaluation and development of resource assets. Blue Sky's shares are listed on the TSX Venture Exchange ("TSXV") under the symbol "BSI". Additional information relating to the Company can be found on SEDAR at www.sedar.com.

OUTLOOK

The Company will continue its efforts to raise additional financing to advance its Iraq property and evaluate other opportunities which would create shareholder value.

HIGHLIGHTS

On November 9, 2017, the Company signed an agreement to dispose of its wholly owned Brazilian subsidiary, Agua Grande to Umeq Al-Nahrain for General Trading, Import & Export Ltd., an Iraqi corporation for a nominal $1. The transaction closed on October 19, 2018, at which time the subsidiary was deconsolidated and a non-cash gain of $4,804,947 was recognized on the consolidated statement of income (loss).

On December 18, 2018, the Company terminated its planned reverse take-over transaction with Irati Energy Corp. The Company has applied to the TSX Venture Exchange to have its common shares resume trading.

On July 30, 2019, 10,000 options expired, unexercised.

IRAQ PROPERTY

On November 29, 2016, the Company acquired from Sonoro Energy International Holdings B.V. (the "Vendor") all the issued and outstanding shares of Sonoro Energy Iraq B.V. ("Sonoro Iraq"), a company incorporated in the Netherlands and the designated operator and holder of the license agreement with the Al-Salah ad Din Provincial Government of Iraq for bitumen exploration and asphalt production (the "Salah ad Din License") defined in the license as hydrocarbons with an API gravity of less than 25 degrees.

On March 15, 2017, the Company announced that it had received a letter from the Republic of Iraq Salah Ad Din Investment Commission confirming the resumption of work and removal of Force Majeure status related to the Asphalt License that the Company controls through its subsidiary, Sonoro Iraq, subject to securing an investment license. Once the investment license is granted, the Company can plan a new work program. To date, the Company is still waiting for the grant of the investment license.

SELECTED ANNUAL INFORMATION

The table below provides a summary of selected annual information for the years ended July 31, 2019, 2018, and 2017.

	Years ended
($, except per share amounts)	July 31, 2019	July 31, 2018	July 31, 2017
Funds (used in) operating activities	(5,716)	(165,447)	(335,411)
Impairment of exploration and evaluation assets	-	-	-
Concession from creditors	-	-	-
Net loss before discontinued operations	(703,623)	(1,124,623)	(1,240,784)
Net income/ (loss) for the year	4,014,283	(413,333)	(1,240,784)
Per share - basic and diluted (loss) from continuing operations	(0.02)	(0.04)	(0.04)
Per share - basic and diluted income from discontinued operations	0.15	0.02	0.00
Per share - basic and diluted comprehensive income (loss)	0.16	0.02	(0.04)
Other comprehensive (loss)/ income	(87,041)	-	47,601
Total assets	13,325	27,352	178,217
Shares outstanding at year end	30,884,961	30,884,961	30,884,961

SUMMARY OF QUARTERLY RESULTS

The loss of $146,610 in the quarter ended July 31, 2019, is mainly due to $111,134 spent on wages, salaries and consulting fees. The other main expenses for the quarter were professional fees of $6,533, shareholder communication and filing fees of $2,400 and general office expenses of $19,157. The income of $32,065 in the quarter ended July 31, 2018, is mainly due to income from discontinued operations of $291,044 from foreign exchange gains which was greater than all the expenses for the quarter of $258,979. The main expenses for the quarter were wages, salaries and consulting fees of $128,339, professional fees of $50,383, share based compensation of options vested of $46,165 and general office expenses of $20,254.

(in $)	Quarter Ended
	Jul-19	Apr-19	Jan-19	Oct-18	Jul-18	Apr-18	Jan-18	Oct-17
Net (loss) income	(146,610)	(219,495)	(151,546)	4,531,934	32,065	(38,908)	(321,583)	(84,907)
Net (loss) income from continuing operations	(146,610)	(219,495)	(151,546)	(185,972)	(258,979)	(293,232)	(411,344)	(161,068)
Per share - basic and diluted from discontinuedoperations	(0.00)	(0.00)	(0.00)	0.19	0.00	0.01	(0.00)	(0.01)
Per share - basic and diluted from continuing operations	(0.00)	(0.01)	(0.00)	(0.01)	(0.01)	(0.03)	(0.01)	(0.01)
Total assets	13,325	17,392	29,060	29,220	27,352	62,571	167,670	211,591

The Company has and expects to continue to report negative earnings until the Company's exploration program finds and develops producing assets. The Company will continue to utilize proceeds from debt, financing and equity issuances to fund its exploration program and general and administrative operating costs.

As at July 31, 2019, the Company had no operating assets and expects to generate negative cash flow from operations for the foreseeable future.

REVIEW OF FINANCIAL RESULTS

Selected Financial Information

	Three months ended		Year ended
		July 31, 2019	July 31, 2018	July 31, 2019	July 31, 2018
Net (loss)/ income for the period	$	(146,610)	$32,065	$ 4,014,283	$(413,333)
(Loss) before discontinued operations		(146,610)	(258,979)	(703,623)	(1,124,623)
Comprehensive (loss)/ income for the period		(146,610)	32,065	5,071,963	(413,333)
Gain on disposal of discontinued operations		-	-	4,804,947	-
Income/ (loss) from discontinued operations		-	291,044	(87,041)	711,290
(Loss) per share from continuing operations(Loss)/ income per share from		(0.00)	(0.01)	(0.02)	(0.04)
discontinued operations		(0.00)	0.01	0.15	0.02
Comprehensive (loss)/ income per share		(0.00)	0.00	0.16	(0.01)
General and administrative:
General office expenses		19,157	20,254	74,951	48,082
Wages, salaries and consulting fees		111,134	128,339	486,091	486,121
Professional fees		6,533	50,383	33,377	163,241
Shareholder communications and filing fees		2,400	6,276	34,729	31,648
Travel expenses		-	-	-	30,602
		139,224	205,252	629,148	759,694
Non-cash:
Share based compensation		-	46,165	44,648	335,041
		-	46,165	44,648	335,041
Foreign exchange (gain) loss		(176)	3	(171)	(106)
Interest expense		7,562	7,559	29,998	29,994
Gain on deconsolidation		-	-	(4,804,947)	-
(Income)/ loss from discontinued operations		-	(291,044)	87,041	(711,290)
Net loss/ (income)	$	146,610	$(32,065)	$ (4,014,293)	$413,333

There were no exploration and evaluation expenditures during the year ended July 31, 2019 and 2018. Água Grande Exploração e Produção de Petróleo Ltda deconsolidation transaction closed on October 19, 2018.

Expenses

During the three months and year ended July 31, 2019, the Company recorded general office expenses of $19,157 and $74,951 compared to $20,254 and $48,082 in the same period for the prior year. The Company is trying to minimize this type of expenses.

During the three months and year ended July 31, 2019, wages, salaries and consulting fees were $111,134 and $486,091 compared to $128,339 and $486,121 in the same period in the prior year.

Professional fees of $6,533 and $33,377 during the three months and year ended July 31, 2019 has decreased from $50,383 and $163,241 compared to the same period last year due to a reduction in legal costs. The fees are mainly for audit and other accounting fees incurred and/or accrued in the periods.

Shareholder communications and filing fees are the costs associated with maintaining public company filings and investor relations. There was $2,400 and $34,729 spent during the three months and year ended July 31, 2019, compared to $6,276 and $31,648 in the comparative period last year. The increase in shareholder communications for the current year was due to the potential reverse take-over transaction with Irati Energy Corp. which was terminated on December 18, 2018.

The Company recorded travel expenses of $Nil during the three months and year ended July 31, 2019 compared with $Nil and $30,602 during the three months and year ended July 31, 2018.

During the three months and year ended July 31, 2019, the Company recorded share-based compensation expenses of $Nil and $44,648 compared to $46,165 and $335,041 for the three months and year ended July 31, 2018. The share-based compensation expenses relate to partial vesting of 1,105,000 options to directors, and consultants of the Company from the February 8, 2017 option grant. The options started vesting April 30, 2017 and completed vesting on April 30, 2019.

During the three months and year ended July 31, 2019, the Company incurred interest expense of $7,562 and $29,998 compared to $7,559 and $29,994 for the three months and year ended July 31, 2018. The Company acquired an unsecured loan from Aberdeen International Inc. on May 10, 2017 of $50,000 which was subsequently increased to $250,000 on May 15, 2017 with an original maturity date of July 5, 2017. Interest accrues at 12% annually. The loan maturity was extended until December 31, 2017 with the payment of an arrangement fee of $12,500. The loan was further extended, is due on demand, and at July 31, 2019, the loan balance including accrued interest and arrangement fees was $328,911. A loan of $62,500 from 2227929 Ontario Inc. is included in accounts payable and accrued liabilities as at July 31, 2019 (July 31, 2018 - $35,000). It is non-interest bearing and due on demand.

On October 19, 2018, the Company closed the sale of Agua Grande to Umeq Al-Nahrain for General Trading, Import & Export Ltd., which resulted in a gain on deconsolidation of $4,804,947.

For the three months and year ended July 31, 2019, the Company incurred loss from discontinued operations of $Nil and $87,041 from foreign exchange loss due to the weakening of the Canadian dollar against the Brazilian Real. For the three months and year ended July 31, 2018, the Company incurred income from discontinued operations of $291,044 and $711,290 from foreign exchange gain due to the strengthening of the Canadian dollar against the Brazilian Real.

CASH FLOWS

	Three months ended					Year ended
($ Canadian)	July 31, 2019		July 31, 2018			July 31, 2019		July 31, 2018
Cash flows (used in) operating activitiesEffect of exchange rate	$	527(176)	$	(27,385)		(5,716)(171)	$	(165,341)(106)
Net change in cash	$	351	3$(27,382)		$	(5,887)	$	(165,447)

Cash flows used in operating activities during the three months and year ended July 31, 2019 was $527 and $5,716. This is due to the holding of accounts payables. Cash used by operating activities during the three months and year ended July 31, 2018 was $27,385 and $165,341. There were no financing or investing activities for the three months and year ended July 31, 2019 and 2018.

LIQUIDITY AND CAPITAL RESOURCES

Funding for the Company's exploration program and operations has come from a loan from Aberdeen International Inc. The Company expects to continue to use cash until such time as the Company is able to establish a production base. The Company will require additional financing in order to execute its business plan and will continue its efforts to seek appropriate financing initiatives that benefit the Company. If the Company is not able to secure additional financing, it may not be able to continue as a going concern. The consolidated financial statements for the year ended July 31, 2019 do not give effect to adjustments that would be necessary and could be material to the carrying values and classifications of assets and liabilities should the Company be unable to continue as a going concern. The Company has no off-balance sheet transactions.

Going concern

Blue Sky is a development stage enterprise. To date, the Company has not found proven reserves. The business of exploration for oil and gas involves a high degree of risk and there can be no assurance that current exploration programs will result in profitable oil and gas operations. The Company's continued existence is dependent upon the acquisition of oil and gas properties, preservation of its interest in the underlying properties, the discovery of economically recoverable reserves, the achievement of profitable operations, or the ability of the Company to raise alternative financing, if necessary, or alternatively upon the Company's ability to dispose of its interests on an advantageous basis. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern.

The Company does not have any operating assets that generate revenues, does not have proven reserves and incurred a loss before discontinued operations of $703,623 during the year ended July 31, 2019. As at July 31, 2019 the Company had a working capital deficiency of $1,980,818. Consequently, the Company's ability to continue as a going concern is dependent on the Company's ability to obtain additional financing if, as and when required, and, ultimately, the attainment of profitable operations or the profitable sale of the Company's exploration interests.

COMMITMENTS AND CONTINGENCIES

Sonoro Iraq acquisition

On November 29, 2016, the Company acquired Sonoro Iraq. In consideration for the acquisition, the Company will make following contingent payments to the Vendor, totaling $4 million:

• $1 million on first production of petroleum and asphalt;
• $1 million once production hits 15,000 barrels per day;
• $1 million once production hits 40,000 barrels per day; and
• $1 million once production hits 80,000 barrels per day.

All production is as defined in the Salah ad Din License dated October 2, 2010. In the event that no production is achieved related to the Salah ad Din License agreement, no consideration or payments shall be owing or payable to the Vendor. As triggering events have not taken place as at July 31, 2019, the above amounts have not been recorded in the consolidated financial statements.

Management contracts

The Company is party to certain management and independent contractor contracts. These contracts require payments of approximately $1,170,000 to be made upon the occurrence of a change in control to the officers of the Company. As a triggering event has not taken place, the contingent payments have not been reflected in the consolidated financial statements. The Company is also committed to payments upon termination of approximately $398,000 pursuant to the terms of these contracts.

Contingencies

Oil and gas operations are subject to extensive controls and regulations imposed by various levels of government that may be amended from time to time. The Company's operations may require licenses and permits from various governmental authorities in the countries in which it operates. There can be no assurance that the Company will be able to obtain all necessary licenses and permits that may be required to carry out exploration and development of its projects.

Environmental

The Company's exploration and evaluation activities are subject to laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company believes its operations are materially in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations.

SHARE CAPITAL

As at the date of this report, there are 30,884,961 common shares of Blue Sky are outstanding. There are no off-balance sheet financing arrangements.

RELATED PARTY TRANSACTIONS

Key management personnel compensation

In addition to their contracted fees, executive officers participate in the Company's Share option program. Certain executive officers are subject to a mutual termination notice ranging from three to twelve months. Key management personnel compensation comprised:

	Year endedJuly 31, 2019	Year endedJuly 31, 2018
Short term employee benefits	$164,556	$183,333
Share-based payments	28,337	212,652
	$192,893	$395,985

Included in accounts payable and accrued liabilities as at July 31, 2019, is $476,389 (July 31, 2018 - $320,833) owing to key management personnel for business and operational consulting services. Such amounts are unsecured, non-interest bearing, with no fixed terms of repayment.

CHANGES IN ACCOUNTING POLICIES

The Company will monitor the development of the relevant IFRS and change its accounting policies accordingly.

Accounting pronouncements not yet adopted

Certain pronouncements were issued by the IASB or the IFRIC that are mandatory for accounting periods on or after August 1, 2019 or later periods. Many are not applicable or do not have a significant impact to the Company and have been excluded. The following have not yet been adopted and are being evaluated to determine their impact on the Company's consolidated financial statements.

IFRS 16, Leases ("IFRS 16") was issued in January 2016. It replaces the previous leases Standard, IAS 17 Leases, and related Interpretations. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases. It eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and offbalance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. IFRS 16 is effective from January 1, 2019.

IFRIC 23 – Uncertainty Over Income Tax Treatments ("IFRIC 23") was issued in June 2017 and clarifies the accounting for uncertainties in income taxes. The interpretation committee concluded that an entity shall consider whether it is probable that a taxation authority will accept an uncertain tax treatment. If an entity concludes it is probable that the taxation authority will accept an uncertain tax treatment, then the entity shall determine taxable profit (tax loss), tax bases, unused tax losses and credits or tax rates consistently with the tax treatment used or planned to be used in its income tax filings. If an entity concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the entity shall reflect the effect of uncertainty in determining the related taxable profit (tax loss), tax bases, unused tax losses and credits or tax rates. IFRIC 23 is effective for annual periods beginning on or after January 1, 2019.

IAS 1 – Presentation of Financial Statements ("IAS 1") and IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors ("IAS 8") were amended in October 2018 to refine the definition of materiality and clarify its characteristics. The revised definition focuses on the idea that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The amendments are effective for annual reporting periods beginning on or after January 1, 2020. Earlier adoption is permitted.

Other accounting changes

During the year ended July 31, 2019, the Company adopted a number of new IFRS standards, interpretations, amendments and improvements of existing standards. These included IFRS 2 and IFRIC 22. These new standards and changes did not have any material impact on the Company's consolidated financial statements.

Effective August 1, 2018, the Company adopted IFRS 9, Financial Instruments, which resulted in changes in accounting policies as described below. In accordance with the transitional provisions in both standards, the Company adopted these standards retrospectively without restating comparatives, with the cumulative impact adjusted in the opening balances as at August 1, 2018. There were no effects on opening balances at August 1, 2018 with respect to the adoption of this policy.

IFRS 9, Financial Instruments

IFRS 9 replaces International Accounting Standard ("IAS") 39, Financial Instruments: Recognition and Measurement. IFRS 9 introduces new requirements for the classification, measurement and impairment of financial assets and hedge accounting. It establishes two primary measurement categories for financial assets: (i) amortized cost and (ii) fair value either through profit or loss ("FVPL") or through other comprehensive income ("FVOCI"); establishes criteria for the classification of financial assets within each measurement category based on business model and cash flow characteristics; and eliminates the existing held for trading, held to maturity, available for sale, loans and receivable and other financial liabilities categories. IFRS 9 also introduces a new expected credit loss model for the purpose of assessing the impairment of financial assets and requires that there be a demonstrated economic relationship between the hedged item and hedging instrument.

The following table shows the previous classification under IAS 39 and the new classification under IFRS 9 for the Company's financial instruments:

	Financial instrument classification
	Under IAS 39	Under IFRS 9
Financial assets
Cash and cash equivalents	Loans and receivables	Amortized cost
Amounts receivable	Loans and receivables	Amortized cost
Financial liabilities
Accounts payable and accrued liabilities	Other financial liabilities	Amortized cost
Loans payable	Other financial liabilities	Amortized cost

The Company adopted IFRS 9 retrospectively without restating comparatives and therefore the comparative information in respect of financial instruments for the year ended July 31, 2018 was accounted for in accordance with the Company's previous accounting policy under IAS 39. See significant accounting policies in the consolidated financial statements for the year ended July 31, 2019, which outline the current and previous accounting policies pertaining to financial instruments.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and related notes to the financial statements. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results could differ from those estimates and these estimates could be material.

The areas which require management to make significant judgments, estimates and assumptions in determining carrying values include, but are not limited to:

Assets' carrying values and impairment charges

In the determination of carrying values and impairment charges, management looks at the higher of recoverable amount or fair value less costs to sell in the case of assets and at objective evidence, significant or prolonged decline of fair value on financial assets indicating impairment. These determinations and their individual assumptions require that management make a decision based on the best available information at each reporting period.

Share-based payments and warrants

Management determines costs for share-based payments using market-based valuation techniques. The fair value of the marketbased and performance-based share awards are determined at the date of grant using generally accepted valuation techniques. Assumptions are made and judgment used in applying valuation techniques. These assumptions and judgments include estimating the future volatility of the stock price, expected dividend yield, future employee turnover rates and future employee stock option exercise behaviors and corporate performance. Similar calculations are made in order to value warrants. Such judgments and assumptions are inherently uncertain. Changes in these assumptions affect the fair value estimates.

Income, value added, withholding and other taxes

The Company is subject to income, value added, withholding and other taxes. Significant judgment is required in determining the Company's provisions for taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. The determination of the Company's income, value added, withholding and other tax liabilities require interpretation of complex laws and regulations. The Company's interpretation of taxation law as applied to transactions and activities may not coincide with the interpretation of the tax authorities. All tax related filings are subject to government audit and potential reassessment subsequent to the financial statement reporting period. Where the final tax outcome of these matters is

different from the amounts that were initially recorded, such differences will impact the tax related accruals and deferred income tax provisions in the period in which such determination is made.

Contingencies and provisions

Contingencies can be either possible assets or possible liabilities arising from past events which, by their nature, will only be resolved when one or more future events not wholly within our control occur or fail to occur. The assessment of such contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events. In assessing loss contingencies related to legal proceedings that are pending against us or un-asserted claims, that may result in such proceedings or regulatory or government actions that may negatively impact our business or operations, the Company and its legal counsel evaluate the perceived merits of any legal proceedings or un-asserted claims or actions as well as the perceived merits of the nature and amount of relief sought or expected to be sought, when determining the amount, if any, to recognize as a contingent liability or assessing the impact on the carrying value of assets. Contingent assets are not recognized in the consolidated financial statements.

The Company has provided for contingent payments related to the eventual settlement of its arbitration proceedings related to its farm-out agreement with Sonangol. For further details please see the Commitments and Contingencies section above.

Foreign Currency Determination

Under IFRS, each entity must determine its own functional currency, which becomes the currency that entity measures its results and financial position in. Judgment is necessary in assessing each entity's functional currency. In determining the functional currencies of the Company and its subsidiaries, the Company considered many factors, including the currency that mainly influences sales prices for goods and services, the currency of the country whose competitive forces and regulations mainly determine the sales prices, and the currency that mainly influences labour material and other costs for each consolidated entity.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Fair value

Blue Sky's financial instruments as at July 31, 2019, consist of cash, accounts receivable, accounts payable, accrued liabilities and loans payable and the amounts reflected in the consolidated statements of financial position approximate fair value due to the short term maturity of these instruments.

Financial instruments recorded at the reporting date at fair value are classified into one of three levels based upon the fair value hierarchy. Items are categorized based on inputs used to derive fair value based on:

Level 1 - quoted prices that are unadjusted in active markets for identical assets or liabilities;

Level 2 - inputs other than quoted prices included in level I that are observable for the asset/liability either directly or indirectly; and

Level 3 - inputs for the instruments are not based on any observable market data.

The Company had no financial instruments recorded at fair value in the consolidated statements of financial position at either July 31, 2019 and July 31, 2018.

Fair value estimates are made at the relevant transaction date, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties in significant matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

Risk management overview

The Company has exposure to credit, liquidity and market risks from its use of financial instruments. This note provides information about the Company's exposure to each of these risks, the Company's objectives, policies and processes for measuring and managing risk. Further quantitative disclosures are included throughout this MD&A and the consolidated financial statements for the year ended July 31, 2019.

Credit risk

Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company's receivables from joint venture partners.

The carrying amount of accounts receivable represents the maximum credit exposure. As at July 31, 2019 the Company's total receivables was $12,032 (July 31, 2018 - $18,697). There were no derivative instruments held at July 31, 2019 and 2018.

Market risk

Market risk is the risk that changes in market conditions, such as commodity prices, interest rates, and foreign exchange rates, will affect the Company's net income or the value of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximizing the Company's returns.

(i) Commodity price risk

Commodity price risk is the risk that 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 dollar, as outlined below, but also global economic events that dictate the levels of supply and demand. Lower commodity prices can also reduce the Company's ability to raise capital. As the Company is not generating revenues, commodity price risk does not directly impact the Company's financial results.

(ii) Foreign exchange risk

Foreign currency exchange rate risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in foreign exchange rates.

As at July 31, 2019 the Company had the following assets and liabilities denominated in foreign currencies:

July 31, 2019	USD$		Euro
Cash	$55	$$	-
Accounts payable	(25)		(363)
	$30	$$	(363)

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with the financial liabilities. The Company's financial liabilities consist of accounts payable, accrued liabilities and loans payable.

The Company prepares annual capital expenditure budgets, which are monitored and updated as considered necessary. Financial modeling is used to provide economic outlooks and the Company utilizes authorizations for expenditures on projects to monitor capital expenditures.

Accounts payable and accrued liabilities consist of invoices payable to trade suppliers for office, field operating activities and capital expenditures. The Company processes invoices within a normal payment period. Accounts payable have contractual maturities of less than one year.

The Company has an unsecured loan from Aberdeen International Inc. bearing a 12% annual interest rate.

Sensitivity analysis

The Company has, for accounting purposes, designated its cash and amounts receivable as loans and receivables which are measured at amortized cost. Accounts payable, accrued liabilities and loans payable are classified for accounting purposes as other financial liabilities, which are measured at amortized cost. As of July 31, 2019, both the carrying and fair value amounts of the Company's financial instruments are approximately equivalent due to the short term maturity of these instruments.

The sensitivity analysis shown in the notes below may differ materially from actual results. Based on management's knowledge of and experience with the financial markets, the Company believes the following movements are "reasonably possible" over a one year period:

• (i) Cash is subject to floating interest rates. As at July 31, 2019, if interest rates had decreased/increased by 1% with all other variables held constant, there would not have been a material impact to the income (loss) for the year ended July 31, 2019 given the low level of cash on hand throughout this year.
• (ii) Cash, accounts payable and accrued liabilities and provisions denominated in US dollar or European Euros are subject to foreign currency risk. As at July 31, 2019, had the US dollar and Euros weakened/strengthened by 5% against the Canadian dollar with all other variables held constant, there would have been a change of approximately $25 in the Company's net income (loss).

ADDITIONAL DISCLOSURES

Risks and uncertainties

The operations of the Company are speculative due to the high-risk nature of its business, which is the acquisition, financing, exploration and development of oil and gas properties. These risk factors could materially affect the Company's future operating results and could cause actual events to differ materially from those described in forward-looking information relating to the Company.

Substantial capital requirements

The Company anticipates making substantial capital expenditures for the acquisition, exploration, development and production of oil and natural gas reserves in the future. In addition, uncertain levels of near term industry activity coupled with the present uncertainty in global financial markets exposes the Company to additional financing risks. There can be no assurance that debt or equity financing, or funds generated by operations will be available or sufficient to meet these requirements or for other corporate purposes or, if debt or equity financing is available, that it will be on terms acceptable to the Company. The inability of the Company to access sufficient capital for its operations could have a material adverse effect on the Company's business financial condition, results of operations and prospects.

Regulatory

Oil and gas operations are subject to extensive controls and regulations imposed by various levels of government that may be amended from time to time. The Company's operations may require licenses and permits from various governmental authorities in the countries in which it operates. There can be no assurance that the Company will be able to obtain all necessary licenses and permits that may be required to carry out exploration and development of its projects.

Litigation and arbitration

All industries, including the oil and gas industry, are subject to legal claims, with and without merit. Legal proceedings and arbitration may arise from time to time in the course of the Company's business. Such litigation may be brought against the Company or its subsidiary in the future from time to time or the Company or its subsidiary may be subject to another form of litigation. Defense

and settlement costs of arbitration or legal claims can be substantial, even with respect to claims that have no merit. Due to the inherent uncertainty of the litigation and arbitration process, the process of defending such claims (or any other claims that may be brought against the Company), could take away from management time and effort and the resolution of any particular legal proceeding to which the Company or its subsidiary may become subject could have a material effect on the Company's financial position and results of operations.

Third party credit risk

The Company may be exposed to third party credit risk through its contractual arrangements with its current or future joint venture partners, marketers of its petroleum and natural gas production and other parties. In the event such entities fail to meet their contractual obligations to the Company or pursuant to contracts under which the Company is a party, such failures may have a material adverse effect on the Company's business, financial condition, results of operations and prospects. In addition, poor credit conditions in the industry and of joint venture partners may impact a joint venture partner's willingness to participate in the Company's ongoing capital program, potentially delaying the program and the results of such program until the Company finds a suitable alternative partner.

Competition

The petroleum industry is competitive in all its phases. Blue Sky competes with numerous other organizations in the search for and the acquisition of oil and natural gas properties and in the marketing of oil and natural gas. Our competitors include oil and natural gas companies that have substantially greater financial resources, staff and facilities than Blue Sky. Our ability to acquire properties in the future will depend on our ability to select and acquire suitable properties or prospects for exploratory drilling. Competitive factors in the distribution and marketing of oil and natural gas include price and methods, reliability of delivery and control over key operations infrastructure.

Conflicts of interest

Certain of the directors and officers of the Company may serve from time to time as directors, officers, promoters and members of management of other companies involved in oil and gas or natural resource exploration and development and therefore it is possible that a conflict may arise between their duties as a director or officers of the Company and their duties as a director, officer, promoter or member of management of such other companies.

The directors and officers of the Company are aware of the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosures by directors of conflicts of interest and the Company will rely upon such laws in respect of any directors' and officers' conflicts of interest or in respect of any breaches of duty by any of its directors or officers. All such conflicts will be disclosed by such directors or officers in accordance with applicable laws and the directors and officers will govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law.

Exploration, development and production risks

Oil and natural gas operations involve many risks which even a combination of experience, knowledge and careful evaluation may not be able to overcome. The long-term commercial success of Blue Sky depends on its ability to find, appraise, develop and commercially produce oil and natural gas resources and reserves, which will depend not only on its ability to explore and develop any properties it may have from time to time, but also on its ability to select and acquire additional producing properties or prospects.

The Company may not be able to locate satisfactory properties for acquisition or participation. Moreover, if such acquisitions or participations are identified, Blue Sky may determine that current markets, terms of acquisition and participation or pricing conditions make such acquisitions or participations uneconomic. There is no assurance that commercial quantities of oil and natural gas will be discovered or acquired by Blue Sky. Future oil and natural gas exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient petroleum substances to return a profit after drilling, operating and other costs. Completion of a well does not assure a profit on the investment or recovery of drilling, completion and operating costs. In addition, drilling hazards or environmental damage could greatly increase the cost of operations, and various field operating conditions may adversely affect the production from successful wells. These conditions include delays in obtaining

governmental approvals or consents, shut-ins of connected wells resulting from extreme weather conditions, insufficient storage or transportation capacity or other geological and mechanical conditions.

FORWARD-LOOKING STATEMENTS

This MD&A contains forward-looking statements. Management's assessment of future plans and operations, capital expenditures, methods of financing capital expenditures and the ability to fund financial liabilities, expected commodity prices and the impact on Blue Sky, future operating costs, future transportation costs, results of arbitration or litigation proceedings; expected change in royalty rate and interest rates may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation to, statements with respect to the Company's development potential and program; the acquisition of an interest in a Farm-Out agreement of an oil and gas exploration concession in Brazil; the Company's ability to raise required capital, the future price of oil and gas; the impact of changes in management; the estimation of oil and gas reserves; the arbitration proceeding related to Block 166 in Brazil; conclusions of economic evaluation; the realization of mineral reserve estimates; the timing and amount of estimated future production; costs of production; capital expenditures; success of exploration activities; currency exchange rates; potential and stability of foreign jurisdictions; government relations and regulation; and environmental risks. Generally, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking information is based on the opinions and estimates of management as of the date such statements are made. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements, including but not limited to risks related to: unexpected events and delays during exploration, development and construction; revocation of government approvals and contracts; timing and availability of external financing on acceptable terms; actual results of exploration activities; changes in project parameters as plans continue to be refined; future prices of oil and gas; failure of plant, equipment or processes to operate as anticipated; litigation or arbitration proceedings; accidents, labour disputes; risks inherent in foreign operations and other risks of the oil and gas industry. Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws.

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended January 31, 2020 and 2019

(Unaudited)

(Expressed in Canadian Dollars)

NOTICE OF NO AUDITOR REVIEW OF CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Under National Instrument 51-102, Part 4, subsection 4.3(3) (a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited condensed interim consolidated financial statements of the Company have been prepared by and are the responsibility of the Company's management.

BLUE SKY ENERGY INC. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

($ Canadian)	January 31, 2020	July 31, 2019
ASSETS
Current
Cash	$945	$555
Amounts receivable (Note 3)	9,692	12,032
Prepaid expenses and deposits	6,002	738
Total assets	$16,639	$13,325
LIABILITIES
Current
Accounts payable and accrued liabilities (Notes 5 and 9)	$1,359,917	$1,665,232
Loans payable (Note 5)	430,793	328,911
Total liabilities	$1,790,710	$1,994,143
SHAREHOLDERS' DEFICIENCY
Common shares (Note 7(b))	$2,840,921	$2,840,921
Contributed surplus (Note 7(c))	688,577	802,375
Deficit	(5,303,569)	(5,624,114)
Total shareholders' deficiency	$(1,774,071)	$(1,980,818)
Total liabilities and shareholders' deficiency	$16,639	$13,325

Nature and continuance of operations (Note 1) Commitments and contingencies (Note 8)

APPROVED ON BEHALF OF THE BOARD ON MARCH 26, 2020:

Signed "Ahmed Said" , DIRECTOR

Signed "Scott Moore" , DIRECTOR

BLUE SKY ENERGY INC. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

	Three months ended		Six months ended
($ Canadian)		January 31, 2020	January 31, 2019		January 31, 2020		January 31, 2019
Expenses
Wages, salaries and consulting fees (Note 9)	$	(397,109)	$88,070	$	(287,248)	$	204,252
Professional fees		11,479	13,228		15,919		19,228
General office expenses		18,819	15,059		38,369		34,428
Travel expenses		-	-		67		-
Share based compensation (Notes 7(c) and 9)		-	14,261		-		43,225
Shareholder communications and filing fees		2,288	16,899		7,111		24,375
Foreign exchange (gain)/ loss		(548)	-		(368)		6
Total expenses before other income and expenses		(365,071)	147,517		(226,150)		325,929
Other income and expenses
Interest (expense)		(10,017)	(4,029)		(19,403)		(11,589)
Income/ (Loss) before discontinued operations		355,054	(151,546)		206,747		(337,518)
Gain on disposal of discontinued operations (Note 6)		-	-		-		4,804,947
Income/ (loss) from discontinued operations (Note 6)		-	-		-		(87,041)
Net income/ (loss) from discontinued operations		355,054	(151,546)		206,747		4,717,906
Net income/ (loss) for the period		355.054	(151,546)		206,747		4,380,388
Other comprehensive income from discontinued operations
Foreign currency translation		-	-		-		1,057,680
Comprehensive income/ (loss) for the period	$	355,054	$(151,546)	$	206,747	$	5,438,068
Basic and diluted income/(loss) from continuing operations per share	$	0.01	$(0.00)	$	0.01	$	(0.01)
Basic and diluted income/(loss) income from discontinued operations
per share	$	0.00	$(0.00)	$	0.00	$	0.15
Basic and diluted comprehensive income/ (loss) income per share	$	0.01	$(0.00)	$	0.01	$	0.17
Weighted average number of common shares outstanding basic and
diluted		30,884,961	30,884,961		30,884,961		30,884,961

BLUE SKY ENERGY INC. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY

(UNAUDITED)

($ Canadian)	Common Shares		ContributedSurplus	Deficit	AccumulatedOtherComprehensiveIncome	Shareholders'Deficiency
	#	$	$	$	$	$
Balance, July 31, 2019	30,884,961	2,840,921	802,375	(5,624,114)	-	(1,980,818)
Expiry of options (Note 7(c))	-	-	(113,798)	113,798	-	-
Income for the period	-	-	-	206,747	-	206,747
Balance, January 31, 2020	30,884,961	2,840,921	688,577	(5,303,569)	-	(1,774,071)
Balance, July 31, 2018	30,884,961	2,840,921	765,069	(10,703,419)	1,057,680	(6,039,749)
Option vesting (Note 7(c))	-	-	43,225	-	-	43,225
Income for the period	-	-	-	4,380,388	-	4,380,388
Income from discontinued operations (Note 6)	-	-	-	1,057,680	(1,057,680)	-
Balance, January 31, 2019	30,884,961	2,840,921	808,294	(5,265,351)	-	(1,616,136)

BLUE SKY ENERGY INC. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six months ended
($ Canadian)	January 31, 2020	January 31, 2019
CASH (USED IN) PROVIDED BY:
OPERATING ACTIVITIES
Net income	$206,747	$4,380,388
Items not involving cash:
Interest accrued (Note 5)	19,382	11,589
Share-based compensation (Note 7(c))	-	43,225
Gain on disposal of discontinued operations (Note 6)	-	(4,804,947)
	226,129	(369,745)
Net change in non-cash working capital	(245,371)	282,418
Continued operating activities	(19,242)	(87,327)
Discontinued operations (Note 6)	-	87,041
Net cash flows provided by (used in) operating activities	(19,242)	(286)
FINANCING ACTIVITES
Loan (Note 5)	20,000	-
Net cash flows provided by financing activities	20,000	-
Effect of exchange rate change	(368)	6
CHANGE IN CASH DURING THE YEAR	390	(280)
CASH, beginning of the period	555	6,442
CASH, end of the period	$945	$6,162

BLUE SKY ENERGY INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended Janaury 31, 2020 and 2019

1. NATURE AND CONTINUANCE OF OPERATIONS

Blue Sky Energy Inc. (the "Company" or "Blue Sky") is a public company and trades on the TSX Venture Exchange ("TSXV") under the symbol "BSI". The Company was continued into Ontario, Canada on September 27, 2013 with a registered office address of 65 Queen Street West, Suite 805, Toronto, ON, M5H 2M5. Blue Sky is an international oil and gas exploration company, primarily engaged in exploring potential opportunities in the domestic and international oil and gas sector with a focus on competitive and stable energy jurisdictions.

Going concern

The accompanying condensed interim consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the payment of liabilities in the ordinary course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.

The business of exploration for oil and gas involves a high degree of risk and there can be no assurance that current exploration programs will result in profitable oil and gas operations. The Company's continued existence is dependent upon the acquisition of oil and gas properties, preservation of its interest in the underlying properties, the discovery of economically recoverable reserves, the achievement of profitable operations, or the ability of the Company to raise alternative financing, if necessary, or alternatively upon the Company's ability to dispose of its interests on an advantageous basis. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern.

The Company does not have any operating assets that generate revenues, does not have proven reserves and incurred a net income of $206,747 during the six months ended January 31, 2020 (Janaury 31, 2019 – net income of $4,380,388). As at January 31, 2020, the Company had a working capital deficiency of $1,774,071 (July 31, 2019 - $1,980,818). Consequently, the Company's ability to continue as a going concern is dependent on the Company's ability to obtain additional financing if, as and when required, and, ultimately, the attainment of profitable operations or the profitable sale of the Company's exploration interests.

These condensed interim consolidated financial statements do not give effect to adjustments that would be necessary and could be material to the carrying values and classifications of assets and liabilities should the Company be unable to continue as a going concern.

2. SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance

These condensed interim consolidated financial statements of the Company and its subsidiaries were prepared in accordance with IFRS, as issued by the International Accounting Standards Board ("IASB") and in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting. These condensed interim consolidated financial statements have been prepared in accordance with the accounting policies the Company adopted in its July 31, 2019 annual financial statements except for the accounting changes described below. These condensed interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements of the Company for the year ended July 31, 2019.

Basis of presentation

The condensed interim consolidated financial statements of the Company have been prepared on an accrual basis and are based on historical costs, modified where applicable. The condensed interim consolidated financial statements are presented in Canadian dollars unless otherwise noted.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended Janaury 31, 2020 and 2019

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of consolidation

These condensed interim consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiary Sonoro Energy Iraq B.V. ("Sonoro Iraq"). Água Grande Exploração e Produção de Petróleo Ltda ("Agua Grande") was deconsolidated on October 19, 2018 (see Note 6).

Subsidiaries consist of entities over which the Company is exposed to, or has rights to, variable returns as well as the ability to affect those returns through the power to direct the relevant activities of the entity. Subsidiaries are fully consolidated from the date control is transferred to the Company and are deconsolidated from the date control ceases. The condensed interim consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Company and its subsidiary after eliminating inter-entity balances and transactions.

The Company's oil and natural gas activities involved jointly controlled operations. The condensed interim consolidated financial statements include the Company's proportionate share of the related exploration and evaluation costs incurred.

Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the condensed interim consolidated financial statements.

Accounting pronouncements not yet adopted

The Company adopted a number of new IFRS standards, interpretations, amendments and improvements of existing standards. These included IFRS 2 and IFRIC 22. Certain pronouncements were issued by the IASB or the IFRIC that are mandatory for accounting periods on or after August 1, 2019 or later periods. Many are not applicable or do not have a significant impact to the Company and have been excluded. IFRS 16, IFRIC 23 and IAS1 have not yet been adopted and are being evaluated to determine their impact on the Company's condensed interim consolidated financial statements.

3. AMOUNTS RECEIVABLE

Amounts receivable balances as at Janaury 31, 2020 and July 31, 2019 consist of amounts receivable from the Government of Canada for Harmonized Sales Taxes (HST).

4. EXPLORATION AND EVALUATION EXPENDITURES

On November 29, 2016, the Company acquired from Sonoro Energy International Holdings B.V. (the "Vendor") all the issued and outstanding shares of Sonoro Iraq, a company incorporated in the Netherlands and the designated operator and holder of the license agreement with the Al-Salah ad Din Provincial Government of Iraq for bitumen exploration and asphalt production (the "Salah ad Din License") defined in the license as hydrocarbons with an API gravity of less than 25 degrees.

On March 15, 2017, the Company announced that it had received a letter from the Republic of Iraq Salah Ad Din Investment Commission confirming the resumption of work and removal of Force Majeure status related to the Asphalt License that the Company controls through its subsidiary, Sonoro Iraq, subject to securing an investment license. Once the investment license is granted, the Company can plan a new work program. To date, the Company is still waiting for the grant of the investment license.

There were no exploration and evaluation expenditures for the six months ended Janaury 31, 2020 and the year ended July 31, 2019.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended Janaury 31, 2020 and 2019

5. TRADE AND OTHER PAYABLES

	January 31, 2020	July 31, 2019
Accounts payable other	$1,284,028	$1,164,843
Accrued liabilities	75,889	500,389
Total accounts payable and accrued liabilities	$1,359,917	$1,665,232
Loans payable	430,793	328,911
Balance, period end	$1,790,710	$1,994,143

The Company incurred an unsecured loan from Aberdeen International Inc. on May 10, 2017 of $50,000 which was subsequently increased to $250,000 on May 15, 2017 with an original maturity date of July 5, 2017. Interest accrues at 12% annually. The loan maturity was extended until December 31, 2017 with the payment of an arrangement fee of $12,500. The loan was further extended, is due on demand, and at January 31, 2020, the loan balance including accrued interest and arrangement fees was $344,034 (July 31, 2019 - $328,911).

A loan of $62,500 from 2227929 Ontario Inc. was included in accounts payable and accrued liabilities as at July 31, 2019. It was non-interest bearing and due on demand. On August 16, 2019, this loan was reclassified to loans payable as a loan agreement was made with 2227929 Ontario Inc. where it accrues interest at 12% annually and has a maturity date of February 18, 2020. The loan is unsecured. On January 31, 2020, the loan balance including accrued interest was $65,973. As of the approval date of these financial statements, the loan is in default. The lender has not proceeded with any collection actions.

On September 16, 2019, the Company incurred an unsecured loan from Questcap Inc. in the amount of $10,000 which accrues interest at 12% annually and has a maturity date of June 30, 2020. On January 31, 2020, the loan balance including accrued interest was $10,454.

On October 23, 2019, the Company incurred an unsecured loan from Sulliden Mining Inc. in the amount of $10,000 which accrues interest at 12% annually and has a maturity date of June 30, 2020. On January 31, 2020, the loan balance including accrued interest was $10,332.

6. DISCONTINUED OPERATIONS

On November 9, 2017, the Company signed an agreement to dispose of its wholly owned Brazilian subsidiary, Agua Grande, to Umeq Al-Nahrain for General Trading, Import & Export Ltd., an Iraqi corporation, for a nominal $1. The transaction closed on October 19, 2018 at which time the subsidiary was deconsolidated and a non-cash gain of $4,804,947 was recognized on the consolidated statement of income (loss) for the six months ended January 31, 2019.

The operating results related to this subsidiary have been included in discontinued operations in the consolidated statements of income (loss) and comprehensive income (loss) and the consolidated statements of cash flow for the three and six months ended January 31, 2020 and 2019.

	Three months endedJanuary 31, 2020		Three months endedJanuary 31, 2019		Six months endedJanuary 31, 2020		Six months endedJanuary 31, 2019
(Loss)/ IncomeForeign exchange (loss)/ gain on translation	$	-	$	-	$	-	$	(87,041)
	$	-	$	-	$	-	$	(87,041)

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended Janaury 31, 2020 and 2019

7. CAPITAL STOCK

a. Authorized

Unlimited number of common shares, without par value Unlimited number of 1st and 2nd preferred shares, without par value, issuable in series

b. Common shares issued

	Number of shares	Amount
Balance at July 31, 2019,
January 31, 2020	30,884,961	$2,840,921

There were no new common shares issued for the six months ended January 31, 2020 and the year ended July 31, 2019.

c. Contributed surplus

The Company has granted options for the purchase of common shares to its directors, officers, consultants and employees. The aggregate number of shares that may be issuable pursuant to options granted under the Stock Option Plan will not exceed 10% of the issued common shares of the Company at the date of grant. No more than 5% of the issued shares of the Company may be granted to any one optionee, and no more than 2% of the issued shares of the Company may be granted to any one consultant or person engaged in investor relations activities in any 12 month period. The options are non-transferable and non-assignable and may be granted for a term not exceeding five years. The exercise price of the options may not be less than the market price of the Blue Sky common shares at the time of the option grant.

On October 31, 2019, 125,000 options expired, unexercised.

On November 30, 2019, 30,000 options expired, unexercised.

As at January 31, 2020, the following stock options were outstanding:

Number of	Number of	Grant	Expiration	Exercise			Grant date
options	options	date	date	price	Estimated	Expected	Expected	Expected	Risk-free
outstanding	exercisable				fair value	volatility	life	dividend	interest
					vested		(years)	yield	rate
840,000	840,000	8-Feb-17	8-Feb-22	$0.80	$ 616,715	154%	5	0%	1.01%
50,000	50,000	8-Feb-17	8-Feb-22	$1.00	$ 36,324	154%	5	0%	1.01%
50,000	50,000	8-Feb-17	8-Feb-22	$1.50	$ 35,538	154%	5	0%	1.01%
940,000	940,000			$0.85	$ 688,577		5

During the six months ended January 31, 2020, 155,000 options expired, unexercised. For the year ended July 31, 2019, 10,000 options expired, unexercised. There are 940,000 options outstanding as at January 31, 2020. The weighted average remaining life of the options is 2.03 years (July 31, 2019 – 2.53 years).

	Number ofstock options	Weighted averageexercise price ($)
Balance, July 31, 2017 2018	1,105,000	0.84
Expired	(10,000)	0.80
Balance, July 31, 2019	1,095,000	0.84
Expired	(155,000)	0.80
Balance, January 31, 2020	940,000	0.85

BLUE SKY ENERGY INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended Janaury 31, 2020 and 2019

8. COMMITMENTS AND CONTINGENCIES

Sonoro Iraq acquisition

On November 29, 2016, the Company acquired Sonoro Iraq. See Note 4. In consideration for the acquisition, the Company will make the following contingent payments to the Vendor, totaling $4 million:

• $1 million on first production of petroleum and asphalt;
• $1 million once production hits 15,000 barrels per day;
• $1 million once production hits 40,000 barrels per day; and
• $1 million once production hits 80,000 barrels per day.

All production is as defined in the Salah ad Din License dated October 2, 2010. In the event that no production is achieved related to the Salah ad Din License agreement, no consideration or payments shall be owing or payable to the Vendor. As triggering events have not taken place as at January 31, 2020, these amounts have not been recorded in these condensed interim consolidated financial statements.

Management contracts

The Company is party to certain management and independent contractor contracts. These contracts require payments of approximately $720,000 to be made upon the occurrence of a change in control to the officers of the Company. As a triggering event has not taken place, the contingent payments have not been reflected in these condensed interim consolidated financial statements. The Company is also committed to payments upon termination of approximately $240,000 pursuant to the terms of these contracts.

Contingencies

Oil and gas operations are subject to extensive controls and regulations imposed by various levels of government that may be amended from time to time. The Company's operations may require licenses and permits from various governmental authorities in the countries in which it operates. There can be no assurance that the Company will be able to obtain all necessary licenses and permits that may be required to carry out exploration and development of its projects.

Environmental

The Company's exploration and evaluation activities are subject to laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company believes its operations are materially in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations.

Novel Coronavirus

The Company's operations could be significantly adversely affected by the effects of a widespread global outbreak of a contagious disease, including the recent outbreak of respiratory illness caused by COVID-19. The Company cannot accurately predict the impact COVID-19 will have on its operations and the ability of others to meet their obligations with the Company, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could further affect the Company's operations and ability to finance its operations.

For the three and six months ended Janaury 31, 2020 and 2019

9. RELATED PARTY DISCLOSURES

Key management personnel compensation

In addition to their contracted fees, executive officers participate in the Company's share option program. Certain executive officers are subject to a mutual termination notice of twelve months. See Note 8. Key management personnel compensation comprised:

	Three months endedJanuary 31, 2020		Three months endedJanuary 31, 2019	Six months endedJanuary 31, 2020	Six months endedJanuary 31, 2019
Short term employee benefits	$	-	$6,000	$-	$	36,556
Share-based payments		-	$9,051	-		27,435
	$	-	$15,051	$-	$	63,991

Included in accounts payable and accrued liabilities as at January 31, 2020, is $63,889 (July 31, 2019 - $476,389) owing to key management personnel for business and operational consulting services. Such amounts are unsecured, non-interest bearing, with no fixed terms of repayment.

See Note 5 for outstanding loan payable owing to Aberdeen International Inc., an entity which owns common shares of the Company.

MANAGEMENT'S DISCUSSION AND ANALYSIS

For the three and six months ended January 31, 2020 and 2019

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

This Management's Discussion and Analysis ("MD&A") relates to the financial position and results of Blue Sky Energy Inc. ("Blue Sky" or the "Company") for the three and six months ended January 31, 2020 and 2019. This MD&A should be read in conjunction with the condensed interim consolidated financial statements for the three and six months ended January 31, 2020 and 2019 and the annual consolidated financial statements for the year ended July 31, 2019. Unless otherwise noted, all references to currency in this MD&A are in Canadian dollars.

All financial statement information discussed in this MD&A have been prepared using International Financial Reporting Standards ("IFRS") applicable to a going concern, which contemplates the realization of assets and the payment of liabilities in the ordinary course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they come due.

The Company's certifying officers are responsible for ensuring the consolidated financial statements do not contain any untrue statement of material fact or omit a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made. The Company's officers certify that the consolidated financial statements fairly present, in all material respects, the financial condition, result of operations and cash flows, of the Company as of the date hereof. The Board of Directors approves the consolidated financial statements and ensures that management has discharged its financial responsibilities. The Board of Directors' review is accomplished principally through the Audit Committee, which meets periodically to review all financial reports, prior to filing.

This MD&A is as of March 26, 2020. The reader should be aware that historical results are not necessarily indicative of future performance.

OVERVIEW

Blue Sky Energy Inc. is an independent Canadian oil and gas exploration company focused on pursuing the exploration, evaluation and development of resource assets. Blue Sky's shares are listed on the TSX Venture Exchange ("TSXV") under the symbol "BSI". Additional information relating to the Company can be found on SEDAR at www.sedar.com.

OUTLOOK

The Company will continue its efforts to raise additional financing to advance its Iraq property and evaluate other opportunities which would create shareholder value.

HIGHLIGHTS

The Company's shares are currently halted by the TSXV. The TSXV has informed the Company that it will be moved to the NEX board effective Tuesday March 17, 2020.

On November 9, 2017, the Company signed an agreement to dispose of its wholly owned Brazilian subsidiary, Agua Grande to Umeq Al-Nahrain for General Trading, Import & Export Ltd., an Iraqi corporation for a nominal $1. The transaction closed on October 19, 2018, at which time the subsidiary was deconsolidated and a non-cash gain of $4,804,947 was recognized on the consolidated statement of income (loss).

IRAQ PROPERTY

On November 29, 2016, the Company acquired from Sonoro Energy International Holdings B.V. (the "Vendor") all the issued and outstanding shares of Sonoro Energy Iraq B.V. ("Sonoro Iraq"), a company incorporated in the Netherlands and the designated operator and holder of the license agreement with the Al-Salah ad Din Provincial Government of Iraq for bitumen exploration and asphalt production (the "Salah ad Din License") defined in the license as hydrocarbons with an API gravity of less than 25 degrees.

On March 15, 2017, the Company announced that it had received a letter from the Republic of Iraq Salah Ad Din Investment Commission confirming the resumption of work and removal of Force Majeure status related to the Asphalt License that the Company controls through its subsidiary, Sonoro Iraq, subject to securing an investment license. Once the investment license is granted, the Company can plan a new work program. To date, the Company is still waiting for the grant of the investment license.

SUMMARY OF QUARTERLY RESULTS

The Company has and expects to continue to report negative earnings until the Company's exploration program finds and develops producing assets. The Company will continue to utilize proceeds from debt, financing and equity issuances to fund its exploration program and general and administrative operating costs.

As at January 31, 2020, the Company had no operating assets and expects to generate negative cash flow from operations for the foreseeable future.

The income of $355,054 in the quarter ended January 31, 2020, is mainly due to a reversal of $487,500 of consulting fees after the consultant signed a release. Normally, the Company would expect to post a quarterly loss as it has no sources of revenues. The income of $4,531,934 in the quarter ended October 31, 2018, is mainly due to the gain from deconsolidation from Agua Grande for $4,804,947.

(in $)	Quarter Ended
	Jan-20	Oct-19	Jul-19	Apr-19	Jan-19	Oct-18	Jul-18	Apr-18
Net (loss) income	355,054		(148,267) (146,610) (219,495) (151,546) 4,531,934				32,065	(38,908)
Net (loss) income from continuing operations	355,054					(148,267) (146,610) (219,495) (151,546) (185,972) (258,979) (293,232)
Per share - basic and diluted	0.01	(0.00)	(0.00)	(0.01)	-	0.19	0.00	(0.01)
Per share - basic and diluted from continuing operations	0.01	(0.00)	(0.00)	(0.01)	-	(0.01)	(0.01)	(0.01)
Total assets	16,639	26,361	13,325	17,392	29,060	29,220	27,352	62,571

MANAGEMENT'S DISCUSSION AND ANALYSIS For the three and six months ended January 31, 2020 and 2019

REVIEW OF FINANCIAL RESULTS

	Three months ended		Six months ended
($ Canadian)	January 31, 2020		January 31, 2019 January 31, 2020 January 31, 2019
Expenses
Wages, salaries and consulting fees	(397,109)	88,070	(287,248)	204,667
Professional fees	11,479	13,228	15,919	19,228
General office expenses	18,819	15,059	38,369	34,428
Travel expenses	-	-	67	-
Share based compensation	-	14,261	-	43,225
Shareholder communications and filing fees	2,288	16,899	7,111	24,375
Foreign exchange (gain)	(548)	-	(368)	6
Total expenses before other income and expenses	(365,071)	147,517	(226,150)	325,929
Other income and expenses
Interest (expense)	(10,017)	(4,029)	(19,403)	(11,589)
	(10,017)	(4,029)	(19,403)	(11,589)
Income/ (Loss) before discontinued operations	355,054	(151,546)	206,747	(337,518)
Gain on disposal of discontinued operations (Note 6)	-	-	-	4,804,947
Income/(Loss) from discontinued operations (Note 6)	-	-	-	(87,041)
Net income (loss) for the period	355,054	(151,546)	206,747	4,380,388
Other comprehensive income (loss)
Foreign currency translation	-	-	-	1,057,680
Net Income/ (loss) and comprehesive income/ (loss) for the peri	355,054	(151,546)	206,747	5,438,068
Basic and diluted (loss) from continuing operations per share	0.01	(0.00)	0.01	(0.01)
Basic and diluted income (loss) from discontinued operations per share	-	(0.00)	-	0.15
Basic and diluted comprehensive income (loss)	0.01	(0.00)	0.01	0.18
Weighted average number of common shares outstanding basic anddiluted	30,884,961	30,884,961	30,884,961	30,884,961

There were no exploration and evaluation expenditures during the three and six months ended January 31, 2020 and 2019. Água Grande Exploração e Produção de Petróleo Ltda deconsolidation transaction closed on October 19, 2018.

Expenses

Wages, salaries and consulting fees is a credit balance in both the three ($397,109) and six months ($287,248) periods ended January 31, 2020 due to the reversal of $487,500 of accrued consulting fees which were waived by a consultant.

During the three months ended January 31, 2020, the Company recorded general office expenses of $18,819 compared to $38,369 in the same period for the prior year. The Company is trying to minimize this type of expenses.

Professional fees of $11,479 during the three months ended January 31, 2020 has decreased from $15,919 to the same period last year due to an over accrual for the prior year audit fee. The fees are mainly for audit and other accounting fees incurred and/ or accrued in the periods.

Shareholder communications and filing fees are the costs associated with maintaining public company filings and investor relations. There was $2,288 spent during the three months ended January 31, 2020, compared to $7,111 in the comparative period last year.

During the three months ended January 31, 2020, the Company recorded share-based compensation expenses of $Nil compared to $14,261 for the three months ended January 31, 2019. The share-based compensation expenses relate to partial vesting of 1,105,000 options to directors, and consultants of the Company from the February 8, 2017 option grant. The options started vesting April 30, 2017 and completed vesting on April 30, 2019.

MANAGEMENT'S DISCUSSION AND ANALYSIS For the three and six months ended January 31, 2020 and 2019

During the three months ended January 31, 2020, the Company incurred interest expense of $10,017 compared to $4,029 for the three months ended January 31, 2019. The Company acquired an unsecured loan from Aberdeen International Inc. on May 10, 2017 of $50,000 which was subsequently increased to $250,000 on May 15, 2017 with an original maturity date of July 5, 2017. Interest accrues at 12% annually. The loan maturity was extended until December 31, 2017 with the payment of an arrangement fee of $12,500. The loan was further extended, is due on demand, and at October 31, 2019, the loan balance including accrued interest and arrangement fees was $344,034. A loan of $62,500 from 2227929 Ontario Inc. was included in accounts payable and accrued liabilities as at July 31, 2019. It was non-interest bearing and due on demand. On August 16, 2019, this loan was reclassified to loans payable as a loan agreement was made with 2227929 Ontario Inc. where it accrues interest at 12% annually and has a maturity date of February 18, 2020. The loan is unsecured. On January 31, 2020, the loan balance including interest was $65,973 and is currently in default. The lender has not proceeded with any collection actions. On September 16, 2019, the Company incurred an unsecured loan from Questcap Inc. in the amount of $10,000 which accrues interest at 12% annually and has a maturity date of June 30, 2020. On January 31, 2020, the loan balance including interest was $10,454. On October 23, 2019, the Company obtained an unsecured loan from Sulliden Mining Inc. in the amount of $10,000 which accrues interest at 12% annually and has a maturity date of June 30, 2020. On January 31, 2020, the loan balance including interest was $10,332.

On October 19, 2018, the Company closed the sale of Agua Grande to Umeq Al-Nahrain for General Trading, Import & Export Ltd., which resulted in a gain on deconsolidation of $4,804,947 recorded in the six months ended January 31, 2019.

CASH FLOWS

	Six months ended
($ Canadian)		January 31, 2020	January 31, 2019
Cash flows (used in) operating activities	$	(19,242)	$	(286)
Cash flows from financing activities		20,000		-
Effect of exchange rate		(368)		6
Net change in cash	$	390	$	(280)

Cash flows used in operating activities during the six months ended January 31, 2020 was $19,242. Cash for operating activities during the six months ended January 31, 2019 was $286. This was due to the holding of accounts payables. There was $20,000 in financing activities from loans received from Questcap Inc. for $10,000 and $10,000 from Sulliden Mining Inc. for the six months ended January 31, 2020. There were no financing activities for the six months ended January 31, 2019.

LIQUIDITY AND CAPITAL RESOURCES

Funding for the Company's exploration program and operations has come from loans from Aberdeen International Inc., Questcap Inc. and Sulliden Mining Inc. The Company expects to continue to use cash until such time as the Company is able to establish a production base. The Company will require additional financing in order to execute its business plan and will continue its efforts to seek appropriate financing initiatives that benefit the Company. If the Company is not able to secure additional financing, it may not be able to continue as a going concern. The condensed interim consolidated financial statements for the three months ended January 31, 2020 and 2019 do not give effect to adjustments that would be necessary and could be material to the carrying values and classifications of assets and liabilities should the Company be unable to continue as a going concern. The Company has no off-balance sheet transactions.

Going concern

Blue Sky is a development stage enterprise. To date, the Company has not found proven reserves. The business of exploration for oil and gas involves a high degree of risk and there can be no assurance that current exploration programs will result in profitable oil and gas operations. The Company's continued existence is dependent upon the acquisition of oil and gas properties, preservation of its interest in the underlying properties, the discovery of economically recoverable reserves, the achievement of profitable operations, or the ability of the Company to raise alternative financing, if necessary, or alternatively upon the Company's

ability to dispose of its interests on an advantageous basis. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern.

The Company does not have any operating assets that generate revenues, does not have proven reserves and incurred a loss of $355,054 during the three months ended January 31, 2020. As at January 31, 2020 the Company had a working capital deficiency of $1,774,071. Consequently, the Company's ability to continue as a going concern is dependent on the Company's ability to obtain additional financing if, as and when required, and, ultimately, the attainment of profitable operations or the profitable sale of the Company's exploration interests.

COMMITMENTS AND CONTINGENCIES

Sonoro Iraq acquisition

On November 29, 2016, the Company acquired Sonoro Iraq. In consideration for the acquisition, the Company will make following contingent payments to the Vendor, totaling $4 million:

• $1 million on first production of petroleum and asphalt;
• $1 million once production hits 15,000 barrels per day;
• $1 million once production hits 40,000 barrels per day; and
• $1 million once production hits 80,000 barrels per day.

All production is as defined in the Salah ad Din License dated October 2, 2010. In the event that no production is achieved related to the Salah ad Din License agreement, no consideration or payments shall be owing or payable to the Vendor. As triggering events have not taken place as at January 31, 2020, the above amounts have not been recorded in the consolidated financial statements.

Management contracts

The Company is party to certain management and independent contractor contracts. These contracts require payments of approximately $720,000 to be made upon the occurrence of a change in control to the officers of the Company. As a triggering event has not taken place, the contingent payments have not been reflected in the consolidated financial statements. The Company is also committed to payments upon termination of approximately $240,000 pursuant to the terms of these contracts.

Contingencies

Oil and gas operations are subject to extensive controls and regulations imposed by various levels of government that may be amended from time to time. The Company's operations may require licenses and permits from various governmental authorities in the countries in which it operates. There can be no assurance that the Company will be able to obtain all necessary licenses and permits that may be required to carry out exploration and development of its projects.

Environmental

The Company's exploration and evaluation activities are subject to laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company believes its operations are materially in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations.

Novel Coronavirus

The Company's operations could be significantly adversely affected by the effects of a widespread global outbreak of a contagious disease, including the recent outbreak of respiratory illness caused by COVID-19. The Company cannot accurately predict the impact COVID-19 will have on its operations and the ability of others to meet their obligations with the Company, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and

the length of travel and quarantine restrictions imposed by governments of affected countries. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could further affect the Company's operations and ability to finance its operations.

SHARE CAPITAL

As at the date of this report, there are 30,884,961 common shares of Blue Sky are outstanding. There are no off-balance sheet financing arrangements.

RELATED PARTY TRANSACTIONS

Key management personnel compensation

In addition to their contracted fees, executive officers participate in the Company's share option program. Certain executive officers are subject to a mutual termination notice of twelve months. Key management personnel compensation comprised:

	Three months endedJanuary 31, 2020		Three months endedJanuary 31, 2019		Six months endedJanuary 31, 2020		Six months endedJanuary 31, 2019
Short term employee benefits	$	-	$	6,000	$	-	$	36,556
Share-based payments		-	$	9,051		-		27,435
	$	-	$	15,051	$	-	$	63,991

Included in accounts payable and accrued liabilities as at January 31, 2020, is $63,889 (July 31, 2019 - $476,389) owing to key management personnel for business and operational consulting services. Such amounts are unsecured, non-interest bearing, with no fixed terms of repayment.

See Note 5 of the interim condensed financial statements for the period ended January 31, 2020 for outstanding loan payable owing to Aberdeen International Inc., an entity which owns common shares of the Company.

CHANGES IN ACCOUNTING POLICIES

The Company will monitor the development of the relevant IFRS and change its accounting policies accordingly.

Accounting pronouncements not yet adopted

Certain pronouncements were issued by the IASB or the IFRIC that are mandatory for accounting periods on or after August 1, 2019 or later periods. Many are not applicable or do not have a significant impact to the Company and have been excluded. The following have not yet been adopted and are being evaluated to determine their impact on the Company's consolidated financial statements.

IFRS 16, Leases ("IFRS 16") was issued in January 2016. It replaces the previous leases Standard, IAS 17 Leases, and related Interpretations. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases. It eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and offbalance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. IFRS 16 is effective from January 1, 2019.

IFRIC 23 – Uncertainty Over Income Tax Treatments ("IFRIC 23") was issued in June 2017 and clarifies the accounting for uncertainties in income taxes. The interpretation committee concluded that an entity shall consider whether it is probable that a taxation authority will accept an uncertain tax treatment. If an entity concludes it is probable that the taxation authority will accept an uncertain tax treatment, then the entity shall determine taxable profit (tax loss), tax bases, unused tax losses and credits or tax rates consistently with the tax treatment used or planned to be used in its income tax filings. If an entity concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the entity shall reflect the effect of uncertainty in determining the related taxable profit (tax loss), tax bases, unused tax losses and credits or tax rates. IFRIC 23 is effective for annual periods beginning on or after January 1, 2019.

IAS 1 – Presentation of Financial Statements ("IAS 1") and IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors ("IAS 8") were amended in October 2018 to refine the definition of materiality and clarify its characteristics. The revised definition focuses on the idea that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The amendments are effective for annual reporting periods beginning on or after January 1, 2020. Earlier adoption is permitted.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and related notes to the financial statements. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results could differ from those estimates and these estimates could be material.

The areas which require management to make significant judgments, estimates and assumptions in determining carrying values include, but are not limited to:

Assets' carrying values and impairment charges

In the determination of carrying values and impairment charges, management looks at the higher of recoverable amount or fair value less costs to sell in the case of assets and at objective evidence, significant or prolonged decline of fair value on financial assets indicating impairment. These determinations and their individual assumptions require that management make a decision based on the best available information at each reporting period.

Share-based payments and warrants

Management determines costs for share-based payments using market-based valuation techniques. The fair value of the marketbased and performance-based share awards are determined at the date of grant using generally accepted valuation techniques. Assumptions are made and judgment used in applying valuation techniques. These assumptions and judgments include estimating the future volatility of the stock price, expected dividend yield, future employee turnover rates and future employee stock option exercise behaviors and corporate performance. Similar calculations are made in order to value warrants. Such judgments and assumptions are inherently uncertain. Changes in these assumptions affect the fair value estimates.

Income, value added, withholding and other taxes

The Company is subject to income, value added, withholding and other taxes. Significant judgment is required in determining the Company's provisions for taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. The determination of the Company's income, value added, withholding and other tax liabilities require interpretation of complex laws and regulations. The Company's interpretation of taxation law as applied to transactions and activities may not coincide with the interpretation of the tax authorities. All tax related filings are subject to government audit and potential reassessment subsequent to the financial statement reporting period. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the tax related accruals and deferred income tax provisions in the period in which such determination is made.

Contingencies and provisions

Contingencies can be either possible assets or possible liabilities arising from past events which, by their nature, will only be resolved when one or more future events not wholly within our control occur or fail to occur. The assessment of such contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events. In assessing loss contingencies related to legal proceedings that are pending against us or un-asserted claims, that may result in such proceedings or regulatory or government actions that may negatively impact our business or operations, the Company and its legal counsel evaluate the perceived merits of any legal proceedings or un-asserted claims or actions as well as the perceived merits of the nature and amount of relief sought or expected to be sought, when determining the amount, if any, to recognize as a contingent liability or assessing the impact on the carrying value of assets. Contingent assets are not recognized in the consolidated financial statements.

The Company has provided for contingent payments related to the eventual settlement of its arbitration proceedings related to its farm-out agreement with Sonangol. For further details please see the Commitments and Contingencies section above.

Foreign Currency Determination

Under IFRS, each entity must determine its own functional currency, which becomes the currency that entity measures its results and financial position in. Judgment is necessary in assessing each entity's functional currency. In determining the functional currencies of the Company and its subsidiaries, the Company considered many factors, including the currency that mainly influences sales prices for goods and services, the currency of the country whose competitive forces and regulations mainly determine the sales prices, and the currency that mainly influences labour material and other costs for each consolidated entity.

ADDITIONAL DISCLOSURES

Risks and uncertainties

The operations of the Company are speculative due to the high-risk nature of its business, which is the acquisition, financing, exploration and development of oil and gas properties. These risk factors could materially affect the Company's future operating results and could cause actual events to differ materially from those described in forward-looking information relating to the Company.

Substantial capital requirements

The Company anticipates making substantial capital expenditures for the acquisition, exploration, development and production of oil and natural gas reserves in the future. In addition, uncertain levels of near term industry activity coupled with the present uncertainty in global financial markets exposes the Company to additional financing risks. There can be no assurance that debt or equity financing, or funds generated by operations will be available or sufficient to meet these requirements or for other corporate purposes or, if debt or equity financing is available, that it will be on terms acceptable to the Company. The inability of the Company to access sufficient capital for its operations could have a material adverse effect on the Company's business financial condition, results of operations and prospects.

Regulatory

Oil and gas operations are subject to extensive controls and regulations imposed by various levels of government that may be amended from time to time. The Company's operations may require licenses and permits from various governmental authorities in the countries in which it operates. There can be no assurance that the Company will be able to obtain all necessary licenses and permits that may be required to carry out exploration and development of its projects.

Litigation and arbitration

All industries, including the oil and gas industry, are subject to legal claims, with and without merit. Legal proceedings and arbitration may arise from time to time in the course of the Company's business. Such litigation may be brought against the Company or its

subsidiary in the future from time to time or the Company or its subsidiary may be subject to another form of litigation. Defense and settlement costs of arbitration or legal claims can be substantial, even with respect to claims that have no merit. Due to the inherent uncertainty of the litigation and arbitration process, the process of defending such claims (or any other claims that may be brought against the Company), could take away from management time and effort and the resolution of any particular legal proceeding to which the Company or its subsidiary may become subject could have a material effect on the Company's financial position and results of operations.

Third party credit risk

The Company may be exposed to third party credit risk through its contractual arrangements with its current or future joint venture partners, marketers of its petroleum and natural gas production and other parties. In the event such entities fail to meet their contractual obligations to the Company or pursuant to contracts under which the Company is a party, such failures may have a material adverse effect on the Company's business, financial condition, results of operations and prospects. In addition, poor credit conditions in the industry and of joint venture partners may impact a joint venture partner's willingness to participate in the Company's ongoing capital program, potentially delaying the program and the results of such program until the Company finds a suitable alternative partner.

Competition

The petroleum industry is competitive in all its phases. Blue Sky competes with numerous other organizations in the search for and the acquisition of oil and natural gas properties and in the marketing of oil and natural gas. Our competitors include oil and natural gas companies that have substantially greater financial resources, staff and facilities than Blue Sky. Our ability to acquire properties in the future will depend on our ability to select and acquire suitable properties or prospects for exploratory drilling. Competitive factors in the distribution and marketing of oil and natural gas include price and methods, reliability of delivery and control over key operations infrastructure.

Conflicts of interest

Certain of the directors and officers of the Company may serve from time to time as directors, officers, promoters and members of management of other companies involved in oil and gas or natural resource exploration and development and therefore it is possible that a conflict may arise between their duties as a director or officers of the Company and their duties as a director, officer, promoter or member of management of such other companies.

The directors and officers of the Company are aware of the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosures by directors of conflicts of interest and the Company will rely upon such laws in respect of any directors' and officers' conflicts of interest or in respect of any breaches of duty by any of its directors or officers. All such conflicts will be disclosed by such directors or officers in accordance with applicable laws and the directors and officers will govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law.

Exploration, development and production risks

Oil and natural gas operations involve many risks which even a combination of experience, knowledge and careful evaluation may not be able to overcome. The long-term commercial success of Blue Sky depends on its ability to find, appraise, develop and commercially produce oil and natural gas resources and reserves, which will depend not only on its ability to explore and develop any properties it may have from time to time, but also on its ability to select and acquire additional producing properties or prospects.

The Company may not be able to locate satisfactory properties for acquisition or participation. Moreover, if such acquisitions or participations are identified, Blue Sky may determine that current markets, terms of acquisition and participation or pricing conditions make such acquisitions or participations uneconomic. There is no assurance that commercial quantities of oil and natural gas will be discovered or acquired by Blue Sky. Future oil and natural gas exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient petroleum substances to return a profit after drilling, operating and other costs. Completion of a well does not assure a profit on the investment or recovery of drilling, completion and operating costs. In addition, drilling hazards or environmental damage could greatly increase the cost of operations, and various

field operating conditions may adversely affect the production from successful wells. These conditions include delays in obtaining governmental approvals or consents, shut-ins of connected wells resulting from extreme weather conditions, insufficient storage or transportation capacity or other geological and mechanical conditions.

FORWARD-LOOKING STATEMENTS

This MD&A contains forward-looking statements. Management's assessment of future plans and operations, capital expenditures, methods of financing capital expenditures and the ability to fund financial liabilities, expected commodity prices and the impact on Blue Sky, future operating costs, future transportation costs, results of arbitration or litigation proceedings; expected change in royalty rate and interest rates may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation to, statements with respect to the Company's development potential and program; the acquisition of an interest in a Farm-Out agreement of an oil and gas exploration concession in Brazil; the Company's ability to raise required capital, the future price of oil and gas; the impact of changes in management; the estimation of oil and gas reserves; the arbitration proceeding related to Block 166 in Brazil; conclusions of economic evaluation; the realization of mineral reserve estimates; the timing and amount of estimated future production; costs of production; capital expenditures; success of exploration activities; currency exchange rates; potential and stability of foreign jurisdictions; government relations and regulation; and environmental risks. Generally, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking information is based on the opinions and estimates of management as of the date such statements are made. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements, including but not limited to risks related to: unexpected events and delays during exploration, development and construction; revocation of government approvals and contracts; timing and availability of external financing on acceptable terms; actual results of exploration activities; changes in project parameters as plans continue to be refined; future prices of oil and gas; failure of plant, equipment or processes to operate as anticipated; litigation or arbitration proceedings; accidents, labour disputes; risks inherent in foreign operations and other risks of the oil and gas industry. Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws.