MANAGEMENT INFORMATION CIRCULAR DATED MARCH 27, 2023

www.headwaterexp.com

THE CLEARWATER ADVANTAGE

Headwater Exploration Inc. is a Canadian publicly traded resource company engaged in the exploration for and development and production of petroleum and natural gas in Canada. Headwater currently has high quality oil production, reserves, and lands in the prolific Clearwater play in the Marten Hills, Greater Peavine and West Nipisi areas of Alberta as well as low decline natural gas production and reserves in the McCully Field near Sussex, New Brunswick. Headwater is focused on providing superior corporate level returns by focusing on sustainability, asset quality and balance sheet strength.

We are publicly traded on the Toronto Stock Exchange (TSX: HWX). Find out more on our website www.headwaterexp.com.

WHAT'S INSIDE

Notice of Annual Meeting	3
Voting Matters	5
Business of the Meeting	9
Director Nominees	14
Directors' Compensation	27
Corporate Governance	32
Executive Compensation	45
Other Information	63
Advisories	65
Schedules
Schedule A 2020 Option Plan Summary	68
Schedule B 2008 Option Plan Summary	71
Schedule C 2022 Award Plan Summary	74
Schedule D Mandate of the Board of Directors	78

PROXY SUMMARY

The following summary highlights some of the important information you will find in this Information Circular. We recommend you read the entire Information Circular before voting.

Shareholder Voting Matters

Voting Matters	Board Vote Recommendation '	For More Information See Pages
Election of Directors	FOR each nominee	a
Appointment of Auditors	FOR
Say-on-Pay Advisory Vote	FOR

NOTICE OF ANNUAL MEETING

TO THE HOLDERS OF COMMON SHARES:

NOTICE is hereby given that an annual meeting (the "Meeting") of the holders ("Shareholders") of common shares ("Common Shares") of Headwater Exploration Inc. ("Headwater" or the "Corporation") will be held at the offices of Burnet, Duckworth & Palmer LLP, 2400 - 525 8th Avenue S.W., Calgary, Alberta at 3:00 p.m. (Calgary time) on Thursday, May 11, 2023, for the following purposes:

to receive the financial statements of the Corporation for the year ended December 31, 2022 and the $1.$ auditors' report thereon:
$2.$ to consider and, if thought appropriate, elect directors of the Corporation;
$\mathcal{E}$ to consider and, if thought appropriate, appoint the auditors of the Corporation and authorize the directors to fix their remuneration as such; and
$\overline{4}$ . to consider and, if thought appropriate, on an advisory non-binding basis, the acceptance of Headwater's approach to executive compensation; and
1. to transact such further and other business as may properly come before the Meeting or any adjournment(s) thereof.

The nature of the business to be transacted at the Meeting and the specific details of the matters proposed to be put to the Meeting are described in further detail in the accompanying management information circular of the Corporation dated March 27, 2023 (the "Information Circular").

The record date for the determination of Shareholders entitled to receive notice of and to vote at the Meeting is March 27, 2023 (the "Record Date"). Only Shareholders whose names have been entered in the register of Shareholders at the close of business on that date will be entitled to receive notice of and vote at the Meeting, provided that, to the extent a Shareholder transfers the ownership of any of his or her Common Shares after such date and the transferee of those Common Shares establishes that he or she owns the Common Shares and requests, not later than 10 days before the Meeting, to be included in the list of Shareholders eligible to vote at the Meeting, such transferee will be entitled to vote those Common Shares at the Meeting.

Shareholders may attend the Meeting in person or may be represented by proxy. Shareholders who are unable to attend the Meeting or any adjournment thereof in person are requested to date, sign and return the accompanying form of proxy for use at the Meeting or any adjournment thereof. A proxy will not be valid unless it is deposited with Odyssey Trust Company, Trader's Bank Building, 702 67 Yonge Street, Toronto, ON M5E 1J8 (Attention: Proxy Department), by facsimile at (800) 517-4553 (if outside North America) or by internet at https://login.odysseytrust.com/pxlogin at least 48 hours (excluding Saturdays, Sundays and holidays) prior to the time set for the Meeting or any adjournment(s) thereof. All instructions are listed in the enclosed form of proxy. The instrument appointing a proxy shall be in writing and shall be executed by the Shareholder or his or her attorney authorized in writing or, if the Shareholder is a corporation, under its corporate seal by an officer or attorney thereof duly authorized.

The persons named in the enclosed form of proxy are our officers of the Corporation. Each Shareholder has the right to appoint a proxyholder other than such persons, who need not be a Shareholder, to attend and to act for such Shareholder and on such Shareholder's behalf at the Meeting. To exercise such right, the names of the nominees of management should be crossed out and the name of the Shareholder's appointee should be legibly printed in the blank space provided.

DATED this 27^th day of March, 2023.

BY ORDER OF THE BOARD OF DIRECTORS OF HEADWATER EXPLORATION INC.

(signed) "Neil Roszell" Chair and Chief Executive Officer

Management Information Circular dated March 27, 2023 for the Annual Meeting of Shareholders of Headwater Exploration Inc. to be held on May 11, 2023.

VOTING MATTERS

Solicitation of Proxies

This management information circular (this "Information Circular") is furnished in connection with the solicitation of proxies by management of Headwater Exploration Inc. ("Headwater" or the "Corporation") for use at the annual meeting (the "Meeting") of the holders ("Shareholders") of common shares ("Common Shares") of the Corporation to be held at the offices of Burnet, Duckworth & Palmer LLP, 2400 - 525 8th Avenue S.W., Calgary, Alberta at 3:00 p.m. (Calgary time) on Thursday, May 11, 2023 and at any adjournment(s) thereof, for the purposes set forth in the Notice of Annual Meeting.

A proxy will not be valid unless it is deposited with Odyssey Trust Company, Trader's Bank Building, 702 67 Yonge Street, Toronto, ON M5E 1J8 (Attention: Proxy Department), by facsimile at (800) 517-4553 (if outside North America) or by internet at https://login.odysseytrust.com/pxlogin at least 48 hours (excluding Saturdays, Sundays and holidays) prior to the time set for the Meeting or any adjournment(s) thereof. All instructions are listed in the enclosed form of proxy.

Non-registered or beneficial Shareholders who do not hold Common Shares in their own name but rather through a broker, financial institution, trustee, nominee or other intermediary must complete and return the voting instruction form provided to them or follow the telephone or internet-based voting procedures described therein in advance of the deadline set forth in the voting instruction form in order to have such Common Shares voted at the Meeting on their behalf.

Only Shareholders of record at the close of business on March 27, 2023 will be entitled to vote at the Meeting, unless that Shareholder has transferred any Common Shares subsequent to that date and the transferee Shareholder, not later than ten (10) days before the Meeting, establishes ownership of such Common Shares and demands that the transferee's name be included on the list of Shareholders entitled to vote at the Meeting.

The instrument appointing a proxy must be in writing and must be executed by you or your attorney authorized in writing or, if you are a company, by a duly authorized officer or attorney of the company.

Unless otherwise stated, information provided in this Information Circular is given as of March 27, 2023.

The persons named in the enclosed form of proxy are our officers. As a Shareholder, you have the right to appoint a person or company, who need not be a Shareholder, to represent you at the Meeting. To exercise this right you should insert the name of the desired representative in the blank space provided on the form of proxy.

Advice to Beneficial Holders of Common Shares

The information set forth in this section is of significant importance to you if you do not hold your Common Shares in your own name. Only proxies deposited by Shareholders whose names appear on the records of the Corporation as the registered holders of such Common Shares can be recognized and acted upon at the Meeting. If Common

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Notice of Annual Meeting, this Information Circular and a form of proxy whereas beneficial Shareholders will receive a notice containing information prescribed by the Notice-and-Access Provisions and a voting instruction form. Furthermore, a paper copy of the Financial Information in respect of Headwater's most recently completed financial year was mailed to all registered Shareholders and those beneficial Shareholders who previously requested to receive such information.

Revocability of Proxy

A Shareholder who has submitted a proxy may revoke it at any time prior to the exercise thereof. If a person who has given a proxy attends the Meeting at which such proxy is to be voted, voting at the Meeting will revoke such person's previous proxy. In addition to revocation in any other manner permitted by law, a proxy may be revoked by instrument in writing executed by the Shareholder or the Shareholder's attorney authorized in writing deposited either at the registered office of the Corporation at any time up to and including the last business day preceding the day of the Meeting or any adjournment(s) thereof or in any other manner permitted by law, including pursuant to the provisions of the Business Corporations Act (Alberta) (the "ABCA").

Persons Making the Solicitation

The solicitation is made on behalf of management of the Corporation. The costs incurred in the preparation and mailing of the enclosed form of proxy, Notice of Annual Meeting and this Information Circular will be borne by the Corporation. In addition to solicitation by mail, proxies may be solicited by personal interviews, telephone or other means of communication and by directors, officers and employees of the Corporation, who will not be specifically remunerated therefore.

Exercise of Discretion by Proxy

The Common Shares represented by proxy in favour of management nominees shall be voted on each item of business at the Meeting and, where the Shareholder specifies a choice with respect to any matter to be acted upon, the Common Shares shall be voted for or against/withheld from voting on each item of business in accordance with the specification so made.

In the absence of such specification, the Common Shares will be voted in favour of the matters to be acted upon. The persons appointed under the form of proxy furnished by the Corporation are conferred with discretionary authority with respect to amendments or variations of those matters specified in the enclosed form of proxy, the Notice of Annual Meeting and this Information Circular. At the time of printing this Information Circular, management of the Corporation knows of no such amendment, variation or other matter.

Voting Securities and Principal Holders Thereof

As at the Record Date, 234,142,867 Common Shares were issued and outstanding, with each Common Share carrying the right to one (1) vote on a ballot at the Meeting. A guorum for the transaction of business at the Meeting will be present if not less than two (2) Shareholders representing not less than 25% of the Common Shares are present or represented by proxy at the Meeting.

The Record Date as of which Shareholders are entitled to vote at the Meeting has been fixed by the Corporation as March 27, 2023.

To the knowledge of the directors and senior officers of the Corporation, as at the date hereof, no person or company beneficially owned, or controlled or directed, directly or indirectly, voting securities of the Corporation carrying more than 10% of the voting rights attached to any class of voting securities of the Corporation.

Quorum for Meeting

At the Meeting, a quorum shall consist of two or more persons present and holding or representing by proxy not less than 25% of the outstanding Common Shares. If a quorum is not present at the opening of the Meeting, the Shareholders present may adjourn the Meeting to a fixed time and place but may not transact any other business.

BUSINESS OF THE MEETING

Recommendation of the Board of Directors

The Board unanimously recommends that the Shareholders vote FOR the election of each of the directors, appointment of auditors and the non-binding advisory resolution regarding Headwater's approach to executive compensation as set forth in this Information Circular. Unless instructed otherwise, the person named on the proxy will vote FOR each of such matters to be acted upon at the Meeting.

Financial Statements and Auditors' Report

Pursuant to the ABCA, the board of directors of the Corporation (the "Board") will place before the Shareholders at the Meeting the audited financial statements of the Corporation for the year ended December 31, 2022 and the auditors' report thereon, which accompany this Information Circular. Shareholder approval is not required in relation to the audited financial statements.

Election of Directors

There are presently nine (9) Board members. In addition to the current directors of the Corporation, the Board is also proposing that Ms. Corbin be elected as a director at the Meeting. As such, the Board has determined that the number of directors to be elected at the Meeting be fixed at ten (10) and Shareholders will be asked to elect ten (10) directors to hold office until the next annual meeting or until their successors are elected or appointed.

Unless otherwise directed, it is the intention of management to vote proxies in the accompanying form in favour of the election as directors of the ten (10) nominees hereinafter set forth:

Devery Corbin	Elena Dumitrascu	Chandra Henry	Jason Jaskela
Phillip R. Knoll	Stephen Larke	Kevin Olson	David Pearce
Neil Roszell	Kam Sandhar

The directors will be elected on an individual basis and the voting for or withhold on one director will be mutually exclusive to the voting for or withhold on any other director.

The term of office of each director nominee will be from the date of the Meeting until the next annual meeting of Shareholders or until his or her successor is elected or appointed. At the annual and special meeting of Shareholders held on May 12, 2022 (the "2022 AGM"), the resolution appointing the foregoing directors, except with respect to Devery Corbin who is a new proposed nominee to the Board, was approved with Common Shares voted in favour of such directors ranging from 85.766% to 99.971%.

See "Director Nominees" for additional information on the nominees for election as directors at the Meeting.

Majority Voting for Directors

The Board has adopted a policy (the "Majority Voting Policy") stipulating that if the number of Common Shares voted in favour of the election of a particular director nominee at a Shareholders' meeting is less than the number of Common Shares withheld from voting for that nominee, the nominee will immediately submit his or her

resignation to the Board, with the resignation to take effect when and if such resignation is accepted by the Board. The Corporate Governance and Sustainability Committee ("CG&S Committee") will consider the director nominee's offer to resign and will make a recommendation to the Board as to whether or not to accept the resignation. The CG&S Committee will be expected to recommend acceptance of the resignation, except in exceptional circumstances.

The Board will consider the CG&S Committee's recommendation and make a decision as to whether to accept the director's offer to resign within 90 days of the date of the meeting. The decision of the Board will be announced by way of a press release, which, if the Board has decided to reject such resignation, will include the reasons for rejecting the resignation. No director who is required to tender his or her resignation shall participate in the deliberations or recommendations of the CG&S Committee or the Board. The Board shall accept the resignation absent any exceptional circumstances.

If a director's offer of resignation is accepted, at the Board's discretion, it may fill the vacancy through the appointment of a new director whom the Board considers appropriate in accordance with the Corporation's bylaws and articles and applicable laws. The Majority Voting Policy does not apply in circumstances involving contested director elections.

A copy of the Majority Voting Policy is available on Headwater's website at www.headwaterexp.com.

Advance Notice By-law

The Corporation's by-laws contain advance notice provisions regarding advance notice of nominations of directors of the Corporation (the "Advance Notice Provisions"). The Advance Notice Provisions provide that advance notice to the Corporation must be made in circumstances where nominations of persons for election to the Board are made by Shareholders other than pursuant to: (i) a "proposal" made in accordance with the ABCA; or (ii) a requisition of a meeting made pursuant to the ABCA.

The Advance Notice Provisions fix a deadline by which Shareholders must submit director nominations to the Chief Financial Officer of the Corporation prior to any annual or special meeting of Shareholders and outlines the specific information that a nominating Shareholder must include in the written notice to the Chief Financial Officer of the Corporation for an effective nomination to occur. No person nominated by a Shareholder will be eligible for election as a director of the Corporation unless nominated in accordance with the provisions of the Advance Notice Provisions

In the case of an annual meeting of Shareholders, notice to the Chief Financial Officer of the Corporation must be made not less than 30 days prior to the date of the annual meeting; provided, however, that in the event that the annual meeting is to be held on a date that is less than 50 days after the date on which the first public announcement of the date of the annual meeting was made, notice may be made not later than the close of business on the 10^th day following such public announcement. In the case of a special meeting of Shareholders (which is not also an annual meeting), notice to the Corporation must be made not later than the close of business on the 15^th day following the day on which the first public announcement of the date of the special meeting was made.

If Notice-and-Access Provisions are used for delivery of proxy-related materials in respect of a meeting described above and the notice date in respect of the meeting is not less than 50 days before the date of the applicable

meeting, the notice must be received not later than the close of business on the 40^th day before the date of the applicable meeting.

In the event of an adjournment or postponement of an annual meeting or special meeting of Shareholders or any announcement thereof, a new time period shall commence for the giving of timely notice.

The Board may, in its sole discretion, waive any requirement of the Advance Notice Provisions of the Corporation's by-laws.

Appointment of Auditors

Unless otherwise directed, it is management's intention to vote the proxies in favour of appointing the firm of KPMG LLP, Chartered Professional Accountants, of Calgary, Alberta ("KPMG LLP") to serve as auditors of the Corporation until the next annual meeting of the Shareholders and to authorize the directors to fix their remuneration as such. KPMG LLP has been the Corporation's auditors since March 25, 2020. At the 2022 AGM, this resolution was passed with 167,155,637 Common Shares voted in favour (99.954% of Common Shares voted at the meeting).

Fees paid to KPMG LLP, for audit and non-audit services in the last two fiscal years are outlined in the following table:

	Fees Paid for Period Ended	Fees Paid for Period Ended
Nature of Services	December 31, 2022	December 31, 2021
Audit Fees ⁽¹⁾	\$196,613	\$220,752
Audit-Related Fees ⁽²⁾	\$nil	\$84,263
Tax $Fersmathsf{ees}^{(3)}$	\$nil	\$4,458
All Other Fees ⁽⁴⁾	\$nil	\$nil

Total	\$196.613	\$309,473
	"Audit Fees" include fees necessary to perform the annual audit and quarterly reviews of the Corporation's financial statements.
	Audit Eees include fees for review of tax provisions and for accounting consultations on matters reflected in the financial statements

x provisions and for accounting consultations on matters reflected in the financial sta Audit Fees also include audit or other attest services required by legislation or regulation, such as comfort letters, consents, reviews of securities filings and statutory audits.

$(2)$ "Audit-Related Fees" include services that are traditionally performed by the auditor. These audit-related services include employee benefit audits, due diligence assistance, accounting consultations on proposed transactions, internal control reviews and audit or attest services not required by legislation or regulation. In 2021, this work related to work performed in connection with a short form prospectus filed by the Corporation pursuant to the Secondary Offering (as defined in the 2022 AIF (defined below)). These costs were subsequently reimbursed by Cenovus Energy Inc. For more information regarding the Secondary Offering, see the information set out under the heading "General Development of the Business" in the 2022 AIF.
"Tax Fees" include fees for all tax services other than those included in "Audit Fees" and "Audit-Related Fees". This category includes $(3)$ fees charged solely for tax compliance. No fees were charged by KPMG LLP to the Corporation for tax planning or tax advice in 2022 or 2021. Tax planning and tax advice includes assistance with tax audits and appeals, tax advice related to mergers and acquisitions, and requests for rulings or technical advice from tax authorities.
$(4)$ "All Other Fees" include all other non-audit services.

For additional information relating to the fees paid to KPMG LLP and PricewaterhouseCoopers LLP, Chartered Professional Accountants, the former auditors of the Corporation, for the two most recently completed financial years of the Corporation see the information set out under the heading "Audit Committee Information" in the Corporation's annual information form dated March 9, 2023 for the year ended December 31, 2022 (the "2022 AIF"), which is available on SEDAR at www.sedar.com.

Advisory Vote on Executive Compensation

As a result of the significant developments in the Corporation's business following the Recapitalization Transaction, which included the completion of the Cenovus Transaction (as defined below) and the development of the Corporation's Marten Hills assets in Alberta, the Corporation's average production has grown from 586 barrels of oil equivalent ("BOE") per day ("BOE/d") in the fourth quarter of 2019 prior to completion of the Recapitalization Transaction, to 1,646 BOE/d in the fourth quarter of 2020, to 10,449 BOE/d in the fourth quarter of 2021, and to 15,546 BOE/d in the fourth quarter of 2022. As discussed further below, this rapid development in the Corporation's business has required the CG&S Committee and the Board to continue to evolve the compensation programs of the Corporation to ensure such programs are appropriate for the retention, and attraction of highly motivated and capable management and staff in order to achieve the business objectives of the Corporation. As a result of this rapid development of the business and compensation programs of the Corporation, management and the Board did not believe it was appropriate to implement a say-on-pay advisory vote on executive compensation at the annual meetings of Shareholders held in previous years.

In 2022, the Corporation adopted new compensation programs for both non-executive directors and for executive officers. For non-executive directors, the new compensation programs, included annual cash retainers for nonexecutive directors and grants of deferred share units ("DSUs") under a new DSU plan (the "DSU Plan"). For executive officers, the new compensation programs, continued to include annual base salaries and cash bonuses based on a short-term incentive plan ("STIP") corporate performance scorecard as well as grants of performance share awards ("Performance Awards") under a new performance and restricted share award plan dated effective March 10, 2022 (the "Award Plan"). The Corporation did not grant any options (the "Options") to purchase Common Shares to either the non-executive directors or executive officers in 2022 and has no ability to grant any further Options to directors, officers, employees or consultants under the Option Plans (as defined below). For additional information on the Corporation's compensation programs see "Directors' Compensation" and "Executive Compensation" below.

As a result of this evolution of the compensation programs of the Corporation, the CG&S Committee and the Board determined that it was an appropriate time to implement an annual say-on-pay advisory vote to give a formal opportunity for the Shareholders to provide their views on the elements of compensation and the levels of such compensation awarded to the executive officers of Headwater. The say-on-pay advisory vote is a non-binding shareholder advisory vote. Shareholders are encouraged to carefully review the information set forth in the "Executive Compensation" section of this Information Circular before voting on this matter. In addition to providing feedback to our Board on Shareholders' views of executive compensation by voting on the say-on-pay advisory vote, we invite you to give direct feedback to our Board by mail at Suite 1400, 215-9th Ave SW, Calgary, Alberta, T2P 1K3, Attn: Board of Directors or by email to [email protected].

At the Meeting, Shareholders will be asked to consider and, if thought advisable, to pass the following resolution, being the say-on-pay advisory vote:

"BE IT RESOLVED, on an advisory basis and not to diminish the role and responsibilities of the Board of Directors of Headwater Exploration Inc. (the "Corporation"), that the shareholders of the Corporation accept the approach to executive compensation as disclosed in the "Executive Compensation" section of the Management Information Circular of the Corporation dated March 27, 2023."

DIRECTOR NOMINEES

The following profiles give information about each nominated director, including their background and experience, the period served as director, meeting attendance, security ownership (including Common Shares and DSUs owned) and other public company boards on which they serve.

Neil Roszell
Chair and Chief Executive Officer Director since: March 4, 2020 Alberta, Canada Age: 55 Votes for at 2022 AGM: 159,739,805 (98.908%)	Key Skills and Experience Executive Leadership Strategic Planning/Business Development Oil and Gas Operations

Chair and Chief Executive Officer ("CEO") of the Corporation since March 4, 2020. Prior thereto, Chair and CEO of 2143289 Alberta Ltd. (formerly Headwater Exploration Inc.) from December 2019 to March 4, 2020; prior thereto, Chair of Baytex Energy Corp. ("Baytex") from August 22, 2018 until December 2019; prior thereto, various roles with Raging River Exploration Inc. ("Raging River"), including Executive Chair and CEO and President and CEO from 2011 until August 2018. Mr. Roszell received a Bachelor of Applied Science degree in Engineering from the University of Regina in 1991.

Board and committee membership and attendance since January 1, 2022				Other public company boards
Board Member Overall attendance	10/10 100%			N/A
Common Shares and DSUs held ⁽¹⁾
Common Shares	DSUs	Total Value ⁽²⁾	Total Annual Base Salary ⁽³⁾	Required Value of Share Ownership	Meets Share Ownership $\mathbf{Guidelines}^{(4)}$
3,529,740	N/A	\$22,096,172	\$150,000	\$450,000	Yes

Jason Jaskela

President and Chief Operating Officer Director since: March 4, 2020 Alberta, Canada Age: 46 Votes for at 2022 AGM: 156,956,784 (97.185%)

Key Skills and Experience

Oil and Gas Operations Health and Safety Government and Indigenous Relations

President and Chief Operating Officer ("COO") of the Corporation since March 4, 2020. Prior thereto, President and COO of 2143289 Alberta Ltd. (formerly Headwater Exploration Inc.) from December 2019 to March 4, 2020; prior thereto, Executive Vice President and COO of Baytex from August 2018 until September 2019; prior thereto, COO and Vice President, Production of Raging River from March 2012 until August 2018. Mr. Jaskela graduated with a Bachelor of Science degree in Engineering in 2000.

Board and committee membership and attendance since January 1, 2022				Other public company boards
Board Member Overall attendance		10/10 100%		N/A
Common Shares and DSUs held(1)
Common Shares	DSUs	Total Value ⁽²⁾	Total Annual Base Salary ⁽³⁾	Required Value of Share Ownership	Meets Share Ownership $Guidelines(4)$
2,064,716	N/A	\$12,925,122	\$350,000	\$350,000	Yes

Devery Corbin

New director nominee Alberta, Canada Age: 50

Key Skills and Experience

Government and Indigenous Relations Strategic Planning/Business Development Sustainability

Executive Management Consultant since 2022. From 2018 through 2022, Ms. Corbin served as the Chief of Staff for the Mayor of the City of Calgary. From 2005 to 2017, Ms. Corbin was employed at the City of Calgary in various roles culminating in the role as Manager, Intergovernmental & Corporate Strategy prior to her move to become Chief of Staff in the Mayor's office. In Ms. Corbin's 25 years working in the public sector, she has developed deep experience in government relations, Indigenous consultation and strategic planning and leadership. Ms. Corbin has a City Leadership Diploma from the Bloomberg Harvard City Leadership Initiative in New York city, a Master's degree in Urban and Regional Planning from Queens University and a Bachelor of Arts in Political Science and Government from the University of Victoria.

Board and committee membership and attendance since January 1, 2022				Other public company boards
Board Member N/A Overall attendance N/A			N/A
	Common Shares and DSUs held(1)
Common Shares	DSUs	Total Value ⁽²⁾	Total Annual Cash Retainer $(5)$	Required Value of Share Ownership	Meets Share Ownership Guidelines $(4)$
Nil	Nil	Nil	\$55,000	N/A ⁽⁶⁾	N/A ⁽⁶⁾

Elena Dumitrascu

Director since: May 12, 2022 Alberta, Canada Age: 45 Votes for at 2022 AGM: 161,184,953 (99.803%)

Key Skills and Experience

Information Technology Health and Safety Enterprise Risk Management

Co-Founder and Chief Technology Officer at TerraHub Technologies Inc. ("Terrahub") since 2018. TerraHub developed Credivera a technology platform that provides proof of certifications and work experience using blockchain to maintain realtime, auditable records. Since 2019, Ms. Dumitrascu has served as Blockchain Instructor at the University of Calgary. Ms. Dumitrascu has over 20 years of entrepreneurial experience in the technology industry playing a pivotal role in founding companies or helping companies grow and achieve success, including as Vice-President Strategic Partnerships at Cortex Business Solutions from 2015 through 2018 and as Founder and Chief Executive Officer of Caledonia Solutions Inc. from 2009 through 2015. Ms. Dumitrascu is recognized as a leader in identity management, blockchain and cybersecurity in North America. Ms. Dumitrascu has a Bachelor of Sciences degree in Computer Science from the University of Windsor.

Board and committee membership and attendance since May 12, 2022 (date of election)				Other public company boards
Board Member Overall attendance		6/6 100%		N/A
	Common Shares and DSUs held ⁽¹⁾
Common Shares	DSUs	Total Value $(2)$	Total Annual Cash Retainer $(5)$	Required Value of Share Ownership	Meets Share Ownership $\mathbf G$ uidelines $^{(4)}$
Nil	23,947	\$149,908	\$55,000	$$275,000^{(7)}$	$N/A^{(7)}$

Chandra Henry

Director since: March 4, 2020 Alberta, Canada Age: 47 Votes for at 2022 AGM: 159,587,532 (98.814%)

Key Skills and Experience

Financial Literacy Enterprise Risk Management Human Resources

Chief Financial Officer and Chief Compliance Officer of Longbow Capital Inc. ("Longbow"), a private equity investment management company based in Calgary, Alberta that invests predominantly in the North American energy markets, since June 2019. Prior thereto, various senior finance positions including Chief Financial Officer of WestBlock Inc. from 2018 to 2019, Director of Finance for GMP Securities L.P. from 2016 to 2017 and Chief Financial Officer of FirstEnergy Capital Corp, from 2001 to 2016. Ms. Henry has a Bachelor of Commerce degree from the University of Calgary and has earned the Chartered Professional Accountant (CPA, CA), Chartered Financial Analyst (CFA) and Institute of Corporate Directors (ICD.D) designations. In addition, Ms. Henry is a Fundamentals of Sustainability Accounting (FSA) Credential Holder.

Board and committee membership and attendance since January 1, 2022				Other public company boards
Board Member 10/10 5/5 Chair - Audit Committee Member – CG&S Committee 4/4 Overall attendance 100%			Whitecap Resources Inc. (TSX)
Common Shares and DSUs held ⁽¹⁾
Common Shares	DSUs	Total Value $(2)$	Total Annual Cash Retainer $(5)(8)$	Required Value of Share Ownership	Meets Share Ownership $Guidelines(4)$
676,811	32,447	\$4,439,955	\$70,000	\$350,000	Yes

Phillip R. Knoll

Director since: September 21, 2010 Alberta, Canada Age: 68 Votes for at 2022 AGM: 161,457,065 (99.971%)

Key Skills and Experience

Executive Leadership Strategic Planning/Business Development Health and Safety

President of Knoll Energy Inc., a private energy consulting company, since 2006. Mr. Knoll served as interim Co-CEO of AltaGas Ltd. from July to December 2018. Mr. Knoll was the CEO of the Corporation from 2010 to 2014. Mr. Knoll formerly served on the boards of directors of Rally Energy Corp. and Bankers Petroleum Ltd. Mr. Knoll holds a Bachelor of Applied Science from the Technical University of Nova Scotia in Chemical Engineering. He is a Professional Engineer and a member of the Institute of Corporate Directors.

Board and committee membership and attendance since January 1, 2022				Other public company boards
Board Member 10/10 Member – Reserves and 5/5 Safety Committee Overall attendance 100%			AltaGas Ltd. (TSX)
			Common Shares and DSUs held ⁽¹⁾
Common Shares	DSUs	Total Value ⁽²⁾	Total Annual Cash Retainer $(5)$	Required Value of Share Ownership	Meets Share Ownership $\mathbf G$ uidelines $^{(4)}$
536,965	59,698	\$3,735,110	\$55,000	\$275,000	Yes

Stephen Larke

Director since: March 4, 2020 Alberta, Canada Age: 51 Votes for at 2022 AGM: 138,514,146 (85.766%)

Key Skills and Experience

Corporate Governance Sustainability Human Resources

Independent businessman since 2017. Prior thereto, an Operating Partner and Advisory Board member with Azimuth Capital Management Inc. ("Azimuth"), an energy-focused private equity fund, from 2015 to 2017; prior thereto, a Managing Director and Executive Committee member with Calgary-based Peters & Co. Limited, a private investment firm, from 2005 to 2015. Mr. Larke has a Bachelor of Commerce degree (Distinction) from the University of Calgary and has earned the Chartered Financial Analyst (CFA) and Institute of Corporate Directors (ICD.D) designations. In addition, Mr. Larke is a Fundamentals of Sustainability Accounting (FSA) Credential Holder.

Board and committee membership and attendance since January 1, 2022				Other public company boards
Board Member Chair – CG&S Committee Overall attendance		$10/10^{(9)}$ 4/4 100%		Topaz Energy Corp. (TSX) Vermilion Energy Inc. (TSX)
Common Shares and DSUs held ⁽¹⁾
Common Shares	DSUs	Total Value $(2)$	Total Annual Cash Retainer $(5)(10)$	Required Value of Share Ownership	Meets Share Ownership Guidelines $(4)$
948,146	21,747	\$6,071,530	\$70,000	\$350,000	Yes

Kevin Olson

Lead Independent Director Director since: March 4, 2020 Alberta, Canada Age: 54 Votes for at 2022 AGM: 161,337,633 (99.897%)

Key Skills and Experience

Financial Literacy Strategic Planning/Business Development Corporate Governance

Mr. Olson is an independent businessman. Prior thereto, President of Camber Capital Corp., a private equity fund, since March 2019 and President of Kyklopes Capital Management Ltd., a private equity fund, from 2011 to February 2019. Mr. Olson has over 25 years of industry experience. Mr. Olson has managed four early stage energy funds and served as a director of a variety of exploration and production companies and petroleum services companies. Formerly, Mr. Olson was Vice-President, Corporate Finance at FirstEnergy Capital Corp. and Vice-President, Corporate Development for Northrock Resources Ltd. Mr. Olson holds a Bachelor of Commerce degree (Distinction) majoring in finance and accounting from the University of Calgary.

Board and committee membership and attendance since January 1, 2022				Other public company boards
Lead Independent Director Member - Audit Committee Member – Reserves and Safety Committee Overall attendance		9/10 5/5 5/5 95%		N/A
	Common Shares and DSUs held ⁽¹⁾
Common Shares	DSUs	Total Value $(2)$	Total Annual Cash Retainer $(5)(11)$	Required Value of Share Ownership	Meets Share Ownership $\mathbf G$ uidelines $^{(4)}$
3,574,045	24,854	\$22,529,108	\$80,000	\$400,000	Yes

David Pearce

Director since: March 4, 2020 Alberta, Canada Age: 69 Votes for at 2022 AGM: 159,856,264 (98.980%)

Key Skills and Experience

Health and Safety Reserves Evaluation Oil and Gas Operations

Deputy Managing Partner at Azimuth, an energy-focused private equity fund, since July 2014. Mr. Pearce was an Operating Partner with the Azimuth predecessor KERN Partners from November 2008 to July 2014. Mr. Pearce currently serves on the Board of Baytex (since 2018) and was formerly a director of Raging River from March 2012 to August 2018. He was with Northrock Resources Ltd. from June 1999 to January 2008 where he held several senior officer positions, including President and CEO. Prior thereto, Mr. Pearce worked in various management roles at Fletcher Challenge Canada, Amoco Canada and Dome Petroleum. Mr. Pearce holds a Bachelor of Science degree in Mechanical Engineering (Honors) from the University of Manitoba.

Board and committee membership and attendance since January 1, 2022				Other public company boards
Board Member Chair - Reserves and Committee	Safety	$9/10^{(9)}$ 5/5		Baytex Energy Corp. (TSX)
Member – CG&S Committee Overall attendance		4/4 95%
	Common Shares and DSUs held ⁽¹⁾
Common Shares	DSUs	Total Value ⁽²⁾	Total Annual Cash Retainer ^(5)(12)	Required Value of Share Ownership	Meets Share Ownership $\mathbf{Guidelines}^{(4)}$
906,956	31,547	\$5,875,029	\$65,000	\$325,000	Yes

Kam Sandhar

Director since: December 2, 2020 Alberta, Canada Age: 46 Votes for at 2022 AGM: 147,100,009 (91.082%)

Key Skills and Experience

Financial Literacy Strategic Planning/Business Development Oil and Gas Operations

Mr. Sandhar is currently the Executive Vice President, Strategy & Corporate Development of Cenovus Energy Inc. ("Cenovus") and has served in a variety of senior management and executive roles at Cenovus since 2013. Mr. Sandhar has over 20 years of experience in the oil and gas industry and has extensive expertise in capital markets, strategy, business development, finance and investor relations. Prior to joining Cenovus in 2013, Mr. Sandhar spent 9 years at Peters & Co. Limited where he served as a Principal and oil and gas analyst, covering a wide array of Canadian, U.S. and international oil and gas companies. Mr. Sandhar is a Chartered Professional Accountant and a member of the Chartered Professional Accountants of Alberta. He holds a Bachelor of Commerce degree from the University of Calgary.

Board and committee membership and attendance since January 1, 2022				Other public company boards
Board Member Member – Audit Committee Overall attendance		$10/10^{(9)}$ 5/5 100%		N/A
	Common Shares and DSUs held ⁽¹⁾
Common Shares	DSUs	Total Value ⁽²⁾	Total Annual Cash Retainer $(5)$	Required Value of Share Ownership	Meets Share Ownership Guidelines ⁽⁴⁾
50,937	30.147	\$507,586	\$55,000	$$275,000^{(13)}$	$N/A^{(13)}$

$(1)$ The information as to securities of the Corporation beneficially owned, directly or indirectly, is based upon information furnished to Headwater by the nominees and is as of March 27, 2023.
$(2)$ Total value is based on the number of Common Shares and DSUs held by each nominee multiplied by the closing price of the Common Shares on the Toronto Stock Exchange (the "TSX") of \$6.26 on March 27, 2023.
$(3)$ Annual base salaries for Neil Roszell and Jason Jaskela are effective January 1, 2023.
Pursuant to the Corporation's share ownership quidelines (the "Share Ownership Guidelines"), non-executive directors are required $(4)$ to hold Common Shares and DSUs of the Corporation with a value of not less than five times the annual cash retainer paid to each such director. Pursuant to the share ownership quidelines, the CEO is required to hold Common Shares with a value of not less than three times the annual base salary paid to the CEO. Pursuant to the Share Ownership Guidelines, the COO is required to hold Common Shares with a value of not less than one times the annual base salary paid to the COO. The Share Ownership Guidelines value the Common Shares as at December 31, 2022 whereas the above table shows the value of the Common Shares as at March 27, 2023. See "Director Nominees - Director Share Ownership Guidelines" and "Executive Compensation - Compensation Discussion and Analysis - Compensation Risk Mitigation - Officer Share Ownership Guidelines" for more information.
An annual cash retainer in the amount of \$55,000 is payable to each non-executive director of the Corporation. $(5)$
$(6)$ Ms. Corbin is not currently a director. Assuming Ms. Corbin is elected at the Meeting, she will have three years from the date of her election to the Board to achieve the required share ownership under the Share Ownership Guidelines for non-executive directors.
Ms. Dumitrascu was appointed to the Board on May 12, 2022 and has three years from the date of her appointment to the Board to $(7)$ achieve the required share ownership under the Share Ownership Guidelines for non-executive directors.
Ms. Henry receives an additional annual cash retainer in the amount of \$15,000 in respect of her position as Chair of the Audit $(8)$ Committee
$(9)$ Certain directors recused themselves for portions of meetings or entire meetings if the subject matter under discussion for such meetings presented a conflict of interest for such directors. Such directors have not been considered to have missed a meeting in such circumstances.
$(10)$ Mr. Larke receives an additional annual cash retainer in the amount of \$15,000 in respect of his position as Chair of the CG&S Committee
Mr. Olson receives an additional annual cash retainer in the amount of \$25,000 in respect of his position as Lead Independent $(11)$ Director
Mr. Pearce receives an additional annual cash retainer in the amount of \$10,000 in respect of his position as Chair of the Reserves $(12)$ and Safety Committee.
Mr. Sandhar was appointed to the Board on December 2, 2020 and has three years from the date of his appointment to the Board $(13)$ to achieve the required share ownership under the Share Ownership Guidelines for non-executive directors.

Director Share Ownership Guidelines

On December 10, 2021, the Board amended its Share Ownership Guidelines for non-executive directors. Pursuant to the amended Share Ownership Guidelines for non-executive directors, non-executive directors are required to hold Common Shares and DSUs with a value of not less than five times the annual cash retainer paid to each such director. The value of the Common Shares will be based on the closing price of the Common Shares as at December 31 in the year prior to such determination. The value of the DSUs will be based on the number of Common Shares underlying such DSUs multiplied by the closing price of the Common Shares as at December 31 in the year prior to such determination. Any new directors will be required to achieve this level within three years of their election or appointment to the Board. Any director that does not meet the quidelines will be required to receive DSUs in lieu of any cash retainers until such director has met these quidelines. As Messrs. Roszell and Jaskela are also officers of the Corporation they are subject to the Share Ownership Guidelines applicable to the executive officers of the Corporation and not the Share Ownership Guidelines for non-executive directors.

The following table sets out the value of the equity holdings of each of Headwater's non-executive directors based on the closing price of the Common Shares on the TSX on the last trading day of December 30, 2022 being \$5.92 per Common Share:

Name	Common Shares held (# )	Value of Common $Shares^{(1)}$ $($ \$)	$DSUs^{(2)}$ (#)	Value of $DSUs^{(1)}$ $($ \$)	Total Value of Common Shares and DSUs Owned $(1)$ $($ \$)	Total Value of Share Ownership Required ⁽³⁾ $($ \$)	Meets Share Ownership Requirements ⁽⁴⁾
Elena Dumitrascu	Nil	Nil	12,000	71,040	71,040	275,000	In progress $(5)$
Chandra Henry	670,811	3,971,201	20,500	121,360	4,092,561	350,000	Yes
Phillip Knoll	536,965	3,178,833	47,751	282,686	3,461,519	275,000	Yes
Stephen Larke	1,198,965	7,097,873	9,800	58,016	7,155,889	350,000	Yes
Kevin Olson	3,574,045	21,158,346	11,200	66,304	21,224,650	400,000	Yes
David Pearce	906,956	5,369,180	19,600	116,032	5,485,212	325,000	Yes
Kam Sandhar	26,417	156,389	18,200	107.744	264,133	275,000	In progress $(6)$

Common shares held as of December 30, 2022. Value has been determined by multiplying the number of Common Shares and the $(1)$ number of Common Shares underlying DSUs, as applicable, by the closing price of the Common Shares on the TSX on December 30, 2022 of \$5.92.

$(2)$ All DSUs vest immediately upon grant but cannot be redeemed until the director ceases to be a director of the Corporation.

$(3)$ Non-executive directors are required to hold Common Shares and DSUs with a value of not less than five times the annual cash retainer paid to each such director. Cash retainers effective January 1, 2023.

$(4)$ Directors have three years from their appointment to meet the targets established by the Share Ownership Guidelines.

Ms. Dumitrascu was appointed to the Board on May 12, 2022 and therefore has until May 12, 2025 to meet the targets established $(5)$ by the Share Ownership Guidelines.

Mr. Sandhar was appointed to the Board on December 2, 2020 and therefore has until December 2, 2023 to meet the targets $(6)$ established by the Share Ownership Guidelines.

Director Vote Results at 2022 AGM

The following table sets out the votes "for" and "withheld" received for each director at the 2022 AGM.

	Votes For	Votes For	Votes Withheld	Votes Withheld
Name	(#)	$(\%)$	(# )	$(\%)$
Neil Roszell	159,739,805	98.908	1,763,466	1.092
Jason Jaskela	156,956,784	97.185	4,546,487	2.815
Elena Dumitrascu	161,184,953	99.803	318,318	0.197
Chandra Henry	159,587,532	98.814	1,915,739	1.186
Phillip Knoll	161,457,065	99.971	46,206	0.029
Stephen Larke	138,514,146	85.766	22,989,125	14.234
Kevin Olson	161,337,633	99.897	165,638	0.103
David Pearce	159,856,264	98.980	1,647,007	1.020
Kam Sandhar	147,100,009	91.082	14,403,262	8.918

Corporate Cease Trade Orders or Bankruptcies

Except as set out below, no proposed director is as at the date hereof, or has been, within 10 years of the date hereof, a director or chief executive officer or chief financial officer (or any executive officer, for the purpose of subsection (iii) below) of any company, including the Corporation, that: (i) while that person was acting in that capacity, was the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation, for a period of more than 30 consecutive days (an "order"); (ii) after that person ceased to act in that capacity, was the subject of an order that resulted from an event that occurred

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DIRECTORS' COMPENSATION

Discussion of Director Compensation

In 2020 and 2021, given the Corporation's initially limited operations and early stages of development, the CG&S Committee recommended and the Board approved a compensation program for non-executive directors consisting of grants of Options as the only form of compensation. The intent of this approach was to maintain G&A expenses at a relatively low level to preserve the Corporation's balance sheet strength for development of its assets and acquisition opportunities and to align the interests of the non-executive directors with Shareholders' interests in increasing the value of the Common Shares over the long-term.

On December 2, 2021, the CG&S Committee met to review and consider the compensation programs in relation to the non-executive directors given the Corporation's significant growth throughout 2021. As a result, the CG&S Committee recommended (and the Board later approved) that the Corporation move away from Options as the only form of compensation to non-executive directors to a program consisting of annual cash retainers plus an annual grant of DSUs under the new DSU Plan. As further described below, the DSU Plan provides that a nonexecutive director will have the right to receive a cash payment equal to the number of DSUs (adjusted for dividends paid while such DSUs were outstanding) held by the director on the date the director ceases to be a director, multiplied by the volume weighted average trading price of the Common Shares on the TSX for the five trading days immediately prior to the Maturity Date (as defined below). In addition to providing for the grant of DSUs to non-executive directors, non-executive directors also have the option to elect to receive DSUs in lieu of receiving their annual cash retainers.

As a result of the recommendations of CG&S Committee, the Board approved that annual cash retainers would be paid to the non-executive directors commencing effective as of January 1, 2022 and each non-executive director would receive an annual grant of DSUs. In December 2022, the CG&S Committee recommended and the Board approved increases to the annual cash retainers of the non-executive directors effective January 1, 2023. The following table shows the annual cash retainers and the value of the annual grant of DSUs to the non-executive directors approved for both 2022 and 2023.

Type of Compensation	2022 Amount $($ \$)	2023 Amount (\$)
Annual cash retainer for each non-executive director	50,000	55,000
Additional cash retainer for Lead Independent Director	25,000	25,000
Additional cash retainer for Audit Committee Chair	14,000	15,000
Additional cash retainer for CG&S Committee chair	12,000	15,000
Additional cash retainer for Reserves and Safety Committee Chair	8,500	10,000
Value of annual grant of DSUs for each non-executive director (other than	70,000	70,000
Lead Independent Director)
Value of annual grant of DSUs for Lead Independent Director	80,000	80,000

Directors' Summary Compensation Table

The following table sets forth, for the year ended December 31, 2022, information concerning the compensation paid to the Corporation's directors during the year ended December 31, 2022, other than directors who were also Named Executive Officers (as defined below).

Name	Salary/Fees earned $($ \$)	Share-based awards $(1)$ $($ \$)	Option-based awards $($ \$)	Non-equity incentive plan compensation plans $($ \$)	All other compensation $($ \$)	Total compensation $($ \$)
Elena Dumitrascu ⁽²⁾⁽³⁾	32,000	45,000	Nil	Nil	Nil	77,000
Chandra Henry ⁽²⁾	64,000	70,000	Nil	Nil	Nil	134,000
Phillip R. Knoll	50,000	70,000	Nil	Nil	Nil	120,000
Stephen Larke	62,000	70,000	Nil	Nil	Nil	132,000
Kevin Olson	75,000	80,000	Nil	Nil	Nil	155,000
David Pearce ⁽²⁾	58,500	70,000	Nil	Nil	Nil	128,500
Kam Sandhar ⁽²⁾	50,000	70,000	Nil	Nil	Nil	120,000

$(1)$ The compensation reported under share-based awards is the value of DSUs granted in the year ended December 31, 2022. The value of DSUs is based on the number of DSUs granted multiplied by the volume weighted average trading price of the Common Shares on the TSX for the five trading days immediately prior to the date of the grant. This methodology for calculating the fair value of the DSUs on the grant date is consistent with the initial fair value determined in accordance with IFRS 2.

Ms. Henry and Mr. Pearce elected to receive their fees earned in 2022 as DSUs. Ms. Dumitrascu and Mr. Sandhar are required to $(2)$ receive fees earned as DSUs until the Share Ownership Guidelines are met.

Ms. Dumitrascu was elected to the Board on May 12, 2022 and her compensation was pro-rated for the portion of the year she $(3)$ served as a director.

Directors' Incentive Plans

Deferred Share Unit Plan

As a result of the recommendation of the CG&S Committee, on March 10, 2022, the Board approved the new DSU Plan, which provides for the grant of DSUs to non-executive directors. As further described below, the DSU Plan provides that a non-executive director will have the right to receive a cash payment based on the value of the Common Shares underlying the DSUs (after adjustment for dividends paid while such DSUs were outstanding) held by such director following the date the director ceases to be a director. In addition to providing for the grant of DSUs to non-executive directors, non-executive directors also have the option to elect to receive DSUs in lieu of receiving their annual cash retainers. The DSU Plan is not a security based compensation plan as all DSUs will be settled in cash.

The purpose of the DSU Plan is to (i) promote a proprietary interest in the Corporation and a greater alignment between directors of the Corporation and Shareholders, (ii) provide a compensation system for directors that is reflective of the responsibilities, commitments and risks accompanying the role of a director, and (iii) to assist the Corporation in attracting experienced individuals to serve as directors of the Corporation. The Board has the authority to amend or terminate the DSU Plan at any time, in whole or in part, subject to certain exceptions. The DSUs granted thereunder are not transferable or assignable.

Upon the Board granting DSUs, the DSUs will be fully vested but a director will not be entitled to payment for the DSUs until the director ceases to be a director of Headwater. The directors may also elect to receive all of their annual cash compensation in the form of DSUs provided that such election must be made on December 1st of the preceding calendar year (or within certain prescribed time frame if an individual becomes a director after the commencement of a calendar year or in the first year after implementation of the DSU Plan) and after such date the election will be irrevocable for such year. When and if dividends are paid on the Common Shares, the number of Common Shares notionally represented by the DSU shall be adjusted based on a formula set out in the DSU Plan.

Pursuant to the terms of the DSU Plan, a director will have the right to receive a cash payment or, at the election of the Board and provided all necessary approvals have been obtained (including TSX and Shareholder approvals), Common Shares, in respect of the DSUs held at the date the director ceases to be a director of the Corporation (after adjustment for dividends paid while such DSUs were outstanding). The director will receive the payment in respect of his or her DSUs no later than December 1 (the "Maturity Date") of the calendar year following the calendar year in which he or she ceases to be a director of the Corporation, unless the director elects to receive such payment prior to such date (provided that the director may not elect to receive payment prior to the date the director ceased to be a director). The cash payment to be received will be equal to the number of DSUs held by the director on the date the director ceased to be a director of the Corporation, after giving effect to adjustments for dividends, multiplied by the volume weighted average trading price of the Common Shares on the TSX for the five trading days immediately prior to the Maturity Date, net of any applicable withholdings.

In the event of death of a non-executive director or in the event of death after such director has ceased to be a member of the Board but before the Maturity Date, the Corporation shall within 90 days from the date of such director's death, redeem all DSUs held by such director, after giving effect to adjustments for dividends, for a cash payment equal to the number of DSUs held by the director as of the date of death multiplied by the volume weighted average trading price of the Common Shares on the TSX for the five trading days immediately prior to the date of death, net of any applicable withholdings. Where the Corporation elects to make a payment on redemption of DSUs in Common Shares, the Corporation shall either: (i) issue to the director the number of Common Shares from treasury equal to the number of DSUs held by the director on the date the director ceased to be a director after giving effect to adjustments for dividends, provided the Corporation has received TSX and Shareholder approval for such issuance; or (ii) purchase such number of Common Shares on the TSX equal to the number of DSUs held by the director on the date the director ceased to be a director after giving effect to adjustments for dividends and deliver such Common Shares to the director's estate.

If the Corporation completes a transaction or a series of transactions whereby the Corporation, substantially all of the Common Shares or substantially all of the Corporation's property or assets become the property or assets of another person (the "Continuing Entity") the Corporation and the Continuing Entity shall take all necessary steps prior to or contemporaneously with the consummation of such transactions to ensure all DSUs remain outstanding following the completion of the transactions and the Continuing Entity will assume all covenants and obligations of the Corporation under the DSU Plan and all outstanding DSUs in a manner that preserves and does not impair the rights of the recipients in any material respect, and the Continuing Entity may exercise every right and power of the Corporation under the DSU Plan, and Headwater shall be relieved of its obligations thereunder.

Pursuant to the terms of the DSU Plan, the Board may, at any time, without the approval of the Shareholders suspend, discontinue or amend the DSU Plan or DSUs granted thereunder provided that unless a holder of DSUs otherwise agrees, the Board may not suspend, discontinue or amend the DSU Plan or amend any outstanding DSUs in a manner that would adversely alter or impair any DSUs previously granted to such holder.

Directors' Outstanding Option-Based Awards and Share-Based Awards

The following table sets forth, for each of the Corporation's directors, other than directors who were also Named Executive Officers, information regarding all option-based and share-based awards held by each director as at December 31, 2022.

	Option-based Awards ⁽¹⁾				Share-based Awards $^{(2)}$
Name	Common Shares underlying unexercised Options (# )	Exercise prices of Options $($ \$)	Option expiration dates	Value of unexercised in-the-money Options $(3)$ $($ \$)	Number of DSUs that have not vested ⁽⁴⁾ (# )	Market or payout value of DSUs that have not vested ⁽⁴⁾ $($ \$)	Market or payout value of vested DSUs not paid out or distributed ⁽⁴⁾⁽⁵⁾ $($ \$)
Elena Dumitrascu	Nil	Nil	N/A	Nil	Nil	Nil	71,040
Chandra Henry	66,667 58,000	1.06 4.66	March 27, 2024 March 12, 2025	324,002 73,080	Nil	Nil	121,360
Phillip R. Knoll	66,667 38,667	1.06 4.66	March 27, 2024 March 12, 2025	324,002 48,720	Nil	Nil	282,686
Stephen Larke	200,000 58,000	1.06 4.66	March 27, 2024 March 12, 2025	972,000 73,080	Nil	Nil	58,016
Kevin Olson	66,667 38,667	1.06 4.66	March 27, 2024 March 12, 2025	324,002 48,720	Nil	Nil	66,304
David Pearce	133,334 58,000	1.06 4.66	March 27, 2024 March 12, 2025	648,003 73,080	Nil	Nil	116,032
Kam Sandhar	80,000	2.39	December 15, 2024	282,400	Nil	Nil	107,744

$(1)$ All Options granted in 2020 to non-executive directors (other than Mr. Sandhar) were granted under the 2008 amended and restated stock option plan of the Corporation dated effective March 27, 2008 (the "2008 Option Plan"). All subsequent grants of Options to non-executive directors (including the 2020 grant of Options to Mr. Sandhar) were granted under the share option plan of the Corporation approved by the Shareholders at the annual and special meeting of Shareholders held on June 15, 2020 (the "2020 Option Plan" and together with the 2008 Option Plan, the "Option Plans"). There will be no further grants of Options under the Option Plans.

On March 25, 2020, the Board determined to cease grants of DSUs under the old deferred share unit plan (the "Old DSU Plan") of $(2)$ the Corporation adopted by the Board on May 12, 2014. A portion of the DSUs currently held by Mr. Knoll were granted prior to March 25, 2020 and such DSUs remain outstanding and continue to be subject to the terms of the Old DSU Plan until such DSUs are redeemed in accordance with the Old DSU Plan. All DSUs held by the non-executive directors (other than a portion of the DSUs held by Mr. Knoll) were granted under the terms of the DSU Plan.

Calculated based on the closing market price of the Common Shares on December 30, 2022 on the TSX of \$5.92 and the exercise $(3)$ price of the Options.

All DSUs vest immediately upon the grant of such DSUs but cannot be redeemed until the director holding such DSUs ceases to be $(4)$ a director of the Corporation.

In accordance with the DSU Plan (and the Old DSU Plan), DSUs do not entitle holders thereof to any Common Shares upon $(5)$ redemption, but rather cash payment. The value of DSUs was calculated using the closing market price of the Common Shares on the TSX on December 30, 2022 of \$5.92.

Directors' Incentive Plan Awards – Value Vested or Earned During the Year

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CORPORATE GOVERNANCE

National Instrument 58-101 - Disclosure of Corporate Governance Practices ("NI 58-101") requires that if management of an issuer solicits proxies from its securityholders for the purpose of electing directors that certain prescribed disclosure respecting corporate governance matters be included in its management information circular. The following information outlines our corporate governance practices within the context of NI 58-101. Information relating to our Audit Committee as required by National Instrument 52-110 - Audit Committees can be found in the 2022 AIF on our SEDAR profile (www.sedar.com).

Board of Directors

Under NI 58-101, an independent director is a director who has no material relationship with Headwater which could, in the view of the Board, be reasonably expected to interfere with the exercise of such director's independent judgement. The Board, on the recommendation of the CG&S Committee, has determined that eight (8) of the ten (10) proposed nominees (80%) are independent for purposes of NI 58-101.

The eight (8) proposed independent directors are: Kevin Olson (Lead Independent Director), Devery Corbin, Elena Dumitrascu, Chandra Henry, Phillip R. Knoll, Stephen Larke, David Pearce and Kam Sandhar.

Neil Roszell and Jason Jaskela are not independent as they are the Chair and CEO and President and COO, respectively.

Board Mandate

The Mandate of the Board is attached to this circular as Schedule D.

Lead Independent Director

The Board does not have an independent Chair; however, Kevin Olson, an independent director, serves as Lead Independent Director. The Lead Independent Director's primary role is to act as liaison between management of the Corporation and the independent directors of the Corporation to ensure the Board is organized properly, functions effectively and meets its obligations and responsibilities, including those matters set forth in the mandate of the Board. In addition, the Lead Independent Director has the following responsibilities: (A) to chair the "incamera" portions of Board meetings held without management being present; (B) endeavour to ensure that Board leadership responsibilities are conducted in a manner that will allow it to function independently of management; (C) liaise with directors, officers, employees, shareholders and other stakeholders of the Corporation to address any areas of concerns raised by such stakeholders; (D) provide input, as determined appropriate by the Lead Independent Director, on preparation of agendas for meetings of the Board; (E) meet periodically with each director to obtain insight as to where they believe the Board and its committees could be operating more effectively; (F) ensure that reasonable procedures are in place for directors to engage outside advisors at Headwater's expense in appropriate circumstances; and (G) perform such other duties and responsibilities as may be delegated to the Lead Independent Director by the Board from time to time. In addition, the Lead Independent Director will have the right to convene meetings of the Board and approve any meeting materials for such meetings.

Meetings of Independent Directors

At the end of or during each meeting of the Board or any committee of the Board, the independent directors are given the opportunity to meet in camera without the members of management (including the CEO and COO) of the Corporation present. In addition, other meetings of the independent directors may be held from time to time, if required. Since the beginning of the Corporation's most recently completed financial year, seven in camera sessions were held with all independent members of the Board present without members of management (including the CEO and COO) of the Corporation present.

Attendance

				Reserves and		Attendance
	$Board^{(1)}$	Audit	CG&S	Safety $(2)$	Total	Rating %
Neil Roszell	10/10		$\overline{\phantom{a}}$		10/10	100
Jason Jaskela	10/10	٠.	٠.	$\overline{\phantom{a}}$	10/10	100
Elena Dumitrascu	$6/6^{(3)}$		-		6/6	100
Chandra Henry	10/10	5/5	4/4		19/19	100
Phillip R. Knoll	10/10	-	-	5/5	15/15	100
Stephen Larke	10/10		4/4		14/14	100
Kevin Olson	9/10	5/5	$\overline{\phantom{a}}$	5/5	19/20	95
David Pearce	9/10	$\overline{\phantom{0}}$	4/4	5/5	18/19	95
Kam Sandhar	10/10	5/5	٠.	۰	15/15	100

The following is the attendance record of each director for all Board meetings and meetings of our standing committees held since January 1, 2022.

$(1)$ Certain directors recused themselves for portions of meetings or entire meetings if the subject matter under discussion for such meetings presented a conflict of interest or potential conflict of interest for such directors. Such directors have not been considered to have missed a meeting in such circumstances.

The Reserves Committee was reconstituted as the Reserves and Safety Committee in March 2022. $(2)$

Ms. Dumitrascu was appointed a director of the Corporation effective May 12, 2022. As such, the meeting attendance records for $(3)$ Ms. Dumitrascu covers the period from May 12, 2022 to the date of this Information Circular.

Position Descriptions

The Board has developed written position descriptions for our Chair and CEO, our Lead Independent Director and for the Chairs of each of the committees of the Board. The position descriptions are available under Corporate Responsibility/Corporate Governance on our website at www.headwaterexp.com.

Orientation and Continuing Education

While the Board does not currently have a formal orientation and educational program for new recruits to the Board, such orientation and education is provided on an informal basis for any new appointees. Headwater's management team will provide new members of the Board with corporate policies, historical information about Headwater and information on our performance and strategic plan. In addition, new members of the Board will be provided with an outline of the general duties and responsibilities entailed in carrying out their duties. The Board believes that these procedures are and will prove to be a practical and effective approach in light of our particular circumstances, including the size of the Corporation, the limited turnover of our directors and the experience and expertise of the members of the Board.

Headwater's management team also provides directors with regular opportunities to increase their knowledge and understanding of our business. Pre-meeting reading materials are provided in quarterly Board packages sent to directors in advance of regularly scheduled Board meetings. Briefings on strategic issues are conducted at most Board meetings and typically include reviews of the competitive environment the Corporation operates in and the Corporation's performance relative to its peers. From time to time, Headwater's management team brings in industry experts to brief our directors on activity and trends in the oil and gas sector, including mergers and acquisitions, financings, market activity, cyber security and insurance coverage and risks to assist the Board in making strategic decisions and assessing risks facing the Corporation. Information on any other developments that could materially affect the business is provided as developments occur. In addition, the Board is briefed regularly on governance developments and emerging best practices in governance.

All of the directors of the Corporation regularly engage in a variety of continuing education activities, including industry conferences and seminars. In 2022 directors participated in a wide variety of education activities and independent study on a broad range of topics including, but not limited to environmental, social and governance ("ESG") and executive compensation. Two directors, namely Ms. Henry and Mr. Larke have completed the ICD Directors Education Program and each holds the ICD.D designation. In addition to external educational activities, the Chair of the Board works with the Board and senior management to raise continuing education topics for discussion. The following table lists education topics provided by Headwater to its directors in 2022.

Educational Topic	Date	Presenter	Attendees
Cyber Security and National Security	May 12, 2022	PricewaterhouseCoopers LLP	All directors
Status of Energy Equity Markets	November 3, 2022	Mitch Mollov	All directors

Ethical Business Conduct

The Board has adopted a Code of Business Conduct and Ethics (the "Code") applicable to our directors, officers and employees. A copy of the Code is available for review on our SEDAR profile (www.sedar.com). All employees and consultants are provided with a copy of the Code on commencement of service and are required to confirm in writing that they have read and understand the Code and acknowledge his or her agreement to abide by the Code. Annual reminders that compliance with the Code is required are provided.

There have been no material change reports filed since the beginning of our most recently completed financial year that pertains to any conduct of a director or executive officer of the Corporation that constitutes a departure from the Code.

In accordance with the ABCA, directors who are a party to, or are a director or an officer of a person which is a party to, a material contract or material transaction or a proposed material contract or proposed material transaction with the Corporation are required to disclose the nature and extent of their interest and not to vote on any resolution to approve such contract or transaction. In addition, in certain cases, an independent committee of the Board may be formed to deliberate on such matters in the absence of the interested party.

In addition to the Code, the Board has also adopted a "Whistleblower Policy" wherein our employees are provided with the mechanics by which they may raise concerns in a confidential, anonymous process. The Chair of our Audit Committee provides the Board with a report at every regularly scheduled Board meeting detailing the nature of any concerns raised through the hotline.

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CG&S Committee Corporate Governance and Sustainability Responsibilities

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Corporate Governance Matters

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with the assistance or recommendations of management or outside consultants where $\bullet$ appropriate, make recommendations to the Board regarding appointments of corporate officers and senior management;
reviewing and recommending to the Board the succession plan for senior executives and matters in respect of executive capacity;

Sustainability

oversee the Corporation's policies, procedures, practices and strategies relating to environmental, social and climate related issues and other sustainability matters to ensure due consideration of risks, opportunities and potential performance improvement relating thereto;
review and report to the Board with respect to the consideration and integration of environmental, social and climate related and sustainability risks and opportunities in the development of the Corporation's business strategy and financial planning;
consider and review:
third party reports on the Corporation's sustainability performance and peer sustainability $\cap$ performance;
material regulatory or legislative change relating to environmental, social and climate $\circ$ related issues or other sustainability matters which could require modification of the Corporation's business practices;
ongoing or threatened litigation relating to environmental, social and climate related $\circ$ issues or other sustainability matters; and
insurable risks on environmental, social and climate related issues or other sustainability $\cap$ matters with evaluation of costs relative to benefit, taking into account, as determined necessary, Audit Committee consultation and recommendations on insurance matters;
review the Corporation's enterprise risk management program relating to identifying, assessing and managing climate related risks and opportunities, whether physical or transitional, in view of plausible future scenarios, and other risks related to environment, social and sustainability, and report to the Audit Committee and/or the Board;
review the Corporation's disclosure, reporting and external communication practices pertaining to environmental, social, climate and sustainability issues, including but not limited to assessments of materiality, development and publication of environmental, social and governance reports and/or sustainability reports and approach to analogous disclosure, media and social media campaigns and other written communication with stakeholders; and
review shareholder proposals relating to environmental, social, climate or other sustainability $\bullet$ issues and provide a report to the Board.

The CG&S Committee is authorized to engage outside advisors to assist the CG&S Committee in compensation and corporate governance matters and has the authority to approve such advisors' fees and other retention terms.

Assessments

The CG&S Committee is responsible for evaluating the effectiveness of the Board, its committees and individual directors. Annually, including in March 2023, each of our directors completed an evaluation of their own skills and contributions to the Corporation as well as a peer review of the skills and contributions of the other members of the Board. The directors also provided feedback on their views of the effectiveness of the Board and each of its

committees. The CG&S Committee used these evaluations to review the skills and experience of our directors to assess whether the Board's skills and experience needed to be strengthened in any area. The CG&S Committee also assessed the knowledge and character of all directors and other factors such as independence of the directors to ensure that the Board is operating effectively and independently of management. As a result of the evaluations conducted, the CG&S Committee determined that, although the Board as a whole has the necessary skills and experience for a company of the size of the Corporation operating in the oil and gas industry, the Board could be strengthened by adding members with skills and experience where other members of the Board were weakest, including skills and experience relating to government relations and Indigenous relations, among others. As a result, the CG&S Committee conducted an informal search for additional Board members. As a result of this search, the CG&S Committee recommended and the Board approved, that Ms. Corbin be nominated for election at the Meeting.

Succession Planning

The CG&S Committee also has the responsibility to review and recommend a succession plan with respect to our senior officers. Specific discussions of succession plans are periodically scheduled at least annually at CG&S Committee or Board meetings as agenda items to ensure that the matter receives the necessary time for consideration and review by the CG&S Committee and Board. Prior to discussions of succession matters senior officers of the Corporation are canvassed to determine any potential retirement plans or other plans that may impact their term of service with Headwater. In addition, the skills and experience of the senior officers and other officers and employees of the Corporation are reviewed to determine whether personnel within the organization have the necessary skills and experience to fulfill the role of a senior officer in the event of the retirement or other loss of a senior officer. The CG&S Committee and the Board have determined that there are successor candidates within the organization for each of the CEO, Chief Financial Officer ("CFO") and COO as well as many of the other executive officers. Management and the Board have committed to ensuring that successor candidates continue to develop their skills and experience to ensure that they are in position to step into more senior roles should the need arise.

In addition to the succession planning for senior officers, the CG&S Committee also considers and reviews succession planning for Board members as part of its annual evaluation of the Board and its members. As part of this review, the Chair of the CG&S Committee canvasses each member of the Board to determine their expectations as to length of service and whether they have any imminent retirement plans. The CG&S Committee uses this information to determine whether the Board has any need, or may have a need in the near future, to replace or complement the skills and experience of the existing members of the Board with any new nominees.

Director Term Limits and Other Mechanisms for Board Renewal

Eight (8) of the nine (9) current directors of the Corporation have a tenure on the Board of just over three years or less. The average tenure of the directors of the Corporation is just over three years. As such, the Corporation has not adopted fixed term limits, mandatory retirement ages or other mechanisms for Board renewal.

In addition, the Board does not believe that fixed term limits or mandatory retirement ages are in the best interest of the Corporation. While term limits and mandatory retirement ages ensure fresh viewpoints on a board of directors, they also cause a company to lose the valuable contributions of those directors who best understand the business of such company and the challenges it faces.

However, when considering nominees for the Board on an annual basis, the CG&S Committee reviews the skills and experience of the current directors of the Corporation to assess whether the Board's skills and experience need to be strengthened in any area. In addition to considering the skills and experience of the Board, the CG&S Committee also assesses the knowledge and character of all nominees to the Board and other factors such as independence of the directors to ensure that the Board is operating effectively and independently of management. The CG&S Committee considers both the term of service and age of individual directors, the average term of the Board as a whole and turnover of directors over the prior years when proposing nominees for election of the directors of the Corporation.

As the tenure of the directors increase, the CG&S Committee acknowledges that the benefits of Board renewal may begin to outweigh some of the benefits of the institutional knowledge of the Board members. As such, the CG&S Committee anticipates taking a proactive approach in future years to ensure that the Board undertakes a deliberate and planned renewal process if it determines it is in the best interests of the Corporation to do so.

As indicated above, the CG&S Committee annually reviews the skills and experience of the current directors of Headwater to assess whether the Board's skills and experience need to be strengthened in any area. In conducting its annual review, the CG&S Committee evaluates the skills and experience of the individual Board members and the Board as a whole

The director skills matrix below provides a listing of skills and competencies that the Board has determined are important to Headwater's continuing success and which of those skills and competencies each of the proposed nominees for election as directors at the Meeting possess.

	Competencies
Name	Executive Leadership	Oil and Gas Operations	Financial Literacy	Corporate Governance	Development Strategic Planning/ Business	Human Resources	Sustainability	Safety Health &	Information Technology	Enterprise Risk Management	Indigenous Relations Government and	Reserves Evaluation
Neil Roszell	$\checkmark$	$\checkmark$	$\checkmark$	$\checkmark$	✓	$\checkmark$	$\checkmark$	$\checkmark$		$\checkmark$		$\checkmark$
Jason Jaskela	$\checkmark$	$\checkmark$	$\checkmark$	$\checkmark$	✓	$\checkmark$	✓	✓		✓	✓	$\checkmark$
Devery Corbin	✓			✓	✓	$\checkmark$	✓			✓	✓
Elena Dumitrascu	✓			✓	✓	✓		✓	✓	✓
Chandra Henry	✓		$\checkmark$	$\checkmark$	✓	$\checkmark$	✓			✓
Phillip R. Knoll	$\checkmark$	✓	$\checkmark$	$\checkmark$	✓	$\checkmark$	✓	✓		✓	✓
Stephen Larke	$\checkmark$		$\checkmark$	$\checkmark$	✓	$\checkmark$	$\checkmark$			✓
Kevin Olson	$\checkmark$		$\checkmark$	$\checkmark$	✓	$\checkmark$			$\checkmark$
David Pearce	$\checkmark$	✓		$\checkmark$	✓	✓	$\checkmark$	✓		✓
Kam Sandhar	✓		✓	✓	✓	$\checkmark$	✓	✓		✓

Definitions of competencies:

Executive Leadership: Leading an organization or major business segment of an organization. $(1)$

Oil and Gas Operations: Executive or management experience in aspects of oil and gas operations, including development, $(2)$ exploration, production and marketing.
$(3)$ Financial Literacy: Ability to assess and analyze financial statements, executive experience in financial reporting, accounting and corporate finance.
Corporate Governance: Experience as a senior executive or Board member of public and/or private organizations. $(4)$
Strategic Planning/Business Development: Executive or management expertise in strategic planning/execution including growth $(5)$ via organic methods or mergers and acquisitions.
$(6)$ Human Resources: Executive or management expertise in creating a strong corporate culture, talent management, succession and compensation.
$(7)$ Sustainability: Executive or management experience/knowledge of environmental risks/opportunities (climate change, emission reduction, renewable energy) and social (community initiatives, stakeholder engagement and human rights).
$(8)$ Health & Safety: Experience in workplace health and safety and regulation of oil and gas activity.
Information Technology: Experience or familiarity with cyber-security and use of artificial intelligence/machine learning in oil and $(9)$ gas operations.
$(10)$ Enterprise Risk Management: Executive or management experience in evaluating organizational risk/opportunity.
Government and Indigenous Relations: Broad exposure to legal/regulatory, political and public policy at local, provincial and $(11)$ national levels and/or experience with Indigenous relations and consultations.
Reserves Evaluation: General experience with or executive responsibility for oil and gas reserve evaluations. $(12)$

In addition to considering the skills and experience of the Board, the CG&S Committee also assesses the knowledge and character of all members of the Board and other factors such as independence of our directors to ensure that the Board is operating effectively and independently of management.

Representation by Women and other Underrepresented Groups on the Board

On April 1, 2022, the Board adopted a diversity policy (the "Diversity Policy") on the recommendation of the CG&S Committee. Under the Diversity Policy, the Board recognizes that diversity among its directors will support balanced decision and debate which, in turn, will enhance decision making by the Board by utilizing the difference in perspective of the members of the Board. The CG&S Committee mandate includes recommending director candidates for election to the Board and annually evaluating the overall performance of the Board. In reviewing the composition of the Board, in accordance with the Diversity Policy, the CG&S Committee will consider the benefits of diversity in order to maintain an optimum mix of skills, knowledge and experience on the Board. The selection of candidates for appointment to the Board will be based on merit. Within that overriding emphasis on merit, the CG&S Committee shall seek to fill Board vacancies by considering candidates that bring a diversity of background and industry or related expertise and experience to the Board. The CG&S Committee's considerations shall include achieving an appropriate level of diversity having regard to factors such as skills, business and other experience, education, gender, age, ethnicity and geographic location. Women candidates for director will be included in the evergreen list of potential Board nominees.

In support of the objectives described in the Diversity Policy, the Board has a target of achieving and maintaining at least 30% representation by women on the Board by no later than the date of the annual meeting of the Shareholders in 2023.

Under the Diversity Policy, the CG&S Committee has the responsibility of monitoring compliance with the Diversity Policy and for reviewing and assessing the effectiveness of the Diversity Policy in promoting diversity to the Board on an annual basis. To measure the effectiveness of this policy, the CG&S Committee will, among other things:

review the number of women considered or brought forward for both Board and executive officer positions;
take into account the skills, knowledge, experience and character of any such women candidates; $\bullet$ and

ensure that women candidates are being fairly considered relative to other candidates. $\bullet$

On an annual basis, the CG&S Committee will measure the diversity on the Board and report to the Board with respect to the Corporation's annual and cumulative progress in achieving the objectives of the Diversity Policy.

Three (3) of the proposed nominees for election as directors at the Meeting are women, representing 30% of the proposed nominees.

One (1) of the proposed nominees for election as directors at the Meeting is a member of a visible minority group, representing 10% of the proposed nominees.

Women Representation in Executive Officer Positions

In accordance with the Diversity Policy, the Board and the Corporation are committed to ensuring a diverse and inclusive culture across the organization, in particular at the executive level, by promoting equality of opportunity. The Board will encourage and support the Corporation in its efforts, including seeking external independent advisory services as appropriate, to foster a collaborative and innovative workforce and to ensure that a diverse group of individuals are considered for executive and managerial roles.

As of the date hereof, one (1) woman currently serves in an executive officer position with the Corporation, representing 14% of the current executive officer positions and 20% of the Named Executive Officers. As of the date hereof, no member of any visible minority group serves in an executive officer position with the Corporation.

The Corporation does not presently have a target for representation by women in executive officer positions.

Sustainability and ESG Integration

Sustainability and Governance Oversight

Ultimately, the Board is responsible for establishing policies and for the oversight of all matters relating to environmental, health, safety, climate and sustainability. Given the importance of these matters to the business of the Corporation and the breadth of these matters, the Board has empowered several of its committees with oversight over different aspects of environmental, health, safety, climate and sustainability topics.

As indicated above, under its mandate the CG&S Committee oversees a number of matters relating to environmental, social and climate issues and other sustainability matters. In conjunction with the Audit Committee and the Board, the CG&S Committee oversees management's review of the Corporation's enterprise risk management program relating to identifying, assessing and managing climate-related risks and opportunities, whether physical or transitional, in view of plausible future scenarios. In 2022, the CG&S Committee played an oversight role in the development of the Corporation's inaugural ESG Report (as defined and discussed below). In addition, the CG&S Committee has implemented various targets in the STIP scorecard related to emissions, water usage, land reclamations, minimization of spills, Indigenous consultations, health, safety and environmental matters to ensure that management and staff are properly motivated to be considering such matters in all aspects of the Corporation's operations.

In addition to reviewing the policies and procedures pertaining to environment, health and safety matters, the Reserves and Safety Committee has responsibility for, among other things, reviewing management reports on safety performance, mitigation actions taken by management relative to reported incidents, persistent trends and

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Sustainability and Corporate Strategy

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ESG Report Highlights

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Identification and Mitigation of Climate-Related Risks

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We continually harden our infrastructure against attacks by implementing various protocols, settings, and updates such as requiring multi-factor authentication, restricted access to specific geographic locations, and limiting nonessential network traffic and services. We backup all data to the cloud and test data restoration on a regular basis to ensure its integrity.

We conduct regular training with all staff and hold annual cyber security awareness training to educate everyone on good cyber hygiene practices. In 2022, the Board received an educational talk from an expert in the areas of cyber-security and national security concerns and the impacts that such matters could have on the business of the Corporation. In addition, one of the members of the Board with expertise in IT matters provides the other Board members and management with a regular newsletter on the latest risks, threats and trends relating to cybersecurity matters.

Under its mandate, the Audit Committee has the responsibility to identify, monitor and mitigate business risks including risks relating to cyber-security attacks and cyber-fraud events. The Audit Committee and the Board receive regular updates from management on cyber-security matters.

Headwater has not had a material cyber security breach in the last three years, nor in its history, but recognizes the ever-present threat, and we continually strive to improve our security posture.

Shareholder Engagement with Board

Headwater carries out its Shareholder engagement activities through a variety of methods. In addition to its annual Shareholder meeting, Headwater participates in numerous investor conferences and one-on-one meetings. In addition, at the Meeting, Shareholders will be given an opportunity to provide feedback on the Corporation's compensation programs through the say-on-pay non-binding advisory vote to be considered by the Shareholders.

To the extent that Shareholders wish to have direct engagement with the Board, they are invited to engage with the Board by mail to Suite 1400, 215-9th Ave SW, Calgary, Alberta, T2P 1K3, Attn: Board of Directors or by email to [email protected].

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The following Compensation Discussion and Analysis provides a description of the compensation practices and policies of the Corporation.

Compensation Governance

The current members of the CG&S Committee are Stephen Larke (Chair), Chandra Henry and David Pearce, each of whom are highly experienced executives, directors and/or businesspeople who have dealt with compensation issues in the course of his or her respective leadership roles and each of whom is independent. The skills and experience that enable the members of the CG&S Committee to make decisions on the suitability of the Corporation's compensation policies and practices is as follows:

Stephen Larke - Mr. Larke has over 20 years of experience in energy capital markets, including research, sales, trading and equity finance, and currently serves on the boards of Vermilion Energy Inc. (since 2017) and Topaz Energy Corp. (since 2019). He is formerly an Operating Partner and Advisory Board member with Azimuth, an energy-focused private equity fund based in Calgary, Alberta. Prior to joining Azimuth, Mr. Larke was Managing Director and an Executive Committee member with Calgary-based Peters & Co. Limited, from 2005 to 2015, and prior thereto, was Vice-President and Director with TD Newcrest from 1997 to 2005. Both at Peters & Co. Limited and TD Newcrest, Mr. Larke received leading rankings in the Brendan Wood International survey of institutional investors. Mr. Larke has a Bachelor of Commerce degree (with distinction) from the University of Calgary and holds the Chartered Financial Analyst designation. Mr. Larke also holds the ICD.D designation from the Institute of Corporate Directors and is a Fundamentals of Sustainability Accounting (FSA) Credential holder.

David Pearce - Mr. Pearce has been working with Azimuth since July 2014 as Deputy Managing Partner. He was an Operating Partner with Azimuth's predecessor KERN Partners from November 2008 to July 2014. Mr. Pearce currently serves on the board of directors of Baytex (since 2018) and was formerly a director of Raging River from March 2012 to August 2018. He was with Northrock Resources Ltd. from June 1999 to January 2008 where he held several senior officer positions, including President and CEO. Prior thereto, Mr. Pearce worked in various management roles at Fletcher Challenge Canada, Amoco Canada and Dome Petroleum. Mr. Pearce holds a Bachelor of Science degree in Mechanical Engineering (Honors) from the University of Manitoba.

Chandra Henry - Ms. Henry has more than 25 years of progressive experience in finance, treasury, risk, taxation and operations within the financial services industry crossing multiple geographic and business segments. She is currently the Chief Financial Officer and Chief Compliance Officer of Longbow Capital Inc., a private equity firm investing in the North American energy markets since June 2019. Prior to Longbow, Ms. Henry held various senior finance positions including Chief Financial Officer of WestBlock Inc. (2018-19), Director of Finance for GMP Securities L.P. (2016-17) and Chief Financial Officer for FirstEnergy Capital Corp. (2001-16). Ms. Henry has a Bachelor of Commerce degree from the University of Calgary and has earned the Chartered Professional Accountant (CPA, CA), Chartered Financial Analyst (CFA) and Institute of Corporate Directors (ICD.D) designations. In addition, Ms. Henry is a Fundamentals of Sustainability Accounting (FSA) Credential Holder. Ms. Henry is also member of the board of directors and a member of both the Audit Committee and the Sustainability & Advocacy Committee of Whitecap Resources Inc. Ms. Henry also previously served on the board of directors of Bonavista

Energy Corporation, as Chair of the Audit and Risk Committee of the board of directors of Pengrowth Energy Corporation and as Director, Treasurer and Chair of the Audit Committee of the Alberta Ballet Company.

Under the mandate of the CG&S Committee, the CG&S Committee is responsible for the following in respect of compensation matters:

reviewing and reporting to the Board concerning the overall compensation program and $\bullet$ philosophy and alignment with salient stakeholders;
reviewing and recommending to the Board the compensation program, remuneration levels and incentive plans and any changes therein for senior management, including the CEO;
reviewing and approving corporate goals and objectives relevant to the compensation of the CEO, evaluating the CEO's performance in light of those goals and objectives, and either, as a committee or together with the independent directors (as determined by the Board) determining and approving the CEO's compensation based on this evaluation;
making recommendations to the Board with respect to compensation of executive officers (other than the CEO), including grants and awards under incentive compensation and equity based plans that are subject to Board approval;
reviewing the adequacy and form of compensation to the directors ensuring it realistically reflects their responsibilities and risk and making recommendations to the Board as to such compensation matters;
reviewing annually and recommending for approval to the Board the executive compensation disclosure and "Compensation Discussion and Analysis" disclosure of the Corporation in its information circular for the Corporation's annual meeting of Shareholders;
reviewing annually the mandate of the CG&S Committee;
administering any incentive plans implemented by the Corporation, in accordance with their respective terms; and
reporting on executive officer compensation on an annual basis. $\bullet$

At no time in the two most recently completed financial years has the Corporation retained a compensation consultant or advisor to assist the Board or the CG&S Committee (or its predecessor) in determining the compensation of the directors or executive officers of the Corporation.

Named Executive Officers

The officers who are the focus of the Compensation Discussion and Analysis and who appear in the compensation tables herein are:

Neil Roszell, Chair and CEO;
Jason Jaskela, President and COO;
Ali Horvath, Vice President, Finance and CFO; $\bullet$
Jonathan Grimwood, Vice President, Exploration; and
Terry Danku, Vice President, Engineering, $\bullet$

(each a "Named Executive Officer" or "NEO" and collectively, the "Named Executive Officers" or "NEOs").

Compensation Risk Mitigation

As part of its review of the Corporation's compensation program, the CG&S Committee considers whether the Corporation's compensation program provides Headwater's executive officers with adequate incentives to achieve both short and long term objectives without motivating them to take inappropriate or excessive risk. As at the date hereof, the CG&S Committee has concluded that the compensation program and policies of the Corporation do not encourage its current executive officers to take inappropriate or excessive risks. This assessment is based on a number of considerations including, without limitation, the following: (a) the terms of Options granted provide that Options vest over a period of three years and expire four years from the date of grant, which encourages executive officers to continue to develop favorable results over a longer period of time and reduces the risk of actions that may have short term advantages; (b) Restricted Awards (as defined below) vest over a period of three years and Performance Awards cliff vest after three years, which encourages executive officers to continue to develop favorable results over a longer period of time and reduces the risk of actions that may have short term advantages; (c) the Corporation's compensation program for executive officers is not structured significantly differently from the compensation program for other employees within the Corporation; (d) the overall compensation program is aligned with the Corporation's business plan and long-term strategies; (e) the Share Ownership Guidelines for executive officers help to ensure that such executive officers maintain a significant equity interest in the Corporation, which encourages executive officers to continue to develop favorable results over a longer period of time and reduces the risk of actions that may have short term advantages (see "Officer Share Ownership Guidelines" below); (e) the Clawback Policy (as defined below) gives the Board the ability to clawback any incentive compensation to the extent that an executive officer has undertaken inappropriate behaviour (see "Clawback Policy" below); (f) the ability of the Board to use its discretion to alter the bonus amounts awarded from the amounts determined in accordance with the STIP scorecard to protect against unintended consequences; and (q) establishing robust restrictions on the ability of executives to participate in transactions that are designed to hedge or offset a decrease in market value of securities of the Corporation as discussed below under the heading "Prohibition on Hedging".

Prohibition on Hedging

The Corporation's Disclosure, Confidentiality and Trading Policy contains anti-hedging provisions. Directors, officers and employees of the Corporation shall not knowingly sell, directly or indirectly, a security of the Corporation if such person selling such security does not own or has not fully paid for the security to be sold. Directors, officers and employees of the Corporation shall not, directly or indirectly, engage in any of the following transactions: (i) buying or selling a call or put in respect of a security of the Corporation; (ii) selling the Corporation's securities short; or (iii) purchasing any other financial instruments, including, for greater certainty, prepaid variable forward contracts, equity swaps, collars, or units of exchange funds, that are designed to hedge or offset a decrease in market value of securities of the Corporation.

Clawback Policy

The Corporation's Clawback Policy (the "Clawback Policy") provides for the reimbursement of incentive compensation in certain circumstances. The Clawback Policy defines incentive compensation to include, without limitation, cash bonuses paid under any short-term incentive plans, any awards under any long-term incentive plans and any payments (or other compensation) made upon vesting or settlement of any awards under any longterm incentive plans. Where the Board determines it is in the best interests of Headwater, it may demand repayment of all or a portion of, or effect the cancellation of unvested awards under long-term incentive plans,

any incentive compensation granted to executive officers in cases where: (i) the amount of the incentive compensation was calculated based upon, or contingent on, the achievement of certain financial results or other performance goals that were subsequently the subject of or affected by a substantial restatement of all or a portion of the financial statements of Headwater: (ii) an executive officer engaged in negligence, intentional misconduct or fraud that caused or substantially caused the need for the substantial restatement of the financial statements of Headwater; or (iii) the amount of the incentive compensation that would have been awarded to the executive officer had Headwater's financial results been properly reported would have been lower than the amount actually awarded or received.

In addition, under the Clawback Policy, in the event that any executive officer is found to have engaged in intentional misconduct, fraud, theft or embezzlement, the Board may in its discretion, to the full extent permitted by applicable laws and to the extent it determines that it is in best interests of Headwater to do so, require the reimbursement of some or all of the after-tax amount of any incentive compensation already paid or awarded to such executive officer in the previous 24 months or the forfeiture of any vested or unvested incentive compensation awards regardless of whether or not a restatement of the financial statements of Headwater has occurred or is required. The Clawback Policy applies to any employee or consultant of Headwater who is serving or who served as a vice president or senior officer of the Corporation.

Officer Share Ownership Guidelines

Pursuant to the Share Ownership Guidelines of the Corporation, Mr. Neil Roszell, the CEO, is required to hold Common Shares with a value of not less than three times his annual base salary. All other executive officers are required to hold Common Shares with a value of not less than one times such executive officer's annual base salary. In determining whether an executive officer has met the Share Ownership Guidelines, the value of the Common Shares will be based on the closing price of the Common Shares on the TSX as at December 31 in the year prior to such determination. Any new executive officer will be required to achieve this level within three years of such executive officer's appointment as an executive officer of the Corporation.

The following table sets out the value of the equity holdings of each of Headwater's executive officers based on the closing price of the Common Shares on the TSX on December 30, 2022 being \$5.92 per Common Share:

		Share Ownership Guideline				Holdings
Name	Multiple of Annual Compensat ion	Amount of Annual Base Salary ⁽¹⁾ $($ \$)	Total Value of Share Ownership Required $($ \$)	Common Shares (# )	Value of Common Shares $(2)$ $($ \$)	as a Multiple of Annual Base Salary	Meets Share Ownership Requirements
Neil Roszell	3x	150,000	450,000	3,529,740	20,896,061	139x	Yes
Jason Jaskela	1x	350,000	350,000	2,064,716	12,223,119	35x	Yes
Ali Horvath	1x	300,000	300,000	1,008,357	5,969,473	20x	Yes
Jonathan Grimwood	1x	270,000	270,000	1,538,399	9,107,322	34x	Yes
Terry Danku	1x	270,000	270,000	2,602,800	15,408,576	57x	Yes
Brad Christman	1x	270,000	270,000	1,052,265	6,229,409	23x	Yes
Scott Rideout	1x	270,000	270,000	653,389	3,868,063	14x	Yes

$(1)$ Annual base salaries effective January 1, 2023.

$(2)$ Common shares held as of December 30, 2022. Value has been determined by multiplying the number of Common Shares by the closing price of the Common Shares on the TSX on December 30, 2022 of \$5.92.

Compensation Philosophy and Program

Headwater's approach to compensation for the executive officers over the last several years has had to adjust rapidly as a result of the significant growth and development of the business. In March 2020 upon completion of the Recapitalization Transaction and concurrent reconstitution of the Board and management of the Corporation, the Corporation had minimal production and intended to focus on making strategic acquisitions in the Western Canadian Sedimentary Basin. As a result, the compensation structure at that time was focused on maintaining G&A expenses at a relatively low level to preserve the Corporation's balance sheet strength for acquisition opportunities in the short-term and to align the interests of Headwater's executive officers with the Shareholders' interests in increasing the value of the Common Shares over the long-term. To accomplish these goals, the elements of the Corporation's compensation program in 2020 consisted primarily of base salaries, which were well below what such executive officers would have been paid at comparable companies, and grants of Options. In determining the number of Options to be granted, the CG&S Committee took into account the low base salaries paid to the executive officers and the intended heavy weighting of compensation to equity compensation rather than any form of cash payment. The CG&S Committee and the Board did not initially implement any type of shortterm incentive or cash bonus program as it was determined that any grant of cash bonuses or other type of short term incentive to the executive officers was expected to be based on an assessment by the CG&S Committee and the Board of the performance of the management team in achieving the strategic goals of the Corporation of making strategic acquisitions in the Western Canadian Sedimentary Basin combined with organic development.

As a result of the significant developments in the Corporation's business following the Recapitalization Transaction, which included the completion by the Corporation of the acquisition of 100% of Cenovus' assets (which included a 100% working interest in approximately 2,800 BOE/d of heavy oil production and 270 net sections of Clearwater rights) in the Marten Hills area of Alberta (the "Cenovus Transaction"), the Corporation's average production has grown from 586 BOE/d in the fourth quarter of 2019 prior to completion of the Recapitalization Transaction, to 1,646 BOE/d in the fourth quarter of 2020, to 10,449 BOE/d in the fourth quarter of 2021, and to 15,546 BOE/d in the fourth quarter of 2022. As discussed further below, this rapid development in the Corporation's business has required the CG&S Committee and the Board to continue to evolve the compensation programs of the Corporation to ensure such programs are appropriate for the retention and attraction of highly motivated and capable management and staff in order to achieve the business objectives of the Corporation. Throughout the evolution of the compensation programs, the Corporation's compensation philosophy has remained the same of paying for performance in an affordable and sustainable manner and to align the interests of executive officers and staff with the interests of the Shareholders. For additional information on the evolution of the Corporation's compensation programs and the different elements of the compensation program in 2022 and going forward in 2023 and beyond, see "2022 Compensation Program" and "2023 Compensation Program" below.

2022 Compensation Program

In 2021, the compensation program included base salaries and Options under the 2020 Option Plan, and other typical benefits and perquisites. In addition in 2021, a short-term incentive cash bonus plan was implemented for executives and staff with corporate performance based on a STIP scorecard to be used for determining cash bonus amounts to be paid to the Corporation's executive officers and Headwater's staff. The compensation program in 2021 remained focused on maintaining G&A expenses at a relatively low level to preserve the Corporation's

balance sheet strength for acquisition opportunities in the short-term and to align the interests of Headwater's executive officers with the Shareholders' interests in increasing the value of the Common Shares over the longterm. As a result, the Corporation's compensation program remained heavily weighted towards Options.

In 2022, the CG&S Committee and the Board, recognizing the growth of the Corporation's operations, continued to evolve the Corporation's compensation programs. In addition to increases in salaries for executive officers and staff, the CG&S Committee recommended and the Board approved the new Award Plan to replace the Option Plans as the form of long-term incentive compensation for both executive officers and staff of the Corporation. In 2022, the CG&S and Board continued to utilize the STIP scorecard (with certain refinements) to assist in determining annual cash bonuses to be paid to executive officers and staff. The focus of the changes to the Corporation's compensation programs for executive officers was to ensure that compensation was heavily weighted towards compensation mechanisms based on the corporate performance of the Corporation.

2022 Base Salaries

At the December 2021 meeting of the CG&S Committee, the CEO presented recommendations for salaries for executive officers and staff. Although Mr. Roszell, as Chair and CEO, specifically requested that his base salary not be increased, he did recommend that the base salaries for all other executive officers be increased as a result of the significant increase in the size and the operations of the Corporation that occurred in 2022. At Mr. Roszell's recommendation, the CG&S Committee recommended, and the Board approved, that Mr. Roszell's salary be maintained at the \$150,000 level for 2022 and increases to the base salaries of all other executive officers. The base salary in respect of Jason Jaskela, President and COO was increased from \$225,000 to \$260,000, the base salary for Ali Horvath, Vice President, Finance and CFO increased from \$200,000 to \$260,000 and the base salaries for each other executive officer increased from \$200,000 to \$235,000. In line with the Corporation's compensation philosophy, the changes in base salaries recognized the change in the operations of the Corporation while still maintaining salaries at the lower end of salaries paid to executive officers at companies in the Corporation's peer group.

2022 Short-term Incentive Cash Bonus Plan

In December 2021, the CG&S Committee recommended, and the Board approved the STIP scorecard to be used to determine 2022 cash bonus amounts. All the principal elements of the STIP scorecard for 2022 remained substantially the same as the 2021 STIP scorecard with updated annual operational and financial targets. In addition, the 2022 STIP scorecard included refined ESG objectives relating to establishing Scope 1 emissions intensity targets and water usage and additional factors relating to Indigenous relations and land use and reclamation. Certain adjustments were made to the STIP scorecard in late 2022 prior to determining 2022 cash bonus amounts to protect against certain unintended consequences. The following sets out the principal elements of the STIP scorecard and the weightings of each element used to determine 2022 cash bonus amounts:

Shareholder Return weighting 50% Shareholder return was measured based on both $\bullet$ absolute total return and total return relative to other companies in the Corporation's peer group.
Financial and Operational Performance weighting 30% This was based on Headwater's $\bullet$ results in 2022 as compared to targets in the STIP scorecard on certain metrics including proved developed producing ("PDP") recycle ratio (based on adjusted funds flow netback divided by finding and, development costs ("F&D") on a BOE basis), fourth quarter average production, G&A expense on a per BOE basis and operating and transportation expense on a per BOE basis.

ESG Objectives weighting 20% This was based on management meeting certain defined strategic, non-siloed ESG objectives including measurement, reporting and target-setting. Specific objectives under this category included establishing core area Scope 1 emission intensity targets and fresh water usage targets, setting and achieving targets related to spills, successful technology identification implementation and innovation, also included were preparations for the Corporation's inaugural ESG Report and consideration for land use on reclamation, forestry, waste heat and Indigenous relations.
Health, Safety and Environmental ("HSE") Performance The Board also retained the discretion to adjust bonus amounts downwards if HSE performance did not meet specific targets as determined in accordance with the STIP scorecard.

Under the cash bonus program, the STIP scorecard is used by the CG&S Committee to benchmark actual corporate performance compared to expectations to determine the applicable corporate payout amount; however, the CG&S Committee and the Board may consider other factors relating to corporate performance to make upwards or downwards adjustment to the corporate payout multiple. The CG&S Committee and the Board believe that having some discretion to alter the payout from the results achieved under the STIP scorecard protects against unintended consequences and allows the Corporation to adjust its short-term strategies in response to operating in a rapidly changing environment.

Named Executive Officer	Base Bonus (% of Salary)	Corporate Performance Weighting (%)	Personal Performance Weighting (%)
Neil Roszell, Chair and CEO	80%	100%	$0\%$
Jason Jaskela, President and COO	80%	80%	20%
Ali Horvath, Vice-President, Finance and CFO	70%	80%	20%
Jonathan Grimwood, Vice President, Exploration ⁽¹⁾	60%	70%	30%
Terry Danku, Vice President, Engineering	60%	70%	30%

The following table shows the annual base bonus amounts as a percentage of salary, the corporate performance weighting and the personal performance weighting for each Named Executive Officer:

$(1)$ In addition to the bonus Mr. Grimwood received in accordance with the determinations under the STIP Scorecard, at the recommendation of the CEO, Mr. Grimwood received a discretionary bonus of \$25,000 in recognition of the exploration success achieved by Headwater in 2022.

The corporate performance is measured based on the STIP scorecard with the payout ranging from zero to 2.0. For instance, for the CEO a score of zero would result in no bonus paid, a score of 1.0 would result in bonus paid equal to 80% of the CEO's base salary and a score of 2.0 resulting in a payout of 160% of the CEO's base salary.

In December 2022, the CG&S Committee met to discuss a number of matters including the determination of bonus amounts for the executive officers and staff of the Corporation. In determining bonus amounts, the CG&S Committee received the recommendations of the CEO as to the bonus amounts to be paid to executive officers and staff. The CG&S Committee compared actual performance relative to the objectives in the Corporation's STIP scorecard established for 2022. The CG&S Committee noted that the Corporation met or exceeded all the objectives established in the 2022 STIP Scorecard.

2022 Actual Performance

Element of STIP
Scorecard	2022 Actual Performance	Result
Shareholder Returns Weighting 50%	From December 31, 2021 to December 31, 2022 there was an approximate 23% absolute total return.	Perform
Financial and Operational Performance Weighting 30%	In 2022, the Corporation achieved the following results: PDP Recycle Ratio - 2.8 $\bullet$ Fourth Quarter Average Production - 15,546 BOE/d $\bullet$ G&A per BOE – \$1.38 per BOE ⁽¹⁾ $\bullet$ Operating and transportation expense per BOE - $\bullet$ \$10.21 per BOE ⁽¹⁾	Outperform
ESG Objectives Weighting 20%	In 2022, Headwater achieved all of its objectives in regards to ESG matters including setting the framework for its inaugural ESG Report.	Perform
HSE Performance No weighting – failure to meet HSE targets results in downward revision to score	Headwater met or exceeded all of its targets in regards to HSE matters.	Perform

Non-GAAP financial measure. See "Advisories - Non-GAAP Financial Measures". $(1)$

In December 2022, the Corporation paid out half of the cash bonus amounts to both executives and staff based on a 1.0 payout based on the STIP scorecard with the remainder of the 2022 cash bonus to be paid in March 2023 based on the actual payout once the actual results from 2022 results were finalized. In March 2023, the Board approved the remainder of the 2022 cash bonus amounts to both executives and staff based on a 1.32 payout based on the actual results achieved relative to the STIP scorecard.

The following table summarizes annual bonuses paid to the Named Executive Officers for 2022 performance as well as such bonuses as a percentage of the salaries for such Named Executive Officer in each year:

	2022 Bonus	Percentage of Base
Named Executive Officer	$($ \$)	2022 Salary
Neil Roszell, Chair and CEO	158,400	106%
Jason Jaskela, President and COO	274,560	106%
Ali Horvath, Vice-President, Finance and CFO	240,240	92%
Jonathan Grimwood, Vice President, Exploration	211,200	90%
Terry Danku, Vice-President, Engineering	186,120	79%

2022 Peer Group

In March 2022, the CG&S Committee established a peer group of companies for Headwater to benchmark corporate performance against. The CG&S Committee used this peer group to evaluate relative total Shareholder return for the purposes of the STIP scorecard in 2022 as well as for potential other benchmarking purposes. The

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Restricted Awards on a date following December 10 of the third calendar year following the year in which the Performance Awards or Restricted Awards, as applicable, were granted (the "Expiry Date").

At the time of payout, the Board will apply a "Payout Multiplier" to the Performance Award grant which may increase or decrease the number of Common Shares underlying such Performance Award. The Payout Multiplier may range from zero to 2.0 and will be based on Headwater's performance during the Performance Period.

In December 2022, the CG&S Committee recommended, and the Board approved a scorecard to be used to determine the Performance Award Payout Multiplier. The following sets out the principal elements of the scorecard and the weightings of each element which will be used at the end of the applicable Performance Period:

Shareholder Return weighting 60% Shareholder return will be measured based on both absolute total return and total return relative to other companies in the Corporation's peer group.
Financial and Operational Performance weighting 40% Metrics consist of proved developed producing ("PDP") recycle ratio (based on adjusted funds flow netback divided by finding, development and acquisition costs ("FD&A") on a BOE basis) and proved plus probable ("TPP") recycle ratio (based on adjusted funds flow netback divided by FD&A on a BOE basis).

The CG&S Committee and the Board believe that having some discretion to alter the Payout Multiplier from the results achieved based on the above-described calculation protects against unintended consequences.

Upon vesting, at the election of the Board each Award will be paid out in cash, by the issuance of Common Shares from treasury or by Common Shares purchased through the facilities of the TSX (or a combination thereof). If paid out in cash, Awards will have a value equal to the volume weighted average trading price of the Common Shares on the TSX for five trading days immediately prior to the payment date multiplied by the number of Common Shares underlying the Awards, as adjusted for dividends paid on the Common Shares while such Awards were outstanding and, in the case of Performance Awards, for the Payout Multiplier. If the Board elects to pay out Awards by issuance of Common Shares, Headwater will issue the number of fully paid and non-assessable Common Shares underlying such Awards as adjusted for dividends paid on the Common Shares while such Awards were outstanding and, in the case of a Performance Awards, for the Payout Multiplier.

Under the Award Plan, Awards may be granted in respect of Common Shares provided that the aggregate number of Common Shares reserved for issuance under the Award Plan does not exceed the lesser of: (i) 6.0% of the aggregate number of issued and outstanding Common Shares less the aggregate number of Common Shares reserved for issuance under outstanding Options under the Option Plans; and (ii) 4.5% of the aggregate number of issued and outstanding Common Shares (collectively, the "Award Limits"). The Award Limits have been designed such that initially the number of Awards will be limited by the number of Common Shares that may be issuable pursuant to outstanding Options while still leaving enough availability for the Corporation to grant Awards to continue to retain and attract the necessary management and staff to manage the growth of the Corporation. The Options that remain outstanding under the Option Plans were primarily issued at a time when the share price and market capitalization of the Corporation were significantly lower than Headwater's current share price and market capitalization. The outstanding Options under the Option Plans also reflect the fact that such Options were granted at a time when the total cash compensation received by officers of Headwater was very low relative to the total cash compensation received by officers of the Corporation's peers and the level of Options granted was higher to compensate for the low cash consideration. The rapid growth of Headwater over

the last three years has resulted in the CG&S Committee and the Board having to rapidly adjust the compensation programs of the Corporation so that they are more suited for a company of Headwater's current size.

As noted above, no further Options can be granted under the Option Plans and therefore, upon the exercise, cancellation, expiry or other termination of Options, the maximum number of Common Shares issuable pursuant to outstanding Options and Awards will decrease over time. After all Options under the Option Plans have expired or are exercised, a maximum of 4.5% of the issued and outstanding Common Shares will be issuable pursuant to Awards

For a description of the terms of the Award Plan, see Schedule C hereto.

2023 Compensation Program

The compensation program for 2023 for the Named Executive Officers established by the CG&S Committee continues to include base salaries, cash bonuses utilizing the STIP scorecard and grants of Performance Awards under the Award Plan. The compensation program for 2023 remains focused on maintaining fixed G&A expenses at a relatively low level and paying for performance in an affordable and sustainable manner, in order to align the interests of Headwater's executive officers and staff with the interests of the Shareholders. The intent of the CG&S Committee and the Board is to ensure that the total compensation paid to its executive officers is equivalent to the median total compensation paid by companies in the Corporation's peer group.

2023 Base Salaries

At the December 2022 meeting of the CG&S Committee, the CEO presented recommendations for salaries for executive officers and staff. Although Mr. Roszell, as Chair and CEO, specifically requested that his base salary not be increased, he did recommend that the base salaries for all other executive officers be increased as a result of the significant increase in the size and the operations of the Corporation that occurred in 2022 and to align more closely with compensation paid by the Corporation's peer group companies. At Mr. Roszell's recommendation, the CG&S Committee recommended, and the Board approved, that Mr. Roszell's salary be maintained at the \$150,000 level for 2023 and increases to the base salaries of all other executive officers. The base salary in respect of Jason Jaskela, President and COO was increased from \$260,000 to \$350,000, the base salary for Ali Horvath, Vice President, Finance and CFO increased from \$260,000 to \$300,000 and the base salaries for each other executive officer increased from \$235,000 to \$270,000. In line with the Corporation's compensation philosophy, the change in base salaries recognized the change in the operations of the Corporation while still maintaining salaries at the lower end of salaries paid to executive officers at companies in the Corporation's peer group.

2023 Short-term Incentive Cash Bonus Plan

In December 2022, the CG&S Committee recommended, and the Board approved, the STIP scorecard to be used to determine 2023 cash bonus amounts. All the principal elements of the STIP scorecard for 2023 remained substantially the same as the 2022 STIP scorecard with updated annual operational, financial and ESG targets. In addition, the 2023 STIP scorecard assigned a 5% percentage weighting to health and safety objectives relating to lost time injury frequency and total recordable injury frequency.

2023 Long-Term Incentive Program

In 2023, the long-term incentive compensation program for executive officers will continue to consist of grants of Performance Awards under the terms of the Award Plan. For a description of the Award Plan, see Schedule C.

Performance Graph

The following graph compares the change in the cumulative total Shareholder return for the five most recently completed financial years, of a \$100 investment in the Common Shares, with the cumulative total return of the S&P/TSX Composite Index and the S&P/TSX Oil & Gas Exploration & Production Index for the period commencing December 31, 2017 and ending December 31, 2022.

	2017/12/31	2018/12/31	2019/12/31	2020/12/31	2021/12/31	2022/12/31
Headwater	\$100	\$131	\$118	\$392	\$844	\$987
Exploration
Inc.
S&P/TSX	\$100	\$91	\$112	\$118	\$148	\$139
Composite
Index
S&P/TSX Oil	\$100	\$66	\$73	\$54	\$104	\$160
& Gas
Exploration &
Production
Index

In 2018 and 2019, the Corporation had minimal operations and a small executive team with only four Named Executive Officers in 2018 and only three Named Executive Officers in 2019, and as a result, the total compensation paid to all Named Executive Officers during those years was relatively low. In 2018 and 2019, the total Shareholder return was relatively flat. On January 13, 2020, the Corporation announced the entering into of the investment agreement to implement the Recapitalization Transaction and on March 4, 2020, the Recapitalization Transaction was completed. Pursuant to the Recapitalization Transaction, the management team of the Corporation was reconstituted and significantly expanded. As a result, the total compensation paid to the Named Executive Officers

in 2020 was significantly higher than the total compensation paid to the Named Executive Officers in 2019; however, as discussed under "Executive Compensation - Compensation Discussion and Analysis", the executive compensation in 2020 was maintained at a relatively low level relative to the Corporation's peer group due to the minimal operations of the Corporation immediately following the Recapitalization Transaction. Throughout 2020, the new management team of the Corporation focused on pursuing acquisitions of oil and gas assets in the Western Canadian Sedimentary Basin, which resulted in the completion of the Cenovus Transaction in December 2020. As a result of completion of the Recapitalization Transaction and the Cenovus Transaction, as demonstrated in the above chart, the total Shareholder return of the Common Shares substantially increased during 2020.

As a result of the completion of the Cenovus Transaction, the Corporation's operations significantly expanded, and as a result, the total compensation of the Named Executive Officers significantly increased in 2021 relative to 2020; however, as a result of the Corporation's operational successful in relation to the assets acquired pursuant to the Cenovus Transaction and certain other factors, including improved commodity pricing, as demonstrated in the above chart, the total Shareholder return of the Common Shares once again substantially increased during 2021. In 2022, there was continued expansion of the Corporation's operations and the total compensation of the Named Executive Officers also continued to increase in 2022 relative to 2021. The total Shareholder return also increased in 2022, however, partially due to the rapid rise in total Shareholder return in the two previous vears. the increase in total Shareholder return was not as significant as in the previous years. Prior to the year end of 2022, the Corporation declared its first quarterly dividend of \$0.10 per Common Share, with the dividend payable on January 16, 2023 to Shareholders of record on December 30, 2022.

The following chart shows the Corporation's revenue and adjusted funds flow from operations in the years ended December 31, 2018 through December 31, 2022 as well as the total compensation of the Named Executive Officers as a percentage of the Corporation's revenue and adjusted funds flow from operations in such years.

$(1)$ Non-GAAP financial measure. See "Advisories - Non-GAAP Financial Measures".

As demonstrated in the above chart, in the years ended December 31, 2018 through December 31, 2020 the revenue and adjusted funds flow from operations was insignificant and as a result the total compensation of the Named Executive Officers as a percentage of the revenue and adjusted funds flow from operations was relatively high. This was especially true in 2020 as the total compensation of the Named Executive Officers significantly increased following completion of the Recapitalization Transaction but the Corporation did not begin receiving the additional revenue and adjusted funds flow from operations from the Cenovus Transaction until December 2020. In 2021 and 2022, although the total compensation of the Named Executive Officers increased, as a percentage of revenue (2018 – 8%, 2019 – 9%, 2020 – 27%, 2021 – 2%, 2022 – 1%) and adjusted funds flow from operations (2018 - 13%, 2019 - 10%, 2020 - 30%, 2021 - 3%, 2022 - 2%), the total compensation of the Named Executive Officers significantly decreased, relative to the previous years as a result of the significant increase in revenue and adjusted funds flow from operations as a result of the Corporation's operational success in relation to the assets acquired pursuant to the Cenovus Transaction and certain other factors, including improved commodity pricing.

The following chart shows the Corporation's total production (on a BOE basis) in the years ended December 31, 2018 through December 31, 2022 as well as the total compensation of the Named Executive Officers in such years.

The above chart demonstrates the significant expansion of the Corporation's production in 2021 and 2022 relative to the previous years, which resulted from the significant expansion of its operations in 2021 and 2022. In addition, the above chart demonstrates that, although there was an increase in the total compensation of the Named Executive Officers in 2021 and 2022 relative to the previous years, the increase in such total compensation was not as large as the increase in the total production and operations of the Corporation. As discussed under "Executive" Compensation - Compensation Discussion and Analysis", the increase in compensation in 2021 and 2022 was directly linked to the fact that the Named Executive Officers were managing an entity with much larger operations in 2021 and 2022 relative to previous years and also a result of increases to the total compensation to bring the compensation of the Named Executive Officers more in line with the compensation programs of the Corporation's peers.

Summary Compensation Table

The following table sets forth for the years ended December 31, 2022, 2021 and 2020, information concerning the compensation paid to the Named Executive Officers.

						Non-equity incentive plan compensation (\$)
Name and principal $position^{(1)}$	Year	Salary $($ \$)	Option- based awards ⁽²⁾ $($ \$)	Share- based awards $(3)$ $($ \$)	Annual incentive $plans^{(4)}$ (5)	Long-term incentive $plans^{(5)}$ $($ \$)	All other compensation ⁽⁶⁾ $($ \$)	Total compensation $($ \$)
Neil Roszell	2022	150,000	Nil	1,613,500	158,400	Nil	Nil	1,921,900
Chair and CEO	2021	150,000	425,208	Nil	180,000	Nil	Nil	755,208
	2020	125,000	424,372	Nil	Nil	Nil	Nil	549,372
Jason Jaskela	2022	260,000	Nil	1,021,925	274,560	Nil	Nil	1,556,485
President and	2021	225,000	425,208	Nil	250,000	Nil	Nil	900,208
CO _O	2020	125,000	339,497	Nil	50,000	Nil	Nil	514,497
Ali Horvath	2022	260,000	Nil	752,511	240,240	Nil	Nil	1,252,751
Vice President,	2021	200,000	425,208	Nil	230,000	Nil	Nil	855,208
Finance and CFO	2020	125,000	339,497	Nil	50,000	Nil	Nil	514,497
Jonathan	2022	235,000	Nil	485,645	211,200	Nil	Nil	931,845
Grimwood	2021	200,000	340,166	Nil	200,000	Nil	Nil	740,166
Vice President,	2020	125,000	339,497	Nil	50,000	Nil	Nil	514,497
Exploration
Terry Danku	2022	235,000	Nil	485,645	186,120	Nil	Nil	906,765
Vice President,	2021	200,000	340,166	Nil	200,000	Nil	Nil	740,166
Engineering	2020	125,000	339,497	Nil	50,000	Nil	Nil	514,497

$(1)$ Each of the Named Executive Officers was appointed executive officers on March 4, 2020. No Named Executive Officer was an officer or employee of the Corporation prior to March 4, 2020.

The grant date fair value for compensation purposes is calculated using the Black-Scholes option pricing methodology, which is the $(2)$ fair value determined in accordance with IFRS. In 2021, this calculation was based on a risk-free interest rate of 0.4%, dividend yield of 0%, expected volatility of 60% and an expected life of 2.5 years resulting in an Option value of \$1.70. In 2020, this calculation was based on a risk-free interest rate of 0.3%, dividend yield of 0%, expected volatility of 61% and an expected life of 4 years resulting in an Option value of \$0.57. The Black-Scholes option pricing methodology was selected due to its acceptance as an appropriate valuation model used by similar sized oil and gas companies. The resulting fair value is an estimate of the value which may ultimately be received based on the historical volatility in the share price of the Corporation's peer group. It is important to note that the actual value realized pursuant to Option awards may be greater or less than the indicated value. The Corporation did not grant any optionbased awards to officers or employees of the Corporation in 2022.
$(3)$ The Corporation did not grant any share-based awards to officers or employees of the Corporation in 2021 or 2020. The sharebased awards granted in 2022 to the NEOs were Performance Awards under the Award Plan. The compensation reported under share-based awards in 2022 is the value of Performance Awards granted to the Named Executive Officer. The value of Performance Awards is based on the number of Performance Awards granted multiplied by the volume weighted average trading price per Common Share on the TSX for the five trading days of the grant. This methodology for calculating the fair value of the Performance Awards on the grant date is consistent with the initial fair value determined in accordance with IFRS 2.
$(4)$ In 2020, amounts reflect bonuses earned and paid within the year. Mr. Roszell specifically requested not to be paid a bonus in respect of 2020. Half of the bonus amounts in respect of 2021 performance were paid in December 2021 with the remainder paid in March 2022. Half of the bonus amounts in respect of 2022 performance were paid in December 2022 based on a 1.0 payout pursuant to the STIP scorecard with the remainder paid in March 2023 based on a 1.32 payout pursuant to the STIP scorecard.
$(5)$ The Corporation did not have any non-equity long-term incentive plans in place for executive officers.
Certain perquisites have not been included in the above table as the aggregate value of such perquisites per Named Executive $(6)$ Officer are not worth more than \$50,000 or 10% of such Named Executive Officer's salary.
$(7)$ The Corporation does not provide any pension benefits.

Incentive Plan Awards

In 2020 and 2021, the Corporation's long-term incentive program for Named Executive Officers consisted of Options granted under the terms of the 2020 Option Plan. In 2022, the Corporation's long-term incentive program for Named Executive Officers consisted of Performance Awards granted under the terms of the Award Plan. In future years, the CG&S Committee and the Board intend that long-term incentive compensation for Named Executive Officers will continue to consist of grants of Performance Awards under the terms of the Award Plan. No further Options may be granted under the Option Plans. For a description of the terms of the 2020 Option Plan and the 2008 Option Plan, see Schedules A and B, respectively. For a description of the Award Plan, see Schedule C hereto.

In 2022, short-term non-equity compensation for the Named Executive Officers consisted of cash bonuses. See "Compensation Discussion and Analysis - 2022 Compensation Program - 2022 Short-Term Incentive Cash Bonus Plan".

Outstanding Option-based and Share-based Awards

The following table sets forth for each Named Executive Officer, all option-based awards and share-based awards outstanding as at December 31, 2022.

		Option-based Awards	Share-based Awards
	Number of securities underlying unexercised Options (# of Common	Option exercise price	Option expiration	Value of unexercised in-the- money Options ⁽¹⁾	Number of share- based awards that have not vested	Market or payout value of share- based awards that have not vested ⁽²⁾	Market or payout value of vested share- based awards not paid out or distributed
Name	Shares)	$($ \$)	date	(5)	$($ # $)$	(5)	$($ \$) ⁽³⁾
Neil Roszell	250,000	1.06	March 27, 2024	1,215,000	225,700	1,336,144	Nil
Chair and CEO	250,000	4.66	March 12, 2025	315,000
Jason Jaskela	200,000	1.06	March 27, 2024	972,000	143,000	846,560	Nil
President and COO	250,000	4.66	March 12, 2025	315,000
Ali Horvath	200,000	1.06	March 27, 2024	972,000	105,300	623,376	Nil
Vice President, Finance and	250,000	4.66	March 12, 2025	315,000
CFO
Jonathan Grimwood	200,000	1.06	March 27, 2024	972,000	67,900	401,968	Nil
Vice President, Exploration	133,334	4.66	March 12, 2025	168,001
Terry Danku	200,000	1.06	March 27, 2024	972,000	67,900	401,968	Nil
Vice President, Engineering	133,334	4.66	March 12, 2025	168,001

Calculated based on the difference between the closing price of the Common Shares on the TSX on December 30, 2022 of \$5.92 $(1)$ and the exercise price of the Options multiplied by the number of Options.

$(2)$ All share-based awards granted to the Named Executive Officers are Performance Awards. Calculated based on the closing price of the Common Shares on the TSX on December 30, 2022 of \$5.92 multiplied by the number of Performance Awards. For the purposes of the calculation, a Payout Multiplier of 1.0 has been assumed. Performance Awards generally vest on the third anniversary of the date of grant.

There were no vested Awards held by any Named Executive Officer as at December 31, 2022. $(3)$

Incentive Plan Awards - Value Vested or Earned During the Year

The following table sets forth, for each Named Executive Officer, the value of option-based awards and sharebased awards that vested during the year ended December 31, 2022 and the value of non-equity incentive plan compensation earned during the year ended December 31, 2022.

	Option-based awards - Value vested during the year ⁽¹⁾	Share-based awards - Value vested during the year ⁽²⁾	Non-equity incentive plan compensation - Value earned during the year $(3)$
Name	(\$)	$($ \$)	(\$)
Neil Roszell	1,955,831	N/A	158,400
Jason Jaskela	1,663,831	N/A	274,560
Ali Horvath	1,663,831	N/A	240,240
Jonathan Grimwood	1,564,663	N/A	211,200
Terry Danku	1,564,663	N/A	186,120

$(1)$ Calculated based on the closing price of the Common Shares on the TSX on the vesting date and the exercise price of the Options.

$(2)$ No Performance Awards held by any of the Named Executive Officers vested in 2022.

$(3)$ Half of the bonus amounts in respect of 2022 performance were paid in December 2022 based on a 1.0 payout pursuant to the STIP scorecard with the remainder paid in March 2023 based on a 1.32 payout pursuant to the STIP scorecard.

Pension Plan Benefits

The Corporation does not have a pension plan or similar benefit program.

Termination and Change of Control Benefits

The Corporation does not have any employment agreements, change of control agreement or other arrangements with the Named Executive Officers that provide for payments in connection with termination, resignation, change of control or a change in the NEO's responsibilities.

Under the 2020 Option Plan, if a Change of Control (as defined in the 2020 Option Plan) occurs and within six (6) months of the Change of Control, a Named Executive Officer is terminated without cause or resigns for "Good Reason" (as defined in the 2020 Option Plan), all unvested Options held by the Named Executive Officer will vest and all outstanding Options held by the NEO will be exercisable for 90 days following the termination of the Named Executive Officer's employment with the Corporation.

Under the terms of the Award Plan, if a Change of Control (as defined in the Award Plan) occurs and: (i) if a Named Executive Officer is terminated without cause in connection with such Change of Control or within six (6) months following the Change of Control; or (ii) if within six (6) months such Named Executive Officer voluntarily resigns for an event or events which constitute Good Reason (as defined in the Award Plan), the outstanding Performance Awards held by such Named Executive Officer shall vest and the Payout Multiplier with respect to Performance Awards held by such Named Executive Officer shall be determined by the Board, acting reasonably.

The following table shows (i) the number of unvested in-the-money Options held by our Named Executive Officers and the value of such Options as at December 31, 2022 and (ii) the number of Performance Awards held by our Named Executive Officers and the value of such Performance Awards as at December 31, 2022, demonstrating the value of the acceleration of unvested Options and Performance Awards held by the Named Executive Officers if a

Change of Control (as defined in the Award Plan) had occurred on December 31, 2022 and if each Named Executive Officer was terminated on such date in connection with such Change of Control.

Name	Value of unvested Options as at December 31, 2022 ⁽¹⁾ $($ \$)	Value of unvested Performance Awards as at December 31, 2022 ⁽²⁾ $($ \$)
Neil Roszell	1,425,000	1,336,144
Jason Jaskela	1,182,000	846,560
Ali Horvath	1,182,000	623,376
Jonathan Grimwood	1,140,000	401.968
Terry Danku	1,140,000	401.968

$(1)$ Options have been valued using the December 30, 2022 closing price of the Common Shares on the TSX of \$5.92.

$(2)$ Calculated based on the closing price of the Common Shares on the TSX on December 30, 2022 of \$5.92 multiplied by the number of unvested Performance Awards. For the purposes of the calculation, a Payout Multiplier of 1.0 has been assumed.

OTHER INFORMATION

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information in respect of securities authorized for issuance under the Corporation's equity compensation plans as at December 31, 2022.

Plan Category	Number of securities to be issued upon exercise of outstanding Options, warrants and rights (a)	Weighted average exercise price of outstanding Options, warrants and rights $($ \$ (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by securityholders
2008 Option Plan and 2020 Option Plan ⁽¹⁾	6,085,516	2.74	Nil
Award Plan ⁽²⁾	1,017,375	N/A	6,932,319
Equity compensation plans not approved by securityholders	N/A	N/A	N/A
Total	7,102,891	2.74	6,932,319

$(1)$ Options are authorized for issuance under the 2008 Option Plan and the 2020 Option Plan. See Schedules A and B for a summary of the terms of the 2020 Option Plan and 2008 Option Plan, respectively. Under the 2020 Option Plan, Options may be granted in respect of Common Shares provided that the aggregate number of Common Shares reserved for issuance under the 2020 Option Plan does not exceed 8.0% of the aggregate number of issued and outstanding Common Shares less the aggregate number of Common Shares issuable under outstanding Options under the 2008 Option Plan. No further Options may be granted under either the 2008 Option Plan or 2020 Option Plan.

$(2)$ Awards may be granted under the Award Plan in respect of Common Shares provided that the aggregate number of Common Shares reserved for issuance under the Award Plan does not exceed the lesser of: (i) 6.0% of the aggregate number of issued and outstanding Common Shares less the aggregate number Common Shares reserved for issuance under outstanding Options under the Option Plans; and (ii) 4.5% of the aggregate number of issued and outstanding Common Shares. See Schedule C for a summary of the terms of the Award Plan.

Annual Burn Rate Under Equity Compensation Plans

The following table sets forth the number of Options and Awards granted during the periods noted below and the potential dilutive effect of such Options and Awards.

			Weighted Average
	Number of Options	Number of Awards	Common Shares	Burn Rate ⁽¹⁾
Period	Granted	Granted	Outstanding	(% )
2022	Nil	$1.004.100^{(2)(3)}$	227,299,237	0.4
2021	3,430,000	Nil	199,801,780
2020	7,905,000 ⁽⁴⁾	Nil	139,378,984

The burn rate for a given period is calculated by dividing the number of Options and Awards granted during such period by the $(1)$ weighted average number of Common Shares outstanding during such period.

$(2)$ Includes both Performance Awards and Restricted Awards granted under the Award Plan. A Payout Multiplier of 1.0 has been assumed for the purposes of the Performance Awards.

$(3)$ Awards do not include an adjustment for dividends paid on the Common Shares.

$(4)$ Upon completion of the Recapitalization Transaction, an entirely new management team and additional staff were appointed resulting in a large amount of Option grants.

For further information regarding the outstanding Options and Awards held by the Named Executive Officers as at December 31, 2022, see "Executive Compensation - Incentive Plan Awards - Outstanding Option-based Awards".

Indebtedness of Directors and Executive Officers

No person who is or has been a director or executive officer of the Corporation at any time since the beginning of the year ended December 31, 2022, nor any proposed nominee for election as a director of the Corporation, nor any associate or affiliate of any one of them, is or was indebted to (i) the Corporation or (ii) another entity where such indebtedness is or was the subject of a quarantee, support agreement, letter of credit or other similar arrangement or understanding provided by the Corporation or its subsidiary, in either case at any time since the beginning of the year ended December 31, 2022.

Interest of Informed Persons in Material Transactions

There were no material interests, direct or indirect, of directors, nominees for director or executive officers of the Corporation, or any Shareholder who beneficially owns, directly or indirectly, or exercises control or direction over greater than 10% of the outstanding Common Shares, or any other Informed Person (as defined in National Instrument 51-102 – Continuous Disclosure Obligations) or any known associate or affiliate of such persons, in any transaction since the commencement of the last completed financial year of the Corporation or in any proposed transaction which has materially affected or would materially affect the Corporation.

Interest of Certain Persons or Companies in Matters to be Acted Upon

Management of the Corporation is not aware of any material interest, direct or indirect, by way of beneficial ownership or otherwise of any director or nominee for director, or executive officer of the Corporation, or anyone who has held office as such since the beginning of the Corporation's last completed financial year, or of any associate or affiliate of any of the foregoing in any matter to be acted on at the Meeting, other than the election of directors.

Additional Information

Additional information relating to the Corporation is available on SEDAR at www.sedar.com. Financial information in respect of the Corporation and its affairs is provided in the Corporation's annual audited comparative financial statements for the year ended December 31, 2022 and the related management's discussion and analysis. Copies of the Corporation's financial statements and related management's discussion and analysis are available upon request from the Corporation at phone number (587) 391-3680 and on the Corporation's website at www.headwaterexp.com.

Other Matters

Management knows of no amendment, variation or other matter to come before the Meeting other than the matters referred to in the Notice of Annual Meeting. However, if any other matter properly comes before the Meeting, the accompanying proxy will be voted on such matter in accordance with the best judgment of the person or persons voting the proxy.

ADVISORIES

Forward-Looking Information and Statements

This Information Circular contains forward-looking information and statements (collectively, "forward-looking statements"). These forward-looking statements relate to future events or our future performance. All information and statements other than statements of historical fact contained in this document are forward-looking statements. Such forward-looking statements may be identified by looking for words such as "approximately", "may", "believe", "expects", "will", "intends", "should", "could", "plan", "budget", "potential", "anticipates", "estimates", "objective", "ongoing", "continues", "sustainability" or similar words or the negative thereof or other comparable terminology suggesting future outcomes or statements that actions, events or conditions "may", "would", "could" or "will" be taken or occur in the future, including statements about our strategy, plans, focus, objectives, priorities and position. In particular, and without limiting the generality of the foregoing, this Information Circular contains forward-looking statements with respect to: the continued growth of Headwater; our corporate strategy, directives and goals; our compensation plans and policies, including but not limited to, the aims, objectives and metrics established in respect thereof and future issuances thereunder; the effectiveness of the Corporation's compensation plans; our diversity plans with respect to our Board and management; procedures regarding Board orientation and continuing education; expectations regarding the sufficiency of the skills and experience of current and future directors and officers of Headwater; expectations of the CG&S Committee, including but not limited to, taking a proactive approach to Board succession and actions to be taken under the Majority Voting Policy in certain circumstances; the Corporation's cyber security infrastructure, including but not limited to, the development, improvement and effectiveness thereof; and sustainability-related matters and targets, including but not limited to, with respect to compensation, emissions, water usage, land reclamations, minimization of spills, Indigenous consultations, health, safety and other environmental matters.

The forward-looking statements are based on certain key expectations and assumptions made by our management, including: that we will continue to conduct our operations in a manner consistent with past operations; the general continuance or improvement in current industry conditions; the continuance of existing (and in certain circumstances, the implementation of proposed) tax, royalty and regulatory regimes; expectations and assumptions concerning prevailing commodity prices, exchange rates, interest rates, applicable royalty rates and tax laws; the impact (and the duration thereof) that the continuing COVID-19 pandemic will have on (i) the demand for crude oil, NGLs and natural gas, (ii) our supply chain, including our ability to obtain the equipment, supplies and services we require, and (iii) our ability to produce, transport and/or sell our products; future inflation rates, and the impact of inflation on our costs and profitability; future production rates and estimates of operating costs (and the impact of inflation thereon); performance of existing and future wells; reserve volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations and performance; business prospects and opportunities; the availability and cost of financing, labour and services (and the impact of inflation thereon); the impact of increasing competition; ability to efficiently integrate assets and employees acquired through acquisitions; and our ability to access capital and the cost and terms thereof. Although we believe that the expectations and assumptions on which such forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because no assurance can be given that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. These include, but are not limited to: the risks associated with the oil and gas industry in general such as operational risks in development, exploration and production; pandemics and epidemics; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of estimates and projections relating to reserves, production, costs and

expenses (particularly in an environment with high inflation); health, safety and environmental risks; commodity price and exchange rate fluctuations; interest rate fluctuations; the continuation of high inflation rates (or further increases to inflation rates) and the resulting impact on our costs and profitability; marketing and transportation; loss of markets; environmental risks; competition; incorrect assessment of the value of acquisitions; failure to complete or realize the anticipated benefits of acquisitions or dispositions; ability to access sufficient capital from internal and external sources on acceptable terms or at all; failure to obtain required regulatory and other approvals; reliance on third parties and pipeline systems; and changes in legislation, including but not limited to tax laws, royalties and environmental regulations. Our actual results, performance or achievement could differ materially from those expressed in, or implied by, the forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that we will derive therefrom. Management has included the above summary of assumptions and risks related to forward-looking statements provided in this Information Circular in order to provide Shareholders with a more complete perspective on our future operations and such information may not be appropriate for other purposes. Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect our operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website at www.sedar.com.

These forward-looking statements are made as of the date of this Information Circular and we disclaim any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

Non-GAAP Financial Measures

This Information Circular includes various specified financial measures, including capital management and supplementary financial measures as further described below. These measures do not have a standardized meaning prescribed by International Financial Reporting Standards ("IFRS" or, alternatively, "GAAP") and, therefore, may not be comparable with the calculation of similar measures by other companies.

"Adjusted funds flow from operations" is a capital management measure. For further information and a detailed calculation of adjusted funds flow from operations, see the information under the heading "Capital Management Measures" starting on page 24 of our management's discussion and analysis for the year ended December 31, 2022 ("Annual MD&A"), which information is incorporated herein by reference. Our Annual MD&A is available on our SEDAR profile at www.sedar.com and was filed on March 9, 2023 under the category "MD&A - English".

"Adjusted funds flow netback" is a supplementary financial measure. Adjusted funds flow netback is calculated as adjusted funds flow from operations divided by sales volumes.

"G&A per BOE" is a supplementary financial measure. G&A per BOE is calculated as G&A divided by sales volumes.

"Operating and transportation expense per BOE" is a supplementary financial measure. Operating and transportation expense is calculated as operating expense (also referred to as production expense) plus transportation expense divided by sales volumes.

Oil and Gas Advisories

This Information Circular contains metrics commonly used in the oil and natural gas industry which have been prepared by management, such as "PDP Recycle Ratio", "TPP Recycle Ratio", "F&D costs on a BOE basis" and "FD&A costs on a BOE basis".

The F&D cost on a BOE basis calculation includes all capital expenditures (exploration and development) for that period plus the change in future development capital ("FDC") for that period. This total capital including the change in the FDC is then divided by the change in reserves for that period incorporating all revisions and production for that same period.

The FD&A cost on a BOE basis calculation includes all capital expenditures (exploration, development and acquisitions) for that period plus the change in FDC for that period. This total capital including the change in the FDC is then divided by the change in reserves for that period incorporating all revisions and production for that same period.

PDP Recycle ratio is calculated as the Corporation's adjusted funds flow netback divided by F&D costs on a BOE basis or FD&A costs on a BOE basis, as applicable. TPP Recycle ratio is calculated as the Corporation's adjusted funds flow netback divided by F&D costs on a BOE basis or FD&A costs on a BOE basis, as applicable.

These terms do not have a standardized meaning and may not be comparable to similar measures presented by other companies, and therefore should not be used to make such comparisons. Management uses these oil and gas metrics for its own performance measurements and to provide Shareholders with measures to compare our operations over time. Readers are cautioned that the information provided by these metrics, or that can be derived from the metrics presented in this Information Circular, should not be relied upon for investment or other purposes.

BOE Presentation

To provide a single unit of production for analytical purposes, natural gas production is converted mathematically to equivalent barrels of oil ("BOE"). We use the industry-accepted standard conversion of six thousand cubic feet of natural gas to one BOE (6 Mcf = 1 BOE). The 6:1 BOE ratio is based on an energy equivalency conversion method primarily applicable at the burner tip. It does not represent a value equivalency at the wellhead and is not based on either energy content or current prices. While the BOE ratio is useful for comparative measures and observing trends, it does not accurately reflect individual product values and might be misleading, particularly if used in isolation.

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Capitalized terms not otherwise defined shall have the meaning ascribed to such terms in the management information circular of Headwater Exploration Inc. (the "Corporation") dated March 27, 2023 to which this Schedule A is attached.

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twelve-month period under all of the Corporation's security-based compensation arrangements (including the 2020 Option Plan) cannot exceed 10% of the issued and outstanding Common Shares. The aggregate number of Common Shares that may be reserved for issuance pursuant to Options awarded to non-executive directors of the Corporation shall not exceed 1% of the Common Shares outstanding from time to time and the aggregate value of Options granted to any non-executive director in any one year period shall not exceed \$100,000.

The Board has discretion to make amendments to the 2020 Option Plan which it may deem necessary without having to obtain Shareholder approval provided that in all cases it does not make any of the following amendments without first obtaining approval of the Shareholders: (i) increase the percentage of the issued and outstanding Common Shares that are available to be issued pursuant to granted and outstanding Options at any time above 8.0%; (ii) increase the number of Common Shares that may be issued to insiders of the Corporation above the restrictions contained in the 2020 Option Plan; (iii) increase the number of Common Shares that may be reserved for issuance pursuant to the exercise of Options granted to non-executive directors under the 2020 Option Plan; (iv) extend the expiry date of any outstanding Options under the 2020 Option Plan; (v) make any reduction in exercise price of an Option or permit a reduction in the exercise price of an Option granted under the 2020 Option Plan by the cancellation and immediate re-issue of Options or other entitlements; (vi) permit the transfer or assignment of Options except in the case of death of a Grantee; or (vii) amend the amendment provisions of the 2020 Option Plan.

Under the 2020 Option Plan, in the case of a Grantee's death, the Grantee's personal or legal representative may within twelve (12) months from the date of death and prior to the expiry date of the Options, exercise Options which were vested within such period after which time any remaining Options shall terminate and become null and void. In addition, if a Grantee ceases to be a director, officer, employee or consultant of Headwater (other than as a result of death), and the date on which the Grantee ceases to be a director, officer, employee or consultant of Headwater (the "Termination Date") is prior to the expiry date of the Option, all Options held by the Grantee which have vested as of the Termination Date shall be forfeited by the Grantee effective on the earlier of: (i) the expiry date; and (ii) the date that is ninety (90) days from the Termination Date, and all Options which have not vested as of the Termination Date shall become null and void. These provisions are subject to any alternative arrangements that may be contained in a separate Option agreement or employment agreement between the Corporation and a particular Grantee.

If a Change of Control (as defined in the 2020 Option Plan) occurs prior to the date on which the Corporation pays cash or issues Common Shares to the Grantee in respect of an outstanding Option and the Grantee is terminated without cause in connection with such Change of Control or within six (6) months following such Change of Control, all Options shall vest and if such termination occurs prior to, or at the effective time of such Change of Control, the Grantee shall be entitled to exercise all Options held by the Grantee until immediately prior to the Change of Control and if such termination occurs following the Change of Control, the Grantee shall be entitled to exercise all such Options until the date that is ninety (90) days after the Termination Date.

Alternatively, if within six (6) months following a Change of Control, the Grantee voluntarily resigns for an event or events that constitute Good Reason, all Options held by the Grantee shall vest and the Grantee shall be entitled to exercise all Options held by such Grantee until the date that is 90 days after the Grantee's Termination Date. "Good Reason" is defined in the 2020 Option Plan to mean any materially adverse change by the Corporation without the agreement of a Grantee, in any of the Grantee's duties, powers, rights, salary, title or lines of reporting,

such that immediately after such change or series of changes, the responsibilities and status of such Grantee, taken as a whole, are fundamentally diminished compared to those assigned to the Grantee immediately prior to such change or series of changes, or any other reason that would be considered to amount to constructive dismissal by a court of competent jurisdiction in Alberta.

If the Corporation completes a transaction or series of transactions whereby substantially all of the Common Shares or substantially all of the Corporation's property or assets become the property or assets of another body corporate, trust, partnership or other person (the "Continuing Entity"), the Corporation and the Continuing Entity shall take all necessary steps prior to or contemporaneously with the consummation of such transaction(s) to ensure all Options remain outstanding following the completion of the transactions and the Continuing Entity will assume all covenants and obligations of the Corporation under the 2020 Option Plan, the outstanding Options and the Option agreements in a manner that preserves and does not impair the rights of the Grantees thereunder in any material respect, and the Continuing Entity may exercise every right and power of the Corporation under the 2020 Option Plan, and Headwater shall be relieved of its obligations thereunder.

As at March 27, 2023, the Corporation had Options to acquire 413,335 Common Shares (representing approximately 0.2% of the outstanding Common Shares) outstanding under the 2008 Option Plan and Options to acquire 5,333,848 Common Shares (representing approximately 2.3% of the outstanding Common Shares) outstanding under the 2020 Option Plan, for a total of Options to acquire 5,747,183 Common Shares (representing approximately 2.5% of the outstanding Common Shares) under the 2008 Option Plan and the 2020 Option Plan.

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other security-based compensation arrangement, would exceed 10% of the total number of issued and outstanding Common Shares; and (d) there may not be issued to any one insider of the Corporation and such insider's associates, within a one-year period, a number of Common Shares that, when combined with the number of Common Shares issuable to such insider and such insider's associates pursuant to any other number of Common Shares issuable to such insider and such insider's associates pursuant to any other security-based compensation arrangement, would exceed 5% of the total number of issued and outstanding Common Shares. The foregoing limits may be calculated on a diluted basis with the consent of the TSX.

The exercise price of each Option was determined in the discretion of the Board at the time the Option was granted, provided that the exercise price would not be lower than the "Market Price". For purposes of the 2008 Option Plan, "Market Price" means the closing price of the Common Shares on the TSX on the last trading day prior to the date the Option was granted for which there was a closing price on the TSX; provided that in the event the Common Shares are not listed on any exchange, any Market Price would be such price as determined by the Board.

All Options granted under the 2008 Option Plan were subject to a fixed term and were exercisable from time to time as determined in the discretion of the Board at the time of the grant, provided that no Option had a term exceeding five years (or such longer period as is permitted by the TSX).

Unless otherwise determined by the Board, if any Option is scheduled to expire (a) at a time when the holder of the Option is subject to restrictions on trading securities of Headwater under a trading "blackout" established by Headwater, or (b) within five business days after the termination of such blackout period, the Option will, notwithstanding the scheduled expiry date of such Option, expire as of the date that is 10 business days following the end of such applicable blackout period and shall be exercisable by the holder at any time up to the applicable time on such revised expiry date.

In the event that an Eligible Optionee ceased to hold the position of director, officer or employee of Headwater (or any of its affiliates) or a service provider to Headwater (or any of its affiliates) for any reason whatsoever (other than as a result of death, incapacity, termination with cause or permanent disability), the unvested portion of the Option shall expire and terminate immediately and the vested portion of the Option will terminate on the earlier of its expiry date and ninety (90) days after such cessation. In the event of the death, incapacity or permanent disability of an Eligible Optionee, the vested portion of the Option will terminate on the earlier of its expiry date and twelve (12) months after the date of death, incapacity or permanent disability of the Eligible Optionee.

At or after the time that any fully vested Option could be exercised by an Eligible Optionee, the Eligible Optionee may elect to surrender, at his or her option, in whole or in part, his or her rights under any Option by written notice to the Corporation stating that such Eligible Optionee wishes to surrender his or her Option in exchange for a payment equal to the positive difference between the Exchange Date Price (as defined below) and the exercise price of the Option in respect of each Common Share that would otherwise be issued upon exercise of such Option (or portion of such Option) surrendered. The Board has the sole discretion to consent to or disapprove of the election of the Eligible Optionee to receive cash. If the Board disapproves of the election, the Eligible Optionee may (i) exercise the Option under the 2008 Option Plan or (ii) retract the request to surrender such Option and retain the Option. The Corporation will withhold from the amount otherwise payable such amounts as may be required to be withheld under applicable law. "Exchange Date Price" for the purposes of the 2008 Option Plan means a price per Common Share equal to the closing price of the Common Shares on the stock exchange on the

last trading day prior to the date the Option was surrendered by the Eligible Optionee or if the Common Shares are not then listed on any stock exchange, the Exchange Date Price shall be determined by the Board.

Options granted under the 2008 Option Plan are not assignable or transferable by an Eligible Optionee, except for: (i) a limited right of assignment to allow the exercise of Options by an Eligible Optionee's heirs, executor or legal representative (as the case may be) in the event of death, incapacity or permanent disability; and (ii) with the approval of the Board and the TSX, a right to transfer such Options to a corporation controlled by the Eligible Optionee and wholly-owned by the Eligible Optionee or his spouse or children (or any of them).

The Board has the right to amend the 2008 Option Plan and to suspend, terminate or discontinue the 2008 Option Plan. Any amendments to the 2008 Option Plan are subject to the approval of applicable requlatory authorities, including the TSX. Any amendment to the 2008 Option Plan shall take effect only with respect to Options granted after the effective date of such amendment, provided that an amendment may apply to any outstanding Options with the mutual consent of Headwater and the Eligible Optionees to whom such Options were granted.

Under the 2008 Option Plan, the Board has the power and authority to approve amendments to the 2008 Option Plan (or to Options granted thereunder), without further approval of the Shareholders, including, without limitation, to the extent that such amendment: (a) is for the purpose of curing any ambiguity, error or omission in the 2008 Option Plan or to correct or supplement any provision of the 2008 Option Plan that is inconsistent with any other provision of the 2008 Option Plan; (b) is necessary to comply with applicable law or the requirements of any stock exchange on which the Common Shares are listed; (c) is an amendment respecting administration or eligibility for participation under the 2008 Option Plan; (d) changes the terms and conditions on which Options may be or have been granted pursuant to the 2008 Option Plan, including changes to the vesting provisions and the term of any Option granted thereunder; (e) changes the termination provisions of the 2008 Option Plan or Options granted thereunder in a manner that does not entail an extension of such Option beyond its original expiry date (except in respect of a revised expiry date established in light of the existence of any trading "blackout", as described above); or (f) is an amendment to the 2008 Option Plan of a "housekeeping" nature; provided that in the case of any amendment referred to in paragraph (a) or (b) above, the amendment does not: (i) change the number of Common Shares issuable under the 2008 Option Plan granted under the 2008 Option Plan; (ii) add any form of financial assistance by Headwater for the exercise of any Option; (iii) result in material or unreasonable dilution in the number of outstanding Common Shares or any material benefit to an Eligible Optionee; or (iv) change the class of eligible participants under the 2008 Option Plan if such change would have the potential of broadening or increasing participation by insiders of Headwater.

Subject to any required regulatory approvals, the Board may amend the term of any Option (which in no event shall exceed five years from the date of grant (or such longer period as is permitted by the TSX)) and the termination provisions of Options granted pursuant to the 2008 Option Plan without Shareholder approval, provided that if the Board proposes to increase the Option Threshold, reduce the exercise price for Options granted to insiders of the Corporation or extend the term of any Option granted to an insider of Headwater pursuant to the 2008 Option Plan (unless the extension is in respect of a revised expiry date established in light of the existence of any trading "blackout", as described above), such amendments will require Shareholder approval.

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Capitalized terms not otherwise defined shall have the meaning ascribed to such terms in the management information circular (the "Information Circular") of Headwater Exploration Inc. (the "Corporation") dated March , 2023 to which this Schedule C is attached.

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Performance Awards

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Restricted Awards

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Termination and Cessation of Award Grantee

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Change of Control

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Amendments to Award Plan

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Award Limits

As at March 27, 2023, the Corporation had an aggregate 5,747,183 Options to acquire 5,747,183 Common Shares (representing approximately 2.5% of the outstanding Common Shares) outstanding under the Option Plans and 1,852,202 Performance Awards entitling the holders to receive 1,866,214 Common Shares (after adjustment for dividends and assuming a Payout Multiplier of 1.0) and 323,394 Restricted Awards entitling the holders to receive 325,502 Common Shares (after adjustment for dividends) leaving up to 6,109,673 Common Shares (representing approximately 3% of the outstanding Common Shares) available for future grants under the Award Plan, based on the number of outstanding Common Shares as at that date. There is no limit in the Award Plan as to the number of Awards any individual Award Grantee may receive (subject to the other limits in the Award Plan).

The Award Limits have been designed such that initially the number of Awards will be limited by the number of Common Shares that may be issuable pursuant to outstanding Options while still leaving enough availability for the Corporation to grant Awards to continue to retain and attract the necessary management and staff to manage the growth of the Corporation. The Options that remain outstanding under the Option Plans were primarily issued at a time when the share price and the market capitalization of the Corporation were significantly lower than Headwater's current share price and market capitalization. The outstanding Options under the Option Plans also reflect the fact that such Options were granted at a time when the total cash compensation received by officers of Headwater was very low relative to the total cash compensation received by officers of the Corporation's peers and the level of Options granted was higher to compensate for the low cash consideration. The rapid growth of Headwater over the last two years has resulted in the CG&S Committee and the Board having to rapidly adjust the compensation programs of the Corporation so that they are more suited for a company of Headwater's current size.

No further Options may be granted under the Option Plans and therefore, upon the exercise, cancellation, expiry or other termination of Options, the maximum number of Common Shares issuable pursuant to outstanding Options and Awards will decrease over time. After all Options under the Option Plans have expired or are exercised, a maximum of 4.5% of the issued and outstanding Common Shares will be issuable pursuant to Awards.

Schedule D Mandate of the Board of Directors

$1¹$ General - The Board of Directors (the "Board") of Headwater Exploration Inc. (the "Corporation" or "Headwater") is responsible for the stewardship of the Corporation. In discharging its responsibility, the Board will exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances and will act honestly and in good faith with a view to the best interests of Headwater. In general terms, the Board will:
in consultation with the chief executive officer of the Corporation (the "CEO"), define the principal $(a)$ objectives of Headwater;
$(b)$ supervise the management of the business and affairs of Headwater with the goal of achieving Headwater's principal objectives as developed in association with the CEO;
$(c)$ discharge the duties imposed on the Board by applicable laws; and
$(d)$ for the purpose of carrying out the foregoing responsibilities, take all such actions as the Board deems necessary or appropriate.
$\overline{2}$ Specific - Without limiting the foregoing, the Board as determined to be appropriate, will endeavour to perform the following duties:

Executive Team Responsibility

appoint the CEO and senior officers, approve their compensation, and monitor the CEO's $(a)$ performance against a set of mutually agreed corporate objectives directed at maximizing shareholder value and stakeholder outcomes:
in conjunction with the CEO, develop a clear mandate for the CEO, which includes a delineation $(b)$ of management's responsibilities;
$(c)$ establish processes as required that adequately provides for succession planning, including the appointing, training and monitoring of senior management;
$(d)$ establish limits of authority delegated to management;

Operational Effectiveness and Financial Reporting

annual review and adoption of a strategic planning process and approval of Headwater's strategic $(e)$ plan, which takes into account, among other things, the opportunities and risks of the business;
$(f)$ establish or cause to be established systems to identify the principal risks to Headwater and that the best practical procedures are in place to monitor and mitigate the risks;
consider or cause to be considered the implications of risk associated with Headwater's $(q)$ compensation policies and practices;

$(h)$ endeavour to establish or cause to be established processes to address applicable regulatory, corporate, securities and other compliance matters;
establish or cause to be established an adequate system of internal control and management $(i)$ information systems;
$(i)$ establish or cause to be established due diligence processes and appropriate controls with respect to applicable certification requirements regarding Headwater's financial and other disclosure;
$(k)$ review and approve Headwater's financial statements and oversee Headwater's compliance with applicable audit, accounting and reporting requirements;
$($ |) approve annual operating and capital budgets;
$(m)$ review and consider for approval all amendments or departures proposed by management from established strategy, capital and operating budgets;
$(n)$ review operating and financial performance results relative to established strategy, budgets and objectives;

Cyber Security

$(O)$ consider or cause to consider the technology and system risks associated with the Corporation's operations, including potential breakdown, invasion, virus, cyber-attack, cyber-fraud, security breach, and destruction or interruption of the Corporation's information technology systems by third parties or internal personnel and the associated potential data recovery mechanisms;

Environmental, Health, Safety, Climate and Sustainability

$(p)$ establish or cause to be established fundamental policies pertaining to environment, health and safety to minimize environmental, occupational health and safety and other risks to asset value and mitigate damage to or deterioration of asset value;
establish or cause to be established systems for regular review of the Corporation's performance $(q)$ relating to environment, health and safety matters and steps taken to remedy or mitigate environment, health and safety risks;
oversee the Corporation's policies, procedures, practises and strategies relating to social and $(r)$ climate related issues and other sustainability matters to ensure due consideration of risks, opportunities and potential performance improvement relating thereto;

Integrity/Corporate Conduct

$(s)$ establish a communications policy or policies to ensure that a system for corporate communications to all salient stakeholders exists, including processes for consistent, transparent, regular and timely public disclosure, and to facilitate feedback from stakeholders;
$(t)$ approve a Business Conduct & Ethics Practice for directors, officers and employees and monitor compliance with the Practice and approve any waivers of the Practice for officers and directors;

$(u)$ to the extent feasible, satisfy itself as to the integrity of the CEO and other executive officers of the Corporation and that the CEO and other executive officers create a culture of integrity throughout Headwater;

Board Process/Effectiveness

$(v)$ endeavour to ensure that Board materials are distributed to directors in advance of regularly scheduled meetings to allow for sufficient review of the materials prior to the meeting;
$(w)$ engage in the process of determining Board member qualifications with the Corporate Governance and Sustainability Committee including ensuring that a majority of directors, including the Chair of the Board, qualify as independent directors pursuant to National Instrument 58-101- Disclosure of Corporate Governance Practices (as implemented by the Canadian Securities Administrators and as amended from time to time) and that the appropriate number of independent directors are on each committee of the Board as required under applicable securities rules and requirements;
$(x)$ approve the nomination of directors;
$(y)$ provide or cause to be provided a comprehensive orientation to each new director;
$(z)$ establish an appropriate system of corporate governance including practices to ensure the Board functions independently of management;
establish appropriate practices for the regular evaluation of the effectiveness of the Board, its $(aa)$ committees and its members:
$(bb)$ establish committees and approve their respective mandates and the limits of authority delegated to each committee:
$(cc)$ review and re assess the adequacy of the mandate of the committees of the Board on a regular basis, but not less frequently than on an annual basis; and
review the adequacy and form of the directors' compensation to ensure it realistically reflects the $(dd)$ responsibilities and risks involved in being a director.
$3.$ Administrative Matters: The following general provisions shall have application to the Board:
the Board may delegate its duties to and receive reports and recommendations from any $(a)$ committee of the Board; and
$(b)$ subject to terms of any corporate disclosure policy and other policies and procedures of Headwater, the Chair of the Board (if any and independent) or the Lead Independent Director (if any), when appropriate, will act as a liaison between stakeholders of Headwater and the Board (including independent members of the Board).
$(c)$ a majority of Board members should be "independent" Directors as such term is defined in National Instrument 58-101 - Disclosure of Corporate Governance Practices;

$(d)$ each director shall disclose any conflict of interest the director may have in relation to any material contract or material transaction or a proposed material contract or proposed material transaction involving the Corporation to the Board as soon as practicably possible (and in no event no later than the commencement of the next Board meeting) after becoming aware of such conflict of interest in accordance with the provisions of the Business Corporations Act (Alberta);
on at least an annual basis, the Board shall conduct an analysis and make a positive affirmation $(e)$ as to the "independence" of a majority of its Board members;
$(f)$ members should have or obtain sufficient knowledge of Headwater and the oil and gas business to assist in providing advice and counsel on relevant issues.
$(q)$ the Board shall meet at least four times per year and/or as deemed appropriate by the Board Chair
$(h)$ minutes of each meeting shall be prepared by the Corporate Secretary to the Board;
$(i)$ members should review materials prior to meetings to ensure that they have sufficient knowledge in providing advice and counsel on relevant issues;
the CEO or his designate(s) may be present at all meetings of the Board; and $(i)$
$(k)$ the Chief Operating Officer, Chief Financial Officer, Vice-Presidents and such other staff as appropriate to provide information to the Board shall attend meetings at the invitation of the Board.
$($ |) following each meeting, the Corporate Secretary will promptly report to the Board by way of providing draft copies of the minutes of the meetings;
$(m)$ supporting schedules and information reviewed by the Board at any meeting shall be available for examination by any Director upon request to the CEO;
$(n)$ the Board shall have the authority to review any corporate report or material and to investigate activity of the Corporation and to request any employees to cooperate as requested by the Board; and
$(0)$ the Board may retain persons having special expertise and/or obtain independent professional advice to assist in fulfilling its responsibilities at the expense of Headwater.

Nothing contained in this mandate is intended to expand applicable standards of liability under statutory, regulatory, common law or any other legal requirements for the Board or members of the Board. The Board may adopt additional policies and procedures as it deems necessary from time to time to fulfill its responsibilities.

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TSX: HWX

Headwater Exploration Inc.

1400, 215-9th Avenue SW Calgary, Alberta T2P 1K3 Canada

Phone: (587) 391-3680 Toll-free: (888) 429-4511 Email: [email protected]

AI assistant

Headwater Exploration Inc. — Proxy Solicitation & Information Statement 2023

43562_rns_2023-04-11_e158725b-e528-407c-aa15-c90c9e5da6cb.pdf

MANAGEMENT INFORMATION CIRCULAR DATED MARCH 27, 2023

THE CLEARWATER ADVANTAGE

WHAT'S INSIDE

PROXY SUMMARY

Shareholder Voting Matters

NOTICE OF ANNUAL MEETING

VOTING MATTERS

Solicitation of Proxies

Advice to Beneficial Holders of Common Shares

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Revocability of Proxy

Persons Making the Solicitation

Exercise of Discretion by Proxy

Voting Securities and Principal Holders Thereof

Quorum for Meeting

BUSINESS OF THE MEETING

Recommendation of the Board of Directors

Financial Statements and Auditors' Report

Election of Directors

Majority Voting for Directors

Advance Notice By-law

Appointment of Auditors

Advisory Vote on Executive Compensation

DIRECTOR NOMINEES

Jason Jaskela

Key Skills and Experience

Devery Corbin

Key Skills and Experience

Elena Dumitrascu

Key Skills and Experience

Chandra Henry

Key Skills and Experience

Phillip R. Knoll

Key Skills and Experience

Stephen Larke

Key Skills and Experience

Kevin Olson

Key Skills and Experience

David Pearce

Key Skills and Experience

Kam Sandhar

Key Skills and Experience

Director Share Ownership Guidelines

Director Vote Results at 2022 AGM

Corporate Cease Trade Orders or Bankruptcies

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DIRECTORS' COMPENSATION

Discussion of Director Compensation

Directors' Summary Compensation Table

Directors' Incentive Plans

Deferred Share Unit Plan

Directors' Outstanding Option-Based Awards and Share-Based Awards

Directors' Incentive Plan Awards – Value Vested or Earned During the Year

CORPORATE GOVERNANCE

Board of Directors

Board Mandate

Lead Independent Director

Meetings of Independent Directors

Attendance

Position Descriptions

Orientation and Continuing Education

Ethical Business Conduct

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Reserves and Safety Committee Responsibilities

Reserves Matters

Environmental, Health and Safety Matters

CG&S Committee Corporate Governance and Sustainability Responsibilities

Corporate Governance Matters

Sustainability

Assessments

Succession Planning

Director Term Limits and Other Mechanisms for Board Renewal

Representation by Women and other Underrepresented Groups on the Board

In support of the objectives described in the Diversity Policy, the Board has a target of achieving and maintaining at least 30% representation by women on the Board by no later than the date of the annual meeting of the Shareholders in 2023.

Women Representation in Executive Officer Positions

Headwater Exploration Inc. Proxy Solicitation & Information Statement 2023

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