JX Energy Ltd. — Interim / Quarterly Report 2021

Sep 28, 2021

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Persta Resources Inc.
(incorporated under the laws of Alberta with limited liability)
Stock code: 3395
INTERIM
REPORT
2021
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About

Persta Resources Inc.

Persta Resources Inc. is a Calgary-based oil and gas exploration and development company focusing on liquids-rich gas and light crude oil in Western Canada with three core areas of operations comprising: Alberta Foothills liquids-rich natural gas properties; Peace River light oil properties and ProgressMontney properties

CONTENTS

• 2 Corporate Information

• 4 Financial and Operating Highlights

• 5 Management’s Discussion and Analysis

• 27 Other Information

• 34 Condensed Interim Statement of Financial Position

• 35 Condensed Interim Statement of Loss and Comprehensive Loss

• 36 Condensed Interim Statement of Changes in Shareholders’ Equity

• 37 Condensed Interim Statement of Cash Flows

• 38 Notes to the Condensed Interim Financial Statements

CORPORATE INFORMATION

BOARD OF DIRECTORS

Executive Directors

Mr. Pingzai Wang Mr. Yongtan Liu

AUDITOR

BDO Limited 25th Floor, Wing On Centre 111 Connaught Road Central Hong Kong

Independent Non-executive Directors

Mr. Richard Dale Orman Mr. Peter David Robertson Mr. Larry Grant Smith

JOINT COMPANY SECRETARIES

Mr. Jesse David Meidl (Company’s Chief Financial Officer) Ms. Chau Hing Ling (FCG, FCS)

AUTHORISED REPRESENTATIVES

Mr. Yongtan Liu Ms. Chau Hing Ling (FCG, FCS)

AUDIT AND RISK COMMITTEE

Mr. Peter David Robertson (Chairman) Mr. Richard Dale Orman Mr. Larry Grant Smith

REGISTERED OFFICE

15th Floor, Bankers Court 850-2nd Street SW Calgary, Alberta T2P 0R8 Canada

HEADQUARTERS AND PRINCIPAL PLACE OF BUSINESS IN CANADA

Suite 3600, 888-3rd Street SW Calgary, Alberta T2P 5C5 Canada

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

Room 1901, 19/F Lee Garden One 33 Hysan Avenue Causeway Bay, Hong Kong

REMUNERATION COMMITTEE

PRINCIPAL BANKERS

Mr. Richard Dale Orman (Chairman) Mr. Yongtan Liu Mr. Larry Grant Smith

National Bank of Canada Suite 1800, 311-6 Avenue SW Calgary, Alberta T2P 3H2 Canada

NOMINATION COMMITTEE

Mr. Yongtan Liu (Chairman) Mr. Larry Grant Smith Mr. Peter David Robertson

COMPETENT PERSONS

GLJ Petroleum Consultants Ltd. 4100, 400-3rd Avenue SW Calgary, Alberta T2O 4H2 Canada

Persta Resources Inc. 2 Interim Report 2021

CORPORATE INFORMATION

LEGAL ADVISERS

As to Hong Kong law

Seyfarth Shaw Suite 3701, 37/F, Edinburgh Tower The Landmark 15 Queen’s Road Central, Central, Hong Kong

STOCK CODE AND BOARD LOT

Stock Code: 3395 Board Lot: 1,000

WEBSITE

www.persta.ca

As to Canadian law

Dentons Canada LLP 15th Floor, Bankers Court 850-2nd Street SW Calgary, Alberta T2P 0R8 Canada

PLACE OF SHARE LISTING AND STOCK CODE

The Stock Exchange of Hong Kong Limited: 3395

PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

Computershare Trust Company of Canada Suite 600, 530-8th Avenue SW Calgary Alberta T2P 3S8 Canada

HONG KONG BRANCH SHARE REGISTRAR

Computershare Hong Kong Investor Services Limited Shops 1712–1716, 17th Floor Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

Persta Resources Inc. Interim Report 2021 3

FINANCIAL AND OPERATING HIGHLIGHTS

FINANCIAL HIGHLIGHTS

(Expressed in Canadian dollars) Unaudited

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C$ 000 except Three months ended June 30, Six months ended June 30,
per share and boe 2021 2020 Change 2021 2020 Change
Production revenue 4,909 2,740 79% 9,863 5,969 65%
Net trading revenue — (1) (100%) 2 (1) 293%
Operating netback [(1)] 1,092 1,761 (38%) 1,561 2,442 (36%)
Loss per share
(basic and diluted) 0.01 0.01 — 0.01 0.02 (34%)
Daily average sales volumes
(boe/d) 2,317 2,515 (8%) 2,394 2,554 (6%)
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(1) Operating netback is defined as revenue less royalties, trading costs and operating costs. Operating netback is a non-IFRS financial measure. See “Non-IFRS Financial Measures” for further information.

ASSETS AND LIABILITIES

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As at
June 30, As at December 31,
C$ 000 2021 2020 2019 2018 2017
Total assets 42,205 44,667 59,064 103,582 111,091
Total liabilities (41,752) (39,506) (35,395) (35,521) (36,398)
Total net assets 453 5,161 23,669 68,061 74,693
Share capital 213,427 213,427 210,367 204,367 204,367
Warrants 647 647 647 647 —
Contributed surplus 417 358 74 — —
Accumulated deficit (214,037) (209,270) (187,419) (136,953) (129,674)
Total equity 453 5,161 23,669 68,061 74,693
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Persta Resources Inc. 4 Interim Report 2021

MANAGEMENT’S DISCUSSION AND ANALYSIS

OVERVIEW

The Company was incorporated in Calgary, Alberta, Canada under the Business Corporations Act (Alberta) in 2005. Persta is an exploration and development company pursuing petroleum and natural gas production and reserves in Alberta, Canada. Persta focuses on long-term growth through acquisition, exploration, development and production in the Western Canadian Sedimentary Basin (“ WCSB ”). The Company’s shares were listed on The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) on March 10, 2017 (the “ Listing Date ”) pursuant to an initial public offering and trades under the stock code of “3395”. The Company has been a reporting issuer under the Securities Act (Alberta) since October 2, 2018.

This Management’s Discussion and Analysis (“ MD&A ”) of Persta Resources Inc. (“ Persta ” or the “ Company ”) should be read in conjunction with the Company’s unaudited condensed financial statements and notes thereto for the three and six months ended June 30, 2021 (the “ Financial Statements ”) and the audited financial statements and notes thereto for the year ended December 31, 2020 (the” 2020 Audited Financial Statements ”). All amounts and tabular amounts in this MD&A are stated in thousands of Canadian dollars (“ C$ 000 ”) unless indicated otherwise. This MD&A is dated August 23, 2021.

FORWARD LOOKING INFORMATION

Certain statements in this MD&A are forward-looking statements that are, by their nature, subject to significant risks and uncertainties and the Company hereby cautions investors about important factors that could cause the Company’s actual results to differ materially from those projected in a forward-looking statement. Any statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as “will”, “expect”, “anticipate”, “estimate”, “believe”, “going forward”, “ought to”, “may”, “seek”, “should”, “intend”, “plan”, “projection”, “could”, “vision”, “goals”, “objective”, “target”, “schedules” and “outlook”) are not historical facts, are forward-looking and may involve estimates and assumptions and are subject to risks (including the risk factors detailed in this MD&A), uncertainties and other factors some of which are beyond the Company’s control and which are difficult to predict. Accordingly, these factors could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

Since actual results or outcomes could differ materially from those expressed in any forward-looking statements, the Company strongly cautions investors against placing undue reliance on any such forward-looking statements. Statements relating to “reserves” or “resources” are deemed to be forward-looking statements, as they involve the implied assessment, based on estimates and assumptions that the resources and reserves described can be profitably produced in the future. Further, any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

All forward-looking statements in this MD&A are expressly qualified by reference to this cautionary statement.

NON-IFRS FINANCIAL MEASURES

The financial information contained herein has been prepared in accordance with International Financial Reporting Standards (“ IFRS ”) and sometimes referred to in this MD&A as Generally Accepted Accounting Principles (“ GAAP ”) as issued by the International Accounting Standards Board (“ IASB ”).

This MD&A also includes references to financial measures commonly used in the oil and natural gas industry. These financial measures are not defined by IFRS as issued by IASB and, therefore, are referred to as non-IFRS measures. The non-IFRS measures used by the Company may not be comparable to similar measures presented by other companies. See “Non-IFRS Financial Measures” of this MD&A for information regarding the following non-IFRS financial measures used in this MD&A: “operating netback” and “adjusted EBITDA”.

Persta Resources Inc. Interim Report 2021 5

MANAGEMENT’S DISCUSSION AND ANALYSIS

FUTURE PROSPECTS

Between 2006 and 2018, the Company acquired Petroleum and Natural Gas Licenses at Basing, Voyager and Kaydee in the Alberta Foothills, at Dawson near Peace River and at Progress- Montney in northern Alberta. Approximately 85% of the Company’s revenue is generated from Basing which is gas weighted. Voyager is geologically analogous to Basing and commenced production in the second quarter of 2020. All of the Company’s oil production is generated from Dawson. Kaydee and Progress-Montney are prospective areas currently undeveloped.

Natural gas comprises 90% of the Company’s production. The price of gas in western Canada has continued to strengthen over the past year reaching 5-year highs in the first half of 2021. Gas futures as at the date of this MD&A forecasts pricing will remain strong for the remainder of this year and through 2022. Notwithstanding the Company’s gas weighting, Persta also benefits from the continued strength in oil prices which has also tested multi year highs. As the spot price for gas and oil changes daily, there is no guarantee the Company will sell its production in the future for currently forecast prices.

Subsequent to period end, the Company arranged the conditional placing of 70 million shares at a price of HK$0.80 per share for total gross proceeds of HK$56 million (C$8.96 million). The placing is subject to the Stock Exchange and shareholder approval to be sought at a meeting of shareholders in September 2021, with completion of the placing on or before September 30, 2021 (refer to Note 13 of the Financial Statements). The Company intends to use approximately 45% of the proceeds to pay down its subordinated debt, 35% to fund new drilling at Basing, and 20% for working capital.

Please refer to “ Events after the Reporting Period ” in this MD&A for additional disclosures in respect of the impact of the outbreak of novel coronavirus disease (the “ COVID-19 ”).

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Persta Resources Inc. 6 Interim Report 2021

MANAGEMENT’S DISCUSSION AND ANALYSIS

SELECTED QUARTERLY INFORMATION

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Average Daily Production Q2 2021 Q1 2021 Q4 2020 Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019
Natural gas (mcf/d) 12,607 13,518 14,158 12,977 14,357 14,490 11,912 6,238
Crude oil (bbls/d) 76 65 78 56 0 48 80 74
NGLs and condensate (bbls/d) 107 90 106 85 92 92 113 45
Total production (boe/d) 2,284 2,408 2,544 2,304 2,485 2,554 2,178 1,159
Average Daily Trading
Natural gas (boe/d) 33 10 88 42 30 12 48 598
Financial
C$ 000s except share amounts Q2 2021 Q1 2021 Q4 2020 Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019
Production revenue 4,909 4,954 4,309 2,991 2,740 3,229 4,897 1,582
Net trading revenue — 2 11 (2) (1) — 12 399
Royalties (75) (863) (609) (202) 847 (788) (1,119) (456)
Operating costs (3,742) (3,624) (3,756) (3,534) (1,824) (1,760) (1,510) (1,919)
Operating netback [(1)] 1,092 469 (44) (747) 1,761 681 2,280 (395)
Net loss (1,925) (2,842) (13,009) (3,460) (1,569) (3,813) (34,671) (3,041)
Net working capital [(2)] (8,153) (31,512) (29,938) (5,135) (4,111) (28,122) (26,646) (5,880)
Total assets 42,205 43,425 44,667 54,601 56,162 57,283 59,064 92,233
Capital expenditures [(3)] 126 91 1,349 400 128 20 575 192
Loss per share (basic & diluted) 0.01 0.01 0.04 0.01 0.01 0.01 0.12 0.01
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(1) Operating netback is defined as revenue less royalties, trading cost and operating costs. Operating netback is a non-IFRS financial measure. See “Non-IFRS Financial Measures” for further information.

(2) Net working capital consists of current assets less current liabilities. As at Q1 2021, Q4, 2020, Q1 2020 and Q4 2019, net working capital includes approximately C$24 million of long term debt which has been reclassified as current, as the Company was not in compliance with certain covenants of its subordinated debt facility at period end.

(3) Capital expenditures consist of total expenditures for property, plant and equipment plus exploration and evaluation assets, excluding changes in non-cash working capital.

Summary

The Company’s total production is impacted by seasonal fluctuations experienced in western Canada. During the Canadian winter (October–March), demand for gas is highest as it is used for heating and power generation. The market price for natural gas is cyclical and follows demand, with prices historically strongest in the winter, and weakest in summer. Since the third quarter of 2019 when the Company had shut-in half of its wells in response to low prices, production has averaged approximately 2,400 boe/d. Production has declined over the first and second quarters of 2021 reflecting natural declines and facility constraints. Notwithstanding the lower production, production revenue in the current quarter was consistent with the prior quarter due to higher prices.

Persta Resources Inc. Interim Report 2021 7

MANAGEMENT’S DISCUSSION AND ANALYSIS

In the third quarter of 2020, operating costs increased with the start of production at Voyager and commencement of the Jixing Gas Handling and Voyager Compression agreements (refer to Note 26 of the 2020 Audited Financial Statements).

The Company’s higher net loss experienced in the second and fourth quarters of 2019, and the fourth quarter of 2020 is attributable to impairment losses and write-offs recognised during these periods. These impairment losses are non-cash charges resulting from assessments which indicated the carrying costs of the Company’s assets exceed their estimated future recoverable amounts (refer to Note 18 of the 2020 Audited Financial Statements).

RESULTS OF OPERATIONS

Daily Production and Sales Volumes

Boe Conversions — Per barrel of oil equivalent amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil equivalent (6:1). Barrel of oil equivalents (“ boe ”) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, as the value ratio between natural gas and crude oil based on current prices of natural gas and crude oil is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

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Three months ended June 30, Six months ended June 30,
2021 2020 Change 2021 2020 Change
Production
Natural gas (mcf/d) 12,607 14,357 (12%) 13,209 14,502 (9%)
Oil (bbl/d) 76 — 100% 71 24 198%
NGLs (bbl/d) 27 32 (17%) 29 32 (11%)
Condensate (bbl/d) 81 60 35% 71 60 18%
Total production (boe/d) 2,284 2,485 (8%) 2,372 2,533 (6%)
Trading
Natural gas (mcf/d) 199 182 9% 132 129 3%
Total trading (boe/d) 33 30 9% 22 21 3%
Total sales volume (boe/d) 2,317 2,515 (8%) 2,394 2,554 (6%)
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Total sales volume for the three and six months ended June 30, 2021 was 8% and 6% lower respectively than the comparative periods in 2020 as declines in natural gas offset higher oil and condensate production. Total trading volume for the three and six months ended June 30, 2021 were consistent with the comparative periods.

Persta Resources Inc. 8 Interim Report 2021

MANAGEMENT’S DISCUSSION AND ANALYSIS

Natural gas liquids (“ NGLs ”) and condensate production are by-products of natural gas. The amount of NGL and condensate production varies for each well, and their production rates as a percentage of natural gas production can change over time. The change NGL production for the three and six months ended June 30, 2021 compared to 2020 is consistent with the change in natural gas over the same period. Condensate production for both the three and six months ended June 30, 2021 was higher than the comparative periods, reflecting the higher condensate yields realized from two Basing wells which were shut-in until the third quarter of 2020.

Oil production for the three and six months ended June 30, 2021 were higher than the comparative periods in 2020, as the Company shut-in production in March 2020 in response to the collapse in oil prices following the onset of the COVID-19 pandemic. The wells remained shut-in through the second quarter of 2020, and resumed production in July 2020.

Revenue

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Three months ended June 30, Six months ended June 30,
C$ 000s 2021 2020 Change 2021 2020 Change
Production
Natural gas 3,766 2,576 46% 7,884 5,142 53%
Crude oil 455 30 1428% 847 285 197%
NGLs 67 23 192% 156 56 178%
Condensate 621 111 457% 977 486 101%
Total production revenue 4,909 2,740 79% 9,863 5,969 65%
Trading
Natural gas trading revenue 53 34 57% 72 48 51%
Natural gas trading cost (53) (35) 54% (70) (49) 43%
Total trading revenue — (1) 100% 2 (1) 293%
Other income 7 63 (90%) 28 83 (67%)
Total revenue 4,916 2,802 75% 9,893 6,051 64%
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Total production revenue for the three and six months ended June 30, 2021 increased 79% and 65% respectively over the comparative periods in 2020 reflecting stronger commodity prices. Oil revenues are significantly higher than the prior year reflecting the shut-in of production in March 2020. Crude oil prices have strengthened since the first quarter of 2021, as global demand has increased with the elimination of movement travel restrictions implemented in 2020 in response to the COVID-19 pandemic. Pricing for NGL and condensate, which are correlated to crude oil, have strengthened as well.

Trading revenue for the three and six months ended June 30, 2021 was consistent with the comparative quarters in 2020, reflecting the small quantities of gas which was traded in both periods. Other income for both the three and six months ended June 30, 2021 is lower than the comparative periods reflecting lower overriding royalty revenues.

Persta Resources Inc. Interim Report 2021 9

MANAGEMENT’S DISCUSSION AND ANALYSIS

Commodity Prices

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Three months ended June 30, Six months ended June 30,
2021 2020 Change 2021 2020 Change
Natural gas (C$/mcf)
Average market price (AECO) 2.97 1.90 56% 2.91 1.88 54%
Average trading price 3.09 1.98 56% 3.00 1.96 53%
Average trading cost price 2.94 2.05 43% 2.92 2.07 42%
Average sales price 2.95 2.03 46% 3.15 2.03 55%
Crude oil (C$/bbl)
Average market price
(Edmonton Par) 77.35 29.84 159% 71.93 69.16 4%
Average sales price 71.41 — — 66.06 65.36 1%
Sales/market differential (8%) — (8%) (5%)
NGLs (C$/bbl)
Average market price
(Propane/Butane) 31.88 13.48 136% 30.87 17.86 73%
Average sales price 27.73 7.70 260% 29.94 9.57 213%
Sales/market differential (13%) (43%) (3%) (46%)
Condensate (C$/bbl)
Average market price
(Pentane Plus) 78.57 30.40 158% 76.00 46.11 65%
Average sales price 79.65 20.36 291% 75.87 44.50 70%
Sales/market differential 1% (33%) (1%) (3%)
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The increase in realized gas price sales for the three and six months ended June 30, 2021 over the comparative periods in 2020 is attributable to stronger AECO market pricing. In periods of extreme weakness in the AECO market, the Company shut-in its production and traded gas on the spot market to meet its forward sales obligations. The average trading price is a function of the gains realized on the quantity and price of gas traded over a given time to meet its forward sales obligations, and therefore not directly comparable to prior periods.

NGL production is tied to natural gas production. The Company’s natural gas wells produce varying amounts of NGLs (propane and butane), which are sold at different prices in the market. As some wells are shut-in, the NGL production matrix is impacted, resulting in a changing realized price dependent on the composition of NGLs. Generally the more butane produced, the higher the realized price for NGLs. For the six months ended June 30, 2021, realized NGL prices were consistent with the market price. In the comparative period in 2020, realized NGL prices were significantly below average market prices as the Company’s NGLs were largely comprised of propane until the fourth quarter of 2020, when the Company resumed production from two wells in the Basing area which are butane weighted.

The Company’s realized condensate and crude oil prices for the three and six months ended June 30, 2021 were consistent with the average market prices over the same periods. Variations from the benchmark are a function of product sales occurring periodically over the quarter and year, compared to the average daily reference price.

Persta Resources Inc. 10 Interim Report 2021

MANAGEMENT’S DISCUSSION AND ANALYSIS

Royalties

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Three months ended June 30, Six months ended June 30,
C$ 000s 2021 2020 Change 2021 2020 Change
Natural gas, NGLs and condensate (13) (786) 98% 773 (91) 951%
Crude oil 87 (61) 243% 164 32 417%
Total royalties (recovery) 75 (847) 109% 938 (59) 1,686%
Effective average royalty rate 2% (31%) 105% 10% 1% 1,060%
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In Alberta, royalties are set by a sliding scale formula containing separate elements that account for market price and well production. Royalty rates will fluctuate to reflect changes in production rates, market prices and cost allowances. On a “per-well” basis, for the three and six months ended June 30, 2021 and 2020, the Company’s base royalty rate for natural gas ranged from 5% to 21%, the base royalty rate for NGLs (propane and butane) was 30% and the base royalty rate for condensate and crude oil was 40%. Effective royalty rates can differ from the base rates if the production qualifies for any cost allowances which offset the base amount payable. In June 2021, Company received a Gas Cost Allowance (“ GCA ”) credit of C$0.6 million following a government re-assessment of the 2020 royalties paid by the Company from the government. In June 2020 GCA credit was C$1 million, which resulted in a recovery of royalties in both comparative periods.

The Company forecasts its effective royalty rate will range between 15–20% for the remainder of 2021, reflecting new production from Voyager which benefits from the Modernizing Alberta’s Royalty Framework, under which a company will pay a flat royalty of 5% on a well’s early production until the well’s total revenue from all hydrocarbon products equals the drilling and completion cost allowance.

Operating Costs

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Three months ended June 30, Six months ended June 30,
C$ 000s 2021 2020 Change 2021 2020 Change
Natural gas, NGLs and condensate 3,614 1,795 101% 7,167 3,497 105%
Crude oil 129 29 344% 200 87 130%
Total operating costs 3,742 1,824 105% 7,367 3,584 106%
Unit Cost (C$/boe)
Natural gas, NGLs and condensate 17.98 7.85 129% 17.20 7.66 125%
Crude oil 15.59 20.11 (22%) 15.59 20.11 (22%)
Average cost 18.01 7.98 126% 17.16 7.77 121%
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Persta Resources Inc. Interim Report 2021 11

MANAGEMENT’S DISCUSSION AND ANALYSIS

Total operating costs (“ opex ”) for natural gas, NGLs and condensate for the three and six months ended June 30, 2021 were 105% and 106% higher respectively than the comparative periods in 2020. Operating costs have increased from new gas transport and compression obligations tariff pursuant to the Jixing Gas Handling and Voyager Compression Agreements (as defined in Note 26 of the 2020 Audited Financial Statements), which commenced with the commissioning of Voyager in June 2020. The increase in crude oil opex for the three and six months ended June 30, 2021 over the comparative periods is a function of the increase in production over the same periods.

General and Administrative Costs

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Three months ended June 30, Six months ended June 30,
C$ 000s 2021 2020 Change 2021 2020 Change
Staff costs 134 372 (64%) 614 1,044 (41%)
Accounting, legal and consulting
fees 185 343 (46%) 316 524 (40%)
Office 30 7 355% 56 38 48%
Share-based expense 94 31 203% 123 31 297%
Other 33 80 (58%) 72 149 (52%)
Total G&A costs 476 832 (43%) 1,185 1,786 (34%)
Capitalized staff costs 88 107 (18%) 176 165 7%
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Total general and administrative (“ G&A ”) costs for the three and six months ended June 30, 2021 were 43% and 34% lower respectively than the comparative periods in 2020. Staff cost reductions were primarily realized from a 40% reduction in headcount, which is estimated to reduce staff costs by approximately C$500k on an annualized basis, and C$70k recovery of director compensation in respect of the Phantom Unit Plan (refer to Note 19 of the 2020 Audited Financial Statements). Lower accounting, legal and consulting fees were realized in the current periods reflecting the successful cost reduction activities undertaken by the Company over the past year.

Other costs include memberships, insurance, travel and accommodation, the reduction over the comparative period is due to lower travel and accommodation expenditures. Capitalized G&A costs are comprised of qualifying expenditures in respect of geological and geophysical activities, changes over the comparative periods are a function of qualifying activity incurred during that time.

The Company uses the fair-value method for the determination of non-cash related share-based payments expense. During the second quarter of 2020, 3.78 million stock options were granted to employees at an exercise price of HK$0.52 per option. This was the initial award of options issued under the Company’s stock option plan. Pursuant to this initial grant, the Company recognized C$123k of share-based expense in the six months ended June 30, 2021 (2020: C$31k).

Persta Resources Inc. 12 Interim Report 2021

MANAGEMENT’S DISCUSSION AND ANALYSIS

Finance Expenses

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Three months ended June 30, Six months ended June 30,
C$ 000s 2021 2020 Change 2021 2020 Change
Interest expense and financing
costs:
Subordinated debt 999 1,101 (9%) 1,982 1,832 8%
Right of use assets and leases 75 57 32% 145 114 27%
Commitment charges 36 — 100% 36 352 (90%)
Other financing costs and bank
charges (6) 32 (118%) 8 32 (74%)
Accretion expenses:
Decommissioning liabilities (2) (5) 55% 31 17 86%
Shareholder loans — 21 (100%) 14 39 (64%)
Amortization of debt issuance
costs 126 126 — 251 251 —
Loss (gain) on foreign exchange 1 — 100% 1 — 100%
Total finance expenses 1,228 1,332 (8%) 2,468 2,637 (6%)
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For the three and six months ended June 30, 2021 and 2020, interest expense was incurred from the Company’s subordinated debt and capitalized leases. Following the restructuring of the Company’s subordinated debt in April 2020, the annualized interest rate increased from 12% to 16%. The rate can be reduced to 12% and 10% if the Company achieves certain benchmarks in future periods. The reduction in subordinated costs realized in the three months ended June 30, 2021 over 2020 is attributable to fees totaling C$0.2 million incurred for the April 2020 restructuring.

Commitment charges are primarily attributable to one-time fees of C$352k pursuant to the cancellation of a warrant subscription agreement on January 24, 2020. For the three and six months ended June 30, 2021 and 2020, accretion expenses were incurred from decommissioning liabilities and shareholder loans.

Amortization of debt issuance costs includes legal fees, commissions and commitment fees which were incurred for the closing and subsequent amendments to the subordinated debt facility (refer to Note 13 to the 2020 Audited Financial Statements). These costs are capitalized against the debt, and amortized over the term.

Depletion, Depreciation and Amortization

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Three months ended June 30, Six months ended June 30,
C$ 000s except per unit costs 2021 2020 Change 2021 2020 Change
Depletion 1,121 1,056 6% 2,318 2,142 8%
Depreciation 9 8 23% 19 16 21%
Amortization of right of use assets 190 165 15% 365 326 12%
Total DD&A 1,320 1,229 7% 2,702 2,484 9%
Per boe 6.35 5.38 18% 6.29 5.39 17%
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Persta Resources Inc. Interim Report 2021 13

MANAGEMENT’S DISCUSSION AND ANALYSIS

Depletion, depreciation and amortization (“ DD&A ”) expense is comprised of depletion incurred from production of the Company’s developed assets, the depreciation expense comprised of the depreciation of fixed assets including office furniture, office equipment, vehicles, computer hardware and computer software and amortization of capitalized leases carried as right of use assets.

Depletion is a function of both production and the capitalized value of assets subject to depletion. The increase in DD&A on a per boe basis for both the three and six months ended June 30, 2021 over the comparative periods in 2020 is attributable to the reduction in Company’s reserves over the same period.

Impairment Losses and Write-offs

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Three months ended June 30, Six months ended June 30,
C$ 000s 2021 2020 Change 2021 2020 Change
E&E write-offs — — — — 219 (100%)
E&E impairment — — — — 136 (100%)
PP&E impairment — — — — 126 (100%)
Total impairment and write-offs — — — — 481 (100%)
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Impairment is incurred if the estimated recoverable amount of an asset exceeds its carrying amount. In addition, where a non-financial asset does not generate largely independent cash inflows, the Company is required to perform its test at a cash generating unit (“ CGU ”), which is the smallest identifiable grouping of assets that generates largely independent cash inflows. E&E write-offs are attributable to land lease expires, when a lease term is completed the Company writesoff any remaining capitalized value in respect of the asset. Refer to Note 4 in the 2020 Audited Financial Statements for additional disclosures in respect of the Company’s significant accounting policies.

The Company did not recognize any impairment or write-offs during the three and six months ended June 30, 2021. In the first quarter of 2020, the Company identified indications of impairment at its Dawson CGU and wrote the E&E and PP&E carrying cost down to the estimated fair value as at March 31, 2020 (refer to Note 18 in the 2020 Audited Financial Statements).

Loss and Comprehensive Loss

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Three months ended June 30, Six months ended June 30,
C$ 000s 2021 2020 Change 2021 2020 Change
Loss and comprehensive loss (1,925) (1,569) 23% (4,767) (4,862) (2%)
Total loss and comprehensive
loss (1,925) (1,569) 23% (4,767) (4,862) (2%)
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Loss and comprehensive loss for the three months ended June 30, 2021 was higher than the comparative period in 2020, as higher revenues were offset by increases in operating costs. Loss and comprehensive loss for the six months ended June 30, 2021 was marginally lower than the comparative period in 2020 as the increase in revenues was offset by higher operating costs.

Persta Resources Inc. 14 Interim Report 2021

MANAGEMENT’S DISCUSSION AND ANALYSIS

CAPITAL EXPENDITURES

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Three months ended June 30, Six months ended June 30,
C$ 000s 2021 2020 Change 2021 2020 Change
PP&E
Production facilities 15 17 (13%) 3 17 (84%)
Workovers 23 — 100% 38 — 100%
G&A costs capitalized 88 — 100% 176 — 100%
Total PP&E 126 17 100% 217 17 1174%
E&E Assets
G&A costs capitalized — 107 (100%) — 165 (100%)
Other — 4 (100%) — (34) 100%
Total E&E — 111 (100%) — 131 (100%)
Total PP&E and E&E 126 128 (2%) 217 148 46%
Change in non-cash working
capital (282) (693) (59%) (1,010) (447) 126%
Total (156) (565) (72%) (793) (299) 165%
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Total 2021 PP&E and E&E capital expenditures (“ capex ”) for the six months ended June 30, 2021 was C$0.22 million, compared to C$0.15 million in same period in 2020. The Company has capitalized a total of C$0.176 million of G&A during 2021 (2020: C$0.17 million), in accordance with the Company’s accounting policies (refer to Note 4 in the 2020 Audited Financial Statements).

LIQUIDITY AND CAPITAL RESOURCES

Capital management

The Company’s general policy is to maintain an appropriate capital base in order to manage its business in the most effective manner with the goal of increasing the value of its assets and thus its underlying share value. The Company’s objectives when managing capital are to maintain financial flexibility in order to preserve its ability to meet financial obligations; to maintain a capital structure that allows the Company to favor the financing of its growth strategy using internally-generated cash flow and its debt capacity; and to optimize the use of its capital to provide an appropriate investment return to its shareholders.

The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying crude oil and natural gas assets. The Company considers its capital structure to include shareholders’ equity, shareholders’ loans, subordinated debt, other liabilities and working capital. To assess capital and operating efficiency and financial strength, the Company continually monitors its net debt. As disclosed in Note 3 of the Financial Statements, the Company’s future viability is dependent on its ability to source additional capital on acceptable terms.

Persta Resources Inc. Interim Report 2021 15

MANAGEMENT’S DISCUSSION AND ANALYSIS

Capital structure of the Company

The Company’s capital structure is as follows:

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As at As at
June 30, December 31,
C$ 000s 2021 2020
Long term debt [(1)] 26,254 1,886
Other liabilities 510 351
Lease liabilities 2,818 2,632
Net working capital deficit [(2)] 8,153 29,938
Net debt 37,735 34,807
Shareholders’ equity [(3)] 453 5,161
Total capital 38,188 39,968
Gearing ratio [(4)] 99% 87%
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Notes:

(1) This is the fair value of the long term debt.

(2) Net working capital consists of current assets less current liabilities.

(3) As at June 30, 2021 and the date of this MD&A, the Company has 361,886,520 common shares issued and outstanding and 8 million warrants issued with a strike price of HK$3.16 per warrant and 3.78 million stock options issued with a strike price of HK$0.52 per option.

(4) Gearing Ratio is defined as net debt as a percentage of total capital.

The 2020 working capital deficit includes C$24 million of long term debt which has been reclassified as current as the Company was not in compliance with certain covenants of its subordinated debt facility at March 31, 2021. These breaches were subsequently waived by the lender pursuant to the 2021 Restructuring (refer to Note 10 of the Financial Statements) and the debt has been reclassified to long term at June 30, 2021.

Performance services guarantee (“PSG”) facility

On April 25, 2018, the Company obtained a PSG facility from Economic Development Canada (“ EDC ”) totaling C$4.4 million. On June 28, 2019 the aggregate PSG was reduced to C$2.5 million. Under the terms of the PSG facility, EDC will guarantee qualifying letters of credit (“ L/C ”) on behalf of the Company. Previously, these L/C’s were cash collateralized, following approval by the EDC the requirement of the Company to hold cash to underwrite the L/C is relieved for the duration of the PSG approval. Under the terms of the PSG facility, the L/C guarantee period is the lesser of one year or the term of the L/C if less than 12 months. The guarantee can be renewed annually for long term L/C’s subject to subsequent approval by the EDC. As at June 30, 2021 the Company has PSG coverage for the following L/C’s:

Amount	Expiry	Expiry
C$1,392,000	June 14, 2022
C$408,158	March 31, 2022

Persta Resources Inc. 16 Interim Report 2021

MANAGEMENT’S DISCUSSION AND ANALYSIS

The PSG facility has a 12 month term and must be renewed annually. The current term expired on July 30, 2021, and the Company has applied for renewal. If the facility is not approved for renewal, the PSG coverage will terminate at the expiry of the existing L/C’s and the Company will seek alternative insurance arrangements to guarantee the L/C’s or cash collateralize them.

Capital resources

The Company operates in a capital intensive industry. The Company’s liquidity requirements arise principally from the need for financing the expansion of its exploration and development activities, acquisition of land leases and petroleum and natural gas licences. The Company’s principal sources of funds have been proceeds from bank borrowings, equity financings, shareholder loans and cash generated from operations. The Company’s liquidity primarily depends on its ability to generate cash flow from its operations and to obtain external financing to meet its debt obligations as they become due, as well as the Company’s future operating and capital expenditure requirements.

On December 23, 2020 the Company issued 60 million common shares at a price of HK$0.30 per share for gross proceeds of HK$18 million (approximately C$3 million assuming HK$:C$ exchange rate of 0.16:1) (the “ Subscription ”). Net proceeds from the Subscription were used for the expansion of its existing business and general working capital.

At June 30, 2021, the Company had a working capital deficiency of C$8.2 million and has drawn C$24.2 million on its subordinated debt of C$26 million, which is subject to certain covenants. On June 30, 2021, the Company and lender agreed to restructure the loan agreement (the “ 2021 Restructuring ”). Under the terms of the Restructuring, financial covenants in respect of net debt to total proved reserves and net debt to TTM EBITDA have been waived for the remainder of 2021, and will be reinstated starting March 31, 2022. Financial covenants in respect of working capital have been eliminated for the remainder of the loan. A funding covenant has been added whereby the Company must secure additional capital in the form of new equity for a cumulative amount equal to or greater than C$8 million on or before September 30, 2021. The Company must make a C$2.2 million principal payment on or before September 15, 2021 and a C$2.2 million principal payment on or before September 30, 2021 (together, the “ 2021 Principal Payments ”).

To satisfy the C$8 million funding and 2021 Principal Payments covenants, the Company has arranged an equity placing of 70 million common shares to be issued at a minimum of HK$0.80 per share for gross proceeds of a minimum of C$8.96 million. The placing is subject to the Stock Exchange and shareholder approval which will be sought at a meeting of shareholders anticipated to occur in September 2021.

The global impact of COVID-19 has resulted in significant volatility in global stock markets and has forecasted a great deal of uncertainty as to the health of the global economy. These factors may have a negative impact on the Company’s operations and its ability to raise financing to meet its covenants. If the Company is in breach of any covenants in future periods the lender will have the right to demand repayment of all amounts owed under the subordinated debt.

The Company’s ability to continue as a going concern is dependent upon the ability to generate positive cash flow from operations, equity and/or debt financing, disposing of assets or other arrangements to fund future development capital and ongoing operations. There are no assurances that any transactions will be completed on terms acceptable to the Company. These conditions cause material uncertainty which casts significant doubt on the Company’s ability to continue as a going concern.

Persta Resources Inc. Interim Report 2021 17

MANAGEMENT’S DISCUSSION AND ANALYSIS

Use of proceeds from the Subscription

C$ 000

Business objective as stated in the announcement(1)	% of total net proceeds	Planned use of net proceeds from the Closing Date to June 30, 2021(2)	Actual use of net proceeds during the period from the Closing Date to June 30, 2021(2)		Proceeds unused
Expansion of existing business(3)	33%	1,000.0	1,000.0		—
General working capital	67%	2,000.0	2,000.0		—
Total	100%	3,000.0	3,000.0		—

Notes:

(1) Refer to the Company’s announcement dated October 26, 2020.

(2) The Subscription was closed on December 23, 2020 (the “ Closing Date ”).

(3) Activities associated with the expansion of existing business includes facility optimisation and production de-bottlenecking to enhance natural gas production from the Company’s Basing area.

SHARES, WARRANTS AND STOCK OPTIONS OUTSTANDING

Common Shares

On December 23, 2020, the Company completed a private placement issuing 60 million shares at a price of HK$0.30 per share for gross proceeds of HK$35.4 million (approximately C$3.0 million). On May 14, 2019, the Company completed a private placement issuing 23.6 million shares at a price of HK$1.50 per share for gross proceeds of HK$35.4 million (approximately C$6.0 million). As at June 30, 2021 and as at the date of this MD&A, the Company has 361,886,520 common shares outstanding (2020: 361,886,520).

Warrants

On August 13, 2018, the Company issued 8 million warrants for total consideration of C$0.75 million. The warrants have an exercise price of HK$3.16 per warrant and a term of 5 years. No warrants have been exercised for the six months ended June 30, 2021 and 2020, and up to the date of the MD&A. As at June 30, 2021 and as at the date of this MD&A, the Company has 8 million warrants outstanding (2020: 8 million).

Stock Options

The Company has a stock option plan which was approved and adopted by the shareholders of the Company by ordinary resolution passed on June 8, 2018 (“ Stock Option Plan ”). On May 18, 2020, the Company issued 3.78 million options with an exercise price of HK$0.52 per option and a term of 5 years. The options vest equally over a 3 year period, with the first tranche vesting on the first anniversary of the award, and the second and third tranches vesting equally on the second and third anniversary respectively. As at June 30, 2021 and as at the date of this MD&A, the Company has 3.78 million options outstanding (2020: 3.78 million).

Persta Resources Inc. 18 Interim Report 2021

MANAGEMENT’S DISCUSSION AND ANALYSIS

COMMITMENTS

Commitments and contingencies exist under various agreements and operations in the normal course of the Company’s business. Refer to Note 21 of the Financial Statements and Note 28 of the 2020 Audited Financial Statements for disclosure of the Company’s commitments and contingencies.

DIVIDEND

The board of directors of the Company (the “ Board ”) did not approve the payment of a dividend for the six months ended June 30, 2021 and 2020.

RELATED PARTY TRANSACTIONS

Refer to Note 19 of the Financial Statements and Note 26 of the 2020 Audited Financial Statements for disclosure of the Company’s related party transactions.

OFF-BALANCE SHEET TRANSACTIONS

The Company was not involved in any off-balance sheet transactions during the six months ended June 30, 2021 and 2020.

PLEDGED ASSETS

As disclosed in this MD&A, all assets are pledged in support of the Company’s debt arrangements and there are no other pledges.

CONTINGENT LIABILITIES

As at June 30, 2021 and up to the date of this MD&A, the Company had no material undisclosed contingent liabilities.

SIGNIFICANT INVESTMENTS, ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES

The Company has neither any other significant investments nor significant acquisitions and disposals of the relevant subsidiaries, associates and joint ventures during the six months ended June 30, 2021 and up to the date of this MD&A.

FUTURE PLANS FOR MATERIAL INVESTMENTS AND CAPITAL ASSETS

Save as disclosed in this MD&A, the Company did not have other plans for material investments or capital assets as of the date of this interim report, as pursuant to paragraphs 32(4) and 32(9) of Appendix 16 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “ Listing Rules ”).

Persta Resources Inc. Interim Report 2021 19

MANAGEMENT’S DISCUSSION AND ANALYSIS

EVENTS AFTER THE REPORTING PERIOD

COVID-19

The global impact of COVID-19 has resulted in significant volatility in global stock markets and has forecasted a great deal of uncertainty as to the health of the global economy. In addition, there has been a significant drop in the price of oil in global and Canadian markets. These factors may have a negative impact on the Company’s operations and its ability to raise financing in the near future or on terms favourable to the Company. The potential impact that COVID-19 will have on the Company’s business or financial results cannot be reasonably estimated up to the date of this interim report.

Equity Placings

On June 8, 2021, the Company entered into a subscription agreement with Dalian Yongli Petrochemical Ltd. (“ Dalian ”), subsequently amended on July 20, 2021, pursuant to which the Company has conditionally agreed to allot and issue, and Dalian has conditionally agreed to subscribe for, 60 million common shares at a minimum price of HK$0.80 per common share. On July 20, 2021, the Company entered into a subscription agreement with Jixing Gas Holdings Limited (“ Jixing Gas ”), pursuant to which the Company has conditionally agreed to allot and issue, and Jixing Gas has conditionally agreed to subscribe for, 10 million common shares at a price of HK$0.80 per common share. Refer to the Company’s announcement dated July 21, 2021 for additional information on the Dalian and Jixing Gas equity placing.

As Dalian and Jixing Gas are connected persons (as defined in the Listing Rules) of the Company, the subscription agreements and the transactions contemplated thereunder constitute connected transactions of the Company under Chapter 14A of the Listing Rules and are subject to reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules. As at the date of this interim report, the transaction has not yet completed.

FINANCIAL RISK MANAGEMENT

The Board has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Board has implemented and monitors compliance with risk management policies. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to market conditions and the Company’s activities. The Company’s financial risks are discussed in Note 27 of the 2020 Audited Financial Statements.

The Company holds a number of financial instruments, the most significant of which are accounts receivable, accounts payable and accrued liabilities, cash and cash equivalents, subordinated debt and shareholder loans. Due to their near term maturities, accounts receivable, accounts payable and accrued liabilities, cash and cash equivalents and shareholder loan are recorded at fair value. The subordinated debt is recorded at amortized cost.

The Company did not enter into any financial derivatives contracts for the six months ended June 30, 2021 and 2020. For the six months ended June 30, 2021, the Company experienced a foreign exchange loss of C$0.1k (2020: gain of C$3k). These foreign exchange losses are related to the revaluation of monetary items held in Hong Kong Dollars and the value changes with the fluctuation in the Hong Kong Dollars/Canadian Dollars exchange rates. The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates for the monetary assets and liabilities denominated in the currencies other than the functional currencies to which they relate. The Company has not hedged its exposure to currency fluctuation and the Company currently does not have a foreign currency hedging policy, however, management closely monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise.

Persta Resources Inc. 20 Interim Report 2021

MANAGEMENT’S DISCUSSION AND ANALYSIS

Periodically, the Company has entered into fixed price physical commodity contracts to manage commodity risk. These contracts are considered normal sales contracts and are not recorded at fair value in the financial statements. During the year ended December 31, 2020, the Company entered into the following fixed price physical commodity contracts to forward sell natural gas at a fixed daily volume and fixed price per gigajoule (“ GJ ”):

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Commodity Term Quantity Price
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Natural gas	January 1, 2020 to October 31, 2020	2,000 GJ/day	C$1.80 per GJ
Natural gas	January 1, 2020 to October 31, 2020	1,000 GJ/day	C$1.7925 per GJ
Natural gas	January 1, 2020 to October 31, 2020	5,000 GJ/day	C$1.80 per GJ
Natural gas	May 1, 2020 to October 31, 2020	2,000 GJ/day	C$2.085 per GJ

Subsequent to the completion of these contracts, the price for natural gas in western Canada has strengthened and the Company has not entered into any additional contracts up to the date of this MD&A. The Company continually monitors the market for its products and will manage commodity risk in the future through the use of fixed physical and/or derivative contracts in periods of pricing weakness.

RELATIONSHIPS WITH STAKEHOLDERS

The Company has actively cultivated, established, and maintained positive relationships with First Nations and all individuals and other enterprises who are proximate to, or interested in, the Company’s projects. The Company provides project updates and meets with the local community on a regular basis to discuss its current and anticipated operations to pro-actively manage any potential concerns or issues. The Company also works closely with stakeholders at the municipal, provincial, and federal level to ensure that the regulatory authorities are aware of the Company’s adherence to all requisite rules, regulations, and laws which pertain the Company’s activities.

HUMAN RESOURCES

The Company had 6 employees as at June 30, 2021 (2020: 6). The employees of the Company are employed under employment contracts which set out, among other things, their job scope and remuneration. Further details of their employment terms are set out in the employee handbook of the Company. The Company determines the employees’ salaries based on their job nature, scope of duty, and individual performance. The Company also provides reimbursements, allowances for site visits and a discretionary annual bonus for the employees. Employee compensation for the six months ended June 30, 2021 totaled C$0.6 million (2020: C$1 million).

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the application of IFRS accounting policies and reported amounts of assets and liabilities and income and expenses. Accordingly, actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Key assumptions concerning the future and other key sources of estimation uncertainty at the end of each reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next twelve months are described in Note 5 of the 2020 Audited Financial Statements.

Persta Resources Inc. Interim Report 2021 21

MANAGEMENT’S DISCUSSION AND ANALYSIS

CHANGES IN ACCOUNTING POLICIES

The financial statements have been prepared in accordance with all applicable IFRSs as issued by the IASB. The IASB has issued a number of new and revised IFRSs effective January 1, 2021. For the purpose of preparing the financial statements, the Company has adopted all applicable new and revised IFRSs for the six months ended June 30, 2021.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

For the period starting January 1, 2021 and ending June 30, 2021, Mr. Pingzai Wang in the capacity as Chief Executive Officer (“ CEO ”), and Mr. Jesse Meidl, Chief Financial Officer (“ CFO ”) of the Company have designed, or caused to be designed under their supervision, disclosure controls and procedures (“ DC&P ”) to provide reasonable assurance that: (i) material information relating to the Company is made known to the Company’s CEO and CFO by others, particularly during the period in which the annual and quarterly filings are being prepared; and (ii) information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time period specified in securities legislation.

For the period starting January 1, 2021 and ending June 30, 2021, Mr. Pingzai Wang and Mr. Jesse Meidl, in their capacity as CEO and CFO of the Company respectively, have designed or caused to be designed under their supervision, internal controls over financial reporting (“ ICFR ”) to provide reasonable assurance that all assets are safeguarded, transactions are appropriately authorized and to facilitate the preparation of relevant, reliable and timely information. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objective of the control system is met and it should not be expected that the disclosure and internal controls and procedures will prevent all errors or fraud. In reaching a reasonable level of assurance, management necessarily is required to apply its judgment in evaluating the cost/benefit relationship of possible controls and procedures.

There were no changes made to Persta’s internal controls over financial reporting during the period beginning on January 1, 2021 and ending on June 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Management has concluded that Persta’s internal control over financial reporting was effective as at June 30, 2021. This assessment was based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

RISK FACTORS AND RISK MANAGEMENT

The Board has established a framework for identifying, evaluating and managing key risks faced by the Company. The Board, through the Audit and Risk Committee, reviews annually the effectiveness of the internal control system of the Company, considering factors such as:

• changes, since the last annual review, in nature and extent of significant risks, and the Company’s ability to respond to changes in its business and the external environment;

• the scope and quality of management’s ongoing monitoring of risks and of the internal control systems;

• the extent and frequency of communication of monitoring results to the Board which enables it to assess control of the Company and the effectiveness of risk management;

Persta Resources Inc. 22 Interim Report 2021

MANAGEMENT’S DISCUSSION AND ANALYSIS

• the adequacy of resources, staff qualifications and experience and training programmes;

• budget of the Company’s accounting and financial reporting functions; communication of the monitoring results to the Board that enables it to assess control of the Company and the effectiveness of the risk management;

• significant control failings or weaknesses that have been identified during the period. Also, the extent to which they have caused unforeseeable outcomes or contingencies that had or might have, a material impact on the Company’s financial performance or condition; and

• the effectiveness of the Company’s processes for financial reporting and compliance with applicable listing rules and securities laws.

The liquidity position of Persta would be expected to be improved by a material increase in future commodity prices and an increase in proved and probable reserves based on the Company’s drilling program. The Company is involved in regular discussions with its lender and is continually pursuing other financing opportunities such as alternative debt arrangements, joint venture opportunities, property acquisitions or divestitures and other recapitalization opportunities and is taking steps to manage its spending and leverage including the implementation of cost reduction and capital management initiatives. If the Company is unable to obtain additional financing or come to some other arrangement with its lender, it will be required to curtail certain capital expenditure activities and/or possibly be required to liquidate certain assets. Ongoing exploration and development of Persta’s properties will require substantial additional capital investment. Failure to secure additional financing, and/or secure other funds from asset sales, would result in a delay or postponement of development of these prospective properties. There can be no assurance that additional financing will be available or that, if available, will be on terms favourable or acceptable to Persta.

Persta monitors and complies with current government regulations that affect its activities, although operations may be adversely affected by changes in government policy, regulations, royalty regime or taxation. In addition, Persta maintains a level of liability, business interruption and property insurance which is believed to be adequate for the Company’s size and activities, but is unable to obtain insurance to cover all risks within the business or in amounts to cover all possible claims. See “Forward-Looking Information” in this MD&A and “Risk Factors” in the Company’s Annual Information Form (“ AIF ”) for the year ended December 31, 2020. The AIF is available at www.sedar.com .

IMPACT OF NEW ENVIRONMENTAL REGULATIONS

The oil and gas industry is currently subject to regulation pursuant to a variety of provincial and federal environmental legislation, all of which is subject to governmental review and revision from time to time. Such legislation provides for, among other things, restrictions and prohibitions on the spill, release or emission of various substances produced in association with certain oil and gas industry operations, such as sulphur dioxide and nitrous oxide. In addition, such legislation sets out the requirements with respect to oilfield waste handling and storage, habitat protection and the satisfactory operation, maintenance, abandonment and reclamation of well and facility sites. Compliance with such legislation can require significant expenditures and a breach of such requirements may result in suspension or revocation of necessary licenses and authorizations, civil liability and the imposition of material fines and penalties.

The use of fracture stimulations has been ongoing safely in an environmentally responsible manner in western Canada for decades. With the increase in the use of fracture stimulations in horizontal wells there is increased communication between the oil and natural gas industry and a wider variety of stakeholders regarding the responsible use of this technology. This increased attention to fracture stimulations may result in increased regulation or changes of law which may make the conduct of the Company’s business more expensive or prevent the Company from conducting its business as currently conducted. Persta focuses on conducting transparent, safe and responsible operations in the communities in which its people live and work.

Persta Resources Inc. Interim Report 2021 23

MANAGEMENT’S DISCUSSION AND ANALYSIS

NON-IFRS FINANCIAL MEASURES

This MD&A or documents referred to in this MD&A make reference to the terms “operating netback” and “adjusted EBITDA” which are not recognized measures under IFRS, and do not have a standardized meaning prescribed by IFRS. Accordingly, the Company’s use of these terms may not be comparable to similarly defined measures presented by other companies. Management considers operating netback an important measure to evaluate the Company’s operational performance, as it demonstrates its field level profitability relative to current commodity prices. Management uses adjusted EBITDA to measure the Company’s efficiency and its ability to generate the cash necessary to fund a portion of its future growth expenditures or to repay debt. Investors are cautioned that the non-IFRS measures should not be construed as an alternative to net income determined in accordance with IFRS as an indication of the Company’s performance.

Operating netback

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Three months ended June 30, Six months ended June 30,
C$ 000s 2021 2020 Change 2021 2020 Change
Commodity sales from production 4,909 2,740 79% 9,863 5,969 65%
Net trading revenue — (1) 100% 2 (1) 278%
Royalties (75) 847 109% (938) 59 1686%
Operating costs (3,742) (1,824) 105% (7,367) (3,584) 106%
Operating netback 1,092 1,761 (38%) 1,561 2,442 (36%)
----- End of picture text -----

Adjusted EBITDA

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----- Start of picture text -----

Three months ended June 30, Six months ended June 30,
C$ 000s 2021 2020 Change 2021 2020 Change
Commodity sales from production 4,909 2,740 79% 9,863 5,969 65%
Net trading revenue — (1) 100% 2 (1) 278%
Royalties (75) 847 109% (938) 59 1686%
Operating costs (3,742) (1,824) 105% (7,367) (3,584) 106%
General and administrative
costs [(1)] (382) (802) (52%) (1,062) (1,755) (39%)
Other income 7 63 (90%) 28 83 (67%)
Adjusted EBITDA 717 1,022 (30%) 527 770 (32%)
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(1) General and administrative costs exclude share-based expenses.

Persta Resources Inc. 24 Interim Report 2021

MANAGEMENT’S DISCUSSION AND ANALYSIS

SELECTED ABBREVIATIONS

In this MD&A, the abbreviations set forth below have the following meanings:

Crude oil and natural gas liquids

Bbls/d or Bbl/d	barrels of oil per day
Bbls or Bbl	barrels of oil or barrel of oil
Boe	barrel of oil equivalent
Boe/d	barrel of oil equivalent per day
C$/Bbl	Canadian dollars per barrel of oil
C$/Boe	Canadian dollars per barrel of oil equivalent
Mbbls or Mbbl	thousand barrels
Mboe	thousand barrels of oil equivalent
Mbpd	thousand barrels per day
MMbbls	million barrels of oil
MMbbls/d	million barrels of oil per day
MMboe	million barrels of oil equivalent
MMboe/d	million barrels of oil equivalent per day
US$/Bbl	US dollars per barrel of oil

Natural gas

Natural gas
Bcf	billion cubic feet
Bcm	billion cubic meters
Cf	cubic feet
C$/Mcf	Canadian dollars per thousand cubic feet
C$/MMbtu	Canadian dollars per million British thermal units
GJ	gigajoule
GJ/d	gigajoules per day
Mcf	thousand cubic feet
Mcf/d	thousand cubic feet per day
Mcfe	thousand cubic feet of gas equivalent
Mcfe/d	thousand cubic feet of gas equivalent per day
MMbtu	million British thermal units
MMcf	million cubic feet
MMcf/d	million cubic feet per day
MMcfe	million cubic feet of gas equivalent
MMcfe/d million	cubic feet of gas equivalent per day
tcf	trillion cubic feet
US$/MMbtu	US dollars per million British thermal units

Other

km kilometres km[2] square kilometres m metres m[3] cubic meters mg milligrams °C degrees Celsius

Persta Resources Inc. Interim Report 2021 25

MANAGEMENT’S DISCUSSION AND ANALYSIS

CONVERSION FACTORS — IMPERIAL TO METRIC

Bbl = 0.1590 cubic metres (m[3] )

Mcf = 0.0283 cubic metres (10[3] m[3] )

acres = 0.4047 hectares (ha)

Btu = 1054.615 joules (J)

feet (ft) = 0.3048 metres (m)

miles (mi) = 1.6093 kilometres (km)

pounds (Lb) = 0.4536 kilograms (kg)

Persta Resources Inc. 26 Interim Report 2021

OTHER INFORMATION

CORPORATE GOVERNANCE PRACTICES

The Company is committed to maintaining high standards of corporate governance to safeguard the interests of its shareholders and to enhance corporate value and accountability. The Board has adopted the principles and the code provisions of the Corporate Governance Code (the “ CG Code ”) contained in Appendix 14 to the Listing Rules to ensure that the Company’s business activities and decision making processes are regulated in a proper and prudent manner. The Company has complied with the relevant code provisions contained in the CG Code during the six months ended June 30, 2021 (the “ Reporting Period ”).

MODEL CODE FOR SECURITIES TRANSACTIONS

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules (the “ Model Code ”) as its code of conduct regarding dealings in the securities of the Company by the Directors and the Company’s senior management who, because of his/her office or employment, is likely to possess inside information in relation to the Company’s securities. Upon specific enquiry, all Directors confirmed that they have complied with the Model Code during the Reporting Period. In addition, the Company is not aware of any non-compliance of the Model Code by the senior management of the Company during the Reporting Period.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES OF THE COMPANY

The Company has not purchased, redeemed or sold any of its listed securities during the Reporting Period.

REVIEW OF THE INTERIM RESULTS

The Company established an audit and risk committee of the Company (the “ Audit and Risk Committee ”) with written terms of reference in compliance with the CG Code. As at the date of this interim report, the Audit and Risk Committee comprises three independent non-executive Directors, namely Mr. Peter David Robertson (Chairman), Mr. Richard Dale Orman and Mr. Larry Grant Smith. The Audit and Risk Committee has reviewed the Company’s interim results for the six months ended June 30, 2021 and has also discussed with management the internal control, the accounting principles and practices adopted by the Company. The Audit and Risk Committee is of the opinion that the interim results have been prepared in accordance with the applicable accounting standards, laws and regulations and the Listing Rules and that adequate disclosures have been made.

Persta Resources Inc. Interim Report 2021 27

OTHER INFORMATION

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITION IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATIONS

As at June 30, 2021, the interests and short positions of the Directors and the chief executive of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (the “ SFO ”)) (i) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which were taken or deemed to have under such provisions of the SFO), or (ii) which were required, pursuant to Section 352 of the SFO, to be entered into the register maintained by the Company, or (iii) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code were as follows:

Interest in Shares of the Company

Name of Director	Nature of Interest	Nature of Interest	Number and class of Shares(1)	Number and class of Shares(1)	Approximate % of shareholding	Approximate % of shareholding
Yongtan Liu(2)	Security interest, interest in controlled corporation and		181,194,306		50.07%
		interest of spouse
	Interest in controlled corporation and		23,600,000		6.52%
		interest of spouse
Pingzai Wang(3)	Beneficial owner and interest of spouse		2,093,167		0.58%

Notes:

1. The calculation is based on the total number of 361,886,520 shares in issue as at June 30, 2021.

2. Jixing Gas Holdings Limited is owned as to 100% by Changchun City Jixing Gas Service for Auto Co. Ltd. (“ Changchun ”) which is owned as to 66.70% and 33.30% by Mr. Yongtan Liu (“ Mr. Liu ”) and Ms. Lijun Zhang (“ Ms. Zhang ”), respectively. Jixing Gas Holdings Limited also has an interest in 181,194,306 shares as security interest. Ms. Zhang is the spouse of Mr. Liu. Accordingly, Ms. Zhang is deemed, or taken to be, interested in the Shares which Mr. Liu is interested in for the purposes of the SFO.

3. Mr. Pingzai Wang holds a total of 1,500,000 stock options and 440,000 Common Shares of the Company. Ms. Li Wang holds 153,167 Shares. Ms. Li Wang is the spouse of Mr. Pingzai Wang. Accordingly, Mr. Pingzai Wang is deemed, or taken to be, interested in the Shares which Ms. Li Wang is interested in for the purposes of the SFO.

Interest in shares of the associated corporation of the Company

Name of Director	Name of associated corporation	Name of associated corporation		Capacity/Nature of interest	Capacity/Nature of interest		Long/Short position	Long/Short position	Number of shares	Number of shares		Approximate % of issued share capital	Approximate % of issued share capital
Yongtan Liu(1)	Changchun			Security interest			Long		N/A			66.70%
	Jixing Gas Holding			Beneficial owners			Long		N/A			66.70%
		Limited

Note:

1. Jixing Gas Holdings Limited is owned as to 100% by Changchun which is owned as to approximately 66.70% and 33.30% by Mr. Liu and Ms. Zhang, respectively. Jixing Gas Holdings Limited also has an interest in 181,194,306 shares as security interest.

Persta Resources Inc. 28 Interim Report 2021

OTHER INFORMATION

Save as disclosed above, as at June 30, 2021, none of the Directors and the chief executive of the Company had or was deemed to have any interest or short position in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) that was required to be recorded in the register of the Company required to be kept under Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

SUBSTANTIAL SHAREHOLDERS’ INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES

As at June 30, 2021, to the best knowledge of the Directors, the following persons (not being a Director or chief executive of the Company) had interests or short positions in the shares or underlying shares which are to be disclosed by the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO as recorded in the register required to be kept by the Company pursuant to section 336 of the SFO:

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Approximate
Number of % of issued
Name of Director Capacity/Nature of interest shares [(1)] share capital
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Aspen Investment Holdings	Beneficial owner and parties acting in concert	185,438,846	51.24%
Ltd.(2)(“Aspen”)		(Long Position)
Le Bo (“Mr. Bo”)(6)	Beneficial owner, interest of spouse, interest in	185,438,846	51.24%
	controlled corporation and parties acting in	(Long Position)
	concert
Yuan Jing (“Mr. Jing”)(3)	Interest in controlled corporation and parties	185,438,846	51.24%
	acting in concert	(Long Position)
Ji Lin Hong Yuan Trade Group	Interest in controlled corporation and parties	185,438,846	51.24%
Limited (吉林省弘原經貿集團	acting in concert	(Long Position)
有限公司) (“JLHY”)(2)(4)
Jing Hou (“Ms. Hou”)(5)	Beneficial owner, interest of spouse and	185,438,846	51.24%
	parties acting in concert	(Long Position)
1648557 Alberta Ltd.	Interest in controlled corporation and	185,438,846	51.24%
(“164 Co”)(2)(6)	parties acting in concert	(Long Position)
Changchun Liyuan Investment	Interest in controlled corporation and	185,438,846	51.24%
Co., Ltd. (長春市麗源投資有	parties acting in concert	(Long Position)
限公司) (“Liyuan”)(7)
Guang Jing(8)	Interest in controlled corporation	185,438,846	51.24%
		(Long Position)
Jixing Gas Holdings Limited(9)	Security interest	181,194,306	50.07%
	Beneficial owner	23,600,000	6.52%
Changchun(9)	Security interest	181,194,306	50.07%
	Interest in controlled corporation	23,600,000	6.52%

Persta Resources Inc. Interim Report 2021 29

OTHER INFORMATION

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Approximate
Number of % of issued
Name of Director Capacity/Nature of interest shares [(1)] share capital
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Ms. Zhang(9)(10)	Security interest, interest in controlled	181,194,306	50.07%
	corporation and interest of spouse
	Interest in controlled corporation and	23,600,000	6.52%
	interest of spouse
Dalian Yongli	Beneficial owner	60,000,000	16.58%
Petrochemical Ltd
(大連永力石油化工有限公司)
(“Dalian”)(11)
Zhang Zhong(11)	Interest in controlled corporation	60,000,000	16.58%

Notes:

1. The calculation is based on the total number of 361,886,520 shares in issue as at June 30, 2021.

2. Aspen holds 181,194,306 Common Shares and is owned as to approximately 41.09%, 39.69% and 19.22% by JLHY, 164 Co and Liyuan respectively. Pursuant to the unanimous shareholders agreement dated December 18, 2015 (the “ Unanimous Shareholders Agreement ”) and the first supplemental unanimous shareholders agreement dated April 19, 2016 (the “ First Supplemental Unanimous Shareholders Agreement ”), Aspen, Mr. Jing, JLHY, Mr. Bo, 164 Co and Liyuan became parties acting in concert and therefore Aspen is deemed to be interested in all the Common Shares in which Mr. Jing and Mr. Bo are interested in under the SFO, which in aggregate represent approximately 51.24% of the total number of the issued Common Shares of the Company.

3. Mr. Jing is interested in 60% of the equity interest in JLHY. Pursuant to the Unanimous Shareholders Agreement and the First Supplemental Unanimous Shareholders Agreement, Mr. Jing is deemed to be interested in the Common Shares in which Aspen, JLHY, Mr. Bo, 164 Co and Liyuan are interested in under the SFO, which in aggregate represent approximately 51.24% of the total number of the issued Common Shares of the Company.

4. JLHY is held as to 60% by Mr. Jing and 40% by Guang Jing, Mr. Jing’s brother. Pursuant to the Unanimous Shareholders Agreement and the First Supplemental Unanimous Shareholders Agreement, JLHY is deemed to be interested in all the Common Shares in which Aspen, Mr. Jing, Mr. Bo, 164 Co and Liyuan are interested in under the SFO, which in aggregate represent approximately 51.24% of the total number of the issued Common Shares of the Company.

5. Ms. Hou holds 440,000 Common Shares and is one of the trustees of The Bo Family Trust. She is the spouse of Mr. Bo and is therefore deemed to be interested in all the Common Shares in which Mr. Bo is interested in under the SFO.

6. Mr. Bo holds 1,000 class D voting preferred shares in 164 Co, representing approximately 99.01% voting rights of 164 Co. Pursuant to the Unanimous Shareholders Agreement and the First Supplemental Unanimous Shareholders Agreement, 164 Co is deemed to be interested in all the Common Shares in which Aspen, Mr. Jing, JLHY, Mr. Bo and Liyuan are interested in under the SFO, which in aggregate represent approximately 51.24% of the total number of the issued Common Shares of the Company.

7. Liyuan is owned as to approximately 98%, 1% and 1% by JLHY, Zhou Li Mei and Jing Yue Li, respectively. In addition, pursuant to the Unanimous Shareholders Agreement and the First Supplemental Unanimous Shareholders Agreement, Liyuan is deemed to be interested in all the Common Shares in which Aspen, Mr. Jing, JLHY, Mr. Bo and 164 Co are interested in under the SFO, which in aggregate represent approximately 51.24% of the total number of the issued Common Shares of the Company.

8. Guang Jing holds 40% of the equity interest in JLHY and is therefore deemed to be interested in all the Common Shares in which JLHY is interested in under the SFO.

9. Jixing Gas Holdings Limited is owned as to 100% by Changchun which is owned as to 66.70% and 33.30% by Mr. Liu and Ms. Zhang, respectively. Jixing Gas Holdings Limited also has an interest in 181,194,306 shares as security interest. Ms. Zhang is the spouse of Mr. Liu. Accordingly, Ms. Zhang is deemed, or taken to be, interested in the Shares which Mr. Liu is interested in for the purposes of the SFO.

10. Ms. Zhang is the spouse of Mr. Liu. Accordingly, Ms. Zhang is deemed, or taken to be, interested in the Shares which Mr. Liu is interested in for the purposes of the SFO.

Persta Resources Inc. 30 Interim Report 2021

OTHER INFORMATION

1. Zhang Zhong holds 100% of the equity interest in Dalian and is therefore deemed to be interested in all the Common Shares in which Dalian is interested in under the SFO.

Save as disclosed above, and as at June 30, 2021, the Directors were not aware of any persons (who were not Directors or chief executive of the Company) who had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed under Divisions 2 and 3 of Part XV of the SFO, or which would be required, pursuant to Section 336 of the SFO, to be entered in the register referred to therein.

STOCK OPTION PLAN

The Board and the shareholders of the Company have approved the adoption of a stock option plan (the “ Option Plan ”). The purpose of the Option Plan is to permit the granting of options to purchase Common Shares (“ Options ”) to directors, officers, employees of, and consultants to, the Company.

The Option Plan is a “rolling” plan and provides that the number of Common Shares issuable under the Option Plan, together with all of the Company’s other previously established or proposed share compensation arrangements, may not exceed 10% of the total number of issued and outstanding Common Shares, on a non-diluted basis, as of the date on which the Option Plan is approved by the Shareholders. In addition, the following restrictions apply to the Option Plan:

• (a) the aggregate number of Common Shares reserved for issuance pursuant to Options granted to any one individual under the Option Plan within any 12-month period must not exceed 1% of the issued and outstanding Common Shares (on a non-diluted basis). Where any further grant of Options to an individual under the Option Plan would result in the Common Shares issued and to be issued upon exercise of all Options granted and to be granted to such individual (including exercised, cancelled and outstanding Options) in the 12-month period up to and including the date of such further grant representing in aggregate over 1% of the Common Shares, such further grant must be separately approved by the Shareholders at a special meeting with such individual and his close associates abstaining from voting, and the number and terms of Options to be granted to such individual must be fixed before the Shareholders’ approval. In such event, the Company must send a circular to the Shareholders containing the identity of the individual, the number and terms of Options to be granted (and Options previously granted to such individual) and all other information required by the Stock Exchange. The date of the Board meeting proposing such further grant should be taken as the grant date for the purpose of calculating the Exercise Price (as defined in the Option Plan) under Article 6;

• (b) the aggregate number of Common Shares reserved for issuance pursuant to Options granted to Related Persons (as defined in the Option Plan) (as a group) may not exceed 10% of the issued and outstanding Common Shares (on a non-diluted basis) unless disinterested Shareholder approval is obtained;

• (c) the grant to Related Persons (as a group) within a 12-month period of an aggregate number of Options may not exceed 10% of the issued and outstanding Common Shares (on a non-diluted basis) unless disinterested Shareholder approval is obtained;

• (d) the aggregate number of Common Shares reserved for issuance pursuant to Options granted to any consultants or persons conducting investor relations activities may not exceed 2% of the issued and outstanding Common Shares (on a non-diluted basis) unless disinterested Shareholder approval is obtained; and

• (e) each grant of Options to a director, executive officer or substantial shareholder of the Company, or any of their respective associates, under the Option Plan shall comply with the requirements of the Stock Exchange. Specifically, each grant of Options to any of the foregoing persons shall be approved by independent nonexecutive directors of the Company (excluding any independent non-executive director that is an individual participating in the Option Plan).

Persta Resources Inc. Interim Report 2021 31

OTHER INFORMATION

Where any grant of Options to a substantial shareholder or an independent non-executive director of the Company, or any of their respective associates, would result in the securities issued and to be issued upon exercise of all Options already granted and to be granted (including Options exercised, cancelled or outstanding) to such person in the 12-month period up to and including the date of such grant:

• (i) representing in aggregate over 0.1% of the Common Shares; and

• (ii) where the securities listed on the Stock Exchange, having an aggregate value, based on the closing price of the Common Shares at the date of each grant, in excess of HK$5 million,

such further grant of options must be approved by Shareholders at a special meeting, with voting to be taken by way of poll. The Company shall send a circular to the Shareholders containing all information as required under the Stock Exchange rules in this regard. All core connected persons of the Company shall abstain from voting (except where any core connected person intends to vote against the proposed grant and his intention to do so has been stated in the aforesaid circular). Any change in the terms of an Option granted to a substantial shareholder of the Company or an independent non-executive director, or any of their respective close associates, is also required to be approved by Shareholders in the aforesaid manner.

Each Option and all rights thereunder will expire on the date set out in the applicable option agreement and will be subject to the earlier termination provisions of the Option Plan, provided that in no circumstances will the duration of an Option exceed 10 years from the date of grant. Under the Option Plan, in the event of the death of a participant, the Options previously granted to such participant will be exercisable only within one year after such death and then only to the extent that such deceased participant was entitled to exercise his Option at the date of his death.

Pursuant to the Option Plan, the Exercise Price shall be fixed by the Board at the time that the Option is granted and shall be at least the highest of: (i) the closing price of the Common Shares as stated in the Stock Exchange’s daily quotations sheet on the grant date, which must be a business day; or (ii) the average closing price as stated in the Stock Exchange’s daily quotations sheet for the five business days immediately preceding the grant date. The Option Plan also provides that the Board may, in its sole discretion, determine the time during which Options shall vest and the method of vesting.

The Option Plan is administered by the Board, which has authority and discretion, subject to the express provisions of the Option Plan, to interpret the Option Plan, to amend the Option Plan and to make all other determinations deemed necessary or advisable for the administration of the Option Plan. The Board has the right, in its sole discretion, to amend, suspend or terminate the Option Plan or any portion thereof at any time, in accordance with applicable legislation, without obtaining the approval of shareholders; provided that any amendment to any provision of the Option Plan will be subject to any required regulatory approval, stock exchange rules and the provisions of applicable law, if any, that require the approval of shareholders. Notwithstanding the foregoing, the Company will be required to obtain the approval of disinterested Shareholders for any amendment related to: (i) the issuance to any one individual within a 12-month period a number of Common Shares exceeding 1% of the issued and outstanding Common Shares; and (ii) reducing the Exercise Price for outstanding Options granted to an insider of the Company.

On May 18, 2020, the Company granted 3.78 million options with an exercise price of HK$0.52 per option and a term of 5 years (the “ 2020 Option Grant ”). The options vest equally over a 3 year period, with the first tranche vesting on the first anniversary of the date of grant, and the second and third tranches vesting equally on the second and third anniversary respectively. The closing price of the Company’s common shares on May 15, 2020, being the last day of trading before the 2020 Option Grant was HK$0.50 per share.

Persta Resources Inc. 32 Interim Report 2021

OTHER INFORMATION

Details of the options granted under the Stock Option Plan and those remained outstanding as at June 30, 2021 are set out below:

	Number of options
Name and category of participant Date of grant	As of January 1, 2021 Granted during the period Exercised during the period Cancelled during the period Lapsed during the period As of June 30, 2021
Director(s) and their associate(s) Mr. Pingzai Wang May 18, 2020 Other employees May 18, 2020	1,500,000 — — — — 1,500,000 2,280,000 — — — — 2,280,000
Total	3,780,000 — — — — 3,780,000

CONTINUING DISCLOSURE OBLIGATIONS PURSUANT TO THE LISTING RULES

The Company does not have any disclosure obligations under rules 13.20, 13.21 and 13.22 of the Listing Rules during the Reporting Period.

CHANGES IN THE BOARD AND THE DIRECTOR’S INFORMATION

There was no change in the Board during the six months ended June 30, 2021.

There was no change in the information of Directors since the date of the Company’s 2020 annual report.

The Company is not aware of other information which is required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules.

PUBLICATION OF INFORMATION

This interim report is published on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.persta.ca). This interim report is prepared in both English and Chinese and in the event of inconsistency, the English text of this interim report shall prevail over the Chinese text.

Yongtan Liu

Chairman

Calgary, Canada, August 23, 2021

Persta Resources Inc. Interim Report 2021 33

CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION

As at June 30, 2021

(Expressed in Canadian dollars) Unaudited

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As at As at
June 30, December 31,
Note 2021 2020
Assets
Current assets:
Cash and cash equivalents 4 991,650 1,071,573
Accounts receivable 5 1,799,252 1,986,850
Prepaid expenses and deposits 476,132 480,793
Total current assets 3,267,034 3,539,216
Exploration and evaluation assets 6 6,974,847 6,974,847
Property, plant and equipment 7 29,430,613 31,797,573
Right of use assets 8 2,532,933 2,355,297
Total Assets 42,205,427 44,666,933
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities 9 10,437,639 8,898,738
Current portion of long term debt 10 — 23,790,351
Current portion of lease liabilities 8 776,396 582,211
Decommissioning liabilities 11 205,836 205,836
Total current liabilities 11,419,871 33,477,136
Other liabilities 12 509,996 351,408
Lease liabilities 8 2,041,457 2,049,417
Long term debt 10 26,254,392 1,885,600
Decommissioning liabilities 11 1,526,535 1,741,996
Total liabilities 41,752,251 39,505,557
Shareholders’ equity:
Share capital 13 213,426,683 213,426,683
Warrants 13 647,034 647,034
Contributed surplus 13 416,842 358,042
Accumulated deficit (214,037,382) (209,270,383)
Total shareholders’ equity 453,177 5,161,376
Total Liabilities and Shareholders’ Equity 42,205,427 44,666,933
Going concern 3
Subsequent events 22
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The accompanying notes form part of these condensed interim financial statements.

Persta Resources Inc. 34 Interim Report 2021

CONDENSED INTERIM STATEMENT OF LOSS AND COMPREHENSIVE LOSS

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars) Unaudited

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Three months ended June 30, Six months ended June 30,
Note 2021 2020 2021 2020
Revenue
Commodity sales from production 14 4,909,108 2,739,704 9,863,396 5,968,747
Trading revenue 14 (190) (838) 1,928 (1,082)
Other income 14 6,535 62,854 27,538 82,829
Royalty expense (74,548) 847,079 (937,596) 59,129
Total net revenue 4,840,905 3,648,799 8,955,266 6,109,623
Expenses
Operating costs (3,742,414) (1,824,549) (7,366,509) (3,584,304)
General and administrative costs 13(d) (475,678) (832,663) (1,185,218) (1,786,224)
Depletion, depreciation and
amortization 7, 8 (1,320,418) (1,228,949) (2,702,374) (2,483,661)
— — —
Impairment losses and write-offs 6, 7 (480,622)
Total expenses (5,538,509) (3,886,161) (11,254,101) (8,334,812)
Loss from operations (697,604) (237,362) (2,298,835) (2,225,188)
Finance expenses 15 (1,227,641) (1,331,643) (2,468,164) (2,636,845)
Loss before taxes (1,925,245) (1,569,005) (4,766,999) (4,862,033)
Income taxes 16 — — — —
Loss and comprehensive loss (1,925,245) (1,569,005) (4,766,999) (4,862,033)
Loss per share
Basic and diluted 17 (0.01) (0.01) (0.01) (0.02)
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The accompanying notes form part of these condensed interim financial statements.

Persta Resources Inc. Interim Report 2021 35

CONDENSED INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

As at June 30, 2021 (Expressed in Canadian dollars) Unaudited

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Share Contributed Accumulated
Note Capital Warrants Surplus Deficit Total Equity
Balance as at January 1, 2021 13 213,426,683 647,034 358,042 (209,270,383) 5,161,376
— — —
Share-based expenses 58,800 58,800
— — —
Loss for the period (4,766,999) (4,766,999)
Balance as at June 30, 2021 213,426,683 647,034 416,842 (214,037,382) 453,177
Balance as at January 1, 2020 13 210,366,683 647,034 73,895 (187,419,284) 23,668,328
— — —
Share-based expenses 30,800 30,800
— — —
Loss for the period (4,862,033) (4,862,033)
Balance as at June 30, 2020 210,366,683 647,034 265,642 (192,281,317) 18,998,042
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The accompanying notes form part of these condensed interim financial statements.

Persta Resources Inc. 36 Interim Report 2021

CONDENSED INTERIM STATEMENT OF CASH FLOWS

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars) Unaudited

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Three months ended Six months ended
June 30, June 30,
Note 2021 2020 2021 2020
Cash provided by (used in):
Operations
Net loss (1,925,245) (1,569,005) (4,766,999) (4,862,033)
Items not involving cash:
Depletion, depreciation and amortization 1,320,418 1,228,949 2,702,374 2,483,661
Share-based expenses 29,400 30,800 58,800 30,800
Non-cash finance expenses 356,003 412,147 753,980 612,580
Unrealized foreign exchange loss (gain) 577 2,178 1,324 (3,005)
— — —
Impairment losses and write-offs 480,622
Funds from operations (218,847) 105,069 (1,250,521) (1,257,374)
Changes in non-cash working capital 4 667,575 (1,399,106) 2,877,133 (191,789)
Total cash from (used in) operations 448,728 (1,294,036) 1,626,612 (1,449,163)
Investing
Expenditures on property, plant and equipment (385,287) (79,871) (1,204,538) 340,053
Expenditures on exploration and evaluation assets 535 (110,750) 535 (130,697)
Net cash generated from (used in) investing (384,752) (190,621) (1,204,003) 209,356
Financing
— —
Principal portion of lease payments (184,791) (356,502)
— —
Interest portion of lease payments (75,313) (144,706)
Proceeds from debt — 2,000,000 — 2,000,000
Net cash from financing (260,104) 2,000,000 (501,208) 2,000,000
Increase (decrease) in cash and cash equivalents (196,127) 515,344 (78,599) 760,193
Effect of exchange rate changes on cash and
cash equivalents (577) (2,178) (1,324) 3,005
Cash and cash equivalents, beginning of period 1,188,354 1,310,784 1,071,573 1,060,752
Cash and cash equivalents, end of period 991,650 1,823,950 991,650 1,823,950
Supplementary information:
Interest paid 840,963 822,102 1,668,580 1,525,595
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The accompanying notes form part of these condensed interim financial statements.

Persta Resources Inc. Interim Report 2021 37

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

1 CORPORATE INFORMATION

Persta Resources Inc. (the “ Company ” or “ Persta ”) was incorporated in Calgary, Alberta, Canada under the Business Corporations Act (Alberta) in 2005. Persta is an exploration and development company pursuing petroleum and natural gas production in Alberta, Canada. The Company’s registered office is located at 15th Floor, Bankers Court, 850-2nd Street SW, Calgary, Alberta, T2P 0R8, Canada, and its head office is located at 3600, 888-3rd Street SW, Calgary, Alberta, T2P 5C5, Canada.

Pursuant to an initial public offering on March 10, 2017, the Company’s shares were listed on The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) and traded under the stock code “3395”. The Company has been a reporting issuer under the Securities Act (Alberta) since October 2, 2018.

2 BASIS OF PREPARATION

These unaudited condensed interim financial statements have been prepared by management in accordance with International Accounting Standard (“ IAS ”) 34, “Interim Financial Reporting”. The Financial Statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”). The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

In preparing these unaudited condensed interim financial statements, the significant judgements made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those applied to the financial statements as at and for the year ended December 31, 2020. These unaudited condensed interim financial statements have been prepared following the same accounting policies as the annual audited financial statements for the year ended December 31, 2020 and should be read in conjunction with the annual audited financial statements and the notes thereto. The disclosures provided below are incremental to those included in the 2020 annual financial statements. These unaudited condensed interim financial statements were approved by the board (the “ Board ”) of directors (the “ Directors ”) on August 23, 2021.

The financial statements are presented in Canadian dollars (“ C$ ”), which is the Company’s functional currency.

3 GOING CONCERN

These financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. As at June 30, 2021 the Company had a working capital deficiency of C$8.2 million, used funds from operating activities of C$1.3 million for the six months ended June 30, 2021 and has drawn C$24.2 million on its subordinated debt facility of C$26 million. Additional draws on the subordinated debt facility are subject to approval of the lender.

On June 30, 2021, the Company and lender agreed to restructure the loan agreement (the “ 2021 Restructuring ”). Under the terms of the 2021 Restructuring, financial covenants in respect of net debt to total proved reserves and net debt to TTM EBITDA (as defined in Note 10) have been waived for the remainder of 2021 and will be reinstated starting March 31, 2022. Financial covenants in respect of working capital have been eliminated for the remainder of the loan. A funding covenant has been added whereby the Company must secure additional capital in the form of new equity for a cumulative amount equal to or greater than C$8 million on or before September 30, 2021. The Company must make a C$2.2 million principal payment on or before September 15, 2021 and a C$2.2 million principal payment on or before September 30, 2021 (together, the “ 2021 Principal Payments ”).

Persta Resources Inc. 38 Interim Report 2021

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

3 GOING CONCERN (Continued)

To satisfy the C$8 million funding and 2021 Principal Payments covenants, the Company plans to complete an equity placing of 70 million common shares to be issued at a minimum of HK$0.80 per share for gross proceeds of a minimum of C$8.96 million. The placing is subject to shareholder approval which will be sought at a meeting of shareholders in September 2021 (refer to Note 13).

The global impact of COVID-19 has resulted in significant volatility in global stock markets and has created a great deal of uncertainty in the global economy. These factors may have a negative impact on the Company’s operations and its ability to raise financing to meet its debt covenants. If the Company is in breach of any covenants in future periods, the lender will have the right to demand repayment of all amounts owed under the subordinated debt.

The Company’s ability to continue as a going concern is dependent upon the ability to generate positive cash flow from operations, obtain equity financing, dispose of assets or other arrangements to fund operating and investing activities. There are no assurances that any waivers will be obtained or transactions will be completed, on terms acceptable to the Company. If these financial covenants are not met or a waiver is not obtained by lenders, the subordinated debt facility may become due on demand. These conditions cause material uncertainty which cast significant doubt on the Company’s ability to continue as a going concern.

Should the use of the going concern basis in preparation of the financial statements be determined to be not appropriate, adjustments would have to be made to write down the carrying amounts of the Company’s assets to their realizable values, to provide for any further liabilities which might arise and to reclassify non-current assets and non-current liabilities as current assets and current liabilities, respectively. The effects of these adjustments have not been reflected in the consolidated financial statements. If the Company is unable to continue as a going concern, it may be forced to seek relief under applicable bankruptcy and insolvency legislation.

4 CASH AND CASH EQUIVALENTS

(a) Cash and cash equivalents

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As at As at
June 30, December 31,
C$ 2021 2020
Deposits with banks and other financial institutions 989,645 1,069,568
Cash on hand 2,005 2,005
Cash and cash equivalents in the statement of
financial position and statement of cash flows 991,650 1,071,573
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Persta Resources Inc. Interim Report 2021 39

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

4 CASH AND CASH EQUIVALENTS (Continued)

(b) Supplementary cash flows information

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----- Start of picture text -----

Three months ended Six months ended
June 30, June 30,
C$ 2021 2020 2021 2020
Change in non-cash working capital:
Accounts receivable 150,964 (422,358) (187,598) (931,169)
Prepaid expenses and deposits (20,167) (203,610) (4,661) (129,305)
Accounts payable and accrued liabilities (539,471) 1,812,244 (1,697,489) 406,224
Lease liabilities [(1)] — 235,000 — 448,285
(408,674) 1,421,276 (1,889,748) (205,965)
Change in non-cash working capital
included in investing and financing
activities 1,076,249 (2,820,382) 4,766,881 14,176
Change in non-cash working capital
included in operating activities 667,575 (1,399,106) 2,877,133 (191,789)
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(1) Lease liabilities classified as financing activities for the three and six months ended June 30, 2020

5 ACCOUNTS RECEIVABLE

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As at As at
June 30, December 31,
C$ 2021 2020
Trade receivables 1,798,075 1,680,327
Other receivables 1,177 306,523
Total 1,799,252 1,986,850
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Persta Resources Inc. 40 Interim Report 2021

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

5 ACCOUNTS RECEIVABLE (Continued)

(a) Aging analysis of trade receivables

As at June 30, 2021 and December 31, 2020, the aging analysis of trade receivables (included in accounts receivable), based on the invoice date (or date of revenue recognition, if earlier) and net of allowance for doubtful debts, is as follows:

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As at As at
June 30, December 31,
C$ 2021 2020
Within 1 month 1,798,075 1,680,327
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Trade receivables are generally collected within 25 days from the date of billing.

(b) Impairment of accounts receivable

Impairment losses in respect of trade and other receivables are recorded using an allowance account unless the Company determines that recovery of the amount is remote, in which case the impairment loss is written off against account receivables directly. No accounts receivable are considered individually nor collectively to be impaired. No material balances of trade or other receivables are past due, and no impairment loss has been recognized for the six month periods ended June 30, 2021 and year ended December 31, 2020.

6 EXPLORATION AND EVALUATION ASSETS

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As at As at
June 30, December 31,
C$ 2021 2020
Balance, beginning of period 6,974,847 18,543,990
Additions — 167,684
—
Transfer to PP&E (Note 7) (7,400,192)
Write-offs — (741,451)
—
Impairment (3,595,184)
Balance, end of period 6,974,847 6,974,847
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Persta Resources Inc. Interim Report 2021 41

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

6 EXPLORATION AND EVALUATION ASSETS (Continued)

Exploration and evaluation (“ E&E ”) assets consist of undeveloped lands, unevaluated seismic data and unevaluated drilling and completion costs on the Company’s exploration projects which are pending the determination of proven or probable reserves in sufficient quantity to warrant commercial development. Transfers are made to property, plant and equipment (“ PP&E ”) as proven or probable reserves are determined. E&E assets are expensed due to uneconomic drilling and completion activities and write-offs of lease expiries. Impairment is assessed based on the recoverable amount compared with the asset’s carrying amount to measure the amount of the impairment.

For the year ended December 31, 2020, general and administrative (“ G&A ”) costs of C$0.16 million (2019: C$0.35 million) were capitalized and included in E&E additions as they were directly attributable to exploration and development activities. For the six months ended June 30, 2021, there were no capitalized G&A costs or writeoffs. For the year ended December 31, 2020, the Company wrote-off C$0.74 million (2019: C$0.62 million) of E&E assets attributable to land lease expiries.

At December 31, 2020 and June 30, 2021, the Company’s E&E assets in respect of its Basing, Voyager and Dawson CGUs is comprised solely of undeveloped lands in which the Company holds a right to explore for, and produce petroleum and natural gas.

PP&E transfer

With the commissioning of production operations at Voyager in the second quarter, at June 30, 2020 the Company initially transferred C$6.8 million of E&E assets to PP&E, comprised of development and production costs incurred for Voyager. C$0.6 million of Voyager E&E assets were subsequently transferred to PP&E in the fourth quarter of 2020.

Persta Resources Inc. 42 Interim Report 2021

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

7 PROPERTY, PLANT AND EQUIPMENT

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Accumulated
Depletion,
Depreciation
and Net Book
C$ Cost Impairment Value
At January 1, 2020 151,706,916 (117,056,706) 34,650,210
Additions 1,764,681 — 1,764,681
—
Change in decommissioning obligations (97,972) (97,972)
—
Transfer from E&E (Note 6) 7,400,192 7,400,192
—
Cost recovery (1,568,373) (1,568,373)
—
Depletion and depreciation (4,961,805) (4,961,805)
—
Impairment (5,389,360) (5,389,360)
At December 31, 2020 159,205,444 (127,407,871) 31,797,573
At January 1, 2021 159,205,444 (127,407,871) 31,797,573
Additions 216,618 — 216,618
—
Change in decommissioning obligations (246,294) (246,294)
—
Depletion and depreciation (2,337,284) (2,337,284)
At June 30, 2021 159,175,768 (129,745,155) 29,430,613
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Substantially all of PP&E consists of development and production assets. For the six months ended June 30, 2021, PP&E additions are primarily comprised of G&A capitalized in accordance with the Company’s accounting policies (2020: C$0.2 million).

Depletion, depreciation and impairment

Depletion and depreciation, impairment of PP&E, and any reversal thereof, are recognized as separate line items in the statement of loss and other comprehensive loss. The depletion calculation for the six month period ended June 30, 2021 includes estimated future development costs of C$6.08 million (2020: C$6.08 million) associated with the development of the Company’s proved plus probable reserves. When indications of impairment are identified, or when E&E assets are transferred to PP&E, impairment is assessed based on the recoverable amount compared with the asset’s carrying amount to measure the amount of the impairment, refer to Note 4 in the audited financial statements for the year ended December 31, 2020 for additional information on the Company’s accounting policies.

Persta Resources Inc. Interim Report 2021 43

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

8 RIGHT OF USE ASSETS AND LEASES

• (a) Right of use assets

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Oil and Gas
C$ Production Office Space Vehicles Total
—
At January 1, 2020 135,367 2,275,104 2,410,471
—
Initial recognition 540,265 21,084 561,349
Amortization (168,124) (440,343) (8,058) (616,523)
At December 31, 2020 507,508 1,834,761 13,026 2,355,297
At January 1, 2021 507,508 1,834,761 13,026 2,355,297
Additions 542,728 — — 542,728
Amortization (140,891) (220,171) (4,030) (365,092)
At June 30, 2021 909,345 1,614,590 8,997 2,532,933
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(b) Lease liabilities

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Oil and Gas
C$ Production Office Space Vehicles Total
—
At January 1, 2020 141,428 2,522,323 2,663,751
—
Initial recognition 540,265 21,084 561,349
Lease payment (172,471) (413,754) (7,247) (593,472)
At December 31, 2020 509,222 2,108,569 13,837 2,631,628
At January 1, 2021 509,222 2,108,569 13,837 2,631,628
Additions 542,728 — — 542,728
Lease payment (129,343) (223,427) (3,732) (356,502)
At June 30, 2021 922,607 1,885,142 10,105 2,817,853
As at As at
June 30, December 31,
C$ 2021 2020
Statement of Financial Position
Current lease liabilities 776,396 582,211
Long term lease liabilities 2,041,457 2,049,417
Total lease liabilities 2,817,853 2,631,628
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Persta Resources Inc. 44 Interim Report 2021

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

9 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

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As at As at
June 30, December 31,
C$ 2021 2020
Trade payables 3,704,968 394,767
Accrued liabilities 1,503,530 3,133,307
Total trade payables and accrued liabilities 5,208,499 3,528,074
Capital payables 4,262,975 5,111,454
Other payables 966,166 259,210
Total 10,437,639 8,898,738
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All trade payables, accrued liabilities, capital payables and other payables are expected to be settled within one year or are payable on demand. As at June 30, 2021 and December 31, 2020, capital payables are primarily comprised of costs incurred pursuant to the Contract (as defined in Note 12 of the Company’s audited financial statements for the year ended December 31, 2020). As at June 30, 2021 and December 31, 2020, other payables are primarily comprised of office renovation and rent inducement expenditures.

Aging analysis of trade payables and accrued liabilities

As at June 30, 2021 and December 31, 2020, the aging analysis of trade payables and accrued liabilities based on dates of invoices at the end of the reporting period is as follows:

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----- Start of picture text -----

As at As at
June 30, December 31,
C$ 2021 2020
Within 1 month 2,723,296 2,639,606
1 to 3 months 1,449,987 563,342
Over 3 months but within 6 months 1,035,216 325,126
Total 5,208,499 3,528,074
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Persta Resources Inc. Interim Report 2021 45

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

10 LONG TERM DEBT

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As at As at
June 30, December 31,
C$ 2021 2020
Shareholder loans (net) 2,547,281 2,533,290
Subordinated debt 23,578,600 23,578,600
Accrued and unpaid interest on subordinated debt 595,067 356,699
Less: deferred financing costs (466,556) (792,638)
Total 26,254,392 25,675,951
Current — 23,790,351
Long term 26,254,392 1,885,600
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(a) Subordinated debt

On June 30, 2021, the Company and lender agreed to restructure the loan agreement (the ” 2021 Restructuring ”). Under the terms of the 2021 Restructuring, the lender waived financial covenants in respect of net debt to total proved reserves and net debt to TTM EBITDA (as defined in Note 13 of the 2020 Audited Financial Statements) for the remainder of 2021 and the breaches which occurred at March 31, 2021. Financial covenants in respect of working capital have been eliminated for the remainder of the loan term. The remaining financial covenants will be reinstated starting March 31, 2022. Pursuant to the 2021 Restructuring, the SubDebt is subject to the following covenants for 2021 (a) the Company must secure additional capital in the form of new equity for a cumulative amount equal to or greater than C$8 million on or before September 30, 2021 (“ 2021 Funding Covenant ”) and; (b) measured at the end of each fiscal quarter maintaining the Company’s Alberta Energy liability management ratio above 2.0/1.0 (“ LMR Covenant ”); and (c) a C$2.2 million principal payment on or before September 15, 2021 and a C$2.2 million principal payment on or before September 30, 2021 (together, the “ 2021 Principal Payments ”). Pursuant to the 2021 Restructuring, the PIK Interest and Penalty Interest payments (as defined in Note 13 of the 2020 Audited Financial Statements) will terminate when the loan balance is below C$20 million, and the loan interest rate will reduce to 10% when the loan balance is below C$15 million.

(b) Shareholder loans

On December 23, 2019, Jixing (as defined in Note 13 of the 2020 Audited Financial Statements) advanced C$0.675 million to the Company (the “ 2019 Shareholder Loan ”). The full proceeds of the 2019 Shareholder Loan were applied to amounts due in respect of the Contract (refer to Note 12). The 2019 Shareholder Loan has a term of two years, is unsecured, non-interest bearing, carries no covenants, and is repayable at any time at the Company’s sole discretion. In calculating the C$0.6 million fair value of the 2019 Shareholder Loan as at December 31, 2019, the Company applied an effective interest rate of 5.97%, comprised of 4% base plus 1.97% Canadian Dealer Offered Rate (“ CDOR ”). The residual of C$0.07 million was recorded to Contributed Surplus (refer to Note 13). On April 27, 2021 the Company and Jixing agreed to extend the term of the 2019 Shareholder Loan one year to December 23, 2022.

Persta Resources Inc. 46 Interim Report 2021

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

10 LONG TERM DEBT (Continued)

(b) Shareholder loans (Continued)

On June 2, 2020, a Persta director advanced C$2 million to the Company (the “ 2020 Shareholder Loan ”). The proceeds of the 2020 Shareholder Loan were used for working capital and general corporate purposes. The 2020 Shareholder Loan has a term of two years, is unsecured, non-interest bearing, carries no covenants, and is repayable at any time at the Company’s sole discretion. In calculating the C$1.85 million fair value of the 2020 Shareholder Loan as at June 2, 2020, the Company assumed an effective interest rate of 4% per annum base plus one month CDOR, over the term of the 2020 Shareholder Loan. On this basis the effective rate was 4.28% per annum, comprised of 4% base plus 0.28% CDOR. The residual of C$0.16 million was recorded to Contributed Surplus (refer to Note 13).

11 DECOMMISSIONING LIABILITIES

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As at As at
June 30, December 31,
C$ 2021 2020
Balance, beginning of period 1,947,832 2,084,399
Liabilities settled — (58,614)
Change in estimate (246,294) (97,972)
Accretion expense (Note 15) 30,833 20,019
Balance, end of period 1,732,371 1,947,832
Current 205,836 205,836
Long term 1,526,535 1,741,996
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The total future decommissioning obligations were estimated based on the Company’s net ownership interest in petroleum and natural gas assets including well sites, gathering systems and facilities, the estimated costs to abandon and reclaim the petroleum and natural gas assets and the estimated timing of the costs to be incurred in future periods. As at June 30, 2021, the Company estimated the total undiscounted amount of cash flows required to settle its decommissioning obligations to be approximately C$2.5 million which will be incurred between 2020 and 2067. The majority of these costs will be incurred by 2037. As at June 30, 2021, an average risk free rate of 1.18% (2020: 1.1%) and an inflation rate of 0.7% (2020: 0.7%) were used to calculate the decommissioning obligations.

Persta Resources Inc. Interim Report 2021 47

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

12 OTHER LIABILITIES

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As at As at
June 30, December 31,
C$ 2021 2020
Accrued compensation per Phantom Unit Plan [(1)] 417,533 258,944
Other payables 92,463 92,464
Total 509,996 351,408
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(1) As defined in Note 19 of the Company’s audited financial statements for the year ended December 31, 2020

As at June 30, 2021 and December 31, 2020, other payables are primarily comprised of office renovation and rent inducement expenditures.

13 SHARE CAPITAL

(a) Authorized:

The Company is authorized to issue an unlimited number of common shares.

(b) Issued:

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Common
Shares Amount
C$
At January 1, 2020 301,886,520 210,366,683
Shares issued for cash 60,000,000 3,060,000
At December 31, 2020 and June 30, 2021 361,886,520 213,426,683
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On December 23, 2020, the Company completed a private placement issuing 60 million shares at a price of HK$0.30 per share for gross proceeds of HK$18 million (C$3.06 million). On June 8, 2021, the Company entered into a subscription agreement with Dalian Yongli Petrochemical Ltd. (“ Dalian ”), subsequently amended on July 20, 2021, pursuant to which the Company has conditionally agreed to allot and issue, and Dalian has conditionally agreed to subscribe for, 60 million common shares at a minimum price of HK$0.80 per common share. On July 20, 2021, the Company entered into a subscription agreement with Jixing Gas Holdings Limited (“ Jixing Gas ”), pursuant to which the Company has conditionally agreed to allot and issue, and Jixing Gas has conditionally agreed to subscribe for, 10 million common shares at a price of HK$0.80 per common share. Refer to the Company’s announcement dated July 21, 2021 for additional information on the Dalian and Jixing Gas equity placings.

Persta Resources Inc. 48 Interim Report 2021

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

13 SHARE CAPITAL (Continued)

(b) Issued: (Continued)

As Dalian and Jixing Gas are connected persons (as defined in the Listing Rules) of the Company, the subscription agreements and the transactions contemplated thereunder constitute connected transactions of the Company under Chapter 14A of the Listing Rules and are subject to reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

(c) Warrants:

On August 13, 2018, the Company issued 8 million warrants to the lender of the subordinated debt facility for total consideration of C$0.75 million. The warrants have an exercise price of HK$3.16 per warrant and a term of 5 years. Pursuant to the 2020 Restructuring (see Note 13 of the audited financial statements for the year ended December 31, 2020), the Company has agreed to re-price the 8 million share purchase warrants previously issued to the lender. This re-pricing is subject to Stock Exchange and shareholder approval. The new exercise price of the warrants will be calculated based on the volume weighted average price of the Common Shares on the Stock Exchange for the five trading days immediately preceding the date on which the re-pricing of the exercise price of the warrants is approved by the shareholders. As at June 30, 2021 and up to the date of these financial statements, the Company has not yet set a date for the shareholder meeting to approve the repricing of the warrants.

(d) Stock options and share-based expenses:

The Company has a stock option plan which was approved and adopted by the shareholders of the Company by ordinary resolution passed on June 8, 2018 (the “ Option Plan ”). The Option Plan is a rolling plan and provides that the number of common shares issuable under the Option Plan, together with all of the Company’s other previously established or proposed share compensation arrangements, may not exceed 10% of the total number of issued and outstanding common shares, on a non-diluted basis, as of the date on which the Option Plan is approved by the shareholders. The exercise price of each option equals the volume-weighted average market price for the five days preceding the issue date of the Company’s stock on the date of grant and the option’s maximum term is ten years. Options granted vest 1/3 on each of the first, second and third anniversaries from the date of grant.

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Number of Exercise
HK$ except number of options amounts Options Price
— —
At January 1, 2020
Granted 3,780,000 $0.52
At December 31, 2020 and June 30, 2021 3,780,000 $0.52
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The average trading price of the Company’s common shares was HK$0.39 per share for the six months ended June 30, 2021. The following table summarizes stock options outstanding and exercisable at June 30, 2021:

Persta Resources Inc. Interim Report 2021 49

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

13 SHARE CAPITAL (Continued)

(d) Stock options and share-based expenses: (Continued)

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Total Issued Exercisable
Amount Weighted Amount Weighted
Outstanding Remaining Average Exercisable Average
at Period Contractual Exercise at Period Exercise
Exercise Price End Life Price End Price
(HK$) (HK$) (HK$)
$0.52 3,780,000 3.87 years $0.52 1,247,400 $0.52
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(e) Contributed surplus:

As at December 31, 2020 and June 30, 2021, contributed surplus is comprised of the difference between the deemed fair value and gross value of the Shareholder Loans (refer to Note 10) at the date of initial recognition, and share-based expenses incurred during the period.

14 REVENUE

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Three months ended Six months ended
June 30, June 30,
C$ 2021 2020 2021 2020
Commodity sales from production
Natural gas, natural gas liquids and
condensate 4,417,812 2,710,384 9,016,271 5,683,953
Crude oil 491,296 29,320 847,125 284,794
Total commodity sales from production 4,909,108 2,739,704 9,863,396 5,968,747
Trading revenue
Natural gas trading revenue 53,230 33,907 71,780 47,651
Natural gas trading cost (53,420) (34,745) (69,852) (48,733)
Total trading revenue (190) (838) 1,928 (1,082)
Other income
Total other income 6,535 62,854 27,538 82,829
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The Company sells its products pursuant to variable-price contracts. The transaction price for variable price contracts is based on the commodity price, adjusted for quality, location or other factors, whereby each component of the pricing formula can be either fixed or variable, depending on the contract terms. Commodity prices are based on market indices that are determined on a monthly or daily basis. The contracts generally have a term of one year or less, whereby delivery takes place throughout the contract period. Revenues are typically collected on the 25th day of the month following production.

Persta Resources Inc. 50 Interim Report 2021

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

14 REVENUE (Continued)

Trading revenue is realized when the Company purchases natural gas on the open market to meet its forward sale obligations. It is measured at the fair value of the consideration received or receivable, net of the costs incurred to purchase the natural gas.

Other income is comprised of over-riding royalty payments and income generated from sources outside normal operations including rental income and subsidies. Over-riding royalty payments are periodically received from arm’s length entities, whereby the Company receives a portion of oil and natural gas revenues generated from wells in which it holds a royalty interest.

Information about major customers

During the six months ended June 30, 2021 and 2020, the Company had four active customers, of which one customer exceeded 10% of the Company’s revenues. During the six months ended June 30, 2021, the Company’ largest customer accounted for 80% of revenues (2020: 86%), the second largest customer accounted for 10% of revenues (2020:8%).

Geographical information

The Group’s revenue from external customers and non-current assets are all located in Canada.

Timing of revenue recognition

For the six months ended June 30, 2021 and 2020, all of the Company’s revenues and commodity sales from production is recognized at a point in time.

15 FINANCE EXPENSES

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Three months ended Six months ended
June 30, June 30,
C$ 2021 2020 2021 2020
Interest expense and financing costs:
Subordinated debt (Note 10) 998,601 1,100,999 1,981,949 1,832,490
Right of use assets and leases (Note 8) 75,313 57,126 144,706 113,937
—
Commitment charges [(1)] 36,003 36,003 352,163
Other financing costs and bank charges (5,905) 32,056 8,277 32,056
Accretion expenses:
Decommissioning liabilities (Note 11) (2,265) (4,914) 30,833 16,562
Shareholder loans (Note 10) (224) 20,836 13,990 38,556
Amortization of debt issuance costs 125,541 125,541 251,082 251,082
Loss (gain) on foreign exchange 577 — 1,324 —
Total finance expenses 1,227,641 1,331,644 2,468,164 2,636,845
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(1) For the six months ended June 30, 2020, commitment charges included termination fees incurred following the Company’s cancellation of a warrant subscription agreement with an arms’ length subscriber.

Persta Resources Inc. Interim Report 2021 51

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

16 INCOME TAXES

The blended statutory tax rate was 23% for the six month period ended June 30, 2021 (2020: 24%). In the second quarter of 2019, the Alberta corporate income tax rate was reduced from 12 percent to eight percent over a four year period. The rate was reduced from 12% to 11% effective July 1, 2019 and will be further reduced by 1% on January 1 for each of the next three years until it reaches 8% on January 1, 2022. The provision for income taxes differs from the result that would have been obtained by applying the combined federal and provincial tax rates to the loss before income taxes due to changes in unrecognized deferred tax assets. As at June 30, 2021, the Company has approximately C$121 million of deductible temporary differences in PP&E and E&E assets, decommissioning liabilities, share issue costs, non-capital losses and others. As at June 30, 2021, the Company has approximately C$121 million of tax deductions, which includes loss carry forwards of approximately C$34 million which begin expiring in 2037.

17 LOSS PER SHARE

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Three months ended Six months ended
June 30, June 30,
C$ except share amounts 2021 2020 2021 2020
Loss and comprehensive loss (1,925,245) (1,569,005) (4,766,999) (4,862,033)
Weighted average number of common shares 361,886,520 301,886,520 361,886,520 301,886,520
Loss per share — basic and diluted (0.01) (0.01) (0.01) (0.02)
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There were 3.78 million options and 8 million warrants excluded from the weighted-average share calculations for the three and six months ended June 30, 2021 and 2020.

18 DIVIDEND

The Board did not recommend the payment of a dividend for the six month periods ended June 30, 2021 and 2020.

19 RELATED PARTY TRANSACTIONS, PERSONNEL COSTS AND REMUNERATION POLICY

(a) Remuneration policy

The Company’s remuneration and bonus policies are determined by the performance of individual employees. The emolument of the executives are recommended by the remuneration committee of the Company, having regard to the Company’s operating results, the executives’ duties and responsibilities within the Company and comparable market statistics.

(b) Transactions with key management personnel

Key management compensation for the three and six months ended June 30, 2021 totaled C$0.4 million and C$0.8 million respectively (2020 three months: C$0.4 million, 2020 six months: C$1.0 million).

Persta Resources Inc. 52 Interim Report 2021

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

19 RELATED PARTY TRANSACTIONS, PERSONNEL COSTS AND REMUNERATION

POLICY (Continued)

(c) Transactions with directors

Director compensation for the three and six months ended June 30, 2021 totaled C$0.2 million and C$0.02 million respectively. Total compensation for the six months ended June 30, 2021 was comprised of C$0.06 million of cash (2020: C$0.06 million) and C$0.16 million accrued pursuant to the Phantom Unit Plan (as defined in Note 19 of the Company’s audited financial statements for the year ended December 31, 2020). As at June 30, 2021 the total accrued compensation under the Phantom Unit Plan was C$0.42 million (2020: C$0.3 million).

Save as disclosed above, all other transactions with directors are unchanged from those disclosed in Note 26 of the audited financial statements for the year ended December 31, 2020.

20 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Overview

The Company has exposure to credit risk, liquidity and market risk from its use of financial instruments. This note presents information about the Company’s exposure to each of the risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to market conditions and the Company’s activities.

(a) Credit risk

The Company’s credit risk on cash arises from possible default of the counterparty. The Company limits its exposure to counterparty credit risk on cash by only dealing with financial institutions with high credit ratings.

Credit risk on trade and other receivables is the risk of financial loss to the Company if a customer or counter-party to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from purchasers of the Company’s crude oil and natural gas and joint venture partners. The Company seeks to manage its credit risk on trade and other receivables by trading with third party customers it considers to be creditworthy. As at June 30, 2021 the Company’s accounts receivables consisted of C$1.8 million (2020: C$1.7 million) due from purchasers of the Company’s crude oil and natural gas production.

Receivables from purchasers of the Company’s crude oil and natural gas when outstanding are normally collected on the 25th day of the month following production. The carrying amount of accounts receivable and cash balances represents the maximum credit exposure. The Company has determined that no allowance for doubtful accounts was necessary as at June 30, 2021. The Company has also not written off any receivables during the year ended December 31, 2020 as accounts receivables were subsequently collected in full. There are no material financial assets that the Company considers past due and at risk of collection. As at June 30, 2021, all of the trade receivables were less than 90 days old.

Persta Resources Inc. Interim Report 2021 53

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

20 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)

Overview (Continued)

(b) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company’s approach to managing liquidity is to ensure, to the extent possible, that it will have sufficient liquidity to meet its liabilities when due, under normal and stressed conditions. The Company will attempt to match its payment cycle with collection of crude oil and natural gas revenues on the 25th of each month. The Company prepares annual budgets and updates forecasts for operating, financing and investing activities on an ongoing basis to ensure it will have sufficient liquidity to meet its liabilities when due (see Note 3).

The current challenging economic climate may lead to adverse changes in cash flow, working capital levels or debt balances, which may also have a direct impact on the Company’s results and financial position. These and other factors may adversely affect the Company’s liquidity and the Company’s ability to generate profits in the future.

The contractual maturities of financial liabilities as at June 30, 2021 are as follows:

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Carrying 1 year
C$ amount Total or less 1–3 years 4+ years
Accounts payable and acc.
liabilities 10,437,639 10,437,639 10,437,639 — —
Other liabilities 509,996 509,996 — 509,996 —
Lease liabilities 2,817,853 3,421,931 1,040,417 1,914,206 467,308
Shareholder loans [(1)] 2,547,281 2,675,000 — 2,675,000 —
Subordinated debt [(2)] 23,707,111 24,173,667 — 24,173,667 —
Total 40,019,880 41,218,233 11,478,056 29,272,869 467,308
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(1) Gross value of shareholder loan as per Note 10

(2) Subordinated debt plus accrued and unpaid interest as per Note 10

(c) Market risk

Market risk is the risk that changes in market metrics, such as commodity prices, foreign exchange rates and interest rates that will affect the Company’s valuation of financial instruments, the debt levels of the Company, as well as its profit and cash flow from operations. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximizing returns.

Commodity price risk

Commodity price risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for crude oil and natural gas are impacted by not only the relationship between the Canadian and United States dollar but also world economic events that dictate the levels of supply and demand. The Company may utilize commodity contracts as a risk management technique to mitigate exposure to commodity price volatility. The Company did not enter into any financial derivatives during the six month periods ended June 30, 2021 and 2020.

Persta Resources Inc. 54 Interim Report 2021

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

20 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)

Overview (Continued)

(c) Market risk (Continued)

Interest rate risk

As at June 30, 2021 the Company’s debts are comprised of shareholder’s loans, SubDebt and amounts owing under the Contract (refer to Note 12 in the audited financial statements for the year ended December 31, 2020), which all carry a fixed interest rate. As at June 30, 2021 and 2020, the Company has no variable rate borrowings. As such, a one percent change in prevailing interest rates would not change the Company’s net loss for the three and six month periods ended June 30, 2021 and 2020.

Foreign currency risk

The Company manages foreign exchange risk by monitoring foreign exchange rates and evaluating their effects on using Canadian or Hong Kong vendors as well as timing of transactions. The Company recognizes a foreign exchange gain/loss based on the revaluation of monetary items held in Hong Kong Dollars and the value changes with the fluctuation in the HKD/CAD exchange rates. As at June 30, 2021, the Company held HK$0.3 million (C$0.04 million based on the HKD/CAD exchange rate at the same date). Changes in the HKD/CAD foreign exchange rate of less than 10% would not materially change the Company’s financial statements.

(d) Capital management

The Company’s general policy is to maintain an appropriate capital base in order to manage its business in the most effective manner with the goal of increasing the value of its assets and thus its underlying share value. The Company’s objectives when managing capital are to maintain financial flexibility in order to preserve its ability to meet financial obligations; to maintain a capital structure that allows the Company to favor the financing of its growth strategy using internally-generated cash flow and its debt capacity; and to optimize the use of its capital to provide an appropriate investment return to its shareholders.

The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying crude oil and natural gas assets. The Company considers its capital structure to include shareholders’ equity, bank debt, subordinated debt, other liabilities and working capital. To assess capital and operating efficiency and financial strength, the Company continually monitors its net debt.

The Company has not paid nor declared any dividends since its inception.

As part of its capital management process, the Company prepares budgets and forecasts, which are used by management and the Board of Directors to direct and monitor the strategy and ongoing operations and liquidity of the Company. Budgets and forecasts are subject to significant judgment and estimates relating to activity levels, future cash flows and the timing thereof and other factors which may or may not be within the control of the Company.

Persta Resources Inc. Interim Report 2021 55

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

20 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)

Overview (Continued)

(d) Capital management (Continued)

The following represents the capital structure of the Company:

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As at As at
June 30, December 31,
C$ 2021 2020
Long term debt (excluding current portion as per Note 10) 26,254,392 1,885,600
Other liabilities 509,996 351,408
Lease liabilities 2,817,853 2,631,628
Net working capital deficit 8,152,837 29,937,920
Net debt 37,735,078 34,806,556
Shareholders’ equity 453,177 5,161,376
Total 38,188,255 39,967,932
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(e) Performance services guarantee (“PSG”) facility

On April 25, 2018, the Company obtained a PSG facility from Economic Development Canada (“ EDC totaling C$4.4 million. On July 30, 2020 the aggregate PSG was reduced to C$1.85 million. Under the terms of the PSG facility, EDC will guarantee qualifying letters of credit (“ L/C ”) on behalf of the Company. Previously, these L/C’s were cash collateralized, following approval by the EDC the requirement of the Company to hold cash to underwrite the L/C is relieved for the duration of the PSG approval. Under the terms of the PSG facility, the L/C guarantee period is the lesser of one year or the term of the L/C if less than 12 months. The guarantee can be renewed annually for long term L/C’s subject to subsequent approval by the EDC. As at June 30, 2021, the Company has PSG coverage for the following L/C’s:

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Amount Expiry
C$1,392,000 June 14, 2022
C$408,158 March 31, 2022
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The PSG facility has a 12 month term and must be renewed annually. The current term expired on July 30, 2021, and the Company has applied for renewal. If the facility is not approved for renewal, the PSG coverage will terminate at the expiry of the existing L/C’s and the Company will seek alternative insurance arrangements to guarantee the L/C’s or cash collateralize them.

Persta Resources Inc. 56 Interim Report 2021

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

21 COMMITMENTS

Commitments and contingencies exist under various agreements and operations in the normal course of the Company’s business. The following table outlines the Company’s commitments as at June 30, 2021:

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Less than After
C$ Total 1 year 1–3 years 4–5 years 5 years
Transportation commitment 33,428,173 6,648,346 12,486,957 12,263,609 2,029,261
Jixing agreements [(2)] 128,475,537 5,311,663 13,344,400 18,528,313 91,291,162
— — —
PSG facility [(1)] 1,800,158 1,800,158
Total 163,703,868 11,960,009 27,631,515 30,791,922 93,320,423
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(1) The PSG facility commitment will only be due if the facility is not renewed and the L/C’s are cash collateralized by the Company (see Note 27 in the 2020 Audited Financial Statements).

(2) Refer to Note 26b in the 2020 Audited Financial Statements on the Jixing agreements.

Transportation Commitment:

The Company entered into a take or pay firm service transportation agreement with committed transportation volumes as below:

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Description Volume Effective date Expiring date Duration
(MMcf/d)
Persta Existing FT-R with NGTL 8.00 2013-11-01 2021-10-31 8 years
Persta New FT-R with NGTL 102.00 2018-12-01 2026-12-31 8 years
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The firm service transportation agreements cover the period from November 1, 2013 to December 31, 2026 (the firm service fee varies and is subject to review by the counter-party on an annual basis). The amounts presented in the Commitments table above for the transportation service commitment fee is based on fixed transportation capacity as per these agreements and management’s best estimate of future transportation charges.

Persta Resources Inc. Interim Report 2021 57

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and six months ended June 30, 2021 (Expressed in Canadian dollars unless otherwise indicated) Unaudited

22 SUBSEQUENT EVENTS

COVID-19

The global impact of the outbreak of COVID-19 has resulted in significant volatility in global stock markets and has forecasted a great deal of uncertainty as to the health of the global economy. In addition, there has been a significant drop in the price of oil in global and Canadian markets. These factors may have a negative impact on the Company’s operations and its ability to raise financing in the near future or on terms favourable to the Company. The potential impact that COVID-19 will have on the Company’s business or financial results cannot be reasonably estimated at this time.

Equity Placings

On June 8, 2021, the Company entered into a subscription agreement with Dalian Yongli Petrochemical Ltd. (“ Dalian ”), subsequently amended on July 20, 2021, pursuant to which the Company has conditionally agreed to allot and issue, and Dalian has conditionally agreed to subscribe for, 60 million common shares at a minimum price of HK$0.80 per common share. On July 20, 2021, the Company entered into a subscription agreement with Jixing Gas Holdings Limited (“ Jixing Gas ”), pursuant to which the Company has conditionally agreed to allot and issue, and Jixing Gas has conditionally agreed to subscribe for, 10 million common shares at a price of HK$0.80 per common share. Refer to the Company’s announcement dated July 21, 2021 for additional information on the Dalian and Jixing Gas equity placings.

As Dalian and Jixing Gas are connected persons (as defined in the Listing Rules) of the Company, the subscription agreements and the transactions contemplated thereunder constitute connected transactions of the Company under Chapter 14A of the Listing Rules and are subject to reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Persta Resources Inc. 58 Interim Report 2021