Kelt Exploration Ltd. — Interim / Quarterly Report 2025

Aug 7, 2025

kelt exploration

INTERIM FINANCIAL STATEMENTS

AS AT AND FOR THE THREE AND SIX MONTHS ENDED

JUNE 30, 2025

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KELT EXPLORATION LTD.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

[UNAUDITED]

(CA$ thousands)	[Notes]	June 30, 2025	December 31, 2024
ASSETS
Current assets
Cash and cash equivalents		70	228
Accounts receivable and accrued sales	[9]	49,252	60,236
Prepaid expenses and deposits		6,203	4,109
Derivative financial instruments	[9]	22,382	6,709
Total current assets		77,907	71,282
Derivative financial instruments	[9]	1,798	-
Exploration and evaluation assets	[4]	32,075	18,092
Property, plant and equipment	[5]	1,450,819	1,361,305
Total assets		1,562,599	1,450,679
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities	[9]	82,263	80,463
Derivative financial instruments	[9]	2,995	7,936
Decommissioning obligations	[7]	4,582	3,552
Lease liability		1,056	1,655
Total current liabilities		90,896	93,606
Bank debt	[6]	151,432	108,993
Derivative financial instruments	[9]	1,855	-
Decommissioning obligations	[7]	92,166	97,423
Lease liability		756	419
Deferred income tax liability		103,815	87,234
Total liabilities		440,920	387,675
SHAREHOLDERS' EQUITY
Shareholders' capital	[8]	1,192,297	1,184,065
Contributed surplus and reserve		(7,689)	(6,692)
Deficit		(62,929)	(114,369)
Total shareholders' equity		1,121,679	1,063,004
Total liabilities and shareholders' equity		1,562,599	1,450,679

Commitments

[12]

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

On behalf of the Board of Directors:

[signed]
David J. Wilson, Director

[signed]
Ray Kwan, Director

KELT EXPLORATION LTD.
FINANCIAL STATEMENTS

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KELT EXPLORATION LTD.
CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE NET INCOME
[UNAUDITED]

(CA$ thousands, except per share amounts)	[Notes]	Three months ended June 30		Six months ended June 30
		2025	2024	2025	2024
Revenue
Petroleum and natural gas sales	[10]	116,418	109,093	258,919	235,484
Royalties		(9,472)	(17,244)	(24,711)	(32,286)
		106,946	91,849	234,208	203,198
Expenses
Production		30,319	30,367	64,671	61,587
Transportation		11,326	10,018	23,958	20,381
Cost of purchases		3,168	4,497	6,072	9,332
Financing	[11]	3,492	1,486	6,309	2,595
General and administrative		3,782	3,067	7,384	6,541
Share based compensation	[8]	1,596	2,219	3,744	4,176
Exploration and evaluation	[4]	49	5	49	145
Depletion and depreciation	[5]	43,428	31,901	87,197	65,768
		97,160	83,560	199,384	170,525
Gain (loss) on derivative financial instruments	[9]	33,483	6,675	33,529	(275)
Gain (loss) on foreign exchange		(428)	17	(355)	52
Other income		8	34	22	109
Net income before taxes		42,849	15,015	68,020	32,559
Deferred income tax expense		(10,388)	(4,110)	(16,580)	(9,807)
Net income and comprehensive net income		32,461	10,905	51,440	22,752
Net income per common share
Basic		0.16	0.06	0.26	0.12
Diluted		0.16	0.05	0.26	0.11

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

KELT EXPLORATION LTD.
FINANCIAL STATEMENTS

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KELT EXPLORATION LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

[UNAUDITED]

(CA$ thousands)	[Notes]	Shareholders' capital		Contributed surplus and reserve	Retained earnings (deficit)	Total shareholders' equity
		Number of Shares (000s)	Amount ($ thousands)
Balance at December 31, 2024		196,756	1,184,065	(6,692)	(114,369)	1,063,004
Net income and comprehensive income		-	-	-	51,440	51,440
Exercise of stock options	[8]	1,726	5,175	(1,684)	-	3,491
Vesting of restricted share units	[8]	654	3,057	(3,057)	-	-
Share based compensation	[8]	-	-	3,744	-	3,744
Balance at June 30, 2025		199,136	1,192,297	(7,689)	(62,929)	1,121,679
Balance at December 31, 2023		194,506	1,175,465	(12,010)	(159,792)	1,003,663
Net income and comprehensive income		-	-	-	22,752	22,752
Exercise of stock options	[8]	848	3,706	(1,093)	-	2,613
Vesting of restricted share units	[8]	385	1,293	(1,293)	-	-
Share based compensation	[8]	-	-	4,176	-	4,176
Balance at June 30, 2024		195,739	1,180,464	(10,220)	(137,040)	1,033,204

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

KELT EXPLORATION LTD.

FINANCIAL STATEMENTS

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KELT EXPLORATION LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]

(CA$ thousands)	[Notes]	Three months ended June 30		Six months ended June 30
		2025	2024	2025	2024
Operating activities
Net income and comprehensive income		32,461	10,905	51,440	22,752
Items not affecting cash:
Accretion of decommissioning obligations	[11]	807	737	1,607	1,456
Share based compensation		1,596	2,219	3,744	4,176
Exploration and evaluation		49	5	49	145
Depletion and depreciation		43,428	31,901	87,197	65,768
Unrealized gain on derivative financial instruments	[9]	(26,883)	(7,420)	(20,557)	(471)
Deferred income tax expense		10,388	4,110	16,580	9,807
Settlement of decommissioning obligations	[7]	(237)	(1,039)	(763)	(1,988)
Change in non-cash operating working capital	[13]	(913)	5,001	8,328	7,267
Cash provided by operating activities		60,696	46,419	147,625	108,912
Financing activities
Increase in bank debt		48,666	12,611	42,439	12,611
Proceeds on exercise of stock options	[8]	1,358	1,476	3,491	2,613
Repayment of lease liability principal		(161)	(207)	(377)	(354)
Cash provided by financing activities		49,863	13,880	45,553	14,870
Investing activities
Exploration and evaluation assets	[4]	(3,966)	(2,307)	(14,963)	(2,644)
Property, plant and equipment	[5]	(86,986)	(71,399)	(180,735)	(150,574)
Property acquisitions		-	(104)	-	(773)
Change in non-cash investing working capital	[13]	(19,626)	12,588	2,362	16,380
Cash used in investing activities		(110,578)	(61,222)	(193,336)	(137,611)
Net change in cash and cash equivalents		(19)	(923)	(158)	(13,829)
Cash and cash equivalents, beginning of period		89	1,434	228	14,340
Cash and cash equivalents, end of period		70	511	70	511

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

KELT EXPLORATION LTD.
FINANCIAL STATEMENTS

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KELT EXPLORATION LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
AS AT AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025
[UNAUDITED]

(All tabular amounts in thousands of Canadian dollars, except as otherwise indicated)

1. DESCRIPTION OF THE BUSINESS

Kelt Exploration Ltd. ("Kelt" or the "Company") is an oil and gas company based in Calgary, Alberta, focused on the exploration, development and production of crude oil and natural gas resources, primarily in northwestern Alberta and northeastern British Columbia. The Company's British Columbia assets are operated by Kelt Exploration (LNG) Ltd. ("Kelt LNG"), a wholly owned subsidiary of Kelt. The Company's common shares are listed on the Toronto Stock Exchange ("TSX") under the symbol "KEL".

The head office of Kelt is located at Suite 300, 311 - 6th Avenue S.W., Calgary, Alberta T2P 3H2.

1. BASIS OF PRESENTATION

The Company's Board of Directors approved and authorized these condensed consolidated interim financial statements on August 6, 2025.

a) Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board ("IFRS Accounting Standards"), applicable to the preparation of interim financial statements, including IAS 34 Interim Financial Reporting. Certain disclosures included in the notes to the financial statements have been condensed in the following note disclosures or have been disclosed on an annual basis only. Accordingly, these condensed consolidated interim financial statements should be read in conjunction with the audited annual consolidated financial statements as at and for the year ended December 31, 2024.

b) Basis of measurement

All references to dollar amounts in these financial statements and related notes are thousands of Canadian dollars, unless otherwise indicated.

The financial statements have been prepared on a historical cost basis, except for certain financial instruments which are recorded at fair value. The methods used to measure fair values are described in note 9 of these financial statements.

c) Significant Judgements and Estimates

The timely preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may differ materially 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 reviewed and for any future years affected. Significant judgments, estimates and assumptions made by management in these financial statements are outlined in note 2 of the December 31, 2024 audited annual consolidated financial statements.

These estimates require assumptions for future commodity prices, exchange rates, interest rates, future oil and natural gas production, and other economic issues that have a high degree of uncertainty.

In April 2025, the Company approved a new Performance Share Unit ("PSU") plan, as a component of its long-term incentive compensation strategy. The fair value method of accounting is used for its PSU Plan, with the fair value estimated on the date of grant using the Black-Scholes option pricing model based on the prevailing Kelt share price at the date granted.

KELT EXPLORATION LTD.
NOTES TO THE FINANCIAL STATEMENTS

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PSU's are granted with a performance multiplier. This multiplier, ranging from zero to two, will be applied at vesting and is dependent on the performance of the Company relative to pre-defined corporate performance measures for a particular period and the Board of Directors' discretion. Judgment is required to estimate the multiplier, the rate of forfeiture, and the number of performance share units that will ultimately vest.

3. MATERIAL ACCOUNTING POLICIES

The material accounting policies applied by the Company are described in note 3 of the December 31, 2024 audited annual consolidated financial statements. These condensed consolidated interim financial statements as at June 30, 2025 have been prepared following the same accounting policies and methods of computation as the most recent audited annual consolidated financial statements as at and for the year ended December 31, 2024.

In April 2024, the IASB issued IFRS 18 'Presentation and Disclosure in Financial Statements' which will replace IAS 1 'Presentation of Financial Statements'. The standard introduces a new defined structure to the Consolidated Statements of Net Income and Comprehensive Net Income with new categories for income and expenses and new totals and subtotals. In addition, there are additional disclosures around management defined performance measures and additional requirements regarding the aggregation and disaggregation of certain information. IFRS 18 is effective January 1, 2027, and is required to be adopted retrospectively with early adoption permitted. The Company is assessing the impact of IFRS 18 on the Company's consolidated financial statements.

In May 2024, the IASB issued amendments to IFRS 9 'Financial Instruments' and IFRS 7 'Financial Instruments: Disclosures' to clarify the date of recognition and derecognition of financial assets and liabilities including the settling of financial liabilities using an electronic payment system and assessing contractual cash flow characteristics of financial assets. These amendments are effective January 1, 2026, and are required to be adopted retrospectively with early adoption permitted. The Company is assessing the impact of the amendments on the Company's consolidated financial statements.

4. EXPLORATION AND EVALUATION ASSETS

The following table reconciles movements of exploration and evaluation ("E&E") assets:

	June 30, 2025	December 31, 2024
Balance, beginning of period	18,092	17,162
Additions	14,963	2,961
Transfers to property, plant and equipment	(931)	(1,817)
Exploration and evaluation expense	(49)	(214)
Balance, end of period	32,075	18,092

5. PROPERTY, PLANT AND EQUIPMENT

Net carrying value	June 30, 2025	December 31, 2024
Development and production (“D&P”) assets	1,448,000	1,358,231
Right-of-use (“ROU”) assets	1,921	2,227
Corporate assets	898	847
Total net carrying value of property, plant and equipment	1,450,819	1,361,305

KELT EXPLORATION LTD.
NOTES TO THE FINANCIAL STATEMENTS

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The following table reconciles movements of property, plant and equipment ("PP&E") during the period:

Property, plant and equipment, at cost	D&P Assets	Corporate Assets	ROU Assets	Total PP&E
Balance at December 31, 2023	2,057,993	7,908	4,617	2,070,518
Additions	324,190	1,140	1,967	327,297
Transfers from ROU assets	683	-	(683)	-
Property acquisitions	5,115	-	-	5,115
Property dispositions	(705)	-	-	(705)
Change in decommissioning obligations	2,777	-	-	2,777
Transfers from E&E	1,817	-	-	1,817
Balance at December 31, 2024	2,391,870	9,048	5,901	2,406,819
Additions	178,757	690	1,210	180,657
Transfers from ROU assets	1,288	-	(1,288)	-
Property acquisitions	22	-	-	22
Change in decommissioning obligations	(5,093)	-	-	(5,093)
Transfers from E&E	931	-	-	931
Balance at June 30, 2025	2,567,775	9,738	5,823	2,583,336
Accumulated depletion and depreciation	D&P Assets	Corporate Assets	ROU Assets	Total PP&E
---	---	---	---	---
Balance at December 31, 2023	893,745	7,333	3,028	904,106
Depletion and depreciation expense	139,894	868	732	141,494
Dispositions	-	-	(86)	(86)
Balance at December 31, 2024	1,033,639	8,201	3,674	1,045,514
Depletion and depreciation expense	86,136	639	422	87,197
Dispositions	-	-	(194)	(194)
Balance at June 30, 2025	1,119,775	8,840	3,902	1,132,517

Future capital costs required to develop proved reserves in the amount of $1,757.3 million (December 31, 2024 – $1,839.9 million) are included in the depletion calculation for development and production assets.

Based on its assessment as of June 30, 2025, the Company determined that there were no indicators of impairment.

6. BANK DEBT

At June 30, 2025, the Company has a $250.0 million credit facility available from a syndicate of financial institutions. As at June 30, 2025, $151.4 million was drawn under the Credit Facility, with outstanding letters of credit of $2.7 million.

Repayments of principal are not required provided that the borrowings under the Credit Facility do not exceed the authorized borrowing amount. The borrowing base is subject to semi-annual reviews with the next scheduled review to take place prior to November 30, 2025. There are no financial covenants under the Credit Facility and Kelt is in compliance with all other covenants. Covenants include industry standard positive and negative covenants including reporting requirements, permitted indebtedness, permitted risk management activities, permitted encumbrances and other standard business operating covenants. Security is provided for by a demand debenture with a floating charge over all assets in the amount of $800.0 million.

Interest is payable monthly for borrowings through direct advances. Interest rates fluctuate based on the prime rate plus the applicable margin. The applicable margin ranges from 175 basis points to 375 basis points depending upon the Net Debt to Cash Flow ratio of between less than 0.5 times and three times. Under the Credit Facility, borrowings through the use of benchmark loans are also available. Stamping fees fluctuate based on a pricing grid and range from $2.75\%$ to $4.75\%$, depending upon the Net Debt to Cash Flow ratio of between less than 0.5 times and three

KELT EXPLORATION LTD.

NOTES TO THE FINANCIAL STATEMENTS

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times.

The Credit Facility may be extended annually at Kelt's option and subject to lender approval, with a 364 day term-out period if not renewed.

7. DECOMMISSIONING OBLIGATIONS

Decommissioning obligations arise as a result of the Company's net ownership interests in petroleum and natural gas assets including well sites, processing facilities and infrastructure. The following table provides a reconciliation of the carrying amount of the obligation associated with the retirement of oil and gas properties:

	June 30, 2025	December 31, 2024
Balance, beginning of period	100,975	99,915
Obligations incurred	1,270	3,247
Obligations acquired	22	299
Obligations disposed	-	(62)
Obligations settled	(763)	(5,036)
Changes in discount rate	(5,390)	(6,954)
Revisions to estimates	(973)	6,484
Accretion expense	1,607	3,082
Balance, end of period	96,748	100,975
Decommissioning obligations – current	4,582	3,552
Decommissioning obligations – non-current	92,166	97,423
Key assumptions
Risk free rate	3.56%	3.3%
Inflation rate	2.0%	2.0%

The underlying cost estimates are derived from a combination of published industry benchmarks as well as site specific information. As at June 30, 2025 the undiscounted amount of the estimated cash flows required to settle the obligation is $145.8 million (December 31, 2024 – $144.3 million) and is expected to be incurred over the next 50 years. The undiscounted amount of the estimated future cash flows required to settle the obligation is $276.5 million at June 30, 2025 (December 31, 2024 – $274.4 million). The inflated future cost estimates are discounted based on a risk-free rate to determine the carrying amounts presented in the table above.

Accretion of the decommissioning obligation due to the passage of time is presented within financing expenses in the Consolidated Statement of Net Income and Comprehensive Net Income (note 11).

8. SHARE CAPITAL

Authorized

The Company is authorized to issue an unlimited number of common shares and an unlimited number of preferred shares, each without par value.

Issued and outstanding

The following table summarizes the change in common shares issued and outstanding. There are no preferred shares issued or outstanding as of June 30, 2025 (December 31, 2024 – nil).

KELT EXPLORATION LTD.

NOTES TO THE FINANCIAL STATEMENTS

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	Number of Shares (000s)	Amount ($ thousands)
Balance at December 31, 2023	194,506	1,175,465
Issued on exercise of stock options	1,836	5,072
Transfer from contributed surplus on exercise of stock options	-	2,103
Released upon vesting of restricted share units	414	1,425
Balance at December 31, 2024	196,756	1,184,065
Issued on exercise of stock options	1,726	3,491
Transfer from contributed surplus on exercise of stock options	-	1,684
Released upon vesting of restricted share units	654	3,057
Balance at June 30, 2025	199,136	1,192,297

Stock options

The Incentive Stock Option Plan (the "Option Plan") includes stock options which may be granted to directors, officers, employees and certain consultants. The stock options granted pursuant to the Option Plan are to be settled through the issuance of new common shares of the Company which vest in equal tranches over a three year period and have a maximum term of five years to expiry. In April 2025 the Company discontinued the Option Plan, after which no further stock options will be granted.

The following table summarizes the change in stock options outstanding:

	Number of Options (000s)	Average Exercise Price ($/share)
Balance at December 31, 2023	9,697	3.74
Granted	2,315	6.09
Exercised(1)	(1,836)	2.76
Forfeited	(205)	6.19
Balance at December 31, 2024	9,971	4.41
Granted	35	5.99
Exercised(1)	(1,726)	2.02
Forfeited	(91)	5.65
Balance at June 30, 2025	8,189	4.91

(1) The weighted average share price on the date stock options were exercised during the six months ended June 30, 2025 was $7.02 per common share ($6.19 per common share on average during the year ended December 31, 2024).

The following table summarizes information regarding stock options outstanding at June 30, 2025:

Range of exercise prices per common share	Number of options outstanding (000s)	Weighted average remaining term (years)	Weighted average exercise price for options outstanding ($/share)	Number of options exercisable (000s)	Weighted average exercise price for options exercisable ($/share)
$0.00 to $2.00	15	0.4	1.59	15	1.59
$2.01 to $4.00	1,703	0.7	2.74	1,703	2.74
$4.01 to $6.00	4,091	2.1	5.08	3,499	5.14
$6.01 to $8.00	2,380	3.7	6.19	763	6.18
Total	8,189	2.3	4.91	5,980	4.58

Restricted share units

The restricted share unit plan includes restricted share units ("RSUs") that may be granted to officers and employees. The RSUs granted under the RSU Plan are to be settled through the issuance of new common shares upon vesting.

KELT EXPLORATION LTD.

NOTES TO THE FINANCIAL STATEMENTS

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RSUs vest in two equal tranches with the first half vesting after two years and the second half after three years.

The following table summarizes the change in RSUs outstanding:

	Number of RSUs (000s)
Balance at December 31, 2023	1,742
Granted	558
Released upon vesting	(414)
Forfeited	(58)
Balance at December 31, 2024	1,828
Granted	602
Released upon vesting	(654)
Forfeited	(39)
Balance at June 30, 2025	1,737

Performance share units

In April 2025, the Company's shareholders approved a PSU plan, as a component of its long-term incentive compensation strategy, designed to align the interests of executives and employees with those of shareholders. The approval of the PSU plan, was made in combination with discontinuing the Company's Stock Option Plan, after which no future stock options will be issued.

The PSU plan provides for the issuance of equity-settled awards that vest based on the achievement of defined performance criteria over a rolling three-year period. A total of 745,266 PSUs were granted on May 16th, 2025.

Each PSU entitles the holder to receive common shares upon vesting, with the number of shares issued ranging from 0% to 200% of the target award. The final number of shares delivered is determined by a Payout Multiplier, which is calculated based on the Company's performance against pre-established targets over the vesting period.

The following table summarizes the change in PSUs outstanding:

	Number of PSUs (000s)
Balance at December 31, 2024	-
Granted	745
Released upon vesting	-
Forfeited	(2)
Balance at June 30, 2025	743

The total fair value associated with stock options, RSUs, and PSUs is recognized over the service period using graded vesting, resulting in share based compensation expense as follows:

	Three months ended June 30		Six months ended June 30
	2025	2024	2025	2024
Stock options	644	1,297	1,909	2,523
Restricted share units	721	922	1,604	1,653
Performance share units	231	-	231	-
Total share based compensation expense	1,596	2,219	3,744	4,176

KELT EXPLORATION LTD.
NOTES TO THE FINANCIAL STATEMENTS

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Per share amounts

The table below summarizes the weighted average number of common shares outstanding used in the calculation of basic and diluted net income per common share:

(000s of common shares)	Three months ended June 30		Six months ended June 30
	2025	2024	2025	2024
Weighted average common shares outstanding, basic	199,005	195,566	198,272	195,110
Effect of stock options, RSUs, and PSUs	2,744	4,054	2,878	3,847
Weighted average common shares outstanding, diluted	201,749	199,620	201,150	198,957

The treasury stock method is used to determine the dilutive effect of stock options, RSUs, and PSUs. Under this method, only "in-the-money" dilutive instruments impact the calculation of diluted net income per common share.

9. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Financial instruments of the Company include cash and cash equivalents, accounts receivable and accrued sales, deposits, accounts payable and accrued liabilities, derivative financial instruments, lease liabilities and bank debt. The Company is exposed to financial risks arising from its financial assets and liabilities that include credit and liquidity risk in addition to the market risks associated with commodity prices, and interest and foreign exchange rates. Net income, cash flows and the fair value of financial assets and liabilities may fluctuate due to movement in market prices or as a result of the Company's exposure to credit and liquidity risks.

The objective of the Company's risk management is to manage and control market risk exposures within acceptable limits, while maximizing long-term returns. All such transactions are conducted in accordance with the Company's risk management policy that permits management to enter into commodity price agreements, provided that:

i) the contracts are not entered into for speculative purposes;
ii) the total notional quantity hedged, at the time of entering into the contract, does not exceed 65% of average daily production; and
iii) the contracted term does not exceed 36 months.

Commodity price risk

Inherent to the business of producing oil and gas, cash provided by operating activities is subject to commodity price risk. Commodity price risk is the risk that future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices are impacted by economic events that dictate the levels of supply and demand as well as the currency exchange rate relationship between the Canadian and U.S. dollar.

As of June 30, 2025, the following commodity price derivative financial instrument contracts are outstanding:

Crude oil derivative financial instrument swap

Contract Type (1)	Notional Volume	Contract Price	Remaining Term
WTI option (2)	500 bbl/d	Settles monthly if WTI price > USD$70.50/bbl	Jul 25 – Dec 25
WTI fixed price swap (3)	3,000 bbl/d	CAD $91.63/bbl	Jul 25 – Sept 25
WTI-MSW basis swap	2,000 bbl/d	WTI minus $2.85/bbl	Jul 25 – Sep 25
WTI fixed price swap	2,000 bbl/d	USD$69.6575/bbl	Jul 25 – Dec 25
WTI fixed price swap (4)	2,500 bbl/d	CAD $89.68/bbl	Oct 25 – Dec 25
WTI fixed price swap (5)	3,000 bbl/d	CAD $90.23/bbl	Jan 26 – Mar 26
WTI fixed price swap	2,500 bbl/d	CAD $89.71/bbl	Apr 26 – Jun 26

(1) West Texas Intermediate ("WTI")
(2) The WTI option is settled monthly at USD$70.50/bbl if the average WTI price is above USD$70.50/bbl.
(3) A fixed price WTI oil swap to sell 1,000 bbl/d for Oct-Dec 2025 (Q4-25) at CAD$97.85/bbl exercisable on September 30, 2025 (option enhanced the fixed price on a swap from Jul-Sep 2025).

KELT EXPLORATION LTD.

NOTES TO THE FINANCIAL STATEMENTS

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(4) A fixed price WTI oil swap to sell 500 bbl/d for Jan-Mar 2026 (Q1-26) at CAD$94.30/bbl exercisable on December 31, 2025 (option enhanced the fixed price on a swap from Oct-Dec 2025).
(5) A fixed price WTI oil swap to sell 500 bbl/d for Apr-Jun 2026 (Q2-26) at CAD$92.85/bbl exercisable on March 31, 2026 (option enhanced the fixed price on a swap from Jan-Mar 2026).

NGL derivative financial instrument swap

Contract Type	Notional Volume	Contract Price	Remaining Term
OPIS-Conway propane fixed price swap	250 bbl/d	USD$33.60/bbl	Jul 25 – Mar 26
OPIS-Conway propane basis swap	250 bbl/d	Monthly OPIS-Conway basis calculated at 46% of the floating monthly WTI price	Jul 25 – Mar 26

Natural gas derivative financial instrument

Contract Type (1)	Notional Volume	Contract Price $/MMBtu	Remaining Term
NYMEX swap	20,000 MMBtu/d	CAD$6.405/MMBtu	Jul 25 – Dec 25
AECO 7A swap	10,000 GJ/d	CAD$1.9275/GJ	Jul 25
NYMEX costless collar	10,000 MMBtu/d	Floor: CAD$5.00/MMBtu
Ceiling: CAD$10.00/MMBtu	Jul 25 – Dec 25
NYMEX call	20,000 MMBtu/d	USD$5.50/MMBtu	Jan 26 – Dec 26
AECO 7A put	21,000 GJ/d	CAD$2.80/GJ	Jan 26 – Dec 26

(1) NYMEX Henry Hub ("NYMEX")

The Company has the following natural gas physical supply agreements for delivery to the Nova Inventory Transfer point, where the Company receives a price equal to the Floating AESO Power Pool Price divided by the fixed heat rate. These supply agreements contain an embedded derivative where the fair value of the embedded derivative is calculated as the difference between the forecasted Floating AESO Power Pool Price divided by the fixed heat rate, less the forecasted AECO 5A price.

Natural gas embedded derivative

Contract Type	Notional Volume	Contract Price (1)	Remaining Term
Physical delivery	2,513 GJ/d	Floating AESO power pool price (CAD/MWh) divided by the Fixed Heat Rate of 17.95 GJ/MWh	Jul 25 – Dec 26
Physical delivery	7,349 GJ/d	Floating AESO power pool price (CAD/MWh) divided by the Fixed Heat Rate of 16.75 GJ/MWh	Jan 26 – Dec 26

(1) Alberta Electric System Operator ("AESO")

Interest rate risk

The Company is exposed to interest rate risk as changes in market interest rates will impact the Credit Facility which is subject to a floating interest rate. Based on bank debt balance as of June 30, 2025 of $151.4 million, an increase (decrease) in the market rate of interest by 25 basis points would have an increased (decreased) annualized interest expense of $0.4 million. As of June 30, 2025, there are no interest rate risk management contracts outstanding.

Foreign exchange risk

Kelt is exposed to fluctuations of the Canadian to U.S. dollar exchange rate given realized pricing is directly influenced by U.S. dollar denominated benchmark pricing and from exposure from certain U.S. dollar denominated marketing arrangements.

As at June 30, 2025, the following foreign exchange risk management contracts are outstanding:

KELT EXPLORATION LTD.

NOTES TO THE FINANCIAL STATEMENTS

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Foreign exchange derivative financial instrument swap

Contract Type	Notional Volume	Contract/Exercise Price	Remaining Term
CAD/USD swap	USD$6.0 million/month	$1.3795 CAD/USD	Jul 25 – Dec 25

Foreign exchange derivative financial instrument option

Contract Type	Notional Volume	Contract/Exercise Price	Exercise/ expiration date	Term if exercised
Sold call option	USD$2.0 million/month	$1.3820 CAD/USD	Dec 31, 2025	Jan 26 – Dec 26
Sold call option	USD$2.0 million/month	$1.3800 CAD/USD	Dec 31, 2025	Jan 26 – Dec 26

Gains and losses on derivative financial instrument contracts

The table below summarizes realized and unrealized gains (losses) on derivative financial instrument contracts:

	Three months ended June 30		Six months ended June 30
	2025	2024	2025	2024
Realized gain (loss)
Derivative financial instrument contracts	6,451	(745)	12,785	(746)
Natural gas embedded derivative	149	-	187	-
Total realized gain (loss)	6,600	(745)	12,972	(746)
Unrealized gain
Derivative financial instrument contracts	24,055	7,420	20,087	471
Natural gas embedded derivative	2,828	-	470	-
Total unrealized gain	26,883	7,420	20,557	471
Gain (loss) on derivative financial instruments	33,483	6,675	33,529	(275)

Fair value measurements

The Company classifies fair value measurements using a hierarchy that reflects the significance of the inputs used in making the measurements. The Company maximizes the use of observable inputs when preparing calculations of fair value, where possible. Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy. The fair value hierarchy has the following levels:

• Level 1 - Values are based on unadjusted quoted prices available in active markets for identical assets or liabilities as of the reporting date.
• Level 2 - Values are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace. Prices in Level 2 are either directly or indirectly observable as of the reporting date.
• Level 3 - Values are based on prices or valuation techniques that are not based on observable market data.

The fair value of cash and cash equivalents, accounts receivable and accrued sales, deposits, accounts payable and accrued liabilities approximate their carrying value due to the short term to maturity of these instruments. Bank debt bears interest at a floating market rate and accordingly the fair market value of bank debt approximates the carrying amount. Derivative financial instruments are classified as Level 2.

Credit Risk

As at June 30, 2025, the carrying amount of cash and cash equivalents, accounts receivable and accrued sales, deposits, and derivative financial instruments represent the Company's maximum credit exposure. Potential losses are mitigated from this credit exposure by holding cash and cash equivalents with a Canadian chartered bank, and restricting derivative financial instrument transactions to counterparties that are all investment grade. The remaining credit risk exposure arises primarily from receivables from oil and gas marketers and joint venture partners.

KELT EXPLORATION LTD.
NOTES TO THE FINANCIAL STATEMENTS

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The composition of the Company's accounts receivable is set out in the following table:

Accounts receivable and accrued sales	June 30, 2025	December 31, 2024
Joint venture partners	10,733	5,893
Oil and gas marketers	32,548	45,708
GST input tax credits	2,572	4,036
Derivative financial instrument contracts	2,103	1,314
Other	1,845	3,638
Expected credit loss provision	(549)	(353)
Accounts receivable and accrued sales	49,252	60,236

During the quarter ended June 30, 2025, sales to three oil and gas marketers accounted for approximately 27% and 19% and 12% of total sales. During the year ended December 31, 2024, sales to two oil and gas marketers accounted for approximately 29% and 31% of total sales. Credit risk from oil and gas marketers is mitigated through transacting with investment grade rating counterparties for the majority of its oil and gas sales.

The oil and gas industry has a pre-arranged monthly clearing day for payment of revenues from all buyers of oil and natural gas; this occurs on the 25th day following the month of sale. As a result, oil and gas marketers revenues are current. All other accounts receivable are generally contractually due within 30-90 days.

The balance of accounts receivable outstanding for more than 90 days relates primarily to receivables from joint venture partners. Credit risk related to joint venture receivables is mitigated by obtaining partner approval of significant capital expenditures prior to expenditure and in certain circumstances may require cash deposits in advance of incurring financial obligations on behalf of joint venture partners. The Company has the ability to withhold production from joint venture partners in the event of non-payment or may be able to register security on the assets of joint venture partners. As of June 30, 2025, the collection risk on outstanding accounts receivable balances is considered low as 1.0% of the accounts receivable balance are outstanding for more than 90 days (December 31, 2024 – 1.0%).

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due. Financial obligations include accounts payable, derivative financial instruments, lease liabilities and bank debt. Liquidity risk is managed through the budgeting process, which sets out expected debt levels, capital expenditures and funds from operations. In addition, derivative financial instrument contracts may be used to protect future sales. The Board of Directors approves an annual capital expenditure budget, which is regularly monitored and updated as necessary in response to changing capital requirements and expected sales.

The capital intensive nature of Kelt's operations may create a working capital deficiency position during periods with high levels of capital investment. However, the Company targets to maintain sufficient unused bank credit lines or other liquidity to satisfy such working capital deficiencies.

The table below outlines a contractual maturity analysis for Kelt's financial liabilities as at June 30, 2025:

	Within 1 Year	1 to 5 Years	More than 5 Years	Total
Accounts payable and accrued liabilities	82,263	-	-	82,263
Derivative financial instruments	2,995	1,855	-	4,850
Lease liability	1,056	756	-	1,812
Bank debt and estimated interest (1)	9,237	151,432	-	160,669
Total	95,551	154,043	-	249,594

(1) Estimated interest for future years related to the Credit Facility was calculated using the weighted average interest rate of 6.1% for the six months ended June 30, 2025, applied to the principal balance outstanding as at that date.

KELT EXPLORATION LTD.
NOTES TO THE FINANCIAL STATEMENTS

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Capital Management

The Company's capital structure is comprised of shareholders' capital, bank debt and working capital. The Company's objective when managing its capital structure is to maintain financial flexibility in order to meet financial obligations, as well as finance future capital expenditures relating to exploration, development and acquisition activities.

The Company may increase or decrease capital expenditures including acquisitions and dispositions, issue new shares, issue new debt or repay existing debt, if any, according to market conditions in order to maintain its financial flexibility.

Adjusted funds from operations, net debt and net debt to adjusted funds from operations ratio

Management considers adjusted funds from operations, net debt and net debt to adjusted funds from operations ratio as key capital management measures that demonstrate the Company's ability to meet its financial obligations and cash flow available to fund its capital program, and to assess the Company's liquidity at a point in time while monitoring its capital structure and short-term financing requirements. The Company targets a net debt to adjusted funds from operations ratio of less than 2.0 times.

Adjusted funds from operations, net debt and net debt to adjusted funds are not a standardized measure and therefore may not be comparable with the calculation of similar measures by other entities.

Adjusted funds from operations are calculated as follows:

	Three months ended June 30		Six months ended June 30
	2025	2024	2025	2024
Cash provided by operating activities	60,696	46,419	147,625	108,912
Change in non-cash working capital	913	(5,001)	(8,328)	(7,267)
Settlement of decommissioning obligations	237	1,039	763	1,988
Adjusted funds from operations	61,846	42,457	140,060	103,633

Net debt and net debt to adjusted funds from operations ratio is calculated as follows:

	June 30, 2025	December 31, 2024
Bank debt	151,432	108,993
Accounts payable and accrued liabilities	82,263	80,463
Cash and cash equivalents	(70)	(228)
Accounts receivable and accrued sales	(49,252)	(60,236)
Prepaid expenses and deposits	(6,203)	(4,109)
Net debt	178,170	124,883
Adjusted funds from operations (1)	258,405	221,978
Net debt to adjusted funds from operations ratio	0.7	0.6

(1) 12-month trailing adjusted funds from operations.

As described in note 6, there are no financial covenants under the Credit Facility agreement and Kelt is in compliance with all other covenants.

10. PETROLEUM AND NATURAL GAS SALES

Kelt sells its oil, natural gas, and NGLs production under fixed or variable price contracts. The transaction price for fixed price contracts represents the stand-alone selling price per the contract terms. The transaction price for variable priced contracts is based on a benchmark commodity price, adjusted for quality, location or other factors, whereby each component of the pricing formula (apart from the benchmark commodity price) can be either fixed or variable, depending on the contract terms. Sales are typically collected on the 25th day of the month following the prior month's production, with sales being recorded once the product is delivered to a contractually agreed upon delivery

KELT EXPLORATION LTD.
NOTES TO THE FINANCIAL STATEMENTS

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point.

Kelt generates oil treating, gas processing, and other services income from fees charged to third parties provided at facilities where Kelt has an ownership interest. Marketing revenue is generated from the sales of third-party volumes related to its oil blending and natural gas operations, with the production being sold under the same terms as the variable price contracts discussed above.

Kelt sells some of its natural gas outside of Alberta and British Columbia where title transfer occurs prior to the market location where the benchmark commodity price is determined. For the six months ended June 30, 2025, natural gas sales in relation to these contracts was $7.6 million (June 30, 2024 – $7.5 million).

The following table presents Kelt's sales disaggregated by source:

	Three months ended June 30		Six months ended June 30
	2025	2024	2025	2024
Oil production	63,599	70,578	142,644	142,140
Oil treating and other	237	273	422	476
NGLs production	17,921	15,597	38,734	32,200
Gas production	31,019	17,503	70,049	49,831
Gas processing and other	429	596	868	1,371
Marketing revenue	3,213	4,546	6,202	9,466
Total petroleum and natural gas sales	116,418	109,093	258,919	235,484

Included in accounts receivable at June 30, 2025 is $32.5 million (December 31, 2024 – $45.7 million) of accrued oil and gas sales related to June 2025 production.

11. FINANCING EXPENSES

The following table summarizes significant components of the Company's financing expenses:

	Three months ended June 30		Six months ended June 30
	2025	2024	2025	2024
Total interest expense	2,685	749	4,702	1,139
Accretion of decommissioning obligations	807	737	1,607	1,456
Total financing expense	3,492	1,486	6,309	2,595

12. COMMITMENTS

As of June 30, 2025, the Company is committed to future payments under the following agreements:

	2025	2026	2027	2028	2029	Thereafter
Firm processing commitments	28,456	72,132	73,103	75,558	74,467	412,556
Firm transportation commitments	21,958	47,526	45,386	45,332	41,487	149,108
Total annual commitments	50,414	119,658	118,489	120,890	115,954	561,664

KELT EXPLORATION LTD.
NOTES TO THE FINANCIAL STATEMENTS

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13. SUPPLEMENTAL CASH FLOW INFORMATION

	Three months ended June 30		Six months ended June 30
Changes in non-cash working capital	2025	2024	2025	2024
Accounts receivable and accrued sales	14,907	8,904	10,984	10,396
Prepaid expenses and deposits	(2,991)	(784)	(2,094)	(229)
Accounts payable and accrued liabilities	(32,455)	9,469	1,800	13,480
Change in non-cash working capital	(20,539)	17,589	10,690	23,647
Relating to:
Operating activities	(913)	5,001	8,328	7,267
Investing activities	(19,626)	12,588	2,362	16,380
Change in non-cash working capital	(20,539)	17,589	10,690	23,647

During the reporting period, the Company made the following cash outlays in respect of interest and taxes:

	Three months ended June 30		Six months ended June 30
Cash outlays in respect of interest and taxes	2025	2024	2025	2024
Interest and standby fees on bank debt	2,520	507	4,399	763
Taxes (1)	-	-	-	-

(1) Kelt was not required to pay cash income taxes as the Company had sufficient income tax deductions available to shelter taxable income.

KELT EXPLORATION LTD.
NOTES TO THE FINANCIAL STATEMENTS