Prospera Energy Inc. — Interim / Quarterly Report 2021

Dec 1, 2021

Prospera Energy Inc. (formerly Georox Resources Inc.)

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Interim Financial Statements

September 30, 2021 and 2020

(in Canadian dollars)

The accompanying unaudited interim financial statements (“Interim Financial Statements”) of the Corporation have been prepared by and are the responsibility of the Corporation’s management.

The Corporation’s independent auditor has not performed a review of these financial statements in accordance with standards established by the Chartered Professional Accountants of Canada for a review of the Interim Financial Statements by an entity’s auditor.

1

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Interim Balance Sheet (unaudited)

Interim Balance Sheet (unaudited)
	September 30, 2021 Note		December 31,
			2020
ASSETS	10,156 6 4,056,842 183,169 305,009
Current assets
Cash			153,393
Trade and other receivables			2,967,449
Prepaid and other current assets			198,890
Inventory			226,890
	4,555,177		3,546,622
Non-current assets	7 3,937,589
Property and equipment			1,933,355
Total assets	$ 8,492,766	$	5,479,977
	9 $ 9,513,014 10 -
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables		$	10,605,689
Credit facilities			1,575,348
	9,513,014		12,181,037
Non-current liabilities	11 13,322,263 10 4,889,639
Provision for decommissioning Debentures			11,938,023 -
Total liabilities	27,724,916		24,119,060
Shareholders’ deficiency	13 12,490,541 154,641 3,804,199 (14,013) (35,667,517)
Shareholders’ capital			11,649,956
Share purchase warrants			154,641
Contributed surplus			3,804,199
Accumulated other comprehensive income			(14,013)
Accumulated deficit			(34,233,865)
	(19,232,150)		(18,639,083)
Total shareholders’ deficiency and liabilities	$ 8,492,766	$	5,479,977

See accompanying notes to the Interim Financial Statements

Going Concern (Note 2)

Approved and authorised by the Board of Directors

Signed “Samuel David”, Director Signed “Mel Clifford”, Director

2

Interim Statement of Comprehensive Income (unaudited)

			Nine Months Ended September 30,	Nine Months Ended September 30,	Nine Months Ended September 30,
	Note	2021		2020
Revenue		$ 2,093,686 (213,592)
Petroleum and naturalgas sales	18			$	2,765,229
Royalties					(133,923)
		1,880,094			2,631,306
		2,573,602 203,492 - 981,245
Expenses
Operatingandproduction					3,053,071
Depletion, depreciation, and impairment	7				1,086,088
Share-based compensation					13,490
General and administrative					1,118
		3,758,339			4,153,767
Operating income (loss)		(1,878,245) 150,211 - 134,303 (729,108)			(1,522,461)
Interest costs					145,659
Finance costs					-
Accretion on decommissioning provision	11				185,426
Gains	10				(75,000)
		$(1,433,652)
Comprehensive Income(Loss)				$	(1,778,546)
		$ (0.01) (0.03) $ (0.01) (0.03)
Income (loss) per share
- Basic	14
- Diluted	14

See accompanying notes to the Interim Financial Statements

3

Interim Statement of Changes in Equity (unaudited)

	Note	Outstanding Common Shares				Warrants		Contributed Surplus		Accumulated Other Comprehensive Income		Accumulated Deficit		Shareholders’ Equity (Deficiency)
				Share Capital
Balance at December 31, 2019		65,122,311		11,649,956 297,834 3,549,981 (14,013) (22,508,308) $ (7,024,550)
Net loss for the period				(1,222,407) (1,222,407) - - - 13,490 13,490 -
Issue of share capital
Issue of share capital proceeds received in advance
Share capital costs
Warrants
Share-based compensation Expired warrants
Balance at March 31, 2020		65,122,311		11,649,956		297,834		3,563,471		(14,013)		(23,730,715)		(8,233,467)
Net loss for the period				(10,503,150) (10,503,150) - - - 100,000 100,000 (2,466) (2,466) (243,193) 243,193 -
Issue of share capital
Issue of share capital proceeds received in advance
Share capital costs
Warrants
Share-based compensation Expired warrants
Balance at December 31, 2020		65,122,311		11,649,955		154,641		3,804,198		(14,013)		(34,233,865)		(18,639,083)
Net loss for the period		46,179,866		(1,433,652) (1,433,652) 840,586 840,586 - - - - -
Issue of share capital
Share issue costs
Issue of share capital proceeds received in advance Warrants
Share-based compensation Expired warrants
Balance at September 30, 2021		111,302,177 $		12,490,541 $		154,641 $		3,804,198 $		(14,013) $		(35,667,517) $		(19,232,149)

See accompanying notes to the Interim Financial Statements

4

Interim Statement of Cash Flows (unaudited)

			Nine months ended September 30,	Nine months ended September 30,	Nine months ended September 30,
	Note	2021		2020
		$ (1,433,652) 203,492 - - 150,211 134,303 (729,108)
Operating activities
Comprehensive Income(loss)				$	(1,778,546) 1,086,088 - 13,490 145,660 185,426 (75,000)
Adjustments for non-cash and other items:
Depletion,depreciation,and impairment	7
Goodwill impairment
Share based compensation	11
Finance costs
Accretion on decommissioning provision	10
Gains
		(1,674,754) (1,089,393) 15,721 (78,119) (1,092,674)			(422,882) (1,225,546) - (40,112) 1,962,848
Change in non-cash working capital balances: Change in trade and other receivables Change in prepaids Change in inventory Change in trade and otherpayables
Cash flow from (used in) operating activities		(3,919,219)			274,308
		- (58,264) - - (899,525)
Investing activities
Assets held for sale					- (15,265) - - -
Property,plant and equipment expenditures	7
Acquisitions
Proceeds from disposition of property, plant and equipment
Change in non-cash working capital	7
Cash flow from (used in) investing activities		(957,789)			(15,265)
		4,181,940 800,000 - - (248,169)
Financing activities
(Repayments)draws on credit & debentures	10				(529,915) - - (145,659) -
Issue of share capital (net of share issue costs) Issue of share capital received in advance Interest expense Change in non-cash workingcapital	13
Cash flow from (used in) financing activities		4,733,771			(675,574)
Change in cash	(143,237) (416,531)
Cash (indebtedness) balance, beginning of year Cash (indebtedness) balance, end of year	153,393 469,431 10,156 52,900
		$ 150,211
Cash interest paid				$	145,659

See accompanying notes to the Interim Financial Statements

5

Notes to the Interim Financial Statements (unaudited) September 30, 2021

1. General

Prospera Energy Inc. (the “Corporation” or “Prospera”) was incorporated under the Canada Business Corporations Act on April 14, 2003 as Georox Resources Inc. The Corporation changed its name to Prospera on June 28, 2018. The Corporation is listed on the TSX-Venture Exchange and its primary business is the acquisition of, exploration for, and the development of petroleum and natural gas properties in Canada.

The address of the Corporation’s registered office is Suite 700, 1300 – 8th Street SW, Calgary, Alberta, Canada, T2R 1B2.

2. Going Concern

These Interim Financial Statements have been prepared on a going concern basis, which implies the Corporation will continue to realize its assets and discharge its liabilities in the normal course of business. The Corporation has historically met its day-to-day working capital requirements and funded its capital and operating expenditures through funding received from the proceeds of share issuances and debt.

As of September 30, 2021, the Corporation has a working capital deficiency of $4,957,837 (December 31, 2020 – $8,634,415), and an accumulated deficit of $35,667,517 (December 31, 2020 – $34,233,865). There is a material risk that the Corporation will be unable to meet its financing obligations including payments of outstanding interest and principal balances on its credit facilities and as at September 30, 2021. Management continually monitors the Corporation’s financing requirements. Management is continuously engaged in discussions with existing shareholders and creditors on proposed transactions and agreements that would reduce anticipated cash outflows and provide the additional financing required to fund capital and operating expenditures, and to meet obligations as they fall due in the 12 months following September 30, 2021.

Management has applied significant judgment in preparing forecasts supporting the going concern assumption. Specifically, management has made assumptions regarding projected oil sales volumes and pricing, scheduling of payments arising from various obligations as at September 30, 2021, the availability of additional financing, and the timing and extent of capital and operating expenditures. As such, there is a material uncertainty related to these events and conditions that may cast significant doubt on the Corporation’s ability to continue as a going concern.

The Interim Financial Statements have been prepared on a basis which asserts that the Corporation will continue to have the ability to realize its assets and discharge its liabilities and commitments in a planned manner with consideration to expected possible outcomes. Conversely, if the assumption made by management is not appropriate and the Corporation is unable to meet its obligations as they fall due, the preparation of these financial statements on a going concern basis may not be appropriate and adjustments to the carrying amounts of the Corporation’s assets, liabilities, revenues, expenses, and balance sheet adjustments may be necessary. Such adjustments could be material.

6

Notes to the Interim Financial Statements (unaudited) September 30, 2021

3. Basis of Preparation

The Corporation prepares its Interim Financial Statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. These Interim Financial Statements have been prepared in accordance with IFRS applicable to the preparation of Interim Financial Statements, IAS 34 – Interim financial reporting (“IAS 34”).

These Interim Financial Statements are presented in Canadian dollars (unless stated otherwise), which is also the Corporation's functional currency.

The Interim Financial Statements of the Corporation follow the same accounting policies and basis of presentation as described in note 4 of the 2020 audited financial statements. These Interim Financial Statements should be read in conjunction with the audited financial statements and notes there to for the year ended December 31, 2020.

4. Significant Accounting Judgments, Estimates and Assumptions

The preparation of the Interim Financial Statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Accounting estimates will, by definition, seldom equal the actual results. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future years affected. Additional information on these estimates and judgements are disclosed in note 3(d) of the 2020 audited financial statements.

5. Summary of Significant Accounting Policies

The Interim Financial Statements of the Corporation follow the same accounting policies and basis of presentation as described in note 4 of the 2020 audited financial statements.

6. Trade and Other Receivables

The Corporation’s trade and other receivables are exposed to the risk of financial loss if the counterparty fails to meet its contractual obligations. The Corporation’s trade and other receivables include amounts due from the sale of petroleum and natural gas. The Corporation’s maximum exposure to credit risk at September 30, 2021 is in respect of $4,056,842 (December 31, 2020 - $2,967,449) of trade and other receivables.

The Corporation’s trade and other receivables consist of:

	As at	As at
	September 30, 2021	December 31, 2020
Trade receivables	4,056,842	2,967,449

The Corporation’s trade receivables relating to petroleum and natural gas sales are aged as follows:

September 30, 2021 December 31, 2020 As at	September 30, 2021 December 31, 2020 As at
0 to 60 days 622,248 383,795 61 to 90 days 645,671 226,686 Over 90 days 2,788,924 2,356,968
Total trade receivables	4,056,842 2,967,449

The majority of receivables over 90 days are held and offset by payables to working interest owners.

7

Notes to the Interim Financial Statements (unaudited)

September 30, 2021

7. Property and Equipment

	Petroleum and natural gas assets	Administrative assets	Total
Cost:
Balance at December 31, 2019	23,495,162	16,061	23,511,223
Additions to property and equipment	23,934	-	23,934
Acquisitions	-	-	-
Dispositions	-	-	-
Additions/revisions to future estimated decommissioning provision	(218,095)	-	(218,095)
Balance at December 31, 2020	23,301,001	16,061	23,317,062
Additions to property and equipment	58,264	-	58,264
Acquisitions	899,525	-	899,525
Additions/revisions to future estimated decommissioning provision	1,249,937	-	1,249,937
Balance as at September 30, 2021	25,508,727	16,061	25,524,788
	Oil and Gas Properties	Corporate Assets	Total
Accumulated depletion, depreciation and impairments:
Balance at December 31, 2019	11,131,679	16,061	11,147,740
Depletion and depreciation charge	1,216,198	-	1,216,198
Impairment charge	9,019,769	-	9,019,769
Dispositions	-	-	-
Balance at December 31, 2020	21,367,646	16,061	21,383,707
Depletion and depreciation charge	203,492	-	203,492
Impairment charge	-	-	-
Dispositions	-	-	-
Balance as at September 30, 2021	21,571,138	16,061	21,587,199
Net carrying value
At December 31, 2020	1,933,355	-	1,933,355
At September 30, 2021	3,937,589	-	3,937,589

Future development costs

The September 30, 2021 depletion expense calculation included $1,247,000 (December 31, 2020 – $6,763,000) for estimated future development costs associated with the Corporation’s proved and probable reserves.

8

Notes to the Interim Financial Statements (unaudited) September 30, 2021

8. Business Combinations

On July 1, 2021, the Corporation completed an acquisition of an additional net working interest from a joint venture partner in the Southwest Saskatchewan Cuthbert (6%), Hearts Hills (5%) and Luseland (5%) properties. The purchase price was satisfied by a reduction of the vendors arrears for operational costs of $899,525. The acquisition was accounted for as a business combination using the acquisition method of accounting as follows:

Fair value of net assets acquired:
Petroleum and natural gas assets	2,149,462
Provision for decommissioning	1,249,937
Total net assets acquired	899,525
Consideration:
Forgiveness of workinginterest holder’s charges in arrears	899,525
Totalpurchaseprice	899,525

The estimated fair value oft he petroleum and natural gas assets acquired (P&E) were made by management based on available information at the time oft he closing of the acquisition.

9. Trade and Other Payables

The Corporation’s trade and other payables consist of:

September 30, 2021 December 31, 2020 As at	September 30, 2021 December 31, 2020 As at
Trade payables 9,348,258 10,460,143 Accrued liabilities and other payables 164,755 145,546 Goods and Services Taxpayable - -
	9,513,014 10,605,689

Trade payables are non-interest bearing and are normally settled on 30 to 120-day terms. A total of $1,570,318 of these payables have been deferred as certain vendors have agreed to monthly payment schedules over the next 1224 months.

9

Notes to the Interim Financial Statements (unaudited) September 30, 2021

10. Credit Facilities & Debentures

The following table presents the continuity of the Corporation’s credit facilities and Debentures:

	Debt	Derivative Liability		Total
Balance at December 31, 2019	2,412,424		-	2,412,424
Amounts drawn	-		-	-
Cash repayments	(762,076)		-	(762,076)
Disposition proceeds	-		-	-
Debt forgiveness	(75,000)		-	(75,000)
Expiryof sharepurchase warrants	-		-	-
Balance at December 31, 2020	1,575,349		-	1,575,349
Amount drawn on Debentures	5,028,181		-	5,028,181
Accrued interest on Debentures	146,458		-	146,458
Issuance cost on Debentures	(285,000)		-	(285,000)
Cash repayments on Credit Facility	(846,241)		-	(846,241)
Debt forgiveness on Credit Facility	(729,108)		-	(729,108)
Balance as at September 30, 2021	4,889,639		-	4,889,639

Credit Facilities

As at September 30, 2021 $nil (December 31, 2020 - $1,575,349) was outstanding in relation to credit facility A and $nil (December 31, 2019 - $nil) was outstanding in relation to Credit Facility B.

Debentures

As at September 30, 2021 $4,889,639 (December 31, 2020 -$nil) was outstanding in relation to 2021 8% convertible debentures. Interest is calculated and paid quarterly and may be paid in either cash or shares at the then market price, at the Corporation’s discretion.

11. Provision for Decommissioning

September 30, 2021 December 31, 2020 As at	September 30, 2021 December 31, 2020 As at
Balance - January 1, 11,938,023 12,139,284 Acqusitions 1,249,937 - Dispositions - - Additions and revisions to estimates - (218,093) Accretion 134,303 16,832
Balance – end ofperiod	13,322,263 11,938,023

The Corporation’s provision for decommissioning is based on the following estimates and assumptions:

	September 30, 2021	December 31, 2020
Inflation adjusted undiscounted future cash flows	16,115,049	14,549,131
Annual inflation rate	1.5%	2.0%
Settlement of liability occurring in approximately	1 – 15 years	1 – 15 years
Risk free discount rate	1.55%	1.55%

10

Notes to the Interim Financial Statements (unaudited) September 30, 2021

12. Share-Based Payment Plans

The Corporation’s stock option plan provides for the granting of options to directors, officers, employees and consultants. Under the terms of the option plan, options issued will not exceed 10 percent of the issued and outstanding shares from time to time. The aggregate number of common shares reserved for issuance to any one director, officer or employee in any 12- month period shall not exceed 5% of the Corporation’s issued and outstanding common shares at the date of grant, and the aggregate number of common shares reserved for issuance pursuant to options granted to any one consultant in any 12-month period may not exceed 2% of the Corporation’s issued and outstanding common shares at the date of the grant. Stock options are non-assignable, non-transferrable and nontradable and shall be exercisable for a term not to exceed five years from the date of the grant. The exercise price of stock options shall be fixed by the Corporation’s Board of Directors on the basis of the market price of the Corporation’s shares on the grant date.

The following table provides a continuity of the share options outstanding at the beginning and end of the following periods:

	Nine Months Ended	Nine Months Ended
	September	30, 2021
	Weighted
	Average
	Exercise Price	No. of Options
Balance, December 31, 2018	$ 0.07	2,350,000
Granted	0.05	2,050,000
Expired	0.10	(350,000)
Balance, December 31, 2019	$ 0.06	4,050,000
Granted	0.05	2,900,000
Expired	0.05	(1,733,333)
Forfeited	0.05	(1,166,667)
Balance, December 31, 2020 and September 30, 2021	$ 0.06	4,550,000

The range of exercise prices of the outstanding options and exercisable options as at September 30, 2021 were as follows:

Expiry date	Number of Stock Options Outstanding	Number of Stock Options Exercisable	Exercise Price	Weighted-Average Contractual Life Remaining (Years)
October 6, 2021	600,000	600,000	$ 0.09	0.27
October 7, 2024	333,333	333,333	$ 0.05	3.27
December 5, 2024	716,667	716,667	$ 0.05	3.44
December 31, 2025	2,100,000	2,100,000	$ 0.05	4.51
June 30,2025	800,000	800,000	$ 0.05	4.00
	4,550,000	4,550,000		3.10

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Notes to the Interim Financial Statements (unaudited) September 30, 2021

13. Issued Capital

Prospera is authorized to issue an unlimited number of Common Shares The following provides a continuity of outstanding share capital:

	Common Shares		Amount
Shares as at December 31,2019	65,122,311	-	11,649,956
Issue of share capital	-		-
Issue of share capital proceeds received in advance	-		-
Share issue costs	-		-
Issue of sharepurchase warrants	-		-
Shares as at December 31,2020	65,122,311	-	11,649,956
Issue of share capital	46,179,866		840,586
Issue of share capital proceeds received in advance	-		-
Share issue costs	-		-
Issue of sharepurchase warrants	-		-
Shares as at September 30, 2021	111,302,177	$	12,490,542

Share Purchase Warrants

A continuity of the Corporation’s share purchase warrants outstanding is as follows:

		Nine Months Ended	Nine Months Ended	Nine Months Ended
	Weighted
	Average		No. of
	Exercise Price		Warrants	Amount
Balance, December 31, 2019	$	0.14	13,245,000	$ 297,834
Issued		0.05	5,000,000	100,000
Expired		0.10	(11,375,000)	(96,163)
Balance, December 31, 2020	$	0.07	6,870,000	$ 301,671
Issued		0.05	8,000,000	400,000
Expired		-	-	-
Balance, September 30, 2021	$	0.06	14,870,000	$ 701,671

12

Notes to the Interim Financial Statements (unaudited) September 30, 2021

14. Earnings (Loss) per Share

The following table reflects the earnings/loss and share data used in the basic and diluted earnings per share calculations:

2021 2020 2021 2020 Three months-ended September 30 Nine months-ended September 30	2021 2020 2021 2020 Three months-ended September 30 Nine months-ended September 30	2021 2020 2021 2020 Three months-ended September 30 Nine months-ended September 30	2021 2020 2021 2020 Three months-ended September 30 Nine months-ended September 30	2021 2020 2021 2020 Three months-ended September 30 Nine months-ended September 30
Net earnings (loss) used in the calculation of total basic and diluted earningsper share (1,270,030) (210,991) (1,433,652) (1,778,546)
Weighted average number of shares for the purposes of basic earnings per share 111,302,177 65,122,311 111,302,177 65,122,311 Effect of dilution NIL NIL NIL NIL
Weighted average number of shares 111,302,177 65,122,311 111,302,177 65,122,311
Earnings (loss) per share – Basic (0.01) Earnings(loss) per share – Diluted (0.01)	(0.00) (0.00)		(0.01) (0.01)	(0.03) (0.03)

15. Related Party Transactions

During the nine months ended September 30, 2021, management, consulting and engineering fees of $nil were included in general and administrative expenses, were charged by a former officer of the Corporation (December 31, 2020 – $48,000). Included in trade and other payables at September 30, 2021 is $nil (December 31, 2020 – $12,000) owing to this officer .

The above transactions with related parties are in the normal course of business. The receivables and payables are unsecured in nature and bear no interest.

16. Personnel Expenses

The Corporation’s statement of loss and comprehensive loss is prepared primarily by nature of expense, with the exception of $110,000 consulting fees for management personnel which are included in general and administrative expenses for the period ended September 30, 2021.

Key management personnel include executive officers and non-executive directors. Executive officers are paid a salary and participate in the Corporation’s stock option program. The executive officers include the Chief Executive Officer and Chief Financial Officer. Non-executive directors also participate in the Corporation’s stock option program. Key management compensation is comprised of the following:

2021 2020 Nine months-ended September 30	2021 2020 Nine months-ended September 30	2021 2020 Nine months-ended September 30	2021 2020 Nine months-ended September 30	2021 2020 Nine months-ended September 30
Salaries and benefits		25,000		144,000
Consulting fees 110,000 -
Share-based payments Deferred share units			- -	13,490 -
			135,000	157,490

13

Notes to the Interim Financial Statements (unaudited) September 30, 2021

17. Financial Risk Management and Capital Management

The Corporation’s activities expose it to a variety of financial risks arising from its financial assets and liabilities. The Corporation manages its exposure to financial risks by operating in a manner that minimizes its exposure to the extent practical. The main financial risks affecting the Corporation are:

Credit Risk

The Corporation is exposed to credit risk in relation to its cash and trade and other receivables. Cash is held with highly rated Canadian banks. Therefore, the Corporation does not believe these financial instruments are subject to material credit risk. The Corporation’s trade and other receivables include amounts due from the sale of petroleum and natural gas (Note 17). The Corporation’s production is sold to a variety of purchasers under normal industry sale and payment terms. Accounts receivable are from customers and joint operating partners in the Canadian petroleum and natural gas industry and are subject to normal industry specific credit risk.

Liquidity Risk

The Corporation’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet its financial liabilities when they become due. Management mitigates liquidity risk by maintaining banking and other borrowing facilities, continuously monitoring forecast and actual cash flows and actively seeking equity financing to assist with projected cash outflows. As at September 30, 2021, the Corporation has a working capital deficiency of $4,957,837 and an accumulated deficit of $35,667,517. The Corporation’s ability to continue as a going concern (Note 2) is continuously dependent on accessing additional financing and achieving profitable operations.

The Corporation’s financial liabilities as at September 30, 2021 total $14,402,653 comprised of $9,513,014 of trade and other payables and $4,889,639 of debentures, all of which are classified as current and long-term liabilities respectively.

Market Risk

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate with changes in market interest rates. The Corporation is not exposed to interest rate fluctuations at September 30, 2021 as there are no investments of excess cash in short-term money market investments and credit facilities are at fixed rates of interest.

Foreign currency risk

Management believes the foreign currency risk arising from currency exchange rate fluctuations related to financial instruments held in foreign currencies is negligible as the Corporation held no foreign denominated financial instruments as at as September 30, 2021.

Commodity price risk

The nature of the Corporation’s operations results in exposure to commodity price fluctuations. The Corporation closely monitors commodity prices to determine the appropriate course of action to be taken. The Corporation does not hedge commodity price risk and has no physical forward price or financial derivatives sales contracts as at September 30, 2021.

Capital Management

The Corporation’s policy is to maintain a strong capital base for the objectives of maintaining financial flexibility, to sustain the development of the Corporation’s current capital projects and for future development of the Corporation. The Corporation monitors its working capital and expected capital spending and raises additional equity by the issue of share capital to manage its development plans. The Corporation has no externally imposed capital requirements apart from the banking covenants on the Corporation’s credit facilities (Note 10).

14

Notes to the Interim Financial Statements (unaudited) September 30, 2021

The Corporation continues to assess additional petroleum and natural gas projects and plans to raise additional debt or equity amounts as needed to fund acquisitions and to maintain sufficient working capital to meet administrative expenditures. The Corporation considers its capital structure to be working capital and shareholders deficiency. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Corporation, is reasonable. There were no changes in the Corporation's approach to capital management during the nine months ended September 30, 2021. The Corporation’s working capital deficiency at September 30, 2021 was $4,957,837 (December 31, 2020 – $8,634,415). The Corporation’s shareholders’ deficiency at September 30, 2021 was $35,667,517 (December 31, 2020 – $34,233,865).

18. Petroleum and Natural Gas Sales

The following table represents the Corporation’s petroleum and natural gas sales disaggregated by commodity:

Nine months-ended

	September 30
	2021 2020
Petroleum and natural gas sales: Natural gas Oil	- - 2,093,686 2,765,229
Total petroleum and natural gas sales	2,093,686 2,765,229

The Corporation sells its petroleum and natural production pursuant to variable-price contracts which generally have a term of one year or less. The transaction price for variable priced contracts is based on the commodity index price and may include adjustments for quality, location or other factors depending on the contract terms. The Corporation delivers variable or fixed volumes of crude oil and variable volumes of natural gas to the respective counterparty throughout the contract period. Sales revenue is recognized when production is delivered to the contract counterparty. The transaction price that is used in determining the amount of sales revenue to recognize is subject to variability due to fluctuations in commodity prices over the contract period. Volumes delivered to the contract counterparty are limited to the Corporation’s ability to transfer production. Sales revenue is recognized at a point in time when a customer obtains legal title to the product, which is when volumes are physically transferred to the contract counterparty. The amount of sales revenue recognized is based on the transaction price. Transaction price variability, discussed above, is recognized in the same period as the Corporation is not constrained in meeting its performance obligations.

During the three and nine months ended period, all of the Corporation’s petroleum and natural gas sales were generated in Saskatchewan and Alberta and the production was sold primarily to four major customers. The Corporation’s petroleum sales result from variable price contracts whereby the transaction price is predominantly based on the WTI index price in the transaction month with variable adjustments for quality, location and or other factors. The transaction price for all-natural gas sales is based on the AECO benchmark price. Sales revenues are typically collected on the 25th day of the month following production.

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