Storm Resources Ltd. — Interim / Quarterly Report 2020

Nov 11, 2020

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Condensed Interim Consolidated Statements of Financial Position

(Canadian$000s) (unaudited)	Notes	September 30,2020	December 31,2019
ASSETS
Current
Accounts receivable	12	$ 7,455	$ 21,961
Prepaids and deposits		821	764
Risk management contracts	12	-	1,113
		8,276	23,838
Exploration and evaluation	3	99,870	99,737
Property and equipment	4	502,750	490,264
Right-of-use asset	7	2,329	2,657
		$ 613,225	$ 616,496
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities		$ 17,691	$ 30,018
Current portion of decommissioning liability	8	1,551	448
Current portion of lease liability	7	510	507
Risk management contracts	12	18,305	2,042
		38,057	33,015
Bank indebtedness	5	128,568	121,608
Risk management contracts	12	4,897	904
Lease liability	7	1,949	2,234
Decommissioning liability	8	30,704	27,667
Deferred income taxes		4,042	9,360
		208,217	194,788
Shareholders' equity
Share capital	9	391,444	391,444
Contributed surplus	10	18,992	17,605
Retained earnings		(5,428)	12,659
		405,008	421,708
Commitments	14
		$ 613,225	$ 616,496

See accompanying notes to the condensed interim consolidated financial statements.

On behalf of the Board:

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Director

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Director

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Condensed Interim Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

		Three Months	Ended Sept. 30	Nine Months	Ended Sept. 30
(Canadian $000s except per-share amounts)
(unaudited)	Notes	2020	2019	2020	2019
Revenue
Revenue from product sales	6	$ 30,010	$ 31,417	$ 102,124	$ 124,751
Royalties		(1,343)	332	(4,399)	(4,902)
		28,667	31,749	97,725	119,849
Realized gain (loss) on risk management contracts	12	898	2,811	10,148	(7,189)
		29,565	34,560	107,873	112,660
Expenses
Production		8,471	10,068	29,522	31,611
Transportation		11,248	9,981	34,064	30,995
General and administrative		1,261	1,359	4,698	5,438
Share-based compensation	10	483	648	1,387	1,808
Depletion and depreciation	4, 7	10,493	9,550	34,351	29,250
Exploration and evaluation costs expensed	3	-	-	450	1,119
Accretion	8	70	120	256	372
Interest and finance costs		1,928	1,215	5,093	3,648
Unrealized (gain) loss on risk management contracts	12	18,022	1,277	21,369	(3,540)
Unrealized revaluation loss on investment		1	81	88	98
		51,977	34,299	131,278	100,799
Net income (loss) and comprehensive income (loss)		(22,412)	261	(23,405)	11,861
Deferred income tax expense (recovery)		(5,478)	325	(5,318)	3,454
Net income (loss) and comprehensive income (loss)		$ (16,934)	$ (64)	$ (18,087)	$ 8,407
Net income (loss) per share – basic and diluted	11	$ (0.14)	$ (0.00)	$ (0.15)	$ 0.07

See accompanying notes to the condensed interim consolidated financial statements.

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Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity

(Canadian$000s) (unaudited)			NineMonthsEnded September30,2020	NineMonthsEnded September30,2020
	Notes	Share Capital	Contributed Surplus	Retained Earnings (Deficit) Total Equity
Balance, beginning of period		$ 391,444	$ 17,605	$ 12,659 $ 421,708
Net loss for the period		-	-	(18,087) (18,087)
Share-based compensation	10	-	1,387	- 1,387
Balance, end of period		$ 391,444	$ 18,992	$ (5,428) $ 405,008

(Canadian$000s) (unaudited)			NineMonthsEnded September30,2019	NineMonthsEnded September30,2019	NineMonthsEnded September30,2019
			Contributed	Retained
	Notes	Share Capital	Surplus	Earnings	Total Equity
Balance, beginning of period		$ 391,444	$ 15,141	$ 1,346	$ 407,931
Net income for the period		-	-	8,407	8,407
Share-based compensation	10	-	1,808	-	1,808
Balance, end of period		$ 391,444	$ 16,949	$ 9,753	$ 418,146

See accompanying notes to the condensed interim consolidated financial statements.

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Condensed Interim Consolidated Statements of Cash Flows

		Three Months Ended Sept. 30	Three Months Ended Sept. 30	Nine Months	Ended Sept. 30
(Canadian$000s) (unaudited)	Notes	2020	2019	2020	2019
Operating activities
Net income (loss) for the period		$ (16,934)	$ (64)	$ (18,087)	$ 8,407
Non-cash items:
Unrealized (gain) loss on risk management	12	18,022	1,277	21,369	(3,540)
Depletion, depreciation and accretion	4, 7, 8	10,563	9,670	34,607	29,622
Share-based compensation	10	483	648	1,387	1,808
Lease interest	7	31	36	98	112
Exploration and evaluation costs expensed	3	-	-	450	1,119
Unrealized revaluation loss on investment		1	81	88	98
Deferred income tax expense (recovery)		(5,478)	325	(5,318)	3,454
Decommissioning expenditures	8	(7)	-	(120)	-
Funds flow		6,681	11,973	34,474	41,080
Net change in non-cash working capital items	13	4,831	(1,202)	6,995	11,702
		11,512	10,771	41,469	52,782
Financing activities
Payment of lease liability	7	(127)	(125)	(380)	(374)
Increase (decrease) in bank indebtedness		(790)	22,892	6,960	20,688
		(917)	22,767	6,580	20,314
Investing activities
Additions to property and equipment	4	(14,007)	(33,660)	(42,542)	(72,214)
Additions to exploration and evaluation assets	3	(212)	819	(546)	(716)
Net change in non-cash working capital items	13	3,624	(697)	(4,961)	(166)
		(10,595)	(33,538)	(48,049)	(73,096)
Change in cash during the period		-	-	-	-
Cash, beginning of period		-	-	-	-
Cash, end of period		$ -	$ -	$ -	$ -

See accompanying notes to the condensed interim consolidated financial statements.

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NOTES TO THE CONDENSED INTERIM

CONSOLIDATED FINANCIAL STATEMENTS

As at September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019

Tabular amounts in thousands of Canadian dollars, except per-share amounts (unaudited)

1. REPORTING ENTITY

Storm Resources Ltd. (the “Company” or "Storm"), is a crude oil and natural gas exploration and development company incorporated in the province of Alberta, Canada on June 8, 2010 and is listed on the TSX under the symbol “SRX”. The Company operates primarily in the province of British Columbia and its head office is located at Suite 600, 215 – 2[nd] Street S.W., Calgary, Alberta T2P 1M4. The Company became a reporting issuer in August 2010.

These unaudited condensed interim consolidated financial statements (the “financial statements”) include the accounts of Storm and its wholly owned subsidiary, Storm Gas Resource Corp. All inter-entity transactions have been eliminated upon consolidation. Storm’s operations are viewed as a single operating segment by the chief decision maker of the Company for the purpose of resource allocation and assessing asset performance.

2. BASIS OF PRESENTATION

Statement of Compliance

The financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34 “Interim Financial Reporting” using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Certain information and disclosures normally included in the notes to the consolidated financial statements have been condensed or have been disclosed on an annual basis only. Accordingly, these condensed interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements as at and for the year ended December 31, 2019. All financial information is reported in thousands of Canadian dollars, which is the functional currency of the Company.

These financial statements were authorized for issue by the Board of Directors on November 10, 2020.

Basis of Measurement

The Company’s financial statements have been prepared on a going concern basis consistent with prior years, and follow the historical cost convention, except for certain financial assets and financial liabilities, which are measured at fair value, as explained in Note 12.

Significant Accounting Judgments, Estimates and Assumptions

The preparation of the financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, shareholders' equity, revenue and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are continuously reviewed with the financial statement effect being recognized in the reporting period that the changes to estimates are made.

Critical judgments applied by management to accounting policies that have the most significant effect on the amounts in the financial statements are described in Note 5 to the Company’s audited consolidated financial statements for the year ended December 31, 2019.

In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The rapid outbreak and subsequent measures intended to limit the spread of COVID-19 have contributed to a significant increase in economic uncertainty, with more volatile commodity prices, currency exchange rates and interest rates. The duration and severity of the business disruptions and reduction in consumer activity internationally and the resulting financial effect is difficult to reliably estimate. The results of the economic downturn and any potential resulting direct or indirect

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effect on the Company has been considered in management’s estimates at period end. However, there could be further prospective material effects in future periods.

3. EXPLORATION AND EVALUATION

3. EXPLORATION AND EVALUATION
	Nine Months Ended	Year Ended
	September 30,2020	December 31,2019
Balance, beginning of period	$ 99,737	$ 102,277
Additions	546	2,169
Dispositions	-	(1,083)
Expiries - exploration and evaluation costs expensed	(450)	(1,140)
Future decommissioning costs	37	178
Transfer topropertyand equipment	-	(2,664)
Balance, end ofperiod	$ 99,870	$ 99,737

As at September 30, 2020, the Company reviewed the carrying amounts of exploration and evaluation assets for indicators of potential impairment. As a result of this assessment, no indicators of impairment were identified.

4. PROPERTY AND EQUIPMENT

4. PROPERTY AND EQUIPMENT
	Nine Months Ended	Year Ended
	September30,2020	December31,2019
Cost
Balance, beginning of period	$ 746,515	$ 646,983
Additions	42,542	95,757
Future decommissioning costs	3,967	1,111
Transfer from exploration and evaluation assets	-	2,664
Balance, end ofperiod	$ 793,024	$ 746,515
Accumulated depletion and depreciation
Balance, beginning of period	$ (256,251)	$ (216,182)
Depletion and depreciation	(34,023)	(40,069)
Balance, end ofperiod	$(290,274)	$(256,251)
Net book value, beginning of period	$ 490,264	$ 430,801
Net book value, end ofperiod	$ 502,750	$ 490,264

As at September 30, 2020, the Company evaluated property and equipment for indicators of potential impairment. Given the ongoing changes in the overall business environment and current uncertainties in commodity markets, at September 30, 2020 the Company reviewed externally available forward commodity prices and as a result of this assessment, no indicators of impairment were identified on property and equipment.

As at December 31, 2019, the balance of assets under construction not subject to depreciation or depletion was $65.0 million and related to the construction of the Nig Creek Gas Plant located in northeast British Columbia. In February 2020, construction of the Nig Creek Gas Plant was completed and the gas plant is being depreciated on a straight-line basis over its estimated useful life of 35 years.

5. BANK INDEBTEDNESS

As at September 30, 2020, the Company had an extendible revolving credit facility in the amount of $190 million (December 31, 2019 - $205 million) based on a bank determined borrowing base related to the Company’s producing reserves. Although the borrowing base was set at $205 million, the Company voluntarily reduced the credit facility amount to $190 million in order to reduce the associated fees. The credit facility is available to the Company until May 28, 2021, at which time the borrowing base amount will be reviewed and in the ordinary course of business the Company will have the option to extend the facility for an additional year. If the credit facility is not extended, the facility moves into a term phase whereby the outstanding loan amount is to be repaid in full one year later. In the event that the lenders reduce the borrowing base below the amount drawn, the Company would have 90 days to eliminate any borrowing base shortfall by repaying the amount drawn in excess of the re-determined borrowing base or by providing additional security or other consideration satisfactory to the lenders. Repayments of principal are not required provided that the borrowings under the credit facility do not exceed the authorized borrowing amount. Interest is paid on the

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utilized portion of the credit facility at bankers’ acceptance rates, plus a stamping fee. Collateral comprises a floating charge demand debenture on the assets of the Company.

At September 30, 2020, debt including outstanding letters of credit amounted to $142.0 million, representing approximately 75% of the available credit facility.

As at September 30, 2020, the Company had issued letters of credit in the amount of $13.4 million (December 31, 2019 - $10.0 million) in support of future natural gas transportation and processing obligations.

6. REVENUE FROM PRODUCT SALES

The following table presents the Company’s revenue from product sales disaggregated by revenue source:

	Three Months Ended	Three Months Ended	Nine Months Ended	Nine Months Ended
	September 30,2020	September 30,2019	September 30,2020	September 30,2019
Natural gas	$ 20,813	$ 20,252	$ 70,998	$ 82,652
Condensate	7,046	10,836	26,961	36,726
NGL	2,151	329	4,165	5,373
Total	$ 30,010	$ 31,417	$ 102,124	$ 124,751

Storm’s revenue was generated mostly in British Columbia where production was sold primarily to two major energy customers with investment grade credit ratings which accounted for 83% and 82% of the Company’s total revenue from product sales for the three and nine months ended September 30, 2020, respectively (September 30, 2019 - 83% and 81%, respectively, from two major customers). The majority of revenues are derived from variable price contracts based on index prices at each sales point. Of total natural gas revenue for the nine months ended September 30, 2020, 57% received Chicago pricing, 15% received BC Station 2 pricing, 13% received AECO pricing, 10% received Sumas pricing, and the remaining 5% received ATP pricing.

7. RIGHT-OF-USE ASSET AND LEASE LIABILITY

Right-of-Use Asset

The following table provides a reconciliation of the carrying amount of the right-of-use asset pertaining to the Company’s corporate office lease in Calgary:

corporate office lease in Calgary:
	Nine Months Ended	Year Ended
	September30,2020	December31,2019
Cost
Balance, beginning of period	$ 3,094	$ 3,094
Additions	-	-
Balance, end ofperiod	$ 3,094	$ 3,094
Accumulated depreciation
Balance, beginning of period	$ (437)	$ -
Depreciation	(328)	(437)
Balance, end ofperiod	$(765)	$(437)
Net book value, beginning of period	$ 2,657	$ 3,094
Net book value, end ofperiod	$ 2,329	$ 2,657

As at September 30, 2020, the net book value of the right-of-use asset for the Company’s corporate office lease in Calgary is $2.3 million (December 31, 2019 - $2.7 million) with a remaining lease term to the year 2026.

Lease Liability

The following table provides a reconciliation of the carrying amount of the liability pertaining to the Company’s corporate office lease in Calgary:

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	Nine Months Ended	Year Ended
	September30,2020	December31,2019
Balance, beginning of period	$ 2,741	$ 3,094
Lease payments	(380)	(500)
Lease interest	98	147
Balance, end of period	$ 2,459	$ 2,741
Less currentportion	510	507
Long-termportion	$ 1,949	$ 2,234

The lease liability was measured at the present value of the remaining lease payments discounted at the Company’s weighted average incremental borrowing rate of 5%.

As at September 30, 2020, the total undiscounted amount of the estimated future cash flows to settle the Company’s lease liability over the remaining lease term is $2.8 million.

Short-term leases are leases with a lease term of twelve months or less. During the nine months ended September 30, 2020, short-term lease costs of approximately $1.4 million (September 30, 2019 - $1.7 million) were incurred primarily relating to the lease of drilling equipment which was captured within property and equipment costs.

8 . DECOMMISSIONING LIABILITY

The Company provides for the future cost of decommissioning crude oil and natural gas production assets, including well sites, gathering systems and facilities. The total decommissioning obligation is estimated based on the Company’s net ownership interest in wells and facilities, the estimated costs to abandon and reclaim the wells, gathering systems and facilities and the estimated timing of future costs. The total estimated inflated and undiscounted liability required to settle the Company’s decommissioning obligation is approximately $38.8 million (December 31, 2019 - $38.3 million), with the majority of payments being made in the years 2034 to 2054. A risk-free discount rate of 1.1% (December 31, 2019 - 1.7%) and an inflation rate of 1.3% (December 31, 2019 - 1.4%) was used to calculate the present value of the decommissioning obligation, amounting to $32.3 million at September 30, 2020.

The following table provides a reconciliation of the carrying amount of the obligation:

	Nine Months Ended	Year Ended
	September 30,2020	December 31,2019
Balance, beginning of period	$ 28,115	$ 26,334
Obligations incurred	781	2,706
Obligations settled	(120)	(246)
Change in estimates(1)	3,223	(1,171)
Accretion expense	256	492
Balance, end of period	$ 32,255	$ 28,115
Less currentportion	1,551	448
Long-termportion	$ 30,704	$ 27,667

(1) Relates to changes in risk-free discount rates, inflation rates and estimated settlement dates.

9. SHARE CAPITAL

Authorized

An unlimited number of voting common shares without nominal or par value An unlimited number of first preferred shares without nominal or par value

Issued

Issued
						Number of Common Shares	Consideration
Balance as at December	31,	2019	and September	30,	2020	121,557	$ 391,444

For the period from January 1, 2020 to November 10, 2020 there were no common shares issued upon the exercise of stock options.

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10. SHARE-BASED COMPENSATION

The Company has a stock option plan under which it may grant, at the Company’s discretion, options to purchase common shares to directors, officers and employees. Options are granted at the volume weighted average price of the shares on the TSX for the five trading days immediately preceding the date of grant, have a four-year term and vest in one-third tranches over three years. Under the stock option plan, at September 30, 2020, a total of 12,155,681 common shares were available for issuance. At September 30, 2020, options in respect of 10,277,100 common shares were issued and outstanding and options in respect of 1,878,581 common shares were available for future issue.

At November 10, 2020, the date of this report, options in respect of 10,097,100 common shares were issued and outstanding and options in respect of 2,058,581 common shares are available for future issue.

Details of the options outstanding at September 30, 2020 are as follows:

				Weighted Average	Weighted Average
			NumberofOptions	(000s)	ExercisePrice
Outstanding at December 31, 2019				10,188	$ 2.74
Granted during the period				238	$ 1.29
Forfeited duringtheperiod				(149)	$ 2.46
Outstandingat September 30, 2020				10,277	$ 2.72
Number exercisable at September 30, 2020				4,734	$ 3.81
Range of Exercise Price		Outstanding Options		Exercisable Options
	Number of	Weighted	Weighted	Number of	Weighted
	Options	Average	Average	Options	Average
	Outstanding	Remaining	Exercise	Outstanding	Exercise
	(000s)	Life(years)	Price	(000s)	Price
$1.11 - $2.85	5,632	2.8	$ 1.63	886	$ 1.83
$2.86 - $4.50	2,631	1.2	$ 2.98	1,834	$ 3.04
$4.51 - $5.50	2,014	0.2	$ 5.39	2,014	$ 5.39
Total	10,277	1.9	$ 2.72	4,734	$ 3.81

The fair value of employee stock options is measured using the Black-Scholes option pricing model. Measurement inputs include the share price on measurement date, exercise price of the instrument, expected volatility, forfeiture rate, weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends and the risk-free interest rate (based on government bonds).

The weighted average inputs used in the Black-Scholes pricing model to determine the fair value of the options granted during the nine months ended September 30, 2020 of $0.46 per share include the following:

	2020
Share price	$1.29
Exercise price	$1.29
Volatility	48%
Forfeiture rate	2%
Expected option life (years)	3.7
Risk-free interest rate	0.4%

Share-based compensation expense of $0.5 million and $1.4 million was charged to the consolidated statement of income (loss) during the three and nine months to September 30, 2020, respectively (2019 - $0.6 million and $1.8 million, respectively) with an equivalent offset to contributed surplus.

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11. NET INCOME (LOSS) PER SHARE

Basic and diluted net income (loss) per share were calculated as follows:

	Three Months Ended	Three Months Ended	Nine Months Ended	Nine Months Ended
	September 30,2020	September 30,2019	September 30,2020	September 30,2019
Net income(loss)for theperiod	$(16,934)	$(64)	$(18,087)	$ 8,407
Weighted average number of common
shares outstanding – basic	121,557	121,557	121,557	121,557
Dilutive effect of stock options(1)	-	-	-	-
Weighted average number of common
shares outstanding – diluted	121,557	121,557	121,557	121,557
Net income (loss) per share
Basic and diluted	$(0.14)	$(0.00)	$(0.15)	$ 0.07

• (1) For the three and nine months ended September 30, 2020, the Company incurred net losses and therefore there were no dilutive effects of stock options. For the three and nine months ended September 30, 2019, 9.1 million weighted average common shares related to stock options were anti-dilutive.

12. FINANCIAL INSTRUMENTS

The Company’s financial instruments include accounts receivable, prepaids and deposits, accounts payable and accrued liabilities, bank indebtedness and risk management contracts.

Storm classifies the fair value of financial instruments according to the following hierarchy based on the amount of observable inputs used to value the instrument.

• Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and volume to provide continual and verifiable pricing information.

• Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1. Prices in Level 2 are either directly or indirectly observable as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities and interest rates, time value and volatility factors, which can be substantially observed or corroborated in the marketplace.

• Level 3 – Valuations in this level are those with inputs for the asset or liability that are not based on observable market data.

The carrying value of bank indebtedness approximates its fair value as it bears interest at market rates. The fair value of the Company’s risk management contracts described below is based on forward prices of commodities and interest rates available in the market place and they are therefore classified as Level 2 financial instruments. The Company does not have any financial instruments classified as Level 3 and there were no transfers between levels within the fair value hierarchy for the three and nine months ended September 30, 2020.

The Company’s risk management contracts are subject to master netting agreements that create a legally enforceable right to offset by counterparty the related financial assets and financial liabilities on the Company’s consolidated statements of financial position. The following is a summary of the Company’s financial assets and financial liabilities that are subject to offset as at September 30, 2020:

	Gross Amounts	Gross Amounts	Net Amounts
	Recognized as Financial	of Financial Assets	Recognized as Financial
	Assets(Liabilities)	(Liabilities)Offset	Assets(Liabilities)
Risk management contracts
Current asset	$ 2,798	$ (2,798)	$ -
Long-term asset	817	(817)	-
Current liability	(21,103)	2,798	(18,305)
Long-term liability	(5,714)	817	(4,897)
Netposition	$(23,202)	$ -	$(23,202)

The following is a summary of the Company’s financial assets and financial liabilities that were subject to offset as at December 31, 2019:

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	Gross Amounts	Gross Amounts	Net Amounts
	Recognized as Financial	of Financial Assets	Recognized as Financial
	Assets(Liabilities)	(Liabilities)Offset	Assets(Liabilities)
Risk management contracts
Current asset	$ 1,805	$ (692)	$ 1,113
Long-term asset	-	-	-
Current liability	(2,734)	692	(2,042)
Long-term liability	(904)	-	(904)
Netposition	$(1,833)	$ -	$(1,833)

Accounts Receivable

The Company’s accounts receivable tend to be concentrated with a limited number of marketers of the Company’s production as well as joint venture partners and are subject to normal industry credit risk. Receivables from crude oil and natural gas marketers are typically collected on or about the 25[th] of the following month. The Company's production is sold to organizations whose credit worthiness is in part assessable from publicly available information. As at September 30, 2020, the Company’s two major energy customers with investment grade credit ratings accounted for $6.9 million of total receivables (September 30, 2019 - $9.3 million from two major customers) and 83% and 82% of total revenues for the three and nine months ended September 30, 2020, respectively (three and nine months ended September 30, 2019 - 83% and 81%, respectively). Where operations involve partners in a joint venture, the Company attempts to mitigate the risk from joint venture receivables by obtaining pre-approval and cash call deposits from its partners in advance of significant capital expenditures. Receivables from joint ventures are typically collected within one to three months of the joint venture bill being issued. As at September 30, 2020, there were no receivables outstanding for more than 90 days. No material default on outstanding receivables is anticipated as none of the Company’s outstanding receivables are considered past due at September 30, 2020.

The maximum exposure to credit risk at September 30, 2020 was the carrying amount of accounts receivable of $7.5 million. No receivables were impaired at September 30, 2020.

Commodity Price Risk

The Company uses risk management contracts to manage its exposure to fluctuations in commodity prices, by fixing prices of future deliveries of crude oil and natural gas and thus providing stability of funds flow. Although the Company had no crude oil production at September 30, 2020, part of its condensate and NGL stream is sold at a price based on crude oil. Accordingly, a financial investment based on crude oil is used as a proxy for the Company’s condensate and NGL stream. At the date of this report, the Company had entered into the following outstanding financial risk management contracts in place to manage commodity price risk:

As at November 10, 2020			2020	2021	2022
Natural Gas
NYMEX swap	Mmbtu/d		3,650	2,584	-
	US$/Mmbtu		$2.49	$2.44	-
NYMEX swap	Mmbtu/d		842	6,814	-
	Cdn$/Mmbtu		2.86	$3.36	-
NYMEX collar	Mmbtu/d		9,685	1,575	1,110
	US$/Mmbtu	$1.94 - $2.45		$2.57 - $3.04	$2.72 - $3.67
NYMEX collar	Mmbtu/d		18,825	5,159	1,480
	Cdn$/Mmbtu	$2.79 - $3.34		$3.50 - $4.04	$3.53 - $4.13
Chicago swap	Mmbtu/d		-	752	4,975
	US$/Mmbtu		-	$3.11	$2.52
Chicago swap	Mmbtu/d		4,484	17,856	1,110
	Cdn$/Mmbtu		$3.55	$3.20	$3.65
AECO swap	GJ/d		8,000	7,682	-
	Cdn$/GJ		$1.98	$2.16	-
AECO collar	GJ/d		10,609	3,945	1,488
	Cdn$/GJ	$1.97 - $2.53		$1.97 - $2.53	$2.20 - $3.11
BC Station 2 swap	GJ/d		15,300	22,773	8,804
	Cdn$/GJ		$1.95	$2.00	$2.33

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As at November 10, 2020		2020	2021	2022
Natural Gas(continued)
Sumas swap	Mmbtu/d	1,685	-	-
	Cdn$/Mmbtu	$3.07	-	-
Natural Gas Differential Swaps
NYMEX:Chicago	Mmbtu/d	14,185	12,834	1,110
	US$/Mmbtu	($0.28)	($0.25)	$0.09
NYMEX:Chicago	Mmbtu/d	18,825	3,592	1,480
	Cdn$/Mmbtu	($0.29)	$0.06	$0.07
AECO:BC Station 2	GJ/d	4,641	1,726	1,488
	Cdn$/GJ	($0.10)	($0.10)	($0.01)
Crude Oil
WTI swap	Bbls/d	950	750	-
	Cdn$/Bbl	$59.75	$53.02	-
WTI collar	Bbls/d	800	650	-
	Cdn$/Bbl	$57.81 -$67.60	$50.54 -$59.93	-
Crude Oil Differential Swaps
WTI:C5	Bbls/d	1,100	747	-
	Cdn$/Bbl	($6.67)	($3.99)	-
Propane
Conway swap	Bbls/d	200	50	-
	Cdn$/Bbl	$28.25	$27.30	-

Physical Delivery Sales Contracts

The Company also enters into physical delivery sales contracts from time to time to manage commodity price risk. These contracts are considered normal executory contracts and are not recognized in the consolidated statement of income (loss) and comprehensive income (loss) until volumes are delivered.

	DailyVolume	Contract Price
Natural Gas
Oct 2020	14,028 Mmbtu at BC Station 2	Sumas less US$0.69/Mmbtu
Oct 2020	6,000 GJ at BC Station 2	AECO 7A less Cdn$0.295/GJ
Nov 2020 – Oct 2021	5,000 GJ at BC Station 2	AECO 7A less Cdn$0.125/GJ
Oct 2020 – Mar 2021	6,000 GJ at ATP	AECO 5Aplus Cdn$0.09/GJ

Interest Rate Risk

The Company may enter into interest rate swap contracts to manage the uncertainty of variable interest rates by fixing the variable component of a portion of the interest paid on the Company’s revolving bank facility. As at September 30, 2020, the Company had the following outstanding financial risk management contracts in place to manage interest rate risk:

risk:
			Notional		Fixed
Index	Effective	Date	Principal	RemainingTerm	Contract Rate
One-month bankers’ acceptance - CDOR(1)	May	2019	$25 million	Oct 2020 – May 2022	1.949%
One-month bankers’ acceptance - CDOR(1)	Jan	2020	$10 million	Oct 2020 – Jan 2023	1.943%
One-month bankers’ acceptance - CDOR(1)	Jan	2020	$15 million	Oct 2020 – Jan 2021	1.985%

(1) Canadian Dollar Offered Rate.

Risk Management

Risk management contracts may be used by the Company to manage exposure to market risks related to commodity prices, exchange rates and interest rates. The use of financial risk management contracts is governed by Storm’s Board of Directors and follows guidelines and limits approved by the Board. Storm does not use derivative contracts for speculative purposes. All derivative contracts are classified at fair value through profit and loss and measured at fair value, with gains and losses on re-measurement included as a component of unrealized risk management contracts in the period in which they arise.

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The fair market value of these risk management contracts at September 30, 2020 was a net liability position of $23.2 million (December 31, 2019 - net liability position of $1.8 million) and is included on the balance sheet as either a risk management asset or liability and is classified as current or non-current based on the contractual terms specific to the instruments. For the three and nine months ended September 30, 2020, this resulted in unrealized mark-to-market losses of $18.0 million and $21.4 million, respectively, (September 30, 2019 - unrealized mark-to-market loss of $1.3 million for the three month period and an unrealized mark-to-market gain of $3.5 million for the nine month period) when measured against the fair market value at the end of the preceding reporting period. These amounts are recognized in the consolidated statement of income (loss) and comprehensive income (loss).

The Company realized gains from risk management price contracts in place in the amount of $0.9 million and $10.1 million, respectively, for the three and nine months ended September 30, 2020 (September 30, 2019 - realized gain of $2.8 million for the three month period and a realized loss of $7.2 million for the nine month period).

Sensitivities

The following table summarizes the effects of movement in commodity prices and interest rates on net income (loss) due to changes in the fair value of risk management contracts in place at September 30, 2020. Changes in the fair value generally cannot be extrapolated because the relationship of a change in an assumption to the change in fair value may not be linear.

value may not be linear.
	Nine Months Ended September 30,2020
Factor	Gain/(Loss)
Increase of US$5.00/Bbl in the price of WTI(1)	$ (3,296)
Decrease of US$5.00/Bbl in the price of WTI(1)	$ 3,296
Increase of US$0.10/Mmbtu in the price of NYMEX natural gas	$ (4,100)
Decrease of US$0.10/Mmbtu in the price of NYMEX natural gas	$ 4,100
Increase of 100 basis points (1%) in interest rates	$ 701
Decrease of 100 basispoints(1%)in interest rates	$(701)

(1) A portion of the Company’s condensate and NGL production is sold at a price based on WTI.

13. SUPPLEMENTAL CASH FLOW INFORMATION

Changes in non-cash working capital

	Three Months Ended	Three Months Ended	Nine Months Ended	Nine Months Ended
	September 30,2020	September 30,2019	September 30,2020	September 30,2019
Accounts receivable	$ 3,332	$ (3,613)	$ 14,418	$ 14,650
Prepaids and deposits	(187)	(190)	(57)	276
Accounts payable and accrued
liabilities	5,310	1,904	(12,327)	(3,390)
Change in non-cash working
capital	$8,455	$ (1,899)	$2,034	$11,536
Relating to:
Operating activities	$ 4,831	$ (1,202)	$ 6,995	$ 11,702
Investingactivities	3,624	(697)	(4,961)	(166)
Change in non-cash working
capital	$8,455	$ (1,899)	$2,034	$11,536
Interestpaid duringtheperiod	$ 1,696	$ 1,218	$ 4,831	$ 3,523
Income taxes paid during the
period	$-	$-	$-	$-

14. COMMITMENTS

At September 30, 2020, the Company has the following long-term commitments over the next five years and thereafter:

	2020	2021	2022	2023	2024	Thereafter	Total
Transportation and processing commitments	$ 16,036	$ 62,133	$ 51,503	$ 27,494	$ 27,629	$ 208,462	$ 393,257
Office lease(1)	89	356	356	356	356	385	1,898
Total	$ 16,125	$ 62,489	$ 51,859	$ 27,850	$ 27,985	$ 208,847	$ 395,155

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1)Office lease commitment includes the operating cost component of the office lease cost CORPORATE INFORMATION

Officers

Brian Lavergne President & Chief Executive Officer

Robert S. Tiberio Chief Operating Officer

Michael J. Hearn Chief Financial Officer

Jamie P. Conboy Vice President, Geology H. Darren Evans Vice President, Exploitation Bret A. Kimpton Vice President, Production

Emily Wignes Vice President, Finance

Directors

Matthew J. Brister[(2)(3)]

John A. Brussa Mark A. Butler[(1)(3)] Stuart G. Clark[(1)] Chairman

Sheila A. Leggett[(2) ] Gregory G. Turnbull[(2)] P. Grant Wierzba[(2)(3)] James K. Wilson[(1) ]

Brian Lavergne President & Chief Executive Officer

(1) Member, Audit Committee (2) Member, Reserves, Environment, Health and Safety Committee (3) Member, Compensation, Governance and Nomination Committee

Stock Exchange Listing

Toronto Stock Exchange Trading Symbol “SRX”

Solicitors

Stikeman Elliott LLP Burnet Duckworth & Palmer LLP Calgary, Alberta

Auditors

Ernst & Young LLP Calgary, Alberta

Registrar & Transfer Agent

Alliance Trust Company Calgary, Alberta

Bankers

ATB Financial Canadian Imperial Bank of Commerce Royal Bank of Canada Canadian Western Bank Calgary, Alberta

Executive Offices

Suite 600, 215 – 2[nd] Street S.W. Calgary, Alberta, T2P 1M4 Canada Tel: (403) 817-6145 Fax: (403) 817-6146 www.stormresourcesltd.com

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Abbreviations

ATP Bbls Bbls/d Bcf Boe Boe/d Bopd Btu Cdn$ CGU DPIIP GJ GJ/d kPa LNG	Alliance Transfer Point Barrels of oil or natural gas liquids Barrels per day Billions of cubic feet Barrels of oil equivalent Barrels of oil equivalent per day Barrels of oil per day British thermal unit Canadian dollar Cash generating unit Discovered Petroleum Initially in Place Gigajoules Gigajoules per day Kilopascal Liquefied natural gas	Mbbl Mboe Mcf Mcf/d Mmbtu Mmbtu/d Mmcf Mmcf/d NGL NYMEX OPEC PDP TSX US US$ WTI	Thousands of barrels Thousands of barrels of oil equivalent Thousands of cubic feet Thousands of cubic feet per day Millions of British Thermal Units Millions of British Thermal Units per day Millions of cubic feet Millions of cubic feet per day Natural gas liquids New York Mercantile Exchange Organization of Petroleum Exporting Countries Proved developed producing (reserves) Toronto Stock Exchange United States United States dollar West Texas Intermediate

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==> picture [122 x 47] intentionally omitted <==

Storm Resources Ltd.

Suite 600, 215 – 2[nd] Street S.W., Calgary, Alberta T2P 1M4 Phone: (403) 817-6145 Fax: (403) 817-6146

www.stormresourcesltd.com