Storm Resources Ltd. — Interim / Quarterly Report 2021

Aug 12, 2021

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Condensed Interim Consolidated Statements of Financial Position

(Canadian$000s) (unaudited)	Notes	June 30,2021	December 31,2020
ASSETS
Current
Accounts receivable	12	$ 26,323	$ 19,283
Prepaids and deposits		708	1,124
		27,031	20,407
Risk management contracts	12	-	233
Exploration and evaluation	3	98,786	98,886
Property and equipment	4	516,921	508,524
Right-of-use asset	7	2,002	2,220
		$ 644,740	$ 630,270
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities		$ 21,161	$ 17,721
Current portion of decommissioning liability	8	1,291	1,939
Current portion of lease liability	7	516	512
Risk management contracts	12	42,781	8,483
		65,749	28,655
Bank indebtedness	5	107,582	134,391
Risk management contracts	12	4,541	101
Lease liability	7	1,648	1,850
Decommissioning liability	8	29,212	30,915
Deferred income taxes		11,233	10,823
		$219,965	$206,735
Shareholders' equity
Share capital	9	392,684	391,752
Contributed surplus	10	20,340	19,338
Retained earnings		11,751	12,445
		$ 424,775	$ 423,535
Commitments	14
		$644,740	$630,270

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 June 30	Ended June 30	Six Months	Ended June 30	Ended June 30
(Canadian$000s exceptper-share amounts) (unaudited)	Notes	2021		2020	2021		2020
Revenue
Revenue from product sales	6	$ 65,554		$ 30,191	$ 139,228		$ 72,114
Royalties		(2,381)		(949)	(8,288)		(3,056)
		63,173		29,242	130,940		69,058
Realized gain (loss) on risk management contracts	12	(9,074)		6,513	(14,330)		9,250
		54,099		35,755	116,610		78,308
Expenses
Production		11,346		9,792	21,327		21,051
Transportation		11,844		11,982	23,397		22,816
General and administrative		1,227		1,570	3,043		3,437
Share-based compensation	10	625		428	1,251		904
Depletion and depreciation	4, 7	12,579		11,853	24,645		23,858
Exploration and evaluation costs expensed	3	-		-	331		450
Accretion	8	129		81	221		186
Interest and finance costs		1,609		1,519	3,708		3,165
Unrealized loss on risk management contracts	12	30,318		13,824	38,971		3,347
Unrealized revaluation loss on investment		-		69	-		87
		69,677		51,118	116,894		79,301
Net loss and comprehensive loss		(15,578)		(15,363)	(284)		(993)
Deferred income tax expense (recovery)		(3,735)		(3,698)	410		160
Net loss and comprehensive loss		$ (11,843)		$ (11,665)	$ (694)		$ (1,153)
Net loss per share	11
- Basic and diluted		$ (0.10)		$ (0.10)	$ (0.01)		$ (0.01)

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)				Six Months to June 30, 2021
	Notes	Share Capital	Contributed Surplus	Retained Earnings Total Equity
Balance, beginning of period		$ 391,752	$ 19,338	$ 12,445 $ 423,535
Net loss for the period		-	-	(694) (694)
Issue of common shares	9	683	-	- 683
Share-based compensation	10	-	1,251	- 1,251
Share-based compensation on stock options exercised	9	249	(249)	- -
Balance, end ofperiod		$ 392,684	$ 20,340	$ 11,751 $ 424,775

(Canadian $000s) (unaudited)				Six Months to June 30, 2020	Six Months to June 30, 2020
			Contributed	Retained
	Notes	Share Capital	Surplus	Earnings	Total Equity
Balance, beginning of period		$ 391,444	$ 17,605	$ 12,659	$ 421,708
Net loss for the period		-	-	(1,153)	(1,153)
Share-based compensation	10	-	904	-	904
Balance, end of period		$ 391,444	$ 18,509	$ 11,506	$ 421,459

See accompanying notes to the condensed interim consolidated financial statements.

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Condensed Interim Consolidated Statements of Cash Flows

		Three Months Ended June 30	Three Months Ended June 30	Three Months Ended June 30	Six Months	Six Months	Ended June 30
(Canadian$000s) (unaudited)	Notes	2021		2020	2021		2020
Operating activities
Net loss for the period		$ (11,843)		$ (11,665)	$ (694)		$ (1,153)
Non-cash items:
Unrealized loss on risk management	12	30,318		13,824	38,971		3,347
Depletion, depreciation and accretion	4, 7, 8	12,708		11,934	24,866		24,044
Share-based compensation	10	625		428	1,251		904
Lease interest	7	28		33	57		67
Exploration and evaluation costs expensed	3	-		-	331		450
Unrealized revaluation loss on investment		-		69	-		87
Deferred income tax expense (recovery)		(3,735)		(3,698)	410		160
Decommissioning expenditures	8	(199)		(21)	(758)		(113)
Funds flow		27,902		10,904	64,434		27,793
Net change in non-cash working capital items	13	(5,541)		2,636	(3,644)		2,164
		22,361		13,540	60,790		29,957
Financing activities
Payment on lease liability	7	(127)		(126)	(255)		(253)
Proceeds on issue of common shares	9	551		-	683		-
Increase (decrease) in bank indebtedness		(9,027)		4,534	(26,809)		7,750
		(8,603)		4,408	(26,381)		7,497
Investing activities
Additions to property and equipment	4	(9,921)		(2,293)	(34,529)		(28,535)
Additions to exploration and evaluation assets	3	(96)		(101)	(340)		(334)
Net change in non-cash working capital items	13	(3,741)		(15,554)	460		(8,585)
		(13,758)		(17,948)	(34,409)		(37,454)
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 June 30, 2021 and December 31, 2020 and for the three and six months ended June 30, 2021 and 2020

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, 2020. 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 August 11, 2021.

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 4 to the Company’s audited consolidated financial statements for the year ended December 31, 2020.

The continued global impact of the COVID-19 pandemic contributes to economic uncertainty, with more volatile commodity prices, currency exchange rates and interest rates. The duration and severity of the business disruptions and continued 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 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.

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3. EXPLORATION AND EVALUATION

3. EXPLORATION AND EVALUATION
	Six Months Ended	Year ended
	June 30, 2021	December 31, 2020
Balance, beginning of period	$ 98,886	$ 99,737
Additions	340	746
Expiries - exploration and evaluation costs expensed	(331)	(745)
Future decommissioning costs	(109)	35
Transfer topropertyand equipment	-	(887)
Balance, end ofperiod	$ 98,786	$ 98,886

As at June 30, 2021, 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
	Six Months Ended		Year ended
	June 30, 2021		December 31, 2020
Cost
Balance, beginning of period	$ 810,916		$ 746,515
Additions	34,529		58,505
Future decommissioning costs	(1,705)		5,009
Transfer from exploration and evaluation assets	-		887
Balance,end ofperiod	$ 843,740		$ 810,916
Accumulated depletion and depreciation
Balance, beginning of period	$ (302,392)		$ (256,251)
Depletion and depreciation	(24,427)		(46,141)
Balance,end ofperiod	$(326,819)		$(302,392)
Net book value, beginning of period	$ 508,524		$ 490,264
Net book value, end ofperiod	$ 516,921		$ 508,524

As at June 30, 2021, the Company evaluated property and equipment for indicators of potential impairment. As a result of this assessment, no indicators of impairment were identified and no impairment was recorded on property and equipment.

5. BANK INDEBTEDNESS

As at June 30, 2021, the Company had an extendible revolving credit facility in the amount of $190 million (December 31, 2020 - $190 million) based on a bank determined borrowing base related to the Company’s producing reserves. The credit facility is available to the Company until May 27, 2022, 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 subject to approval by the lenders. 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 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.

As at June 30, 2021, the Company had issued letters of credit in the amount of $14.1 million (December 31, 2020 - $13.7 million) primarily in support of future natural gas transportation and processing obligations.

At June 30, 2021, debt including outstanding letters of credit amounted to $121.7 million, representing approximately 64% of the available credit facility.

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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	Six Months Ended	Six Months Ended
	June 30,2021	June 30,2020	June 30,2021	June 30,2020
Natural gas	$ 42,372	$ 23,335	$ 94,143	$ 50,185
Condensate	17,395	5,437	32,663	19,915
NGL	5,787	1,419	12,422	2,014
Total	$ 65,554	$ 30,191	$ 139,228	$ 72,114

Storm’s revenue was generated mostly in British Columbia where production was sold primarily to three major energy customers with investment grade credit ratings which accounted for 89% of the Company’s total revenue from product sales for the three and six months ended June 30, 2021 (three and six months ended June 30, 2020 - 90% and 95%, respectively). The majority of revenue is derived from variable price contracts based on index prices at each sales point. Of total natural gas revenue for the six months ended June 30, 2021, 47% received Chicago pricing, 32% received BC Station 2 pricing, 17% received AECO pricing and the remaining 4% 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:
	Six Months Ended		Year Ended
	June 30, 2021		December 31, 2020
Cost
Balance, beginning of period	$ 3,094		$ 3,094
Additions	-		-
Balance,end ofperiod	$ 3,094		$ 3,094
Accumulated depreciation
Balance, beginning of period	$ (874)		$ (437)
Depreciation	(218)		(437)
Balance,end ofperiod	$(1,092)		$(874)
Net book value, beginning of period	$ 2,220		$ 2,657
Net book value, end ofperiod	$ 2,002		$ 2,220

As at June 30, 2021, the net book value of the right-of-use asset for the Company’s corporate office lease in Calgary is $2.0 million (December 31, 2020 - $2.2 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:

office lease in Calgary:
	Six Months Ended	Year Ended
	June 30, 2021	December 31, 2020
Balance, beginning of period	$ 2,362	$ 2,741
Lease payments	(255)	(507)
Lease interest	57	128
Balance, end of period	$ 2,164	$ 2,362
Less currentportion	516	512
Long-termportion	$ 1,648	$ 1,850

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%.

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As at June 30, 2021, the total undiscounted amount of the estimated future cash flows to settle the Company’s lease liability over the remaining lease term is $2.4 million.

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 liability 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 $43.1 million (December 31, 2020 - $40.5 million), with the majority of payments being made in the years 2034 to 2054. A risk-free discount rate of 1.8% (December 31, 2020 - 1.2%) and an inflation rate of 1.7% (December 31, 2020 - 1.5%) was used to calculate the present value of the decommissioning obligation, amounting to $30.5 million at June 30, 2021.

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

	Six Months Ended	Year Ended
	June 30, 2021	December31,2020
Balance, beginning of period	$ 32,854	$ 28,115
Obligations incurred	210	1,282
Obligations settled	(758)	(643)
Change in estimates(1)	(2,024)	3,762
Accretion expense	221	338
Balance, end of period	$ 30,503	$ 32,854
Less currentportion	1,291	1,939
Long-termportion	$ 29,212	$ 30,915

(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, 2020	121,688,812	$ 391,752,000
Shares issued on stock option exercises	353,200	932,000
Balance as at June 30, 2021	122,042,012	$ 392,684,000

During the first six months of 2021 , 353,200 common shares were issued upon the exercise of stock options for proceeds of $683,000 and related prior period share-based compensation of $249,000 was transferred to share capital from contributed surplus.

For the period from July 1, 2021 to August 11, 2021, the date of this report, there were 90,000 common shares issued upon the exercise of stock options for proceeds of $257,000.

10. SHARE-BASED COMPENSATION

Stock Options

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 June 30, 2021, a total of 12,204,201 common shares were available for issuance. At June 30, 2021, options in respect of 9,600,130 common shares were issued and outstanding and options in respect of 2,604,071 common shares were available for future issue.

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At August 11, 2021, the date of this quarterly report, options in respect of 9,562,630 common shares were issued and outstanding and options in respect of 2,650,571 common shares are available for future issue.

Details of the options outstanding at June 30, 2021 are as follows:

		Weighted Average
	Number of Options	Exercise Price
Outstanding at December 31, 2020	10,192,330	$ 2.09
Granted during the period	99,000	$ 2.20
Exercised during the period	(353,200)	$ 1.93
Cancelled/forfeited during the period	(88,000)	$ 2.86
Expired duringtheperiod	(250,000)	$ 4.33
Outstandingat June 30,2021	9,600,130	$ 2.03
Number exercisable at June 30, 2021	4,502,529	$ 2.27

Range of Exercise Price		Outstanding Options	Outstanding Options	Exercisable Options	Exercisable Options
		Weighted	Weighted		Weighted
	Number of	Average	Average	Number of	Average
	Options	Remaining	Exercise	Options	Exercise
	Outstanding	Life (years)	Price	Outstanding	Price
$1.11 - $1.70	2,830,700	2.5	$ 1.47	868,896	$ 1.47
$1.71 - $2.13	4,377,230	2.5	$ 1.94	1,382,333	$ 1.81
$2.14 - $4.10	2,392,200	0.7	$ 2.84	2,251,300	$ 2.87
Total	9,600,130	2.0	$ 2.03	4,502,529	$ 2.27

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 six months ended June 30, 2021 of $0.78 per share include the following:

	2021
Share price	$2.13 - $2.35
Exercise price	$2.13 - $2.35
Volatility	48%
Forfeiture rate	2%
Expected option life (years)	3.7
Risk-freeinterestrate	0.2% to 0.3%

Performance Awards and Director Share Awards

The Company has a performance award incentive plan which authorizes the Board of Directors to grant performance awards to officers, employees, consultants or other service providers. Each performance award entitles the holder to an award value equal to the number of shares designated in the performance award grant, multiplied by a payout multiplier ranging from 0 to 1.5X which is dependent on the performance of the Company relative to predefined corporate performance measures for a particular period. The Company also has a director share award plan where each director share award entitles an eligible director to receive an award value equal to the number of shares designated in the director award grant. Performance awards and director share awards vest one-half on the second anniversary of the grant date and the remaining one-half on the third anniversary of the grant date. The Company, at its sole and absolute discretion, shall have the option of settling vested awards with common shares acquired in the market or by payment of the award value in cash, or by a combination thereof. The value of performance awards and director share awards is determined at the grant date based on the volume weighted average price of the shares on the TSX for the five trading days immediately preceding the date of grant.

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Details of the performance awards and director share awards outstanding at June 30, 2021 are as follows:

	Number of Performance Awards	Number of Director Share Awards
Outstanding at December 31, 2020	623,770	82,250
Granted duringtheperiod	33,000	-
Outstandingat June 30, 2021	656,770	82,250

Share-Based Compensation Expense

Share-based compensation expense of $0.6 million and $1.3 million was charged to the consolidated statement of income (loss) during the three and six months to June 30, 2021, respectively (2020 - $0.4 million and $0.9 million, respectively) with an equivalent offset to contributed surplus.

11. NET LOSS PER SHARE

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

	Three Months ended	Three Months ended	Three Months ended	Six Months ended	Six Months ended	Six Months ended
	June 30, 2021		June 30, 2020	June 30, 2021		June 30, 2020
Net loss for theperiod($000s)	$(11,843)		$(11,665)	$(694)		$(1,153)
Common shares outstanding at
beginning of period	121,769,312		121,556,812	121,688,812		121,556,812
Effect of shares issued	123,027		-	114,876		-
Weighted average number of common
shares outstanding– basic & diluted	121,892,339		121,556,812	121,803,688		121,556,812
Net loss per share
Basic & diluted	$(0.10)		$(0.10)	$(0.01)		$(0.01)

• (1) For the three and six months ended June 30, 2021 and June 30, 2020, the Company incurred net losses and therefore there were no dilutive effects of stock options.

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 marketplace 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 six months ended June 30, 2021.

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 June 30, 2021:

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	Gross Amounts	Gross Amounts	Net Amounts
	Recognized as Financial	of Financial Assets	Recognized as Financial
	Assets (Liabilities)	(Liabilities) Offset	Liabilities
Risk management contracts
Current asset	$ 978	$ (978)	$ -
Long-term asset	828	(828)	-
Current liability	(43,759)	978	(42,781)
Long-term liability	(5,369)	828	(4,541)
Netposition	$(47,322)	$ -	$(47,322)

The following is a summary of the Company’s financial assets and financial liabilities that were subject to offset as at December 31, 2020:

December 31, 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	$ 3,518	$ (3,518)	$ -
Long-term asset	1,511	(1,278)	233
Current liability	(12,001)	3,518	(8,483)
Long-term liability	(1,379)	1,278	(101)
Netposition	$(8,351)	$ -	$(8,351)

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 operation 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 June 30, 2021, the Company’s three major energy customers with investment grade credit ratings accounted for $20.9 million of total receivables (June 30, 2020 - $9.5 million) and 89% of total revenues for the three and six months ended June 30, 2021 (three and six months ended June 30, 2020 - 90% and 95%, respectively). Where operations involve partners in a joint operation, the Company attempts to mitigate the risk from joint operation receivables by obtaining pre-approval from its partners in advance of significant capital expenditures. Receivables from joint operations are typically collected within one to three months of the joint operator bill being issued. As at June 30, 2021, there were no receivables outstanding for more than 60 days. No material default on outstanding receivables is anticipated as none of the Company’s outstanding receivables are considered past due at June 30, 2021.

The maximum exposure to credit risk at June 30, 2021 was the carrying amount of accounts receivable of $26.3 million. No receivables were impaired at June 30, 2021.

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 June 30, 2021, 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.

Fair values for risk management contracts are based on quotes received from financial institution counterparties and are calculated using current market rates and prices and option pricing models using forward pricing curves and implied volatility.

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:

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As at August 11, 2021		2021	2022	2023
Natural Gas
NYMEX swap	Mmbtu/d	3,495	-	-
	US$/Mmbtu	$2.62	-	-
NYMEX swap	Mmbtu/d	7,348	-	-
	Cdn$/Mmbtu	$3.34	-	-
NYMEX collar	Mmbtu/d	1,000	1,008	493
	US$/Mmbtu	$2.70 - $3.25	$2.40 - $3.60	$2.40 - $3.60
NYMEX collar	Mmbtu/d	700	-	-
	Cdn$/Mmbtu	$3.60 - $3.78	-	-
Chicago swap	Mmbtu/d	1,492	18,722	-
	US$/Mmbtu	$2.98	$2.49	-
Chicago swap	Mmbtu/d	18,274	2,282	-
	Cdn$/Mmbtu	$3.14	$3.29	-
Chicago collar(1)	Mmbtu/d	700	5,186	1,973
	US$/Mmbtu	$2.84 - $3.47	$2.68 - $3.33	$2.70 - $3.25
Chicago collar(1)	Mmbtu/d	2,000	2,219	-
	Cdn$/Mmbtu	$3.60 - $4.20	$3.58 - $4.19	-
AECO swap	GJ/d	7,195	1,360	-
	Cdn$/GJ	$2.30	$2.80	-
AECO collar	GJ/d	995	1,618	-
	Cdn$/GJ	$2.63 - $3.80	$2.37 - $3.20	-
BC Station 2 swap	GJ/d	29,799	19,675	-
	Cdn$/GJ	$2.13	$2.27	-
BC Station 2 collar(2)	GJ/d	-	2,244	-
	Cdn$/GJ	-	$2.18 -$3.04	-
Natural Gas Differential Swaps
NYMEX:Chicago	Mmbtu/d	12,500
	US$/Mmbtu	($0.26)
Crude Oil
WTI swap	Bbls/d	-	150	-
	US$/Bbl	-	$51.43	-
WTI swap	Bbls/d	650	-	-
	Cdn$/Bbl	$54.33	-	-
WTI collar	Bbls/d	1,050	597	-
	Cdn$/Bbl	$53.19 - $63.67	$60.66 - $74.14	-
WTI collar	Bbls/d	200	549	-
	US$/Bbl	$44.00 -$54.23	$49.41 -$61.20	-
Crude Oil Differential Swaps
WTI:C5	Bbls/d	1,100	545	-
	Cdn$/Bbl	($3.61)	($1.92)	-
Propane
Conway swap	Bbls/d	200	49	-
	Cdn$/Bbl	$44.66	$54.89	-
Argus Far East Index swap	Bbls/d	100	-	-
	Cdn$/Bbl	$46.31	-	-
Argus Far East Index swap	Bbls/d	133	25	-
	US$/Bbl	$41.50	$52.50	-

(1) Includes NYMEX collar and a NYMEX-Chicago basis differential.

(2) Includes AECO collar and an AECO-BC Station 2 basis differential.

39

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
Jul 2021 - Oct 2021	5,000 GJ at BC Station 2	AECO 7A less Cdn$0.125/GJ
Jul 2021 - Oct 2021	6,000 GJ at ATP	AECO 7A plus Cdn$0.00/GJ
Nov 2021 - Oct 2022	6,000 GJ at ATP	AECO 7Aplus Cdn$0.115/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 June 30, 2021, the Company had the following outstanding financial risk management contracts in place to manage interest rate risk:

			Notional		Fixed
Index	Effective	Date	Principal	Remaining Term	Contract Rate
One-month bankers’ acceptance - CDOR(1)	May	2019	$25 million	Jul 2021 - May 2022	1.949%
One-month bankers’ acceptance - CDOR(1)	Jan	2020	$10 million	Jul 2021 - Jan 2023	1.943%
One-month bankers’ acceptance - CDOR(1)	Jan	2021	$15 million	Jul 2021 - Jan 2024	0.660%

(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.

The fair market value of these risk management contracts at June 30, 2021 was a net liability position of $47.3 million (December 31, 2020 - net liability position of $8.4 million) and is included in current and non-current assets or current and non-current liabilities based on the contractual terms specific to the instruments. For the three and six months ended June 30, 2021, this resulted in unrealized mark-to-market losses of $30.3 million and $39.0 million, respectively, (June 30, 2020 - unrealized mark-to-market losses of $13.8 million and $3.3 million, respectively) 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 losses from risk management price contracts in place in the amount of $9.1 million and $14.3 million, respectively, for the three and six months ended June 30, 2021 (June 30, 2020 - realized gains of $6.5 million and $9.3 million, respectively).

Sensitivities

The following table summarizes the effects of movement in commodity prices and interest rates on net loss due to changes in the fair value of risk management contracts in place at June 30, 2021. 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.

linear.
	Six Months Ended June 30, 2021
Factor	Gain/(Loss)
Increase of US$5.00/Bbl in the price of WTI(1)	$ (4,299)
Decrease of US$5.00/Bbl in the price of WTI(1)	$ 4,299
Increase of US$0.10/Mmbtu in the price of NYMEX natural gas	$ (3,606)
Decrease of US$0.10/Mmbtu in the price of NYMEX natural gas	$ 3,606
Increase of 100 basis points (1%) in interest rates	$ 777
Decrease of 100 basispoints(1%)in interest rates	$(777)

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

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13. SUPPLEMENTAL CASH FLOW INFORMATION

Changes in non-cash working capital

	Three Months ended	Three Months ended	Three Months ended	Six Months ended	Six Months ended	Six Months ended
	June 30,2021		June 30,2020	June 30,2021		June 30,2020
Accounts receivable	$ 1,007		$ 9,637	$ (7,040)		$ 11,086
Prepaids and deposits	1,862		(73)	416		130
Accountspayable and accrued liabilities	(12,151)		(22,482)	3,440		(17,637)
Change in non-cash workingcapital	$(9,282)		$(12,918)	$(3,184)		$(6,421)
Relating to:
Operating activities	$ (5,541)		$ 2,636	$ (3,644)		$ 2,164
Investingactivities	(3,741)		(15,554)	460		(8,585)
Change in non-cash workingcapital	$(9,282)		$(12,918)	$(3,184)		$(6,421)
Interestpaid duringtheperiod	$ 1,578		$ 1,566	$ 3,462		$ 3,135
Income taxespaid duringtheperiod	$ -		$ -	$ -		$ -

14. COMMITMENTS

At June 30, 2021, the Company has the following long-term commitments over the next five years and thereafter:

	2021	2022	2023	2024	2025	Thereafter	Total
Transportation and processing commitments	$ 32,482	$ 59,960	$ 28,030	$ 28,153	$ 27,871	$177,933	$354,429
Office lease(1)	178	356	356	356	356	30	1,632
Total	$ 32,660	$ 60,316	$ 28,386	$ 28,509	$ 28,227	$177,963	$356,061

(1) Office lease commitment includes the operating cost component of the office lease costs.

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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

42

Abbreviations

ATP	Alliance Transfer Point
Bbls	Barrels of oil or natural gas liquids
Bbls/d	Barrels per day
Bcf	Billions of cubic feet
Boe	Barrels of oil equivalent
Boe/d	Barrels of oil equivalent per day
Bopd	Barrels of oil per day
Btu	British thermal unit
Cdn$	Canadian dollar
CGU DPIIP	Cash generating unit Discovered Petroleum Initially in Place
GJ	Gigajoules
GJ/d	Gigajoules per day
IP	Initial production rates
kPa	Kilopascal
LNG	Liquefied natural gas

Mbbl	Thousands of barrels
Mboe	Thousands of barrels of oil equivalent
Mcf	Thousands of cubic feet
Mcf/d	Thousands of cubic feet per day
Mmbtu	Millions of British Thermal Units
Mmbtu/d	Millions of British Thermal Units per day
Mmcf	Millions of cubic feet
Mmcf/d	Millions of cubic feet per day
NGL	Natural gas liquids
NYMEX	New York Mercantile Exchange
OPEC	Organization of Petroleum Exporting Countries
PDP	Proved developed producing (reserves)
TSX	Toronto Stock Exchange
US	United States
US$	United States dollar
WTI	West Texas Intermediate

43

==> 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