FORM 51-102F4

BUSINESS ACQUISITION REPORT

ITEM 1. - IDENTITY OF COMPANY

1.1 Name and Address of Company

Tamarack Valley Energy Ltd. ("Tamarack" or the "Corporation") 3300, 308 – 4th Avenue S.W. Calgary, Alberta T2P 0H7

1.2 Executive Officer

The executive officer of the Corporation who is knowledgeable about the Acquisition (as defined herein) and this report is Steve Buytels, Vice President, Finance and Chief Financial Officer of the Corporation, whose business telephone number is (403) 263-4440.

ITEM 2. - DETAILS OF ACQUISITION

2.1 Nature of Business Acquired

On April 12, 2021, the Corporation entered into a definitive agreement (the "Acquisition Agreement") with Anegada Oil Corp. ("Anegada") to acquire all of the issued and outstanding common shares of Anegada (the "Anegada Shares") for total consideration of \$527.7 million (the "Acquisition") (\$495.7 million net of proceeds from the sale of a 2% newly created gross overring royalty on the acquired assets (the "GORR")) consisting of: (i) \$247.5 million in cash, subject to adjustment; and (ii) 105,341,880 common shares of Tamarack ("Common Shares") to Anegada shareholders valued at \$2.66 per Common Share (the "Consideration Shares") based on the closing price of Tamarack on May 31, 2021. The Acquisition was completed on June 1, 2021. A copy of the Acquisition Agreement is available on SEDAR under the Corporation's profile at www.sedar.com.

Prior to the closing of the Acquisition, Anegada was a privately held corporation incorporated under the Business Corporations Act (Alberta).

Anegada produces light-oil in the Charlie Lake oil play in Alberta and operates assets with established production, infrastructure and land holdings.

2.2 Acquisition Date

The closing date of the Acquisition was June 1, 2021.

2.3 Consideration

Total consideration of \$527.7 million (\$495.7 million net of the GORR) consisting of: (i) \$247.5 million in cash, subject to adjustment, and (ii)105,341,880 Common Shares valued at \$2.66 per Common Share based on the closing price of Tamarack on May 31, 2021. The cash consideration was funded under the increase in the Corporation's available credit facilities to \$600 million in conjunction with the Acquisition.

2.4 Effect on Financial Position

For information on the effect of the Acquisition on the Corporation's financial position, see the unaudited consolidated pro forma financial statements of the Corporation attached as Schedule "C" hereto.

Upon completion of the Acquisition, Tamarack transferred the Anegada Shares to its whollyowned subsidiary, Tamarack Acquisition Corp. ("TAC") and Anegada and TAC were amalgamated to form "Tamarack Acquisition Corp.".

In connection with the Acquisition, Tamarack's credit syndicate increased the available capacity under the Corporation's credit facilities from \$325 million to \$600 million and extended the revolving period to May 31, 2022.

Except as otherwise disclosed, there are presently no plans or proposals for material changes in Tamarack's business affairs which may have a significant effect on the financial performance and financial position of Tamarack.

2.5 Prior Valuations

To the knowledge of the Corporation, no valuation opinion was obtained within the last 12 months by either the Corporation or Anegada required by securities legislation or a Canadian exchange or market to support the consideration paid by the Corporation for the Anegada Shares.

2.6 Parties to Transaction

The Acquisition was not with an "informed person" (as such term is defined in Section 1.1 of National Instrument 51-102 – Continuous Disclosure Obligations), associate or affiliate of the Corporation.

2.7 Date of Report

July 16, 2021.

ITEM 3. - FINANCIAL STATEMENTS AND OTHER INFORMATION

The audited financial statements of Anegada as at and for the years ended December 31, 2020 and 2019 and the auditors' report thereon are attached at Schedule "A" to this Business Acquisition Report.

The unaudited condensed consolidated interim financial statements of Anegada as at and for the three months ended March 31, 2021 and 2020 are attached at Schedule "B" to this Business Acquisition Report.

The following unaudited consolidated pro forma financial statements of the Corporation are attached at Schedule "C" to this Business Acquisition Report:

(a) the unaudited consolidated pro forma balance sheet of the Corporation as at March 31, 2021, that gives effect to the Acquisition as if it had taken place as at March 31, 2021; and

(b) the unaudited consolidated pro forma statement of income (loss) and comprehensive income (loss) of the Corporation for the year ended December 31, 2020, and the three months ended March 31, 2021, that gives effect to the Acquisition as if it had taken place on January 1, 2020.

The pro forma financial statements of the Corporation attached in Schedule "C" to this Business Acquisition Report are not necessarily indicative of either the results of operations that would have occurred in the year ended December 31, 2020 and the three months ended March 31, 2021 had the Acquisition been effective January 1, 2020. The actual adjustments may differ from those reflected in such pro forma financial statements and such differences may be material.

Forward-Looking Statements

Certain statements contained within this business acquisition report constitute forward-looking statements within the meaning of applicable Canadian securities legislation. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "budget", "plan", "endeavor", "continue", "estimate", "evaluate", "expect", "forecast", "monitor", "may", "will", "can", "able", "potential", "target", "intend", "consider", "focus", "identify", "use", "utilize", "manage", "maintain", "remain", "result", "cultivate", "could", "should", "believe" and similar expressions. The Corporation believes that the expectations reflected in such forward-looking statements are reasonable, but no assurance can be given that such expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Without limitation, this business acquisition report contains forward-looking statements pertaining to the Acquisition. The forward-looking statements and information are based on certain key expectations and assumptions made by the Corporation, including expectations and assumptions concerning the business plan of the Corporation and the successful integration of the Anegada assets into the Corporation's operations. Although the Corporation believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forwardlooking statements and information because the Corporation can give no assurance that they will prove to be correct. By its nature, such forward-looking information is subject to various risks and uncertainties, which could cause the actual results and expectations to differ materially from the anticipated results or expectations expressed. These risks and uncertainties include, but are not limited to, fluctuations in commodity prices, changes in industry regulations and political landscape both domestically and abroad, foreign exchange or interest rates, stock market volatility, impacts of the current COVID-19 pandemic and the retention of key management and employees. Please refer to the Corporation's most recent annual information form and management's discussion and analysis for additional risk factors relating to the Corporation, which can be accessed either on the Corporation's website at www.tamarackvalley.ca or under the Corporation's profile on www.sedar.com. Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date hereof, and to not use such forward-looking information for anything other than its intended purpose. The Corporation undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.

SCHEDULE "A"

FINANCIAL STATEMENTS OF ANEGADA AS AT AND FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Independent auditor's report

To the Shareholders of Anegada Oil Corp.

Our opinion

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Anegada Oil Corp. (the Company) as at December 31, 2020 and 2019, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).

What we have audited

The Company's financial statements comprise:

the statements of financial position as at December 31, 2020 and 2019;
the statements of operations and comprehensive income for the years then ended:
the statements of changes in equity for the years then ended;
the statements of cash flows for the years then ended; and
the notes to the financial statements, which include significant accounting policies and other explanatory information.

Basis for opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.

Responsibilities of management and those charged with governance for the financial statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable

PricewaterhouseCoopers LLP 111-5th Avenue SW, Suite 3100, Calgary, Alberta, Canada T2P 5L3 T: +1 403 509 7500, F: +1 403 781 1825

the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a quarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
œ Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the financial statements, including the jū, disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Pricenterhouse Coopers LLP

$\mathcal{L}_{\mathcal{A}}$

Chartered Professional Accountants

Calgary, Alberta March 22, 2021

Anegada Oil Corp.
Statements of Financial Position

(000s of Canadian dollars)

		December 31,			December 31,
	Note		2020		2019
Assets
Trade and other receivables		\$	15,507	\$	21,618
Risk management contracts			1,059
Deposits and prepaid expenses			700		537
Total current assets			17,266		22,155
Property, plant and equipment	5		164,304		133,521
Exploration and evaluation assets	5		43,806		33,793
Right of use assets	6		1,952		471
Total non-current assets			210,062		167,785
Total assets		\$	227,328	\$	189,940
Liabilities
Trade and other payables		\$	16,907	\$	28,899
Revolving credit facility	18		39,889		28,377
Risk management contracts			2,127
Lease liability			722		357
Total current liabilities			59,645		57,633
Decommissioning provision	7		12,429		12,789
Deferred tax liability	8		15,045		9,006
Lease liability			1,230		114
Total non-current liabilities			28,704		21,909
Total liabilities			88,349		79,542
Equity
Share capital	9	S	52,314	S	52,314
Warrants	10		942		942
Contributed surplus	11		676		652
Retained earnings			85,047		56,490
Total equity			138,979		110,398
Total equity and liabilities		\$	227,328	\$	189,940

The notes are an integral part of these financial statements. Signed: Signed:

"M. Brandon Swertz" Director

"Curtis Armstrong" Director

Anegada Oil Corp.
Statements of Operations and Comprehensive Income

For the years ended December 31, 2020 and 2019

(000s of Canadian dollars)

	Note		2020		2019
Revenue
Petroleum and natural gas	13	S	95,507	S	127,145
Other			290		238
Royalties			(9,010)		(15,668)
			86,787		111,715
Realized gain on commodity contracts	19		8,182
Unrealized loss on commodity contracts	19		(1,068)
			93,901		111,715
Operating and transportation			23,169		18,058
General and administrative			2,591		4,255
Exploration and evaluation			210		238
Share based compensation	11		24		83
Asset retirement obligations accretion	7		259		344
Depletion and depreciation	5		28,982		30,408
Total operating expenses			55,235		53,386
Results from operating activities			38,666		58,329
Net finance expense	15		1,447		1,189
Income before income taxes			37,219		57,140
Current income tax expense	8		2,623		9,279
Deferred income tax expense	8		6,039		4,376
Net profit and comprehensive profit		\$	28,557	S.	43,485
Net loss per share:
Basic		\$	0.54	s	0.82
Diluted			0.52		0.80

Anegada Oil Corp.
Statements of Changes in Equity

(000s of Canadian dollars)

	Note		Share Capital		Warrants		Contributed Surplus		Retained Earnings	Total Equity
Balance at December 31, 2018		s	52,314	5	942	S	552	S	13,005	\$ 66,813
Share based compensation	11		×.				100			100
Net profit for the year									43,485	43,485
Balance at December 31, 2019			52.314		942		652		56,490	110.398
Share based compensation	11		$\omega_{\rm c}$				24			24
Net profit for the year									28,557	28,557
Balance at December 31, 2020			52.314		942		676	S	85,047	138,979

Anegada Oil Corp.
Statements of Cash Flows

For the years ended December 31, 2020 and 2019

(000s of Canadian dollars)

	Note	2020	2019
Cash flows from operating activities:
Net profit for the year		\$ 28,557	\$ 43,485
Adjustments for:
Depreciation	5	28,982	30,408
Deferred tax expense	8	6,039	4,376
Accretion expense	$\overline{7}$	259	344
Share based compensation	11	24	83
Unrealized loss on commodity contracts		1,068
Funds flow from operations		64,929	78,696
Decommissioning obligations settled	7	(112)	(112)
Change in non-cash working capital	16	(3, 117)	(2, 438)
Net cash used in operating activities		61,700	76,146
Cash flows from investing activities:
Property, plant and equipment expenditures	5	(55,040)	(94, 776)
Exploration and evaluation asset expenditures	5	(18, 754)	(2,886)
Disposal of exploration and evaluation assets	5	4,250	260
Change in non-cash working capital	16	(2, 927)	7,990
Net cash used in investing activities		(72, 471)	(89, 412)
Cash flows from financing activities:
Principal portion of lease payments	6	(741)	(430)
Proceeds from revolving credit facility	18	11,512	13,696
Net cash from financing activities		10,771	13,266
Change in cash and cash equivalents		w
Cash and cash equivalents beginning of year
Cash and cash equivalents end of year		\$ ú.	\$

1. REPORTING ENTITY

Anegada Oil Corp. (the "Company") is an oil and gas exploration and development entity with properties in Alberta, Canada. The Company was incorporated under the provisions of the Business Corporations Act (Alberta) on August 27, 2015 with activities focused on the acquisition of unproven properties, seismic surveys, and exploration and development activities. The Company's office is located at 520 -510 5th Street SW Calgary, AB.

2. BASIS OF PRESENTATION

(a) Statement of compliance:

The policies applied in the financial statements are based on IFRS issued and outstanding as of March 22, 2021, the date the Board of Directors approved the financial statements.

(b) Basis of measurement:

The financial statements have been prepared on the historical cost basis except for derivative financial instruments and share-based compensation transactions which are measured at fair value. The methods used to measure fair values are discussed in note 3(a).

These financial statements are presented in Canadian dollars, which is the Company's functional and presentation currency.

(d) Use of estimates and judgments:

The preparation of 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.

In March 2020, the World Health Organization declared a global pandemic following the emergence and rapid spread of a novel strain of the coronavirus ("COVID-19"). The outbreak and subsequent measures intended to limit the pandemic contributed to significant declines and volatility in financial markets. The pandemic has adversely impacted global commercial activity, including significantly reducing worldwide demand for crude oil. The full extent of the impact of COVID-19 on the Company's operations and future financial performance is currently unknown. It will depend on future developments that are uncertain and unpredictable, including the duration and spread of COVID-19, its continued impact on capital and financial markets on a macro-scale and any new information that may emerge concerning the severity of the virus. These uncertainties may persist beyond when it is determined how to contain the virus or treat its impact. The outbreak presents uncertainty and risk with respect to the Company, its performance, and estimates and assumptions used by Management in the preparation of its financial results.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimates are revised and in any future years affected.

Information about significant areas of estimation uncertainty that have the most significant effect on the amounts recognized in the financial statements are included the decommissioning provision, depletion, depreciation and reserve values.

Reserve estimates impact a number of the areas including the valuation of property, plant and equipment and the calculation of depletion and depreciation.

The accounting policy most impacted by management's judgment relates to the determination of cash generating units and the level at which property, plant and equipment is tested for impairment. At December 31, 2020 and 2019 the Company has two cash generating units.

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented.

(a) Financial instruments:
(i) Effective January 1, 2018, the Company adopted IFRS 9 Financial Instruments, which replaced IAS 39 - Financial Instruments: Recognition and Measurement. The Company applied the new standard retrospectively and the adoption the new standard did not have a material impact on the Company's financial statements.
(ii) Non-derivative financial instruments:

Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents and trade and other payables. Non-derivative financial instruments are recognized initially at fair value plus, for instruments not at fair value through profit or loss. any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.

Cash and cash equivalents:

Cash and cash equivalents comprise cash on hand and term deposits held with banks.

Other:

Other non-derivative financial instruments, such as trade and other receivables and trade and other payables are measured at amortized cost using the effective interest method, less any impairment losses.

(iii) Derivative financial instruments:

The Company may enter into certain financial derivative contracts in order to manage the exposure to market risks from fluctuations in commodity prices. These instruments are not used for trading or speculative purposes. The Company has not designated its financial derivative contracts as effective accounting hedges, and thus not applied hedge accounting, even though the Company considers all commodity contracts to be economic hedges. As a result, financial derivative contracts will be classified as fair value through profit or loss and recorded on the balance sheet at fair value. Transaction costs are recognized in profit or loss when incurred.

The Company accounts for forward physical delivery sales contracts, which are entered into for the purpose of receipt or delivery of non-financial items in accordance with its expected purchase, sale or usage requirements as executory contracts. As such, these contracts are not considered to be derivative financial instruments and are not recorded at fair value on the balance sheet. Settlements on physical sales contracts are recognized in oil and natural gas revenue.

Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

(iv) Share capital:

Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects.

(b) Property, plant and equipment and exploration and evaluation assets:
(i) Recognition and measurement:

Exploration and evaluation expenditures:

Exploration and evaluation costs, including the costs of acquiring licenses and directly attributable general and administrative costs, initially are capitalized as exploration and evaluation assets. The costs are accumulated in cost centers by well, field or exploration area pending determination of technical feasibility and commercial viability.

Exploration and evaluation assets are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount. For purposes of impairment testing, exploration and evaluation assets are tested as one cash-generating units.

The technical feasibility and commercial viability of extracting a mineral resource is generally considered to be determinable when proven and probable reserves are determined to exist. A review of each exploration license or field is carried out, at least annually, to ascertain whether it is technically feasible and commercially viable. Upon this determination the related exploration and evaluation assets are first tested for impairment and then reclassified from exploration and evaluation assets to oil and natural gas interests within property, plant and equipment.

Development and production costs:

Items of property, plant and equipment, which include oil and gas development and production assets, are measured at cost less accumulated depletion and depreciation and accumulated impairment losses. Development and production assets are grouped into CGU's for impairment testing. When significant parts of an item of property, plant and equipment, including oil and natural gas interests, have different useful lives, they are accounted for as separate items (major components).

Gains and losses on disposal of an item of property, plant and equipment, including oil and natural gas interests, are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized net within the statement of operations.

$(ii)$ Subsequent costs:

Costs incurred subsequent to the determination of technical feasibility and commercial viability and the costs of replacing parts of property, plant and equipment are recognized as oil and natural gas interests only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures are recognized in profit or loss as incurred. Such capitalized oil and natural gas interests generally represent costs incurred in developing proved and/or probable reserves and bringing in or enhancing production from such reserves, and are accumulated on a field or geotechnical area basis. The carrying amount of any replaced or sold component is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.

$(iii)$ Depletion and depreciation:

The net carrying value of development or production assets is depleted using the unit of production method by reference to the ratio of production in the year to the related proven and probable reserves, taking into account estimated future development costs necessary to bring those reserves into production. Future development costs are estimated taking into account the level of development required to produce the reserves. These estimates are reviewed by independent reserve engineers at least annually.

Proven and probable reserves are estimated using independent reserve engineer reports and represent the estimated quantities of crude oil, natural gas and natural gas liquids which geological, geophysical and engineering data demonstrate with a specified degree of certainty to be recoverable in future years from known reservoirs and which are considered commercially producible.

Reserves are determined in accordance with Canadian Securities requirements as set out in National Instrument 51-101. In general, to be considered probable reserves there should be a 50 percent statistical probability that the actual quantity of recoverable reserves will be more than the amount estimated as proven and probable and a 50 percent statistical probability that it will be less. The equivalent statistical probabilities for the proven component of proven and probable reserves are 90 percent and 10 percent, respectively.

For corporate and other assets, depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term.

The estimated useful lives for other assets for the current and comparative years are as follows:

Office equipment	5 years
Computer hardware	3 years

Depreciation methods, useful lives and residual values are reviewed at each reporting date.

(c) Impairment:

(i) Financial assets:

A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognized in profit or loss.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost the reversal is recognized in profit or loss.

(ii) Non-financial assets:

The carrying amounts of the Company's non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. E&E assets are assessed for impairment when they are reclassified to property, plant and equipment, as oil and natural gas interests, and also if facts and circumstances suggest that the carrying amount exceeds the recoverable amount.

For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit" or "CGU"). E&E asset CGUs are grouped for impairment testing at a level no larger than an operating segment, while PP&E cost CGUs are tested for impairment individually.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Value in use is generally computed by reference to the present value of the future cash flows expected to be derived from production of proven and probable reserves.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. The estimated recoverable amount of a CGU is the greater of its fair value less cost to sell ("FVLCTS") and its value in use ("VIU"). FVLCTS is the amount obtainable from the sale of an asset or CGU in an arm's length transaction between knowledgeable, willing parties, less the costs of disposal or in the case of a lack of comparable transactions, based upon discounted after tax cash flows. VIU is determined by estimating the present value of the future net cash flows expected to be derived from the continued use of the asset or CGU.

Impairment losses recognized in prior years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depletion and depreciation or amortization, if no impairment loss had been recognized.

(d) Share based payments:

The grant date fair value of options and performance warrants granted to employees is recognized as compensation expense with a corresponding increase in contributed surplus over the vesting period. A forfeiture rate is estimated on the grant date and is adjusted to reflect the actual number of options that vest.

(e) Warrants:

The Company accounts for warrants as equity instruments and not as financial liabilities. The number of shares to be issued does not vary on exercise, the exercise price is not in a currency that is different from the Company's functional currency and the exercise price does not change based on a conversion ratio. Warrants are measured at fair value at the date the warrants are granted and are not subsequently re-measured.

(f) Decommissioning provision:

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Decommissioning provisions are measured at the present value of the expenditure expected to be incurred using the Company's estimated borrowing rate. Provisions are not recognized for future operating losses.

The Company's activities give rise to dismantling, decommissioning and site disturbance remediation activities. Decommissioning obligations are measured at the present value of management's best estimate of expenditure required to settle the present obligation at the balance sheet date using a risk free interest rate. Subsequent to the initial measurement, the obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The increase in the provision due to the passage of time is recognized as finance costs whereas increases/decreases due to changes in the estimated future cash flows are capitalized. Actual costs incurred upon settlement of the asset retirement obligations are charged against the provision to the extent the provision was established.

(g) Revenue:

Revenue from the sale of oil and natural gas is recorded when the significant risks and rewards of ownership of the product is transferred to the buyer which is usually when legal title passes to the external party. This is generally at the time product enters the pipeline.

On January 1, 2018 the Company adopted IFRS 15 - Revenue From Contracts With Customers. The Company used the retrospective adoption approach to adopt the new standard. As part of the adoption of the new standard the Company reviewed its revenue streams and major contracts with customers. The adoption of the standard did not have a material impact on the Company's financial statements.

The Company principally generates revenue from the sale of crude oil, natural gas and natural gas liquids. Revenue associated with the sale of these commodities is recognized when control is transferred from the Company to its customers. The Company's commodity sale contracts represent a series of distinct transactions. The Company considers its performance obligations to be satisfied and control to be transferred once title and physical possession of the commodity have been transferred to the buyer; the significant risks and rewards of ownership of the commodity have transferred to the buyer; and the Company has the right to payment.

Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Company sells its production of crude oil, natural gas and natural gas liquids pursuant to variable price contracts. The transaction price for variable price contracts is based on the commodity price, adjusted for quality and transportation. The amount of revenue recognized is based on the agreed transaction price with any variability in transaction price recognized in the same period. The Company's commodity sales contracts are settled on the 25^th day of the month following delivery of the product.

Contract modifications with the Company's customers could change the scope of the contract, the price of the contract, or both. A contract modification exists when the parties to the contract approve the modification either in writing, orally, or based on the parties' customary business practices. Contract modifications are accounted for either as a separate contract when there is an additional product at a stand alone selling price, or as part of the existing contract, through either a cumulative catch-up adjustment or prospectively over the remaining term of the contract, depending on the nature of the modification and whether the remaining products are distinct. The Company's revenue transactions do not contain significant financing components.

(h) Finance income and expenses:

Finance expense comprises interest expense, accretion of the discount on provisions and impairment losses recognized on financial assets.

Interest income is recognized as it accrues in profit or loss, using the effective interest method.

(i) Income tax:

Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

4. DETERMINATION OF FAIR VALUES

A number of the Company's accounting policies and disclosures require the determination of fair value. for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

(a) Trade and other receivables, revolving credit facility and trade and other payables:

The fair value of trade and other receivables, revolving credit facility and trade and other payables approximate their carrying value due to their short term to maturity.

(b) Stock options and performance warrants:

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

Performance warrants are valued using a binomial model where estimates are made to discount the fair value based on the estimated probability of meeting the share price targets.

Risk management contracts are initially recognized at fair value on the date a derivative contract is entered into and are remeasured at their fair value at each subsequent reporting date. The fair value of the risk management contract on initial recognition is normally the transaction price. Subsequent to initial recognition, the fair values are based on quoted market prices where available from active markets, otherwise fair values are estimated based on market prices at the reporting date for similar assets or liabilities with similar terms and conditions.

		Exploration		Property
		and		and		Corporate
(000s)		Evaluation		Equipment		and Other		Total
Cost or deemed cost:
Balance at December 31, 2018		32,597		76,906		72		109,575
Additions		13,899		88,260		143		102,302
Disposals		(260)						(260)
Transfers		(12, 443)		12,443
Balance at December 31, 2019	S.	33,793	S	177,609	s	215	S	211,617
Additions		18,754		54,453		80		73,287
Disposals		(4, 250)						(4, 250)
Transfers		(4, 491)		4,491
Balance at December 31, 2020	\$	43,806	\$	236,553	\$	295	S	280,654
Depletion and depreciation
Balance at December 31, 2018				14,276		49		14,325
Depletion and depreciation				29,963		15		29,978
Balance at December 31, 2019	S		\$	44,239	S	64	S	44,303
Depletion and depreciation				28,232		9		28,241
Balance at December 31, 2020	\$		\$	72,471	\$	73	\$	72,544
Carrying Amounts:
December 31, 2019		33,793		133,370		151	S	167,314
December 31, 2020		43,806	s	164,082	S	222	s	208,110

5. PROPERTY, PLANT & EQUIPMENT AND EXPLORATION & EVALUATION ASSETS

Exploration and evaluation (E&E) assets consist of the Company's exploration projects which are pending the determination of proven or probable reserves. Additions represent the Company's share of costs incurred on E&E assets during the period.

The Company capitalized \$1.1 million of general and administrative costs (December 31, 2019 - \$1.6 million) and capitalized no share-based compensation (December 31, 2019 - \$0.1 million) for the year ended December 31, 2020.

Future development costs of \$225.2 million (December 31, 2019 - \$195.2 million) were included in the depletion calculation.

For the year ended December 31, 2020 there were no indications of impairment identified. Accordingly, no impairment test was required.

6. RIGHT OF USE ASSETS

The Company recognizes right of use assets and corresponding lease liabilities related to certain offices facilities and operating facilities.

000s	2020	2019
Right of Use Assets	2.693	901
Less: accumulated depreciation	(741	(430)
Balance, end of year	1.952	47'

7. DECOMMISSIONING PROVISION

The Company's decommissioning provision results from ownership interests in oil and natural gas assets including well site, gathering systems and processing facilities. The total provision is estimated based on the Company's net ownership interest in all wells and facilities, estimated costs to reclaim and abandon these wells and facilities and the estimated timing of the costs to be incurred in future years. The Company estimated the total undiscounted amount required to settle its decommissioning provision at December 31, 2020 to be approximately \$12.4 million (December 31, 2019 - \$12.8 million). A discount rate of 1.2% (December 31, 2019 - 2.2%) and an inflation rate of 1.2% (December 31, 2019 $-2.2%$ ) were used to calculate the decommissioning provision.

A reconciliation of the decommissioning provision is provided below:

(000s)	2020	2019
Balance, beginning of year	12,789	7,933
Liabilities incurred	1,612	2,811
Liabilities acquired	330	1,575
Accretion	259	344
Revision to estimate	(2, 449)	(641)
Change in inflation and discount rate from prior year	$\blacksquare$	879
Obligations settled	(112)	(112)
Balance, end of year	12,429	12,789

8. INCOME TAX EXPENSE

Reconciliation of effective tax rate:

(000s)	2020		2019
Net income before tax	37,219	S	57,140
Expected tax rate	24.0%		26.5%
Expected income tax	8,933		15,142
Non-deductible expenses	×		35
Change in tax rate	٠		(1,462)
True-up and other	(271)		(60)
Income tax expense	8,662		13,655

The deferred income tax liabilities balances at December 31, 2020 and 2019:

(000s)	2020	2019
Property, plant and equipment	15,045	9,006
	15.045	9.006

At December 31, 2020 the Company had Canadian tax pools of \$129.3 million (December 31, 2019 -\$115.5 million).

9. SHARE CAPITAL

At December 31, 2020 and 2019, the Company was authorized to issue an unlimited number of common shares.

The holders of common shares are entitled to receive dividends as declared by the Company and are entitled to one vote per share.

Shares	Amount (000s)
53,256,000	52,314

There were no share issuances in 2020 or 2019.

10. WARRANTS

	Warrants	Amount (000s)
Balance, December 31, 2019 and 2020	10,647,000		942

The weighted average exercise price and significant assumptions used to value the warrants issued are as follows:

-----
Weighted average exercise price (\$)	1.64
Expected risk free rate (%)	0.49%
Expected life (years)	3.0
Expected volatility (%)	50%

On December 11, 2020 the board of directors approved a one year extension to the warrants. The expiry date of the warrants is now February 12, 2022.

11. SHARE BASED COMPENSATION

(a) Stock Options

During the year ended December 31, 2016 the board of directors of the Company approved a Stock Option Plan allowing the Company to issue stock options equal to four percent of the undiluted common shares outstanding at that time.

The stock options under the Stock Option Plan are exercisable on the basis of one-third on the grant date and one-third on each of the first and second anniversary date of the grant. Each option allows the holder to purchase one common share of the Company. The options expire five years from the date of issue.

Notes to Financial Statements For the years ended December 31, 2020 and 2019.

The fair value of the stock options is estimated using the fair value method. The estimated fair value of the stock options granted and expensed during the year ended December 31, 2020 is \$15,000 (December 31, 2019 - \$24,000) of which \$15,000 (December 31, 2019 - \$18,000) was recognized during the year in share based compensation expense.

(000s)	Number of Options		Weighted average exercise price
Balance, December 31, 2018	1,845,134	S	1.10
Issue of stock options	50,000		2.00
Balance, December 31, 2019 and 2020	1,895,134	S	1.12

The exercise prices of the outstanding and exercisable options as at December 31, 2020 are as follows:

Exercise Price	Weighted Average Remaining Life	Number of Options	Exercisable Options
1.00	1.1	1,665,134	1,658,467
\$2.00	2.8	230,000	136,667
	1.4	1,895,134	1,795,134

No stock options were issued during the year ended December 31, 2020. The fair value of stock options issued during the year ended December 31, 2019 was calculated using a risk free interest rate of 1.55%, expected life of 3 years and volatility of 40%.

(b) Performance warrants

No performance warrants were issued during the year ended December 31, 2020. During the year ended December 31, 2019 the Company issued 125,000 performance warrants to employees. On change of control of the Company the performance warrants vest in five tranches at escalating prices from the fair market value at the time of issuance. Any performance warrants that have an exercise price lower than the change of control transaction price expire immediately.

The fair value of the performance warrants is estimated using the fair value method. The estimated fair value of the performance warrants granted and expensed during the year ended December 31, 2020 is \$9,000 (December 31, 2019 - \$10,000) which was recognized during the year in share-based compensation expense (December 31, 2019 - \$4,000).

(000s)	Number of Warrants	Weighted average exercise price
Balance, December 31, 2018	4,612,825	1.90
Issue of performance warrants	125,000	2.90
Balance, December 31, 2019 and 2020	4,737,825	1.97

The exercise prices of the outstanding and exercisable performance warrants as at December 31, 2020 are as follows:

Notes to Financial Statements

For the years ended December 31, 2020 and 2019

Exercise Price Range	Weighted Average Remaining	Number of Performance Warrants	Exercisable Performance Warrants
$$1.50 - $2.30$	11	4,162,825
$$2.50 - $3.30$	2.8	575,000	Similar
	1.4	4,737,825

The fair value of performance warrants issued during the year ended December 31, 2019 was calculated using a risk free interest rate of 1.55%, expected life of 3 years and volatility of 40%.

12. PER SHARE AMOUNTS

	2020		2019
Weighted average common shares outstanding, basic	53,256,000		53,256,000
Weighted average common shares outstanding, diluted	54,739,503		54,125,470
Net profit per common share
Net income (000s)	\$ 28,557	S	43,485
Basic	0.54		0.82
Diluted	0.52		0.80

The Company calculates per share amounts based on the weighted average Common Shares outstanding for the year ended December 31, 2020 and 2019. The reconciling items between the basic and diluted average common shares outstanding are in-the-money stock options, and performance warrants.

13. REVENUE

The Company's oil, natural gas and natural gas liquids production is determined on a monthly basis according to revenue agreements. The transaction price for each commodity is based on a market price during the month of production and is adjusted for quality and certain transportation costs.

The Company's revenues by product are as follows:

(000s)	2020	2019
Crude oil	81,445	117,187
Natural gas liquids	8,120	5,167
Natural gas	5,942	4,791
	95,507	127,145

14. MANAGEMENT COMPENSATION

(000s)	2020	2019
Salaries and other compensation expensed	765	1,012
Salaries and other compensation capitalized	621	824
Share based compensation	$\overline{\phantom{a}}$
	1,386	1.840

The executive officers include the CEO, CFO, Vice President Exploration, Vice President Engineering and Vice President Land. Key management compensation was comprised of salaries, share based compensation and other benefits.

15. FINANCE INCOME AND EXPENSES

nnne
Interest expense and fees		400
Total finance expense	$AA^-$	10 ^c

16. SUPPLEMENTAL CASH FLOW INFORMATION

Changes in non-cash working capital is comprised of:

(000s)		2020	2019
Source (use) of cash
Trade and other receivables	S	6,111	\$ (15, 755)
Deposits and prepaid expenses		(163)	(125)
Trade and other payables		(11, 992)	21,432
		(6,044)	5,552
Related to investing activities		(2, 927)	7,990
Related to operating activities		(3, 117)	(2, 438)

17. COMMITMENTS

Non-cancellable office leases, facility leases and natural gas transportation commitments are payable as follows:

(000s)	2020	2019
Less than one year	3,226	3.794
Between one and five years	2.081	2,206
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,	$5,30^{-}$	6,000

18. BANK CREDIT FACILITY

During 2019 the Company's credit facility was increased to \$50.0 million and in 2020 increased to \$60.0 million. The funds are available for general corporate purposes in the issuance of letters of guarantee or letters of credit.

Amounts borrowed under the credit facility bear interest at a floating rate based on the Canadian prime rate plus 0.5% to 2.5% dependent on the Company's net debt to cash flow ratio. At December 31, 2020 and 2019 the Company was paying interest at prime rate plus 0.5%. The credit facility is reviewed semi-annually on April 1st and October 1st.

The Company is required to maintain an Adjusted Working Capital Ratio of greater than 1.0. The Adjusted Working Capital Ratio is defined as current assets and undrawn credit facility amounts divided by current liabilities. The company is also required to have a Liability Management Ratio of a minimum of 2.0 with the Alberta Energy Regulator. At December 31, 2020 and 2019 the Company was in compliance with all covenants.

At December 31, 2020 a letter of credit for \$85,000 has been issued against the facility and reduces the available amount.

The credit facility is secured by a general security agreement and a first floating charge debenture in the amount of \$100.0 million covering all of the Company's assets.

19. FINANCIAL RISK MANAGEMENT

(a) Overview:

The Company's activities expose it to a variety of financial risks that arise as a result of its exploration, development, production, and financing activities such as:

credit risk;
· liquidity risk; and
market risk

This note presents information about the Company's exposure to each of the above risks, the Company's objectives, policies and processes for measuring and managing risk, and the Company's management of capital. Further quantitative disclosures are included throughout these financial statements.

The Board of Directors oversees managements' establishment and execution of the Company's risk management framework. Management has implemented and monitors compliance with risk management policies. The Company's risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to market conditions and the Company's activities.

(b) Credit risk:

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's receivables from joint venture partners, oil and natural gas marketers and the financial institutions that hold the cash balances. The maximum exposure to credit risk is the carrying amount of the cash and cash equivalents and the trade and other receivables.

Trade and other receivables:

All of the Company's operations are conducted in Canada. The Company's exposure to credit risk is influenced mainly by the individual characteristics of each customer.

Receivables from oil and natural gas marketers are normally collected on the 25th day of the month following production. The Company's policy to mitigate credit risk associated with these balances Notes to Financial Statements For the years ended December 31, 2020 and 2019

is to establish marketing relationships with large purchasers. The Company historically has not experienced any collection issues with its oil and natural gas marketers. Receivables from joint venture partners are typically collected within one to three months of the joint venture bill being issued. The Company attempts to mitigate the risk from joint venture receivables by obtaining venturer pre-approval of significant capital expenditures. However, the receivables are from participants in the oil and natural gas sector, and collection of the outstanding balances is dependent on industry factors such as commodity price fluctuations, escalating costs and the risk of unsuccessful drilling. In addition, further risk exists with joint venturers; as disagreements occasionally arise that increase the potential for non-collection. The Company does not typically obtain collateral from oil and natural gas marketers or joint venturers; however, the Company does have the ability to withhold production from joint venturers in the event of non-payment.

The Company does not anticipate any default as it transacts with creditworthy customers and management does not expect any losses from non-performance by these customers. As such a provision for doubtful accounts has not been recorded at December 31, 2020 and 2019.

Cash and cash equivalents:

The Company limits its exposure to credit risk by only investing in liquid securities and only with counterparties that are considered to be creditworthy. Management does not expect any counterparty to fail to meet its obligations.

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation.

Typically the Company ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 180 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. To achieve this objective, the Company prepares annual capital expenditure budgets, which are regularly monitored and updated as considered necessary. Further, the Company utilizes authorizations for expenditures on both operated and non-operated projects to further manage capital expenditure. The Company also attempts to match its payment cycle with collection of oil and natural gas revenue on the 25th of each month.

(000s)	<1 year		2-5 years	Total
Trade and other payables	16,907	ری	٠	16,907
Revolving credit facility	39,889		$\overline{\phantom{a}}$	39,889
Lease liability	722		1,230	1,952
Commitments	3,226		2,081	5,307
	60,744		3,311	64,055

The contractual maturity of the Company's financial commitments is as follows:

(d) Market risk:

Market risk is the risk that changes in market prices, such as commodity prices, foreign exchange rates and interest rates will affect the Company's income or the value of the financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

The Company may use both financial derivatives and physical delivery sales contracts to manage market risks. All such transactions are conducted in within risk management tolerances that are reviewed by the Board of Directors.

Foreign exchange risk:

Prices for oil are determined in global markets and generally denominated in United States dollars. Natural gas prices obtained by the Company are influenced by both US and Canadian demand and the corresponding North American supply. The exchange rate effect cannot be quantified but generally an increase in the value of the \$CDN as compared to the \$US will reduce the prices received by the Company for its petroleum and natural gas sales.

Interest rate risk:

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company is exposed to interest rate risk on its cash balances and outstanding balances on its credit facility. A one percent change in the borrowing rate would have approximately a \$0.3 million impact on the Company's annual financial results.

Commodity price risk:

Commodity price risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for oil and natural gas are impacted by not only the relationship between the Canadian and United States dollar but also world economic events that dictate the levels of supply and demand

The Company may economically hedge some oil and natural gas sales through the use of various financial derivative forward sales contracts and physical sales contracts. The Company does not apply hedge accounting for these contracts. The Company's production is usually sold using "spot" or near term contracts, with prices fixed at the time of transfer of custody or on the basis of a monthly average market price. The Company, however, may give consideration in certain circumstances to the appropriateness of entering into long term, fixed price marketing contracts.

A one percent change in the Company's realized commodity prices would have a \$1.0 million impact on the annual financial results.

(e) Capital management:

The Company's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Company manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying oil and natural gas assets. The Company considers its capital structure to include shareholders' equity and working capital. In order to maintain or adjust the capital structure, the Company may issue shares and adjust its capital spending to manage current and projected debt levels.

The Company is not subject to externally imposed capital requirements.

20. RELATED PARTY TRANSACTION

A corporation that is co-owned by the President and Chief Executive Officer of the Company provides completion services to the Company. The completion services are provided at the exchange amount and for the year ended December 31, 2020 totaled \$7.3 million (December 31, 2019 - \$14.1 million).

A corporation that is co-owned by the President and Chief Executive Officer of the Company provides well services to the Company. The well services are provided at the exchange amount and for the year ended December 31, 2020 totaled \$1.3 million (December 31, 2019 - \$1.1 million).

In June 2020 the Company sold certain Exploration and Evaluation assets to a corporation that is coowned by the management team of the Company for \$4.25 million. The transaction was done at fair market value as determined by an independent third party.

The company has a management agreement with a corporation that is co-owned by the management team of the Company for exploration and administrative costs. During the year the Company was reimbursed \$1.0 million under the management agreement.

21. SUBSEQUENT EVENTS

Subsequent to December 31, 2020 the Company's credit facility was increased to \$75.0 million. All other terms of the agreement remain the same.

SCHEDULE "B"

FINANCIAL STATEMENTS OF ANEGADA AS AT AND FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(UNAUDITED)

Unaudited Condensed Consolidated Statements of Financial Position

(000s of Canadian dollars)

		March 31,	December 31,
	Note	2021	2020

Assets
Cash and cash equivalents		\$ 235	\$ -
Trade and other receivables		20,661	15,507
Deposits and prepaid expenses		1,034	700
Risk management contracts		96	1,059
Total current assets		22,026	17,266
Property, plant and equipment	3	188,539	164,304
Exploration and evaluation assets	3	31,395	43,806
Right of use assets	4	1,765	1,952
Total non-current assets		221,699	210,062
Total assets		\$ 243,725	\$ 227,328

Liabilities
Trade and other payables		\$ 24,320	\$ 16,907
Revolving credit facility	12	43,206	39,889
Risk management contracts		9,218	2,127
Lease liability		870	722
Total current liabilities		77,614	59,645
Decommissioning provision	5	12,648	12,429
Deferred tax liability		12,838	15,045
Lease liability		895	1,230
Total non-current liabilities		26,381	28,704
Total liabilities		103,995	88,349

Equity
Share capital	6	\$ 52,314	\$ 52,314
Warrants	7	942	942
Contributed surplus	8	676	676
Retained earnings		85,798	85,047
Total equity		139,730	138,979
Total equity and liabilities		\$ 243,725	\$ 227,328

The notes are an integral part of these financial statements. Signed: Signed:

"M. Brandon Swertz" "Curtis Armstrong" Director Director

Unaudited Condensed Consolidated Interim Statements of Operations and Comprehensive Income

For the three months ended March 31, 2021 and 2020

(000s of Canadian dollars)

	Note	2021	2020

Revenue
Petroleum and natural gas		\$ 48,757	\$ 30,505
Other		84	33
Royalties		(4,173)	(3,874)
		44,668	26,664

Gain (loss) on commodity contracts		(10,871)	14,944
		33,797	41,608
Operating and transportation		7,494	6,754
General and administrative		931	803
Exploration and evaluation		37	57
Share based compensation	8	-	5
Asset retirement obligations accretion	5	66	97
Depletion and depreciation	3	9,273	10,268
Impairment of exploration and evaluation assets	3	7,574	-
Impairment of property, plant and equipment	3	4,251	-
Total operating expenses		29,626	17,984
Results from operating activities		4,171	23,624
Net finance expense		443	326
Income before income taxes		3,728	23,298

Current income tax expense		5,184	1,293
Deferred income tax recovery Net profit and comprehensive profit		\$ (2,207) 751	\$ (390) 22,395

Net loss per share:
Basic		\$ 0.01	\$ 0.42
Diluted		0.01	0.41

Unaudited Condensed Consolidated Interim Statements of Changes in Equity

(000s of Canadian dollars)

		Share		Contributed	Retained	Total
	Note	Capital	Warrants	Surplus	Earnings	Equity

Balance at December 31, 2019		52,314	942	652	56,490	110,398
Share based compensation	8	-	-	5	-
Net profit for the period		-	-	-	22,395	22,395
Balance at March 31, 2020		52,314	942	657	78,885	132,798
Balance at December 31, 2020	\$	52,314	\$ 942	\$ 676	\$ 85,047	\$ 138,979
Net profit for the period		-	-	-	751	751
Balance at March 31, 2021	\$	52,314	942	676	85,798	139,730

Unaudited Condensed Consolidated Interim Statements of Cash Flows

For the three months ended March 31, 2021 and 2020

(000s of Canadian dollars)

	Note	2021	2020
Cash flows from operating activities:
Net profit for the year		\$ 751	\$ 22,395
Adjustments for:
Depreciation	3	9,273	10,268
Impairment of exploration and evaluation assets		7,574	-
Impairment of property, plant and equipment		4,251	-
Deferred tax recovery		(2,207)	(390)
Accretion expense	5	66	97
Share based compensation	8	-	5
Unrealized loss (gain) on commodity contracts		8,054	(11,633)
Funds flow from operations		27,762	20,742
Decommissioning obligations settled	5	(24)	-
Change in non-cash working capital	10	(5,596)	624
Net cash used in operating activities		22,142	21,366
Cash flows from investing activities:
Property, plant and equipment expenditures	3	(28,704)	(31,468)
Exploration and evaluation asset expenditures	3	(3,854)	(1,693)
Change in non-cash working capital	10	7,521	4,365
Net cash used in investing activities		(25,037)	(28,796)
Cash flows from financing activities:
Principal portion of lease payments	4	(187)	-
Proceeds from revolving credit facility	12	3,317	7,430
Net cash from financing activities		3,130	7,430
Change in cash and cash equivalents		235	-
Cash and cash equivalents beginning of period		-	-
Cash and cash equivalents end of period		\$ 235	\$ -

Unaudited Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020

1. REPORTING ENTITY

2. BASIS OF PRESENTATION

(a) Statement of compliance:

The policies applied in the financial statements are based on IFRS issued and outstanding as of May 31, 2021, the date of authorization of the financial statements.

(b) Basis of measurement:

These financial statements are presented in Canadian dollars, which is the Company's functional and presentation currency.

(d) Use of estimates and judgments:

Reserve estimates impact a number of the areas including the valuation of property, plant and equipment and the calculation of depletion and depreciation.

The accounting policy most impacted by management's judgment relates to the determination of cash generating units and the level at which property, plant and equipment is tested for impairment. At March 31, 2021 and December 31, 2020 the Company has two cash generating units.

3. PROPERTY, PLANT & EQUIPMENT AND EXPLORATION & EVALUATION ASSETS

	Exploration	Property
	and	and	Corporate
(000s)	Evaluation	Equipment	and Other	Total

Cost or deemed cost:
Balance at December 31, 2019	\$ 33,793	\$ 177,609	\$ 215	\$ 211,617
Additions	18,754	54,453	80	73,287
Disposals	(4,250)	-	-	(4,250)
Transfers	(4,491)	4,491	-	-
Balance at December 31, 2020	43,806	\$ 236,553	\$ 295	\$ 280,654
Additions	3,854	29,067	1	32,922
Transfers	(8,691)	8,691	-	-
Impairment	(7,574)	(4,251)	-	(11,825)
Balance at March 31, 2021	\$ 31,395	\$ 270,060	\$ 296	\$ 301,751

Depletion and depreciation
Balance at December 31, 2019	-	44,239	64	44,303
Depletion and depreciation	-	28,232	9	28,241
Balance at December 31, 2020	\$ -	\$ 72,471	\$ 73	\$ 72,544
Depletion and depreciation	-	9,272	1	9,273
Balance at March 31, 2021	\$ -	\$ 81,743	\$ 74	\$ 81,817

Carrying Amounts:
December 31, 2020	\$ 43,806	164,082	222	\$ 208,110
March 31, 2021	\$ 31,395	\$ 188,317	\$ 222	\$ 219,934

Unaudited Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020

The Company capitalized \$0.2 million of general and administrative costs (December 31, 2020 - \$1.1 million) and has not capitalized any share-based compensation.

Future development costs of \$225.2 million were included in the depletion calculation at March 31, 2021 and December 31, 2020.

Subsequent to March 31, 2021 the Company agreed to sell it's Montney CGU which resulted in an impairment of property, plant and equipment of \$4.3 million and exploration and evaluation assets of \$7.6 million.

There were no indicators of impairment for the Charlie Lake CGU.

4. RIGHT OF USE ASSETS

The Company recognizes right of use assets and corresponding lease liabilities related to certain offices facilities and operating facilities.

	Three months ended	Year ended
(000s)	March 31, 2021	December 31, 2020
Balance, beginning of period	\$ 1,952	\$ 2,693
Less: accumulated depreciation	(187)	(741)
Balance, end of period	\$ 1,765	\$ 1,952

5. DECOMMISSIONING PROVISION

The Company's decommissioning provision results from ownership interests in oil and natural gas assets including well site, gathering systems and processing facilities. The total provision is estimated based on the Company's net ownership interest in all wells and facilities, estimated costs to reclaim and abandon these wells and facilities and the estimated timing of the costs to be incurred in future years. The Company estimated the total undiscounted amount required to settle its decommissioning provision at March 31, 2021 to be approximately \$12.6 million (December 31, 2020 - \$12.4 million). A discount rate of 1.2% (December 31, 2020 – 1.2%) and an inflation rate of 1.2% (December 31, 2020 – 1.2%) were used to calculate the decommissioning provision.

A reconciliation of the decommissioning provision is provided below:

(000s)	Three months ended		Year ended
	March 31, 2021		December 31, 2020
Balance, beginning of period	\$ 12,429	\$	12,789
Liabilities incurred	415		1,612
Liabilities acquired	-		330
Accretion	66		259
Revision to estimate	(238)		(2,449)
Obligations settled	(24)		(112)
Balance, end of period	\$ 12,648	\$	12,429

Unaudited Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020

6. SHARE CAPITAL

At March 31, 202 and December 31, 2020, the Company was authorized to issue an unlimited number of common shares.

The holders of common shares are entitled to receive dividends as declared by the Company and are entitled to one vote per share.

	Shares	Amount (000s)
Balance, March 31, 2021 and December 31, 2020	53,256,000	\$ 52,314

There were no share issuances in 2021 or 2020.

7. WARRANTS

	Warrants	Amount (000s)
Balance, March 31, 2021 and December 31, 2020	10,647,000	\$ 942

The weighted average exercise price and significant assumptions used to value the warrants issued are as follows:

Weighted average exercise price (\$)	1.64
Expected risk free rate (%)	0.49%
Expected life (years)	3.0
Expected volatility (%)	50%

On December 11, 2020 the board of directors approved a one-year extension to the warrants. The expiry date of the warrants is February 12, 2022.

8. SHARE BASED COMPENSATION

(a) Stock Options

		Weighted
	Number of	average
(000s)	Options	exercise price
Balance, March 31, 2021 and December 31, 2020	\$ 1,895,134	1.12

Unaudited Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020

The exercise prices of the outstanding and exercisable options as at March 31, 2021 are as follows:

	Weighted Average Remaining	Number of	Exercisable
Exercise Price	Life	Options	Options
\$ 1.00	0.8	1,665,134	1,658,467
\$ 2.00	2.6	230,000	136,667
	1.1	1,895,134	1,795,134

No stock options were issued during the periods ended March 31, 2021 or December 31, 2020.

(b) Performance warrants

During the year ended December 31, 2019 the Company issued 125,000 performance warrants to employees. On change of control of the Company the performance warrants vest in five tranches at escalating prices from the fair market value at the time of issuance. Any performance warrants that have an exercise price lower than the change of control transaction price expire immediately.

		Weighted
	Number of	average
(000s)	Warrants	exercise price
Balance, March 31, 2021 and December 31, 2020	\$ 4,737,825	1.97

The exercise prices of the outstanding and exercisable performance warrants as at December 31, 2020 are as follows:

	Weighted Average Remaining	Number of Performance	Exercisable Performance
Exercise Price Range	Life	Warrants	Warrants
\$1.50 - \$2.30	0.8	4,162,825	-
\$2.50 - \$3.30	2.6	575,000	-
	1.1	4,737,825	-

No performance warrants were issued during the periods ended March 31, 2021 or December 31, 2020.

9. PER SHARE AMOUNTS

	Three months ended	Three months ended
	March 31, 2021	March 31, 2020
Weighted average common shares outstanding, basic	53,256,000	53,256,000
Weighted average common shares outstanding, diluted	54,863,954	54,125,470
Net profit per common share
\$ Net income (000s)	751	\$ 22,395
Basic	0.01	0.42
Diluted	0.01	0.41

Unaudited Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020

The Company calculates per share amounts based on the weighted average Common Shares outstanding for the periods ended March 31, 2021 and 2020. The reconciling items between the basic and diluted average common shares outstanding are in-the-money stock options, and performance warrants.

10. SUPPLEMENTAL CASH FLOW INFORMATION

Changes in non-cash working capital is comprised of:

(000s)	Three months ended March 31, 2021
Source (use) of cash
Trade and other receivables	\$ (5,154)	\$ 10,260
Deposits and prepaid expenses	(334)	(615)
Trade and other payables	7,413	(4,656)
	\$ 1,925	\$ 4,989
Related to investing activities	\$ 7,521	\$ 4,365
Related to operating activities	(5,596)	624

11. COMMITMENTS

Non-cancellable office leases, facility leases and natural gas transportation commitments are payable as follows:

(000s)	March 31, 2021	December 31, 2020
Less than one year	\$ 2,972	\$	3,226
Between one and five years	1,492		2,081
	\$ 4,464	\$	5,307

12. BANK CREDIT FACILITY

During 2020 the Company's credit facility was increased to \$60.0 million and in the first quarter of 2021 increased to \$75.0 million. The funds are available for general corporate purposes in the issuance of letters of guarantee or letters of credit.

Amounts borrowed under the credit facility bear interest at a floating rate based on the Canadian prime rate plus 0.5% to 2.5% dependent on the Company's net debt to cash flow ratio. At March 31, 2021 and 2020 the Company paid interest at prime rate plus 0.5%. The credit facility is reviewed semiannually on April 1st and October 1st .

The Company is required to maintain an Adjusted Working Capital Ratio of greater than 1.0. The Adjusted Working Capital Ratio is defined as current assets and undrawn credit facility amounts divided by current liabilities. The company is also required to have a Liability Management Ratio of a minimum of 2.0 with the Alberta Energy Regulator. At March 31, 2021 and December 31, 2020 the Company was in compliance with all covenants.

Unaudited Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2021 and 2020

At March 31, 2021 and December 31, 2020 a letter of credit for \$85,000 has been issued against the facility and reduces the available amount.

The credit facility is secured by a general security agreement and a first floating charge debenture in the amount of \$100.0 million covering all of the Company's assets.

13. RELATED PARTY TRANSACTION

A corporation that is co-owned by the President and Chief Executive Officer of the Company provides completion services to the Company. The completion services are provided at the exchange amount and for the period ended March 31, 2021 totaled \$3.8 million (March 31, 2020 - \$5.1 million).

A corporation that is co-owned by the President and Chief Executive Officer of the Company provides well services to the Company. The well services are provided at the exchange amount and for the period ended March 31, 2021 totaled \$0.5 million (March 31, 2020 – \$1.1 million).

The company has a management agreement with a corporation that is co-owned by the management team of the Company for exploration and administrative costs. In the first quarter of 2021 and 2020 no fees were paid under this agreement.

14. SUBSEQUENT EVENTS

Subsequent to March 31, 2021 the Company entered into a definitive agreement to be acquired by Tamarack Valley Energy for total consideration of \$526.0 million inclusive of the closing net debt position. The total consideration consists of \$246.5 million in cash, subject to adjustment for closing net debt, and approximately 105.3 million common shares of Tamarack at a deemed price of \$2.34 per share. The acquisition by Tamarack is expected to close on or before May 31, 2021.

SCHEDULE "C"

UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET OF TAMARACK AS AT MARCH 31, 2021 AND UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) OF TAMARACK FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND FOR THE YEAR ENDED DECEMBER 31, 2020

TAMARACK VALLEY ENERGY LTD.

Pro Forma Consolidated Balance Sheet As at March 31, 2021 (unaudited)

					Pro Forma
	Tamarack	Anegada			Tamarack
(thousands)	Valley Energy Ltd.	Oil Corp.	Adjustments	Note	Valley Energy Ltd.

Assets
Current assets:
Cash and cash equivalents	\$ –	\$235	\$(235)	2(e)	\$ –
Accounts receivable	44,506	20,661			65,167
Prepaid expenses and deposits Fair value of financial instruments	2,241 –	1,034 96			3,275 96
	46,747	22,026	(235)		68,538

Property, plant and equipment	1,101,578	188,539	370,673 129,438	2(a) 2(h)	1,796,934
Exploration and evaluation assets	1,436	31,395	6,706 (31,395)	2(f) 2(b)	1,436
Assets held for sale	–	–	31,052	2(c)	31,052
Right of use assets	–	1,765	(1,765)	2(d)	–
Deferred tax asset	49,982	–	(49,982)	2(h)	–
	\$1,199,743	\$243,725	\$454,492		\$1,897,960
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities	\$61,766	\$24,320	\$10,872	2(f)	\$96,958
Revolving credit facility	–	43,206	(43,206)	2(e)	–
Lease liabilities	2,549	870			3,419
Decommissioning obligations Cross-currency swap	7,411 346	– –			7,411 346
Fair value of financial instruments	25,577	9,218			34,795
	97,649	77,614	(32,334)		142,929

Bank debt	270,810	–	247,500	2(a)	561,281
Lease liabilities	6,949	895	42,971	2(e)	7,844
Fair value of financial instruments	471	–			471
Decommissioning obligations	235,281	12,648	(6,576)	2(g)	241,353
Deferred tax liability	–	12,838	116,600	2(h)	79,456
			(49,982)	2(h)
	611,160	103,995	318,179		1,033,334
Shareholders' equity:
Share capital	952,035	52,314	280,209	2(a)	1,232,244
			(52,314)	2(a)
Treasury shares	(339)	–			(339)
Warrants Contributed surplus	– 54,303	942 676	(942) (676)	2(a) 2(a)	– 54,303
Retained earnings (deficit)	(417,416)	85,798	(85,798)	2(a)	(421,582)
			(4,166)	2(f)
	588,583	139,730	136,313		864,626
	\$1,199,743	\$243,725	\$454,492		\$1,897,960

See accompanying notes to the pro forma consolidated financial statements.

TAMARACK VALLEY ENERGY LTD.

Pro Forma Consolidated Statement of Income (Loss) and Comprehensive Income (Loss)

For the three months ended March 31, 2021

(unaudited)

					Pro Forma
	Tamarack	Anegada			Tamarack
	Valley	Oil			Valley
(thousands)	Energy Ltd.	Corp.	Adjustments	Note	Energy Ltd.

Revenue:
Oil and natural gas	\$92,696	\$48,757			\$141,453
Processing income	738	84			822
Royalties	(11,566)	(4,173)			(15,739)
Net revenue	81,868	44,668			126,536
Financial instrument contracts:
Realized loss on financial instruments	(8,206)	–	(2,818)	3(c)	(11,024)
Unrealized loss on financial instruments	(15,895)	(10,871)	2,818	3(c)	(23,948)
	57,767	33,797	–		91,564
Expenses:
Production	21,478	7,494	(1,367)	3(c)	27,605
Transportation	3,308	–	1,367	3(c)	4,675
General and administration	3,858	931			4,789
Transaction costs	716	–			716
Exploration and evaluation	–	37	(37)	3(d)	–
Stock-based compensation	1,650	–			1,650
Finance	3,902	443	2,786	3(b)	7,197
			66	3(c)
Asset retirement obligations accretion	–	66	(66)	3(c)	–
Depletion, depreciation and amortization	30,544	9,273	11,069	3(a)	50,886
Gain on disposition of property, plant and equipment	(7,843)	–			(7,843)
Site rehabilitation program grant	(124)	–			(124)
Impairment of exploration and evaluation assets	–	7,574	(7,574)	3(d)	–
Impairment of property, plant and equipment	–	4,251	(4,251)	3(d)	–
	57,489	30,069	1,993		89,551

Income before taxes	278	3,728	(1,993)		2,013

Current income tax (expense) recovery	–	(5,184)	5,184	3(e)	–
Deferred tax (expense) recovery	(444)	2,207	458 (5,184)	3(e) 3(e)	(2,963)

Net income (loss) and comprehensive income (loss)	\$(166)	\$751	\$(1,535)		\$(950)

Net income (loss) per share (Note 4):
Basic and diluted	\$(0.00)				\$(0.00)

See accompanying notes to the pro forma consolidated financial statements.

TAMARACK VALLEY ENERGY LTD.

Pro Forma Consolidated Statement of Income (Loss) and Comprehensive Income (Loss)

For the year ended December 31, 2020

(unaudited)

					Pro Forma
	Tamarack	Anegada			Tamarack
	Valley	Oil			Valley
(thousands)	Energy Ltd.	Corp.	Adjustments	Note	Energy Ltd.

Revenue:
Oil and natural gas	\$220,896	\$95,507			\$316,403
Processing income	1,177	290			1,467
Royalties	(24,540)	(9,010)			(33,550)
Net revenue	197,533	86,787			284,320
Financial instrument contracts:
Realized gain on financial instruments	32,936	8,182			41,118
Unrealized loss on financial instruments	(6,067)	(1,068)			(7,135)
	224,402	93,901			318,303

Expenses:
Production and transportation	86,515	23,169			109,684
General and administration	11,082	2,591			13,673
Exploration and evaluation	–	210	(210)	3(d)	–
Stock-based compensation	5,500	24			5,524
Finance	12,635	1,447	11,144	3(b)	25,485
			259	3(c)
Asset retirement obligations accretion	–	259	(259)	3(c)	–
Depletion, depreciation and amortization	120,658	28,982	30,504	3(a)	180,144
Gain on disposition of property, plant and equipment	(10,665)	–			(10,665)
Site rehabilitation program grant	(1,395)	–			(1,395)
Impairment of property, plant and equipment	399,000	–			399,000
	623,330	56,682	41,438		721,450
Income (loss) before taxes	(398,928)	37,219	(41,438)		(403,147)

Current income tax (expense) recovery	–	(2,623)	2,623	3(e)	–
Deferred tax (expense) recovery	87,544	(6,039)	9,531	3(e)	88,413
			(2,623)	3(e)

Net income (loss) and comprehensive income (loss)	\$(311,384)	\$28,557	\$(31,907)		\$(314,734)

Net loss per share (Note 4):
Basic and diluted	\$(1.40)				\$(0.96)

See accompanying notes to the pro forma consolidated financial statements.

1. Basis of presentation:

On April 12, 2021, Tamarack Valley Energy Ltd. ("Tamarack" or the "Corporation") entered into a definitive agreement (the "Acquisition Agreement") with Anegada Oil Corp. ("Anegada"). The Acquisition was completed on June 1, 2021. The unaudited pro forma consolidated balance sheet of Tamarack as at March 31, 2021 and the unaudited pro forma consolidated statements of income (loss) and comprehensive income (loss) for the three months ended March 31, 2021 and the unaudited pro forma consolidated statements of income (loss) and comprehensive income (loss) for the year ended December 31, 2020 (the "pro forma consolidated financial statements") have been prepared to reflect the acquisition by Tamarack of all of the issued and outstanding common shares of Anegada.

The pro forma consolidated financial statements have been prepared from information derived from and should be read in conjunction with the following:

Tamarack's unaudited condensed consolidated interim financial statements as at and for the three months ended March 31, 2021 and the audited consolidated financial statements as at and for the year ended December 31, 2020.
Anegada's unaudited condensed consolidated interim financial statements as at and for the three months ended March 31, 2021 and the audited financial statements as at and for the year ended December 31, 2020.

The pro forma consolidated financial statements have been prepared in accordance with applicable Canadian securities legislation. The unaudited pro forma consolidated balance sheet gives effect to the assumed transactions and assumptions described herein as if they had occurred on March 31, 2021. The unaudited pro forma consolidated statements of income (loss) and comprehensive income (loss) give effect to the transactions and assumptions described herein as if they had occurred on January 1, 2020. The pro forma consolidated financial statements may not be indicative of the results that actually would have occurred if the events reflected therein had been in effect on the dates indicated or of the results which may be obtained in the future. In preparing these pro forma consolidated financial statements, no adjustments have been made to reflect the operating synergies and administrative cost savings that could result from the operations of the combined entities. The allocation of the total consideration to the net assets acquired in the Acquisition is preliminary and based on estimates of fair value and other amounts and such estimates may be adjusted in the future. As these amounts are preliminary, differences in the actual amounts assigned to the fair values of the identifiable assets and liabilities upon the completion of the detailed valuations and calculations could differ materially and results in changes in periods subsequent to the completion of the Acquisition. In the opinion of management, the pro forma information includes all material adjustments necessary for a fair presentation of Anegada.

Accounting policies used in the preparation of the pro forma consolidated financial statements are in accordance with those disclosed in the consolidated financial statements of Tamarack as at and for the year ended December 31, 2020 and Tamarack's unaudited condensed consolidated interim financial statements as at and for the three months ended March 31, 2021, which were prepared in accordance with International Financial Reporting Standards ("IFRS"). In the opinion of management these pro forma consolidated financial statements include all of the necessary adjustments for a fair presentation of the ongoing entity.

2. Pro forma assumptions and adjustments – pro forma consolidated balance sheet:

The unaudited pro forma consolidated balance sheet gives effect to the following transactions, assumptions and adjustments as if they occurred on March 31, 2021:

(a) Pursuant to the Acquisition Agreement, the Corporation acquired all of the issued and outstanding common shares of Anegada Oil Corp. As consideration, Anegada shareholders received cash consideration of \$247.5 million and 105,341,880 common shares of Tamarack. The common shares were valued at \$2.66 per common share based on the closing trading price of Tamarack's common shares on May 31, 2021.

The acquisition is considered to be a business combination under IFRS 3 and will be accounted for accordingly,

using the acquisition method of accounting. The consideration paid for Anegada will be subject to further adjustments.

The preliminary purchase price allocation relating to the Anegada Oil Corp. acquisition is as follows:

Cash consideration	\$247,500
Common shares issued	280,209
Total consideration	\$527,709

Property, plant and equipment (note 2(j))	\$695,356
Bank debt, net of cash (note 2(e))	(42,971)
Working capital deficiency excluding bank debt and financial instruments (note 2(f))	(9,331)
Financial instruments (note 2(i))	(9,122)
Assets held for sale (note 2 (c))	31,052
Lease liabilities	(1,765)
Decommissioning obligations (note 2 (g))	(6,072)
Deferred income tax liability (note 2(h))	(129,438)
Net assets	\$527,709

The above amounts are initial estimates of the fair values of the assets acquired and liabilities assumed, which have been made by management of Tamarack for the acquisition, based on information available. The final purchase price allocation will be based on the final fair value estimates of the net assets purchased. There may be differences from this pro forma purchase price equation as a result of finalizing the valuation.

(b) Exploration and evaluation assets contained within Anegada's financial statements were removed as a result of two factors. Firstly, certain Montney assets owned by Anegada at March 31, 2021 were sold prior to the completion of the Acquisition by Tamarack. The Montney assets sold were recognized in both exploration and evaluation assets and in property, plant and equipment and were written down to the estimated disposition fair value by Anegada as at March 31, 2021. Secondly, Tamarack determining that the nature of the remaining exploration and evaluation balances would be considered property, plant and equipment under Tamarack's accounting policies.
(c) Included as adjustments to the pro forma consolidated balance sheet are adjustments for assets held for sale to reflect the disposition by Tamarack of a 2% gross overriding royalty in certain Charlie Lake properties acquired from Anegada immediately after the closing of the acquisition for \$29,607, and for the sale of certain petroleum and natural gas rights acquired from Anegada after the closing of the acquisition for \$1,445. As both of these sales were contemplated at the time of the acquisition, they are considered assets held for sale rather than property, plant and equipment.
(d) Included as an adjustment is Anegada's Right of use assets that has been reclassified to property, plant and equipment to conform to Tamarack's financial statement presentation.
(e) Included as an adjustment to bank debt is the remaining Anegada Bank debt balance of \$43,206 and \$235 of Anegada cash that has been reclassified to long-term to reflect the assumption of the outstanding balance under Tamarack's credit facilities. Tamarack has assumed that the book value is equal to the fair value. In connection with the Acquisition, Tamarack's credit syndicate increased the available capacity under the Corporation's credit facilities from \$325 million to \$600 million and extended the revolving period to May 31, 2022.
(f) Included as an adjustment to accounts payable and accrued liabilities are Tamarack's and Anegada's transaction costs of \$4,166 and \$6,706, respectively. These costs include transaction costs related to advisory, accounting and legal fees and change of control and severance costs. The costs pertaining to Anegada are included in the acquisition equation above. The transaction costs for Tamarack have been included in the deficit.
(g) The decommissioning obligations acquired were recognized using a fair value discount rate of 8%. The book value of decommissioning obligations on Anegada's condensed consolidated statement of financial position was measured using a risk-free discount rate of 1.2% resulting in an adjustment of \$6,576. The decommissioning obligation will be adjusted to Tamarack's risk-free rate upon the closing of the transaction and finalization of the acquisition accounting.
(h) The Anegada acquisition results in a deferred tax liability of \$129,438 and as such Tamarack's existing deferred tax asset of \$49,982 has been reclassified to arrive at the net deferred tax liability position reflected on the pro forma consolidated balance sheet.
(i) Tamarack has assumed that the book value is equal to fair value for financial derivatives.
(j) The fair value of property, plant and equipment of \$695,356 was determined based on preliminary internal reserve estimates. An additional \$505,052 has been recorded in addition to the book value of Anegada property, plant and equipment and right of use assets.

3. Pro forma assumptions and adjustments – pro forma consolidated statements of income (loss) and comprehensive income (loss):

The unaudited pro forma consolidated statements of income (loss) and comprehensive income (loss) give effect to the following transactions, assumptions and adjustments as if they occurred on January 1, 2020:

(a) Depletion expense has been adjusted to reflect the application of the appropriate unit-of-production rate based on proved plus probable reserves following the adjustment of the Anegada carrying value of property, plant and equipment to its fair value upon acquisition as determined in the purchase price allocation discussed under note 2(a) above resulting in an increase of \$11,069 for the three months ended March 31, 2021 and \$30,504 for the year ended December 31, 2020.
(b) Interest expense has been increased for the three months ended March 31, 2021 and for the year ended December 31, 2020 by \$2,786 and \$11,144, respectively to reflect additional bank debt interest on the cash consideration paid in the acquisition of \$247,500.
(c) Loss on commodity contracts of \$2,818 for the three months ended March 31, 2021 has been reclassified to Realized loss on financial instruments to conform to Tamarack's financial statement presentation. Asset retirement obligation accretion expense of \$66 for the three months ended March 31, 2021 and \$259 for the year ended December 31, 2020 and Transportation expense of \$1,367 for the three months ended March 31, 2021 have been reclassified to conform to Tamarack's financial statement presentation.
(d) Exploration and evaluation expense has been decreased for the three months ended March 31, 2021 and for the year ended December 31, 2020 by \$37 and \$210, respectively related to the reduction of Anegada exploration and evaluation assets down to nil as discussed above under note 2(a) and 2(b). Additionally, as noted in note 2(b), the Montney assets owned by Anegada at March 31, 2021 that were disposed by Anegada prior to the completion of the Acquisition by Tamarack were recognized in both exploration and evaluation assets and property, plant and equipment and were written down to reflect the estimated disposition fair value. The write down to estimated disposition fair value resulted in impairment expenses of \$7,574 and \$4,251 to exploration and evaluation assets and property, plant and equipment, respectively. These impairment expenses are not related to assets acquired from Anegada by Tamarack and the impairment expenses are not recognized in the pro forma consolidated statement of income (loss) for the three month period ended March 31, 2021.
(e) Current income tax expense has been reclassified for the three months ended March 31, 2021 and for the year ended December 31, 2020 by \$5,184 and \$2,623, respectively, to reflect the amalgamation of Anegada into Tamarack and the usage of available Tamarack tax pools to reduce pro forma taxable income to nil and the income tax expense recognized in deferred income tax (expense) recovery. The pro forma income statement adjustments for the three months ended March 31, 2021 and for the year ended December 31, 2020 have been tax effected at 23% and reflected in Deferred tax (expense) recovery.

4. Pro forma net income (loss) per share and weighted average shares outstanding:

Pro forma basic and diluted net income (loss) per share was calculated using the pro forma net income (loss) divided by the weighted average number of Tamarack shares outstanding after giving effect to the Acquisition Agreement (see Note 1 and 2(a)) as if it occurred on January 1, 2020.

The following table details the basic and diluted weighted average number of shares used to compute the pro forma net income (loss) per share:

	March 31,	December 31,
	2021	2020
Tamarack weighted average common shares – basic and diluted	265,414,809	222,781,162
Common shares issued - Anegada acquisition (note 4(a))	105,341,880	105,341,880
Pro forma weighted average common shares – basic and diluted (note 4(b))	370,756,689	328,123,042

(a) Common shares issued for the Anegada Oil Corp. acquisition include the 105,341,880 common shares as outlined in note 2(a).
(b) For the purpose of calculating the pro forma diluted net loss per share for the three month period ended March 31, 2021 and the full year ended December 31, 2020 no additional common shares have been included as they would be anti-dilutive.

AI assistant

Tamarack Valley Energy Ltd. — M&A Activity 2021

45210_rns_2021-07-16_f707bc5e-4de6-446e-b876-a697864083f1.pdf

FORM 51-102F4

BUSINESS ACQUISITION REPORT

ITEM 1. - IDENTITY OF COMPANY

1.1 Name and Address of Company

1.2 Executive Officer

ITEM 2. - DETAILS OF ACQUISITION

2.1 Nature of Business Acquired

2.2 Acquisition Date

2.3 Consideration

2.4 Effect on Financial Position

2.5 Prior Valuations

2.6 Parties to Transaction

2.7 Date of Report

ITEM 3. - FINANCIAL STATEMENTS AND OTHER INFORMATION

Forward-Looking Statements

SCHEDULE "A"

FINANCIAL STATEMENTS OF ANEGADA AS AT AND FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Independent auditor's report

Our opinion

What we have audited

Basis for opinion

Independence

Responsibilities of management and those charged with governance for the financial statements

Auditor's responsibilities for the audit of the financial statements

Anegada Oil Corp.Statements of Financial Position

Anegada Oil Corp.Statements of Operations and Comprehensive Income

Anegada Oil Corp.Statements of Changes in Equity

Anegada Oil Corp.Statements of Cash Flows

1. REPORTING ENTITY

2. BASIS OF PRESENTATION

3. SIGNIFICANT ACCOUNTING POLICIES

(c) Impairment:

(i) Income tax:

4. DETERMINATION OF FAIR VALUES

5. PROPERTY, PLANT & EQUIPMENT AND EXPLORATION & EVALUATION ASSETS

6. RIGHT OF USE ASSETS

7. DECOMMISSIONING PROVISION

8. INCOME TAX EXPENSE

9. SHARE CAPITAL

10. WARRANTS

11. SHARE BASED COMPENSATION

(a) Stock Options

(b) Performance warrants

12. PER SHARE AMOUNTS

13. REVENUE

14. MANAGEMENT COMPENSATION

15. FINANCE INCOME AND EXPENSES

16. SUPPLEMENTAL CASH FLOW INFORMATION

17. COMMITMENTS

18. BANK CREDIT FACILITY

19. FINANCIAL RISK MANAGEMENT

(d) Market risk:

Foreign exchange risk:

Interest rate risk:

Commodity price risk:

(e) Capital management:

20. RELATED PARTY TRANSACTION

21. SUBSEQUENT EVENTS

SCHEDULE "B"

FINANCIAL STATEMENTS OF ANEGADA AS AT AND FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

1. REPORTING ENTITY

2. BASIS OF PRESENTATION

3. PROPERTY, PLANT & EQUIPMENT AND EXPLORATION & EVALUATION ASSETS

4. RIGHT OF USE ASSETS

5. DECOMMISSIONING PROVISION

6. SHARE CAPITAL

7. WARRANTS

8. SHARE BASED COMPENSATION

(a) Stock Options

9. PER SHARE AMOUNTS

10. SUPPLEMENTAL CASH FLOW INFORMATION

11. COMMITMENTS

12. BANK CREDIT FACILITY

13. RELATED PARTY TRANSACTION

14. SUBSEQUENT EVENTS

SCHEDULE "C"

UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET OF TAMARACK AS AT MARCH 31, 2021 AND UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) OF TAMARACK FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND FOR THE YEAR ENDED DECEMBER 31, 2020

Tamarack Valley Energy Ltd. M&A Activity 2021

Anegada Oil Corp.
Statements of Financial Position

Anegada Oil Corp.
Statements of Operations and Comprehensive Income

Anegada Oil Corp.
Statements of Changes in Equity

Anegada Oil Corp.
Statements of Cash Flows