Southern Energy Corp. Announces 2023 Capital Budget and Gwinville Operational Update, Year End Reserves Update and Joint Broker Appointments

CALGARY, AB / ACCESSWIRE / March 29, 2023 / Southern Energy Corp. ("Southern" or the "Company") (TSXV:SOU)(AIM:SOUC)(OTCQX:SOUTF) is pleased to announce its:

• 2022 Year End Reserves Upgrade:
  • Highlights of the Company's year end independent oil and gas reserves evaluation as at December 31, 2022 (the "NSAI Report") include:
    • an increase in proved developed producing ("PDP") reserves of 25% to 6.2 MMboe
    • an increase in total proved ("1P") reserves of 44% to 14.1 MMboe
    • an increase in total proved plus probable ("2P") reserves by 31% to 25.5 MMboe in 2022
    • before-tax net present value ("NPV") of 2P reserves, discounted at 10% ("NPV10"), of $142.5 million (an increase of 61% on year end 2021)
• Gwinville Operational Update:
  • The Company announces the completion of its current drilling campaign of seven horizontal wells
  • Through technical improvements, Southern has reduced the average time from spud to total depth of its Gwinville wells from approximately 21 days to between 9-12 days and averaging 80-100% lateral placement in the high-graded porosity interval
• Capital Budget Update:
  • In response to the current low natural gas prices, Southern plans to moderate the Gwinville organic growth program from the planned capital budget of US$101.0 million announced in November 2022 to approximately US$55.0 million
  • Under its revised capital plan, Southern will have drilled seven horizontal wells at the Gwinville asset, completed three wells and have four wells remain as drilled but uncompleted ("DUCs") to be brought on in the future once natural gas prices are more supportive
• Broker Appointments:
  • Stifel Nicolaus Europe Limited and Tennyson Securities have both been appointed as the Company's joint corporate brokers with immediate effect

Ian Atkinson, President & Chief Executive Officer of Southern, commented:

"Although the drop in natural gas prices has brought us to the decision to moderate our Gwinville capital program, the overall impact of the applied learnings from the 2022 appraisal program have paid off and we are happy with the early results. In the current program we have drilled seven horizontal wells with longer laterals than the original appraisal wells in half the time on a per well basis and proven that the re-interpretation of our 3D seismic has improved our overall ability to stay within the targeted zone. We have positioned ourselves for the inevitable rebound in natural gas prices and look forward to moving equipment and manpower back into the Gwinville field quickly as price recovery occurs to re-initiate our organic growth plans and take advantage of maximising cashflows at the opportune time."

Gary McMurren, Chief Operating Officer, commented:

"We are excited to report another year of material reserves growth in all major categories for the Company, highlighted by conservative additions to our Gwinville horizontal Selma Chalk inventory following our successful appraisal program in 2022. In our current development program, we will be testing two Lower Selma Chalk and two City Bank horizontal laterals with our modern completion design. The Lower Selma Chalk has only minimal reserve bookings in this year's report, and we have yet to book any City Bank development reserves, so upon completion of these horizons over the next few months, we expect to continue to add significant and predictable reserves growth in Gwinville for years to come.

The NSAI Report highlights the extensive running room and future development potential of only one of our existing core assets which will deliver long term sustainable free funds flow and organic growth. Further work is expected to unlock additional value for Southern shareholders, with the potential to significantly grow reserves in our portfolio in a short time frame.

With an average operating cost in 2022 of under $0.80/Mcfe, Southern has some of the highest margin natural gas assets in North America, which continues to benefit the business model and provide strong cashflow for the Company."

Gwinville Operational Update

The Company is pleased to summarize the results of the current capital program to date as compared to the 19-3 padsite appraisal program:

Gwinville 18-10 Padsite

The Company is pleased to report the initial 30-day production rate ("IP30") on the first well of the 18-10 pad out of a total of seven wells drilled to date in the capital program. The 18-10 #2 Upper Selma Chalk well recently reached an IP30 of 3.3 MMcf/d, which is similar to the 19-3 #3 and #4 appraisal wells, and below early type curve expectations for these Generation 3 well designs. The well encountered some unpredicted faulting and was drilled with only 50% of that lateral length within the high-grade porosity interval. Although below Generation 3 type curve estimates, the result is representative of a well with an effective lateral length in the high-graded porosity interval of less than 2,600 feet.

The 18-10 #3 Upper Selma Chalk well achieved approximately 80% of the lateral within the high-grade porosity interval and was completed with a 44-stage stimulation. The Company experienced a mechanical wellbore integrity issue during the completion and plans to perform remedial work on the well and establish production in Q2 or Q3 of this year.

The 18-10 #1 City Bank well was drilled to a lateral length of approximately 5,744 feet with 100% of the lateral drilled in the target interval. The well was successfully stimulated with a 50-stage completion operation and is in early stages of completion flowback currently producing flowback water at 5% of load recovery. Southern does not expect to see peak gas rates until the well has recovered approximately 20% of load fluid based on historically stimulated vertical and Generation 1 horizontal wells in the City Bank reservoir at which time the Company will report on initial production. The Company is encouraged by the early results and looks to add significant net asset value to the reserve books in 2023 as no proven undeveloped or probable locations have been attributed to the City Bank zone to-date.

Gwinville Drilling Efficiencies

As a follow-up to the three well Upper Selma Chalk appraisal program from Q2 2022, which has recovered approximately 55% of upfront capital in less than nine months of production, Southern identified two major technical improvements to be employed on future activity. The re-interpretation of the 3D seismic to provide a higher resolution assessment of the reservoir, coupled with the utilization of a rotary steerable downhole drilling assembly that allows for immediate and more responsive corrections, has resulted in a significant improvement to the lateral length drilled in the high porosity interval and a significant reduction in overall drilling times. Utilizing these changes, Southern has reduced the average time from spud to total depth of these wells from approximately 21 days to between 9-12 days and averaging 80-100% lateral placement in the high-graded porosity interval. The learnings and cost savings achieved early in this program are expected to translate into all future Gwinville drilling.

The Company's first padsite in the winter program was the 18-10 pad, which has two Upper Selma Chalk laterals and the first City Bank lateral. Next, the rig drilled the 14-06 pad that contained one Upper Selma Chalk lateral, and the first Lower Selma Chalk lateral. The rig has recently finished drilling the 13-13 pad with the second City Bank and Lower Selma Chalk laterals. The drilling rig has been released and the final four laterals will remain as DUCs until natural gas prices are more supportive of capital spending on organic growth.

Capital Budget Update

In response to the current low natural gas prices and guided by principles focused on full-cycle value creation, Southern plans to moderate the Gwinville organic growth program from the planned capital budget of US$101.0 million announced in November 2022 to approximately US$55.0 million. Under its revised capital plan, Southern will have drilled seven horizontal wells at the Gwinville asset, completed three wells and have four wells remain as DUCs to be brought online in a higher natural gas price environment. These changes to the program at Gwinville will preserve capital, allow Southern the optionality to bring on high volume natural gas production at opportune natural gas prices and retain an inventory of high value development targets.

Year End Reserves Upgrade

Southern is pleased to announce selected highlights of the Company's year end independent oil and gas reserves evaluation as at December 31, 2022. The NSAI Report was prepared by independent qualified reserves evaluator, Netherland, Sewell and Associates, Inc. ("NSAI"). All currency amounts are in United States dollars (unless otherwise stated) and comparisons refer to December 31, 2021. Financial information contained herein is based on the Company's unaudited results for the year ended December 31, 2022 and is subject to change. The Company anticipates announcing its fourth quarter and audited year end 2022 financial results and filing an annual information form ("AIF") for the year ended December 31, 2022, in April 2023.

Highlights:

• Relative to year-end 2021, and accounting for 2022 production volumes, the NSAI Report states
  • an increase in PDP reserves of 25% to 6.2 MMboe
  • an increase in 1P reserves of 44% to 14.1 MMboe
  • an increase in 2P reserves by 31% to 25.5 MMboe in 2022
  • a reserve life index ("RLI") of more than 8 years for PDP reserves and 15 years for 2P reserves, based on the 2023 production forecast
• Successful organic growth and appraisal drilling resulted in strong reserves replacement (relative to 2022 production) in all reserve categories:
  • PDP replacement of 153%
  • 1P replacement of 484%
  • 2P replacement of 656%
• At year end 2022, achieved record before-tax NPV10, evaluated using the average forecast pricing of four independent reserve evaluators as at January 1, 2023;
  • PDP: $51.6 million (59% increase on year end 2021)
  • 1P: $85.3 million (59% increase on year end 2021)
  • 2P: $142.5 million (61% increase on year end 2021)
• Additional drilling locations identified at Gwinville, based on 2022 Selma Chalk horizontal drilling success, which are expected to add material levels of production.

In addition, inter alia, to the summary information disclosed in this press release, more detailed information regarding Southern's oil and gas reserves will be includedin the Company's AIF to be filed on SEDAR (www.sedar.com).

2022 Independent Qualified ReserveEvaluation

The following tables highlight the findings of the NSAI Report, which was prepared in accordance with definitions, standards and procedures contained in National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101") and the most recent publication of the Canadian Oil and Gas Evaluation ("COGEH"). All evaluations and summaries of future net revenue are stated prior to the provision for interest, debt service charges or general and administrative expensesand after deductionof royalties, operating costs, estimated well abandonment and reclamation costs, and estimatedfuture capital expenditures. The NSAI Report was based on the average forecast pricing of the following four independent external reserves evaluators: GLJ Ltd, Sproule Associates Limited, McDaniel & Associates Consultants Ltd and Deloitte LLP. Additional reserves information as required under NI 51-101 will be included in Southern's AIF, which will be filed on SEDAR in April 2023. The numbers in the tables below may not add due to rounding.

Summary of Reserves Volumes as at December 31, 2022

The Company's reserve volumes and undiscounted future development capital costs are summarized below as at December 31, 2022:

^{(1) Gross working interest reserves before royalty deductions.}

The following table outlines the changes in Southern's reserves and reserve life index as at December 31, 2022 compared to December 31, 2021:

^{(1) Percent change includes 2022 actual production of 948.4 Mboe}

^{(2) The RLI as at December 31, 2022 is calculated as gross working interest reserves divided by the projected annual production forecast in each reserve category for 2023. See "Disclosure of Oil and Gas Information"}

Southern's total 2P reserves increased by 31% to 25.5 MMboe resulting in a 2P reserve life index of 15.1 years on projected annual 2P production for 2023. Southern's 2022 Selma Chalk horizontal well appraisal program helped the Company achieve a 25% increase in PDP reserves to 6.2 MMboe.

Net Present Value of Future Net Revenue as at December 31, 2022

The following table summarizes the net present value, at varying discount rates, of the Company's reserves (before-tax) as at December 31, 2022. The reserves value on a $/boe basis, discounted at 10% per year, is also summarized for each category.

^{(1) Unit values are based on net reserves. Net reserves are the Company's working interest reserves after deduction of royalties}

Forecast Prices Used in Estimates

The following table outlines the forecasted future prices used by NSAI in its evaluation of the Company's reserves at December 31, 2022, for the NSAI Report, which are based on a four-consultant average price forecast, as detailed above. The forecast cost and price assumptions assume increases in wellhead selling prices and consider inflation with respect to future operating and capital costs.