Leucrotta Exploration : May 26, 2022 - Leucrotta Announces Q1 2022 Financial & Operating Results

LEUCROTTA ANNOUNCES Q1 2022 FINANCIAL AND OPERATING RESULTS

CALGARY, ALBERTA (May 26, 2022) - LEUCROTTA EXPLORATION INC. (TSXV - LXE) ("Leucrotta" or the "Company") is pleased to announce its financial and operating results for the three months ended March 31, 2022. All dollar figures are Canadian dollars unless otherwise noted.

HIGHLIGHTS

• Completed gas processing and battery funding agreements with NorthRiver Midstream Inc.
• Increased production 63% from 2,695 boe/d in Q1 2021 to 4,384 boe/d in Q1 2022.
• Increased adjusted funds flow (1) by 194% from $3.8 million in Q1 2021 to $11.2 million in Q1 2022.
• March 31, 2022 adjusted working capital (1) balance of $33.2 million.

FINANCIAL RESULTS
	Three Months Ended March 31
($000s, except per share amounts)	2022	2021	% Change
Oil and natural gas sales	20,751	10,474	98
Cash flow from operating activities	12,141	4,919	147
Per share - basic and diluted (1)	0.05	0.02	150
Adjusted funds flow (1)	11,152	3,790	194
Per share - basic and diluted	0.04	0.02	100
Net earnings	6,600	1,167	466
Per share - basic and diluted	0.03	0.01	200
Capital expenditures (1)	9,205	489	1,782
Adjusted working capital (1)	33,223	58,028	(43)
Common shares outstanding (000s)	247,879
Weighted average - basic	201,028	23
Weighted average - diluted	263,015	201,062	31
End of period - basic	248,965	245,731	1
End of period - fully diluted	289,792	285,746	1

1. See "Non-GAAP and Other Financial Measures" section.

OPERATING RESULTS (1)	Three Months Ended March 31
	2022	2021	% Change
Daily production (2)	1,032
Oil and condensate (bbls/d)	478	116
Other NGLs (bbls/d)	24	41	(41)
Oil and NGLs (bbls/d)	1,056	519	103
Natural gas (mcf/d)	19,967	13,053	53
Oil equivalent (boe/d)	4,384	2,695	63
Oil and natural gas sales	111.38	65.53	70
Oil and NGLs ($/bbl)
Other NGLs ($/bbl)	46.23	31.86	45
Oil and NGLs ($/bbl)	109.88	62.85	75
Natural gas ($/mcf)	5.73	6.42	(11)
Oil equivalent ($/boe)	52.59	43.19	22
Royalties	22.69
Oil and NGLs ($/bbl)	11.62	95
Natural gas ($/mcf)	0.57	0.53	8
Oil equivalent ($/boe)	8.06	4.81	68
Net operating expenses (3)	13.84
Oil and NGLs ($/bbl)	9.39	47
Natural gas ($/mcf)	1.02	0.88	16
Oil equivalent ($/boe)	7.99	6.07	32
Transportation and marketing expenses	0.66
Oil and NGLs ($/bbl)	0.68	(3)
Natural gas ($/mcf)	0.82	1.35	(39)
Oil equivalent ($/boe)	3.91	6.66	(41)
Operating netback (3)	72.69
Oil and NGLs ($/bbl)	41.16	77
Natural gas ($/mcf)	3.32	3.66	(9)
Oil equivalent ($/boe)	32.63	25.65	27
Depletion and depreciation ($/boe)	(8.82)	(8.52)	4
General and administrative expenses ($/boe)	(3.55)	(6.31)	(44)
Share based compensation ($/boe)	(1.70)	(1.56)	9
Finance expense ($/boe)	(0.30)	(0.70)	(57)
Finance income ($/boe)	0.07	-	100
Other income ($/boe)	0.11	-	100
Realized loss on risk management contracts ($/boe)	(1.08)	(1.17)	(8)
Unrealized loss on risk management contracts ($/boe)	(0.64)	(2.58)	(75)
Net earnings ($/boe)	16.72	4.81	248

1. See "Oil and Gas Terms" section.
2. See "Product Types" section.
3. See "Non-GAAP and Other Financial Measures" section.

Selected financial and operational information outlined in this news release should be read in conjunction with Leucrotta's unaudited condensed consolidated interim financial statements and related Management's Discussion and Analysis ("MD&A") for three months ended March 31, 2022, which are available for review under the Company's profile on The System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com.

UPDATE

Q1 2022 Summary

During Q1 2022, Leucrotta made significant strides to further its business including the following:

• On March 17, 2022, the Company entered into a 10-year gas processing agreement with NorthRiver Midstream Inc. ("NRM") to provide 50 mmcf/d of firm processing capacity at NRM's West Doe gas processing facility. Leucrotta will also hold certain rights to additional firm processing capacity that, along with Leucrotta's owned 25 mmcf/d processing facility at Doe, will allow Leucrotta to reach 25,000 boe/d in the Mica area.
• Concurrent with this agreement, NRM has agreed to provide up to $55 million of capital funding that Leucrotta will use to construct a battery facility at Mica (the "Mica Battery"). The Mica Battery will consist of facilities for in-field processing of oil, gas and water and will deliver gas to NRM's West Doe gas processing facility. The Mica Battery will have an initial capacity of 60 mmcf/d expandable to 90 mmcf/d with added compression.
• Completed a previously drilled Lower Montney well in Alberta that was completed with only 52 fracs but had a test rate of 600 boe/d at the end of the 18-day test. (1)
• Brought on production from the previously completed A13-07 Basal Montney well that had only 41 fracs and produced an average of 850 boe/d (67% light oil) for its first 10 days.
• Set up its first Alberta Pad (6 wells) that commenced drilling in early April and will be drilled with lateral lengths of 3000 metres.
• Achieved production of 4,384 boe/d with an operating netback of $32.63/boe that yielded operating cash flow of over $12 million for the quarter.
• Exited Q1 2022 with $33.2 million of cash and working capital and no debt.

Proposed Corporate Transaction

On March 28, 2022, the Company announced that it had entered into an arrangement agreement (the "Arrangement") whereby Vermilion Energy Inc. ("Vermilion") would acquire all of the issued and outstanding common shares of Leucrotta ("Leucrotta Shares") in exchange for $1.73 cash per Leucrotta Share, 1.0 common share of a new Montney-focused exploration and production company ("Coelacanth"), and 0.1917 of an Coelacanth common share purchase warrant (one whole warrant being an "Coelacanth Arrangement Warrant"). Each Coelacanth Arrangement Warrant will entitle the holder to acquire one Coelacanth common share at an exercise price of $0.27 per share at any time on or before 30 days following the closing of the Arrangement.

The Arrangement is expected to close on May 31, 2022.

Coelacanth Update

Coelacanth was formed as part of Arrangement described above. Under the terms of the Arrangement, Coelacanth will receive approximately $43.5 million cash, net of transaction costs, and certain oil and gas properties in the Two Rivers, BC area. In addition, Coelacanth plans to raise net proceeds of up to $36.9 million through the exercise of the Coelacanth Arrangement Warrants ($15.0 million), the Vermilion private placement ($14.4 million), and a fully subscribed management private placement ($7.5 million). The proceeds of the financings will be used to fund future capital projects.

On completion of the Arrangement and all the proposed financings, Coelacanth will have approximately $80 million of cash (no debt), 150 sections of Montney land, the Two Rivers battery, production of approximately 355 boe/d (Q1 2022 average of 362 boe/d) and 426 million basic shares outstanding. Pursuant to the Arrangement, the oil and gas assets will be conveyed to Coelacanth at closing using the lower of the implied trading value of Coelacanth within Leucrotta (adjusted for estimated cash) and $85 million.

Coelacanth looks forward to providing more information on its business plan in the upcoming weeks.

(1) Test Results and Initial Production Rates

The Alberta Lower Montney well was production tested for 5.8 days after the original cleanup and produced at an average rate of 522 boe/d (73% natural gas, 27% light oil and condensate) over that period, excluding load fluid and energizing fluid. At the end of the test, flowing wellhead pressure and production rates were stable.

A pressure transient analysis or well-test interpretation has not been carried out and thus certain of the test results provided herein should be considered to be preliminary until such analysis or interpretation has been completed. Test results and initial production rates disclosed herein, particularly those short in duration, may not necessarily be indicative of long-term performance or of ultimate recovery.

OIL AND GAS TERMS

The Company uses the following frequently recurring oil and gas industry terms in the news release:

Liquids
bbls	Barrels
Bbl/d	Barrels per day
NGLs	Natural gas liquids (includes condensate, pentane, butane, propane, and ethane)
Condensate	Pentane and heavier hydrocarbons
Natural Gas
Mcf	Thousands of cubic feet
Mcf/d	Thousands of cubic feet per day
MMbtu	Million of British thermal units
MMbtu/d	Million of British thermal units per day
Oil Equivalent
Boe	Barrels of oil equivalent
Boe/d	Barrels of oil equivalent per day

Disclosure provided herein in respect of a boe may be misleading, particularly if used in isolation. A boe conversion rate of six thousand cubic feet of natural gas to one barrel of oil equivalent has been used for the calculation of boe amounts in the news release. This boe conversion rate is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

NON-GAAP AND OTHER FINANCIAL MEASURES

This news release refers to certain measures that are not determined in accordance with IFRS (or "GAAP"). These non-GAAP and other financial measures do not have any standardized meaning prescribed under IFRS and therefore may not be comparable to similar measures presented by other entities. The non-GAAP and other financial measures should not be considered alternatives to, or more meaningful than, financial measures that are determined in accordance with IFRS as indicators of the Company's performance. Management believes that the presentation of these non-GAAP and other financial measures provides useful information to shareholders and investors in understanding and evaluating the Company's ongoing operating performance, and the measures provide increased transparency to better analyze the Company's performance against prior periods on a comparable basis.

Adjusted funds flow

Management uses adjusted funds flow to analyze performance and considers it a key measure as it demonstrates the Company's ability to generate the cash necessary to fund future capital investments and abandonment obligations and to repay debt, if any. Adjusted funds flow is a non-GAAP financial measure and has been defined by the Company as cash flow from operating activities excluding the change in non-cash working capital related to operating activities, expenditures on decommissioning obligations, and transaction costs on property disposition. Management believes the timing of collection, payment or incurrence of these items involves a high degree of discretion and as such may not be useful for evaluating the Company's cash flows. Adjusted funds flow is reconciled from cash flow from operating activities as follows:

	Three Months Ended March 31
($000s)	2022	2021
Cash flow from operating activities	12,141	4,919
Add (deduct):	160
Decommissioning expenditures	12
Change in non-cash working capital	(1,149)	(1,141)
Adjusted funds flow (non-GAAP)	11,152	3,790

Net operating expenses

Net operating expenses is a non-GAAP financial measure, determined by deducting processing revenues primarily generated by processing third party volumes at processing facilities where the Company has an ownership interest. It is common in the industry to earn third party processing revenue on facilities where the entity has a working interest in the infrastructure asset. Where the Company has excess capacity at one of its facilities, it will look to process third party volumes as a means to reduce the cost of operating/owning the facility. As such, third party processing revenue is netted against operating expenses in the news release. Net operating expenses is calculated as follows:

NET OPERATING EXPENSES	Three Months Ended March 31
($000s)	2022	2021
Oil and NGLs	1,316	438
Natural gas	1,919	1,404
Operating expenses	3,235	1,842
Less: processing revenue	(82)	(371)
Net operating expenses (non-GAAP)	3,153	1,471

Operating netback

Management considers operating netback an important measure as it demonstrates its profitability relative to current commodity prices. Operating netback is calculated as oil and natural gas sales less royalties, net operating expenses, and transportation and marketing expenses and is calculated as follows:

	Three Months Ended March 31
	2022	2021
Oil and natural gas sales	20,751	10,474
Royalties	(3,178)	(1,167)
Net operating expenses	(3,153)	(1,471)
Transportation and marketing expenses	(1,542)	(1,616)
Operating netback (non-GAAP)	12,878	6,220

Capital expenditures

Leucrotta utilizes capital expenditures as a measure of capital investment on property, plant, and equipment, exploration and evaluation assets and property acquisitions compared to its annual budgeted capital expenditures. Capital expenditures are calculated as follows:

	Three Months Ended March 31
	2022	2021
Capital expenditures - property, plant, and equipment	7,705	195
Capital expenditures - exploration and evaluation assets	1,500	294
Capital expenditures (non-GAAP)	9,205	489

Capital Management Measures

Adjusted working capital

Management uses adjusted working capital as a measure to assess the Company's financial position. Adjusted working capital includes current assets less current liabilities excluding the effects of any current portion of risk management contracts. Adjusted working capital is reconciled to working capital in note 15 "Capital management" of the Company's condensed consolidated interim financial statements for the three months ended March 31, 2022.

Non-GAAP Financial Ratios

Adjusted Funds Flow per Share

Adjusted funds flow per share is a non-GAAP financial ratio, calculated using adjusted funds flow and the same weighted average basic and diluted shares used in calculating net earnings per share.

Net operating expenses per boe

The Company utilizes net operating expenses per boe to assess its operating efficiency of its petroleum and natural gas assets on a per unit of production basis. Net operating expense per boe is calculated as net operating expenses divided by total production for the applicable period.

Operating netback per boe

The Company utilizes operating netback per boe to assess the operating performance of its petroleum and natural gas assets on a per unit of production basis. Operating netback per boe is calculated as operating netback divided by total production for the applicable period.

Supplementary Financial Measures

The supplementary financial measures used in this news release (primarily average sales price per product type, and certain per boe and per share figures) are either a per unit disclosure of a corresponding GAAP measure, or a component of a corresponding GAAP measure, presented in the financial statements. Supplementary financial measures that are disclosed on a per unit basis are calculated by dividing the aggregate GAAP measure (or component thereof) by the applicable unit for the period. Supplementary financial measures that are disclosed on a component basis of a corresponding GAAP measure are a granular representation of a financial statement line item and are determined in accordance with GAAP.

PRODUCT TYPES

The Company uses the following references to sales volumes in the news release:

Natural gas refers to shale gas

Oil and condensate refers to condensate, light and medium crude oil, and tight oil combined Other NGLs refers to butane, propane and ethane combined

Oil and NGLs refers to light and medium crude oil, tight oil, and NGLs combined

Oil equivalent refers to the total oil equivalent of shale gas, light and medium crude oil, tight oil, and NGLs combined, using the conversion rate of six thousand cubic feet of shale gas to one barrel of oil equivalent as described above.