Stonehorse Energy : Quarterly Activity and Cashflow Report

For personal use only

31 January 2022

QUARTERLY ACTIVITIES REPORT

FOR THE THREE MONTHS ENDING 31st DECEMBER 2021.

Oil and gas producer, Stonehorse Energy Limited (ASX:SHE) (Stonehorse or the Company) is pleased to present this Quarterly Report for the quarter ended 31st December 2021.

HIGHLIGHTS

• Commercial production from the Jewell well increased during the quarter to levels well above pre-drill estimates.
• Jewell well cumulative production to 31 December 2021 was 172,433 BOE (~73% liquids)
• Independent of the IP24 rate, a peak oil rate of 973 barrels per day and peak rich gas rate of 3,959 Mcf per day were also achieved.
• An IP90 of ~1,570 BOE per day was achieved (~73% liquids) with the Jewell Well production continuing to exceed expectations.
• Net cashflow from operations for the quarter increased 10 fold to ~A$1,948,000 from the previous quarter primarily as a result of production and sales from the Jewell.
• The company diversified its portfolio during the quarter with a planned investment in the Myall Creek-2 well in the Surat Basin operated by Armour Energy.
• The workover program on Myall Creek-2 has commenced with the well being cleaned out and recompleted in preparaton for re-perforation and fracture stimulation.

Stonehorse Energy's Managing Director, David Deloub, commented "Jewell continued to be our dominant production asset during the quarter, with rates exceeding pre-drillestimates. As noted previously, higher revenues and cashflow allow us to invest in high- quality opportunities, with Myall Creek-2our first Australian investment that ticks these boxes."

For personal use only

OPERATIONAL ACTIVITIES

During the quarter, the performance of the Jewell well continued to exceed pre-drill estimates. The Jewell Well reached a peak rate (IP24) of ~1,800 BOE per day (75% liquids, 25% gas). Independent of this IP24 rate, a peak oil rate of 973 barrels per day and a peak rich gas rate of 3,959 Mcf per day were also achieved.

In addition, the well achieved an IP90 of 1,517 BOE per day (90-day average) within a period of measurement covering a combination of production rate growth followed by steady production. This sustained rate is significantly above stated pre-drill estimates for the Jewell Well. At the end of the reporting period cumulative production totalled 172,433 BOE (~73% liquids)

Cumulative Production

Date: 31-Dec-2021

Oil: 88,070 bbls

Gas (shrunk): 275,051

Mcf

NGL: 38,521 bbls

Figure 1. Jewell well cumulative production to 31 December 2021.

MYALL CREEK-2 INVESTMENT

During the quarter, the Company announced its first non-US investment, with the Company and a private investor group (InvestorCo) partnering with Armour Energy Limited to take a 50% Revenue Interest in the workover and well intervention program planned for the Myall Creek-2 well, located in the Surat Basin in south east Queensland.

For personal use only

The workover program commenced in late December 2021 with fracture stimulation expected during the March quarter. The capital cost will be funded 100% in equal portions by Stonehorse and InvestorCo, consistent with its stated strategy of identifying and investing in low-risk, production enhancement work programs.

The partners have engaged Griffin Energy Solutions to design and complete well intervention operations. Griffin is an independent specialist Oil & Gas technical and operational consulting firm with a reputation for commercial rigor and significant knowledge and experience in the energy resources sector.

Figure 2. Surat Basin oil and gas province showing the location of Myall Creek in yellow.

Background on the Myall Creek-2 well

The Myall Creek-2 well was an exploration well drilled by OCA in 1999 to appraise the Tinowon formation. Although the primary target was the Upper Tinowon, the well encountered high mud log gas readings throughout the intervals, from the Showgrounds through to the lower Tinowon formations.

Myall Creek-2 intersected good quality reservoir in the Upper and Lower Tinowon formation. The Upper Tinowon reservoir was tested and flowed gas at 5.7 MMscfd and recovered condensate. The Lower Tinowon reservoir, while not tested, was similar to the Upper Tinowon and comprised a series of good quality fluvial channel sands with moderate to strong gas shows and fluorescence.

For personal use only

The Upper Tinowon formation was perforated and bought online in April 2001 producing

1.7 Bcf over 5 years before it was fracture stimulated. The post fracture stimulation rate was ~3.0 MMscfd, more than six times the pre-fracture stimulate rate of ~0.5 Mmscfd, from a depleted reservoir.

The Myall Creek-2 well is situated structurally high on an apparent, 3D interpreted, four way dip closure, with the lower Tinowon at virgin pressure. This reservoir is also laterally continuous.

Myall Creek-2 Investment

The proposed workover planning and execution commenced in December 2021, initially comprising recompletion to isolate the Tinowon A, perforating and subsequently fracture stimulating the Tinowon C, most likely in Q1 2022.

A workover rig will isolate the depleted Tinowon A reservoir perforations designed to facilitate fracture stimulation of uphole resevours including Tinowan C, Bandanna and Black Alley. The Tinowon C reservoir will be perforated and flow tested inline for a 30 day extended production test.

Following this test period feasibility and timing of the Tinowon C stimulation will be considered. A pulsed Neutron Log will also be conducted to evaluate the gas saturations on the Bandanna and Black Alley resevoirs as future stimulation targets.

Image of Myall Creek-2 location during workover operations in January 2022.

For personal use only

Production from the Myall Creek-2 well will commence flowing additional gas into the Kincora Gas Gathering System for processing and sale via the Kincora Gas Processing Plant. It is anticipated that initial perforation of Myall Creek-2 will take approximately 8 days from rig mobilisation to the well coming online.

The funding agreement between Stonehorse, InvestorCo and Armour Energy also contemplates subsequent well intervention activities within 12 months of the first well intervention in either/or both the Bandanna or Black Alley formations.

Stonehorse and InvestorCo will jointly fund 100% of the capital required which is estimated to cost $1.5m for the perforation and stimulation of the Lower Tinowon, then a further A$1.4m for a second well intervention within 12 months.

Stonehorse and InvestorCo will receive 50% of the gas and condensate revenue produced from the well less costs for a period of approximately seven years, while Armour will retain the remaining income and the associated P&A liabilities at the end of the well's economic life.

CURRENT PORTFOLIO OF OIL AND GAS WELL ASSETS

Table 1. Current Portfolio of Stonehorse and Orion JV wells.

Well Name	Reference Number	Working Interest	County, State	Operator
Stonehorse US
Burgess	28-1	96.81%	Ellis, OK	Black Mesa Energy
Sutton	2H-52	25.00%	Hansford, TX	Strat Land Exploration
Bullard	1-18-07UWH	15.60%	Gravin, OK	Rimrock Resources
Henry Federal	1-8-5XH	2.30%	Blaine, OK	Continental Resources
Randolph	1-34-27XHM	0.21%	Blaine, OK	Continental Resources
Randolph	3-34-27XHM	0.21%	Blaine, OK	Continental Resources
Randolph	4-34-27XHM	0.21%	Blaine, OK	Continental Resources
Jewell	1-13-12SXH	41.50%	Carter, OK	Black Mesa Energy
Orion JV
Newberry	12-1	21.70%	Carter, OK	Black Mesa Energy
Mitchell	12-1	50.00%	Carter, OK	Black Mesa Energy
Thelma	1-32	50.00%	Murray, OK	Black Mesa Energy
Stonehorse Australia
Myall Creek	Myall Creek-2	25%	Surat Basin, Qld	Armour Energy

The Company currently has non-operated working interests in twelve wells including the high impact Jewell well located Carter County, Oklahoma and the recent investment in the Myall Creek-2 well in Australia.