Forza Petroleum : Q3 2022 Management's Discussion & Analysis

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2022 AND 2021

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis ("MD&A") should be read in conjunction with the consolidated financial statements of Forza Petroleum Limited ("FPL" or, the "Company") and its subsidiaries for the three and nine months ended September 30, 2022 and 2021 (the "Financial Statements"), which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

The date of this MD&A is November 8, 2022.

Unless otherwise noted, all amounts are in thousands of U.S. dollars.

Selected terms and abbreviations used in this MD&A are listed and described in the "Glossary and Abbreviations" section.

Readers should refer to the "Forward-Looking Information" advisory on page 15. Additional information relating to FPL, including FPL's Annual Information Form dated March 23, 2022, is on SEDAR at www.sedar.com.

Table of Contents

Company Overview	1		Outstanding Share Data	12
Operational Highlights	1		Commitments and Contractual Obligations	12
Financial Highlights and Outlook	2		Summary of Quarterly Results	13
Business Environment	4		Transactions with Related Parties	13
Operations Review	5		New Accounting Pronouncements, Policies,	14
	and Critical Estimates
Capital Additions	6		Financial Controls	15
Financial Results	7		Forward-Looking Information	15
Liquidity and Capital Resources	10		Glossary and Abbreviations	17
Economic Sensitivities	12

Company Overview

The Company is a public company incorporated in Canada under the Canada Business Corporations Act and is the holding company for the Forza Petroleum group of companies (together, the "Group" or "Forza Petroleum"). The Group has a 65% Working Interest in and operates the Hawler License Area in the Kurdistan Region of Iraq ("KRI"), which has yielded the discovery of four oil fields, three of which are currently producing.

Operational Highlights

• Average gross (100%) oil production of 15,100 bbl/d (working interest 9,800 bbl/d) in Q3 2022;
• A sidetrack of the previously drilled Demir Dagh-9H well targeting the Cretaceous reservoir reached total depth on July 2, 2022. The well is on production;
• The Zey Gawra-9 well targeting the Cretaceous reservoir reached total depth on October 1, 2022. The well was completed and is currently producing;
• Activity during the third quarter of 2022 also included the conversion of the previously drilled Zey Gawra-2 well to a water disposal well and workover operations on the Demir Dagh-13 well to replace a leased jet pump with a progressive cavity pump owned by the Group;
• One rig has recently started redrilling the horizontal drain of the temporarily abandoned Zey Gawra-6 well in the Cretaceous reservoir and another is being mobilized now to complete the Ain al Safra-2 well in the Triassic reservoir. The undeveloped Ain al Safra field is east of and in the same structure as the Zartik wells in the Baeshiqa PSC area, where production commenced in mid-June from the Zartik-1 well. The Group plans to finish its 2022 work program later this year by completing the Ain al Safra-1 well in the Jurassic reservoir and spudding a new well to be completed early next year in the Tertiary reservoir in the southern part of the Zey Gawra field;
• Planned facilities' work for the balance of 2022 includes installation of flowlines to connect the Banan field to the Hawler production facilities at the Demir Dagh field. Commissioning of the lines is forecast for the end of the current year after which transportation of oil from the Banan field by road tankers will be discontinued.

1	Q3 2022 MD&A

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Financial Highlights and Outlook

Liquidity outlook

The Group expects cash on hand as of September 30, 2022 and cash receipts from net revenues from sales, exclusively made to the KRG at the tie-in to the Kurdistan Oil Export Pipeline, will fund its forecasted capital expenditures and operating and administrative costs through the end of December 2023 and the $76.2 million in deferred purchase consideration, falling due at the end of March 2023, owing in connection with the original acquisition of the Hawler License Area.

Financial performance

The following table contains financial performance highlights for the three and nine months ended September 30, 2022 and September 30, 2021.

	Three months ended		Nine months ended
	September 30,	September 30,		September 30,	September 30,
($ thousands unless otherwise stated)	2022	2021		2022	2021
Revenue	85,073	48,727	266,199	130,129
Cash generated from operating activities	25,439	13,911	83,611	29,802
Cash generated from operating activities per
basic share ($/share)	0.04	0.02	0.14	0.05
Cash generated from operating activities per
diluted share ($/share)	0.04	0.02		0.13	0.05
Profit for the period	23,671	7,572	77,446	33,088
Earnings per basic and diluted share ($/share)	0.04	0.01		0.13	0.06
Average sales price ($/bbl)	79.11	56.81	84.80	51.34
Field operating costs(1) ($/bbl)	6.54	6.57	6.67	6.35
Operating expense ($/bbl)	10.06	10.10	10.27	9.77
Capital additions(2)	11,331	10,007	40,672	25,335

Notes:

1. Field operating costs represent Forza Petroleum's Working Interest share of gross operating costs and exclude partner share of operating costs which are being carried by Forza Petroleum.
2. Excludes non-cash changes to the decommissioning obligation.

Revenue and cash receipts

Revenue of $85.1 million was recorded for the three months ended September 30, 2022. Included in revenue is $71.3 million realized on the sale of 900,800 bbl (WI) of crude oil ($79.11/bbl) and $13.8 million related to the recovery of costs carried on behalf of partners. Revenue from sales increased by $30.4 million versus the three months ended September 30, 2021 due to a 39% increase in realized average sales price and a 25% increase in sales volumes.

Revenue of $266.2 million was recorded for the nine months ended September 30, 2022. Included in revenue is $223.0 million realized on the sale of 2,629,300 bbl (WI) of crude oil ($84.80/bbl) and $43.2 million related to the recovery of costs carried on behalf of partners. Revenue for the nine months ended September 30, 2022 increased by $114.0 million compared to the same period in 2021. The increase is attributable to a 65% increase in realized sales price and a 24% increase in sales volumes.

All sales during the nine months ended September 30, 2022 were made via the Kurdistan Oil Export Pipeline. The Group has received full payment for all oil sales made to the end of June 2022.

Operating expense

Operating expense during the third quarter of 2022 amounted to $9.1 million ($10.06/bbl) versus $7.3 million ($10.10/bbl) during the third quarter of 2021.

Field operating costs during the third quarter of 2022 amounted to $5.9 million ($6.54/bbl) compared to $4.7 million ($6.57/bbl) during the third quarter of 2021. Field operating costs per barrel were stable between the two periods with a 25% increase in sales volumes offset by increases in security, diesel and personnel costs. The increased security costs were primarily due to increased activity during the three months ended September 30, 2022 compared to the same period in 2021. Diesel and personnel costs have increased due to both higher prices and rates and increased activity during the three months ended September 30, 2022 compared to the same period in 2021.

Operating expense during the nine months ended September 30, 2022 amounted to $27.0 million ($10.27/bbl) versus $20.7 million ($9.77/bbl) during the nine months ended September 30, 2021.

2	Q3 2022 MD&A

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Field operating costs during the nine months ended September 30, 2022 amounted to $17.5 million ($6.67/bbl) compared to $13.5 million ($6.35/bbl) during the nine months ended September 30, 2021. Field operating costs per barrel increased for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 as a result of an increase in security, personnel, consumables and diesel costs, partially offset by a 24% increase in sales volumes. The increased security costs were due to a higher rate in the first half of 2022, compared to a temporarily reduced rate during the first quarter of 2021, combined with increased activity. Diesel, personnel and consumable costs have increased due to both higher prices and rates and increased activity during the nine months ended September 30, 2022 compared to the same period in 2021.

Field operating costs represent Forza Petroleum's Working Interest share of gross operating costs and exclude partner share of operating costs which are being carried by Forza Petroleum.

Cash generated from operating activities

Cash generated from operating activities for the third quarter of 2022 was $25.4 million compared to $13.9 million during the same period in 2021. Cash generated from operating activities for the nine months ended September 30, 2022 was $83.6 million compared to $29.8 million during the same period in 2021. The increase for both periods mainly relates to higher crude oil sales revenue received during the period. This positive factor has been partially offset by an increase in royalties and cash payments relating to inventories and trade and other payables. Royalties increase proportionally with sales revenue. The increase in payments relating to inventory and trade and other payables primarily relates to increased activity, including a greater number producing wells.

Profit

Profit for the three months ended September 30, 2022 was $23.7 million compared to a profit of $7.6 million during the third quarter of 2021. The increase in profit for three months ended September 30, 2022 is primarily attributable to i) a $21.5 million increase in net revenue resulting from increased realized sales price and recovery of carried costs, and higher sales volumes; and ii) a $2.0 million decrease in the non-cash charge resulting from the change in the fair value of the purchase consideration obligation. These positive factors have been partially offset by i) an increase of $3.7 million in depletion recorded due to higher production volumes in 2022 combined with a higher depletion expense per barrel; ii) a $1.8 million increase in operating expense as a result of increased security, personnel, and diesel costs; and iii) a $0.7 million increase in income tax expense as a result of increased net revenue.

Profit for the nine months ended September 30, 2022 was $77.4 million compared to a profit of $33.1 million during the nine months ended September 30, 2021. The increase in profit for nine months ended September 30, 2022 is primarily attributable to i) a $80.4 million increase in net revenue resulting from increased realized sales price and recovery of carried costs, and higher sales volumes; and ii) a $7.2 million decrease in the non-cash charge resulting from the change in the fair value of the purchase consideration obligation. These positive factors have been partially offset by i) no one-time gains during the period while there was a non-recurring gain of $15.7 million recorded during the nine months ended September 30, 2021 relating to the deconsolidation of OP Congo SA; ii) a $11.2 million non-cash increase in the depletion charge for the nine months ended September 30, 2022 as a result of increased production volumes and a higher depletion rate per barrel; iii) a $3.4 million decrease to the trade and other receivables provision during the nine months ended September 30, 2021 with no comparable change during the current period; iv) a $2.0 million decrease to the materials inventory provision during the nine months ended September 30, 2021 compared to a $0.1 million change during the nine months ended September 30, 2022;

1. a $6.3 million increase in operating expense as a result of increased security, personnel, consumables, and diesel costs; and vi) a $2.6 million increase in income tax expense as a result of increased net revenue.

Capital additions

During the third quarter of 2022, the Group recorded capital additions of $11.3 million, including $10.2 million invested in drilling activities in the Demir Dagh and Zey Gawra fields. Additional amounts of $0.6 million and $0.5 million were also recorded on facilities and directly attributable support costs, respectively.

During the nine months ended September 30, 2022, the Group recorded capital additions of $40.7 million, including $37.5 million invested in drilling activities in the Demir Dagh and Zey Gawra fields. Additional amounts of $1.7 million and $1.5 million were also recorded on facilities and directly attributable support costs, respectively.

3	Q3 2022 MD&A

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Financial position

The following table contains highlights of the Group's financial position as at the dates indicated below.

($ thousands)	September 30, 2022	December 31, 2021
Total cash and cash equivalents	53,646	24,672
Working Capital	52,766	45,416
Total assets	658,022	587,725
Total long-term liabilities	23,838	96,095

The cash and cash equivalents balance of $53.6 million as at September 30, 2022 increased from $24.7 million at December 31, 2021. This increase is due to $83.6 million in cash generated from operating activities offset by $54.6 million in cash used in investing activities.

Working capital increased from $45.4 million at December 31, 2021 to $52.8 million at September 30, 2022 due to i) a $36.5 million increase in the trade and other receivables balance; ii) a $29.0 million increase in the cash and cash equivalents balance; iii) a $8.2 million decrease in the trade and other payable balance, excluding the purchase consideration; iv) a $3.5 million increase in the inventory balance; and v) a $2.9 million increase in the other current assets balance. These positive factors have been partially offset by the inclusion of the purchase consideration of $72.7 million as a current portion of trade and other payables, previously classified as non-current (December 31, 2021 - $67.6 million).

The total assets balance increased to $658.0 million at September 30, 2022 from $587.7 million at December 31, 2021. This change is primarily due to i) $40.7 million of capital additions; ii) a $36.5 million increase in trade and other receivables; and

1. a $29.0 million increase in cash and cash equivalents. These positive factors were partially offset by a depletion expense of $37.2 million.

The $72.3 million decrease in total long-term liabilities from December 31, 2021 is due to i) the reclassification of the purchase consideration of $72.7 million from a non-current trade and other payables to current (December 31, 2021 - $67.6 million); and ii) a $4.7 million decrease in the decommissioning obligation.

The undiscounted balance of principal and accrued interest owed under the purchase consideration obligation to the seller of the Hawler License Area as at September 30, 2022 was $76.2 million (December 31, 2021 - $76.2 million).

Business Environment

Following various destabilizing geopolitical events impacting the KRI over several years, relative political stability over the last three years has supported conditions where the Group has been able to advance its activities in the KRI. However, the impact of the COVID-19 pandemic and oil price volatility compounds uncertainty associated with unresolved political disputes, and their eventual impact on the Group's operations may be significant and remains unclear. There remains an ongoing risk that any degradation of the regional security situation could have a material adverse effect on the operating and financial performance of the Group. Political and other risk factors which are disclosed in FPL's Annual Information Form could have an adverse effect on Forza Petroleum's performance.

The Group's future revenues and cash flows from operating activities are dependent on the Group's ability to produce, deliver, and receive payment for sales of crude oil. Production rates are subject to fluctuation over time and are difficult to predict.

On February 15, 2022, the Iraqi Federal Supreme Court (the "Court") ruled as unconstitutional the KRG Law No. 28 of 2007, which regulates the oil and gas sector in the KRI. The Court's judgment also provides that the Iraqi Ministry of Oil may pursue the annulment of PSCs that have been entered into by the KRG. In a statement released on February 16, 2022, the KRG challenges the Court's judgment and stresses that "it will take all constitutional, legal, and judicial measures to protect and preserve all contracts made in the oil and gas sector". Normal operations are being maintained at the Hawler License Area. As at November 8, 2022 the Group has received payment for all Hawler oil sales made to the KRG to the end of June 2022.

Uncertainty related to global, social, political, and economic conditions and the resulting changes in global oil supply chains and infrastructure investment contribute to volatility in the price of crude oil. During 2020 the global response to the spread of COVID-19 decreased global economic activity and, correspondingly, the demand for and price of crude oil. There was a sharp recovery in both global economic activity and oil price in 2021 and into 2022, however, lockdowns and other restrictions periodically imposed in response to local outbreaks undermine any developing positive sentiment. As demonstrated by the global response to the invasion of Ukraine by Russia, increased price volatility may now be a permanent feature of the oil and gas markets. Recent concerns regarding inflation and a potential resulting recession may undermine demand for oil and gas. Ongoing elevated levels of uncertainty regarding returns on investments in upstream oil and gas exploration and development continue to impact the availability and cost of capital resources.

4	Q3 2022 MD&A