Headwater Exploration : 2020 Annual Information Form

HEADWATER EXPLORATION INC.

ANNUAL INFORMATION FORM

Year Ended December 31, 2020

Dated March 10, 2021

TABLE OF CONTENTS

ABBREVIATIONS AND CONVERSIONS .................................................................................................................................... 2

NOTES ON RESERVES DATA AND OTHER OIL AND GAS INFORMATION ........................................................................ 2

NON-IFRS MEASURES .................................................................................................................................................................. 4

CERTAIN DEFINITIONS ............................................................................................................................................................... 5

FORWARD-LOOKING STATEMENTS ........................................................................................................................................ 7

THE CORPORATION ..................................................................................................................................................................... 8

GENERAL DEVELOPMENT OF THE BUSINESS ....................................................................................................................... 9

DESCRIPTION OF THE BUSINESS ............................................................................................................................................ 11

STATEMENT OF RESERVES DATA AND OTHER OIL AND GAS INFORMATION ........................................................... 15

DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION .................................................................................. 28

DIVIDENDS .................................................................................................................................................................................. 33

DESCRIPTION OF SHARE CAPITAL ......................................................................................................................................... 33

MARKET FOR SECURITIES ....................................................................................................................................................... 34

RISK FACTORS ............................................................................................................................................................................ 34

INDUSTRY CONDITIONS ........................................................................................................................................................... 55

LEGAL PROCEEDINGS ............................................................................................................................................................... 69

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS .............................................................. 70

AUDIT COMMITTEE INFORMATION ....................................................................................................................................... 70

TRANSFER AGENT AND REGISTRAR ..................................................................................................................................... 72

MATERIAL CONTRACTS ........................................................................................................................................................... 72

INTEREST OF EXPERTS ............................................................................................................................................................. 73

ADDITIONAL INFORMATION ................................................................................................................................................... 73

Schedule "A" - Form 51-101F3 - Report of Management and Directors on Oil and Gas Disclosure

Schedule "B" - Form 51-101F2 - Report on Reserves Data by Independent Qualified Reserves Evaluators Schedule "C" - Audit Committee Mandate

ABBREVIATIONS AND CONVERSIONS

Oil and Natural Gas Liquids

Natural Gas

Bbl
Bbls
MBbls
MMBbls
Mstb
Bbls/d
BOPD
NGLs
STB
Other
AECO	A natural gas storage facility located at Suffield, Alberta
AGT	Algonquin City-Gate natural gas pricing point on the Algonquin gas pipeline system
API	American Petroleum Institute
°API	an indication of the specific gravity of crude oil measured on the API gravity scale.
BOE	barrel of oil equivalent of natural gas and crude oil on the basis of 1 BOE for 6 Mcf of natural gas
BOE/d	barrel of oil equivalent per day
m3	cubic metres
MBOE	1,000 barrels of oil equivalent
MMBOE	1,000,000 barrels of oil equivalent
Mcfe	thousand of cubic feet equivalent
NYMEX	New York Mercantile Exchange
$000s	thousands of dollars
$M	thousands of dollars
$MM	millions of dollars
WCS	Western Canadian Select, a heavy sour Canadian crude oil blended at Port Hardisty, Alberta with
a nominal API gravity of 20.5 degrees.
WTI	West Texas Intermediate, the reference price paid in U.S. dollars at Cushing, Oklahoma for crude
oil of standard grade

barrel	Mcf	thousand cubic feet
barrels	MMcf	million cubic feet
thousand barrels	Mcf/d	thousand cubic feet per day
million barrels	MMcf/d	million cubic feet per day
1,000 stock tank barrels	MMbtu	million British Thermal Units
barrels per day	Bcf	billion cubic feet
barrels of oil per day	GJ	gigajoule
natural gas liquids	MM	Million
standard tank barrels

Disclosure provided herein in respect of BOEs of Mcfes may be misleading, particularly if used in isolation. A BOE and Mcfe conversion ratio of 6 Mcf:1 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion ratio at 6:1 may be misleading as an indication of value.

2

To Convert From	To	Multiply By
Mcf	cubic metres	28.174
cubic metres	cubic feet	35.494
Bbls	cubic metres	0.159
cubic metres	Bbls oil	6.290
feet	meters	0.305
metres	feet	3.281
miles	kilometres	1.609
kilometres	miles	0.621
acres (Alberta)	hectares	0.400
hectares (Alberta)	acres	2.500

NOTES ON RESERVES DATA AND OTHER OIL AND GAS INFORMATION

Caution Respecting Reserves Information

The determination of oil, NGLs and natural gas reserves involves the preparation of estimates that have an inherent degree of associated uncertainty. Categories of proved and probable reserves have been established to reflect the level of these uncertainties and to provide an indication of the probability of recovery. The estimation and classification of reserves requires the application of professional judgment combined with geological and engineering knowledge to assess whether or not specific reserves classification criteria have been satisfied. Knowledge of concepts including uncertainty and risk, probability and statistics, and deterministic and probabilistic estimation methods is required to properly use and apply reserves definitions.

The recovery and reserve estimates of oil, NGLs and natural gas reserves provided herein are estimates only.

Actual reserves may be greater than or less than the estimates provided herein. The estimated future net revenue from the production of Headwater's anticipated oil, NGLs and natural gas reserves does not represent the fair market value of Headwater's proposed reserves.

Oil and Gas Definitions

Certain terms used in this Annual Information Form in describing reserves and other oil and natural gas information are defined below. Certain other terms and abbreviations used in this Annual Information Form, but not defined or described, are defined in National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101") or the Canadian Oil and Gas Evaluation Handbook (the "COGE Handbook") and, unless the context otherwise requires, shall have the same meanings herein as in NI 51-101 or the COGE Handbook.

"API gravity" means the American Petroleum Institute gravity expressed in degrees in relation to liquids, which is a measure of how heavy or light a petroleum liquid is compared to water. If a petroleum liquid's API gravity is greater than 10, it is lighter and floats on water; if less than 10, it is heavier than water and sinks. API gravity is thus a measure of the relative density of a petroleum liquid and the density of water, but it is used to compare the relative densities of petroleum liquids;

"developed reserves" are those reserves that are expected to be recovered from existing wells and installed facilities or, if facilities have not been installed, that would involve a low expenditure (for example, when compared to the cost of drilling a well) to put the reserves on production. The developed category may be subdivided into producing and non-producing;

"development costs" means costs incurred to obtain access to reserves and to provide facilities for extracting, treating, gathering and storing the crude oil and natural gas from the reserves. More specifically, development costs, including applicable operating costs of support equipment and facilities and other costs of development activities, are costs