Headwater Exploration : 2021 Annual Information Form

HEADWATER EXPLORATION INC.

ANNUAL INFORMATION FORM

Year Ended December 31, 2021

Dated March 10, 2022

TABLE OF CONTENTS
ABBREVIATIONS AND CONVERSIONS ....................................................................................................................................	2
NOTES ON RESERVES DATA AND OTHER OIL AND GAS INFORMATION........................................................................	3
CERTAIN DEFINITIONS ...............................................................................................................................................................	5
FORWARD-LOOKING STATEMENTS ........................................................................................................................................	7
THE CORPORATION .....................................................................................................................................................................	9
GENERAL DEVELOPMENT OF THE BUSINESS .......................................................................................................................	9
DESCRIPTION OF THE BUSINESS ............................................................................................................................................	12
STATEMENT OF RESERVES DATA AND OTHER OIL AND GAS INFORMATION ...........................................................	16
DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION ..................................................................................	29
DIVIDENDS ..................................................................................................................................................................................	33
DESCRIPTION OF SHARE CAPITAL.........................................................................................................................................	33
MARKET FOR SECURITIES .......................................................................................................................................................	34
RISK FACTORS ............................................................................................................................................................................	34
INDUSTRY CONDITIONS ...........................................................................................................................................................	55
LEGAL PROCEEDINGS ...............................................................................................................................................................	68
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS ..............................................................	68
AUDIT COMMITTEE INFORMATION.......................................................................................................................................	69
TRANSFER AGENT AND REGISTRAR .....................................................................................................................................	71
MATERIAL CONTRACTS ...........................................................................................................................................................	71
INTEREST OF EXPERTS .............................................................................................................................................................	71
ADDITIONAL INFORMATION...................................................................................................................................................	72
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

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	ABBREVIATIONS AND CONVERSIONS
Oil and Natural Gas Liquids		Natural Gas
Bbl	barrel		Mcf	thousand cubic feet
Bbls	barrels		MMcf	million cubic feet
MBbls	thousand barrels		Mcf/d	thousand cubic feet per day
MMBbls	million barrels		MMcf/d	million cubic feet per day
Mstb	1,000 stock tank barrels		MMbtu	million British Thermal Units
Bbls/d	barrels per day		Bcf	billion cubic feet
BOPD	barrels of oil per day		GJ	gigajoule
NGLs	natural gas liquids		MM	Million
STB	standard tank barrels
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

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.

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

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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 incurred to: (a) gain access to and prepare well locations for drilling, including surveying well locations for the purpose of determining specific development drilling sites, clearing ground, draining, road building, and relocating public roads, gas lines and power lines, to the extent necessary in developing the reserves; (b) drill and equip development wells, development type stratigraphic test wells and service wells, including the costs of platforms and well equipment such as casing, tubing, pumping equipment and wellhead assembly; (c) acquire, construct and install production facilities such as flow lines, separators, treaters, heaters, manifolds, measuring devices and production storage tanks, natural gas cycling and processing plants, and central utility and waste disposal systems; and (d) provide improved recovery systems;

"development well" means a well drilled inside the established limits of an oil or gas reservoir, or in close proximity to the edge of the reservoir, to the depth of a stratigraphic horizon known to be productive;

"exploration costs" means costs incurred in identifying areas that may warrant examination and in examining specific areas that are considered to have prospects that may contain oil and natural gas reserves, including costs of drilling exploration wells and exploration type stratigraphic test wells. Exploration costs may be incurred both before acquiring the related property (sometimes referred to in part as "prospecting costs") and after acquiring the property. Exploration

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costs, which include applicable operating costs of support equipment and facilities and other costs of exploration activities, are: (a) costs of topographical, geochemical, geological and geophysical studies, rights of access to properties to conduct those studies, and salaries and other expenses of geologists, geophysical crews and others conducting those studies (collectively sometimes referred to as "geological and geophysical costs"); (b) costs of carrying and retaining unproved properties, such as delay rentals, taxes (other than income and capital taxes) on properties, legal costs for title defence, and the maintenance of land and lease records; (c) dry hole contributions and bottom hole contributions; (d) costs of drilling and equipping exploration wells; and (e) costs of drilling exploration type stratigraphic test wells;

"exploration well" means a well that is not a development well, a service well or a stratigraphic test well;

"forecast prices and costs" means future prices and costs that are:

1. generally accepted as being a reasonable outlook of the future; or
2. if, and only to the extent that, there are fixed or presently determinable future prices or costs to which Headwater is legally bound by a contractual or other obligation to supply a physical product, including those for an extension period of a contract that is likely to be extended, those prices or costs rather than the prices and costs referred to in subparagraph (a);

"gross" means: (a) in relation to an issuer's interest in production or reserves, its "company gross reserves", which are its working interest (operating or non-operating) share before deduction of royalties and without including any royalty interests of the issuer; (b) in relation to wells, the total number of wells in which an issuer has an interest; and (c) in relation to properties, the total area of properties in which an issuer has an interest;

"net" means: (a) in relation to an issuer's interest in production or reserves its working interest (operating or non- operating) share after deduction of royalty obligations, plus its royalty interests in production or reserves; (b) in relation to an issuer's interest in wells, the number of wells obtained by aggregating the issuer's working interest in each of its gross wells; and (c) in relation to an issuer's interest in a property, the total area in which the issuer has an interest multiplied by the working interest owned by the issuer;

"P+P Reserves" means Proved Reserves plus Probable Reserves;

"Probable Reserves" are those additional reserves that are less certain to be recovered than Proved Reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated P+P Reserves;

"Proved Reserves" are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated Proved Reserves;

"Reserves" are estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from known accumulations, as of a given date, based on: (i) analysis of drilling, geological, geophysical and engineering data; (ii) the use of established technology; and (iii) specified economic conditions, which are generally accepted as being reasonable. Reserves are classified according to the degree of certainty associated with the estimates;

"Reserves Data" has the meaning set forth under the heading "Statement of Reserves Data and other Oil and Gas Information" in this Annual Information Form;

"undeveloped reserves" are those reserves expected to be recovered from known accumulations where a significant expenditure (e.g., when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves classification (proved, probable, possible) to which they are assigned. In multi-well pools, it may be appropriate to allocate total pool reserves between the developed and undeveloped categories or to subdivide the developed reserves for the pool between developed producing and developed non- producing. This allocation should be based on the estimator's assessment as to the reserves that will be recovered from