CruzSur Energy : 2020 2nd Quarter Financial Statements

CRUZSUR ENERGY CORP

INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

JUNE 30, 2020

NOTICE OF NO AUDITORS' REVIEW OF INTERIM FINANCIAL STATEMENTS

The accompanying unaudited interim condensed financial statements of CruzSur Energy Corp. have been prepared by and are the responsibility of the Company's management. The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity's auditors.

CRUZSUR ENERGY COR

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited, expressed in U.S. Dollars)	June 30, 2020	December 31, 2019
Assets
Current Assets	1,146,940
Cash and cash equivalents	1,423,184
Accounts receivable and prepaids	2,482,197	2,272,352
Inventory	274,902	22,993
Restricted cash (Note 4)	2,469,408	2,824,705
Non‐current Assets	6,373,447	6,543,234
3,426,121
Exploration and evaluation assets (Note 5)	2,659,153
Property, plant and equipment (Note 6)	1,498,484	1,687,822
Total Assets	11,298,052	10,890,209
Liabilities
Current Liabilities	3,713,262
Accounts payable and accrued liabilities	3,187,015
Bridge loan (Note 7c)	101,333	‐
Non‐current Liabilities	3,814,595	3,187,015
1,649,698
Liability component of convertible debentures (Note 7a)	1,708,989
Aruchara loan (Note 7b)	1,713,629	1,587,447
Decommissioning obligation	394,987	390,778
Total Liabilities	7,572,909	6,874,229
Shareholders' Equity	66,128,911
Share capital (Note 8a)	64,912,031
Contributed surplus	7,217,270	6,956,218
Warrants (Note 8c)	10,672,890	10,233,264
Equity component of convertible debentures (Note 7a)	710,890	725,854
Retained earnings (deficit)	(80,854,067)	(78,466,592)
Accumulated other comprehensive income (loss)	(150,751)	(344,795)
Total Shareholders' Equity	3,725,143	4,015,980
Total Liabilities and Shareholders' Equity	11,298,052	10,890,209

Going concern (Note 2)

Commitments (Note 13)

Subsequent events (Note 16)

See accompanying notes to the interim condensed consolidated financial statements.

CRUZSUR ENERGY CORP.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

For the three and six months ended June 30

	For the three months ended	For the six months ended
(Unaudited, expressed in U.S. Dollars)	2020	2019	2020	2019
Revenue:	‐		‐
Oil and natural gas revenue (Note 9)	248,303	420,192
Net revenue on carried working interest (Note 9)	85,871	207,678	209,344	423,286
Royalty expense	‐	(25,398)	‐	(45,552)
	85,871	430,583	209,344	797,926
Expenses:	‐		‐
Operating expenses	222,906	374,764
Inventory revaluation	(2,165)	148,456	266,085	439,054
General and administrative	534,579	1,939,271	921,201	2,620,234
Business development	‐	‐	48,300	7,935
Share‐based compensation (Note 8b)	249,374	(167,517)	261,052	(100,078)
Gain on settlement	‐	(5,000,000)	‐	(5,000,000)
Depletion and depreciation (Note 6)	93,157	132,118	191,905	273,765
Net finance expense (income) (Note 10)	141,317	32,192	275,877	19,598
Foreign exchange loss (gain)	(418,753)	18,890	632,399	(19,935)
Gain on revaluation of asset held for sale	‐	(183,424)	‐	(275,564)
	597,509	(2,857,108)	2,596,819	(1,660,227)
Net income (loss)	(511,638)	3,287,691	(2,387,475)	2,458,153
Other comprehensive income (loss)	(163,638)		194,044
Foreign currency translation adjustment	(16,910)	(41,080)
Comprehensive income (loss)	(675,276)	3,270,781	(2,193,431)	2,417,073
Income (Loss) per share - basic and diluted (Note 8d)	(0.01)	0.14	(0.07)	0.10
Weighted average number of common	36,621,512		33,453,621
Shares outstanding	24,220,160	24,220,160

See accompanying notes to the interim condensed consolidated financial statements.

CRUZSUR ENERGY CORP.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three and six months ended June 30

	For the three months ended	For the six months ended
(Unaudited, expressed in U.S. Dollars)	2020	2019	2020	2019
Operating Activities	(511,638)	3,287,691	(2,387,475)	2,458,153
Net income (loss)
Items not affecting cash:	93,157	132,118	191,905	273,765
Depletion and depreciation (Note 6)
Share‐based compensation (Note 8b)	249,374	(167,517)	261,052	(100,078)
Unrealized foreign exchange loss (gain)	(290,134)	18,738	518,407	(83,581)
Gain on settlement	‐	(5,000,000)	‐	(5,000,000)
Loss on revaluation of asset held for sale	‐	(183,424)	‐	(275,564)
Accretion (Note 7)	‐	37,627	‐	62,231
Net finance expense (income)	141,317	‐	275,877	‐
Change in non‐cash working capital (Note 15)	(121,993)	337,394	257,270	916,872
Cash used in operating activities	(439,917)	(1,537,373)	(882,964)	(1,748,202)
Investing Activities	(324,300)	(150,000)	(766,968)	(63,699)
Exploration and evaluation asset additions
Property, plant and equipment additions	‐	(481,390)	(2,567)	(481,390)
Change in restricted cash	14,381	(36,328)	(6,863)	(22,599)
Change in non‐cash working capital (Note 15)	(102,791)	14,848	(190,613)	6,511
Cash used in investing activities	(412,710)	(652,870)	(967,011)	(561,177)
Financing Activities	1,289,154	‐	1,493,130	‐
Proceeds on private placement, net of costs (Note 8a)
Net finance received (paid)	15,723	‐	28,425	‐
Proceeds on debt issuance, net of transaction costs (Note 7)	100,000	2,378,688	100,000	2,378,688
Change in non‐cash working capital (Note 15)	‐	‐	‐	‐
Cash provided by financing activities	1,404,877	2,378,688	1,621,555	2,378,688
Net increase in cash	552,250	188,445	(228,420)	69,309
Foreign exchange gain (loss) on cash	(1,223)	28,272	(47,824)	38,923
Increase in cash	551,027	216,717	(276,244)	108,232
Cash, beginning of period	595,913	1,508,485	1,423,184	1,616,970
Cash, end of period	1,146,940	1,725,202	1,146,940	1,725,202

Cash is defined as cash and cash equivalents.

See accompanying notes to the interim condensed consolidated financial statements.

CRUZSUR ENERGY CORP.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited, expressed in U.S. Dollars)	Number of		Contributed		ECCD(1)	Deficit	AOCL(2)
Common Shares	Share Capital	Surplus	Warrants	Total
Balance at December 31, 2018	24,220,160	63,799,393	6,509,311	10,201,910	‐	(75,769,236)	(253,033)	4,488,345
Net loss	‐	‐	‐	‐	‐	2,458,153	‐	2,458,153
Issuance of convertible debentures	‐	‐	‐	‐	748,188	‐	‐	748,188
Foreign currency translation adjustment	‐	‐	‐	‐	‐	‐	(41,080)	(41,080)
Share based compensation	‐	‐	(100,078)	‐	‐	‐	‐	(100,078)
Balance at June 30, 2019	24,220,160	63,799,393	6,409,233	10,201,910	748,188	(73,311,083)	(294,113)	7,553,528
	Number of		Contributed		ECCD(1)	Deficit	AOCL(2)
	Common Shares	Share Capital	Surplus	Warrants	Total
Balance at December 31, 2019	30,175,840	64,912,031	6,956,218	10,233,264	725,854	(78,466,592)	(344,795)	4,015,980
Net loss	‐	‐	‐	‐	‐	(2,387,475)	‐	(2,387,475)
Shares issued through private placement	12,000,000	1,072,031	‐	‐	‐	‐	‐	1,072,031
Warrants issued through private placement	‐	‐	‐	421,099	‐	‐	‐	421,099
Foreign currency translation adjustment	‐	‐	‐	‐	‐	‐	194,044	194,044
Conversion of debentures	446,666	29,727	‐	18,527	(14,964)	‐	‐	33,290
Shares issued for interest payment	806,719	115,122	‐	‐	‐	‐	‐	115,122
Share‐based compensation	‐	‐	261,052	‐	‐	‐	‐	261,052
Balance at June 30, 2020	43,429,225	66,128,911	7,217,270	10,672,890	710,890	(80,854,067)	(150,751)	3,725,143

(1) Equity component of convertible debentures

(2) Accumulated other comprehensive loss

See accompanying notes to the interim condensed consolidated financial statements.

CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

1. REPORTING ENTITY

CruzSur Energy Corp. ("CruzSur" or the "Company") is an oil and gas company incorporated in Canada and is engaged in exploration and development activities in Colombia and Argentina. The Company's registered address is 25th Floor, 700 West Georgia Street, Vancouver, British Columbia, Canada V7Y 1B3. CruzSur's common shares are listed on the TSX Venture Exchange ("TSX‐V") under the symbol "CZR".

2. GOING CONCERN

These interim condensed consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to discharge its obligations and realize its assets in the normal course of operations for the foreseeable future.

During the period ended June 30, 2020, the Company incurred a loss from operations of $2.4 million and used $0.9 million of cash flow in its operating activities. Although, as at June 30, 2020, the Company had a working capital balance of $2.6 million, this is not considered sufficient to fund administrative budget and capital commitment amounts that exist for the upcoming year and beyond. As the Company will continue to utilize its financial resources to fund existing administrative budgets and capital commitments for the foreseeable future, there is material uncertainty as to the future operating ability of the Company as it will be contingent upon the Company's ability to successfully identify and procure necessary capital. Furthermore, the Company has contractually committed exploration and development amounts as outlined in Note 13. These commitments could leave the Company potentially cash deficient depending on the outcome of the Company's ongoing operations. As a result, these conditions give rise to a material uncertainty that may cast significant doubt on the Company's ability to continue as a going concern.

During the period ended June 30, 2020, the Company announced two separate non‐brokered private placements for total gross proceeds of C$2.1 million (see Note 8). The Company intends to use the proceeds to settle outstanding liabilities and fund general working capital needs.

Management believes that the going concern assumption is appropriate for these interim condensed consolidated financial statements and that the Company will be able to meet its budgeted capital and administrative costs as well as its other potential capital commitments during the upcoming year and beyond. There is no guarantee that the Company will be successful in its endeavors and no certainty as to the timing of the Company's impending exploration commitments. Should the going concern assumption not be appropriate and the Company is not able to realize its assets and settle its liabilities, these consolidated financial statements would require adjustments to the amounts and classifications of assets and liabilities, and these adjustments could be significant.

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CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

3. BASIS OF PRESENTATION Statement of compliance

These interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" under International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board.

These interim condensed consolidated financial statements follow the same accounting policies and method of computation as the Company's annual audited consolidated financial statements for the year ended December 31, 2019, with the exception of certain disclosures that are normally required to be included in annual consolidated financial statements which have been condensed or omitted. These interim condensed consolidated financial statements should be read in conjunction with the Company's annual audited consolidated financial statements for the year ended December 31, 2019.

These interim condensed consolidated financial statements were authorized for issue by the Board of Directors on August 26, 2020.

Basis of measurement

These unaudited condensed interim consolidated financial statements have been prepared on the historical cost basis except for certain financial and non‐financial assets and liabilities, which have been measured at fair value. The methods used to measure fair value are consistent with the Company's December 31, 2019 audited consolidated financial statements.

In March 2020, the global outbreak of COVID‐19 (coronavirus) was declared a pandemic by the World Health Organization. Governments worldwide, including those in Canada, Colombia and Argentina, have enacted emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self‐imposed quarantine periods, and social distancing, have caused material disruption to businesses globally resulting in an economic downturn. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions; however, the success of these interventions is not currently determinable. At this time, it is unknown the extent of the impact the COVID‐19 outbreak may have on the Company as this will depend on future developments that are highly uncertain and that cannot be predicted with confidence. While the extent of the impact is unknown, the crisis has delayed the Company's Colombian exploration activities currently planned for 2020 due to temporary restrictions on exploration activities implemented by the Colombian government. The scale and duration of these developments remain uncertain but could affect the Company's operations, future net earnings, cash flows and financial condition.

Estimates and judgements made by management in the preparation of these financial statements are subject to a higher degree of measurement uncertainty during this volatile period.

Functional and presentation currency

These interim condensed consolidated financial statements are presented in United States (US) dollars, with the exception of Canadian dollar unit prices ("C$") where indicated.

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CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

Significant accounting policies

The Company's significant accounting policies can be read in Note 4 to the Company's annual audited consolidated financial statements as at and for the year ended December 31, 2019.

New standards adopted on January 1, 2020

IFRS 3 "Business Combinations" was amended to revise the definition of the term 'business'. The amendments narrowed the definitions of a business and outputs and includes an optional concentration test. The adoption of this amendment did not have a material impact on the Company's consolidated financial statements.

4. RESTRICTED CASH

As at June 30, 2020, funds totaling $2,469,408 (December 31, 2019 ‐ $2,824,705) comprised the balance represented in restricted cash. The composition of this amount is as follows:

	2020	2019
SN‐9 ANH Guarantee Deposit	2,159,127	2,476,084
Tiburon ANH Guarantee Deposit	310,281	348,621
Restricted cash	2,469,408	2,824,705

Term deposits of $2.4 million and $0.3 million were established to secure performance guarantees required by the Colombian National Hydrocarbon Agency ("ANH") under the E&P Contracts for the SN‐9 and Tiburon Block. The SN‐9 and Tiburon deposits amounts are defined in US dollars by the ANH but are held in Colombian pesos with Colombian banks and are subject to foreign currency fluctuation risks in relation to the US dollar. These deposits are to be released to the Company once current phase commitments under each E&P Contract are completed. As at June 30, 2020, the balances of the SN‐9 term deposit and Tiburon term deposit were $2,159,127 and $310,281, respectively.

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CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

5. EXPLORATION AND EVALUATION ASSETS

Exploration and Evaluation ("E&E") assets consists of the following amounts:

Balance as at December 31, 2018	19,928,304
Additions	385,700
Acquisition	593,633
Recovery from TPIC liquidation	(176,301)
Revision of asset retirement estimate	(249,511)
Reduction from YPF settlement	(12,362,245)
Disposal of KM8 Asset	(3,406,566)
Impairment loss	(2,053,861)
Balance as at December 31, 2019	2,659,153
Additions	766,968
Balance as at June 30, 2020	3,426,121

6. PROPERTY, PLANT, AND EQUIPMENT

The Company's property, plant and equipment ("PP&E") consist of development and production assets ("D&P") and corporate assets. D&P assets include the Company's interests in developed petroleum and natural gas properties. The components of the Company's PP&E assets are as follows:

Cost	D&P	Corporate	Total
As at December 31, 2018	5,038,319	213,092	5,251,411
Capital additions	‐	491,103	491,103
Disposals	‐	(9,028)	(9,028)
Reduction from YPF settlement	(1,035,986)	‐	(1,035,986)
As at December 31, 2019	4,002,333	695,167	4,697,500
Capital additions	‐	2,567	2,567
As at June 30, 2020	4,002,333	697,734	4,700,067
Accumulated depletion and depreciation
As at December 31, 2018	2,371,718	123,919	2,495,637
Additions	434,908	79,133	514,041
As at December 31, 2019	2,806,626	203,052	3,009,678
Additions	142,336	49,569	191,905
As at June 30, 2020	2,948,962	252,621	3,201,583
Net book value
As at December 31, 2018	2,666,601	89,173	2,755,774
As at December 31, 2019	1,195,707	492,115	1,687,822
As at June 30, 2020	1,053,371	445,113	1,498,484

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CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

7. DEBT AND DEBT ISSUANCE COSTS

The Company's debt at June 30, 2020 consists of the following:

a) Convertible Debentures

In May 2019, the Company completed a non‐brokered private placement of secured convertible debentures for aggregate proceeds of $2.5 million (C$3,350,000). The debentures are denominated in Canadian dollars, mature on May 7, 2024, bear interest at the rate of 10% per annum and are secured by a general security agreement on the assets of the Company. Under the terms of the debentures, the lenders may, at any time prior to the maturity date convert any or all of the principal amount of the debentures into units of the Company at a conversion price of C$0.15 per unit. Each unit is comprised of one common share of the Company and one share purchase warrant. Each warrant entitles the holder to purchase one common share of the Company at a price of C$0.15 until May 7, 2024. At the option of the Company, accrued interest may be paid in cash or converted into common shares of the Company at the then‐market price of the Company's common shares, subject to TSX‐V approval.

As the debentures have a conversion feature, the equity and debt components must be bifurcated. The value assigned to the liability on the date of issuance was the present value of the contractually determined stream of future cash flows discounted at 20%, being the estimated rate the market would apply to an instrument with comparable credit status and provide substantially the same cash flows, on the same terms, but without the conversion option. From the date of issuance, the liability component accretes up to its principal value using the effective interest method, with the charge recorded in finance (income) expenses in the consolidated statement of loss.

The components of the Company's convertible debentures as at June 30, 2020 are as follows:

	Liability	Equity
	Component	Component	Total
On date of issuances, net of transaction costs	1,630,501	748,188	2,378,689
Accretion	67,506	‐	67,506
Exercise of debentures	(50,744)	(22,334)	(73,078)
Impact of foreign exchange	61,726	‐	61,726
Balance, December 31, 2019	1,708,989	725,854	2,434,843
Accretion	55,292	‐	55,292
Exercise of debentures	(33,290)	(14,964)	(48,254)
Impact of foreign exchange	(81,293)	‐	(81,293)
Balance, June 30, 2020	1,649,698	710,890	2,360,588

b) Aruchara Loan

In December 2019, the Company entered into a loan in the amount of $1.6 million, secured by the assets of the Company. The loan is denominated in US dollars, matures on December 5, 2021, and bears interest at the rate of 15% per annum. The proceeds of the loan are to be utilized for the costs of the re‐entry project of the Aruchara well in the Maria Conchita block. Under the terms of the loan agreement, the

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CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

lenders have also been granted a 2.5% overriding royalty derived from the production of the Maria Conchita block. Total interest and principal is payable at the maturity date, although the lenders have an option to convert the loan principal and interest into another 2.5% overriding royalty from the Maria Conchita block at the lenders' discretion at any point prior to the maturity date. Currently, no value has been attributed to the 2.5% overriding royalty or the conversion option for an additional 2.5% overriding royalty as this is contingent upon the successful realization of commercially viable operations within the Maria Conchita block.

On date of issuance, net of transaction costs	1,569,163
Accrued interest expense	17,333
Amortization of transaction costs	951
Balance, December 31, 2019	1,587,447
Accrued interest expense	119,333
Amortization of transaction costs	6,849
Balance, June 30, 2020	1,713,629

The Aruchara loan is a level 3 financial liability with the value assigned to the liability on the date of issuance being the principal value of the loan less transaction costs. From the date of issuance, the loan value will accrete up to its principal value using the effective interest method, with the charge for amortized transaction costs recorded in finance expense (income) in the consolidated statement of loss.

c) Bridge Loan

In May 2020, the Company entered into a bridge loan in the amount of $100,000. The loan is denominated in US dollars and bears interest at the rate of 12% per annum. The proceeds of the loan are to be utilized to finance immediate operations for the SN‐9 block. Total interest and principal is payable at the maturity date, which is defined as five days after the receipt of the proceeds of the SN‐9 Debt Agreement (see Note 16).

On date of issuance	100,000
Accrued interest expense	1,333
Balance, June 30, 2020	101,333

The bridge loan is a level 3 financial liability with the value assigned to the liability on the date of issuance being the principal value of the loan.

8. SHARE CAPITAL a) Common shares

As at June 30, 2020, the Company was authorized to issue an unlimited number of common shares, with no par value, with holders of common shares entitled to one vote per share and to dividends, if declared. Outstanding common shares as at June 30, 2020 are as follows:

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CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

	Common shares	Amount ($)
Balance, December 31, 2018	24,220,160	63,799,393
Shares issued as severance payment	3,692,481	756,312
Shares issued as payment of contractual amounts	925,925	187,362
Conversion of debentures	666,666	41,724
Shares issued for interest payment	670,608	127,240
Balance December 31, 2019	30,175,840	64,912,031
Shares issued through private placement (net of costs)	12,000,000	1,072,031
Conversion of debentures	446,666	29,727
Shares issued for interest payment	806,719	115,122
Balance June 30, 2020	43,429,225	66,128,911

March 2020 private placement

In March 2020, the Company completed a non‐brokered private placement of 2,000,000 units at a price of C$0.15 per unit, for gross proceeds of C$300,000 before transaction costs. Each unit consisted of one common share and on share purchase warrant, with each warrant entitling the holder to purchase one additional share at a price of C$0.18 until March 27, 2022.

The Company has allocated $148,395 (C$208,584) of total proceeds from the private placement to share capital and $65,037 (C$91,416) to warrants. The warrant fair value was determined based on a Black‐ Scholes option pricing model (see below). The issuance costs on the private placement totaling $9,456 (C$13,291) were also allocated to share capital of $6,575 (C$9,241) and warrants of $2,881 (C$4,050).

May 2020 private placement

In May 2020, the Company completed a non‐brokered private placement of 10,000,000 units at a price of C$0.18 per unit, for gross proceeds of C$1,800,000 before transaction costs. Each unit consisted of one common share and on share purchase warrant, with each warrant entitling the holder to purchase one additional share at a price of C$0.23 until May 27, 2022. All securities issued in connection with the private placement are subject to a four month and one day statutory holding period, expiring on September 28, 2020.

The Company has allocated $942,540 (C$1,298,820) of total proceeds from the private placement to share capital and $363,700 (C$501,180) to warrants. The warrant fair value was determined based on a Black‐ Scholes option pricing model (see Note 8c). The issuance costs on the private placement totaling $17,086 (C$23,545) were also allocated to share capital of $12,329 (C$16,989) and warrants of $4,757 (C$6,556).

Transactions on Convertible Debentures

In May 2020, the Company made the second instalment payment on accrued interest of $115,122 (C$161,344) corresponding to the convertible debentures issued in May 2019 (see Note 7c). In accordance with the terms of the convertible debentures, the Company elected to issue 806,719 common shares having a deemed price of C$0.20 per share in satisfaction of the aggregate accrued interest. The price per

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CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

share was determined using the 30‐day volume weighted average price of the common shares on the TSX‐V ending on May 6, 2020. These common shares will be subject to a four month hold period in accordance with applicable Canadian securities laws and are subject to the acceptance of the TSX‐V.

Furthermore, in May 2020, certain debenture holders elected to convert C$67,000 face value of their debentures to units of the Company at the conversion price of C$0.15 per unit, resulting in the issuance of 446,666 common shares and 446,666 share purchase warrants.

b) Stock options

The Company's stock option plan provides for the issue of stock options to directors, officers, employees, charities and consultants, who are all considered related parties to the Company. The plan provides that stock options may be granted up to a number equal to 10% of the Company's outstanding shares. Vesting terms are determined by the Board of Directors as they are granted and currently include periods ranging from immediately to one‐third on each anniversary date over three years. The options' maximum term is ten years.

As at June 30, 2020, a total of 4,342,600 (December 31, 2019 - 2,876,600) options were issued and outstanding under this plan. Options which are forfeited/expired are available for reissue.

A summary of the changes in stock options is presented below:

	Stock options	Weighted average
	exercise price (C$)
Balance, December 31, 2018	1,542,100	6.76
Options issued	2,462,500	0.45
Options forfeited	(1,128,000)	6.37
Options amended (old price)	(72,500)	7.87
Options amended (new price)	72,500	0.45
Balance, December 31, 2019	2,876,600	1.33
Options issued	1,556,000	0.28
Options expired	(90,000)	0.45
Balance, June 30, 2020	4,342,600	0.97

The following summarizes information about stock options outstanding as at June 30, 2020:

	Number of options	Weighted average term to	Number of options
Exercise prices (C$)	outstanding	expiry (years)	exercisable
0.28	1,556,000	9.98	1,556,000
0.45	2,445,000	9.02	2,195,000
6.10	31,600	6.14	31,600
8.00	310,000	7.11	310,000
	4,342,600	9.21	4,092,600

In June 2020, the Company granted 1,556,000 options to acquire common shares to certain directors, officers, employees and consultants of the Company at a price of C$0.275 per common share. The options

13

CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

are for a ten‐year term, expiring on June 24, 2030. All options granted vested immediately on the date of grant. The value of the stock options vesting in the six months ended June 30, 2020 equaled $261,052 (June 30, 2019 - recovery of $100,078), which was expensed as share‐based payments.

c) Warrants

Private purchase warrants

Pursuant to the non‐brokered private placement of units in March 2020 (see above), the Company issued 2,000,000 units, each consisting of one common share and one share purchase warrant. Each warrant can be exercised to purchase one additional common share at a price of C$0.18 until March 27, 2022 (the "Private Purchase Warrants"). A fair value of $62,156 (C$87,366), net of issue costs, was recognized at the time of the issuance of the Private Purchase Warrants.

Pursuant to the non‐brokered private placement of units in May 2020 (see above), the Company issued 10,000,000 units, each consisting of one common share and one share purchase warrant. Each warrant can be exercised to purchase one additional common share at a price of C$0.23 until May 27, 2022 (the "Private Purchase Warrants"). A fair value of $358,943 (C$494,624), net of issue costs, was recognized at the time of the issuance of the Private Purchase Warrants.

Purchase warrants

Pursuant to various transactions in 2017, the Company issued a total of 5,625,000 units, each consisting of one common share and one share purchase warrant, each exercisable into one additional common share at a price of C$10.50 per share until July 31, 2022 (the "Purchase Warrants"). A fair value of $10,201,910 (C$12,754,916), net of issue costs, was recognized at the time of the issuance of the Purchase Warrants.

The 5,625,000 Purchase Warrants are publicly listed for trading on the TSX‐V under the symbol "CZR.WT".

Purchase warrants on conversion of debentures

Pursuant to the convertible debentures issued in May 2019 (see Note 7), debenture holders may convert any or all of the principal amount of the debentures into units of the Company at a conversion price of C$0.15 per unit. Each unit is comprised of one common share of the Company and one share purchase warrant. Each warrant entitles the holder to purchase one common share of the Company at a price of C$0.15 until May 7, 2024.

In October 2019, a certain debenture holder elected to convert C$100,000 face value of their debentures to units of the Company at the conversion price of C$0.15 per unit, resulting in the issuance of 666,666 purchase warrants. Of the overall value assigned to these debentures, $31,354 was reclassed to warrants as the attributable value of the issued purchase warrants.

In May 2020, a certain debenture holder elected to convert C$67,000 face value of their debentures to units of the Company at the conversion price of C$0.15 per unit, resulting in the issuance of 446,666

14

CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

purchase warrants. Of the overall value assigned to these debentures, $14,964 was reclassed to warrants as the attributable value of the issued purchase warrants.

The following summarizes information about total purchase warrants outstanding as at June 30, 2020:

	Number of warrants	Weighted average term	Number of warrants
Exercise prices (C$)	outstanding	to expiry (years)	exercisable
0.15	1,113,332	3.85	1,113,332
0.18	2,000,000	1.74	2,000,000
0.23	10,000,000	1.91	10,000,000
10.50	5,625,000	2.08	5,625,000
	18,738,332	2.06	18,738,332

d) Loss per share

For purposes of the loss per share calculations for the periods ended June 30, 2020 and 2019, there is no difference between the basic loss per share and the diluted loss per share amounts. For the period ended June 30, 2020, 4,342,600 stock options and 18,738,332 purchase warrants were excluded as either 1) their impact was anti‐dilutive for periods when the Company had a net loss; or 2) the average market price of the common shares of the Company was less than the exercise price of existing stock options and purchase warrants.

9. REVENUE

The following table presents the Company's oil and natural gas revenue disaggregated by product type for the three and six months ended June 30, 2020 and 2019:

	Three months ended	Six months ended
	2020	2019	2020	2019
Production revenue:		248,303
Oil and condensate sales	‐	‐	420,192
Total oil and natural gas production revenue	‐	248,303	‐	420,192
Net revenue on carried working interest	85,871	207,678	209,344	423,286
Total oil and natural gas revenue	85,871	455,981	209,344	843,478

As at June 30, 2020, receivables from contracts with customers, which are included in accounts receivable, were $98,249 (December 31, 2019 ‐ $270,859).

15

CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

10. FINANCE INCOME AND EXPENSE

The components of net finance expense/income are as follows:

	Three months ended	Six months ended
	2020	2019	2020	2019
Cash:
Interest income	(27,658)	(52,350)	(59,286)	(97,530)
Interest expenses and bank charges	135,714	46,915	268,813	54,897
	108,056	(5,435)	209,527	(42,633)
Non‐cash:
Accretion on decommissioning obligations	2,131	23,019	4,209	47,623
Accretion on liability component of convertible debentures	27,656	14,608	55,292	14,608
Amortization of transaction costs on Aruchara Loan	3,474	‐	6,849	‐
	33,261	37,627	66,350	62,231
Total net finance expense (income)	141,317	32,192	275,877	19,598

11. RELATED PARTIES

During the period ended June 30, 2020, there were separate related party transactions as follows:

1. The Company paid a monthly advisory fee to a firm affiliated with a director of CruzSur. As per the consulting agreement with this firm, CruzSur pays a monthly fee of C$10,000 plus reimbursable expenses. Furthermore, additional fees are to be paid pursuant to the closing of successful financing arrangements, divestitures, or acquisitions for which the firm provides advisory services. During the period ended June 30, 2020, administrative success fees were paid upon closing of the private placements through units summarized in Note 9, which resulted in the Company paying C$21,000 to the firm. As at June 30, 2020, outstanding payables to the firm totaled $C23,500.

1. In March 2020, the Company completed the aforementioned non‐brokered private placement through units for proceeds of C$300,000, before issue costs. Of the total proceeds, approximately C$165,000 were from subscriptions by directors of the Company.

1. In May 2020, the Company completed the aforementioned non‐brokered private placement through units for proceeds of C$1,800,000, before issue costs. Of the total proceeds, approximately C$275,580 were from subscriptions by directors of the Company.

16

CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Company has exposure to the following risks from its use of financial instruments:

• Credit risk
• Liquidity risk
• Market risk

This note presents information about the Company's exposure to each of the above risks and the Company's objectives, policies and processes for measuring and managing these risks, and the Company's management of capital. The Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework. The Company's risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to market conditions and the Company's activities.

Credit risk

Credit risk reflects the risk of loss if counterparties do not fulfill their contractual obligations. The carrying amount of cash and cash equivalents, short‐term investments, accounts receivable and restricted cash represent the maximum credit exposure. As at June 30, 2020, the Company had $2,469,408 (December 31, 2019 ‐ $2,824,705) in restricted cash towards development activity and joint operations in Colombia. The Company mitigates credit risk exposure related to restricted cash by ensuring that drawdowns on these accounts can not be performed without prior authorization by the Company.

As at June 30, 2020, the company had $2,482,197 (December 31, 2019 ‐ $2,272,352) in accounts receivable and prepaids. The Company's policy to mitigate credit risk associated with these balances is to establish marketing relationships with large purchasers. In Argentina, the Company's oil production is sold principally to YPF. The Company does not consider any of its receivables past due.

The Company held cash and cash equivalents of $1,146,940 (December 31, 2019 ‐ $1,423,184) as at June 30, 2020. The Company manages the credit exposure related to cash and cash equivalents and short‐term investments by selecting counter parties based on credit ratings and monitors all investments to ensure a stable return, avoiding complex investment vehicles with higher risk such as asset‐backed commercial paper.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due and describes the Company's ability to access cash. The Company's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient cash resources in order to finance operations, fund capital expenditures, and to repay debt and other liabilities of the Company as they come due, without incurring unacceptable losses or risking harm to the Company's reputation. The Company's processes for managing liquidity risk include preparing and monitoring capital and operating budgets, coordinating and authorizing project expenditures, and authorization of contractual agreements. The Company seeks additional financing based on the results of these processes. The budgets are updated when required as conditions change.

17

CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

The following table outlines the contractual maturities of the Company's financial liabilities at June 30, 2020:

	Less than 1 year	1‐2 years	Thereafter	Total
Convertible debentures ‐ principal	‐	‐	2,335,633	2,335,633
Trade accounts payable	2,411,073	‐	‐	2,411,073
Aruchara loan ‐ principal	‐	1,600,000	‐	1,600,000
Bridge loan ‐ principal	100,000	‐	‐	100,000
Consideration payable on acquisition	450,000	‐	‐	450,000
Capital payables	679,407	‐	‐	679,407
Joint venture payables	138,301	‐	‐	138,301
Convertible debentures ‐ interest	34,481	‐	‐	34,481
Aruchara loan ‐ interest	‐	136,667	‐	136,667
Bridge loan ‐ interest	1,333	‐	‐	1,333
	3,814,595	1,736,667	2,335,633	7,886,895

Market risk

Market risk is the risk or uncertainty that changes in price, such as commodity prices, foreign exchange rates, and interest rates will affect the Company's net earnings and the value of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximizing returns. From time to time, the Company may utilize financial derivative contracts to manage market risks in accordance with the risk management policy that has been approved by the Board of Directors. There were no financial derivative contracts or embedded derivatives outstanding at June 30, 2020 nor were there any in the previous year ended December 31, 2019.

Commodity price risk

Commodity price risk is the risk that the fair value of the future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for petroleum and natural gas are affected not only by the United States dollar, but also by world economic events that dictate the levels of supply and demand.

The Company's oil revenue is primarily derived from oil production on the SRDE Asset in Argentina. SRDE oil revenue is based on the periodic sale of the minimal production from this exploration asset throughout the calendar year, considering storage capacity and market prices. In May 2020, the Government of Argentina reinstated a mandatory benchmark price for oil, setting it at $45 per barrel in an attempt to shore up oil prices. Because comparable free‐floating benchmarks such as Brent crude were generally below the Government of Argentina's benchmark). As a result, no oil revenue from the sale of SRDE oil inventory was realized for the six months ended June 30, 2020 as the Company retains realized oil production in storage facilities until such time that prevailing market prices become more certain in light of factors affecting the Argentina oil market and economic situation, including the economic impact of the COVID‐19 outbreak.

18

CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

Gas prices in Argentina are subject to seasonal demand and are negotiated between the producer and the buyer. Net revenue from the carried working interest on the Mariposa Asset is predominantly from natural gas production.

Foreign currency risk

Foreign currency risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in foreign currency exchange rates. Some of the Company's business transactions and commitments occur in currencies other than US dollars. A portion of the Company's oil and natural gas activities in Colombia and Argentina transact in Colombian Peso (COP$) and Argentine Peso (ARS$), respectively. In addition, the majority of the Company's financing and a portion of the administrative costs will be based in Canadian dollars, COP$, or ARS$ and paid in Canadian dollars, COP$, or ARS$. Therefore, the Company is exposed to the risk of fluctuations in foreign exchange rates between US dollars, COP$, ARS$ and Canadian dollars. As at June 30, 2020, the Company had not entered into any foreign currency derivatives to manage its exposure to currency fluctuations nor were there any foreign currency derivatives as at the previous year ended December 31, 2019.

Interest rate risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in prevailing market interest rates. The Company is exposed to interest rate risk on its cash and cash equivalents and short‐ term investments that have a floating interest rate. Fluctuations of interest rates for the period ending June 30, 2020 would not have had a significant impact on cash and cash equivalents and short‐term investments. Furthermore, the Company is not currently exposed to interest rate risk on its interest‐ bearing loans given these debt instruments are all subject to fixed interest rates.

Capital management

The Company's objectives when managing capital are to ensure the Company will have sufficient financial capacity, liquidity, and flexibility to fund the Company's operations, growth, and ongoing exploration and development commitment activities of its oil and gas assets. The Company is dependent upon funding these activities through a combination of available cash, debt and equity, which it considers to be the components of its capital structure as outlined below. In order to maintain or adjust the capital structure, from time to time the Company may issue or repurchase common shares or other securities, sell assets or adjust its capital spending to manage current and projected debt levels.

The Company monitors leverage and adjusts its capital structure based on its net debt level. Net debt is defined as the principal amount of its outstanding long‐term obligations less working capital, as defined above. In order to facilitate the management of its net debt, the Company prepares annual budgets, which are updated as necessary depending on varying factors including current and forecast commodity prices, changes in capital structure, execution of the Company's business plan and general industry conditions. The annual budget is approved by the Board of Directors and updates are prepared and reviewed as required.

19

CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

	June 30, 2020	December 31, 2019
Convertible debentures (10%)	2,335,633	2,502,310
Aruchara loan (15%)	1,736,667	1,617,333
Total debt	4,072,300	4,119,643
Working capital (deficiency)	2,558,852	3,356,219
Net debt	1,513,448	763,424

The Company regularly monitors its capital structure and, as necessary, adjusts to changing economic circumstances and the underlying risk characteristics of its assets in order to meet current and upcoming obligations and investments by the Company. The Company frequently reviews alternate financing options and arrangements to meet its current and upcoming commitments and obligations.

The Company's objectives when managing capital are: (i) to maintain a flexible capital structure, which optimizes the cost of capital at acceptable risk; and (ii) to maintain investor, creditor and market confidence in order to sustain the future development of the business. The Company's share capital is not subject to external restrictions.

Fair value of financial instruments

The Company's financial instruments as at June 30, 2020, include cash and cash equivalents, accounts receivable, restricted cash, and accounts payable and accrued liabilities. These financial instruments are initially recognized at fair value and subsequently measured at amortized cost. The fair values of the current financial instruments approximate their carrying amounts due to their short terms to maturity. The fair value of the convertible debentures and the Aruchara loan are $2.4 million and $1.7 million, respectively.

13. COMMITMENTS

A summary of the Company's estimated capital commitments (in millions of dollars) are as follows:

Block	2020	2021	2022	Total
SN‐9 Block (1)	22.3	‐	‐	22.3
Tiburon Block (2)	3.0	‐	‐	3.0
Total	25.3	‐	‐	25.3

1. CruzSur's ANH commitment to carry out the minimum requirement to process and interpret 204.4 km of 2D seismic and drill one exploration well (for which the Company will pay 100% of the costs under the terms of the SN‐9 Acquisition) according to Phase 1 of the contractual exploration program, which must be fulfilled by December 2020, pending extensions granted on account of the ongoing COVID‐ 19 outbreak, due to which non‐essential oil & gas operations have been suspended by the Government of Colombia. The Company assumes that operations will commence in 2020.
2. Relates to CruzSur's share of the ANH commitment to carry out the minimum requirement to acquire, process, and interpret 69.75 km2 of 3D seismic according to Phase 3 of the contractual exploration program. Currently, operations are delayed due to disputes in the region, with current ANH deadline of 2020 with extensions if disputes were resolved in 2020. The Company has submitted a request to the ANH for a change in the area of the seismic activities and an extension of the deadline for this phase of exploration due to the ongoing COVID‐ 19 outbreak. The commencement date for seismic acquisition is unknown at this time and will depend upon approval of the revised seismic area and the start of the social and environmental activities, all of which are dependent upon the COVID‐19 situation. The Company assumes that activities related to the permits for the new seismic survey will commence in 2020.

20

CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

The expenditures provided in the above table only represent the Company's estimated cost to satisfy contract requirements. Actual expenditures to satisfy these commitments, initiate production or create reserves may differ from these estimates. The expenditures in the above table are based on the latest possible date required per contract and may be incurred at an earlier date.

14. SEGMENTED INFORMATION

The Company is engaged in the exploration and development of oil and gas. Management has defined the operating segments of the Company based on geographical areas, identifying operations held in Argentina and Colombia as separate reporting segments. The Corporate segment reflects balances and expenses related to all Company operations outside of Argentina and Colombia, which collectively represent the corporate operations of the Company. Management finds that each of the defined reporting segments have distinct economic characteristics and regulatory environments.

The following tables show information regarding the Company's segments for periods ended June 30, 2020 and 2019.

For the six months ended June 30, 2020	Argentina	Colombia	Corporate	Total
Revenue:
Oil and natural gas revenue	‐	‐	‐	‐
Net revenue on carried working interest	209,344	‐	‐	209,344
Royalty expense	‐	‐	‐	‐
Net oil and natural gas revenue	209,344	‐	‐	209,344
Expenses:
Inventory revaluation	266,085	‐	‐	266,085
General and administrative	233,869	322,928	364,404	921,201
Business development	‐	‐	48,300	48,300
Share based payments	‐	‐	261,052	261,052
Depletion and depreciation	185,099	6,806	‐	191,905
Net finance expense (income)	6,335	(30,078)	299,620	275,877
Foreign exchange loss	(22,874)	576,356	78,917	632,399
	668,514	876,012	1,052,293	2,596,819
Loss before income taxes	(459,170)	(876,012)	(1,052,293)	(2,387,475)
Assets, June 30, 2020	1,981,168	7,848,591	1,468,293	11,298,052
Liabilities, June 30, 2020	848,975	1,201,846	5,522,088	7,572,909

21

CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

For the six months ended June 30, 2019	Argentina	Colombia	Corporate	Total
Revenue:
Oil and natural gas revenue	420,192	‐	‐	420,192
Net revenue on carried working interest	423,286	‐	‐	423,286
Royalty expense	(45,552)	‐	‐	(45,552)
Net oil and natural gas revenue	797,926	‐	‐	797,926
Expenses:
Operating expenses	374,764	‐	‐	374,764
Inventory revaluation	439,054	‐	‐	439,054
General and administrative	449,750	469,429	1,701,055	2,620,234
Business development	‐	‐	7,935	7,935
Share based payments	‐	‐	(100,078)	(100,078)
Gain on settlement	(5,000,000)	‐	‐	(5,000,000)
Depletion and depreciation	263,990	9,775	‐	273,765
Finance	36,898	(63,760)	46,460	19,598
Foreign exchange loss (gain)	130,426	(58,563)	(91,798)	(19,935)
Gain on revaluation of asset held for sale	‐	‐	(275,564)	(275,564)
	(3,305,118)	356,881	1,288,010	(1,660,227)
Income (loss) before income taxes	4,103,044	(356,881)	(1,288,010)	2,458,153
Assets, June 30, 2019	8,077,441	6,449,169	1,984,572	16,511,182
Liabilities, June 30, 2019	3,984,673	339,708	4,633,273	8,957,654
For the three months ended June 30, 2020	Argentina	Colombia	Corporate	Total
Revenue:
Oil and natural gas revenue	‐	‐	‐	‐
Net revenue on carried working interest	85,871	‐	‐	85,871
Royalty expense	‐	‐	‐	‐
Net oil and natural gas revenue	85,871	‐	‐	85,871
Expenses:
Inventory revaluation	(2,165)	‐	‐	(2,165)
General and administrative	144,828	157,946	231,805	534,579
Share based payments	‐	‐	249,374	249,374
Depletion and depreciation	89,691	3,466	‐	93,157
Net finance expense (income)	5,847	(13,746)	149,216	141,317
Foreign exchange loss (gain)	(46,199)	(264,654)	(107,900)	(418,753)
	192,002	(116,988)	522,495	597,509
Income (loss) before income taxes	(106,131)	116,988	(522,495)	(511,638)

22

CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

For the three months ended June 30, 2019	Argentina	Colombia	Corporate	Total
Revenue:
Oil and natural gas revenue	248,303	‐	‐	248,303
Net revenue on carried working interest	207,678	‐	‐	207,678
Royalty expense	(25,398)	‐	‐	(25,398)
Net oil and natural gas revenue	430,583	‐	‐	430,583
Expenses:
Operating expenses	222,906	‐	‐	222,906
Inventory revaluation	148,456	‐	‐	148,456
General and administrative	228,328	247,564	1,463,379	1,939,271
Share based payments	‐	‐	(167,517)	(167,517)
Gain on settlement	(5,000,000)	‐	‐	(5,000,000)
Depletion and depreciation	129,675	2,443	‐	132,118
Finance	15,641	(29,481)	46,032	32,192
Foreign exchange loss (gain)	(46,535)	43,687	21,738	18,890
Gain on revaluation of asset held for sale	‐	‐	(183,424)	(183,424)
	(4,301,529)	264,213	1,180,208	(2,857,108)
Income (loss) before income taxes	4,732,112	(264,213)	(1,180,208)	3,287,691

15. SUPPLEMENTAL CASH FLOW INFORMATION

	Three months ended	Six months ended
For periods ended June 30	2020	2019	2020	2019
Accounts receivable	(124,687)	(215,377)	(209,845)	322,809
Inventory	(244,437)	(10,600)	(251,909)	12,413
Accounts payable and accrued liabilities	144,340	(4,631,781)	528,411	(16,423,671)
Working capital adjustments for capital accrual reversals	‐	210,000	‐	210,000
Working capital adjustments for YPF settlement	‐	‐	‐	11,801,832
Working capital adjustments for Petro AP settlement	‐	5,000,000	‐	5,000,000
Change in non‐cash working capital	(224,784)	352,242	66,657	923,383
Relating to:	(121,993)		257,270
Operating activities	337,394	916,872
Investing activities	(102,791)	14,848	(190,613)	6,511
Change in non‐cash working capital	(224,784)	352,242	66,657	923,383

16. SUBSEQUENT EVENTS Maria Conchita Debt Agreement

In July 2020, the Company entered into a loan in the amount of $350,000. The loan is denominated in US dollars and bears interest at the rate of 20% per annum. The loan matures at the earlier of six months from the advance date or such time as proceeds to the Company from gross production in the Maria Conchita block total or exceed the principal amount plus accrued interest. The proceeds of the loan are to be utilized to fund exploration activities in the Maria Conchita block.

23

CRUZSUR ENERGY CORP

Notes to the Interim Condensed Consolidated Financial Statements

For the periods ended June 30, 2020 and 2019 (unaudited)

SN‐9 Debt Agreement

In August 2020, the Company entered into a loan in the amount of $2.5 million, secured by the assets of the Company. The loan is denominated in US dollars, matures in August 2022, and bears interest at the rate of 15% per annum. The proceeds of the loan are to be utilized for the costs of exploratory activities in the SN‐9 block. Under the terms of the loan agreement, the lenders have also been granted a 3% overriding royalty on CruzSur's working interest in the gross production of the SN‐9 block. Total interest and principal is payable at the maturity date, although the lenders have an option to convert the loan principal and interest into another 3% overriding royalty on CruzSur's working interest in the gross production of the SN‐9 block at the lenders' discretion at any point prior to the maturity date.

24