2021 Q3 Management's Discussion and Analysis

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following is management's discussion and analysis ("MD&A") of Perpetual Energy Inc.'s ("Perpetual", the "Company" or the "Corporation") operating and financial results for the three and nine months ended September 30, 2021 as well as information and estimates concerning the Corporation's future outlook based on currently available information. This discussion should be read in conjunction with the Corporation's unaudited condensed interim consolidated financial statements and accompanying notes for the three and nine months ended September 30, 2021 as well as the audited consolidated financial statements and accompanying notes for the years ended December 31, 2020 and 2019. The MD&A should be read in conjunction with the Corporation's MD&A for the year ended December 31, 2020, as disclosure which is unchanged from the December 31, 2020 MD&A has not been duplicated herein. The Corporation's consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles ("GAAP") which require publicly accountable enterprises to prepare their financial statements using International Financial Reporting Standards ("IFRS"). Readers are referred to the advisories for additional information regarding forecasts, assumptions and other forward-looking information contained in the "Forward Looking Information and Statements" section of this MD&A. The date of this MD&A is November 11, 2021.

NATURE OF BUSINESS: Perpetual is an oil and natural gas exploration, production and marketing company headquartered in Calgary, Alberta. Perpetual owns a diversified asset portfolio, including liquids-rich conventional natural gas assets in the deep basin of West Central Alberta, heavy crude oil and shallow conventional natural gas in Eastern Alberta, and undeveloped bitumen leases in Northern Alberta. Additional information on Perpetual, including the most recently filed Annual Information Form, can be accessed at www.sedar.com or from the Corporation's website at www.perpetualenergyinc.com.

ADVISORIES

NON-GAAPMEASURES: The terms "adjusted funds flow", "adjusted funds flow per share", "adjusted funds flow per boe", "available liquidity", "cash costs", "net working capital deficiency", "net debt", "net bank debt", "net debt to adjusted funds flow ratio", "operating netback", "realized revenue", and "enterprise value" used in this MD&A are not recognized under GAAP. Management believes that in addition to net income (loss) and net cash flows from (used in) operating activities as defined by GAAP, these terms are useful supplemental measures to evaluate performance. Users are cautioned however that these measures should not be construed as an alternative to net income (loss) or net cash flows from (used in) operating activities determined in accordance with GAAP as an indication of Perpetual's performance and may not be comparable with the calculation of similar measurements by other entities.

Adjusted funds flow: Adjusted funds flow is calculated based on cash flows from (used in) operating activities, excluding changes in non- cash working capital and expenditures on decommissioning obligations since Perpetual believes the timing of collection, payment or incurrence of these items is variable. Expenditures on decommissioning obligations may vary from period to period depending on capital programs and the maturity of the Company's operating areas. Expenditures on decommissioning obligations are managed through the capital budgeting process which considers available adjusted funds flow. The Company has added back non-cash oil and natural gas revenue in-kind, equal to retained East Edson royalty obligation payments taken in-kind, to present the equivalent amount of cash revenue generated. The Company has also deducted payments of the gas over bitumen royalty financing from adjusted funds flow to present these payments net of gas over bitumen royalty credits received. These payments are indexed to gas over bitumen royalty credits and are recorded as a reduction to the Corporation's gas over bitumen royalty financing obligation in accordance with IFRS. Additionally, the Company has excluded payments of restructuring costs associated with employee downsizing costs, which management considers to not be related to cash flow from (used in) operating activities. Management uses adjusted funds flow and adjusted funds flow per boe as key measures to assess the ability of the Company to generate the funds necessary to finance capital expenditures, expenditures on decommissioning obligations, and meet its financial obligations.

Adjusted funds flow per share is calculated using the weighted average number of shares outstanding used in calculating net income (loss) per share. Adjusted funds flow is not intended to represent net cash flows from (used in) operating activities calculated in accordance with IFRS.

Adjusted funds flow per boe is calculated as adjusted funds flow divided by total production sold in the period.

The following table reconciles net cash flows from (used in) operating activities as reported in the Company's condensed interim consolidated statements of cash flows, to adjusted funds flow:

	Three months ended September 30,	Nine months ended September 30,
($ thousands, except per share and per boe amounts)	2021	2020	2021	2020
Net cash flows from (used in) operating activities	6,655	(2,538)	11,192	(8,429)
Change in non-cash working capital	(5,621)	(176)	(7,604)	(2,494)
Decommissioning obligations settled (cash)	(54)	(62)	377	115
Oil and natural gas revenue in-kind	1,282	752	3,613	1,402
Payments of gas over bitumen royalty financing	(88)	(151)	(558)	(507)
Payments of restructuring costs	-	77	-	886
Adjusted funds flow	2,174	(2,098)	7,020	(9,027)
Adjusted funds flow per share	0.03	(0.03)	0.11	(0.15)
Adjusted funds flow per boe	4.85	(5.45)	5.08	(6.45)

Available Liquidity: Available Liquidity is defined as Perpetual's reserve-based first lien credit facility (the "Credit Facility") borrowing limit (the "Borrowing Limit"), less borrowings and letters of credit issued under the Credit Facility. Management uses available liquidity to assess the ability of the Company to finance capital expenditures and expenditures on decommissioning obligations, and to meet its financial obligations.

Cash costs: Cash costs are comprised of royalties, production and operating, transportation, general and administrative, and cash finance expense as detailed below. Cash costs per boe is calculated by dividing cash costs by total production sold in the period. Management believes that cash costs assist management and investors in assessing Perpetual's efficiency and overall cost structure.

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	Three months ended September 30,	Nine months ended September 30,
($ thousands, except per boe amounts)	2021	2020	2021	2020
Royalties	1,620	1,563	6,134	4,740
Production and operating	3,159	2,618	9,997	8,620
Transportation	678	761	2,122	2,813
General and administrative	3,051	1,656	7,100	5,876
Cash finance expense	916	1,960	270	6,432
Cash costs	9,424	8,558	25,623	28,481
Cash costs per boe	21.01	22.21	18.55	20.36

Realized revenue: Realized revenue is the sum of realized natural gas revenue, realized oil revenue, and realized natural gas liquids ("NGL") revenue which includes realized gains (losses) on financial natural gas, crude oil, NGL, and foreign exchange contracts. Realized revenue is used by management to calculate the Corporation's net realized commodity prices, taking into account the monthly settlements of financial crude oil and natural gas forward sales, collars, basis differentials, and forward foreign exchange sales. These contracts are put in place to protect Perpetual's adjusted funds flow from potential volatility in commodity prices and foreign exchange rates. Any related realized gains or losses are considered part of the Corporation's realized price.

Operating netback: Operating netback is calculated by deducting royalties, production and operating expenses, and transportation costs from realized revenue. Operating netback is also calculated on a per boe basis using total production sold in the period. Operating netback on a per boe basis can vary significantly for each of the Company's operating areas. Perpetual considers operating netback to be an important performance measure as it demonstrates its profitability relative to current commodity prices.

Net working capital deficiency: Net working capital deficiency includes total current assets and current liabilities excluding short-term derivative assets and liabilities related to the Corporation's risk management activities, revolving bank debt, second lien term loan (the "Term Loan"), current portion of royalty obligations, current portion of lease liabilities, and current portion of decommissioning obligations.

Net bank debt, net debt, and net debt to adjusted funds flow ratio: Net bank debt is measured as current and long-termrevolving bank debt, including the net working capital deficiency. Net debt includes the carrying value of net bank debt, the principal amount of the Term Loan, and the principal amount of senior notes. Net debt, net bank debt, and net debt to adjusted funds flow ratios are used by management to assess the Corporation's overall debt position and borrowing capacity. Net debt to adjusted funds flow ratios are calculated on a trailing twelvemonth basis.

Enterprise value: Enterprise value is equal to net debt plus the market value of issued equity, and is used by management to analyze leverage.

VOLUME CONVERSIONS: Barrel of oil equivalent ("boe") may be misleading, particularly if used in isolation. In accordance with National Instrument 51-101, a conversion ratio for conventional natural gas of 6 Mcf:1 bbl has been used, which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, utilizing a conversion on a 6 Mcf:1 bbl basis may be misleading as an indicator of value as the value ratio between conventional natural gas and heavy crude oil, based on the current prices of natural gas and crude oil, differ significantly from the energy equivalency of 6 Mcf:1 bbl. A conversion ratio of 1 bbl of heavy crude oil to 1 bbl of NGL has also been used throughout this MD&A. Refer to the "Production" section of this MD&A for details of constituent product components that comprise Perpetual's boe production.

MATERIAL TRANSACIONS

On July 16, 2021, Perpetual announced the creation of a new wholly owned subsidiary, Rubellite Energy Inc. ("Rubellite" or "RBY") and the sale of all of Perpetual's Clearwater lands, wells, roads and related facilities in northeast Alberta (the "Clearwater Assets") to Rubellite. On September 3, 2021, the Plan of Arrangement involving Perpetual, the shareholders of Perpetual, and Rubellite was completed following approval of the plan by the shareholders of Perpetual at its special shareholder meeting held on August 31, 2021 and the receipt of the final order of the Court of Queen's Bench of Alberta approving the Plan of Arrangement. At this time, Rubellite exchanged 1.4 million Rubellite common shares valued at $2.8 million and 16.7 million arrangement warrants with Perpetual shareholders for 8.2 million Perpetual common shares valued at $2.8 million. This MD&A reflects operating results for Rubellite's Clearwater Assets up to the effective date of the Plan of Arrangement of September 3, 2021.

Rubellite acquired the Clearwater Assets from Perpetual for aggregate consideration of $65.5 million. The consideration consists of promissory notes totaling $59.4 million, which were paid in cash on October 5, 2021, the issuance of 680,485 Rubellite common shares valued at $1.4 million, the return of the 8.2 million Perpetual common shares valued at $2.8 million and issuance of warrants to purchase 4.0 million Rubellite common shares at a price of $3.00 per share for a period of five years, valued at $2.0 million.

The Rubellite Financings were completed on October 5, 2021 at $2.00 per Rubellite common share equivalent and included:

1. a backstopped Arrangement Warrant financing, which closed on October 5, 2021 and resulted in the issuance of 16.7 million Rubellite common shares for total proceeds of $33.5 million;
2. a non-brokered $20 million private placement financing (10 million Rubellite common shares) that closed on October 5, 2021; and
3. a brokered $30.0 million subscription receipt financing (15 million subscription receipts) that closed on July 13, 2021 with cash held in escrow by a third-party trustee that was released on October 5, 2021. On October 5, 2021, each subscription receipt issued was exchanged on a one-to-one basis for 15 million common shares of Rubellite.

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On July 15, 2021, Rubellite entered into an agreement with a third party whereby it sold a 3% to 5% gross overriding royalty on certain lands at Figure Lake (the "Figure Lake GORR Financing") for gross proceeds of $7.9 million to be paid in accordance with a drilling commitment agreement. The first of four Figure Lake commitment wells was spud on July 21, 2021 and three of four wells were rig released prior to the effective date of the Plan of Arrangement.

On July 15, 2021, Perpetual reached an agreement with its Term Loan lender for the settlement of principal and all interest owing on the Term Loan upon closing of the Rubellite Financings, for the payment of approximately $38.5 million in cash, delivery by Perpetual of 0.7 million Rubellite common shares (the "AIMCo Bonus Shares"), the issuance of a new $2.7 million second lien term loan bearing interest at 8.1% annually and maturing December 31, 2024, and up to a total of $4.5 million in contingent payments over the three year period ended June 30, 2024 in the event that Perpetual's annual average realized oil and natural gas prices exceed certain thresholds (the "Second Lien Loan Settlement"). As part of the Second Lien Loan Settlement, the Term Loan lender committed to fully exercise the arrangement warrants it received under the Plan of Arrangement associated with its approximately 4.0% equity ownership of Perpetual. In addition, the Term Loan lender agreed to subscribe for $4.5 million of the Non-Brokered Private Placement and upon completion of the Transaction owned approximately 8.3% of the Rubellite common shares.

Upon closing of the Rubellite Financings on October 5, 2021, Perpetual received cash proceeds of approximately $53.6 million, and used the cash proceeds to satisfy the $38.5 million cash component of the Second Lien Loan Settlement with the remaining cash applied to repay a significant portion of the Credit Facility. Upon closing of the Rubellite Financings and concurrent completion of the Second Lien Loan Settlement, the Credit Facility has a Borrowing Limit of $17 million, reduced from the existing $20 million Borrowing Limit, with a maturity of May 31, 2023.

THIRD QUARTER 2021 HIGHLIGHTS

Third quarter production averaged 4,876 boe/d, up 16% from 4,188 boe/d in the comparative period of 2020. The increase was due to production from the eight (4.0 net) East Edson carried interest wells and the reactivation of heavy crude oil production which was shut-in during the second quarter of 2020 as oil prices recovered and stabilized, partially offset by the sale of the Clearwater oil assets. As of September 30, 2021, Perpetual had restarted substantially all heavy crude oil production that was initially suspended in late March 2020 in response to extremely low oil prices.

Exploration and development spending in the third quarter of 2021 was $9.9 million and included costs to drill five (4.5 net) Clearwater heavy crude oil wells, which formed part of the Rubellite Transaction that was effective September 3, 2021. At the 50% owned East Edson Property, three (1.5 net) wells were drilled including the final well of the 8 well carried interest commitment that formed part of the East Edson transaction which closed April 1, 2020

Realized revenue was $28.52/boe in the third quarter of 2021, higher than the comparative period of 2020 ($17.93/boe). The increase was due primarily to higher realized natural gas prices of $2.59/Mcf, which were significantly higher than the prior year period (Q3 2020 - $0.06/Mcf). Perpetual's realized gas price was reduced by $0.91/Mcf due to the elimination of the market diversification contract obligations for the April 1, 2022 to October 31, 2022 period, in consideration for the payment of $1.8 million over the term of the associated contract volumes. Excluding realized financial hedging gains, Perpetual's realized oil price was $65.19/bbl and realized NGL price was $65.37/bbl in the third quarter of 2021, higher than the third quarter of 2020 due to an increase in West Texas Intermediate ("WTI") benchmark prices and all natural gas liquid ("NGL") component prices which tracked the rise in WTI prices.

Cash costs were $9.4 million or $21.01/boe (Q3 2020 - $8.6 million and $22.21/boe; Q2 2021 - $9.0 million and $19.34/boe). Compared to the third quarter of 2020, total cash costs increased, reflecting higher royalties and production and operating expenses following the improvement in commodity prices and the increase in general and administrative costs as a result of professional fees associated with the Rubellite Transaction.

The Company generated net cash flow from operating activities of $6.7 million in the third quarter of 2021, which is higher than the prior year period (Q3 2020 - cash flow used in operating activities of $2.5 million). The increase was due to significantly higher realized prices for conventional natural gas, oil and NGLs, combined with the 16% increase in production and lower cash finance expense resulting from repayment of the second lien term loan.

Adjusted funds flow in the third quarter of 2021 was $2.2 million ($0.03/share), up from the prior year period of negative $2.1 million ($0.03/share). The increase was due primarily to same variables that drove the increase in cash flow from operating activities and slightly lower cash costs per boe. Compared to the second quarter of 2021, adjusted funds flow increased (Q2 2021 - $2.3 million) primarily as a result of higher commodity prices, offset by the $1.8 million cost to eliminate the market diversification contract obligations for the April 1, 2022 to October 31, 2022 period, the 4% decrease in production and slightly higher cash costs.

Net income for the third quarter of 2021 was $51.1 million ($0.80/share), an improvement from the prior year period (Q3 2020 - net loss of $7.5 million; $0.12/share) and due primarily to a gain on disposition of the Clearwater Assets of $47.9 million. Excluding the gain, net income improved for the same reasons that impacted adjusted funds flow.

2021 OUTLOOK

On September 3, 2021, Perpetual and Rubellite completed the previously announced Plan of Arrangement involving Perpetual, the shareholders of Perpetual and Rubellite. The Rubellite Financings closed subsequent to the third quarter on October 5, 2021 and $53.6 million in promissory notes were repaid. The Rubellite Transactions provided a "full capital solution" for Perpetual by reducing Perpetual's net debt to $56.4 million at September 30, normalizing the balance sheet leverage ratios and surfacing incremental value from enhanced ability to fund the future development of its assets. The Rubellite Transactions have materially improved Perpetual's liquidity and will enhance Perpetual's ability to capture the inherent value in its asset base by funding investment opportunities to grow and sustain production and adjusted funds flow. Interest cost savings alone will improve Perpetual's adjusted funds flow by approximately $4 million annually. The general and administrative cost recoveries under the management services agreement with Rubellite will further enhance Perpetual's liquidity by approximately $2 to $3

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million annually. Additionally, the 4.0 million Rubellite Share Purchase Warrants owned by Perpetual provide an opportunity for Perpetual to participate in value creation from Rubellite's Clearwater Assets over the next five years.

The Company's new $17 million Credit Facility has a maturity date that has been extended to May 31, 2023. As part of the Second Lien Loan Settlement, the maturity of the New Second Lien Term Loan, which is $2.7 million, has been extended to December 31, 2024.

Operationally, at Perpetual's 50% working interest East Edson property, the last of the 8-well carried interest commitment was drilled, completed and tied in during the third quarter and the joint venture partner drilled an additional six (3.0 net) wells targeting the Wilrich formation. Three of these 7 (3.5 net) wells have been completed and are on production while the remaining 4 (2.0 net) wells were completed and frac'd in early November and will be on production by mid-November. Perpetual's fourth quarter 2021 capital spending forecast in West Central Alberta includes funds to participate in the drilling, completion and tie-in of this East Edson program, targeting to fill the West Wolf gas plant to maximize natural gas and NGL sales through next winter.

Activity in Mannville in Eastern Alberta during the fourth quarter of 2021 will continue to be focused on waterflood optimization and battery consolidation projects as well as several shallow gas recompletions. Additionally, the Company has identified a number of horizontal, multilateral drilling opportunities targeting heavy oil at Mannville and modest capital spending is budgeted for preparatory work for first quarter 2022 activities.

Upon commencement of production from the four-well pad at East Edson, Perpetual's production is expected to exceed 6,000 boe/d later in the fourth quarter.

Consistent with guidance provided August 12, 2021, exploration and development capital spending for Perpetual for full year 2021 is expected to be $15 to $18 million, excluding spending recorded in Perpetual's consolidated third quarter financial statements related to Rubellite's Clearwater Assets prior to the effective date of the Plan of Arrangement. Capital spending will be funded using proceeds from the Rubellite Transactions, adjusted funds flow and the Credit Facility. The table below summarizes anticipated capital spending and drilling activities for Perpetual for the fourth quarter of 2021.

	Q4 2021	# of wells
	($ millions)	(gross/net)
West Central(1)	$7 - $9	4/2.0
Eastern Alberta	$0 - $1	-
Total(2)	$7 - $10	4/2.0

1. Capital to drill the four-well pad at East Edson was partially spent in the third quarter.
2. Excludes abandonment and reclamation spending.

Perpetual continues its environmental, social, and corporate governance ("ESG") focus, with total abandonment and reclamation expenditures of up to $2.3 million planned in 2021, with an estimated $1.2 million to be funded through Alberta's Site Rehabilitation Program ("SRP"). The remaining $1.1 million will more than satisfy the Company's annual area-based closure spending requirements of $1.0 million.

THIRD QUARTER FINANCIAL AND OPERATING RESULTS

Capital expenditures
	Three months ended September 30,	Nine months ended September 30,
($ thousands)	2021	2020	2021	2020
Exploration and development	9,947	251	11,502	5,511
Corporate assets	-	-	2	(38)
Capital expenditures	9,947	251	11,504	5,473
Acquisitions	-	133	625	222
Dispositions	-	-	(202)	(34,750)
Total	9,947	384	11,927	(29,055)
Exploration and development spending by area
	Three months ended September 30,	Nine months ended September 30,
($ thousands)	2021	2020	2021	2020
West Central	7,609	102	8,270	35
Eastern Alberta(1)	2,338	149	3,232	5,476
Total	9,947	251	11,502	5,511

1. Net of $4.1 million of payments received from the Figure Lake GORR financing for three (3.0 net) Figure Lake wells rig released prior to the effective date of the Plan of Arrangement.

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Wells drilled by area
	Three months ended September 30,	Nine months ended September 30,
(gross/net)	2021	2020	2021	2020
West Central - Edson(1)	3.0/1.5	2/1.0	5.0/2.5	2/1.0
Eastern Alberta - Clearwater Assets	5.0/4.5	-/-	6.0/5.0	4/4.0
Eastern Alberta - Mannville	-/-	-/-	-/-	-/-
Total	8.0/6.0	2/1.0	11.0/7.5	6/5.0

1. Includes carried interest wells funded by the Edson joint venture partner.

Perpetual recorded exploration and development spending in the third quarter of 2021 was $9.9 million. At the 50% owned East Edson Property, spending of $0.7 million included costs to upgrade roads and to maintain and optimize production through well workovers, including the installation of plunger lifts on 25 wells. The eighth and final carried interest well at East Edson was spud July 26, 2021, pursuant to Perpetual's joint venture partner's carried interest drilling commitment following which Perpetual will be responsible for funding its 50% working interest share of future drilling costs. Two (1.0 net) additional extended reach horizontal wells targeting the Wilrich formation were drilled in the third quarter of 2021 and commenced production in late September. Late in the third quarter, drilling operations commenced on the final four (2.0 net) well pad in the 2021 drilling program. These four wells are now drilled and completed and are expected to be on production in mid to late November.

Spending in third quarter of 2021 in Eastern Alberta included costs to drill one (0.5 net) Clearwater heavy crude oil wells at Marten Hills and to drill four (4.0 net) Clearwater heavy crude oil wells at Figure Lake, net of funds for received from the Figure Lake GORR Financing prior to the effective date of the Plan of Arrangement. Year to date, six (5.0 net) wells were drilled in the Clearwater and formed part of the Rubellite Transactions which were accounted for effective September 3, 2021.

Acquisitions and Dispositions

During the nine months ended September 30, 2021, Perpetual participated for its 50% working interest in the acquisition of certain undeveloped lands, wells, pipelines and gross overriding royalties from third parties in the East Edson core area, for net consideration of $0.6 million. Dispositions included the sale of non-operated surplus equipment for net cash proceeds to Perpetual of $0.2 million and the sale of the Clearwater Assets to Rubellite for net consideration of $65.5 million.

Expenditures on decommissioning obligations

During the third quarter of 2021, Perpetual executed a nominal amount (Q3 2020 - nil) of abandonment and reclamation projects, bringing year-to- date expenditures on decommissioning obligations to $1.1 million (2020 - $0.1 million). Spending was partially offset by Alberta's Site Rehabilitation Program, which contributed $0.1 million and $0.7 million for the three and nine months ended September 30, 2021, respectively. SRP funding is presented on the condensed interim consolidated statements of loss and comprehensive loss as "other income". Perpetual has been approved for additional SRP funding of $0.5 million, the majority of which is expected to be spent in the fourth quarter of 2021.

As part of Perpetual's focus on well and pipeline abandonment and reclamation, 25 wells were abandoned and 12 reclamation certificates were received from the Alberta Energy Regulator ("AER") during the nine months ended September 30, 2021 (2020 - nine reclamation certificates), which will result in the cessation of associated property tax and surface lease expenses.

Operating netbacks

The following table highlights Perpetual's operating netbacks for the three and nine months ended September 30, 2021 and 2020:

	Three months ended September 30,		Nine months ended September 30,
($/boe) ($ thousands)		2021		2020		2021		2020
Boe operating netback
Production (boe/d)		4,876		4,188		5,061		5,106
Petroleum and natural gas revenue(1)	32.55	14,603	18.40	7,089	28.49	39,365	15.23	21,308
Realized gains (losses) on	(4.03)	(1,808)	(0.47)	(181)	(3.44)	(4,749)	(0.41)	(570)
derivatives(2)
Royalties	(3.61)	(1,620)	(4.06)	(1,563)	(4.44)	(6,134)	(3.39)	(4,740)
Production and operating expenses	(7.04)	(3,159)	(6.79)	(2,618)	(7.24)	(9,997)	(6.16)	(8,620)
Transportation costs	(1.51)	(678)	(1.98)	(761)	(1.54)	(2,122)	(2.01)	(2,813)
Total operating netback	16.36	7,339	5.10	1,966	11.83	16,364	(3.26)	4,565

1. Includes revenues related to the natural gas market diversification contract and physical forward sales contracts which settled during the period.
2. Includes realized gains and losses on financial derivatives and financial prompt month price optimization contracts.

Perpetual's operating netback of $7.3 million ($16.36/boe) in the third quarter of 2021 increased from $2.0 million ($5.10/boe) in the comparative period of 2020. This increase was due to the increase in realized revenue on higher prices combined with average production that was 16% higher than the prior year period. The increase in production was the result of the reactivation of heavy crude oil production as oil prices recovered and stabilized, combined with increased conventional natural gas production from the eight (4.0 net) East Edson carried interest wells. Higher realized revenue per boe was due to increased AECO Index prices, and Western Canadian Select ("WCS") benchmark oil prices and higher realized NGL prices.

For the third quarter of 2021, royalties and production and operating expenses increased significantly due to the increase in production volumes, combined with higher reference prices for all products. Transportation costs of $0.7 million were comparable to the third quarter of 2020 despite

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