Perpetual Energy : 2021 Q1 Financial Statements

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 months ended March 31, 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 months ended March 31, 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 May 4, 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 ("AIF"), 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 March 31,
($ thousands, except per share and per boe amounts)	2021	2020
Net cash flows from (used in) operating activities	1,682	(3,114)
Change in non-cash working capital	(150)	(935)
Decommissioning obligations settled (cash)	115	174
Oil and natural gas revenue in-kind	1,133	-
Payments of gas over bitumen royalty financing	(236)	(204)
Payments of restructuring costs	-	478
Adjusted funds flow	2,544	(3,601)
Adjusted funds flow per share	0.04	(0.06)
Adjusted funds flow per boe	5.42	(5.29)

Available Liquidity: Available Liquidity is defined as Perpetual's reserve-based 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 March 31,
($ thousands, except per boe amounts)	2021	2020
Royalties	2,131	2,383
Production and operating	3,286	4,168
Transportation	690	1,270
General and administrative	2,055	2,225
Cash finance expense	(937)	2,570
Cash costs	7,225	12,616
Cash costs per boe	15.41	18.54

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 ("NI 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.

FIRST QUARTER 2021 HIGHLIGHTS

Production averaged 5,211 boe/d in the first quarter of 2021, down 30% from the comparative period of 2020 (Q1 2020 - 7,479 boe/d). The decrease in production was due to the sale of a 50% working interest in the East Edson property in West Central Alberta to a third-party (the "Purchaser") on April 1, 2020, for consideration including a cash payment of $35 million and the carried interest funding of the drill, complete and tie-in costs for an eight well drilling program (the "East Edson Transaction"). After closing the East Edson Transaction, West Central production has increased 38% from 2,709 boe/d in the second quarter of 2020 to 3,748 boe/d in the first quarter of 2021, as production from the first seven (3.5 net) East Edson carried interest wells is now online. The final carried interest well is expected to be on production late in the third quarter of 2021. In addition, the Company has continued to reactivate heavy crude oil production as oil prices recover and stabilize. As of March 31, 2021, Perpetual had restarted all heavy crude oil production with the exception of approximately 100 bbl/d of higher cost production from certain wells at Mannville.

Exploration and development spending for the first quarter of 2021 was nominal, consistent with guidance released on February 24, 2021 with the Company's 2020 year-end results. At the 50% owned East Edson property, two (1.0 net) horizontal Wilrich wells were drilled and tied-in to production late in the first quarter of 2021, pursuant to the Purchaser's carried interest drilling commitment.

Realized revenue was $21.67/boe in the first quarter of 2021, 56% higher than the comparative period of 2020 (Q1 2020 - $13.88/boe). The increase was due primarily to the 94% increase in Perpetual's realized natural gas price to $2.25/Mcf, combined with a realized oil price of $40.85/bbl which was 25% higher than the comparative period of 2020. Higher realized natural gas prices were the result of a 55% increase in the AECO Daily Index, which more than offset losses on the market diversification contract of $0.6 million ($0.30/Mcf). Natural gas hedging losses were $2.1 million or $1.04/Mcf (Q1 2020 - losses of $3.2 million or $1.04/Mcf), related primarily to the elimination of the Company's 10,000 MMBtu/d market diversification contract obligations for the period of April 1, 2021 to October 31, 2021 at a cost of $1.4 million. Perpetual's realized oil price was $40.85/bbl, 63% higher than the first quarter of 2020 after adjusting for $7.48/bbl of financial hedging gains realized in the first quarter of 2020, consistent with the increase in Western Canadian Select ("WCS") average prices. Realized NGL prices of $56.03/bbl increased by 54% over the comparable period, driven by higher oil prices.

Cash costs were $15.41/boe in the first quarter of 2021, down 17% from the prior year period (Q1 2020 - $18.54/boe). On an absolute dollar basis, cash costs were $7.2 million, down $5.4 million (43%) from the prior year period. The decrease was due to the impact of lower production

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resulting from the East Edson Transaction, combined with cash finance expense which was $3.5 million lower than the prior year period (Q1 2020 - $2.6 million), due primarily to $3.0 million of Term Loan and 2025 Senior Note interest that Perpetual has elected to pay in-kind and add to the principal amount owing.

Net loss for the first quarter of 2021 was $2.7 million ($0.04/share), improved significantly from the prior year period net loss of $59.7 million ($0.98/share). The improvement was due primarily to higher reference prices for all products and the absence of non-cash impairment charges of $60.5 million recognized during the first quarter of 2020. Prior period impairments were the result of the pervasive drop in forward oil prices following demand destruction caused by the onset of the COVID-19 pandemic, and the oil price war between Saudi Arabia and Russia.

Despite the 30% decrease in production, net cash flows from operating activities in the first quarter of 2021 were $1.7 million ($0.03/share), up $4.8 million from the prior year period (Q1 2020 - net cash flows used in operating activities of $3.1 million or $0.05/share). The increase was due to significantly higher realized prices for all products, in combination with lower cash costs resulting from Perpetual's election to pay Term Loan and 2025 Senior Note interest in-kind rather than in cash.

Adjusted funds flow in the first quarter of 2021 was $2.5 million ($0.04/share), up $6.1 million (171%) from the prior year period of negative $3.6 million ($0.06/share), due primarily to the $4.8 million increase in cash flows from operating activities. Adjusted funds flow was $5.42/boe in the first quarter of 2021, up 202% from the prior year period (Q1 2020 - negative $5.29/boe) due to the 56% increase in realized revenue per boe combined with a 17% reduction in cash costs per boe.

FUTURE OPERATIONS

On April 1, 2020, the Company closed the East Edson Transaction for consideration including a cash payment of $35 million and the carried interest funding of the drill, complete and tie-in costs for an eight well drilling program. Net proceeds were used to repay a portion of the reserve-based credit facility (the "Credit Facility"). Effective April 1, 2020, Perpetual's syndicate of Credit Facility lenders completed their borrowing base redetermination, reducing the Borrowing Limit from $45 million to $20 million after incorporating the impact of the East Edson Transaction. As at March 31, 2021, $17.2 million was borrowed and $0.9 million of letters of credit were issued on the Credit Facility, and the Company had a net working capital deficiency of $6.7 million.

The Company will require additional financing to fund the net working capital deficiency, and to refinance the upcoming Credit Facility and Term Loan maturities as the available liquidity and operating cash flows are not anticipated to be sufficient. The semi-annual Term Loan interest payment of $1.8 million that was payable December 31, 2020, was deferred by the Company's lender and added to the principal amount owing as a condition of the Credit Facility lenders agreeing to extend the Credit Facility maturity. In January 2021, the Company exchanged its $33.6 million 8.75% unsecured senior notes due January 23, 2022 (the "2022 Senior Notes") for new $33.6 million secured 8.75% third lien senior notes due January 23, 2025 (the "2025 Senior Notes"). Interest on the 2025 Senior Notes may be paid-in-kind at the option of the Company by adding the interest payment to the principal amount owing (a "PIK Interest Payment"). On January 23, 2021, the $1.5 million semi-annual interest payment on the 2025 Senior Notes was paid in-kind, increasing the principal amount outstanding to $35.0 million. The Company intends to satisfy the semi-annual interest payment due July 23, 2021 by making an in-kind payment.

On March 1, 2021, the Borrowing Limit redetermination and maturity date for the Credit Facility was extended from March 1, 2021 to April 30, 2021, and on April 30, 2021, the Borrowing Limit redetermination and maturity date was further extended to June 16, 2021. If not extended by June 16, 2021, the Credit Facility will cease to revolve, and all outstanding advances will be repayable. On April 30, 2021, the maturity date applicable to the Company's $47.8 million second lien Term Loan was extended from May 14, 2021 to June 30, 2021. The extension of the Company's Credit Facility and Term Loan maturities provides additional time to finalize negotiations with its lenders and for the Company to explore opportunities to enhance its liquidity. The Company remains dependent on the support of its lenders to extend approaching maturities. Although cash flows from operations are forecasted to improve for the next twelve-month period, Perpetual is considering other options including the extension of existing debt maturity dates, alternative financing, and the sale or monetization of additional assets.

Due to the facts and circumstances detailed above, coupled with considerable economic instability and uncertainty in the oil and gas industry which negatively impacts operating cash flows and lender and investor sentiment, there remains considerable risk around the Company's ability to address its liquidity shortfalls and upcoming maturities. In addition, there continues to be some uncertainty regarding the Statement of Claim which may restrict the Company's ability to manage its capital structure. As a result, there is material uncertainty surrounding the Company's ability to continue as a going concern that creates significant doubt as to the ability of the Company to meet its obligations as they come due. Therefore, the Company may be unable to realize its assets and discharge its liabilities in the normal course of business.

Perpetual's financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Corporation will be able to realize its assets and discharge its liabilities in the normal course of business. These financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the going concern basis were not appropriate for these financial statements, then adjustments would be necessary in the carrying value of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used. These adjustments could be material.

SEQUOIA LITIGATION UPDATE

On August 3, 2018, PricewaterhouseCoopers Inc. ("PwC") LIT, in its capacity as trustee in bankruptcy of the estate of Sequoia Resources Corp. (the "Trustee"), filed a Statement of Claim against Perpetual and its President and Chief Executive Officer ("CEO") (the "Sequoia Litigation") with respect to the Company's disposition of shallow conventional natural gas assets in Eastern Alberta to an unrelated third party on October 1, 2016 (the "Sequoia Disposition"). On January 13, 2020, the Court of Queen's Bench (the "Court") issued its written decision with respect to the Company's first summary dismissal application, which dismissed and struck all claims against the Company's CEO and all but one of the claims filed against Perpetual. The Court did not find that the test for summary dismissal relating to whether the asset transaction was an arm's length transfer for purposes of section 96(1) of the Bankruptcy and Insolvency Act (the "BIA") was met, on the balance of probabilities. Accordingly, the BIA claim was not dismissed or struck and only that part of the claim could continue against Perpetual. The Trustee filed a

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notice of appeal with the Court of Appeal of Alberta, challenging the entire decision, and Perpetual filed a similar notice of appeal contesting the BIA claim portion of the decision (the "First Appeal").

The First Appeal proceedings were heard on December 10, 2020. On January 25, 2021, the Court of Appeal of Alberta issued their judgement with respect to the First Appeal proceedings, dismissing the appeal filed by Perpetual and granting certain aspects of the appeals filed by the Trustee, thereby reinstating certain elements of the Sequoia Litigation for trial. On March 24, 2021, Perpetual applied for leave to appeal the First Appeal decision to the Supreme Court of Canada.

On February 25, 2020, Perpetual filed a second application to strike and summarily dismiss the BIA claim on the basis that there was no transfer at undervalue, and Sequoia was not insolvent at the time of the asset transaction nor caused to be insolvent by the asset transaction. In July 2020, the Orphan Well Association ("OWA"), certain oil and gas companies, and six municipalities applied to intervene in the second BIA dismissal application proceedings. The OWA and certain oil and gas companies were permitted to intervene (the "Intervenors") in the proceedings which took place on October 1 and 2, 2020. The Intervenors were also permitted to intervene in the First Appeal proceedings. On January 14, 2021, the Court issued its decision, finding that the Trustee could not establish a necessary element of the BIA claim as Sequoia was not insolvent at the time of, nor rendered insolvent by, the Sequoia Disposition. The Court therefore concluded that there is "no merit" to the BIA claim and it summarily dismissed the balance of the Statement of Claim. The Trustee has subsequently appealed the decision (the "Second Appeal").

Management expects that the Company is more likely than not to be completely successful in defending against the Sequoia Litigation such that no damages will be awarded against it, and therefore, no amounts have been accrued as a liability in Perpetual's condensed interim consolidated financial statements.

2021 OUTLOOK

Perpetual's reserve-based Credit Facility maturity was recently extended to June 16, 2021, and its Term Loan matures on June 30, 2021. To preserve liquidity, the Company will continue to defer capital spending until the Credit Facility and Term Loan have been refinanced or maturities extended. The Company will issue its 2021 Outlook once capital spending plans have been approved by the Board of Directors. At East Edson, the eighth and final carried interest well is expected to be drilled, completed and tied-in by the end of the third quarter of 2021.

Production in the second quarter is expected to average 4,900 to 5,100 boe/d, reflecting production from the two (1.0 net) East Edson wells placed on stream in March, offset by natural declines.

Total abandonment and reclamation expenditures of up to $2.4 million are forecast in 2021, with up to $1.2 million to be funded through Alberta's Site Rehabilitation Program ("SRP"). The remaining $1.2 million will more than satisfy the Company's area-based closure spending requirements of $1.0 million.

FIRST QUARTER FINANCIAL AND OPERATING RESULTS

Capital expenditures
	Three months ended March 31,
($ thousands)	2021	2020
Exploration and development	1	5,230
Corporate assets	2	3
Capital expenditures	3	5,233
Exploration and development spending by area
	Three months ended March 31,
($ thousands)	2021	2020
West Central	1	133
Eastern Alberta	-	5,097
Total	1	5,230
Wells drilled by area
	Three months ended March 31,
(gross/net)	2021	2020
West Central	2/1.0	-/-
Eastern Alberta	-/-	4/4.0
Total	2/1.0	4/4.0

Perpetual's exploration and development spending in the first quarter of 2021 was nominal, consistent with guidance released on February 24, 2021 with the Company's 2020 year-end results.

At the 50% owned East Edson property, two (1.0 net) horizontal Wilrich wells were drilled and tied-in to production late in the first quarter of 2021, pursuant to the Purchaser's carried interest drilling commitment. The final carried interest well is expected to be on production late in the third quarter of 2021.

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Acquisitions and Dispositions

During the first quarter of 2021, Perpetual participated for its 50% working interest in the acquisition of certain undeveloped lands, wells, pipelines and gross overriding royalties from a third party in the East Edson core area, for net consideration of $0.6 million. Dispositions during the first quarter of 2021 included the sale of non-operated equipment for net proceeds to Perpetual of $0.2 million.

Expenditures on decommissioning obligations

During the first quarter of 2021, Perpetual executed $0.3 million (Q1 2020 - $0.2 million) of abandonment and reclamation projects, of which $0.2 million was funded by Alberta's Site Rehabilitation Program. SRP funding is presented on the condensed interim consolidated statements of loss and comprehensive loss as "other income". As part of Perpetual's focus on well and pipeline abandonment and reclamation, 10 reclamation certificates were received from the Alberta Energy Regulator ("AER") during the first quarter of 2021 (Q1 2020 - nine reclamation certificates), which will result in the cessation of associated property tax and surface lease expenses. Total abandonment and reclamation expenditures of up to $2.4 million are forecast in 2021, with up to $1.2 million to be funded through the SRP.

Operating netbacks

The following table highlights Perpetual's operating netbacks for the three months ended March 31, 2021 and 2020:

	Three months ended March 31, 2021	Three months ended March 31, 2020
($ thousands)	West Central	Eastern	Total	West Central	Eastern	Total
Total petroleum and natural gas revenue(1)	6,601	4,935	11,536	7,039	3,458	10,497
Realized gains (losses) on derivatives(2)(3)	-	-	(1,374)	-	-	(1,050)
Royalties	(1,665)	(466)	(2,131)	(1,933)	(450)	(2,383)
Production and operating expenses	(996)	(2,290)	(3,286)	(1,674)	(2,494)	(4,168)
Transportation costs	(270)	(420)	(690)	(910)	(360)	(1,270)
Total operating netback	3,670	1,759	4,055	2,522	154	1,626
	Three months ended March 31, 2021	Three months ended March 31, 2020
($/boe)	West Central	Eastern	Total	West Central	Eastern	Total
Boe operating netback
Production (boe/d)	3,748	1,463	5,211	5,771	1,708	7,479
Total petroleum and natural gas revenue(1)	19.57	37.48	24.60	13.40	22.25	15.42
Realized gains (losses) on derivatives(2)(3)	-	-	(2.93)	-	-	(1.54)
Royalties	(4.94)	(3.54)	(4.54)	(3.68)	(2.89)	(3.50)
Production and operating expenses	(2.95)	(17.39)	(7.01)	(3.19)	(16.04)	(6.12)
Transportation costs	(0.80)	(3.19)	(1.47)	(1.73)	(2.32)	(1.87)
Total operating netback	10.88	13.36	8.65	4.80	1.00	2.39

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. Realized gains and losses on financial derivatives are not allocated to the Company's core areas.
3. For the first quarter of 2021, realized losses on derivatives include $1.4 million ($2.93/boe) of losses from the elimination of the Company's market diversification contract obligations for the April 1, 2021 to October 31, 2021 period. There were no modifications to the market diversification contract in the first quarter of 2020.

For the first quarter of 2021, Perpetual's operating netback was $4.1 million ($8.65/boe), up significantly from $1.6 million ($2.39/boe) in the comparative period of 2020. The increase was due primarily to higher reference prices for all products, which caused realized revenue per boe to increase 56% over the prior year period.

On a unit-of-production basis, West Central operating netbacks were $10.88/boe, more than two times higher than the prior year period (Q1 2020 - $4.80/boe). The increase was due primarily to the impact of higher AECO Daily Index prices, in combination with lower production and operating expenses per boe and reduced transportation costs from the elimination of unutilized demand charges at the non-operated East Edson property.

Eastern Alberta operating netbacks were $13.36/boe, more than ten times higher than the prior year period (Q1 2020 - $1.00/boe). The increase was due primarily to WCS average prices of $57.62/bbl which were 68% higher than the prior year period (Q1 2020 - $34.36/bbl), partially offset by physical oil hedging losses of $7.93/bbl and higher costs per boe. Royalties increased with higher realized prices, while production and operating expenses increased 8% as a result of declining production and higher well servicing costs after an extended period of voluntary shut- ins. Transportation costs increased due to higher Ukalta heavy crude oil production which is located further from the sales point than legacy Mannville production.

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