PetroShale : PSH Q3 2021 Financial Statements

Interim Consolidated Statements of Financial Position

(Unaudited)

		As at	As at December
		September 30,
		31, 2020
($ thousands)	Note	2021
Assets
Current assets
Cash and cash equivalents		7,428	2,830
Accounts receivable	3	38,427	17,232
Prepaid expenses and deposits		441	322
Total current assets		46,296	20,384
Restricted cash	14,15	299	300
Right of use assets	4	1,138	1,529
Property, plant and equipment, net	5	499,476	480,664
Total assets		547,209	502,877
Liabilities
Current liabilities
Accounts payable and accrued liabilities	6	53,395	28,327
Financial derivative liability	15	31,361	10,020
Lease liability	4	416	472
Total current liabilities		85,172	38,819
Senior credit facility	7	178,765	221,915
Preferred share obligation	9	-	97,048
Financial derivative liability	15	1,612	-
Lease liability	4	840	1,145
Decommissioning obligation	8	7,537	6,250
Total liabilities		273,926	365,177
Shareholders' equity
Common shares	10	365,904	198,925
Preferred share equity component	9	-	7,510
Contributed surplus	10	7,857	6,968
Accumulated deficit		(100,564)	(74,671)
Accumulated other comprehensive income (loss)		86	(1,032)
Total shareholders' equity		273,283	137,700
Commitments	14
Subsequent events	17
Total liabilities and shareholders' equity		547,209	502,877

See accompanying notes to the interim consolidated financial statements

PetroShale Inc. | 3Q21 | Interim Consolidated Financial Statements

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Interim Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

		Three months ended	Nine months ended
		September 30,	September 30,
($ thousands, except per share amounts)	Note	2021	2020	2021	2020
Revenue
Petroleum and natural gas	11	68,198	32,928	156,457	106,238
Less: Royalties		(12,668)	(5,979)	(28,914)	(19,551)
Petroleum and natural gas, net of royalties		55,530	26,949	127,543	86,687
Realized loss on financial derivatives	15	(14,868)	(3,933)	(32,658)	(1,657)
Unrealized gain (loss) on financial derivatives	15	7,454	3,301	(22,489)	(3,537)
Total revenue		48,116	26,317	72,396	81,493
Expenses
Operating		13,300	8,386	32,164	28,946
Transportation	11	1,987	2,665	5,537	8,734
General and administrative		1,121	1,729	4,012	3,809
Depreciation and depletion	4,5	13,383	15,774	34,327	52,198
Impairment (impairment recovery)	5	-	-	(19,324)	24,000
Finance expense	13	3,184	6,601	13,407	18,857
Share-based compensation	10	187	296	766	668
Loss on modification of preferred shares	9	-	-	27,400	-
Total expenses		33,162	35,451	98,289	137,212
Income (loss) before income taxes		14,954	(9,134)	(25,893)	(55,719)
Deferred income tax recovery		-	-	-	(6,151)
Net income (loss)		14,954	(9,134)	(25,893)	(49,568)
Currency translation adjustment		5,839	(2,552)	1,118	6,849
Comprehensive income (loss)		20,793	(11,686)	(24,775)	(42,719)
Net income (loss) per share:
Basic	12	0.03	(0.05)	(0.06)	(0.26)
Diluted	12	0.03	(0.05)	(0.06)	(0.26)

See accompanying notes to the interim consolidated financial statements

PetroShale Inc. | 3Q21 | Interim Consolidated Financial Statements

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Interim Consolidated Statements of Changes in Shareholders' Equity

(Unaudited)

			Preferred			Accumulated
	Voting		Share			Other
	Common	Share	Equity	Contributed	Accumulated	Comprehensive	Shareholders'
($ thousands, except share amounts)	Shares	Capital	Component	Surplus	Deficit	Income (Loss)	Equity
December 31, 2019	191,185,628	200,630	7,510	6,191	(12,686)	(444)	201,201
Purchase of common shares for
cancellation	(3,865,000)	(1,859)	-	-	-	-	(1,859)
Settlement of share bonus awards	1,036,587	135	-	(237)	-	-	(102)
Share-based compensation, gross	-	-	-	767	-	-	767
Net loss	-	-	-	-	(49,568)	-	(49,568)
Other comprehensive income	-	-	-	-	-	6,849	6,849
September 30, 2020	188,357,215	198,906	7,510	6,721	(62,254)	6,405	157,288
December 31, 2020	188,528,453	198,925	7,510	6,968	(74,671)	(1,032)	137,700
Settlement of share bonus awards	27,787	7	-	(12)	-	-	(5)
Settlement of stock options	200,000	39	-	-	-	-	39
Share-based compensation, gross	-	-	-	901	-	-	901
Loss on modification of preferred shares	-	-	27,400	-	-	-	27,400
Recapitalization Agreements - Conversion
of Preferred Shares	182,275,798	136,933	(34,910)	-	-	-	102,023
Recapitalization Agreements - Rights
Offering	29,252,965	5,900	-	-	-	-	5,900
Recapitalization Agreements - Private
Placements	120,747,035	24,100	-	-	-	-	24,100
Net loss	-	-	-	-	(25,893)	-	(25,893)
Other comprehensive income	-	-	-	-	-	1,118	1,118
September 30, 2021	521,032,038	365,904	-	7,857	(100,564)	86	273,283

See accompanying notes to the interim consolidated financial statements

PetroShale Inc. | 3Q21 | Interim Consolidated Financial Statements

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Interim Consolidated Statements of Cash Flows

(Unaudited)

		Three months ended	Nine months ended
		September 30,	September 30,
($ thousands)	Note	2021	2020	2021	2020
Operating activities
Net income (loss)		14,954	(9,134)	(25,893)	(49,568)
Operating items not affecting cash:
Depreciation and depletion	4,5	13,383	15,774	34,327	52,198
Impairment (impairment recovery)	5	-	-	(19,324)	24,000
Loss on modification of preferred shares	9	-	-	27,400	-
Gain on sale of other assets		-	(19)	-	(19)
Deferred income tax recovery		-	-	-	(6,151)
Unrealized loss (gain) on financial derivatives	15	(7,454)	(3,301)	22,489	3,537
Share-based compensation	10	187	296	766	668
Finance expense	13	3,184	6,601	13,407	18,857
Change in non-cash working capital	16	(370)	(8,726)	1,610	13,143
Cash provided by operating activities		23,884	1,491	54,782	56,665
Investing activities
Additions to property, plant, and equipment	5	(20,386)	(2,559)	(33,099)	(32,454)
Proceeds from sale of other assets		-	23	-	23
Change in non-cash working capital	16	6,534	(9,178)	4,424	(47,380)
Cash used in investing activities		(13,852)	(11,714)	(28,675)	(79,811)
Financing Activities
Proceeds from (repayments to) senior credit	7
facility, net	(10,133)	(1,698)	(40,668)	37,570
Debt issuance costs	7	96	-	(666)	-
Payment of interest and preferred dividends	16	(3,067)	(2,945)	(8,670)	(10,493)
Payment of lease liabilities	4	(135)	(113)	(421)	(353)
Proceeds from Recapitalization Agreements	7,10	-	-	29,271	-
Settlement of share bonus awards	10	-	(71)	(5)	(102)
Proceeds from exercise of stock options	10	-	-	39	-
Purchase of common shares for cancellation	10	-	-	-	(1,859)
Cash (used in) financing activities		(13,239)	(4,827)	(21,120)	24,763
Change in cash and cash equivalents		(3,207)	(15,050)	4,987	1,617
Effect of foreign exchange rate changes		147	610	(389)	865
Cash and cash equivalents, beginning of
period		10,488	17,529	2,830	607
Cash and cash equivalents, end of period		7,428	3,089	7,428	3,089

See accompanying notes to the interim consolidated financial statements

PetroShale Inc. | 3Q21 | Interim Consolidated Financial Statements

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Notes to the Interim Consolidated Financial Statements

As at September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020

Note 1. Description of Business

PetroShale Inc. (the "Company") is an independent oil company focused on the acquisition, development, and production of oil-weighted assets in the Bakken and Three Forks formations in the Williston Basin area of North Dakota. The Company's common shares are listed on the TSX Venture Exchange under the "PSH" ticker symbol. The Company has corporate offices located at 421 - 7th Avenue SW, Suite 3230, Calgary, Alberta T2P 4K9 and at 303 E. 17th Avenue, Suite 940, Denver, CO 80203.

Note 2. Basis of Presentation

Basis of Measurement and Statement of Compliance

These interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") applicable to the preparation of interim financial statements, including International Accounting Standard 34, "Interim Financial Reporting" ("IAS 34"), and have been prepared following the same accounting policies and methods of computation as the annual consolidated financial statements for the year ended December 31, 2020. Income taxes on earnings or loss in the interim periods are accrued using the income tax rate that would be applicable to the expected total annual earnings or loss.

Certain information and disclosures normally included in the notes to the annual consolidated financial statements have been condensed or have been disclosed on an annual basis only. Accordingly, these interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2020, which have been prepared in accordance with IFRS as issued by the IASB.

These interim consolidated financial statements were approved for issuance by the Board of Directors on November 19, 2021.

Use of Estimates, Judgments and Assumptions

The timely preparation of the interim consolidated financial statements in accordance with IFRS requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingencies, if any, as at the date of the interim consolidated financial statements and the reported amounts of revenue and expenses during the period. Actual results may differ from these estimates, judgments, and assumptions.

In early March 2020, the World Health Organization declared the COVID-19 coronavirus outbreak to be a pandemic. Responses to the spread of COVID-19 have resulted in significant disruption to business operations and a significant increase in economic uncertainty, with more volatile commodity prices and currency exchange rates, and a decline in long-term interest rates. These events have resulted in a challenging economic climate in which it is difficult to reliably estimate the length or severity of these developments and their financial impact. The results of the potential economic downturn and any potential resulting direct and indirect impact to the Company has been considered in management's estimates reflected in these financial statements and as described herein; however, there could be a further prospective material impact in future periods.

Note 3. Accounts Receivable

($ thousands)	As at September 30, 2021	As at December 31, 2020
Accounts receivable - petroleum and natural gas	30,768	15,386
Accounts receivable - joint interest billing and other	7,659	1,846
Total	38,427	17,232

PetroShale Inc. | 3Q21 | Interim Consolidated Financial Statements

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