PetroShale : PSH Q3 2021 MD&A

Management's Discussion

and Analysis & Interim

Consolidated Financial

Statements

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

Table of Contents
Management's Discussion and Analysis ........................................................................................	3
Financial and Operational Highlights .............................................................................................	7
Additional Information .................................................................................................................	25
Interim Consolidated Statements of Financial Position................................................................	26
Interim Consolidated Statements of Operations and Comprehensive Income (Loss) ..................	27
Interim Consolidated Statements of Changes in Shareholders' Equity ........................................	28
Interim Consolidated Statements of Cash Flows ..........................................................................	29
Notes to the Interim Consolidated Financial Statements ..............................................................	30

Management's Discussion and Analysis

This Management's Discussion and Analysis (the "MD&A") has been prepared by management and was reviewed and approved by the Board of Directors of PetroShale Inc. ("PetroShale" or the "Company") on November 19, 2021. This MD&A should be read in conjunction with the Company's unaudited interim consolidated financial statements as at September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020, and the audited consolidated financial statements as at and for the years ended December 31, 2020 and 2019. The reader should be aware that the operating results discussed below may not be indicative of future performance.

The financial data presented below has been prepared in accordance with International Financial Reporting Standards ("IFRS"), unless otherwise indicated.

Frequently Used Terms:

Term	Description
Bbl(s)	Barrel(s)
Boe	Barrel(s) of oil equivalent
Bbls/d	Barrels per day
Boepd	Barrels of oil equivalent per day
HH	Henry Hub, reference price paid in US$ for natural gas deliveries
Mcf	Thousand cubic feet
Mmbtu	Million British Thermal Units
Mmbtu/d	Million British Thermal Units per day
NGLs	Natural gas liquids
WTI	West Texas Intermediate, reference price paid in US$ for crude oil of standard grade

Barrel of Oil Equivalent Advisory

Where amounts are expressed on a Boe basis, natural gas volumes have been converted to Boe using a ratio of 6,000 cubic feet of natural gas to one barrel of oil (6 Mcf:1 Bbl). This Boe conversion ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The value ratio between the commodities, based on the price of crude oil compared to natural gas, could be significantly different from the energy equivalency of 6 Mcf: 1 Bbl, and therefore utilizing this conversion ratio may be misleading as an indication of value.

Presentation of Volumes

The Company's reserves have been categorized as Tight Oil, Shale Gas, and Natural Gas Liquids pursuant to National Instrument 51-101,Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). Production volumes and per Boe calculations are presented on a gross working interest basis, before royalty interests, unless otherwise stated.

Functional and Presentation Currency

Amounts in this MD&A are in Canadian dollars, unless otherwise stated, which is the Company's presentation currency. Transactions of the Company's US subsidiary are recorded in US dollars, as this is the primary economic environment in which this subsidiary operates. The US subsidiary has a US dollar functional currency. In translating the financial results from US dollars to Canadian dollars, the Company uses the following method: assets and liabilities are translated at the exchange rate in effect as at the date of the consolidated balance sheet; revenues and expenses are translated at the rate effective at the time of the transaction or the average rate for the period; and changes in shareholders' equity are translated at the rate effective at the time of the transaction. Unrealized gains and losses resulting from the translation to the Canadian dollar presentation currency are included in other comprehensive income.

Non-IFRS Measurements and Changes in Accounting Policies

This MD&A contains the terms "operating netback," "operating netback prior to hedging," "net debt," and "adjusted EBITDA" which are not defined by IFRS and therefore may not be comparable to performance measures presented by others.

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Operating netback represents petroleum and natural gas revenue, plus or minus any realized gain or loss on financial derivatives, less royalties, lease operating costs, workover expense, production taxes and transportation expense. The operating netback is then divided by the working interest production volumes to derive the operating netback on a per Boe basis.

Operating netback prior to hedging represents operating netback prior to any realized gain or loss on financial derivatives.

Net debt represents total liabilities, excluding decommissioning obligation, deferred income tax liability, lease liability and financial derivative liability, less current assets, excluding financial derivative assets.

Adjusted EBITDA represents cash flow provided by operating activities prior to changes in non-cash working capital.

The Company believes that adjusted EBITDA provides useful information to the reader in that it measures the Company's ability to generate funds to service its debt and other obligations and to fund its operations, without the impact of changes in non-cash working capital which can vary based solely on timing of settlement of accounts receivable and accounts payable. Management believes that in addition to net income (loss) and cash flow provided by operating activities, operating netback and adjusted EBITDA are useful supplemental measures as they assist in the determination of the Company's operating performance, leverage, and liquidity. Operating netback is commonly used by investors to assess performance of oil and gas properties and the possible impact of future commodity price changes on energy producers. Investors should be cautioned, however, that these measures should not be construed as an alternative to either net income (loss) or cash flow from operating activities, which are determined in accordance with IFRS, as indicators of the Company's performance.

The reconciliation between cash flow from operating activities, as defined by IFRS, and adjusted EBITDA, as defined herein, is as follows:

	Three months ended	Nine months ended
	September 30,	September 30,
($ thousands)	2021	2020	2021	2020
Cash flow provided by operating activities	23,884	1,491	54,782	56,665
Change in non-cash working capital	370	8,726	(1,610)	(13,143)
Adjusted EBITDA	24,254	10,217	53,172	43,522

Net debt, as defined above, is calculated as follows:
	As at September	As at December	As at September
($ thousands)	30, 2021	31, 2020	30, 2020
Total liabilities	273,926	365,177	383,216
Decommissioning obligation	(7,537)	(6,250)	(7,224)
Financial derivative liability	(32,973)	(10,020)	(3,502)
Lease liability	(1,256)	(1,617)	(1,801)
Total current assets	(46,296)	(20,384)	(20,930)
Net Debt	185,864	326,906	349,759

The calculation of operating netback and operating netback prior to hedging is found elsewhere within this MD&A.

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Forward Looking Statements

This MD&A contains forward looking statements and forward-looking information (collectively, "forward looking statements") within the meaning of applicable Canadian securities laws. Management's assessment of future plans and operations, the Company's plans, focus and strategy, the expected number of wells to be drilled in the fourth quarter of 2021, expectation that the Company will have a smaller hedging loss per Boe in the fourth quarter of 2021 and the reasons and assumptions therefor, expectation of a smaller hedging loss, in absolute dollar terms and on a per Boe basis in 2022 and the reasons therefor, estimated annual average production range for 2021, 2021 annual capital expenditures and expectation that such expenditures will result in additional production in early 2022, capital expenditures will be funded substantially within operation cash flow for 2021, expectation that the Company will significantly enhance free cash flow in 2022, timing of hedges to expire, the Company's derivative instruments, the terms thereof and the anticipated benefits, anticipated timing to complete wells, the term out and maturity dates of the senior credit facility, methods the Company will use to monitor cash flow and terms of contractual obligations and other commercial commitments, may constitute forward looking statements and necessarily involve risks including, without limitation, risks associated with oil and gas development, exploitation, production, marketing and transportation of oil, natural gas, and natural gas liquids, loss of markets, impact of the COVID-19 pandemic and the ability of the Company to carry on operations as contemplated in light of the COVID-19 pandemic, determinations by OPEC and other countries as to production levels, volatility of commodity prices, currency fluctuations, inability to transport or process natural gas at economic rates or at all, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services at reasonable costs or at all, unforeseen challenges or circumstances in drilling, equipping and completing wells leading to higher capital costs than anticipated, incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions or drilling operations, risks associated with PetroShale's non-operated status on some of its properties, production delays resulting from an inability to obtain required regulatory approvals or services, unfavorable weather, or the tie-in of associated natural gas production and an inability to access sufficient capital from internal and external sources.

The Company's actual results may differ materially from those expressed in, or implied by, the forward-looking statements. Forward looking statements or information is based on several factors and assumptions which have been used to develop such statements and information, but which may prove to be incorrect. Although PetroShale believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward looking statements because the Company can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified in this document and other documents filed by the Company, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic, regulatory and political environment in which PetroShale operates; the impact (and the duration thereof) that the COVID-19 pandemic will have on (i) the demand for tight oil, shale gas and NGLs, (ii) our supply chain, including our ability to obtain the equipment and services we require, and (iii) our ability to produce, transport and/or sell our tight oil, shale gas and NGLs; the ability of the Company to obtain and retain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the Company and the operators of its non-operated properties to operate in the field in a safe, efficient, compliant and effective manner; PetroShale's ability to obtain financing on acceptable terms or at all; changes in the Company's credit facilities including changes to borrowing base and maturity dates; receipt of regulatory approvals; field production rates and decline rates; the ability of the Company, and the operators of its non-operated properties, to tie-in associated natural gas production in an economic manner, or at all; the ability to manage lease operating and transportation costs; the ability to replace and expand oil and natural gas reserves through acquisition, development or exploration; the ability to convert non-producing proved and undeveloped or probable oil and natural gas reserves to producing reserves; the timing and costs of pipeline, storage and facility construction and expansion; the ability of the Company to secure adequate transportation for commodity production; future petroleum and natural gas prices; differentials between benchmark commodity prices and those received by the Company for its production in the field; currency exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Company operates; PetroShale's ability to successfully drill, complete and commence production at commercial rates from its operated wells; and PetroShale's ability, or those of the operators of its non-operated properties, to successfully market its petroleum and natural gas products. Readers are cautioned that the foregoing list of factors is not exhaustive.

Additional information on these and other factors that could affect the Company's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the System for Electronic Document Analysis and Retrieval ("SEDAR") website (www.sedar.com) or at the Company's website (www.petroshaleinc.com). Furthermore, the forward looking statements contained in this document are made as at the date of this document and the Company does not undertake any obligation to update publicly or to revise any of the included forward looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

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