Southern Energy : Q3 2021 MD&A

Management's Discussion and Analysis of

SOUTHERN ENERGY CORP.

For the three and nine months ended September 30, 2021 and 2020 (Canadian Dollars)

Southern Energy Corp

Management's Discussion and Analysis

For the three and nine months ended September 30, 2021 and 2020

Management's Discussion and Analysis

The following Management's Discussion and Analysis ("MD&A") of financial results is provided by the management of Southern Energy Corp. ("Southern" or the "Company") and should be read in conjunction with the Company's unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2021 and 2020 (the "Financial Statements"), which have been prepared in accordance with IAS 34 - Interim Financial Reporting of the International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board.

The Company's presentation and functional currency is the Canadian dollar. The functional currency of the Company's United States ("US") subsidiaries is the US dollar, and its results and balance sheet items are translated to Canadian dollars for the purposes of this MD&A and the Financial Statements, in accordance with the Company's foreign currency translation accounting policy.

Throughout this MD&A, "crude oil" or "oil" refers to light and medium crude oil product types as defined by National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). References to "NGLs" throughout this MD&A comprise pentane, butane, propane, and ethane, being all NGLs as defined by NI 51-101. References to "natural gas" throughout this MD&A refers to conventional natural gas as defined by NI 51-101.

This MD&A is dated November 29, 2021.

About Southern

Southern is a natural gas and light oil producer with assets in Mississippi and Alabama characterized by a stable, low-decline production base, a significant low-risk drilling inventory and strategic access to the best commodity pricing in North America. Southern has a primary focus on acquiring and developing conventional natural gas and light oil resources in the southeast Gulf States of Mississippi, Louisiana, and East Texas (the "Southeast Gulf States"). Southern's mission is to build a socially responsible and environmentally conscious light oil and natural gas company in the Southeast Gulf States. In these areas, Southern has access to major pipelines, significant Company-owned infrastructure, year-round access to drill, and the ability to shift focus between natural gas or crude oil development as commodity prices fluctuate; all factors that contribute to mitigating corporate risk. Southern's goal is to continually grow shareholder value through strategic, accretive acquisitions and organic growth opportunities.

The Company's management team has a long and successful history of working together as a team and have created significant shareholder value through accretive acquisitions, optimizations of existing oil and natural gas fields and the utilization of re-development strategies utilizing horizontal drilling and multistaged fracture completion techniques. Southern's head office is located in Calgary, Alberta, Canada.

Corporate Update

On August 10, 2021, Southern was admitted to the AIM market of the London Stock Exchange plc ("AIM") and the Company's common shares ("Common Shares") began trading on August 10, 2021, under the symbol "SOUC". The dual listing has already benefited Southern to pursue its strategic objective of growth

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Southern Energy Corp

Management's Discussion and Analysis

For the three and nine months ended September 30, 2021 and 2020

through acquisitions and organic opportunities by taking advantage of AIM's liquidity and access to a broader range of global investors. On November 24, 2021, Southern closed an equity financing for aggregate gross proceeds of $12.7 million through the issuance of a total of 254.3 million Common Shares (the "Offering"), of which $6.7 million was raised pursuant to a private placement of 135.1 million Common Shares to UK investors at a price of 2.94 pence per Common Share and the remaining $6.0 million was raised pursuant to a short form prospectus offering of 119.2 million Common Shares at a price of $0.05 per Common Share.

Southern intends to use the proceeds from the Offering to drill up to three horizontal Selma Chalk wells in the Gwinville gas field and for working capital and general corporate purposes. This is expected to provide the business with additional near-term cash flow generation.

THIRD QUARTER HIGHLIGHTS

• $1.7 million of Adjusted Funds Flow from Operations (see "Reader Advisories - Non-IFRS Measures") in Q3 2021, excluding $1.9 million of one-time expenses related to AIM listing (see "Corporate Update", above), a 51% increase from the same period in 2020
• Average production of 12,237 Mcfe/d (92% natural gas, see "Production Summary" below for a breakdown by product type) during Q3 2021, a 7% decrease from the same period in 2020
• Petroleum and natural gas sales were $6.6 million in Q3 2021, an increase of 85% from the same period in 2020
• As at September 30, 2021 Net Debt (see "Reader Advisories - Non-IFRS Measures") of $19.2 million which is a reduction of $10.1 million or 35% from December 31, 2020
• Net earnings of $5.5 million in Q3 2021 ($0.02 per share - basic) compared to a net loss of $3.0 million in Q3 2020
• Average realized oil and natural gas prices for Q3 2021 of $85.50/bbl and $5.10/Mcf, respectively, reflecting the benefit of strategic access to premium-priced US sales hubs
• Completed a series of low-cost well recompletions and workovers beginning in Q3 and carrying into early Q4 2021

o Work program had an overall cost of approximately $1.0 million ($0.9 million in Q3 2021) and added approximately 1,250 Mcfe/d1 (208 boe/d) of production (approximately 80% natural gas)

o At current strip pricing, the program is expected to payout in approximately 4 - 5 months and add more than $1.6 million of cash flow from operating activities in 2022 after payout

 In August 2021, successfully completed admission of its entire issued share capital to trading on

1 Comprised of 39 bbl/d light and medium crude oil, 2 bbl/d NGLs and 1,000 mcf/d conventional natural gas

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Southern Energy Corp

Management's Discussion and Analysis

For the three and nine months ended September 30, 2021 and 2020

the AIM market of the London Stock Exchange plc

Summary of Financial Information

	Three months ended September 30,	Nine months ended September 30,
(000s, except $ per share)		2021		2020			2021		2020
Petroleum and natural gas sales	$	6,550	$	3,537		$	16,022	$	9,412
Net earnings (loss)		5,549		(2,958)			8,659		(15,045)
Net earnings (loss) per share
Basic		0.02		(0.01)			0.03		(0.07)
Fully diluted		0.01		(0.01)			0.02		(0.07)
Adjusted funds flow from operations (1)		(233)		1,136			1,798		2,564
Basic		(0.00)		0.01			0.01		0.01
Fully diluted		(0.00)		0.01			0.01		0.01
Capital expenditures		900		78			1,016		119
Weighted average shares outstanding
Basic		360,703		220,770			298,455		220,770
Fully diluted		517,550		220,770			399,169		220,770
As at period end
Basic common shares outstanding		361,297		220,770			361,297		220,770
Total assets		47,102		36,290			47,102		36,290
Non-current liabilities		17,176		12,583			17,176		12,583
Net debt (1)	$	19,246	$	30,719		$	19,169	$	30,719
Notes:
(1) See "Reader Advisories - Non-IFRS Measures".
Production Summary
			Three months ended		Nine months ended
			September 30,			September 30,
			2021	2020		2021		2020
Daily production from operations
Oil (bbl/d)			149		153		147		138
NGLs (bbl/d)			23		27		24		19
Natural gas (Mcf/d)			11,205	12,135		11,516		11,660
Total production (Mcfe/d)			12,237	13,215		12,542		12,602
Percentage of natural gas			92%		92%		92%		93%

Production averaged 12,237 Mcfe/d in Q3 2021 and 12,542 Mcfe/d for the first nine months of 2021, a decrease of 7% and 1%, respectively, from the same periods in 2020, primarily due to the Mechanicsburg assets coming back online in Q3 2020 after being offline for the majority of Q2 2020 as a result of a third- party pipeline force majeure event and natural declines.

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Southern Energy Corp

Management's Discussion and Analysis

For the three and nine months ended September 30, 2021 and 2020

Petroleum and Natural Gas Revenues and Pricing Summary

		Three months ended		Nine months ended
			September 30,			September 30,
		2021		2020		2021		2020
(000s)
Oil	$	1,172	$	709	$	3,136	$	1,923
NGLs		124		45		321		112
Natural gas		5,254		2,783		12,565		7,377
Total revenue	$	6,550	$	3,537	$	16,022	$	9,412

Realized commodity prices

Oil ($/bbl)

NGLs ($/bbl)

Natural gas ($/Mcf)

Combined ($/Mcfe)

Benchmark prices Crude oil - LLS ($/bbl) Crude oil - LLS (US$/bbl) Crude oil - WTI ($/bbl) Crude oil - WTI (US$/bbl) Natural gas - HH ($/MMbtu) Natural gas - HH (US$/MMbtu) Exchange rate ($/US$)

	Three months ended		Nine months ended
		September 30,			September 30,
	2021		2020		2021		2020
$	85.50	$	50.37	$	78.14	$	50.86
	58.60		18.12		48.99		21.51
	5.10		2.49		4.00		2.31
$	5.82	$	2.91	$	4.68	$	2.73
$	90.00	$	56.53	$	83.19	$	53.86
	71.57		42.42		66.50		40.17
	88.72		54.52		81.06		51.40
	70.56		40.92		64.82		38.34
	5.44		2.84		4.18		2.59
	4.32		2.14		3.34		1.92
$	1.26	$	1.33	$	1.25	$	1.35

Southern sells the majority of its oil and natural gas at the wellhead. Southern receives Louisiana Light Sweet ("LLS") pricing (less adjustments for proximity and quality) for its oil, and Henry Hub ("HH") pricing (less minor proximity adjustments) for its natural gas.

In Q3 2021 Southern realized an oil price of $85.50/bbl which was an increase of 70% from the same period in 2020. For the first nine months of 2021, Southern's realized oil price increased 54% compared to the same period in 2020. Oil prices continue to benefit from an improving global economy that was encouraged by the continued roll-out of COVID-19 vaccinations and OPEC+ largely maintaining production restrictions. The LLS premium to West Texas Intermediate ("WTI") has remained quite tight in 2021. The LLS premium to WTI averaged US$1.01/bbl in Q3 2021, compared to US$1.50/bbl in Q3 2020.

Southern realized a price of $5.10/Mcf in Q3 2021, a 105% increase from Q3 2020. During the first nine months of 2021, Southern realized a price of $4.00/Mcf, a 73% increase from the same period in 2020. Continued strong North American demand in Q3 2021, combined with low inventory levels globally, leading to strong demand for US liquefied natural gas exports, helped to increase HH gas prices 45% from Q2 2021. Southern believes the robust LNG economics combined with fewer wells being drilled as

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