Zenith Energy : AMENDED – Annual Audited Report 2023 FY

Zenith Energy Ltd.

Amended Annual Report & Financial Statements

For the Year Ended March 31, 2023

ZENITH ENERGY LTD.

ANNUAL REPORT AND FINANCIAL STATEMENTS

AMENDED

YEAR ENDED MARCH 31, 2023

Zenith Energy Ltd.

Amended Annual Report & Financial Statements

For the Year Ended March 31, 2023

CONTENTS

3	COMPANY INFORMATION
4	CHAIRMAN'S STATEMENT
7	CEO STATEMENT
8	BOARD OF DIRECTORS AND SENIOR MANAGEMENT
10	DIRECTORS' REPORT
21	GOVERNANCE REPORT
26	INDEPENDENT AUDITOR'S REPORT
31	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
32	CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
33	CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
34	CONSOLIDATED STATEMENTS OF CASH FLOWS
35	NOTES TO THE FINANCIAL STATEMENTS

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Zenith Energy Ltd.

Annual Report & Financial Statements

For the Year Ended March 31, 2023

COMPANY INFORMATION

Directors

Dr. Jose Ramon Lopez-Portillo (Chairman and Non-Executive Director) Andrea Cattaneo (Chief Executive Officer & President, Executive Director) Luca Benedetto (Chief Financial Officer & Executive Director)

Dario Ezio Sodero (Non-Executive Director)

Sergey Borovskiy (Non-Executive Director)

Registered Office

Suite 2400, 745 Thurlow Street, Vancouver BC V6E 0C5, Canada

Head Office

Suite 4000, 421 - 7th Avenue SW, Calgary, T2P 4K9, Alberta, Canada Telephone Number: [phone]

Registered Corporation Number

BC0803216

Website

www.zenithenergy.ca

Independent Auditor

RPG Crouch Chapman LLP

40 Gracechurch Street

London, EC3V 0BT, United Kingdom

Principal Bankers

Barclays Bank PLC

1 Churchill Place

Canary Wharf

London, E14 5HP, United Kingdom

Competent Person

Chapman Petroleum Engineering Ltd 1122 4th Street S.W., Suite 700 Calgary Alberta T2R 1M1, Canada

Depositary and Registrar Computershare Trust Company of Canada 100 University Avenue, 8th Floor Toronto, ON M5J 2Y1, Canada

Computershare Investor Services Plc

The Pavilions Bridgwater Road

Bristol, BS99 6ZZ, United Kingdom

DNB Bank ASA

Dronning Eufemias Gate 30,

0191 Oslo, Norway

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Zenith Energy Ltd.

Annual Report & Financial Statements

For the Year Ended March 31, 2023

CHAIRMAN'S STATEMENT

In the 2023 financial the Group has continued to implement its African development strategy, focused on the acquisition of prospective energy production and development assets. The notable decline in oil prices registered during 2020 because of the COVID-19 pandemic has had a positive impact on the Group's ability to negotiate favourable commercial terms for the acquisition of new assets.

On June 24, 2022, the Company provided an update on operational activities in the Robbana concession ("Robbana"), located onshore Tunisia, Robbana-1 well ("ROB-1"), confirming that it had successfully been returned to production following the installation of a new packer supplied by Weatherford and the previous determination of major corrosion in the casing being the cause of water ingress in the wellbore.

ROB-1 is currently producing at a rate of approximately 30 barrels of oil per day ("BOPD") with the installation of the recently acquired new Weatherford sucker pump. It is the Company's expectation that a production rate of between 40-50 BOPD might be achieved once the well is given additional time to stabilise.

The Company is of the view, in consideration of the well's age and condition, that any significant change in the production parameters would risk compromising ROB-1's structural integrity and long-term productivity.

On September 22, 2022, the Company announced that it presented an offer to the relevant Ministry in the Republic of Benin for the award of an initial nine-year licence to operate Block 1 containing the Sèmè oilfield, offshore Benin ("Block-1").

About Block-1

• A proven oilfield, with significant unexploited potential, having estimated recoverable reserves (P2) of 22- 28 million barrels of oil and 428 billion cubic feet of natural gas (Kerr McGee 2005).
• Has produced a reported 22 million barrels of oil to date, with last production having taken place in 1998.
• Historical recovery factor of 22%, leaving significant margin for improvement of the recovery factor utilising modern completion techniques, horizontal drilling, and improved 3D seismic.
• Last produced at a rate of approximately 2,000 barrels of oil per day.
• 23 wells have been drilled in Block-1, with the last well having been drilled in 2009 by South Atlantic Petroleum (SAPETRO). This well discovered oil, however, due to the prevailing oil price at the time (approx. US$30) it was deemed uncommercial.
• Located in shallow water (30m) offshore with onshore facilities and tank farm for processing of oil production.
  • Discovered in 1967 by Union Oil, Block-1 covers 551 sq. km with over 355 sq. km of recent 3D seismic data.
• Significant development and exploration potential in the emerging Syn-Rift play extending from neighbouring Nigeria.
• Production facilities comprised of three platforms, the last being installed in 2014-2015.On January 3, 2023, the Company announced that a company in which it holds a 49% interest, Zenith Energy Netherlands B.V. ("Zenith Netherlands") has entered into a share purchase agreement ("SPA") with OMV Exploration and Production GmbH ("OMV" or the "Seller") to acquire 100% of the outstanding share capital of OMV (Yemen Block S 2) Exploration GmbH, OMV Jardan Block 3 Upstream GmbH and OMV Block 70 Upstream GmbH (collectively "OMV Yemen"), which are all companies incorporated and existing under the laws of Austria.

On January 10, 2023, the Company announced that the Ministry of Water and Mines of the Republic of Benin has awarded Zenith Energy an exclusivity (the "Exclusivity") for a period of three months to negotiate and finalise the terms of a Production Sharing Contract ("PSC") for Block 1 containing the Sèmè oilfield, offshore Benin ("Block-1").

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Zenith Energy Ltd.

Annual Report & Financial Statements

For the Year Ended March 31, 2023

On May 26, 2023, the Company provided an update on its recent corporate development activities.

The Company's management is currently reviewing a selection of oil production and development assets located in Texas, Oklahoma, and California in the United States of America (the "Potential Acquisitions"). If any of these Potential Acquisitions are completed, the Company will make further announcements, and at this stage, no terms are finalised.

The Potential Acquisitions are all located in prolific oil and gas basins with proven petroleum systems.

It is expected that, if the Potential Acquisitions are completed, a production rate in the range of approximately 300-500 barrels of oil per day might be achieved upon completion.

Drilling activities can be performed at relatively low-cost and without significant delay in view of the ready availability of equipment. The average total depth of production wells in the project areas of the Potential Acquisitions ranges between 500 to 2,000 metres.

On June 2, 2023, the Company announced that it has entered into an agreement (the "Agreement") with Stateside Energy LLC, a company registered under the laws of the State of Oklahoma, United States of America (hereinafter "Stateside") to acquire and operate a portfolio of oil production and development licences in Oklahoma, as well as certain other States in the USA (the "Targets").

Key Terms

• Stateside is an oil and gas operator with a portfolio of seven oil wells in the State of Oklahoma.
• Under the Agreement, Zenith will incorporate a wholly owned special purpose vehicle in the United States of America for the purpose of acquiring oil wells and licence blocks in the State of Oklahoma and certain other States in USA (the "Newco").
• Stateside will make available its personnel in Oklahoma for the purpose of assisting the business development of Newco.
• Zenith will consider providing Stateside with the following incentive bonus structure based upon the Newco reaching the following incremental average production targets: 75, 125, 175 and 225 barrels of oil per day (the "Milestones").
• Upon the achievement of each Milestone Zenith will consider issuing Stateside certain amounts payable by way of issuing equity securities (the "Incentive Bonus Payments").
• Stateside agrees to sell its oil production wells to Newco, subject to the completion of a satisfactory due diligence by Zenith, for a nominal consideration.
• It is planned that the Newco will negotiate the acquisition of approximately 70 oil production wells located on property leases totalling approximately 3,200 acres located in the State of Oklahoma for sale by a third- party identified by Stateside (the "Potential Vendor").
• The Potential Vendor has indicated it also intends to sell certain oilfield service equipment including, inter alia, a pulling unit and a tank truck, for an amount to be agreed.
• Zenith has agreed to invest approximately US$2 million, subject to the completion of a satisfactory due diligence, for the acquisition of Targets to be introduced by Stateside.

The Company formally begin its expansion in the USA by way of the Agreement with Stateside. The advantages of operating in North America are readily apparent, and primarily include the speed of execution for transactions, with the resulting delivery of potential immediate oil production to Zenith, and the relatively conspicuous lack of bureaucratic delays and other detrimental impediments to corporate development seen elsewhere.

The Company is currently negotiating the potential acquisition of various oil production assets with significant development potential across the USA. We look forward with enthusiasm to potentially completing these in an expeditious manner, subject to rigorous due diligence, by leveraging one of our strengths: deal-making.

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Zenith Energy Ltd.

Annual Report & Financial Statements

For the Year Ended March 31, 2023

The Board is fully confident in its view that the Group's expansion will, if successfully executed, enable Zenith to create substantial value for all its stakeholders.

Production activities

During the financial year ended March 31, 2023, the Group:

1. The Group generated revenues from oil and natural gas of CAD$ 13,159k (2022 - CAD$8,239k)
2. As of March 31, 2023, inventory consists of CAD$6,448k (2022 - 5,690k) related to 116,391 barrels of crude oil that has been produced but not yet sold in Tunisia.
3. The Company sold 177,246 mcf of natural gas from its Italian assets, as compared to 131,556 mcf of natural gas in the 2022 similar period.

Financing

The Company issued equity and financing instruments during the course of the financial year ended March 31, 2023, raising a combined net total of CAD$19.1m (March 31, 2022 - CAD$15.6m) to finance the Group's development strategies.

During the year, 437.728.088 new common shares were issued, as detailed in the financial statements (note 16).

To fund the acquisition of assets, and their development, to avoid an excessive dilution of its share capital the Company issued unsecured, multi-currency (GBP, Euro, CHF and USD) Medium Term Notes at par value (the "Notes"):

As of March 31, 2023, the Company sold Notes for an aggregate total amount of CAD$ 25,246,994 (March 31, 2022, comparative aggregate amount CAD$ 10,360,396).

Financial Results

The Group recorded an after-tax loss of CAD$ 12,827k for the year ended March 31, 2023, compared to an after-tax profit of CAD$64,437k for the year ended March 31, 2022. This result was negatively impacted by the non-recurrent administrative expenses related to the negotiation for the acquisitions and non-cash items.

The group production costs for the year were CAD$ 5,750k (2022 - CAD$2,217k).

Finance expense for the year was CAD$ 3,161k (2022 - CAD$2,278k).

Cash balances of CAD$ 1,442k (2022 - CAD$1,153k) were held at the end of the financial year.

Total equity attributable to the ordinary shareholders of the Group was CAD$ 91,652k as of March 31, 2023, (2022 - CAD$103,090k).

Dr. José Ramón López-Portillo

Non- Executive Chairman

March 29, 2024

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Zenith Energy Ltd.

Annual Report & Financial Statements

For the Year Ended March 31, 2023

CEO STATEMENT

The 2023 financial year ("2023 FY") of Zenith Energy ("Zenith" or the "Company") has seen the development of several successful business development acquisitions made during the previous financial year.

Zenith's Italian energy production portfolio, involving the generation of electricity using low-grade natural gas, has recorded even stronger levels of profitability, with total revenue of approximately CAD$ 4.4M during the year. Similarly, the Company's oil production activities in Tunisia have generated revenue of approximately CAD$ 8.8M.

The Company has energetically continued to implement its ambitious growth agenda with business development initiatives underway in the Republic of Benin, where the Company has submitted an offer for the award of an initial nine-year licence to operate Block 1, containing the Sèmè oilfield, the largest and most prospective oilfield in the country. Similarly, in the USA, the Company has embarked upon an acquisition campaign targeting onshore oil production assets with undeveloped oil and gas production potential.

During the 2023 FY, the Company has signed a share purchase agreement with OMV Exploration and Production GmbH ("OMV") to acquire the entirety of its production and exploration portfolio in the Republic of Yemen, holding a near-term production potential of approx. 15,000 barrels of oil per day. The Company will be providing further updates as appropriate in agreement with OMV.

I am pleased to confirm that the legal claim launched by Zenith's fully owned subsidiary in the Republic of the Congo, Anglo African Oil & Gas Congo S.A.U ("AAOGC"), is progressing in the Paris Commerical Court. During the 2023 FY we announced that the Company had increased the claimed amount for performance failures by SMP during drilling activities to US$9 million, in consideration of the significant commercial damages suffered by AAOGC, specifically the impossibility to begin production activities, as a direct result.

AAOGC is also owed an amount of approximately US$5.3 plus accrued interest by Société Nationale des Pétroles du Congo ("SNPC"), the national oil company of the Republic of the Congo. This amount remains outstanding, and the Company has engaged legal representatives who will be taking the necessary actions to fully recover this amount.

As a management team, we proactively seek opportunities to build a balanced portfolio which creates shareholder value. Our strategic focus is to pursue energy production opportunities through the acquisition of proven revenue generating oil, gas and electricity production assets, as well as low-risk exploration activities in assets with existing production.

As always, I am grateful to our shareholders for their support and belief in the Company's development activities. We are fully conscious of the fact that the delivery of our progress has not been within the expected timeline. This has been due to factors beyond our control in certain jurisdictions where we have sought to establish ourselves in good faith, such as the Republic of the Congo and Tunisia. It is for this reason, in the spirit of the prudent long-term development of Zenith, that we have now chosen to concentrate the revenue generating core of the Company's activities in the USA, a country where the rule of law is respected and enforced. The Board and the management team have unchanged confidence in the Company's ability to potentially deliver transformational value to shareholders as it successfully delivers on its objectives.

Sincerely,

Andrea Cattaneo, Chief Executive Officer

March 29, 2024

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Zenith Energy Ltd.

Amended Annual Report & Financial Statements

For the Year Ended March 31, 2023

BOARD OF DIRECTORS AND SENIOR MANAGEMENT

Directors

Dr. Jose Ramon Lopez-Portillo(Chairman and Non-Executive Director)

Mr. Lopez-Portillo has been managing Director and then Chairman of the Board since 24 September 2007. He is an economist with a large network of business contacts worldwide, and who previously served as a Mexican Permanent Representative in Rome, Italy. Mr. Lopez- Portillo is a leading researcher in the energy security of Mexico and acts as Deputy Minister at Mexico's Planning and Budget Secretariat. Mr. Lopez-Portillo holds a Doctorate degree in Political Science and International Relations from the University of Oxford.

Andrea Cattaneo (Director, President and CEO)

Mr. Cattaneo has been a Director of the Company since 9 December 2008 and served as President and CEO of the Group since 2009. He is an energy specialist with a focus on emerging countries and has 30 years' experience in advising government in financial, industrial, and energy-related matters. Mr. Cattaneo has strong expertise and experience in structuring and negotiating contracts in the international markets, specifically the oil industry. He also has significant experience in former socialist countries, having arranged the first US$ loan to Vietnam, the then third poorest country in the world at the time, towards the beginning of his financial career in 1985. Mr. Cattaneo holds an undergraduate degree in Economics from the University of Genoa and a postgraduate degree in Taxation Law from the University of Bologna. He is a former member of the Business Advisory Council to the Great Tumen Initiative, a United Nations project for regional economic cooperation in Northeast Asia. He is one of Zenith's founders.

Luca Benedetto (Chief Financial Officer & Director)

Luca Benedetto is an Italian national, trained in Italy as a registered accountant with further education in IFRS accounting and consolidation at IPSOA Milan. He has more than twenty five years of experience in accounting, auditing, and financial administration. Mr. Benedetto began his professional career as an accountant and computer programmer responsible for financial software development and worked for the Italian division of IBM as an internal auditor and accountant as well as providing staff training in these aforementioned fields. He also served for seven years as a financial and administrative officer in a well-established Italian company specialising in the construction of fuel and water storage tanks.

He joined the Zenith Energy Ltd. group in 2013 as Chief Financial Officer of the Group's Italian subsidiary, Canoel Italia S.r.l., and has since progressed to also hold the position of Group Financial Controller. In this capacity he has been directly involved in the monitoring of business performance, cash flow management, budgetary oversight, accounts team supervision, accounts preparation and strategic planning. Since January 2016 he has also been responsible for the compiling and reviewing of the quarterly Consolidated Financial Statements and Management's Discussion and Analysis of the Group.

Dario Ezio Sodero (Non-Executive Director and Chairman of the Audit Committee)

Mr. Sodero was appointed to the Board on 24 June 2009. As an experienced energy industry executive with 47 years of experience in North America, the Sub-Arctic, North Africa and the Middle East, Mr. Sodero has strong geological, exploration and technical expertise. Mr. Sodero has formerly acted as director and executive of several other TSX- and TSXV-listed exploration and production companies. Mr. Sodero holds a Doctorate degree in Geology from the University of Turin, Italy.

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Zenith Energy Ltd.

Annual Report & Financial Statements

For the Year Ended March 31, 2023

Sergey Borovskiy (Non-Executive Director)

Sergey is an accomplished executive with a track record in investment banking, M&A projects, cross-border transactions. Sergey offers over 30 years of China and Hong Kong experience in founding and developing companies in a multilingual and multicultural environment. He is fluent in Russian, English and Mandarin. Sergey studied in both China and Russia, he has a degree in Economics and an Executive MBA.

He has served as Non-Executive Director of Zenith Energy since 2017. He has also held, or currently holds, the following roles:

• Since 1993 Chairman of SCHI Group, International trading, investment and manufacturing holding.
• Since 2002 Board Member of National Agency for Direct Investment (NAPI).
• During 2017 - 2019, he was CEO of Sanju Environmental Protection (Hong Kong) Limited, overseeing all international projects of Sanju Group.
• 2017 - 2018 Executive Director at Jutal Offshore Oil Services (public HK company).
• Since 2020 VP of Kaisun Holdings (public HK investment holding).
• Since 2021 Head of ITI Capital Asia, an international investment company offering a variety of investment services, capital market opportunities, including pre-IPO investment and complex financial products.

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Zenith Energy Ltd.

Annual Report & Financial Statements

For the Year Ended March 31, 2023

DIRECTORS' REPORT

The Directors present their Annual Report and Financial Statements of the Group for the year ended March 31, 2023.

In addition to what was fully disclosed in the Chairman Statement, on February 28, 2023, the Company announced that it had completed a fundraise in the United Kingdom (the "UK Financing"), and in Norway (the "Norwegian Financing", collectively, the "Financings").

The Financings had attracted the participation of existing institutional investors, including Premier Miton Investors, as well as Directors and employees of the Company, to raise an aggregate total amount of approximately £2,300,000 or NOK 28,484,580, resulting in the issuance of 437,728,088 new common shares.

Issue Price

The issue price of the Financings was £0.0054 for the UK Financing and NOK 0.067 for the Norwegian Financing.

Use of Proceeds

The proceeds of the Financings were used to provide additional funding for the following:

• Negotiation and planned finalisation of a Production Sharing Contract for Block 1, Sèmè oilfield in Benin
• Technical and managerial appointments in view of planned operations in Yemen
• Additional funding for the development of Zenith's Tunisian oil and Italian natural gas production portfolio
• Business development activities in Africa and the Middle East
• General working capital

Norwegian Financing

Zenith issued a total of 378,931,792 new common shares of no-par value in the capital of the Company ("Norwegian Financing Common Shares"), to be admitted to trading on the Euronext Growth Oslo (the "Norwegian Financing Admission") raising gross proceeds of NOK 25,388,430 (approximately £2,050,000).

An application for the Norwegian Financing Common Shares to also be listed on the standard segment of the FCA Official List and to be admitted for trading on the London Stock Exchange Main Market for listed securities will be made within 12 months of the issue of the Norwegian Financing Common Shares.

The Norwegian Financing Common Shares rank pari passu in all respects with the existing common shares of the Company.

The Company issued 113,679,538 share purchase warrants exercisable at a price NOK 0.094 for a duration of 3 years from the date of issue in connection with the Norwegian Financing.

UK Financing

Zenith issued a total of 46,296,296 common shares of no-par value in the capital of the Company on the London Stock Exchange (the "UK Financing Common Shares") to raise gross proceeds of £250,000 (approximately NOK 3,096,150).

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