President’s Message
Three wells at Kakwa North were completed this quarter. Including flush volumes, our daily production has averaged over 3,500 boe per day since the tie-in in early April(1). We plan to participate in a follow-up three (1.5 net) well program that could begin this fall.
Securing energy supplies and diversifying markets is a priority in Canada following the seismic shift in US trade policy. This is especially true in Quebec where imports account for nearly half their total energy demand(2). There is a growing consensus in the province that energy infrastructure, including pipelines and LNG export facilities, should be revisited. Our discovery could provide a secure supply of natural gas and help solve their existing electrical energy shortage while reducing Canadian and global emissions.
We are following the legal process to protect our shareholders’ rights. At a recent hearing, the Justice approved our request to interview several key Government representatives including current and former ministers. The Attorney General is requesting leave to appeal this decision.
In January, Red Leaf completed a larger-scale lab test of its process, producing just over one barrel of oil per day. This technical validation will revise the design and goals for the small-scale commercial project. As a result, the recently appointed special committee of the Red Leaf Board has recommended discontinuing the letter of intent with a potential partner in Jordan to allow for an update of the project design.
Highlights
• Kakwa North wells completed in the quarter and on production in early April bringing production to
over 3,500 boe per day
• Red Leaf completes larger-scale pilot demonstration of technology
• Average daily production of 1,729 boe per day and net cash flow from operating activities of $3.4 million
and adjusted funds flow from operations of $3.5 million
Quebec
In response to the tariffs put forward by the US administration, the Federal government and provinces agreed on the importance of a national trade and energy corridor(3). At a meeting of provincial premiers and the Prime Minister in March, when asked specifically about oil and gas pipelines, the Premier of Quebec noted ‘We’re open to these kind of projects’ though social acceptability is still required(4). More recently, leadership candidates for the Quebec Liberal party also noted their openness to oil and gas projects to boost Canada’s energy independence(5).
While local production was not yet mentioned, the Government of Quebec is now looking to natural gas to alleviate the near-term electricity shortage. The provincial utility is assessing the conversion of an existing combined cycle natural gas power plant to provide power during peak demand periods. This plant requires 150 MMcf/d of natural gas or nearly one quarter of current winter consumption in Quebec.
During the winter, demand for power generally peaks with demand for natural gas. With limited pipeline capacity, imports required for this plant would increase the pressure on a system that already often curtails supply for customers on interruptible service. In discussions with the plant operator, we have highlighted that our local gas, less than ten kilometres away from their facility, would eliminate the transportation bottleneck, be more reliable, less expensive and reduce overall global emissions.
The legal process in Quebec has been slow but steady. The Attorney General is preparing their expert witness report to be produced this fall. Subject to the possible leave to appeal, our preliminary questioning of key Government representatives has been ordered by the Court and is to take place this September and October. To this end, we expect the collaboration of the Attorney General to respond to our pre-examination requests during the summer.
Operating & Financial
Production for the quarter averaged over 1,700 boe per day, about 10% lower than the prior quarter and up slightly from the same period last year. Higher oil and liquids prices contributed to cash flow from operations of $3.4 million and adjusted funds flow from operations of $3.5 million for the first quarter compared to $2.6 million and $3 million respectively last year.
Our capital expenditures for the quarter totalled nearly $18 million, mainly representing the remaining drilling and completion costs for our new Kakwa North wells. This was funded by our existing working capital. We ended the quarter with a surplus of $9.2 million and our credit facility remaining undrawn.
Outlook
We look forward to the next drilling program at Kakwa North, assuming the wells continue to meet expectations and oil prices do not deteriorate further. Sustaining existing production volumes will require additional drilling given the high initial declines from these wells.
Although Bill 21 was introduced nearly three years ago we remain hopeful for a business and political solution. Our goal for this year is to improve energy literacy in Quebec and how our project can meet their energy security needs. We are also firmly following the timelines for our legal claim with the goal of establishing a trial date for the main case next year.
Michael Binnion
President and Chief Executive Officer
1. Consisting of 8.4 MMcf/d of natural gas and 2,129 bbls/d of condensate and estimated natural gas liquids
2. https://www.canadianenergycentre.ca/big-vulnerability-how-ontario-and-quebec-became-reliant-on-u-s-oil-and-gas/
3. https://tj.news/new-brunswick/feds-provinces-agree-to-create-national-trade-and-energy-corridor
4. https://www.theglobeandmail.com/politics/article-quebec-premier-says-opinion-is-shifting-in-province-on-oil-and-gas/
5. https://boereport.com/2025/05/03/quebec-liberal-leadership-hopefuls-say-theyre-open-to-fossil-fuel-projects/