HEADWATER EXPLORATION INC. ANNOUNCES 2026 BUDGET AND OPERATIONS UPDATE

Executive Summary

• Headwater announces a preliminary 2026 capital budget of $185 M, targeting 8% production‑per‑share growth and a $0.44/share annual dividend.
• Operational highlights include the first two polymer pilots at Greater Pelican slated for mid‑December commissioning, secondary recovery now supporting >50% of oil output, and a new discovery well delivering 495 bbl/d.
• The company plans to spend $50 M on secondary recovery and $25 M on exploration in 2026, with an adjusted funds flow from operations target of $300 M (WTI $60/bbl).

Key Details

• Capital Expenditures 2026: $185 M total
• Maintenance & Growth Capital – $110 M
• Secondary Recovery Capital – $50 M
• Exploration Capital – $25 M
• Dividend: Quarterly $0.11/share (≈5% yield); annualized $0.44/share.
• Production Guidance 2026: 24,500 boe/d (22,500 bbl/d heavy oil, 120 bbl/d NGL, 11.3 mmcf/d gas).
• Adjusted Funds Flow from Operations Target: $300 M at WTI $60/bbl.
• Reinvestment Rate: 37% of adjusted funds flow.

Greater Pelican Operations

• Discovery well (04/04‑19‑079‑22W4) – 210‑day IP 495 bbl/d.
• Two follow‑up development wells (03/14‑31‑079‑22W4 & 03/03‑19‑079‑22W4) drilled as 4‑leg multi‑lateral, now on production; first polymer pilots to be commissioned mid‑December.
• Two single‑lateral polymer injection wells drilled and ready for injection.
• Wabiskaw exploration test (6‑leg multi‑lateral, 00/13‑34‑079‑23W4) shows excellent reservoir quality; load‑fluid recovery completed.
• Clearwater E exploration test (6‑leg multi‑lateral, 00/04‑09‑080‑23W4) placed on production, currently recovering load fluid.

Secondary Recovery

• Implemented across 4.5 sections of Clearwater sandstone and 2 sections of Clearwater E; supports 11,000 bbl/d (≈50% of oil output).
• Reduced corporate decline rates >10%; realized 30% reduction in yearly maintenance capital.
• Plan to spend $50 M in 2026 on secondary recovery; aim for 60% of corporate oil production supported by such methods by year‑end, reducing declines to <20% and maintenance capex to <30% of adjusted funds flow.

Exploration & Land

• 2025: Tested 10 play concepts, added 140 sections; new core area in Greater Pelican and stacked reservoir (Grand Rapids) in Marten Hills West.
• Cumulative discoveries have added >15,000 bbl/d to corporate production since inception.
• 2026 plan: $25 M to test 8‑10 new play concepts via stratigraphic tests and multi‑lateral wells in Marten Hills, Greater Pelican, and undisclosed lands.

McCully Field

• Returned to production Dec 1 2025; hedged ~77% of Dec 2025–Apr 2026 output at C$14.85/MMBtu.
• Expected cash flow from hedged portion ≈ $16 M for the winter season.

Share Repurchase

• Approximately 1.0 million common shares repurchased to date at an average price of $7.30 per share (for cancellation).

Notable Quotes

“With a highly flexible capital budget, strong balance sheet and the short cycle time of adding additional growth with the drill bit, Headwater can react quickly to changing market conditions.” – Executive Chairman Neil Roszell

Materiality: Material – Positive (significant guidance on 2026 production, capital allocation, dividend policy, and operational milestones).