HEADWATER EXPLORATION INC. ANNOUNCES 2025 PRODUCTION GUIDANCE INCREASE, OPERATIONAL UPDATE AND PARTICIPATION AT PETERS & CO. LIMITED ANNUAL FALL ENERGY CONFERENCE

Executive Summary

• Headwater Exploration Inc. has increased its 2025 annual average production guidance to 22,600 boe/d (up from 22,250 boe/d), driven by exceptional results in the Greater Pelican and Marten Hills West areas, as well as improving secondary recovery declines.
• The company expects to achieve this production increase while reducing capital expenditures by $35 million and drilling 33% fewer development wells than originally budgeted, allowing for reallocation of capital toward exploration, sustainability, and land acquisition.
• Significant operational milestones include strong initial production rates from new wells in the Grand Rapids formation and the Greater Pelican Wabiskaw discovery, with expectations that over 50% of corporate oil production will be supported by secondary recovery by year-end 2025.

Key Details

• Production Guidance:
  • Updated 2025 annual average production: 22,600 boe/d (Original: 22,250 boe/d).
  • Q4 2025 production expected to average 23,500-24,000 boe/d (11% year-over-year increase).
• Capital Expenditures & Efficiency:
  • Total 2025 Capital Expenditures remain at $225 million but are re-allocated:
    • Maintenance and growth: $115 million (down from $150 million).
    • Secondary recovery: $60 million (up from $50 million).
    • Exploration: $35 million (up from $25 million).
    • Land: $15 million (new line item).
  • Production increase achieved with 33% less development wells and $35 million less capital than originally budgeted.
• Incremental Spending Plans:
  • $10 million for incremental secondary recovery (two water injection pilots in Grand Rapids, one polymer pilot in Greater Pelican).
  • $10 million for incremental exploration drilling (two step-out locations in Greater Pelican, three Grand Rapids step-out tests in Marten Hills West).
  • $15 million for incremental land expenditures.
• Operational Results - Marten Hills West (Grand Rapids Formation):
  • Well 07/4-18-075-01W5: 120-day initial production rate of 342 bbl/d, continuing to produce over 300 bbl/d.
  • Well 06/12-07-075-01W5: 30-day initial production rate of 300 bbl/d (18.7 API oil); 6-leg multi-lateral configured for secondary recovery.
  • Well 04/03-17-075-01W5: Currently producing 250 bbl/d after recovering load fluid.
  • Balance of 2025 includes 5 additional Grand Rapids tests (3 exploration tests to expand the ~15-section pool).
• Operational Results - Greater Pelican:
  • Well 04/04-19-079-22W4 (Wabiskaw discovery): Cumulative production over 63,000 bbls since April 26, 2025; daily rates exceed 500 bbl/d.
  • Balance of 2025 focused on two step-out multi-lateral tests and commissioning of the first multi-lateral polymer pilot.
• Secondary Recovery Strategy:
  • Opportunities exist in Clearwater sandstone, Clearwater E, and Grand Rapids zones in Marten Hills West.
  • Company expects >50% of corporate oil production to be supported by secondary recovery by end of 2025.
• Land Acquisition:
  • Agreed to acquire 10 sections of land in Greater Pelican adjacent to the Bigstone Cree Nation block.
  • Consideration: 1 million common shares.
  • Option to acquire an additional 8 sections for 750,000 common shares (18-month option).
  • Transaction subject to TSX approval, expected to close mid-September 2025.
• Financial Assumptions & Metrics:
  • Adjusted Funds Flow from Operations: $320 million (unchanged).
  • Exit Adjusted Working Capital: $45 million.
  • Quarterly Dividend: $0.11/common share.
  • Price Assumptions: WTI at US$66.50/bbl; WCS at Cdn$76.60/bbl.
  • Production Mix: 20,600 bbl/d heavy oil, 140 bbl/d NGLs, 11.2 mmcf/d natural gas.

Notable Quotes

• "Exceptional results across our portfolio including exploration in Greater Pelican and in the Grand Rapids formation in Marten Hills West, backstopped by improving declines from secondary recovery, have positioned Headwater to increase production guidance and re-allocate capital to additional exploration and sustainability initiatives."