HEADWATER EXPLORATION INC. ANNOUNCES SECOND QUARTER OPERATING AND FINANCIAL RESULTS AND DECLARES QUARTERLY DIVIDEND

Executive Summary

• Headwater Exploration Inc. reported its operating and financial results for the three and six months ended June 30, 2025, highlighting record production levels and significant exploration discoveries.
• The company achieved a record average daily production of 22,235 boe/d in Q2 2025, a 12% increase year-over-year, driven by new pool discoveries in the Grand Rapids and Wabiskaw formations.
• Financial performance showed total sales of $138.8 million for Q2 2025 (down 12% YoY) and adjusted funds flow from operations of $74.2 million ($0.31 per share basic).
• The Board declared a quarterly cash dividend of $0.11 per common share, totaling $26.2 million for the quarter, payable on October 15, 2025.

Key Details

• Financial Performance (Q2 2025 vs Q2 2024):
  • Total sales, net of blending expense: $138.8 million (vs $157.1 million, -12%).
  • Adjusted funds flow from operations: $74.2 million ($0.31 per share basic, vs $0.37, -16%).
  • Cash flow from operating activities: $68.7 million ($0.29 per share basic, vs $0.38, -24%).
  • Net income: $38.0 million ($0.16 per share basic, vs $0.23, -30%).
  • Capital expenditures: $50.7 million.
  • Free cash flow: $23.5 million.
• Financial Performance (Six Months Ended June 30, 2025):
  • Total sales, net of blending expense: $302.0 million (vs $284.4 million, +6%).
  • Adjusted funds flow from operations: $166.6 million ($0.70 per share basic).
  • Net income: $88.0 million ($0.37 per share basic).
  • Shareholders' equity: $735.1 million.
  • Adjusted working capital: $58.5 million.
• Production Metrics (Q2 2025):
  • Average daily production: 22,235 boe/d (+12% YoY).
  • Heavy crude oil: 20,249 bbls/d (+8% YoY).
  • Natural gas: 10.8 mmcf/d (+96% YoY).
  • Natural gas liquids: 185 bbls/d (+176% YoY).
  • Operating netback (including financial derivatives): $42.66/boe (vs $57.66/boe, -26%).
  • Adjusted funds flow netback: $36.86/boe (vs $48.96/boe, -25%).
• Exploration & Development Updates:
  • Grand Rapids Formation (Marten Hills West): New pool discovery via well 07/04-18-075-01W5 (6-leg multi-lateral). Achieved 60-day IP of 345 bbls/d of 19.5 API oil. Current production >300 bbls/d. Pool estimated at ~15 sections. Plan: Drill 3-4 additional wells and 2 secondary recovery pilots in H2 2025.
  • Wabiskaw Formation (Greater Pelican): Discovery well 04/04-19-079-22W4 (8-leg multi-lateral) achieved 90-day IP of 475 bbls/d of 16.5 API oil. Current production >500 bbls/d. Plan: Drill two delineation wells in 2025 and implement polymer flood pilot in early 2026.
  • Clearwater Sandstone: Seven wells drilled in Q2 with average 30-day IP >225 bbls/d. Secondary recovery implemented across two sections (stabilized oil >1,100 bbls/d). Third section commissioned; plan to have 5 sections under secondary recovery by year-end. Target ~2,500 bbls/d production from this formation by year-end.
  • Clearwater E Formation: Step-out tests expanded pool boundaries. Well 00/15-23-075-02W5 achieved 60-day IP of 184 bbls/d (23.5 API). Well 06/16-27-075-02W5 achieved 30-day IP of 99 bbls/d (22.5 API). First full section of secondary recovery commissioned; second section planned before year-end. 15-20 sections identified as amenable to secondary recovery.
  • Marten Hills Core: Flagship secondary recovery asset. Production flat at ~7,000 bbls/d for >18 months, reducing corporate decline rate by >5%.
  • Handel Saskatchewan: Started drilling 5-well stratigraphic exploration program to evaluate Mannville heavy oil and SAGD prospects.
• Dividends:
  • Q2 2025 Dividend: $0.11 per share ($26.2 million total).
  • Q3 2025 Dividend: Declared at $0.11 per share, payable October 15, 2025, to shareholders of record on September 29, 2025.
  • Cumulative dividends paid to date: $265.2 million ($1.12 per share).
• Corporate Actions:
  • Board Appointments: Cheree Stephenson (elected May 8, 2025) and Karen Nielsen (appointed effective July 23, 2025) joined the Board of Directors.
  • Share Repurchase: Established an automatic securities purchase plan in connection with the normal course issuer bid (NCIB) to facilitate share repurchases during blackout periods.

Notable Quotes

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