HIGHWOOD ASSET MANAGEMENT LTD. ANNOUNCES TRANSFORMATIONAL ACQUISITIONS, APPROXIMATELY $35 MILLION MARKETED EQUITY FINANCING, AND NEW CREDIT FACILITY

2023-07-05

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CALGARY, AB , July 5, 2023 /CNW/ - Highwood Asset Management Ltd. (" Highwood " or the " Company ") (TSXV: HAM) is pleased to announce that it has entered into arm's-length agreements to acquire each of Castlegate Energy Ltd. (" Castlegate "), Boulder Energy Ltd. (" Boulder ") and Shale Petroleum Ltd. (" Shale ") (collectively, the " Acquisitions ") for a net purchase price of approximately $139 million .

The cash portion of the Acquisitions is anticipated to be funded primarily through a "best efforts" marketed offering of subscription receipts ‎expected to raise aggregate gross proceeds of approximately $35 million (the " Offering ") and a draw on a new $100 million reserve-based credit facility. Each subscription receipt represents the right of the holder to receive, upon closing of the Acquisitions, without payment of additional consideration, one unit of the Company, comprised of one common share and one-half of one common share purchase warrant.

Commenting on the Acquisitions, Joel MacLeod , Executive Chairman of Highwood said "We are extremely pleased with the opportunity to acquire high quality, low ARO (asset retirement obligation) assets with significant depth of inventory with sub 12-month payouts at a combined 2.2x EV to NTM Field NOI (See " _Acquisition Metrics _") purchase multiple. Further, we believe having a clean capital structure with a low cost $100 million credit facility is a significant advantage for Highwood as we look to grow Highwood to 30,000+ boe/d. With an estimated initial leverage of approximately 1.2x on 2024E Adjusted EBITDA (See " _Strategic Benefits _") and spending approximately 60% of anticipated cash flow to grow production over 25% while de-leveraging to approximately 0.9x by year-end 2024, we feel Highwood will be in a strong position to grow free cash flow per share over the next three to five years. Alignment with our shareholders is critical and insiders expect to increase our ownership over the next three to five years while offering liquidity to shareholders. These acquisitions are expected to provide a strong production and cash flow base as a platform for further consolidation of conventional oil and gas assets in the WCSB. The assets bring highly economic multi-lateral drilling inventory with anticipated relatively quick Payback Periods, which are expected to drive near-term growth while generating free cash flow."

Completion of each of the Acquisitions is subject to customary closing conditions, including receipt of requisite regulatory approvals, and is conditional on closing of each of the other Acquisitions. The Company expects to complete the Acquisitions in the third quarter of 2023.

Acquisition Highlights:

The Acquisitions bring a combined ~4,500 boe/d (approximately 75% oil and natural gas liquids (" NGLs ")) of expected average production over the 12-month period commencing July 1, 2023 (" Next Twelve Months " or " NTM ") with before tax Proved Developed Producing (" PDP ") net present value discounted at a rate of 10% (" NPV 10 ") of $166 million 1 , NTM field net operating income (" NTM Field NOI ") 2 of $64 million , and 97 net drilling locations to sustain the acquired production for over 10 years 3 Highwood will focus on the utilization of multi-lateral well development to drive approximately 25% anticipated production growth to approximately 5,200 boe/d in 2024 on an expected capital program of approximately $11 million in the fourth quarter of 2023 and $40 million in 2024, while expecting to reduce Net Debt / 2024E EBITDA ‎to under 0.9x by year-end 2024 4 Upon completion of the Acquisitions, Highwood will be positioned as a growth focused oil-weighted producer with expected insider ownership of more than 50%, where insiders remain committed to supporting the Company's long-term growth trajectory and prudent use of debt capital Highwood plans to grow its oil-weighted production to over 30,000 boe/d both organically and through the acquisition and development of undervalued, low-risk opportunities that support building a strong portfolio of cash flowing assets offering development upside The Acquisitions support Highwood's strategy to become a premier, publicly traded, oil-weighted producer, while leveraging management's expertise in drilling and deploying multi-lateral well technology with considerable inventory with Payback Periods of less than 12 months 4

| Notes to Acquisition Highlights: | | | (1) | Gross reserves information as at January 1, 2023 and is derived from the Acquisition Reserves Reports, in accordance with NI 51-101 and ‎the ‎COGE Handbook. ‎See "Boulder Transaction",‎‎ "Castlegate Transaction", and ‎‎ "Shale Transaction"‎. ‎ | | (2) | NTM field net operating income (NTM Field NOI) is forecasted for the twelve-month period commencing July 1, 2023 at an average production of 4,500 boe/d. Based on ‎Management's projections (not forecasts set forth in the Acquisition Reserves Reports) and applying the following ‎pricing assumptions: WTI: ‎US$70.00/bbl; WCS ‎Diff: US$14.00/bbl; MSW Diff: US$3.50/bbl; AECO: C$2.75/GJ; 0.74 CAD/USD. ‎See ‎"Non-GAAP and other Specified ‎Financial Measures"‎.‎‎ | | (3) | See ‎"Caution Respecting Reserves Information"‎ and ‎‎"Non-GAAP and other Specified Financial Measures"‎. | | (4) ‎ | Based on Management's projections (not IQRE forecasts) and applying the following pricing ‎assumptions: WTI: ‎‎US$70.00/bbl; ‎‎WCS Diff: ‎US$14.00/bbl; MSW Diff: ‎‎US$3.50/bbl; AECO: C$2.75/GJ; 0.74 CAD/USD‎. Management ‎projections are used in place of ‎IQRE ‎‎‎forecasts as Management believes it provides investors with valuable ‎‎information concerning the liquidity of the Company.‎ ‎Cash flow ‎figures assume completion of the Acquisitions on July 1, 2023 and illustrative ‎hedges for total of ‎‎‎65% of net after ‎‎‎royalty Proved Developed ‎Producing reserves production‎.‎ See ‎"Caution Respecting Reserves Information"‎ and ‎‎"Non-GAAP and other Specified Financial Measures"‎.‎ |

Acquisition Metrics

The following table summarizes the expected operating and financial performance ‎of the assets anticipated to be acquired by the Company pursuant to the Acquisitions for the Next Twelve Months.

| Notes to the Acquisition Metrics Table: | | | (1) | Purchase prices are subject to adjustments. The purchase price for the Shale Acquisition is net of approximately $2 million cash balance. The purchase price for the Castlegate Acquisition is net of approximately $3 million cash balance. | | (2) | Includes booked and unbooked locations; booked locations based on the Acquisition Reserves Report for the respective ‎Acquisitions (46 gross locations (42 net) are proved locations, and 28 gross locations (25 net) are probable locations), unbooked locations estimated by Management. See "Caution Respecting Reserves Information". | | (3) ‎ | Gross reserves information as at January 1, 2023 is derived from the Acquisition Reserves Reports, in accordance with NI 51-101 and ‎the COGE Handbook. ‎ See "Boulder Transaction",‎‎ "Castlegate Transaction", and ‎‎"Shale Transaction"‎. | | (4) | Field net operating income (Field NOI) is forecasted for the twelve-month period commencing July 1, 2023 at an average production of 4,500 boe/d. Based on Management's projections (not forecasts set forth in the Acquisition Reserves Reports) and applying the following pricing assumptions: WTI: US$70.00/bbl; WCS Diff: US$14.00/bbl; MSW Diff: US$3.50/bbl; AECO: C$2.75/GJ; 0.74 CAD/USD. See "Non-GAAP and other Specified Financial Measures". See "Caution Respecting Reserves Information" and "Non-GAAP and other Specified Financial Measures". | | (5) | ‎Based on Management's projections (not forecasts set forth in the Acquisition Reserves Reports) and applying the following ‎pricing assumptions: WTI: US$70.00/bbl; WCS ‎Diff: US$14.00/bbl; MSW Diff: US$3.50/bbl; AECO: C$2.75/GJ; 0.74 CAD/USD. | | (6) | See ‎"Non-GAAP and other Specified Financial Measures". | | (7) | Enterprise Value is equal to the net purchase price for each of the respective Acquisitions. | | (8) | Calculated as the net purchase price for the Acquisitions divided by total Proved Reserves. | | (9) | This forecasted information requires assumptions from Management in order to derive estimates of future cash flow related to production volumes, commodity prices, amount of future development costs, and production, royalty and transportation costs. See "Cautionary Note Regarding Forward-Looking Information". | | | |

Forecast Guidance

The following table summarizes the Company's forecasted operating and financial guidance for the 12-month period commencing July 1, 2023 and full year 2024 assuming ‎completion of the Acquisitions on July 1 , 2023. See " _Cautionary Note Regarding Forward-Looking Information _".‎‎

| Notes to Forecast Guidance Table: | | | (1) | Based on Management's projections (not forecasts set forth in the 2022 Reserves Report and the Acquisition Reserves ‎Reports) and applying the following pricing assumptions: (i) actuals and strip pricing as at June 23, 2023 through ‎the second quarter of 2023; and (ii) thereafter: WTI: US$70.00/bbl; WCS Diff: US$14.00/bbl; MSW Diff: US$3.50/bbl; ‎AECO: C$2.75/GJ; 0.74 CAD/USD. Management projections are used in place of IQRE forecasts as Management ‎believes it provides investors with valuable ‎information concerning the liquidity of the Company.‎ | | (2) | Assumes completion of the Acquisitions on July 1, 2023.‎ Cash flow figures also include illustrative hedges for total of 65% of expected Q4 2023 and 2024 net after royalty production associated with Proved Developed Producing reserves.‎ See "Cautionary Note Regarding Forward-Looking Information". | | (3) | See ‎"Non-GAAP and other Specified Financial Measures". | | (4) | Gross reserves information as at January 1, 2023 is derived from the 2022 Reserves Report and the Acquisition Reserves Reports, in accordance with NI 51-101 and the COGE Handbook. See "Boulder Transaction",‎‎ "Castlegate Transaction", and ‎‎"Shale Transaction"‎. | | (5) | RLI is calculated by Management as the amount of relevant reserves category divided by total estimated NTM production and assumes completion of the Acquisitions on July 1, 2023. | | (6) | Includes booked and unbooked locations; booked locations based on the 2022 Reserves Report and the Acquisition Reserves Report for the respective Acquisitions (50 gross locations (45 net) are proved locations, and 31 gross locations (27 net) are probable locations), unbooked locations estimated by Management. See "Caution Respecting Reserves Information". |

Boulder Transaction

Highwood has entered into a share purchase agreement (the " Boulder Agreement ") to acquire all of the issued and outstanding shares of Boulder, a privately held oil and gas provider focused on light oil in Alberta , for aggregate consideration of $98 million , subject to a working capital adjustment (the " Brazeau Acquisition "). The Brazeau Acquisition is expected to close in the third quarter of 2023, subject to satisfaction of customary closing conditions and receipt of regulatory approvals. The $98 million consideration consists of:

the issuance of such number of Common Shares by the Company to West Lake at the same price as the Offering ‎that would equal the lesser of: (i) $9 million ; and (ii) such number of Common Shares that would equal ‎(but not exceed) 9.99% of the issued and outstanding Common Shares (on a ‎non-diluted basis) as at the closing date of the Acquisitions (the " Brazeau Equity ‎Consideration ");‎ the issuance of an unsecured subordinated promissory note by the Company to West Lake (the " Boulder Note ") ‎in the principal amount equal to $23 million less (a) the dollar value of the Brazeau Equity Consideration; (b) the ‎dollar value, if any, by which the gross proceeds from the Offering and the Private Placement (as defined below) exceed $37.8 ‎million (up to $3 million ) (the " Equity Overage Amount "); and (c) the dollar value, if any, by which the gross ‎proceeds from the Offering and the Private Placement exceed $45 million (up to $11 million) (the " Initial ‎Principal Amount "); provided that, the Initial Principal Amount shall never be less than $0. The Boulder Note is ‎expected to mature on July 1, 2025 ‎and to provide for payments, equal to 25% of the Initial Principal Amount, ‎commencing October 1, 2024 and thereafter ‎on ‎January 1, 2025, April 1, 2025 and July 1, 2025, with the ‎outstanding principal (if any) due in full on maturity‎. The Boulder Note will pay interest at 13% per annum payable ‎‎quarterly on October 1, 2024, January 1, 2025, April 1, 2025 and July 1, 2025; all payments/repayments (of both ‎principal and interest) under the Boulder Note are anticipated to be subject to certain terms and conditions under ‎the New Credit Agreement. If the gross proceeds of the Offering and the Private Placement are less than $40.8 ‎million, all obligations under the Boulder Note will also be fully and unconditionally personally guaranteed by Joel ‎MacLeod, the Executive ‎Chairman of the Company, in an amount limited to $3 million less the Equity Overage ‎Amount, plus costs and expenses of enforcement plus interest; and‎ an estimated cash payment of $75 million on the closing date of the Acquisitions, such amount representing the ‎aggregate purchase price of $98 million, less the dollar value of each of the Brazeau Equity ‎Consideration (estimated to be $9 million) and the Boulder Note (estimated to be ‎‎$14 million). ‎

Upon completion of the Brazeau Acquisition, Highwood will acquire approximately 2,700 boe/d (~74% oil and NGLs) of low decline, capital efficient production, which is expected to generate Field Cash Flow of $34.91/boe resulting in NTM Field NOI of $35 million, implying a 2.8x Enterprise Value (" EV ")/Field NOI multiple. 1

Based on the Brazeau Reserves Report (as herein defined), the Brazeau Acquisition has a before-tax PDP NPV10 of $116 million , implying a 0.8x EV/PDP NPV10 multiple, and a before-tax Total Proved Plus Probable (" 2P ") NPV10 of $320 million , implying a 0.3x EV/2P NPV10 multiple, with over 95,198 net acres of land in the Brazeau area of Alberta (the " Brazeau Assets "). 2 The focus of the Brazeau Assets is concentrated in the light oil Belly River Formation. The Brazeau Assets are located approximately 350 km northwest of Calgary . Highwood plans to utilize multi-lateral wells to grow production on the asset where the existing 12-09-48-14W5 multi-lateral well has produced over 140,000 bbls of oil over 15 months and had a Payback Period of approximately eight months.

Concurrent with the execution of the share purchase agreement in respect of the Brazeau Acquisition, the Company paid a ‎‎$2.0 million deposit to the vendor. The deposit was financed by a $2.8 million loan from 1080766 Alberta Ltd‎. (a ‎corporation which Joel MacLeod , Executive Chairman of the Company, has beneficial ownership and control, and which ‎currently owns approximately 67% of the issued and outstanding Common Shares) (" 1080766 "). The loan is non-‎convertible, unsecured and non-interest bearing and is due on demand. The loan is considered a "related party transaction" ‎‎(as defined under Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-‎‎101")) and the Company relied upon the "Fair Market Value Not More Than 25% of Market Capitalization" exemption ‎from the minority shareholder approval requirements under MI 61-101. Subject to acceptance by the Toronto Venture Exchange (" TSX-V "), this loan will be repaid ‎from the proceeds of the Offering and is intended to be later re-invested pursuant to the Private Placement‎.

| Notes to Boulder Transaction | | | (1) | Based on Management's projections (not IQRE forecasts) and applying the following pricing ‎assumptions: WTI: ‎US$70.00/bbl; WCS Diff: ‎‎US$14.00/bbl; MSW Diff: US$3.50/bbl; AECO: C$2.75/GJ; 0.74 ‎CAD/USD‎. Management projections are used in ‎place of IQRE forecasts as Management believes it provides investors with valuable ‎information ‎concerning the ‎liquidity of the Company.‎ See ‎‎"Non-GAAP and other Specified Financial Measures" for additional details‎.‎ ‎Enterprise Value is ‎equal to the net purchase price for the Boulder Acquisition.‎ | | (2) | Reserves information is derived from the Brazeau Reserves Report, in accordance with NI 51-101 and ‎the COGE ‎Handbook. Enterprise Value ‎is equal to the purchase price for the Boulder Acquisition‎. |

Castlegate Transaction

Highwood has entered into a share purchase agreement (the " Castlegate Agreement "), to acquire Castlegate, a privately held oil and gas producer focused on light oil in Alberta , for aggregate cash consideration of $36.7 million (the " Castlegate Acquisition ") (plus payment for $4.2 million of working capital), with Highwood expecting to assume an estimated $7.2 million of working capital on closing of the Castlegate Acquisition (assuming closing in the third quarter of 2023). All consideration payable under the Castlegate Acquisition shall be paid in full in cash on closing of the Castlegate Acquisition.

The Castlegate Acquisition is expected to close in the third quarter of 2023, subject to satisfaction of customary closing ‎conditions and receipt of regulatory approvals.‎

Upon completion of the Castlegate Acquisition, Highwood estimates that it will acquire approximately 1,400 boe/d (~85% oil and NGLs) of capital efficient production, which is expected to generate Field Cash Flow of $54.66 /boe resulting in NTM Field NOI of $28 million , implying a 1.2x EV/ Field NOI multiple. 1

Based on the Castlegate Reserves Report (as herein defined), the Castlegate Acquisition has a before-tax PDP NPV10 of $40 million , implying a 0.8x EV/PDP NPV10 multiple, and a before-tax 2P NPV10 of $92 million , implying a 0.4x EV/2P NPV10 multiple, with over 10,660 net acres of land in the Wilson Creek area of Alberta (the " Castlegate Assets "). 2 Highwood looks to develop the asset with both multi-lateral well technology and stage fracked wells where the recent 102/06-04-43-05W5 well continues to produce over 650 boe/d after being on production for over 50 days. The focus of the Castlegate Assets is concentrated in the light oil Belly River Formation. The Castlegate Assets are located approximately 250 km northwest of Calgary.‎ ‎

| Notes to Castlegate Transaction | | | (1) | Based on Management's projections (not IQRE forecasts) and applying the following pricing ‎assumptions: WTI: ‎US$70.00/bbl; WCS Diff: ‎‎US$14.00/bbl; MSW Diff: US$3.50/bbl; AECO: C$2.75/GJ; 0.74 ‎CAD/USD‎. Management projections are used in ‎place of IQRE forecasts as Management believes it provides investors with valuable ‎information ‎concerning the ‎liquidity of the Company.‎ See ‎‎"Non-GAAP and other Specified Financial Measures" for additional details‎.‎ ‎Enterprise Value is ‎equal to the net purchase price for the Castlegate Acquisition‎.‎ | | (2) | Gross reserves information as at January 1, 2023 is derived from the Castlegate Reserves Report, in accordance with NI 51-101 and ‎the COGE ‎‎Handbook. Enterprise Value is equal to the purchase price for the Castlegate Acquisition‎‎ less approximately $3 million cash balance. |