Headwater Exploration Inc. press release

HEADWATER EXPLORATION INC. ANNOUNCES THIRD QUARTER OPERATING AND FINANCIAL RESULTS AND DECLARATION OF QUARTERLY DIVIDEND

2025-10-29

TSX - Toronto Stock Exchange · Oil · Natural Gas · Natural Gas Liquids · Canada

Canada NewsWire

CALGARY, AB, Oct. 29, 2025/CNW/ - Headwater Exploration Inc. (the "Company" or "Headwater") (TSX: HWX) is pleased to announce its operating and financial results for the three and nine months ended September 30, 2025and the declaration of its quarterly dividend. Selected financial and operational information is outlined below and should be read in conjunction with the unaudited condensed interim financial statements and the related management's discussion and analysis ("MD&A"). These filings will be available on SEDAR+ at www.sedarplus.caand the Company's website at www.headwaterexp.com.

Financial and Operating Highlights

| | Three months ended

September 30, | Percent Change | Nine months ended

September 30, | Percent Change | | | | | | 2025 | 2024 | 2025 | 2024 | | | | | Financial (thousands of dollars except share data) | | | | | | | | | Sales, net of blending expense (1) (4) | 146,511 | 151,740 | (3) | 448,507 | 436,163 | 3 | | | Adjusted funds flow from operations(2) | 80,394 | 84,185 | (5) | 246,971 | 248,654 | (1) | | | Per share - basic (3) | 0.34 | 0.35 | (3) | 1.04 | 1.05 | (1) | | | - diluted (3) | 0.33 | 0.35 | (6) | 1.03 | 1.04 | (1) | | | Cash flows provided by operating activities | 85,861 | 95,272 | (10) | 224,469 | 240,721 | (7) | | | Per share - basic | 0.36 | 0.40 | (10) | 0.94 | 1.02 | (8) | | | - diluted | 0.36 | 0.40 | (10) | 0.94 | 1.01 | (7) | | | Net income | 35,869 | 47,634 | (25) | 123,896 | 139,121 | (11) | | | Per share - basic | 0.15 | 0.20 | (25) | 0.52 | 0.59 | (12) | | | - diluted | 0.15 | 0.20 | (25) | 0.52 | 0.58 | (10) | | | Capital expenditures (1) | 68,671 | 58,196 | 18 | 182,222 | 174,180 | 5 | | | Adjusted working capital (2) | | | | 36,444 | 64,411 | (43) | | | Shareholders' equity | | | | 752,377 | 684,486 | 10 | | | Dividends declared | 26,264 | 23,767 | 11 | 78,574 | 71,261 | 10 | | | Per share | 0.11 | 0.10 | 10 | 0.33 | 0.30 | 10 | | | Weighted average shares (thousands) | | | | | | | | | Basic | 237,828 | 237,484 | - | 237,788 | 236,285 | 1 | | | Diluted | 240,026 | 239,735 | - | 239,700 | 238,427 | 1 | | | Shares outstanding, end of period (thousands) | | | | | | | | | Basic | | | | 238,763 | 237,665 | - | | | Diluted (5) | | | | 238,763 | 241,115 | (1) | | | Operating (6:1 boe conversion) | | | | | | | | | | | | | | | | | | Average daily production | | | | | | | | | Heavy crude oil (bbls/d) | 20,948 | 19,718 | 6 | 20,241 | 18,689 | 8 | | | Natural gas (mmcf/d) | 8.4 | 3.4 | 147 | 11.2 | 6.8 | 65 | | | Natural gas liquids (bbl/d) | 169 | 64 | 164 | 165 | 72 | 129 | | | Barrels of oil equivalent (9)_(boe/d)_ | 22,523 | 20,342 | 11 | 22,276 | 19,890 | 12 | | | | | | | | | | | | | | | | | | | | | Average daily sales (6) (boe/d) | 22,699 | 20,329 | 12 | 22,283 | 19,850 | 12 | | | | | | | | | | | | Netbacks _($/boe) _(7) | | | | | | | | | Operating | | | | | | | | | Sales, net of blending expense (4) | 70.16 | 81.13 | (14) | 73.74 | 80.19 | (8) | | | Royalties | (12.74) | (15.74) | (19) | (13.33) | (14.88) | (10) | | | Transportation | (5.68) | (5.90) | (4) | (5.58) | (5.60) | - | | | Production expenses | (7.01) | (7.46) | (6) | (7.45) | (7.25) | 3 | | | | | | | | | | | | Operating netback (3) | 44.73 | 52.03 | (14) | 47.38 | 52.46 | (10) | | | Realized gains (losses) on financial derivatives | (0.06) | 0.18 | (133) | (0.66) | 1.04 | (163) | | | Operating netback, including financial derivatives (3) | 44.67 | 52.21 | (14) | 46.72 | 53.50 | (13) | | | General and administrative expense | (1.51) | (1.42) | 6 | (1.46) | (1.46) | - | | | Interest income and other (8) | 0.40 | 0.76 | (47) | 0.48 | 0.84 | (43) | | | Current tax expense | (5.07) | (6.54) | (22) | (5.10) | (7.14) | (29) | | | Settlement of decommissioning liability | - | - | - | (0.02) | (0.02) | - | | | Adjusted funds flow netback (3) | 38.49 | 45.01 | (14) | 40.62 | 45.72 | (11) | |

| (1) | Non-GAAP financial measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. | | (2) | Capital management measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. | | (3) | Non-GAAP ratio. Refer to "Non-GAAP and Other Financial Measures" within this press release. | | (4) | Heavy oil sales are netted with blending expense to compare the realized price to benchmark pricing while transportation expense is shown separately. In the interim financial statements blending expense is recorded within blending and transportation expense. | | (5) | Performance share units ("PSUs") and restricted share units are cash settled. The accounting for PSUs changed from equity to cash settlement in the fourth quarter of 2024. | | (6) | Includes sales of unblended heavy crude oil, natural gas and natural gas liquids. The Company's heavy crude oil sales volumes and production volumes differ due to changes in inventory. For the three months ended September 30, 2025, sales volumes comprised of 21,125 bbs/d of heavy oil, 8.4 mmcf/d of natural gas and 169 bbls/d of natural gas liquids (three months ended September 30, 2024 – 19,706 bbls/d heavy oil, 3.4 mmcf/d natural gas and 64 bbls/d natural gas liquids). For the nine months ended September 30, 2025, sales volumes comprised of 20,248 bbls/d of heavy oil, 11.2 mmcf/d of natural gas and 165 bbls/d of natural gas liquids (nine months ended September 30, 2024 – 18,648 bbls/d heavy oil, 6.8 mmcf/d natural gas and 72 bbls/d natural gas liquids). | | (7) | Netbacks are calculated using average sales volumes. | | (8) | Excludes unrealized foreign exchange gains/losses, accretion on decommissioning liabilities, interest on lease liability and interest on repayable contribution. | | (9) | See "Barrels of Oil and Cubic Feet of Natural Gas Equivalent". |

THIRD QUARTER 2025 HIGHLIGHTS

Achieved record production of 22,523 boe/d representing an increase of 11% from the third quarter of 2024. Realized adjusted funds flow from operations(1)of $80.4 million($0.34per share basic (2)) and cash flows from operations of $85.9 million($0.36per share basic). Achieved an operating netback, including financial derivatives(2)of $44.67/boe and an adjusted funds flow netback (2)of $38.49/boe. Achieved net income of $35.9 million($0.15per share basic) equating to $17.17/boe. Executed a $68.7 millioncapital expenditure (3)program inclusive of development, exploration and secondary recovery implementation. Declared a cash dividend of $26.3 million, or $0.11per common share. To date, Headwater has paid out a cumulative dividend of $291.4 millionto shareholders ($1.23per common share). As at September 30, 2025, Headwater had adjusted working capital (1)of $36.4 million, working capital of $41.8 million, and no outstanding bank debt.

| (1) | Capital management measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. | | (2) | Non-GAAP ratio. Refer to "Non-GAAP and Other Financial Measures" within this press release. | | (3) | Non-GAAP financial measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. |

OPERATIONS UPDATE

Headwater has made additional progress on its capital reallocation program, while maintaining 2025 production guidance. Exceptional results in both the drilling and secondary recovery programs have allowed Headwater to reallocate a total of $42 million(an additional $7 millionsince our September 8, 2025update) toward strategic opportunities intended to improve asset duration including new play delineation, expanded secondary recovery and land acquisition. The initial 2025 capital budget of $225 millionremains unchanged.

The additional development capital savings expected to be realized in the fourth quarter of 2025 will allow Headwater to accelerate further evaluation in the Greater Pelican area. The capital will be allocated towards a second polymer pilot, drilling of a saline water source well and to testing a previously untested Clearwater E zone.

Grand Rapids Formation in Marten Hills West

With eight multi-lateral wells brought onstream in the past six months and two active secondary recovery pilots, Headwater now has 2,000 bbls/d producing from the Grand Rapidsformation.

Headwater is excited to report the pool extension tests continue to exceed expectations, delivering similar oil quality and initial rates as the discovery well at 07/04-18-075-01W5, which has now achieved a 180-day initial production rate of 330 bbls/d.

The 00/01-36-074-02W5 well, our most southern test stepping out 3 miles from the discovery well, has achieved a 30-day initial production rate of 316 bbls/d of 18 API oil. The 02/08-11-075-02W5 well, our most western test stepping out 2 miles from the initial discovery well, recently finished recovering load fluid and is currently producing at 170 bbls/d.

The Grand Rapidsformation is proving to be a highly prolific and repeatable prospect with an average 30-day initial production rate across the first 5 drilled wells of 300 bbls/d.

With superior oil quality and reservoir characteristics in the Grand Rapids, Headwater has recently commissioned two secondary recovery pilots at 05/16-13-075-02W5 and 06/12-07-075-01W5. The two pilots are configured as lateral floods similar to our Clearwater E development.

Headwater believes the Grand Rapidsprospect extends well beyond the current defined pool boundaries and plans to drill 4-5 stratigraphic tests in the first quarter of 2026, intended to better define regional commerciality across Marten Hills West. In addition, across the balance of 2026, Headwater plans to drill up to 20 Grand Rapids multi-laterals and commission two full sections of Grand Rapidssecondary recovery.

Greater Pelican

Cumulative production from the 04/04-19-079-22W4 Wabiskaw discovery well has exceeded 90,000 bbls oil in the first six months of production and continues to produce at rates above 500 bbls/d.

Headwater is excited to report we are currently drilling our first multi-lateral polymer pilot at 03/14-31-079-22W4 and have added a second multi-lateral polymer pilot and a saline water source well to the 2025 capital program. It is anticipated that both polymer pilots will be commissioned and onstream before year-end.

The balance of 2025 will also include a multi-lateral Wabiskaw step-out delineation test and a multi-lateral Clearwater E exploration well. We are motivated to continue delineation of the Greater Pelican area which offers sustainability through stacked horizons and implementation of secondary recovery.

In 2026, Headwater plans to test 2-3 identified prospects across the broader Greater Pelican area in addition to further delineation drilling and implementation of secondary recovery through additional polymer flood development in the Wabiskaw formation.

Marten Hills West Development

The 2025 year has been monumental for Marten Hills Westwith the discovery of the Grand Rapidspool, expansion of pool boundaries in both the Clearwater Sandstone and Clearwater E formations plus scaled commercial secondary recovery development spanning across three stacked formations.

Production from the area now exceeds 15,000 bbls/d. It is anticipated that by year-end, Headwater will have a total of 9 sections representing 4,500 bbls/d or 30% of the area's oil production supported by secondary recovery.

Looking ahead to 2026, resource expansion, asset duration and scaled sustainability will remain the focus. Headwater anticipates implementing another 6 sections of secondary recovery across the Clearwater Sandstone, Clearwater E and Grand Rapidsformations. By year-end 2026, secondary recovery supported volumes will approach 50% of the area's oil production.

Marten Hills Core

The core area remains our flagship commercial secondary recovery asset demonstrating the value proposition of lower declines and increasing recovery factors. Production has been flat at approximately 7,000 bbls/d for nearly two years.

McCully

McCully is scheduled to be placed back on production at the beginning of December. We have hedged approximately 68% of McCully's estimated December 2025to April 2026production at a price of Cdn$14.72/mmbtu. The aggressive hedging profile used at McCully provides consistency in the cash flow (1) which is expected to be approximately $15 millionover this upcoming winter season(2).

| (1) | Non-GAAP financial measure. Refer to "Non-GAAP and Other Financial Measures" within this press release. | | (2) | McCully's winter season is estimated to be December 2025 to April 2026. |

FOURTH QUARTER DIVIDEND

The Board of Directors of Headwater has declared a quarterly cash dividend to shareholders of $0.11per common share payable on January 15, 2026, to shareholders of record at the close of business on December 31, 2025. This dividend is an eligible dividend for the purposes of the _Income Tax Act_(Canada).

OUTLOOK

Headwater now has more than 50% of corporate oil production supported by secondary recovery which is anticipated to grow to approximately 60% by year-end 2026.

Over the last three years Headwater's production has doubled while our maintenance capital has decreased by 30% as a result of continued investment in secondary recovery and improved capital efficiencies. Over the next three years we anticipate continued implementation of secondary recovery across our asset base, which we expect will result in a further 20% reduction in maintenance capital. The continued improvement in corporate decline rates and reduction in maintenance capital will allow Headwater to continue to increase sustainability, asset duration and free cash flow.

Positive working capital, industry leading maintenance capital requirements and a track record of strong capital allocation puts Headwater in a position of strength to navigate volatile market conditions.

Headwater remains focused on maximizing total shareholder returns and asset duration through organic expansion, sustainability with enhanced oil recovery, dividends and strategic buybacks under its ongoing normal course issuer bid.

Additional corporate information can be found in the Company's corporate presentation and on Headwater's website at www.headwaterexp.com.

FORWARD LOOKING STATEMENTS: This press release contains forward-looking statements. The use of any of the words "guidance", "initial, "anticipate", "scheduled", "can", "will", "prior to", "estimate", "believe", "potential", "should", "unaudited", "forecast", "future", "continue", "may", "expect", "project", and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained herein, include, without limitation: the expectation that additional development capital savings realized in the fourth quarter of 2025 will now allow Headwater to accelerate further evaluation in the Greater Pelican area and the capital will be allocated towards a second polymer pilot, drilling of a water source well and to testing a previously untested Clearwater E zone; the expected size of the Grand Rapidspool boundaries and plans to drill 4-5 stratigraphic tests in the first quarter of 2026 and up to 20 Grand Rapids multi-laterals and commission two full sections of Grand Rapidssecondary recovery across the balance of 2026; the expected capital activity and timing in Greater Pelican including drilling a second multi-lateral polymer pilot and a water source well by year-end 2025; the expectation that both multi-lateral polymer pilots in the Greater Pelican area will be commissioned and onstream before year-end; the expectation that the balance of 2025 in Greater Pelican will also include a multi-lateral Wabiskaw step-out delineation test and a multi-lateral Clearwater E exploration well; the expectation in 2026 that Headwater plans to test 2-3 identified prospects across the broader Greater Pelican area in addition to further delineation drilling and implementation of secondary recovery through additional polymer flood development in the Wabiskaw formation; the expectation that by year-end 2025, Headwater will have a total of 9 sections representing 4,500 bbls/d or 30% of the area's oil production supported by secondary recovery in Marten Hills Westand that in 2026, resource expansion, asset duration and scaled sustainability will remain the focus; the expectation that Headwater will implement another 6 sections of secondary recovery across the Clearwater Sandstone, Clearwater E and Grand Rapidsformations in Marten Hills Westand that by year-end 2026, secondary recovery supported volumes will approach 50% of the area's oil production; the expectation around timing of the McCully startup and the expectation that it will generate approximately $15 millionof cash flow over the winter season; the anticipated terms of the Company's quarterly dividend, including its expectation that it will be designated as an "eligible dividend"; Headwater's expectation that corporate oil production supported by secondary recovery is anticipated to grow to approximately 60% by year-end 2026; the expectation that over the next three years Headwater anticipates continued implementation of secondary recovery across its asset base, which is expected to result in a further 20% reduction in maintenance capital and continued improvement in corporate decline rates and reduction in maintenance capital will allow Headwater to continue to increase sustainability, asset duration and free cash flow; and that Headwater remains focused on maximizing total shareholder returns and asset duration through organic expansion, sustainability with enhanced oil recovery, dividends and strategic buybacks under its ongoing normal course issuer bid. The forward-looking statements contained herein are based on certain key expectations and assumptions made by the Company, including but not limited to expectations and assumptions concerning the success of optimization and efficiency improvement projects, the availability of capital, current legislation, receipt of required regulatory approvals, the success of future drilling, development and secondary recovery activities, the performance of existing wells, the performance of new wells, Headwater's growth strategy, general economic conditions, availability of required equipment and services, prevailing equipment and services costs, prevailing commodity prices. Although the Company believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; risks associated with wildfires in areas in which the Company operates including safety of personnel, asset integrity and potential disruption of operations which could affect the Company's results, business, financial conditions or liquidity; the impact of tariffs and other trade retaliatory measure imposed by the United States, Canadaand other countries; disruptions to the Canadian and global economy resulting from major public health events, the Russian-Ukrainian war and the conflict in the Middle-Eastand the impact on the global economy and commodity prices; the impacts of inflation and supply chain issues and steps taken by central banks to curb inflation; pandemics, war, terrorist events, political upheavals and other similar events; events impacting the supply and demand for oil and gas including actions taken by the OPEC + group; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks); commodity price and exchange rate fluctuations; changes in legislation affecting the oil and gas industry; uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures and the risk that the Company's pools may be smaller than anticipated. Refer to Headwater's most recent Annual Information Form dated March 13, 2025, on SEDAR+ at www.sedarplus.ca, and the risk factors contained therein.