Cavvy Energy Ltd.

Good day and welcome to the CAVI Energy Q2 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand has been raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Vice President Corporate Finance, Dallas McConnell.

Thanks, Andrew, and good morning to everyone. I would like to welcome you to Cadley Energy's second quarter 2026 conference call. With me today are President and Chief Executive Officer Darcy Redding, Chief Financial Officer Adam Gray, Chief Operating Officer John Emery, and Chief Commercial Chief Commercial Officer Paul Kunkel. Darcy and Adam will begin today with a review of our operating and financial results and certain other company developments. Following their prepared remarks, we will turn the call back to the conference coordinator for questions over the phone and then I will facilitate questions over the webcast. Before Darcy begins, I would like to remind you that our remarks today will include forward-looking statements, that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reports filed by CAVI with the Canadian Securities Regulators on cdarplus.ca. With that, I will now turn the call over to our President and CEO, Darcy Reding, who will provide more detail on our performance in the quarter along with recent developments.

Thank you, Dallas. We appreciate everyone's interest in CAVI Energy. We are pleased to speak today to our second quarter financial and operating results, a quarter where we've made material progress on our corporate objectives while validating that our corporate strategy remains appropriate for delivering shareholder value. I'd like to take a moment to remind everyone of the three differentiating characteristics of our business. First, our upstream assets. This long-life, low-decline production provides a reliable reserves base. requiring relatively small amounts of capital to sustain. Although our upstream hydrocarbon production is approximately 80% natural gas weighted, our 20% stream of hydrocarbon liquids provides meaningful cash flow and has offset the low natural gas prices in Western Canada over most of the past several years. Our upstream assets come with an extensive inventory of impactful drilling upside, providing opportunities for meaningful growth under appropriate commodity price cycles and economic conditions. Second, our midstream business. With our ownership in three high liquids recovery gas plants with capacity to accommodate both sweet and sour customer production, we've grown both the volume and, more importantly, the revenue derived from processing other operators' volumes. These midstream revenues are largely protected from commodity price swings, providing a measure of cash flow certainty through volatile markets. Thirdly, and arguably most importantly through the first half of 2026, CAVI's sulfur production, once considered a byproduct of sour natural gas processing, is significant in both volume and its lucrative impact on cash flow. Sulfur pricing continued its historic run through the second quarter, and the value of our position as a material Canadian sulfur producer is clearly visible in our results. Adam and I will elaborate on the positive impacts of our sulfur business later in this discussion. We believe CAVI's midstream business and exposure to the sulfur market provide unique opportunities for shareholders and differentiate us from our competitors, reinforcing the benefits of our diversified revenue streams. These differentiators supplement our upstream hydrocarbon business, which in itself includes over 300 identified drilling opportunities, primarily within the conventional reservoirs of the Canadian foothills region. Gabby's share ownership continues to benefit from the supportive ownership of our largest institutional shareholder. AIMCO's ownership remains unchanged from the previous quarter at 44%, with another 13% owned by other known institutional shareholders and insiders, leaving 43% of our shares owned by others to provide investor liquidity. We are very pleased with our share price performance. We believe in our commitment to operational excellence, risk management, and our relentless focus on debt reduction. These efforts, along with our work to communicate and execute a clear, forward-looking strategy have resonated well with our investors. Recognizing our excellent results over the first half of the year, we increased our 2026 guidance, which Adam will provide greater detail on later in our presentation. So far this year, we have benefited from strong sulfur pricing, recently exceeding US$1,000 per metric ton, largely driven by the ongoing tensions in the Middle East. The continuing success of our midstream business means we now expect well in excess of $40 million in revenue generated from third party processing and other services during the year. Our strong cash flow has created an opportunity to repay up to $75 million of long term debt in 2026, already significantly bettering our original guidance and providing a runway to achieve our revised debt guidance of $75 million to $85 million by year end. Debt reduction was and remains a key focus in 2026. We believe that by delivering on our revised debt and other guidance, we will continue to build credibility and earn additional trust from our investors. We believe this will help to expand our trading multiples to levels at least comparable with and ultimately exceeding our competitors. As I've spoken about in previous quarterly results calls, we are proud of the CAVI team's accomplishments thus far. We've successfully repositioned the company as an important Canadian upstream and midstream energy company. We are now expanding our focus to include the transition into the second phase of our corporate strategy. Phase 2 spotlights value accretive growth opportunities while maintaining our achievements of the past. While phase two of our strategy emphasizes growth, we will not lose our focus on our core business. Low Western Canadian natural gas prices have kept our sweet dry gas in Northeast British Columbia shut in due to poor economics since Q1. In addition, our West Central Alberta dry sour gas that is contractually dedicated to a third party owned facility until the end of 2027 has also remained shut-in continuously for over two years due to the gas plant owner's high flow-through processing fees and poor production economics. These shut-in assets represent additional opportunities within our base business and we continue to work hard to extract shareholder value from them. While the assets in British Columbia simply need better gas pricing to justify reactivation, The run-up in sulfur pricing has enhanced the economics for producing our West Central Alberta shut-in volumes. While operational and commercial hurdles remain, CAVI is working diligently to resolve these challenges. We are optimistic there is a path to successfully resuming production from this area, but CAVI is unable to provide any commitments to that outcome or when it may occur. The primary objectives for Phase 2 include successfully developing our drilling and other organic opportunities, executing a creative M&A, and utilizing our significant infrastructure ownership to create partnerships for power generation, data center construction, or other industrial businesses that can bolt on to our core business. These opportunities will attract more of our attention going forward. In summary, I am confident that CAVI has several compelling catalysts that will continue to provide value growth opportunities for our shareholders and our team is excited to showcase them in due course. Moving now to the highlights of our second quarter financial and operating results, as previously mentioned, we are extremely pleased. Net operating income generated in the quarter was near $50 million. with the $43 million of pre-royalty sulfur revenue, which is inclusive of our 2026 sulfur hedging arrangement, substantially contributing. Our Q2 production of approximately 21,500 BOE per day and 984 metric tons per day of sulfur was inclusive of the scheduled downtime at Waterton that was factored into our original guidance. necessitated by TC Energy's scheduled maintenance activity on the sales gas pipeline system. Adam will provide additional information on our Waterton gas plant operations in a few moments. The growth in our midstream business continued in the quarter with nearly 152 million cubic feet per day of third party raw gas volumes processed, delivering 26% revenue growth versus the same quarter in 2025. What I consider the primary highlight of many highlights in the quarter, we were successful in reducing our total debt by nearly $40 million, a new quarterly record. As a result, our total debt at the end of the second quarter is $87 million, bettering our original guidance significantly and providing the basis for our revised total debt guidance of $75 million to $85 million. As our second quarter and first half results clearly show, the unprecedented run-up in the global sulfur price has contributed materially to CAVI's success. I'd like to spend a moment on this topic, given its obvious importance to our business. As of the end of Q2, CAVI is halfway through the one-year sulfur pricing agreement applicable to calendar year 2026. This contract provides the company with the means to sell one third of its sulfur production at Vancouver FOB pricing. As we've elaborated on in past communications, CAVI entered an arrangement in 2022 whereby our sulfur marketer is entitled to the physical purchase of all of our sulfur at Vancouver FOB pricing. This arrangement is anticipated to remain in place until the end of calendar 2029 assuming the conditions for a one-year extension are met in 2028. Revenue from sulfur sales has obviously contributed significantly to the company's success this year. In CAVI's July 31st news release, we provided information on our new 2027 sulfur agreement with our marketer. CAVI will sell 200,000 metric tons or approximately 50% of our anticipated 2027 sulfur production at a fixed price of 525 US dollars per metric ton. Any sales above 200,000 metric tons prorated monthly will remain exposed to Vancouver FOB pricing. Under this arrangement, CAVI has locked in over $100 million of 2027 net revenue after deductions and after royalties, providing significant cash flow certainty at a time when our remaining natural gas hedges will completely roll off as of May 31st, 2027. Additional revenues in 2027 will be derived from the remaining sulfur production sold at spot price, our hydrocarbon sales and of course Midstream Services Business. We are pleased that the agreed upon fixed price for half of our 27 sulfur production exceeds the trailing Vancouver FOB price at any time in recent history up until the start of the Middle East conflict in Q1 26. The spot Vancouver FOB price has increased to above US$1,000 per metric ton during the conflict. We are aware of reports of demand destruction at current spot prices from our market research. Significant restriction of sulfur movement from Middle East sources has disrupted global sulfur markets, similar to many other commodities. The 2027 agreement was negotiated over the course of several months and although we are uncertain how long the current spike in sulfur prices will last, we are pleased with our ability to lock in a portion of our sulfur at a price that provides cash flow certainty and helps deliver our 2027 and longer term corporate objectives. Additional sulfur volumes above the commercial commitment of this 2027 agreement remain exposed to the Vancouver FOB spot price providing an opportunity to meaningfully participate in the market if sulfur pricing maintains its historic run. I'd like to now give the floor to Adam Gray, Chief Financial Officer, to provide details on our second quarter results and insights into our revised guidance. Thank you, Darcy.