Strathcona Resources Ltd.

Good morning. My name is Anis and I'll be your conference moderator today. I would like to welcome everyone to the second quarter 2025 conference call of SRAPcona resource LTD. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. For attendees on the conference calls would like to ask a question, press star than the number one on your telephone keypad. If you'd like to throw your question, please press star followed by two. I now introduce Angie Lau, Treasurer of SRAPcona to open the conference and introduce the speakers.

Welcome to the Q2 2025 conference call of SRAPcona resources LTD. Yesterday, SRAPcona released its second quarter results. We encourage our investors to visit SRAPcona's website and review the disclosure materials in detail. Today's call will be focused on taking questions from analysts. Please note that all commentary made by today's speakers are subject to the same advisories regarding forward looking information and non-GAAP measures as can be found in yesterday's press release and our other disclosure materials. In particular, any comments made regarding the offer to make shareholders, as well as any expectations about the pro forma results or resulting capital structure of SRAPcona are based on our current expectations regarding our business and combined business and are in part based on MEG's available public data. While we believe our current assumptions and expectations to be reasonable, actual results could differ materially from those discussed today and listeners should not place undue reliance on any such statements. Please refer to SRAPcona's offer to purchase and accompanying takeover bit of information on the SRAPcona circular dated May 30th, 2025, available on our website and under the company's profile on Cedar Plus for further information. On today's call, we have from our management team, Adam Watrous, Executive Chairman, Connor Watrous, Chief Financial Officer, Connie DeChancho, Chief Commercial Officer, Dale Dibbabiak, Chief Operating Officer, Kim Choo, President SRAPcona Cold Lake, Seamus Murphy, President SRAPcona Lloydminster Conventional, and Ryan Tracy, President SRAPcona Lloydminster Thermal. With that, in keeping with our practice, we will take all of our materials as read and we would now like to jump straight to questions.

Thank you, ladies and gentlemen, we now begin the question and answer session. Should you have a question, please press star followed by one or you touch your phone, below your brown that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. If you're using a speaker phone, please lift the hands up before pressing any keys. One moment, please, for your first question. Your first question comes from Patrick O'Rourke with HGB Capital Markets. Please go ahead.

Hey, guys, good morning and thank you for taking my question. I guess the first question

just revolves around the Meg Transaction here. In the past, you've spoken to engagement or lack thereof with the team over there. They're obviously running an open strategic process that they provide a few updates on. Can you comment with respect to any changes

in the level of engagement that you have had over there? Sure, Patrick, this is Adam Wattress. We've had no engagement.

We have asked for it multiple times

and we have been ghosted. OK, and then second question here, just with

respect to, you know, in the scenario where you are unsuccessful with the bid that you've put out there, you've spoken to a $10, potential $10 per share distribution here in a tax efficient manner. I think you have about $15 in PUC, but if you could sort of provide maybe a little bit of colour with respect to how you think about the tax efficiency of that and then alternatively with the, you know, extreme strength of the balance sheet, being in that cash position, how you weigh that versus the opportunity set for other M&A or you're obviously having operational success through the portfolio, the potential that you could accelerate or

upsize the organic growth.

I think I got three questions in there, Patrick.

The first was on tax efficiency. I really can't comment on that. That's a really complicated detail. The second thing is how does this relate to for unsuccessful in MAG? How does this, you know, what are we thinking about doing with the cash? So our thought process was, and I've talked about this briefly before, is that our Plan A has been to organically grow the business from 120,000 barrels a day to 195,000 barrels a day over the next five years. And the Plan A plus would be to acquire MAG. Now, that ends up being important in that we've had lots of people say to us, say, well, gee, if you don't buy MAG, you got all this cash, you know, why don't you go buy something else? Well, the reason why we're looking to acquire MAG is very specific to that particular opportunity as opposed to, hey, we just want to buy things in general. And so as a consequence, that's why, you know, if we are unsuccessful in acquiring MAG, our plan is to not buy something else, but instead provide approximately $10 a share proceeds to our investors. So this is not a, you know, sometimes people think, oh, well, you know, are you just building a generic war chest to go up and buy stuff? No, it's very, we had a very specific Plan A on organic growth and then at the same time distributing cash to our shareholders. And if we got a particular acquisition being MAG, then we would do it. The, in terms of the third party question, which is, if we don't buy MAG, do we just accelerate growth? Actually, we quite like our current growth plan to go from 120,000 to 195,000. I think it's a compound annual growth rate of about 8%. I think, I'm not certain about this, but I think that's the fastest growth rate organically of any company of our scale in North America. So I don't, it's not like we're, you know, growing slowly, you know, with a sort of our base in Plan A case. So that'd be my thoughts. Maybe others may have any other comments or perspectives. Well, hopefully that's helpful, Patrick.

Yeah, absolutely. And you caught me trying to ask three

questions and one there. Okay. Well, thank you very much.

Thank you. Your next question comes from in a whole shop with Judy Cowan. Please go ahead.

Thanks. And good morning, everyone. I'll just start with a question on your crude by rail business with the hardest rail terminal acquisition having closed. Can we get an update on the status of integration of that asset and maybe giving your dominance on Western Canadian rail infrastructure, how should we be thinking about vertical integration in the rail activity outlook for Strathcona specifically if heavy deaths were to widen a couple of dollars into the, into the back half of the year?

Sure. So when

we think about the, you know, the recent transaction, which we did too, by the largest crude by rail, crude by rail third party terminals in the country. So really what we see that as is just a pure natural hedge to the go forward Strathcona, Strathcona upstream business in that we currently don't plan to put our own Strathcona barrels through the terminal at this time and have a long term, a long term take or pay there with a strong investment grade counterparty that is currently spending off about $12 million of free cashflow up for a year. And we see that as effectively what the current stabilized run rate cashflow will be on the business in the current spread environment. That being said, if and when spreads on WCS start to widen, there's about 75 to 80% of that terminal that's currently not being utilized, which in turn means that there is a large amount of free space for spot volumes, which we think certainly based on the past performance of that terminal will start to

fill up as spreads in the base start to widen. Terrific. Thanks

for that, Connor. And then maybe just flipping over to your partnership with Canada Growth Fund on the carbon capture side of things. Where do things stand on that front and has the development trajectory changed at all based on liberal messaging under CARNI to date?

Sure. So I'd say that we're still thrilled to have the partnership with the folks at Canada Growth Fund. And we've made a lot of progress over the past 12 months since that partnership was first signed on the first steps of the detailed feed work. Our view is it's really not a question of if, but when our first carbon capture and storage project, I guess, sanctioned. And we're still probably a couple of quarters plus a couple of quarters plus a way from that happening as there's still a little bit more feed work that we need to do. And there's probably a little bit more clarity that we're seeking in terms of what kind of carbon pricing world are we in on

both sides of the border. Thanks. I'll turn it back.

Thank you. Ladies and gentlemen, as a reminder, if you have any questions, please press star one. Your next question comes from Travis Wood with National Bank. Please go ahead.

Yeah, thanks. Good morning. The lower drainage program at Tucker sounds like it's been successful, especially through July there with the SORs below three. So two questions and maybe just one broader one. Could you provide some details around those economics of the wells and how do you measure that? And then two, what's the timeline of that ramp over those 75 locations as we think about Cold Lake in general? And then the third question, just to top Patrick there maybe, is in general across the assets, are you seeing any inflationary pressure on

capital and or OPEC? This is Kim Chu with Cold Lake

Business Unit here. So let me just unpack some of those questions there. So in terms of performance, I think I heard in there, how long does it take to ramp? We've actually been very pleasantly surprised off of our first program there on the Deest. Ramp up profile is probably within a month to two months at the most. In terms of their current production and the forecast, I think that particular pad is doing in excess of 5000 barrels a day. And those eight LBW wells are probably 80% or more of the overall production for that pad. Off the top of my head, I have to admit I can't remember what the exact rates return or moiks on those wells are, but they are certainly highly attractive with great F&D costs and great capital efficiencies. And we are actually in the process of drilling our next batch in Tucker right now. And they are scheduled to come online early next year at this point in time. Not sure if I covered all the questions there or not. Yeah, and then maybe...

Yeah, and then Travis, this is Connor again, just speaking to things on the service cost side, I'd say that our view is we've been in a fairly stable service cost world for most of the last, I'd call it 18 to 24 months. There's always a couple percent of general inflation per year. That is that that kind of forms the hurdle that the teams need to eat back via a ongoing focus of trying to improve per unit efficiencies. But it's been a stable service cost world

in general. OK, that's perfect. I'll turn it back. Thank you.

Thank you. Your next question comes from Dennis Fung with CIBC. Please go ahead.

Hi, good morning. Thanks for taking my question. My first one here is just on MIOTA, maybe following along to Travis's question. Just wondering if there's any opportunities to improve on the cost structure there or that's more of a fixed cost contract structure

to build up that that that that Tetra ProSophe facility.

Yeah, Brian Tracy here with

the Lloyd Thermal and the F&D. We're a thermal business unit. As far as the MIOTA central facility goes that we're constructing right now, it's a mixed between there's some fixed cost lump sum contracts there on our main facility construction at the central processing facility. But there's a lot of other components with our drilling and inflations and our some of our infrastructure that we've got to bring in like water gas power that is more on a reimbursable structure. So there are some opportunities to come in under that capital budget. But as of right now, we're about halfway through that project from a capital spend perspective. And right now, everything's looking on budget on time with that project. So nothing too big to report there, but it's looking positive in general.

Thank you. My second question turns back maybe to Adam. You've highlighted obviously in one of the prior questions that BEG is obviously a very unique opportunity for your company. Can you remind us on some of the things that you're really focused on in terms of opportunity sets and where you view specifically kind of attractive opportunities or what specific metrics you're continuing to look at as you

evaluate the space? Thank you. So the reason we've

been attracted to MEG is really Dennis, threefold. Number one, the high degree of similarity between their business and our business. And why that ends up being important is our experience is that some of the things that single play companies are structurally prevented from optimizing the asset on their own due to lack of economies of scale and shared learnings. Meaning as we've each time we have bought an independent SEG D business. The economies of scale that we get by adding that to our existing business, not only is that business that we get have the opportunity to be improved, but the remaining businesses that we already have are improved through shared learnings. We have taken success at some of our success at Tucker because of Howard, where we're drilling wells, or because how we were drilling wells at Orion. Now, this is a super fundamental point. And the reason why this ends up being is that for a very long period of time, the last 20 years across North America, there has been a focus on single play companies. And the reason people build single play companies is because they've been easiest to sell. But if you have a single play company, you are structurally, you have a structural impediment to actually optimizing the asset. And so we think by because of some of our existing business, not only do we think we end up operating the business more efficiently than existing management, we think that our existing businesses will be operated more efficiently and the performance will improve. That's not a comment by the company would say on the quality of the asset that makes existing management. It's a structural impediment that single play companies have. So that's the first reason we are interested in acquiring it. The second reason is that it provides Strathcona with three things or particularly accelerates three things for Strathcona. Number one, it allows Strathcona to become investment grade, which will lower our overall cost of funding. The second thing is it will increase the liquidity that Strathcona currently has in the stock market. And why that ends up being relevant is that allows us to be able to be included in some indices as you are included in indices that generally ends up being reflected positively in your stock. So those first two things are very, as I would say, very on off, light switches. They happen almost immediately upon completing the transaction. The third is that the combined business will be in a very unique situation in the North American energy landscape and that it will be the only investment grade long life flow to find high free cash flow oil business. And pure play that does not have mines, does not have refineries. And it will be in that space of a pure play long life flow to find high free cash flow. It will be many, many multiples larger than the next largest company in North America. And we think that that will be offer a very unique and attractive investment proposition to two investors. So that's what that's what from Strathcona's perspective, that would be a plan A plus. Now, obviously, you know, Megs are going to have their own, Sheryls will have their own perspective. As I've said previously, what's highly unusual about this transaction is that the typical source of a return to a seller is what is the upfront premium? In this case, which is relevant because usually they don't get a seller doesn't get anything more than the upfront premium. In this case, the selling shareholders get two additional things. Number one, they get per share accretion, which is what we previously outlined is depending on whether they're going to cash flow or any of these, somewhere between 10 and 25 percent. So it's very large accretion on a per share basis that to make sure shareholders. That's super rare. It's usually the target is usually trading at a discount to the acquirer. In this case, it's the reverse. And that's why they're getting this accretion. But the third source of return to make shareholders after the upfront premium and the per share accretion is that this is principally a share transaction. 82 percent of the consideration is in Strathcona shares. And going back to why Strathcona is doing it, because they're receiving shares, that will be an incremental source of return for Meg. Put another way is the reason we do this, we think that Strathcona share price post completing a transaction with Meg is going to go up. We think it's going to go up a lot. And that's obviously why we're doing it. And that ends up being another incremental source of return for Meg shareholders. Hopefully that's a helpful

response. Thanks, Adam. I'll turn it back.

Thank you, Dennis. There are no further questions from our phone lines. I would like to turn the call back over to Adam Waters for closing remarks.

Thanks, everyone, for tuning in this morning, especially early at seven o'clock in the morning at Mountain Time. And we look forward to our next commerce call with you one

quarter from now. Thank you. Thanks so much.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.