Crown Point Energy : Consolidated Financial Statements for the years ended December 31, 2022 and 2021

Key audit matter

The impact of petroleum and natural gas reserves on net development and production (D&P) assets

Refer to note 2 - Basis of presentation, note 3 - Significant accounting policies, note 8 - Property and equipment and note 20 - Impairment of property and equipment to the consolidated financial statements.

The Company had $42.4 million of net D&P assets in the cash generating units (CGUs) as at December 31, 2022. Depletion and depreciation (D&D) expense for the CGUs was $7.4 million for the year then ended. D&P assets are depleted on

1. field-by-fieldbasis using the unit of production method with reference to the ratio of production in the year to the related petroleum and natural gas proved and probable reserves (the reserves), taking into account the estimated future development costs necessary to bring those reserves into production.

At the end of each reporting period, the Company reviews D&P assets for circumstances that indicate the D&P assets may be impaired. The D&P assets are grouped together into CGUs for the purposes of impairment testing. If any such indication of impairment exists, the Company determines the CGUs' recoverable amounts. Impairment is identified by comparing the recoverable amount of the CGU to its carrying amount.

How our audit addressed the key audit matter

Our approach to addressing the matter included the following procedures, among others:

• The work of management's experts was used in performing the procedures to evaluate the reasonableness of the reserves to determine D&D expense including the estimated future development costs necessary to bring those reserves into production, and the recoverable amounts of the Company's CGUs. As a basis for using this work, the competence, capabilities and objectivity of management's experts were evaluated, the work performed was understood and the appropriateness of the work as audit evidence was evaluated. The procedures performed also included evaluation of the methods and assumptions used by management's experts, tests of the data used by management's experts and an evaluation of their findings.
• Tested how management determined the recoverable amounts of the Company's CGUs and D&D expense, which included the following:
• • Evaluated the appropriateness of the methods used by management in making these estimates.
  • Tested the data used in determining these estimates.
  • Recalculated the units of production rates used to calculate D&D expense for the Company's CGUs.

As at December 31, 2022, the Company identified indicators of impairment and performed impairment tests of the Company's CGUs. A CGU's recoverable amount is the higher of its fair value less costs of disposal and its value-in-use. Management used fair value less cost of disposal to determine the recoverable amounts of the CGUs, which is based on the discounted after-tax cash flows of reserves. The reserves are evaluated and reported on by independent reserve engineers (management's experts).

As a result of the impairment tests performed, the Company recognized an impairment charge to the Tierra del Fuego CGU of $2.1 million.

The significant assumptions used by management to determine the recoverable amounts of the CGUs include the reserves, projected future rates of production, future commodity pricing, timing and amounts of future expenditures and the discount rate.

We determined that this is a key audit matter due to (i) the significant judgment by management, including the use of management's experts and the development of significant assumptions; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures relating to the significant assumptions; and (iii) the audit effort that involved the use of professionals with specialized skill and knowledge in the field of valuation.

• Evaluated the reasonableness of the significant assumptions used by management in developing the underlying estimates, including:
  o projected future rates of production, timing and amount of future expenditures by considering the current and past performance of the Company's CGUs and whether these assumptions were consistent with evidence obtained in other areas of the audit, as applicable;
  o future commodity pricing by considering third party industry forecasts; and
  o discount rate, through the assistance of professionals with specialized skill and knowledge in the field of valuation.

Valuation of property and equipment (P&E) assets acquired in Puesto Pozo Cercado Oriental Exploitation Concession

Refer to note 3 - Significant accounting policies and note 5 - Acquisition of working interests to the consolidated financial statements.

Our approach to addressing the matter included the following procedures, among others:

• Tested how management estimated the fair value of the acquired P&E assets, which included the following:
  − Read the purchase agreement.