Forza Petroleum : 2022 Annual Management's Discussion & Analysis

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis ("MD&A") should be read in conjunction with the consolidated financial statements of Forza Petroleum Limited ("FPL" or, the "Company") and its subsidiaries for the years ended December 31, 2022 and 2021 (the "Financial Statements"), which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

The date of this MD&A is March 16, 2023.

Unless otherwise noted, all amounts are in thousands of U.S. dollars.

Selected terms and abbreviations used in this MD&A are listed and described in the "Glossary and Abbreviations" section.

Readers should refer to the "Forward-Looking Information" advisory on page 17. Additional information relating to FPL, including FPL's Annual Information Form dated March 23, 2022, is on SEDAR at www.sedar.com. The Company will file an Annual Information Form for the year ended December 31, 2022 on or before March 31, 2023.

Table of Contents

Company Overview

The Company is a public company incorporated in Canada under the Canada Business Corporations Act and is the holding company for the Forza Petroleum group of companies (together, the "Group" or "Forza Petroleum"). The Group has a 65% Working Interest in and operates the Hawler License Area in the Kurdistan Region of Iraq ("KRI"), which has yielded the discovery of four oil fields, three of which are currently producing.

Operational Highlights

2022

• Average gross (100%) oil production of 14,500 bbl/d (working interest 9,400 bbl/d) versus 12,200 bbl/d (working interest 7,900 bbl/d) for the year ended December 31, 2021;
• Nine wells were drilled, sidetracked or recompleted during 2022, including three in the Zey Gawra field, four in the Demir Dagh field and one in the Ain al Safra field, together with conversion of a previously drilled Zey Gawra well for water disposal;
• Hawler facilities were further developed during the year with conversion of the previously drilled Zey Gawra-2 well into a water disposal well, continuing construction of the gathering system to serve the western flank of the Hawler license area, civil works for drilling pads and additional flowlines throughout the area;

2023

• Average gross (100%) oil production of 13,700 bbl/d (working interest 8,900 bbl/d) and 13,900 bbl/d (working interest 9,100 bbl/d) for January and February 2023, respectively;
• The Zey Gawra-10H well, drilled late in 2022, has been completed and turned over to production;
• The Ain al Safra-1 and -2 wells, which were recompleted in the Jurassic and Triassic reservoirs, respectively, in recent months, have been tested. Although the presence of oil has been confirmed in each reservoir, test results were inconclusive in part because of the influx of formation water. Data from testing and available data from offset wells is being analyzed to determine next steps;
• On January 13, 2023, Forza Petroleum spudded the Demir Dagh-15 well targeting the Cretaceous reservoir. Logging of a pilot hole is underway;

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

• For the balance of 2023, the Corporation plans to drill four additional wells targeting both Tertiary and Cretaceous reservoirs. Capital budgets also include extending the coverage of 3D seismic data for the Hawler license area and completing installation of processing facilities and pipelines connecting each of the Banan field and the Zey Gawra field to the Hawler production facilities at the Demir Dagh field;
• Forza Petroleum forecasts $68.3 million of capital expenditure for 2023, down from $80 million budgeted, resulting primarily from the rescheduling of a well targeting the Demir Dagh Jurassic reservoir into 2024.

Financial Highlights and Outlook

Liquidity outlook

The Group expects cash on hand as of December 31, 2022 and cash receipts from net revenues from sales, exclusively made to the KRG at the tie-in to the Kurdistan Oil Export Pipeline, will fund its forecasted capital expenditures and operating and administrative costs through the end of March 2024 and the $76.2 million in deferred purchase consideration, falling due at the end of March 2023, owing in connection with the original acquisition of the Hawler License Area. Management is engaged with the principal shareholder to discuss funding support for the Group's near-term projected cash outflows. Management expects that a facility, up to $10 million, from the shareholder can be promptly arranged, if needed.

Financial performance

The following table contains financial performance highlights for the three and twelve months ended December 31, 2022 and December 31, 2021.

Notes:

1. Field operating costs represent Forza Petroleum's Working Interest share of gross operating costs and exclude partner share of operating costs which are being carried by Forza Petroleum.
2. Excludes non-cash changes to the decommissioning obligation.

Revenue and cash receipts

Revenue of $57.6 million was recorded for the three months ended December 31, 2022. Included in revenue is $48.2 million realized on the sale of 816,100 bbl (WI) of crude oil ($59.09/bbl) and $9.3 million related to the recovery of costs carried on behalf of partners. Revenue from sales decreased by $0.1 million versus the three months ended December 31, 2021 due to a 7% decrease in average realized sales price partly offset by a 7% increase in sales volumes.

Revenue of $323.8 million was recorded for the twelve months ended December 31, 2022. Included in revenue is $271.2 million realized on the sale of 3,445,400 bbl (WI) of crude oil ($78.71/bbl) and $52.6 million related to the recovery of costs carried on behalf of partners. Revenue for the twelve months ended December 31, 2022 increased by $136.0 million compared to the year ended December 31, 2021. The increase is attributable to a 44% increase in average realized sales price and a 19% increase in sales volumes.

All sales during the twelve months ended December 31, 2022 were made via the Kurdistan Oil Export Pipeline. The Group has received full payment for all oil sales made to the end of September 2022.

Operating expense

Operating expense during the fourth quarter of 2022 amounted to $10.2 million ($12.53/bbl) versus $9.3 million ($12.25/bbl) during the fourth quarter of 2021.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Field operating costs during the fourth quarter of 2022 amounted to $6.6 million ($8.14/bbl) compared to $6.1 million ($7.96/bbl) during the fourth quarter of 2021. Field operating costs per barrel increased for the three months ended December 31, 2022 compared to December 31, 2021 due to increases in security, diesel and personnel costs, partially offset by lower operational workover costs and a 7% increase in sales volumes. The increased security costs were primarily due to increased activity during the three months ended December 31, 2022 compared to the same period in 2021. Diesel and personnel costs have increased due to both higher prices and rates and increased activity during the three months ended December 31, 2022 compared to the same period in 2021.

Operating expense during the twelve months ended December 31, 2022 amounted to $37.2 million ($10.80/bbl) versus $30.1 million ($10.42/bbl) during the twelve months ended December 31, 2021.

Field operating costs during the twelve months ended December 31, 2022 amounted to $24.2 million ($7.02/bbl) compared to $19.5 million ($6.78/bbl) during the twelve months ended December 31, 2021. Field operating costs per barrel increased for the twelve months ended December 31, 2022 compared to the twelve months ended December 31, 2021 as a result of an increase in security, personnel, consumables and diesel costs, partially offset by lower operational workover costs and a 19% increase in sales volumes. The increased security costs were due to a higher rate in the first half of 2022, compared to a temporarily reduced rate during the first quarter of 2021, combined with increased activity. Diesel, personnel and consumable costs have increased due to both higher prices and rates and increased activity during the twelve months ended December 31, 2022 compared to the same period in 2021.

Field operating costs represent Forza Petroleum's Working Interest share of gross operating costs and exclude partner share of operating costs which are being carried by Forza Petroleum.

Cash generated from operating activities

Cash generated from operating activities for the fourth quarter of 2022 was $28.3 million compared to $21.4 million during the same period in 2021. Cash generated from operating activities for the twelve months ended December 31, 2022 was $112.0 million compared to $51.2 million during the same period in 2021. The increase for both periods mainly relates to higher crude oil sales revenue received during the period. This positive factor has been partially offset by an increase in royalties and cash payments relating to inventories and trade and other payables. Royalties increase proportionally with sales revenue. The increase in payments relating to inventory and trade and other payables primarily relates to increased activity, including operating a higher number producing wells.

Profit / Loss

Loss for the three months ended December 31, 2022 was $215.4 million compared to a loss of $22.8 million during the three months ended December 31, 2021. The variance in loss for three months ended December 31, 2022 is primarily attributable to i) a $220.6 million impairment charge recorded during the three months ended December 31, 2022 compared to a $32.4 million impairment charge recorded in the same period in 2021, both relating to the Hawler licence area; ii) a $2.7 million increase in the non-cash charge resulting from the change in the fair value of the purchase consideration obligation; iii) a $0.9 million increase in general and administration expense primarily related to increased long-term incentive plan costs compared to the same period in 2021; iv) a $0.9 million increase in operating expense as a result of increased security, personnel, and diesel costs, partially offset by lower operational workover costs; and v) a $0.3 million increase in income tax expense as a result of increased net revenue.

Loss for the twelve months ended December 31, 2022 was $138.0 million compared to a profit of $10.3 million during the twelve months ended December 31, 2021. The variance in loss/profit for twelve months ended December 31, 2022 is primarily attributable to i) a $220.6 million impairment charge recorded during the year ended December 31, 2022 compared to a $32.4 million impairment charge recorded during the year ended December 31, 2021, both relating to the Hawler licence area; ii) no one-time gains during the period while there was a non-recurring gain of $15.7 million recorded during the twelve months ended December 31, 2021 relating to the deconsolidation of OP Congo SA; iii) a $11.0 million non-cash increase in the depletion charge for the twelve months ended December 31, 2022 as a result of increased production volumes and a higher depletion rate per barrel; iv) a $7.1 million increase in operating expense as a result of increased security, personnel, consumables, and diesel costs, partially offset by lower operational workover costs; v) a $2.9 million increase in income tax expense as a result of increased net revenue; vi) a $3.5 million decrease to the trade and other receivables provision during the twelve months ended December 31, 2021 with no comparable change during the current period; and vii) a $1.8 million decrease to the materials inventory provision during the twelve months ended December 31, 2021 compared to a $0.1 million decrease during the twelve months ended December 31, 2022. These negative factors have been partially offset by i) an $80.4 million increase in net revenue resulting from increased average realized sales price and recovery of carried costs, and higher sales volumes; and ii) a $4.5 million decrease in the non-cash charge resulting from the change in the fair value of the purchase consideration obligation.

Capital additions

During the fourth quarter of 2022, the Group recorded capital additions of $18.7 million, consisting of i) $12.7 million invested in drilling activities in the Demir Dagh, Ain al Safra and Zey Gawra fields; ii) $3.3 million recorded on facilities; and iii) $2.6 million recorded on directly attributable support costs.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

During the twelve months ended December 31, 2022, the Group recorded capital additions of $58.9 million, consisting of i) $49.8 million invested in drilling activities in the Demir Dagh, Ain al Safra and Zey Gawra fields; ii) $5.1 million recorded on facilities; and iii) $4.1 million recorded on directly attributable support costs.

Financial position

The following table highlights the Group's financial position as at the dates indicated below.

The cash and cash equivalents balance of $71.1 million as at December 31, 2022 increased from $24.7 million at December 31, 2021. This increase is due to $112.0 million in cash generated from operating activities offset by $65.5 million in cash used in investing activities.

Working capital increased from $45.4 million at December 31, 2021 to $52.1 million at December 31, 2022 due to i) a $46.4 million increase in the cash and cash equivalents balance; ii) a $28.0 million increase in the trade and other receivables balance; iii) a $2.1 million decrease in the trade and other payable balance, excluding the purchase consideration obligation;

1. a $3.8 million increase in the inventory balance; and v) a $0.8 million increase in the other current assets balance. These positive factors have been largely offset by the inclusion of the purchase consideration of $74.4 million as a current portion of trade and other payables, previously classified as non-current (December 31, 2021 - $67.6 million).

The total assets balance decreased to $448.2 million at December 31, 2022 from $587.7 million at December 31, 2021. This change is primarily due i) a non-cash impairment charge of $220.6 million, ii) a non-cash depletion expense of $49.2 million; and iii) a $7.7 million non-cash reduction in the decommissioning asset balance. These negative factors were partially offset by i) $58.9 million of capital additions; ii) a $46.4 million increase in the cash and cash equivalents balance; and iii) a $28.0 million increase in trade and other receivables.

The $75.8 million decrease in total long-term liabilities from December 31, 2021 is due to i) the reclassification of the purchase consideration of $74.4 million (December 31, 2021 - $67.6 million) from non-current trade and other payables to current trade and other payables; ii) a $7.3 million decrease in the decommissioning obligation; and iii) a $0.8 million decrease in the retirement benefit obligation.

The undiscounted balance of principal and accrued interest owed under the purchase consideration obligation to the seller of the Hawler License Area as at December 31, 2022 was $76.2 million (December 31, 2021 - $76.2 million).

Business Environment

Following various destabilizing geopolitical events impacting the KRI over several years, relative political stability over the last three years has supported conditions where the Group has been able to advance its activities in the KRI. However, oil price volatility and other macroeconomic factors compound uncertainty associated with unresolved political disputes, and their eventual impact on the Group's operations may be significant and remains unclear. There remains an ongoing risk that any degradation of the regional security situation could have a material adverse effect on the operating and financial performance of the Group. Political and other risk factors which are disclosed in FPL's Annual Information Form could have an adverse effect on Forza Petroleum's performance.

The Group's future revenues and cash flows from operating activities are dependent on the Group's ability to produce, deliver, and receive payment for sales of crude oil. Production rates are subject to fluctuation over time and are difficult to predict.

On February 15, 2022, the Iraqi Federal Supreme Court (the "Court") ruled as unconstitutional the KRG Law No. 28 of 2007, which regulates the oil and gas sector in the KRI. The Court's judgment also provides that the Iraqi Ministry of Oil may pursue the annulment of PSCs that have been entered into by the KRG. In a statement released on February 16, 2022, the KRG challenges the Court's judgment and stresses that "it will take all constitutional, legal, and judicial measures to protect and preserve all contracts made in the oil and gas sector". Normal operations are being maintained at the Hawler License Area. The Group has received full payment for all Hawler oil sales made to the KRG to the end of September 2022.

Uncertainties related to global, social, political, and economic conditions and the resulting changes in global oil supply chains and infrastructure investment contribute to volatility in the price of crude oil. During 2020 the global response to the spread of COVID-19 decreased global economic activity and, correspondingly, the demand for and price of crude oil. There was a sharp recovery in both global economic activity and oil price in 2021 and into 2022, however, restrictions periodically imposed in response to ongoing local outbreaks can undermine any developing positive sentiment. As demonstrated by the global