%onavista Energy Corporation outlook following third quarter results

Special to the 3ost

The energy industry is among the largest economic engines driving the Canadian economy. Abundant, reliable, affordable energy is essential to economic growth, improving our standard of living and enhancing our quality of life. Simply put, energy is the lifeblood of our economy and provides for our way of life here in Canada.

Canada is the fifth largest producer of natural gas and sixth largest producer of oil in the world. The si]e and quality of our resources coupled with our world class environmental and social performance standards should position Canada to be the preferred supplier of cost and carbon competitive natural gas to the global market. Global energy demand is expected to grow 30 per cent by 2040 according to the ,nternational Energy Agency’s World Energy Outlook. This outlook highlights that oil and natural gas will provide more than half of this energy to the world, with global demand for natural gas forecast to grow 43 per cent by 2040 led by industrial and power sectors.

Unfortunately, the Canadian oil and gas sector is experiencing numerous challenges which place Canada in a difficult position to compete. Large producers and many service providers have reallocated people, equipment, and capital to more competitive Murisdictions. Canadian oil and gas equity raised annually by this sector has vanished to less than $1.0 billion year-to-date from $10 billion in 2016. Clearly, the Canadian energy sector is under extraordinary pressure.

The critical competitiveness issues are related to market access and regulatory timelines. Our world class resources are land-locked and our pipelines full. Current policies and regulatory burdens have delayed, or in certain cases canceled, the expansion of much-needed infrastructure in Canada required to serve nations experiencing energy poverty, and in dire need of cleaner energy.

Our largest customer over the past five decades has recently become our fiercest competitor. Over the past two years, the US has grown their natural gas export volumes by 85 per cent and oil export volumes by 300 per cent to meet the ever-increasing global demand for energy. Abundant Canadian natural resources are being held captive without access to similar global markets. ,n western Canada, we currently sell our oil and natural gas to the US at an unimaginable 40 per cent and 50 per cent discount, respectively, while in eastern Canada, we are importing energy at global prices, from foreign suppliers. This scenario paraly]es economic growth across our nation from sea to sea and should create an urgent and growing imperative to set policy across Canada which efficiently diversifies oil and natural gas markets beyond our existing solitary export market. We, as a nation have proven that economic growth and environmental responsibility can work together. Statistics Canada reported that of the $11.8 billion spent on environmental protection, in the most recent year of collected data, the oil and gas sector accounted for the largest share of expenditures, spending $6.5 billion or 55 per cent of total business environmental protection expenditures. ,n 2016, greenhouse gas (“GHG”) emissions in our Canadian energy sector represents only 0.31 per cent of global GHG emissions. The energy industry continues to collaborate and share technology and innovation to reduce GHG emissions intensity and de-couple production growth from emissions growth. With expanded market reach, our country can undeniably play a leadership role on the world stage in supporting other countries in their energy demand and climate obMectives.

)undamentally, the commodity price volatility created in Canadian markets by the preceding phenomenon makes it challenging for our sector to economically develop our abundant natural resources. 'espite these challenges, our team at %onavista has responded by adapting our cost structure, focusing on liquids-rich natural gas development and enhancing the economic quality of our assets with technology and innovation. With continued pursuit of these high-quality development opportunities, we expect to generate a total of $90 to $100 million of surplus funds flow in 2018, as we spend $155 to $165 million, inclusive of acquisitions and divestitures, to maintain production and exit the year at approximately 70,000 boe per day.

We are encouraged with the natural gas demand trends we are currently experiencing in North America. Specifically, US liquefied natural gas (“LNG”) export has been expanding rapidly with capacity forecasted to grow three-fold to nearly 10 bcf per day by this time next year. As well, electrical generation natural gas demand has been at record levels in both Canada and the US for most of this past cooling season, which has led to near record low natural gas inventory levels in North America as we head into the winter heating season. We are also encouraged with expansion plans underway by TransCanada 3ipeLines Limited (“TC3L”) to export an additional 2.5 bcf per day of natural gas out of western Canada by 2021. Given that our natural gas pipelines are full today, it would be a sucess for our industry if this timeline could be accelerated by overcoming current regulatory challenges. Lastly, the recent final investment decision announcement by LNG Canada has reinvigorated our longterm fundamental view of Canadian natural gas supply and demand.

While these fundamentals are encouraging, we intend to remain disciplined with our 2019 capital spending plans designed to generate maximum surplus funds flow while maintaining production. We believe that the fundamentals are in place for Canadian natural gas prices to gradually rise over the next decade, but not without continued volatility in the short term. With that belief, it is in our best interest to remain pragmatic stewards of capital, innovative with our development programs, and driven by our financial flexibility. As we anticipate structural improvements in Canadian natural gas fundamentals, we will undoubtedly remain agile in our response to these improvements. ,t is our intent to provide comprehensive guidance with our 2019 capital budget in -anuary. We would also like to encourage our shareholders to review our inaugural Corporate Responsibility Report released on our website on October 12, 2018. ,t showcases our success not only within the realm of our environmental, health and safety responsibilities, but also how we have successfully collaborated with many of our stakeholders as we adapt to the everevolving business environment. ,t is our goal at %onavista to be an industry leader in efficiently and sustainably supplying the world with responsible Canadian energy for years to come. This report demonstrates the many strides we have taken thus far.

We thank our employees for their commitment and dedication and our shareholders for their on-going support. We look forward to remain focused on financial flexibility throughout the remainder of 2018 and value creation through the coming years.