Ops Update

Sales volumes in the second quarter of 2019 averaged 4,332 boe/d, down 14% from the sales volumes in the same period in 2018 as the Company continued selling inventory accumulated during Q4 2018.

Production averaged 4,143 boe/d in Q2 2019 down 18% from the same quarter in 2018. Production in the second quarter was adversely impacted by the failure of a third-party fuel gas line, which caused outages at Razor’s major Swan Hills properties. Razor achieved a solution to enable temporary resumption of production. However, if Razor had not taken immediate action to secure fuel gas at key facilities within the Swan Hills area, production would have decreased by approximately 2,200 boe/d, which would have reduced Q2 2019 production by approximately 1,100 boe/d. Third-party fuel gas composition issues continued in Q2 2019, resulting in further production interruptions in the Swan Hills area throughout the quarter. These operational disruptions accounted for 285 boe/d in reduced production as compared to Q2 2018. It is expected that these issues will be addressed in Q3 2019. Kaybob production was down in this quarter due to the sale of the Kaybob BHL Unit 1 in Q1 2019, as this Unit accounted for 173 boe/ d of production in Q2 2018. Kaybob production was further impacted in Q2 2019 compared to Q2 2018 due to wells awaiting downhole workovers.

Effective July 2018, Razor began utilizing a portion of its own gas production to generate electrical power. Gas production of internally consumed gas for the three and six months ended June 30, 2019 was 1,055 mcf/d and 933 mcf/d, respectively.

Due to the unprecedented discounts on Western Canadian Light Sweet Oil ("MSW") in the fourth quarter of 2018, Razor did not sell all of its produced oil, instead Razor was temporarily stored it in existing surface tanks which established material inventory. MSW differentials and WTI pricing improved significantly in 2019 and the Company has been reducing its inventory levels. As at June 30, 2019, Razor had 11,228 bbls of light oil inventory (December 31, 2018 - 35,267 bbls).

Razor realized an oil price of $76.48 per barrel during the second quarter of 2019, which was a 4% discount to the WTI (CAD), down from the 11% and 9% discounts in Q1 2019 and Q2 2018, respectively, mostly due to the tightening of the MSW differential to WTI since Q4 2018.

During the second quarter of 2019, the Company realized an average operating netback of $12.33/boe, down 28% from the second quarter of 2018, due to lower realized prices, decreased production volumes and higher per boe operating expenses. For the first six months of 2019, operating netback was down 45% from the same period in 2018 as a result of lower realized prices, which were down 9%, and higher operating costs, which were up 16%.

Royalty rates averaged 15% in the second quarter of 2019 compared to 14% for the same period in 2018. This increase is mostly due to the relative decrease in gas production compared to oil production, as gas volumes attract lower royalty rates than oil volumes. For the first six months of the year, royalties averaged 15%, down 17% from the same period last year, mostly due to lower prices and production volumes.

Operating expenses increased 5%, on a per boe basis, in the second quarter of 2019 compared to the same period in 2018, mostly due to lower sales volumes. On a dollar basis, operating expense was down 10% in the second quarter compared to the second quarter in 2018. Workovers and facility and pipeline integrity expenses averaged $8.52/boe in the second quarter of 2019 compared to $9.23/boe in the same quarter of 2018. For the first six months of the year, operating costs were an average of 16% higher compared to the same period last year, mostly due to increased workover costs.

The top cost drivers, fuel and electricity, labour, property taxes and repairs and workovers accounted for 71% of total operating expenses in the second quarter of 2019 (70% in Q2 2018). Electricity and fuel increased 10% in the quarter due to failure of a third-party fuel gas pipeline in May 2019 as well as third party fuel gas composition issues that started in February 2019 and continued in Q2 2019. In order to minimize production disruptions, as a result of these unforeseen gas supply disruptions, Razor trucked in compressed natural gas at a cost of $1.1 million or $2.73/boe in the second quarter of 2019. In June 2019, the Company implemented an alternative to natural compressed gas by repurposing certain pipelines to supply the gas required. Excluding the cost of compressed natural gas, electricity and fuel costs decreased 16% in Q2 2019 from Q2 2018, mostly due to decreased usage of grid-based electricity directly attributable to the installation of natural gas power generation in July 2018.

Workovers decreased 64% in Q2 2019 from Q2 2018, accounting for 8% of operating expenses in the second quarter, down from 18% in the same period last year. Similarly, pipeline and facility repairs decreased 29% in Q2 2019 from Q2 2018, accounting for 17% of operating expenses in Q2 2019. For the first six months of the year, workovers increased 21%, mostly due to work deferred from Q4 2018 being completed in Q1 2019 and compressed natural gas costs in Q2 2019.