SEC Form 424B3 filed by Greenfire Resources Ltd.

Filed Pursuant to Rule 424(b)(3)

Registration No. 333-275129 

PROSPECTUS SUPPLEMENT NO. 1

(to Prospectus dated May 9, 2024)

GREENFIRE RESOURCES LTD.

45,611,549 COMMON SHARES

5,625,456 WARRANTS

5,625,456 COMMON SHARES ISSUABLE UPON EXERCISE OF WARRANTS

This prospectus supplement updates, amends and supplements the prospectus contained the Registration Statement on Form F-1 (as supplemented or amended from time to time, the “Prospectus”) (Registration No. 333-275129) of Greenfire Resources Ltd. (the “Company”).

This prospectus supplement is being filed to update, amend and supplement the information included in the Prospectus with the Company’s Interim Consolidated Financial Statements (unaudited) for the period ended March 31, 2024 (the “Financial Statements”) and the Company’s Management’s Discussion and Analysis for the period ended March 31, 2024 (the “MD&A”), which were contained in the Company’s Report on Form 6-K, filed with the Securities and Exchange Commission (the “SEC”) on May 16, 2024. Accordingly, we have attached the Financial Statements and MD&A to this prospectus supplement.

This prospectus supplement is not complete without the Prospectus. This prospectus supplement should be read in conjunction with the Prospectus, which is to be delivered with this prospectus supplement, and is qualified by reference thereto, except to the extent that the information in this prospectus supplement updates or supersedes the information contained in the Prospectus. Please keep this prospectus supplement with your Prospectus for future reference.

Our common shares are traded on the New York Stock Exchange (“NYSE”) and the Toronto Stock Exchange (“TSX”) under the symbol “GFR”. The last reported sales prices of our common shares on the NYSE and TSX on August 14, 2024 was $6.61 and CAD$8.90, respectively. 

Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 6 of the Prospectus for a discussion of information that should be considered in connection with an investment in our securities.

None of the SEC, any state securities commission or the securities commission of any Canadian province or territory has approved or disapproved of these securities, or determined if the Prospectus or this prospectus supplement is accurate or adequate. Any representation to the contrary is a criminal offense.

The date of this prospectus supplement is August 15, 2024.

Interim Consolidated Financial Statements (unaudited) for the period ended March 31, 2024

CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)

For the three month period ended March 31, 2024

Greenfire Resources Ltd.

Condensed Interim Consolidated Balance Sheets

(Unaudited)

Related Party Transactions (note 14)

See accompanying notes to the unaudited condensed interim consolidated financial statements.

These Condensed Interim Consolidated Financial Statements were approved by the Board of Directors.

Condensed Interim Consolidated Statements of Comprehensive Loss

(Unaudited)

See accompanying notes to the unaudited condensed interim consolidated financial statements.

Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

See accompanying notes to the unaudited condensed interim consolidated financial statements.

Condensed Interim Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to the unaudited condensed interim consolidated financial statements.

Notes to the Condensed Interim Consolidated Financial Statements

As at March 31, 2024 and for the three months ended March 31, 2024 and 2023 

(Unaudited)

Greenfire Resources Ltd. (the “Company” or “Greenfire”) was incorporated under the laws of Alberta on December 9, 2022. On September 20, 2023, the Company participated in a De-Spac transaction involving a number of entities, including Greenfire Resources Inc. (“GRI”) and M3-Brigade Acquisition III Corp (“MBSC”) (the “De-Spac Transaction”). Refer to Note 3 De-Spac Transaction for additional information. As of January 1, 2024, GRI was amalgamated with Greenfire Resources Operation Corporation (“GROC”). These unaudited condensed interim consolidated financial statements are comprised of the accounts of Greenfire and its wholly owned direct subsidiaries, GROC and MBSC. The prior period amounts presented are those of GRI, which continued as the operating entity, concurrent with recapitalization. As of April 4, 2024, MBSC was legally amalgamated into Greenfire.

The Company and its subsidiaries are engaged in the exploration, development and operation of oil and gas properties, focused primarily in the Athabasca oil sands region of Alberta. The Company’s corporate head office is located at 1900, 205 5th Avenue SW, Calgary, AB T2P 2V7.

These unaudited condensed interim consolidated financial statements (“interim consolidated financial statements”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) using International Accounting Standard IAS 34: “Interim Financial Reporting”. They are condensed as they do not include all of the information required for full annual consolidated financial statements, and they should be read in conjunction with the audited annual consolidated financial statements of GRL for the year ended December 31, 2023 (the “Annual Financial Statements”). The interim consolidated financial statements have been prepared on a basis consistent with the accounting, estimation and valuation policies described in the Annual Financial Statements, except as described below. The unaudited condensed interim financial statements reflect all normal and reoccurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented.

In these interim consolidated financial statements, all amounts are expressed in Canadian dollars (“$CAD”), which is the Company’s functional currency, unless otherwise indicated. These Interim Consolidated Financial Statements have been prepared on a historical cost basis, except for certain financial instruments which are measured at their estimated fair value.

The Company has one reportable operating segment which is made up of its oil sands operations based on geographic location (Athabasca oil sands region of Alberta, Canada), nature of the products sold and integration of facilities and operations. The chief operating decision maker is the President and CEO, who reviews operating results at this level to assess financial performance and make resource allocation decisions. The Company determines its operating segments based on the differences in the nature of operations, products sold, economic characteristics and regulatory environments and management. All of the Company’s non-current assets are located in and revenue is earned in Canada.

These Interim Consolidated Financial Statements were approved by Greenfire’s board of directors on May 15, 2024.

On September 20, 2023, Greenfire, GRI, MBSC, DE Greenfire Merger Sub Inc. (“DE Merger Sub”) and 2476276 Alberta ULC (“Canadian Merger Sub”), completed a De-Spac Transaction pursuant to a business combination agreement dated December 14, 2022, as amended (the “Business Combination Agreement”) with MBSC. DE Merger Sub and Canadian Merger Sub were incorporated in December 2022 for the purposes of completing the De-Spac Transaction.

Pursuant to the De-Spac Transaction, Canadian Merger Sub amalgamated with and into GRI, with GRI continuing as the surviving corporation and becoming a direct, wholly-owned subsidiary of Greenfire and DE Merger Sub merged with and into MBSC with MBSC continuing as the surviving corporation and becoming a direct, wholly-owned subsidiary of Greenfire.

Greenfire has been identified as the acquirer for accounting purposes. As MBSC does not meet the definition of a business under IFRS 3 Business Combinations, the transaction was accounted for pursuant to IFRS 2, Share Based Payment. On closing of the De-Spac Transaction, the Company accounted for the excess of the fair value of Greenfire common shares issued to MBSC shareholders as consideration, over the fair value of MBSC’s identifiable net assets at the date of closing, resulting in $106.5 million (US$79.4 million) being recognized for the year ended December 31, 2023 as a listing expense.

For the three months ended March 31, 2024, the Company expensed $nil million (March 31, 2023 - $2.3 million) in transaction costs related to the De-Spac Transaction.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants who are independent, knowledgeable and willing and able to transact would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. The Company is able to classify fair value balances based on the observability of these inputs. The authoritative guidance for fair value measurements establishes three levels of the fair value hierarchy, defined as follows:

The carrying values of cash and cash equivalents, restricted cash, accounts receivable and accounts payable and accrued liabilities included on the condensed interim consolidated balance sheets approximates the fair values of the respective assets and liabilities due to the short-term nature of those instruments.

Derivative financial instruments are used by the Company to manage risks related to commodity prices. All derivatives are classified at fair value through profit and loss. Derivative financial instruments are included on the condensed interim consolidated balance sheet and are classified as current or non-current based on the contractual terms specific to the instrument. Gains and losses on re-measurement of derivatives are shown separately on the condensed interim consolidated statement of comprehensive loss in the period in which they arise.

The warrants issued were classified as financial liabilities due to a cashless exercise feature and are measured at fair value upon issuance and at each subsequent reporting period, with the changes in fair value and recorded in the condensed interim consolidated statement of comprehensive loss. The fair value of these warrants is determined using the Black-Scholes option valuation model (level 2).

The estimated fair value of long-term debt has been determined based on period-end trading prices of long-term debt on the secondary market (level 2).

The Company is exposed to a number of different financial risks arising from normal course business exposures, as well as the Company’s use of financial instruments. There have been no changes in the Company’s objectives, policies or risks surrounding financial instruments.

Commodity price risk

The Company is exposed to commodity price risk on its oil sales due to fluctuations in market prices. The Company continues to execute a consistent risk management program that is primarily designed to reduce the volatility of revenue and cash flow, generate sufficient cash flows to service debt obligations, and fund the Company’s operations. The Company’s risk management liabilities may consist of hedging instruments such as fixed price swaps and option structures, including costless collars on WTI, WCS differentials, condensate differential, natural gas and electricity swaps. The Company does not use financial derivatives for speculative purposes.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company’s objective in managing liquidity risk is to maintain sufficient available reserves to meet its financial obligations at any point in time. The Company expects to achieve this objective through prudent capital spending, an active commodity risk management program and through strategies such as continuously monitoring forecast and actual cash flows from operating, financing and investing activities, and available credit facilities. Management believes that future cash flows generated from these sources will be adequate to settle Greenfire’s financial liabilities.

The following table details the financial liabilities as at March 31, 2024:

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s accounts receivable. The Company is primarily exposed to credit risk from receivables associated with its oil sales. The Company manages its credit risk exposure by transacting with high-quality credit worthy counterparties and monitoring credit worthiness and/or credit ratings on an ongoing basis. Trade receivables from oil sales are generally collected on 25th day of the month following production. Joint interest receivables are typically collected within one to three months of the invoice being issued. The Company has not previously experienced any material credit losses on the collection of accounts receivable.

At March 31, 2024, the Company was exposed to concentration risk associated with its outstanding trade receivables and joint interest receivables balances. Of the Company’s trade receivables at March 31, 2024, 100% was receivable from a single company (December 31, 2023- 100% was receivable from a single company). At March 31, 2024, 100% of the Company’s joint interest receivables were held by a single company (December 31, 2023- 100% by a single company). Maximum exposure to credit risk is represented by the carrying amount of accounts receivable on the balance sheet. There are no material financial assets that the Company considers past due and no accounts have been written off. Subsequent to March 31, 2024, the Company has received $5.1 million from its joint interest partner, with the remaining outstanding balance expected to be paid within a reasonable time, as a result there are no material financial assets that the Company considers past due and no accounts have been written off.

The Company has long-term marketing agreements with a single counterparty (“Petroleum Marketer”), which has exclusive marketing rights over the Company’s production and diluent purchases at Hangingstone Expansion (“Expansion”), until October 2028 and at Hangingstone Demo (“Demo”), until April 2026. Fees paid to the Petroleum Marketer as part of these agreements include marketing, incentive and royalty fees. These fees are expensed as incurred as transportation and marketing expenses. As a result of these marketing agreements, the Company is exposed to concentration and credit risks, as all sales are to a single counterparty.

During the three months ended March 31, 2024, the Company incurred $2.5 million on acquisitions, primarily on gas assets in the Hangingstone area for approximately $2.0 million and recognized an additional $10.2 million in decommissioning obligations.

No indicators of impairment were identified at March 31, 2024, and as such no impairment test was performed.

The Company’s decommissioning liabilities result from net ownership interests in oil assets including well sites, gathering systems and processing facilities. During the three months ended March 31, 2024, the Company acquired producing gas assets in the Hangingstone area and recognized $10.2 million in decommissioning obligations. The Company estimates the total undiscounted escalated amount of cash flows required to settle its decommissioning liabilities to be approximately $234.0 million (December 31, 2023 - $206.5 million). For the three months ended March 31, 2024, a credit-adjusted discount rate of 12% (December 31, 2023 -12%) and an inflation rate of 2.0% (December 31, 2023 - 2.0%) were used to calculate the decommissioning liabilities. A 1.0% change in the credit-adjusted discount rate would impact the discounted value of the decommissioning liabilities by approximately $1.8 million with a corresponding adjustment to PP&E or net income (loss). The decommissioning liabilities are estimated to be settled in periods up to year 2071. 

A reconciliation of the decommissioning liabilities is provided below:

The Company’s risk management liabilities may consist of hedging instruments such as fixed price swaps and option structures, including costless collars on WTI, WCS differentials, condensate differential, natural gas and electricity swaps. The Company does not use financial derivatives for speculative purposes.

The Company’s obligations under its New Notes (see note 9) includes a requirement to implement a 12-month forward commodity price risk management program encompassing not less than 50% of the hydrocarbon output under the proved developed producing reserves (“PDP”) forecast in the Company's most recent reserves report, as determined by a qualified and independent reserves evaluator. This requirement is assessed on a monthly basis for the duration of time that the New Notes remain outstanding.

The Company’s commodity price risk management program does not involve margin accounts that require posting of margin with increased volatility in underlying commodity prices. Financial risk management contracts are measured at fair value, with gains and losses on re-measurement included in the consolidated statements of comprehensive income (loss) in the period in which they arise.

The Company’s financial risk management contracts are subject to master netting agreements that create the legal right to settle the instruments on a net basis. The following table summarizes the gross asset and liability positions of the Company’s individual risk management contracts that are offset in the consolidated balance sheets:

The following table summarizes the financial commodity risk management gains and losses:

Subsequent to December 31, 2023, the Company implemented an updated WTI hedging program for 2024, including the replacement of previous WTI costless collar contracts with 11,500 bbls/d of WTI fixed price swaps with a swap price of US$70.94/bbl. There were no cash costs associated with the updated WTI hedging program for 2024, as the fair market value was reflected within the fixed swap price for the updated WTI hedges for 2024.

As at March 31, 2024, the following financial commodity risk management contracts were in place:

Subsequent to March 31, 2024, Greenfire entered into the following financial commodity risk management contracts:

The following table illustrates the potential impact of changes in commodity prices on the Company’s net loss, before tax, based on the financial risk management contracts in place at March 31, 2023:

The Company’s commodity risk management contracts are held with two large reputable financial institutions. As a result, the Company concluded that credit risk associated with its commodity risk management contracts is low.

Senior Secured Notes

On September 20, 2023, Greenfire issued US$300 million of senior secured notes (the “New Notes”). The New Notes bear interest at the fixed rate of 12.00% per annum, payable semi-annually on April 1 and October 1 of each year commencing on April 1, 2024, and mature on October 1, 2028. The New Notes are secured by a first priority lien on substantially all the assets of the Company and its wholly owned subsidiaries. Subject to certain exceptions and qualifications, the indenture governing the New Notes contain certain covenants that limited the Company’s ability to, among other things, incur additional indebtedness, pay dividends, redeem stock, make certain restricted payments, and disposals and transfers of assets. The indenture governing the New Notes contains minimum hedging requirements of 50% of the forward 12 calendar month PDP forecasted production as prepared to the Canadian standard using NI 51-101 until principal debt is less than US$100 million and limit capital expenditures to CAD$100 million annually until the principal outstanding is less than US$150 million. The New Notes are not subject to any financial covenants.

Under the indenture governing the New Notes, the Company is required to redeem the New Notes at 105% of the principal amount plus accrued and unpaid interest with 75% of Excess Cash Flow (as defined in the New Notes Indenture) every six-months, with the first payment due by August 15, 2024. If consolidated indebtedness is less than US$150 million, the required redemption is reduced to 25% of Excess Cash Flow to be paid for every six-month period until the principal owing on the New Notes is US$100 million.

The Company is exposed to foreign exchange rate fluctuations on the principal value and interest payments in respect of its New Notes. As of March 31, 2024, a 10% change to the value of the Canadian dollar relative to the US dollar would result in a foreign exchange gain (loss) of approximately $40.7 million (December 31, 2023 - $39.7 million).

The New Notes are subject to fixed interest rates and are not exposed to changes in interest rates.

As at March 31, 2024, the carrying value of the Company’s long-term debt was $387.9 million and the fair value was $432.9 million (December 31, 2023 carrying value – $376.4 million, fair value - $394.1 million).

As at March 31, 2024 the Company was compliant with all covenants.

Greenfire may redeem some or all of the New Notes after October 1, 2025, at 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest plus a “make whole” premium, as set out in the table below. In addition, at any time before October 1, 2025, the Company may redeem up to 40% of the aggregate principal amount of the notes using the net proceeds from certain equity issuances as a redemption price equal to 112% of the principal amount plus accrued and unpaid interest.

The following table discloses the redemption amount including the “make whole” premium on redemption of the New Notes:

Senior Credit Facility

On September 20, 2023, Greenfire entered into a reserve-based credit facility (the “Senior Credit Facility”) comprised of an operating facility and a syndicate facility. Total credit available under the Facility is $50 million comprising of $20 million operating facility and $30 million syndicated facility.

The Senior Credit Facility is a committed facility available on a revolving basis until September 20, 2024, which revolving period may be extended at the Company’s request, and subject to the lenders’ consent. If the revolving period is not extended, the undrawn portion of the facility will be cancelled and any amounts outstanding would be repayable at the end of the non-revolving term, being September 30, 2025. The Revolving Facility is subject to a semi-annual borrowing base review, occurring in May and November of each year. The borrowing base is determined based on the lenders’ evaluation of the Company’s proved developed producing petroleum and natural gas reserves and their commodity price outlook at the time of each renewal.

The Senior Credit Facility is secured by a first priority security interest on substantially all the assets of the Corporation and is senior in priority to the New Notes. The Senior Credit Facility contains certain covenants that limit the Company’s ability to, among other things, incur additional indebtedness, create or permit liens to exist, make certain restricted payments, and dispose of or transfer assets. The Senior Credit Facility is not subject to any financial covenants.

Amounts borrowed under the Senior Credit Facility bear interest at a floating rate based on the applicable Canadian prime rate, US base rate, secured overnight financing rate or bankers’ acceptance rate, plus a margin of 2.75% to 6.25% based on Debt to EBITDA ratio. A standby fee on the undrawn portion of the Senior Credit Facility ranges from 0.6875% to 1.5625% based on Debt to EBITDA ratio. As at March 31, 2024 and December 31, 2023, the Company had no amounts drawn under the Senior Credit Facility.

Letter of Credit Facility

During the fourth quarter of 2023, Greenfire entered into an unsecured $55 million letter of credit facility (the “EDC Facility”) with a Canadian bank that is supported by a performance security guarantee from Export Development Canada (“EDC”). The EDC Facility is available on a demand basis and letters of credit issued under this facility incur an issuance and performance guarantee fee of 4.25%. As at March 31, 2024, the Company had $54.3 million (December 31, 2023 - $54.3 million) in letters of credit outstanding under the Letter of Credit Facility.

Share capital

As at March 31, 2024 the Company’s authorized share capital consists of an unlimited number of common shares without a nominal or par value. The following table summarizes the changes to the Company’s common share capital:

Per share amounts

The Company uses the treasury stock method to determine the dilutive effect of performance and bondholder warrants. Under this method, only “in-the-money" dilutive instruments impact the calculation of diluted income per share. Net loss per share was calculated using the historical weighted average shares outstanding, scaled by the applicable exchange ratio following the completion of the De-Spac Transaction.

The following table summarizes the Company’s basic and diluted net loss per share:

In computing the diluted net loss per share for the three months March 31, 2024, the Company excluded the effect of 7,526,667 New Greenfire Warrants, 3,004,291 Performance Warrants and 1,112,023 RSUs, PSUs and DSUs as their effect are anti-dilutive. (March 31, 2023 - 3,899,716 Performance Warrants and 17,601,959 Bond Warrants).

Performance warrants

As at March 31, 2024, the table below summarizes the outstanding Performance Warrants:

The Performance Warrants expire 10 years after the issuance date and became fully vested with the closing of the De-Spac Transaction on September 20, 2023. The Performance Warrants plan was replaced by the omnibus share incentive plan (the “Incentive Plan”). For the three months ended March 31, 2024, $nil were recorded in stock-based compensation in relation to the Performance Warrant plan (March 31, 2023 - $0.3 million).

Restricted Share Units, Performance Share Units and Deferred Share Units

The Incentive Plan provides for the granting of deferred share units (‘DSUs”), performance share units (“PSUs”), restricted share units (“RSUs”) and options and the aggregate maximum number of Common Shares reserved for issuance thereunder is limited to 10% of the Company’s issued and outstanding Common Shares, less any Common Shares underlying securities granted under any other share compensation arrangements of the Company, if any, including Common Shares issuable on exercise of Performance Warrants. RSUs, PSUs and DSUs can be settled in either cash or shares issued from treasury and is at the sole discretion of the Board of Directors. It is the Board of Director’s intention to settle all incentive units with shares issued from treasury, therefore the incentive units have been accounted for as an equity-settled stock-based plan.

RSUs granted under the Incentive Plan typically vest annually in thirds over a three-year period, have no exercise price and automatically settle at each vesting date in either cash or shares issued from treasury at the Board of Director’s discretion. Of the 163,012 RSUs granted on February 19, 2024, on a one-time basis 17,400 vested within 30 days.

The average fair value of RSUs granted during the three months ended March 31, 2024 was based on current share price at time of grant. During the three months ended March 31, 2024, $0.3 million was recognized in stock-based compensation.

PSUs granted under the Incentive Plan vest on the third anniversary date of the grant date, provided that the Company satisfies certain performance criteria identified by the Board of Directors, which are set and measured to establish a performance multiplier from zero to two.

The average fair value of PSUs granted during the three months ended March 31, 2024 was based on current share price at date of grant along with estimates of the probability of certain production and share price targets being reached. During the three months ended March 31, 2024, $0.5 million was recognized in stock-based compensation.

DSUs are issued to independent members of the Board of Directors and vest immediately upon grant, however the units cannot be settled until the director ceases to be a director.

The average fair value of DSUs granted during the three months ended March 31, 2024 was based on current share price at time of grant. During the three months ended March 31, 2024, $0.1 million was recognized in stock-based compensation.

As at March 31, 2024, there were 7,526,667 Greenfire Warrants outstanding. The Greenfire Warrants are reassessed at the end of each reporting period with subsequent changes in fair value being recognized through the statement of comprehensive income (loss). As at March 31, 2024, the 7,526,667 outstanding Greenfire Warrants were revalued based on the closing share price of US$5.97 per common share of Greenfire. During the three months ended March 31, 2024, the fair value of the warrant liability increased by $6.4 million (March 31, 2023 - $nil). The following table reconciles the warrant liability.

The fair value of each Greenfire Warrant was estimated on its grant date and period end dates using the Black Scholes Merton valuation model with the following assumptions:

The following table reconciles the net changes in non-cash working capital and other liabilities from the consolidated balance sheet to the consolidated statement of cash flows:

In April 2024, the Company entered into a consulting agreement with M3-Brigage Sponsor III, LP (the "MBSC Sponsor") for the provision of consulting services to the Company relating to, among other things, the Company's transition to being a public company, maximizing the value of the Company, and educating the market about the Company and its value. Matthew Perkal, a member of the Company Board who was nominated to the Company Board by MBSC Sponsor pursuant to its rights under the Investor Rights Agreement, is Head of SPACs and Special Situations at Brigade Capital Management, LP, an affiliate of MBSC Sponsor and, prior to the Business Combination, served as the Chief Executive Officer of M3-Brigade Acquisition III Corp. The term of the MBSC Sponsor Consulting Agreement continues until the earlier of April 18, 2029 and the date MBSC Sponsor no longer holds any "Registrable Securities" in the Company (as defined in the Investor Rights Agreement). As compensation for the consulting services, the Company had originally agreed to issue 500,000 Common Shares which was subsequently amended to grant 500,000 RSUs under the Company’s Incentive Plan to MBSC Sponsor. The RSUs will vest in quarterly instalments of 125,000 each. The terms of the MBSC Sponsor Consulting agreement were reviewed and approved by the disinterested directors of the Company Board. The fair market value of the securities to be issued to MBSC Sponsor was $4.35 million, based on a five-day weighted average price immediately preceding the date of the date of grant.

Corporate Information

Head Office

Management’s Discussion and Analysis for the period ended March 31, 2024

MANAGEMENT’S DISCUSSION & ANALYSIS

FOR THE THREE MONTHS ENDED MARCH 31, 2024

Greenfire Resources Ltd.

MANAGEMENT’S DISCUSSION AND ANALYSIS

This Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of operations of Greenfire Resources Ltd. (“Greenfire” or the “Company”) is dated May 15, 2024, which is the date this MD&A was approved by the Board of Directors of the Company, and should be read in conjunction with the Company’s unaudited condensed interim consolidated financial statements (“financial statements”) and notes thereto for the three months ended March 31, 2024 and 2023 and the audited consolidated financial statements for the years ended December 31, 2023 and December 31, 2022. The financial statements, including the comparative figures, were prepared in accordance with International Accounting Standards 34 “Interim Financial Reporting”.

This MD&A contains forward-looking information based on the Company’s current expectations and projections. For information on the material factors and assumptions underlying such forward-looking information, refer to the “Forward Looking Statements” section of this MD&A.

This MD&A contains non-GAAP measures which are detailed in the section entitled “Non-GAAP Measures”. They include adjusted EBITDA, adjusted EBITDA per barrel ($/bbl), operating netback, operating netback per barrel ($/bbl), operating netback, excluding realized gain (loss) risk management contracts, operating netback, excluding realized gain (loss) risk management contracts ($/bbl), adjusted funds flow, adjusted free cash flow, adjusted working capital surplus (deficit) and net debt.

All financial information included in this MD&A is presented in Canadian dollars (“CAD”), unless otherwise noted. Certain dollar amounts have been rounded to the nearest million dollars or thousand dollars, as noted, and tables may not add due to rounding.

Corporate Information

Greenfire is based in Canada with the Company’s registered office located in Calgary, Alberta. The Company’s principal business is the sustainable production and development of upstream energy resources from the oil sands in Canada, using in situ thermal oil production extraction techniques such as steam assisted gravity drainage (“SAGD”).

On December 14, 2022, Greenfire Resources Inc. (“GRI”), M3-Brigade Acquisition III Corp. (“MBSC”), a New York Stock Exchange (“NYSE”) listed special purpose acquisition company, and certain other parties entered into a definitive agreement for a business combination (the “De-Spac Transaction”), which valued Greenfire at an enterprise value of US$950.0 million. The De-Spac Transaction was consummated on September 20, 2023 and Greenfire’s common shares (“Common Shares”) commenced trading on the NYSE. On February 2, 2024, Greenfire filed a final non-offering prospectus with the Alberta Securities Commission resulting in the Company becoming a reporting issuer in the Province of Alberta. On February 8, 2024 the Common Shares commenced trading on the Toronto Stock Exchange (“TSX”) under the symbol “GFR” and Greenfire became a reporting issuer in the Province of Ontario.

The Company holds a 75% working interest in the Expansion Asset (as defined below) and a 100% working interest in the Demo Asset (as defined below). Unless indicated otherwise, production volumes and per unit statistics are presented throughout this MD&A on a “gross” basis as determined in accordance with National Instrument 51-101 – Standards for Disclosure for Oil and Gas Activities, which is the Company’s gross working interest basis before deduction of royalties. Dollar per barrel ($/bbl) figures presented throughout this MD&A are based upon sold bitumen barrels unless otherwise noted. The Company monitors and reviews financial information on a per barrel basis for comparability to prior period results and to analyze the Company’s competitiveness relative to its peer group.

GREENFIRE’S ASSETS, POSITIONING & STRATEGY

Greenfire is an intermediate, lower-cost and growth-oriented oil sands producer focused on the sustainable development of its Tier-1 assets in Western Canada using SAGD. Greenfire is pursuing capital-efficient and lower-risk growth through the optimization of existing production, facilities and reserves to maximize free cash flow generation. The Company has a large, long-life and relatively low decline oil sands resource base, with two producing and adjacent SAGD assets at the Hangingstone Facilities (as defined below), with expandable pipeline infrastructure in place for diluted bitumen and diluent at the Expansion Asset. These two assets are:

The Company believes that the Expansion Asset and Demo Asset (together the “Hangingstone Facilities”) have a Tier-1 SAGD reservoir, meaning there is no top gas, bottom water, or lean zones (“thief zones”). Other SAGD reservoirs may have thief zones, which limit reservoir pressure and require the constant use and routine replacement of downhole pumps for production. Tier-1 SAGD reservoirs allow production to flow to the surface with natural lift, which reduces the Company’s capital and operating expenditure requirements compared to other SAGD producers, which the Company believes represents a structural cost advantage for Greenfire.

Greenfire’s strategy is to implement industry proven SAGD optimization techniques, concentrating on maximizing utilization of plant capacity, minimizing capital expenditure and controlling operating cost structures, to maximize the value of its Tier-1 SAGD assets. The Company believes that the Hangingstone Facilities have ample opportunities for additional value generation. Greenfire also plans to evaluate and consider additional potential prospects for further production growth, including external acquisitions that compete with the expected returns from its existing Tier-1 SAGD assets, if the Company believes they are accretive to Greenfire’s shareholders.

FIRST QUARTER 2024

Corporate Highlights:

Operational Update:

Expansion Asset

Demo Asset

Financial & Operational Highlights

Liquidity and Balance Sheet

OUTLOOK

Corporate 2024 Outlook

DE-SPAC TRANSACTION

On September 20, 2023, Greenfire, GRI, MBSC, DE Greenfire Merger Sub Inc. (“DE Merger Sub”) and 2476276 Alberta ULC (“Canadian Merger Sub”), completed a De-Spac Transaction pursuant to a business combination agreement dated December 14, 2022, as amended (the “Business Combination Agreement”) with MBSC. DE Merger Sub and Canadian Merger Sub were incorporated in December 2022 for the purposes of completing the De-Spac Transaction.

Pursuant to the De-Spac Transaction, Canadian Merger Sub amalgamated with and into GRI, with GRI continuing as the surviving corporation and becoming a direct, wholly-owned subsidiary of Greenfire and DE Merger Sub merged with and into MBSC with MBSC continuing as the surviving corporation and becoming a direct, wholly-owned subsidiary of Greenfire. As of January 1, 2024 GRI was amalgamated with Greenfire Resources Operating Corporation, a wholly owned direct subsidiary of Greenfire. As of April 4, 2024, MBSC was legally dissolved into Greenfire.

Greenfire has been identified as the acquirer for accounting purposes. As MBSC does not meet the definition of a business under IFRS 3 Business Combinations, the transaction was accounted for pursuant to IFRS 2, Share Based Payment. On closing of the De-Spac Transaction, the Company accounted for the excess of the fair value of the Common Shares issued to MBSC shareholders as consideration, over the fair value of MBSC’s identifiable net assets at the date of closing, resulting in $106.5 million (US$79.4 million) being recognized for the year ended December 31, 2023 as a listing expense. For the three months ended March 31, 2024, the Company expensed nil (March 31, 2023 - $2.3 million) in transaction costs related to the De-Spac Transaction.

RESULTS OF OPERATIONS

Bitumen Production and Oil Sales

Production

The Company’s average bitumen production was 19,667 bbls/d for the three months ended March 31, 2024 lower than 20,586 bbls/d for the same period in 2023.

Commodity Prices

The prices received for Greenfire’s crude oil production directly impact earnings, cash flow and financial position.

WCS

Revenue from Greenfire’s bitumen production is closely linked to WCS, the pricing benchmark for Canadian heavy oil at Hardisty, Alberta. WCS trades at a discount to WTI known as the WCS differential, which fluctuates based on heavy oil production, inventory levels, infrastructure egress capacity, and refinery demand in Canada and the United States, among other factors.

Condensate

To facilitate pipeline transportation of Greenfire’s produced bitumen, the Company uses condensate as diluent for blending at the Expansion Asset, which is from Edmonton and delivered via the Inter Pipeline Polaris Pipeline. The price of condensate is historically within approximately 5% of the price of WTI and is typically higher in winter months owing to increased diluent requirements in colder temperatures relative to warmer summer months.

Oil Sales

Greenfire’s oil sales include blended bitumen sales from the Expansion Asset and diluted and non-diluted bitumen sales from the Demo Asset. At the Demo Asset volumes can be transported to multiple potential sales locations, including both pipeline and rail sales points, depending on the economics of each option at the time of sale. The Company commissioned a bitumen truck off-loading facility (“Truck Rack”) at the Expansion Asset that can receive up to approximately 5,000 bbls/d of bitumen production (non-diluted bitumen) from the Demo Asset that is blended with the Expansion Asset production and sold via pipeline.

The Company recorded oil sales of $201.0 million in the first quarter of 2024, compared to $179.7 million during the same period in 2023 mainly due to higher realized WCS benchmark oil prices, partially offset with lower production volumes.

Royalties

Royalties paid by the Company are crown royalties to the Province of Alberta. Alberta oil sands royalty projects are based on government prescribed pre and post payout⁽¹⁾ royalty rates, which are determined on a sliding scale using the Canadian dollar equivalent WTI benchmark price.

Royalties for a pre-payout project are based on a monthly calculation that applies a royalty rate (ranging from one percent to nine percent, based on the Canadian dollar equivalent WTI benchmark price) to the gross revenues from the project. Gross revenues are a function of sales revenues less diluent costs and transportation costs. The Expansion Asset is a pre-payout project.

Royalties for a post-payout project are based on an annualized calculation that uses the greater of: (1) the gross revenues multiplied by the applicable royalty rate (one percent to nine percent, based on the Canadian dollar equivalent WTI benchmark price); or (2) the net revenues of the project multiplied by the applicable royalty rate (25 percent to 40 percent, based on the Canadian dollar equivalent WTI benchmark price). Net revenues are a function of sales revenues less diluent costs, transportation costs, and allowable operating and capital costs. While the Demo Asset is a post-payout project, due to the carry forward of previous years costs, it is currently assessed under scenario (1) discussed above, for three month period ended March 31, 2024. The Company’s Demo Asset may become assessable under scenario (2) later in 2024, depending on actual production performance, oil prices and costs.

First quarter 2024 royalties of $3.49/bbl were higher than $2.36/bbl for the same period in 2023, attributable to higher realized oil prices.

Risk Management Contracts

The Company is exposed to commodity price risk on its oil sales and energy operating costs due to fluctuations in market prices. The Company continues to execute a risk management program that is primarily designed to reduce the volatility of revenue and cash flow, generate sufficient cash flows to service debt obligations and fund the Company’s operations. The Company’s risk management liabilities may consist of hedging instruments such as fixed price swaps and option structures, including costless collars on WTI, WCS differentials, condensate differential, natural gas and electricity swaps. The Company does not use financial derivatives for speculative purposes.

The Company’s obligations under the indenture governing the 2028 Notes (as outlined in the “Capital Resources and Liquidity – Long Term Debt” section of this MD&A), includes a requirement to implement and maintain a twelve month forward commodity price risk management program encompassing not less than 50% of the hydrocarbon output under the proved developed producing reserves (“PDP”) forecast in the Company’s most recent reserves report, as determined by a qualified and independent reserves evaluator.

The Company’s commodity price risk management program does not involve margin accounts that require posting of margin, including in scenarios of increased volatility in underlying commodity prices. Financial risk management contracts are measured at fair value, with gains and losses on re-measurement included in the consolidated statements of comprehensive income (loss) in the period in which they arise.

Financial Management Contracts

The following table summarizes the gross liability positions of the Company’s individual risk management contracts that are offset in the consolidated balance sheets:

The Company’s financial risk management contracts are subject to master netting agreements that create the legal right to settle the instruments on a net basis. The fair value of the risk management contracts resulted in a current liability of $39.2 million at March 31, 2024.

Subsequent to December 31, 2023, the Company implemented an updated WTI hedging program for 2024, including the replacement of previous WTI costless collar contracts with 11,500 bbls/d of WTI fixed price swaps with a swap price of US$70.94/bbl. There were no cash costs associated with the updated WTI hedging program for 2024, as the fair market value was reflected within the fixed swap price for the updated WTI hedges for 2024.

Outstanding Financial Risk Management Contracts at March 31, 2024

Financial Risk Management Contracts subsequent to March 31, 2024

Realized and Unrealized Gain (Loss) on Risk Management Contracts

Financial contracts settled in the period result in realized gains or losses based on the market price compared to the contract price and the notional volume outstanding. Changes in the fair value of unsettled financial contracts are reported as unrealized gains or losses in the period as the forward markets for commodities fluctuate and as new contracts are executed.

In the three months ended March 31, 2024, the Company recorded total risk management contract losses of $47.5 million, compared to total risk management contract gains of $4.8 million for the same period in 2023.

Diluent Expense

In order to facilitate pipeline transportation of bitumen, the Company uses condensate as diluent for blending at the Expansion Asset and for trucked volumes from the Demo Asset that are delivered to the Truck Rack. Greenfire’s diluent expense includes the cost of diluent plus the pipeline transportation for the diluent from Edmonton to the Expansion Asset.

The Company’s diluent expense in the first quarter of 2024 was $14.97/bbl, lower than $24.08/bbl in the comparative period of 2023.

Transportation and Marketing Expense

Transportation expense at the Expansion Asset includes the costs to move production from the facility to the sales point in Edmonton, Alberta. At the Demo Asset, transportation expenses relate to the trucking of bitumen from the facility to various pipeline and rail sales points, including to the Truck Rack.

Greenfire has entered into exclusive marketing contracts with a large reputable international energy marketing company. The exclusive marketing services at the Expansion Asset expire in October 2028 and include the purchase of all blended bitumen produced, the supply of all diluent and the facilitation of all pipeline transportation and storage costs. The exclusive marketing services at the Demo Asset expire in April 2026 and include the purchase of all bitumen produced, and the facilitation of all bitumen transportation. In addition to the marketing fees, production at the Demo Asset is further subject to additional costs associated with the marketing contract that include royalty incentive and performance fees.

Transportation and marketing expense was $7.30/bbl in the first quarter of 2024, lower than $8.40/bbl for the same period in 2023, primarily due to lower pipeline supplier tariffs.

Operating Expenses

Operating expenses include energy operating expenses and non-energy operating expenses.

The Company’s energy operating expenses for the three months ended March 31, 2024 were $6.92/bbl, which was lower than the comparative period in 2023 of $8.98/bbl. The lower per barrel energy operating expenses in 2024, were primarily related to lower natural gas and electricity prices.

Non-energy operating expenses for the three months ended March 31, 2024 were $13.18/bbl, higher than the comparative period in 2023 of $11.89/bbl. The higher per barrel non-energy operating expenses in 2024 was primarily the result of the remediation work on the disposal well at the Demo Asset, inflationary pressures on the costs of goods and services, combined with lower sales volumes for the three months ended March 31, 2024.

Operating Netback⁽¹⁾

Oil sales is a GAAP measure that is the most directly comparable measure to operating netback⁽¹⁾, which is a non-GAAP measure.

During the three months ended March 31, 2024, the Company had oil sales of $201.0 million, compared to oil sales of $179.7 million, during the comparative period in 2023.

Operating netback⁽¹⁾ for the three months ended March 31, 2024 was $24.69/bbl, higher than the same period in 2023 of $9.12/bbl. The higher per barrel operating netback⁽¹⁾ in the first quarter of 2024, compared to the same period in 2023 was primarily due to higher realized WCS benchmark oil prices, in addition to lower diluent costs per barrel from lower Condensate prices, partially offset by higher realized risk management contract losses.

General & Administrative Expenses

General and administrative (“G&A”) expenses include head office and corporate costs such as salaries and employee benefits, office rent, independent third-party audit, engineering services and may also include expenses related to corporate strategic initiatives if any, among other costs. G&A expenses primarily fluctuate with head office staffing levels.

G&A expenses for the three months ended March 31, 2024, were $2.63/bbl, which was higher than the comparative period in 2023 of $1.31/bbl. The increase in G&A expenses per barrel was primarily due to the listing of the Common Shares on the TSX and other related public company expenditures, combined with higher employee-related costs. The increase in G&A expenses per barrel was also due to lower sales volumes for the three months ended March 31, 2024 compared to the same period in 2023.

Stock-based Compensation

The Company recorded stock-based compensation of $0.9 million in relation to the deferred share units (“DSUs”), performance share units (“PSUs”) and restricted share units (“RSUs” and together with the DSUs and PSUs, the “Awards”) issued during the three months ended March 31, 2024, compared to $0.3 million for the same period during 2023, which was recorded in relation to performance warrants granted by GRI prior to the completion of the De-Spac Transaction (the “Performance Warrants”).

The Performance Warrants expire 10 years after the issuance date and became fully vested with the closing of the De-Spac Transaction on September 20, 2023 No additional Performance Warrants will be granted by the Company.

In September 2023 and concurrent with closing of the De-Space Transaction, the Company adopted an omnibus share incentive plan (the “Incentive Plan”), which was amended and restated in February 2024. The Incentive Plan provides for the granting of DSUs, PSUs, RSUs and options and the aggregate maximum number of Common Shares reserved for issuance thereunder is limited to 10% of the Company’s issued and outstanding Common Shares, less any Common Shares underlying securities granted under any other share compensation arrangements of the Company, if any, including Common Shares issuable on exercise of Performance Warrants. DSUs, PSUs and RSUs can be settled in either cash or Common Shares issued from treasury and is at the sole discretion of the Board of Directors. It is the Board of Directors’ current intention to settle all Awards with Common Shares issued from treasury, therefore the Awards have been accounted for as an equity-settled stock-based plan.

RSUs granted under the Incentive Plan typically vest annually in thirds over a three-year period, have no exercise price and automatically settle at each vesting date in either cash or shares issued from treasury at the Board of Directors’ discretion.

PSUs granted under the Incentive Plan vest on the third anniversary date of the grant date, provided that the Company satisfies certain performance criteria identified by the Board of Directors, which are set and measured to establish a performance multiplier from zero to two.

DSUs are issued to independent members of the Board of Directors and vest immediately upon grant, however the units cannot be settled until the director ceases to be a director of the Company.

Interest and Finance Expenses

Interest and finance expenses include coupon interest, amortization of debt issue costs and debt underwriter fees, issuer discount, redemption premiums on long term debt, interest on revolving credit facility, letter of credit facilities and other interest charges. Coupon interest and required redemption premiums related to long term debt are accrued and paid according to the indenture that governs the 2028 Notes.

Interest and finance expenses for the three months ended March 31, 2024 were $15.5 million, slightly higher than the comparative period in 2023 of $15.3 million.

Refer to the “Capital Resources and Liquidity” section in this MD&A for more details of Greenfire’s long-term debt, revolving credit facility and letter of credit facilities.

Depletion and Depreciation Expenses

The Company’s depletion and depreciation expense for the three months ended March 31, 2024 were $9.96/bbl, which was lower than the comparative period in 2023 of $10.98/bbl. The lower per barrel depletion and depreciation expense in the first quarter of 2024, was primarily due to a decrease in the estimated future development costs, combined with an increase to estimated proved and probable reserves in the Company’s most recent reserve report, relative to the prior reserve report.

Exploration Expenses

The Company’s exploration expenses primarily consist of escalating mineral lease rentals on the undeveloped lands.

In the three months ended March 31, 2024, exploration expenses were $0.5 million, compared to $1.6 million for the same period in 2023. The decrease in the first quarter of 2024 was primarily due to a one-time regulatory expense associated with the implementation of the Oil Sands Tenure Regulation⁽³⁾ incurred during the three months ended March 31, 2023.

Other (Income) and Expense

Other income in the first quarter of 2024 reflected interest income of $1.4 million, compared to nil for the comparative period in 2023.

Foreign Exchange Loss (Gain)

The Company’s foreign exchange loss (gain) is driven by fluctuations in the US dollar to Canadian dollar exchange rate and is primarily related to the note principal and interest components of the Company’s US dollar denominated debt.

For the three months ended March 31, 2024, Greenfire recorded a foreign exchange loss of $8.3 million, compared to a gain of $0.3 million for the comparative period in 2023 due to the Canadian dollar weakening relative to the US dollar.

Transaction Costs

The Company recognized nil in transaction costs during the three months ended March 31, 2024, compared to $2.3 million for the comparative period during 2023. Refer to the “De-Spac Transaction” section in this MD&A for more information.

Loss on Revaluation of Warrants

For the three months ended March 31, 2024, the Company incurred $6.4 million in losses on revaluation of the Company’s warrants to acquire Common Shares (as issued in connection with the De-Spac Transaction (“Greenfire Warrants”)), compared to nil for the comparative period in 2023. The loss relates to an increase of the warrant liability due to an increase of the closing price of the Common Shares on the NYSE from US$4.86 to US$5.97 as at December 31, 2023 and March 31, 2024, respectively. The Greenfire Warrants expire five years after issuance and entitle the holder of each Greenfire Warrant to purchase one Common Share at a price of US$11.50.

Taxes

Deferred income tax assets were recognized to the extent that the realization of the related tax benefit through future taxable profits is probable based on current tax pools and estimated future income. As at March 31, 2024 and December 31, 2023, a deferred tax asset in the amount of $68.3 million was recognized, and $104.0 million remains unrecognized, to the extent that it is probable that future taxable income will be available against which temporary differences can be utilized.

Included in the tax basis as at March 31, 2024 and December 31, 2023 are approximately $1.8 billion in tax pools and loss carry including approximately $1.4 billion in non-capital losses available for immediate deduction against future income. The Company’s non-capital loss carry forwards have an expiry profile between 2033 and 2043.

Net Income (loss) and comprehensive income (loss) and Adjusted EBITDA⁽¹⁾

During the three months ended March 31, 2024, the Company recorded a net loss of $46.9 million, compared to net loss of $16.7 million, during the same period in 2023. The $30.2 million reduction to net income (loss) and comprehensive income (loss) in 2024 was primarily due to $47.5 million in risk management contract losses in the current quarter, compared to $4.8 million in risk management contract gains during the same period in 2023, in addition to $8.3 million in foreign exchange losses in the current quarter, compared to $0.3 million in foreign exchange gains during the same period in 2023. The decrease in net income was partially offset by $21.3 million in higher oil sales in the current quarter, compared to the same period in 2023.

Net income (loss) and comprehensive income (loss) is a GAAP measure, which is the most directly comparable measure to adjusted EBITDA⁽¹⁾, which is a non-GAAP measure.

Adjusted EBITDA⁽¹⁾ was $39.3 million in the first quarter of 2024, compared to $13.3 million in the same period in 2023, with the year over year increase primarily due to higher oil sales revenue and reduced diluent expenses. The increase to Adjusted EBITDA⁽¹⁾ was partially offset by the recognition of $8.8 million of realized risk management contract losses in the first quarter of 2024, compared to $0.2 million of risk management contract losses during the same period in 2023.

CAPITAL RESOURCES AND LIQUIDITY

The Company’s capital management objective is to maintain financial flexibility and sufficient liquidity to execute on planned capital programs, while meeting short and long-term commitments, including servicing and repaying long term debt. The Company strives to actively manage its capital structure in response to changes in economic conditions and further deleverage its balance sheet.

At March 31, 2024, the Company’s capital structure primarily comprised of cash and cash equivalents, Adjusted Working Capital Surplus (Deficit)⁽¹⁾, long-term debt and shareholders’ equity.

Management believes its current capital resources and its ability to manage cash flow and working capital levels will allow the Company to meet its current and future obligations, to make scheduled interest and principal payments, and to fund the other needs of the business.

Long Term Debt

On September 20, 2023, the Company issued US$300.0 million of senior secured notes (the “2028 Notes”). The 2028 Notes are senior secured notes that bear interest at the fixed rate of 12.00% per annum, payable semi-annually on April 1 and October 1 of each year, commencing on April 1, 2024 and mature on October 1, 2028. The 2028 Notes are secured by a lien on substantially all the assets of the Company and its wholly owned subsidiaries, junior in priority to the Senior Credit Facility. Subject to certain exceptions and qualifications, the indenture governing the 2028 Notes contains certain covenants that limit the Company’s ability to, among other things, incur additional indebtedness, pay dividends, redeem stock, make certain restricted payments, and dispose of and transfer assets. The indenture governing the 2028 Notes has a minimum hedging requirement of 50% of the forward 12 calendar month proved developed producing forecasted production as prepared in accordance with the Canadian standards under National Instrument 51-101 – Standards for Disclosure for Oil and Gas Activities until principal debt under the 2028 Notes is less than US$100.0 million and limits capital expenditures to US$100.0 million annually until the principal outstanding is less than US$150.0 million.

Under the indenture governing the 2028 Notes, the Company is required to redeem the 2028 Notes at 105% of the principal amount plus accrued and unpaid interest with 75% of Excess Cash Flow (as defined in the indenture governing the 2028 Notes) in six-month periods, with the first period beginning on June 30, 2024. If Consolidated Indebtedness is less than US$150.0 million, the required redemption is reduced to 25% of Excess Cash Flow to be paid in every six-month period until the principal outstanding on the 2028 Notes is less than $100.0 million.

As at March 31, 2024, the carrying value of the Company’s long-term debt was $387.9 million⁽²⁾ and the fair value was $432.9 million (December 31, 2023 carrying value – $376.4 million, fair value $394.1 million) and the Company was in compliance with all covenants.

The Company is exposed to foreign exchange rate fluctuations on the principal value and interest payments in respect of the 2028 Notes. As of March 31, 2024, a 10% change to the value of the Canadian dollar relative to the US dollar would result in a foreign exchange gain (loss) of approximately $40.7 million (December 31, 2023 - $39.7 million).

Senior Credit Facility

On September 20, 2023, Greenfire entered into a credit agreement for the Senior Credit Facility which is a senior reserve-based credit facility comprised of an operating facility and a syndicated facility. Total credit available under the Senior Credit Facility is $50.0 million, comprising of a $20.0 million operating facility and a $30.0 million syndicated facility.

The Senior Credit Facility is a committed facility available on a revolving basis until September 20, 2024, which revolving period may be extended at the Company’s request, and subject to the lenders’ consent. If the revolving period is not extended, the undrawn portion of the facility will be cancelled and any amounts outstanding would be repayable at the end of the non-revolving term, being September 20, 2025. The Senior Credit Facility is subject to a semi-annual borrowing base review, occurring in May and November of each year. The borrowing base is determined based on the lenders evaluation of the Company’s proved developed producing petroleum and natural gas reserves and their commodity price outlook at the time of each renewal.

The Senior Credit Facility is secured by a first priority security interest on substantially all the assets of the Company and is senior in priority to the 2028 Notes. The Senior Credit Facility contains certain covenants that limit the Company’s ability to, among other things, incur additional indebtedness, create or permit liens to exist, make certain restricted payments, and dispose of or transfer assets. The Senior Credit Facility is not subject to any financial covenants.

Amounts borrowed under the Senior Credit Facility bear interest at a floating rate based on the applicable Canadian prime rate, US base rate, secured overnight financing rate or bankers’ acceptance rate, plus a margin of 2.75% to 6.25% based on Debt to EBITDA ratio. A standby fee on the undrawn portion of the Senior Credit Facility ranges from 0.6875% to 1.5625% based on Debt to EBITDA ratio. As at March 31, 2024, the Company had nil amounts drawn under the Senior Credit Facility and the Company was in compliance with all covenants.

Letter of Credit Facility

At December 31, 2023, Greenfire had entered into an unsecured $55.0 million letter of credit facility (the “EDC Facility”) with a Canadian bank that is supported by a performance guarantee from Export Development Canada (“EDC”). The EDC Facility is available on a demand basis and letters of credit issued under this facility incur an issuance and performance guarantee fee of 4.25%. As at March 31, 2024, the Company had $54.3 million drawn under the EDC Facility and the Company was in compliance with all covenants.

Adjusted Working Capital Surplus (Deficit)⁽¹⁾