Headwater Hits Record Production, Unveils Strategy for Sustainable Growth

CALGARY, AB – March 05, 2026

Headwater Exploration Inc. announced a landmark year for 2025, achieving record production levels while simultaneously executing a strategic pivot towards long-term sustainability and robust shareholder returns. The Calgary-based energy firm reported a 12% year-over-year increase in average daily production, driven by exceptional exploration success and a disciplined capital program, even as it navigated a landscape of softer commodity prices.

A Dual Focus on Growth and Durability

The company's 2025 results paint a picture of a producer firing on all cylinders. Average annual production climbed to a record 22,776 barrels of oil equivalent per day (boe/d), up from 20,310 boe/d in 2024. This growth was underpinned by the drilling of 61 net crude oil wells.

However, the more profound story lies beyond simple volume growth. Headwater is aggressively investing in secondary recovery projects, a strategy designed to enhance production from existing assets and dramatically slow the natural decline in output. By year-end 2025, more than 50% of the company's oil production was supported by these methods, which typically involve injecting water or polymers to maintain reservoir pressure and sweep more oil toward producing wells.

This focus is already yielding significant results, with the company's corporate decline rate falling to approximately 20%. Headwater has set an ambitious target to bring this rate down towards 15% by 2028. Such a low decline rate is a key differentiator in the heavy oil sector, promising a future with substantially lower maintenance capital requirements and more predictable, stable production. The company noted that some of its assets in the Clearwater Sandstone and Clearwater E formations have been stabilized with no production decline for over a year, demonstrating the effectiveness of the strategy.

Exploration Wins Unlock New Frontiers

Fueling this operational momentum is a string of what the company termed "monumental" exploration successes that have crushed expectations. In the Marten Hills West area, Headwater has unlocked a highly prolific play in the Grand Rapids formation. In less than ten months, production from this new zone has surged from nothing to over 2,200 barrels per day, with wells showing repeatable and impressive initial output. A key step-out well drilled three miles from existing production delivered a strong 60-day initial rate of 335 barrels per day, significantly expanding the known boundaries of the oil pool.

Similar success was found in the Greater Pelican area, where a discovery in the Wabiskaw formation is being advanced. An initial discovery well in this area has already produced over 150,000 barrels of oil and paid back its initial investment more than twice over in just 10 months.

Headwater's relentless pursuit of organic growth was further underscored by the recent acquisition of 68 contiguous sections of land in the Duncan area, a part of the highly-sought-after Clearwater fairway. The company has already begun drilling its first exploration test targeting a new Lower Mannville prospect in the area, signaling its confidence in continuing to replenish its resource pipeline. These exploration wins contributed to a massive 54% increase in the company's total proved plus probable reserves, which now stand at 104.5 million boe.

Balancing the Books and Rewarding Investors

Despite the operational triumphs, Headwater's top-line financial figures reflected a weaker commodity price environment. Net income for 2025 was $153.2 million, down from $188.0 million in 2024, while adjusted funds flow from operations saw a slight dip to $326.2 million.

Yet, the company’s underlying financial health remains exceptionally strong. Critically, Headwater ended the year with no outstanding bank debt and $23.6 million in adjusted working capital. This pristine balance sheet provides immense flexibility and insulates the company from the financial pressures affecting more leveraged peers.

This financial strength has allowed Headwater to pursue a dual mandate of funding growth while generously rewarding its shareholders. The company returned a total of $104.7 million to investors in 2025 through its dividend, which was increased during the year. The board has again declared a quarterly dividend of $0.11 per share. Alongside the dividend, Headwater has been active with its share buyback program, repurchasing and cancelling 1.05 million shares during the year. This balanced approach to capital allocation—reinvesting in high-return projects while also providing a direct cash return—has become a hallmark of its strategy.

A Resilient Strategy for a Volatile Market

Headwater’s strategic moves appear particularly prescient given the broader market outlook. With many analysts forecasting "lacklustre" crude prices for 2026 due to a global supply glut, the company's focus on building a low-decline, low-cost production base is a powerful defensive posture. By reducing the capital needed just to maintain production, Headwater is building a business capable of generating significant free cash flow even at lower oil prices.

The company has also demonstrated savvy risk management through its hedging program, particularly for its McCully natural gas asset. By locking in high prices for the majority of its winter gas production, Headwater secured an estimated $17 million in predictable cash flow, providing a stable buffer against market volatility. With a clear vision, a debt-free balance sheet, and a proven ability to find and efficiently develop resources, Headwater appears well-equipped to continue delivering value through a balanced approach of growth, sustainability, and shareholder returns.