Chinook Energy Inc. Common CNKEF

In Regards to Chicago Pricing & Station 2

[Bean_and_Dunn]

Natural Gas Pricing Our realized natural gas price of $1.54/mcf during the third quarter increased compared to the $1.20/mcf for the same quarter of 2017. Inversely, our natural gas price of $1.74/mcf during the year to date decreased compared to $2.31/mcf for the same period of 2017. These realized natural gas pricing changes are due to both changes in benchmark pricing and in the weighted average ratio of natural gas production sold at each benchmark price relative to total natural gas production. Generally, because we sell the majority of our natural gas production at the BC Station 2 benchmark, the change in our current reporting periods’ realized natural gas prices, compared to the same periods of 2017, correspond to the changes in this benchmark. However, we also sell a portion of our natural gas production at the Chicago City Gate benchmark where we have a firm commitment of approximately 5,425 GJ/d through to October 31, 2020. In addition, effective November 1, 2018, we obtained additional capacity through to March 31, 2019 of approximately 4,250 GJ/d, albeit with a larger associated transportation toll, also sold at the Chicago City Gate benchmark. This benchmark modestly decreased during the current reporting periods compared to the same periods of 2017. However, despite these modest decreases, selling our natural gas at Chicago City Gate benchmark pricing results in us realizing a significant premium compared to BC Station 2 pricing. Specifically, during the current reporting periods we sold 21% and 26% of our natural gas production at this benchmark compared to 28% and 24% during the same periods of 2017. The decrease in the third quarter ratio resulted from higher production volumes relative to our firm commitment priced at the Chicago City Gate benchmark whereas the increase in the year to date ratio was the absence of last year’s June restrictions which prevented us from delivering volumes at Chicago pricing. As previously mentioned, contributing to higher realized natural gas pricing were higher ratios of natural gas production from our Birley/Umbach area relative to our total natural gas production. Our Birley/Umbach natural gas production has a higher heat content compared to the natural gas production from our other operations resulting in higher realized natural gas pricing. Our realized natural gas price increased 10% during the third quarter compared to the $1.40/mcf realized price reported during the second quarter. This increase was due to higher benchmark pricing for both BC Station 2 and Chicago City Gate.         Station 2 pricing was finally back to positive territory at $0.95.