Bri Chem : 2021 Annual Management Discussion and Analysis

This Management's Discussion and Analysis ("MD&A") of Bri-Chem Corp. ("Bri-Chem" or the "Company" or "We") was prepared as at March 30, 2022 for the three months and twelve months ended December 31, 2021 and should be read in conjunction with the Company's December 31, 2021 and 2020 annual consolidated financial statements (the "financial statements") and notes thereto. The Company's annual consolidated financial statements were prepared in accordance with International Financial Reporting Standards ("IFRS") and include the results of Bri-Chem Corp. and its subsidiaries, Bri-Chem Supply Ltd., Sodium Solutions Inc., Solution Blend Service Ltd., Bri-Corp USA, Inc., including its three subsidiaries Bri-Chem Supply Corp, LLC, Sun Coast Materials, LLC and Bri-Chem Logistics, LLC. All amounts presented in this MD&A are in Canadian dollars, except as otherwise noted. Readers are encouraged to review the "Cautionary Statement Regarding Forward-Looking Information and Statements" and "Non-IFRS Measures" at the end of this document.

BUSINESS OF BRI-CHEM

Bri-Chem, headquartered in Edmonton, Alberta, Canada, has established itself, through a combination of strategic acquisitions and organic growth, as a North American industry leader for the distribution and blending of oilfield drilling, completion, stimulation and production chemical fluids. We sell, blend, package and distribute a full range of drilling fluid products from 25 strategically located warehouses throughout Canada and the United States. Bri-Chem has been operating in Canada since 1985 and we expanded into the United States in 2011 where we have successfully established 13 warehouse locations that are strategically located in major drilling regions throughout the USA. Bri-Chem's main business activity is to provide 24/7 coverage of oilfield chemicals in a wide variety of weights and clays, loss circulation materials and oil mud products to mud engineering companies who sell directly to drilling firms engaged by the oil and gas companies. Much of Bri-Chem's competitive advantage is attributed to its comprehensive network of 25 strategically placed and fully stocked warehouses throughout North America as mud engineering companies and drilling companies prefer to use one supplier of drilling fluids for all their widely dispersed drilling rig locations. Additional information about Bri-Chem is available atwww.sedar.comor at Bri-Chem's website at www.brichem.com.

A summary of the Company's distribution network is as follows:

Seasonality of Operations

Weather conditions can affect the sale of the Company's products and services. The ability to move heavy equipment in the Canadian oil and natural gas fields is dependent on weather conditions. As a result, there are three cycles of drilling activity in the Western Canada: Winter drilling season from November to mid-March is the period when most of the drilling activity takes place as much of the ground is frozen allowing equipment to move into hard to reach regions during colder periods. Spring break up traditionally occurs between mid-March to mid-May and is the period when drilling activity is at its lowest as regions thaw and have road bans making heavy equipment difficult to move. Summer and fall drilling season operates from mid-May to end of October which focuses on areas not accessible during the winter drilling season. Spring break-up has a direct impact on the Company's activity levels. The timing of freeze-up and spring break-up affects the ability to move equipment in and out of these areas. As a result, late March through May is traditionally the Company's slowest period in Canada.

FINANCIAL AND OPERATING INFORMATION HIGHLIGHTS

Refer to the "Non-IFRS Measures" section for a definition of non-GAAP terms as well as reconciliations for Adjusted EBITDA, Adjusted Operating Earnings/(Loss), and Adjusted Net Earnings/(Loss)).

Key Q4 2021 highlights include:

• • Consolidated sales for the three months ended December 31, 2021 were $18.5 million, an increase of 96% compared to the comparable period last year due to stronger performance in the fluids distribution divisions in Canada and the United States as the demand for oil increased following the continued worldwide easements of health and travel restrictions due to the COVID-19 pandemic.

• • Adjusted EBITDA for the fourth quarter was $1.4 million versus a loss of $461 thousand over Q4 2020, representing a 405% increase year over year. The increase is primarily related to increased sales over the prior year realized in tandem with management's undertakings of cost saving initiatives and obtaining available government assistance programs.

• • Adjusted operating earnings was $1.1 million for the three months ended December 31, 2021 compared to a loss of $30 thousand in the prior year comparable quarter, representing a 3909% increase.

• • Net earnings per diluted share for the three months ended December 31, 2021 was $0.03 per share compared to net loss of ($0.06) per diluted share for same period last year.

• • Working capital, as at December 31, 2021, was $5.2 million compared to $9.9 million at December 31, 2020, a decrease of 48%. The decrease predominantly relates to reclassifying the term loan to current liabilities, offset by notable increases in accounts receivable balances bolstered by stronger than anticipated sales in tandem with increased utilization to the ABL facility for stockpiling initiatives in strategic locations.

Summary for the three and twelve months ended December 31, 2021:

Consolidated sales for the three and twelve months ended December 31, 2021 were $18.5 million and $60.4 million respectively compared to $9.5 million and $45.2 million for the same periods in 2020, representing a $9.5 million and $15.2 million increase over the comparable periods. The sales growth is caused by increased rig count and well production across most operating regions within Canada and the United States.

Bri-Chem's Canadian drilling fluids distribution division generated sales of $3.1 million and $10.7 million for the three and twelve months ended December 31, 2021 compared to $2.0 million and $7.0 million in the comparable prior periods. The increase in sales predominantly relates to the higher drilling activity levels in 2021 than 2020. The number of active operating land rigs in Q4 2021 averaged 159, compared to 91 in the same period last year amounting to an increase of 75.4% over the Q4 2020 (Source: Baker Hughes). Bri-Chem's United States drilling fluids distribution division generated sales of $11.1 million and $33.6 million for the three and twelve months ended December 31, 2021 compared to sales of $3.8 million and $23.7 million for the comparable periods in 2020, representing a quarterly increase of 194% and a year to date increase of 42%. Both of these events relate to the corresponding increase in rig activity in Q4 2021. The number of active operating land rigs in Q4 2021 averaged 543, compared to a 2020 Q4 average of 295, representing an increase of 84.2%. (Source: Baker Hughes)

Bri-Chem's Canadian Blending and Packaging division generated sales of $2.6 million and $7.4 million for the three and twelve months ended December 31, 2021 compared to Q4 2020 sales of $1.8 million and 2020 twelve months sales of $7.0 million. The increase in sales relates to increased cementing and stimulation activities in response to increased drilling. US Blending and Packaging sales for the three and twelve months ended December 31, 2021 were $1.8 million and $8.6 million compared to $2.1 million and $7.4 million for the comparable period in 2020. The quarterly drop in sales was a result of the purchase of a major customer by their competitor through Chapter 11 proceedings, which ultimately delayed sales on a short-term basis. The annual increase relates to increased cementing activity in the California market.

Adjusted operating earnings for the three months ended December 31, 2021 was $1.1 million compared to $30 thousand operating loss during the same period last year. Adjusted EBITDA was $1.4 million for Q4 2021 compared to a loss of $461 thousand for Q4 2020. Adjusted EBITDA as a percentage of sales was 8% for the quarter. The increase is primarily related to increased rig count and well production across most operating regions within Canada and the United States in tandem with management's cost saving strategies and collecting on government assistance subsidies adopted early on in the pandemic.

OUTLOOK

While there are many positive market indicators, there are still challenges in the market relating to commodity availability, labour shortages or the emergence of a more concerning COVID-19 variant that could still materially impact the momentum in the oil and gas industry. Management will continue to be vigilant in these times and will cautiously look to ramp up operating overheads to increase cash flow with a renewed emphasis towards providing higher turnover on commonly consumed drilling fluids relative to specialty products with limited applications. Stockpiling initiatives will continue in the foreseeable future providing market conditions remain unchanged such that the business can adequately support the increasing activities of its customer base. Continued market acceleration and realized profitability will enable management to continue consideration of larger deployments of capital towards strategic initiatives with the aim of capturing additional market share, further reducing operational overheads and diversifying revenue streams.

DISCUSSION OF Q4 OPERATING RESULTS

Divisional sales 017 RESULTS

Consolidated sales for the three months ended December 31, 2021 were $18.5 million compared to $9.5 million for the same period in 2020, representing a $9.1 million increase. The increase was due to increased rig count and well production across most operating regions within Canada and the United States.

Fluids Distribution Divisions

The US Fluids Distribution division for three and twelve months ended December 31, 2021, generated sales of $11.1 million and $33.7 million which was $7.3 million higher and $9.9 million higher than the same periods in 2020. The increase reflects the growing momentum in drilling activity, particularly in the states of Oklahoma and Texas which have experienced the most significant increase in rig activity. The average number of rigs operating in the US for Q4 2021 was 543 compared to 295 for Q4 2020, constituting a 84.2% increase. (Source: Baker Hughes).

For the three and twelve months ended December 31, 2021 the Canadian fluids distribution division generated sales of $3.1 million and $10.7 million compared to sales of $2.0 million and $7.0 million for the same periods in 2020, representing an increase of 56% and 53% respectively. The increase was due to the continued climb in the average number of rigs running in the fourth quarter. The average number of rigs operating in the fourth quarter of 2021 was 159 compared to 91 in the fourth quarter of 2020, representing a 75.4% increase (Source: Baker Hughes).

Fluids Blending & Packaging Division

US Fluids Blending and Packaging sales for the three and twelve months ended December 31, 2021 were $1.8 million and $8.6 million compared to $2.1 million and $7.4 million for the same comparable periods in 2020 representing a decreases of $330 thousand and an increase $1.2 million respectively. The quarterly drop in sales was a result of the purchase of a major customer by their competitor through Chapter 11 proceedings, which ultimately delayed sales on a short-term basis. The annual increase relates to increased cementing activity in the California market. The annual increase in sales predominantly relates to increased operating activity in 2021 for certain established customers.

The Canadian Fluids Blending and Packaging division for the three and twelve months ended December 31, 2021 recorded sales of $2.6 million and $7.4 million compared to sales of $1.6 million and $7 million for the comparable periods in 2020. The increase predominantly relates to an uptick in cementing and stimulation work that supports oil and gas drilling.

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