EQUAL ENERGY LTD.

Contemporaneous with motion to dismiss briefing, lead counsel in both the state and federal actions and counsel for defendants engaged in arm’s-length negotiations concerning the terms and conditions of a potential resolution of the state and federal actions in which Equal would disclose certain additional information to Equal’s shareholders. On June 12, 2014, Equal filed a revised Definitive Proxy with the SEC containing, among other things, the additional disclosures agreed to in connection with the parties’ agreement. On or around July 10, 2014, counsel for the parties reached an agreement in principle in the federal actions providing for the binding settlement of all claims that all shareholders might have regarding the actions of Equal or its Board while considering or entering into the Petroflow Arrangement Agreement, and while making any disclosures to the marketplace. In exchange Equal agreed to include additional disclosures in its proxy materials, and entered into a memorandum of understanding setting forth the material terms of the settlement. The parties are in the process of drafting the settlement agreement, which will then be submitted to the federal court for review during a final approval hearing.

An investment in a company engaged in oil and gas exploration involves a high amount of risk, unknown and known, present and potential, including the risks enumerated below. An investment in our securities is speculative and subject to a number of known and unknown risks. Only those persons who can bear the risk of the entire loss of their investment should purchase our securities. An investor should carefully consider the risks described below and the other information that we file with the SEC and with Canadian securities regulators before investing in our common shares. The risks described below are not the only ones we face, as additional risks that we are not currently aware of or that we currently believe are immaterial may become important factors that affect our business. The risk factors set forth below and elsewhere in this Form 10-Q, and the risks discussed in our other filings with the SEC and Canadian securities regulators, may have a significant effect on our business, financial condition and/or results of operations and could cause our actual results to differ materially from those projected in any forward-looking statements. See “Forward-Looking Statements” in this Form 10-Q.

We expect to utilize borrowings under the Credit Agreements and other financing arrangements and cash flow from operations, if any, to pay our expenses. Our ability to pay our expenses thus depends, in part, on our future performance, which will be affected by financial, business, economic and other factors. We will not be able to control many of these factors, such as economic conditions in the markets where we operate and pressure from competitors. We cannot be certain that our borrowing capacity or future cash flows will be sufficient to allow us to pay interest on our indebtedness and meet our other obligations. If we fail to generate cash flow in the future and do not have enough liquidity to pay our obligations, we may be required to refinance all or part of our existing debt, sell assets or borrow more money. We cannot guarantee that we will be able to do so on terms acceptable to us, or at all. In addition, the terms of our existing or future debt agreements, including the Credit Agreements, may restrict us from pursuing any of these alternatives.

The Credit Agreements impose significant operating and financial restrictions, which may prevent us from capitalizing on business opportunities and taking certain corporate actions.

Equal is incorporated under the ABCA and the chief executive officer and one of the Company’s directors are residents of Canada. Consequently, it may be difficult for United States investors to effect service of process within the United States upon the Company or upon our directors or officers who are not residents of the United States, or to realize in the United States upon judgments against the Company’s current or future non-U.S. resident executive officers or directors of United States courts predicated upon civil liabilities under United States federal or state securities laws. Furthermore, it may be difficult for investors to enforce judgments of the U.S. courts based on civil liability provisions of the U.S. federal or state securities laws in a Canadian court against the Company or any of the Company’s non-U.S. resident executive officers or directors. There is substantial doubt whether an original lawsuit could be brought successfully in Canada against any of such persons or the Company predicated solely upon such civil liabilities.

Actual reserves will vary from reserve estimates and those variations could be material and negatively affect the market price of our common shares

Equal makes acquisitions and dispositions of businesses and assets in the ordinary course of business. Achieving the benefits of acquisitions depends in part on successfully consolidating functions and integrating operations and procedures in a timely and efficient manner, as well as our ability to realize the anticipated growth opportunities and synergies from combining the acquired businesses and operations with those of the Company. The integration of an acquired business may require substantial management effort, time and resources and may divert management’s focus from other strategic opportunities and operational matters, and may also result in the loss of key employees, the disruption of on-going business, supplier, customer and employee relationships and deficiencies in internal controls or information technology controls. We continually assess the value and mix of our assets in light of our business plans and strategic objectives. In this regard, non-core assets are periodically disposed of, so that the Company can focus our efforts and resources more efficiently. Depending on the state of the market for such non-core assets, certain non-core assets of the Company, if disposed of, could realize less than their carrying value on the financial statements of the Company.