Alvopetro Announces Operational Update and Second Quarter Financial and Operating Results

CALGARY, Aug. 16, 2017 /CNW/ - Alvopetro Energy Ltd. (TSX-V:ALV) is pleased to announce an operational update, including multiple Notices of Discovery on Block 107, and our second quarter financial and operating results.

Operational Update

The National Agency of Petroleum, Natural Gas and Biofuels of Brazil ("ANP") has commenced the arbitration of the terms of the unitization of our Caburé natural gas field (the 197(2) and 198(A1) wells) with the adjacent resource owner.  The arbitration is provided for under Brazilian legislation and will determine operatorship and the working interest split to each respective party.  Each Party is required to provide all required technical information to the ANP on or before August 27, 2017.  The arbitration process is legislated to take 120 days but may be extended following additional information requests.  We are also targeting the completion of a gas sales agreement concurrently with the conclusion of the unitization process.

Under an agreement executed in 2016, Alvopetro farmed out our interest in Block 107 to a third party (the "Farmee"), the terms of which required that the Farmee meet all outstanding work commitments on the Block.  In July 2017, the Farmee completed drilling a deep exploration well on the Block in satisfaction of these commitments, subject to ANP approval.  We are pleased to announce that the Farmee has filed multiple Notices of Discovery with the ANP and plans to production test the well following receipt of regulatory approvals. Upon confirmation by the ANP that all work commitments on Block 107 have been completed by the Farmee, Alvopetro is entitled to a 5% gross-overriding royalty on Block 107 and the adjacent Block 108 also held by the Farmee.  The Farmee plans to drill a well on Block 108 following receipt of all necessary approvals. 

 In July 2017, we received the environmental permit for the 177(A1) well on Block 177, have now completed site construction and expect to spud the well before the end of August.  The 177(A1) well is a shallow oil prospect targeting the Agua Grande and Sergi Formations with expected drilling costs of $0.7 million. 

Financial and Operating Highlights – Q2 2017

• Our average daily production decreased to 22 bopd, a 44% reduction from the first quarter of 2017, as the Bom Lugar producing well was offline for much of the quarter for a pump repair. Production from this well resumed in early June and, based on field estimates, our average daily production increased to 35 bopd in July 2017.
• Capital expenditures of $0.6 million in the second quarter of 2017 included capitalized G&A, letter of credit fees for block extensions approved by the ANP, initial site construction costs for our upcoming 177(A1) well, and preliminary surveying and planning work on our Caburé gas field.
• We reported a net loss of $0.8 million in the second quarter, primarily attributable to negative funds flow from operations of $0.7 million.
• Our cash, restricted cash and working capital resources total $12.4 million, including $12.6 million of cash and cash equivalents, $0.1 million of current restricted cash and assets held for sale of $0.1 million relating to equipment inventory sold in July 2017.

Summary of Q2 2017 Financial and Operating Results

The following table provides a summary of Alvopetro's financial and operating results for the three and six months ended June 30, 2017 and June 30, 2016. The consolidated financial statements with the Management's Discussion and Analysis ("MD&A") are available on our website at www.alvopetro.com and will be available on the System for Electronic Document Analysis and Retrieval (SEDAR) website at www.sedar.com.

SUMMARY OF Q2 2017 RESULTS

		Three months ended June 30,		Six months ended June 30,
		2017	2016	2017	2016
Financial
($000s, except where noted)
Oil sales		86	126	257	279
Funds flow from operations ^(1)		(723)	(1,309)	(1,520)	(2,534)
	Per share – basic and diluted ($)^(2)	(0.01)	(0.02)	(0.02)	(0.03)
Net loss		(814)	(2,000)	(1,707)	(6,515)
	Per share – basic and diluted ($)^(2)	(0.01)	(0.02)	(0.02)	(0.08)
Capital expenditures^(3)		566	835	3,335	3,901
Total assets		74,013	84,295	74,013	84,295
Debt		-	-	-	-
Net working capital surplus ^(1) (4)		12,371	22,909	12,371	22,909
Common shares outstanding, end of period (000s)
	Basic	85,167	85,167	85,167	85,167
	Diluted ^(2)	91,806	91,348	91,806	91,348
Operations
Operating netback ($/bbl) ^(1)
	Brent benchmark price	50.92	46.97	52.80	41.03
	Discount	(7.15)	(8.50)	(5.47)	(8.50)
	Sales price	43.77	38.47	47.33	32.53
	Transportation expenses	(2.04)	(2.44)	(2.39)	(2.10)
	Realized sales price	41.73	36.03	44.94	30.43
	Royalties and production taxes	(6.11)	(3.36)	(5.34)	(3.38)
	Production expenses	(127.23)	(109.92)	(85.64)	(83.82)
	Operating netback	(91.61)	(77.25)	(46.04)	(56.77)
Average daily crude oil production (bopd)		22	36	30	47

Notes:
(1)	Non-GAAP measure. See "Non-GAAP Measures" section within this news release.
(2)	Consists of outstanding common shares and stock options of the Company.
(3)	Includes non-cash capital expenditures of $0.4 million in the six months ended June 30, 2017 (June 30, 2016 - $nil).
(4)	Includes current restricted cash of $0.1 million (June 30, 2016 - $nil) and assets held for sale of $0.1 million (June 30, 2016 – $nil).

Updated Corporate Presentation

Alvopetro's updated corporate presentation is available at: http://www.alvopetro.com/corporate-presentation.

Alvopetro Energy Ltd.'s vision is to be the premier independent exploration and production company in Brazil, maximizing shareholder value by applying innovation to underexploited opportunities. Our strategy is to focus on three core opportunities including lower risk development drilling on our mature fields, shallow conventional exploration, and the development of the significant hydrocarbon potential present in our deep Gomo tight-gas resource play. Our efforts in the near-term are concentrated on building a natural gas business by finalizing a mandatory unitization process and securing a gas sales contract for our Caburé natural gas field.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.

Forward-Looking Statements and Cautionary Language. This news release contains "forward-looking information" within the meaning of applicable securities laws. The use of any of the words "will", "expect", "intend" and other similar words or expressions are intended to identify forward-looking information. More particularly and without limitation, this news release contains forward-looking information concerning potential hydrocarbons and potential production of hydrocarbons in our assets, exploration and development prospects of Alvopetro and the expected timing of certain of Alvopetro's testing and operational activities. The forward‐looking statements are based on certain key expectations and assumptions made by Alvopetro, including but not limited to expectations and assumptions concerning testing results on our assets, the timing of regulatory licenses and approvals, completion of unitization with an adjacent Block owner, securing gas sales agreements, availability of capital, the success of future drilling and development activities, prevailing commodity prices and economic conditions, the availability of labour and services, the ability to transport and market our production, timing of completion of infrastructure and transportation projects, weather and access to drilling locations. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors.  Although Alvopetro believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Alvopetro can give no assurance that it will prove to be correct. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the operations or financial results of Alvopetro are included in our annual information form which may be accessed through the SEDAR website at www.sedar.com. The forward-looking information contained in this news release is made as of the date hereof and Alvopetro undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Cautionary statements regarding the filing of a Notice of Discovery. The Farmee has submitted multiple Notices of Discovery of Hydrocarbons to the ANP with respect to the deep exploration well drilled on Block 107. All operators in Brazil are required to inform the ANP, through the filing of a Notice of Discovery, of potential hydrocarbon discoveries. A Notice of Discovery is required to be filed with the ANP where two of three hydrocarbon indications are present; hydrocarbon shows during drilling, pay calculated on wire-line logs or during a formation test. These routine notifications to the ANP are not necessarily indicative of commercial hydrocarbons, potential production, recovery or reserves.

Non-GAAP Measures.  This news release contains financial terms that are not considered measures under International Financial Reporting Standards ("IFRS"), such as funds flow from operations, funds flow per share, net working capital surplus and operating netback. These measures are commonly utilized in the oil and gas industry and are considered informative for management and shareholders. Specifically, funds flow from operations and funds flow per share reflect cash generated from operating activities before changes in non-cash working capital. Management considers funds flow from operations and funds flow per share important as they help evaluate performance and demonstrate the Company's ability to generate sufficient cash to fund future growth opportunities. Net working capital surplus includes current assets (including current restricted cash and assets held for sale) less current liabilities (excluding the current portion of decommissioning obligations) and is used to evaluate the Company's financial resources.  Operating netback is determined by dividing oil sales less royalties and production taxes, transportation and production expenses by sales volume of produced oil. Management considers operating netback important as it is a measure of profitability per barrel sold and reflects the economic quality of production. Funds flow from operations, funds flow per share, net working capital surplus and operating netbacks may not be comparable to those reported by other companies nor should they be viewed as an alternative to cash flow from operations, net income or other measures of financial performance calculated in accordance with IFRS.

SOURCE Alvopetro Energy Ltd.

Corey C. Ruttan, President, Chief Executive Officer and Director; Alison Howard, Chief Financial Officer, Phone: [phone], Email: [email protected], www.alvopetro.com, TSX-V: ALV

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