Alvopetro Announces Second Quarter 2020 Results, Operational Update and Semi-Annual Gas Price Redetermination

CALGARY, AB, Aug. 12, 2020 /CNW/ - Alvopetro Energy Ltd. (TSX-V:ALV) (OTCQX: ALVOF) announces second quarter results and an operational update including our first month of natural gas sales from our Caburé Project under our long-term Gas Sales Agreement ("GSA") with Bahiagás.  The Caburé Project is the culmination of a conventional upstream natural gas development coupled with a natural gas commercial solution that includes highly strategic midstream assets.   Commercial deliveries commenced on July 5^th and on July 6^th we ramped up to our planned daily firm delivery rate of 10.6 mmcfpd (300 10³m³/d).  In July, we delivered a total of 7.9 million m³ (280 mmcf) of natural gas for a calendar month average of 256 10³m³/d (9.0 mmcfpd), with associated condensate sales of 66 barrels per day.  The semi-annual price redetermination under our GSA was completed effective August 1, 2020.  Sales from August 1, 2020 through January 1, 2021 will be priced at BRL$0.96/m³.  As of August 1, 2020, this translates into US$5.58/mcf based on Alvopetro's average heat content to-date at a 7% premium.  Future realized US$ denominated sales will be impacted by changes in BRL/USD exchange rates.

Corey Ruttan, President and CEO, commented, "We have now finished our first month of production from our Caburé project.  I am extremely proud of our team who are responsible for making this a tremendous success, during a very challenging environment.  Leveraging off our new highly strategic infrastructure, we are focused on our next phase of growth and on unlocking the further natural gas potential in our portfolio."

Future Growth

We plan to continue the evaluation of the Gomo tight gas deliverability at our 183-1 wellbore and expect to undertake a longer duration production test in the second half of 2020. Concurrently, we plan to complete the permitting process for an 8-kilometre flowline to connect the 183-1 well to our Caburé Transfer Pipeline.

We expect to commence civil work on our 182-C1 and 183-B1 natural gas exploration prospects located 9-kilometres north of our Gas Treatment Plant.  We expect to fund these wells from free cash flow and to commence drilling in the first half of 2021.  Our strategy is to balance stakeholder returns with the reinvestment of cash flows in the upstream part of our business and other new business development initiatives to maximize the utilization through our Gas Treatment Plant.

Financial and Operating Highlights – Second Quarter of 2020

• In the second quarter of 2020, commissioning operations at the gas treatment facility and the 11-kilometre Caburé transfer pipeline were completed. A total of 60 mmcf of natural gas was produced from the Caburé unit during commissioning operations. Commercial natural gas sales commenced on July 5, 2020.
• Effective May 1, 2020, Bahiagás began prepayments to Alvopetro for natural gas at a rate of 120 10³m³/d for total prepaid volumes of 7.3 million m³ (259 mmcf) in the quarter, recorded as unearned revenue of $1.2 million.
• Capital expenditures of $1.6 million in the quarter were largely attributable to final costs for our Caburé midstream development including $0.5 million in costs at the gas treatment facility (including commissioning costs in the quarter), and $0.1 million for our 11-kilometre transfer pipeline. Additional capital expenditures in the quarter included capitalized G&A of $0.4 million and capitalized finance expenses of $0.6 million.
• Our sales volumes averaged 14 bbls/d in the quarter comprised of 2 bbls/d of natural gas liquids (condensate) sales from the Caburé unit and 12 bbls/d of oil from the Mãe-da-lua field. Despite reduced production expenses, as a result of the declining Brent price in the quarter, we realized an operating loss of $0.78/bbl.
• We reported a net loss of $1.2 million in the quarter, primarily due to negative funds flow of $1.0 million and finance expenses of $0.1 million.
• Our net working capital deficit of $0.3 million as of June 30, 2020, includes cash and cash equivalents of $3.2 million. We drew an additional $2.0 million on our credit facility (the "Credit Facility") in the quarter, bringing the total balance outstanding to $15.2 million as at June 30, 2020.

Summary of Q2 2020 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, 2020 and June 30, 2019. 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.

SELECTED QUARTERLY RESULTS

	As at and Three Months Ended June 30,		As at and Six Months Ended June 30,
	2020	2019	2020	2019
Financial
($000s, except where noted)
Oil and condensate sales	40	30	101	98
Net loss	(1,168)	(841)	(3,531)	(1,604)
Per share – basic and diluted ($)^(1)	(0.01)	(0.01)	(0.04)	(0.02)
Funds flow from operations ^(2)	(973)	(699)	(1,646)	(1,336)
Per share – basic and diluted ($)^(1)	(0.01)	(0.01)	(0.02)	(0.01)
Capital expenditures^(3)	1,645	775	3,255	2,024
Total assets	71,466	64,366	71,466	64,366
Cash and cash equivalents	3,150	3,338	3,150	3,338
Net working capital (deficit) surplus^(2)	(286)	996	(286)	996
Credit Facility – amount outstanding^(4)	15,192	-	15,192	-
Common shares outstanding, end of period (000s)
Basic	98,442	96,593	98,442	96,593
Diluted ^(1)	114,576	107,438	114,576	107,438
Operations
Operating netback ($/bbl) ^(2)
Brent benchmark price	33.27	68.33	42.11	66.08
Premium (discount)	(2.14)	(10.53)	1.80	(11.73)
Sales price	31.13	57.80	43.91	54.35
Transportation expenses	-	-	-	-
Realized sales price	31.13	57.80	43.91	54.35
Royalties	(3.89)	(7.71)	(5.65)	(7.21)
Production expenses	(28.02)	(123.31)	(34.78)	(87.63)
Operating netback	(0.78)	(73.22)	3.48	(40.49)
Average daily crude oil and natural gas liquids sales (bbls/d)	14	6	13	10

Notes:
(1)	Consists of outstanding common shares, stock options, and warrants of the Company.
(2)	Non-GAAP measure - see "Non-GAAP Measures" section within this press release.
(3)	Includes non-cash capital expenditures of $0.35 and $0.40 million for the three and six months ended June 30, 2020 (June 30, 2019 - $0.03 million for the three and six months ended).
(4)	Alvopetro has drawn $15 million under the Credit Facility. With additional interest amounts owing on repayment of amounts drawn, the outstanding balance is $15.2 million as of June 30, 2020 (June 30, 2019 - $nil).

Senior Leadership Team

Our entire team has done a tremendous job commercializing our Caburé project, accomplishing many firsts in Brazil and marking a major milestone in the development of the onshore natural gas market in Brazil.  We are pleased to announce the following appointments within our senior leadership team.

Mr. Adrian Audet has been appointed to the role of Vice President Asset Management.  Mr. Audet has held increasingly senior operational roles with Alvopetro since inception. He has spent extensive time in Bahia overseeing our operations, realizing extensive cost savings and improvements in efficiency. Mr. Audet began his career in 2006 and completed his Masters & Undergraduate Degrees in Mechanical Engineering at the University of Alberta. Mr. Audet is a Professional Engineer registered with APEGA and a CFA Charterholder.

Mr. Frederico Oliveira has been appointed Brazil Country Manager. Mr. Oliveira has held increasingly senior roles since 2008, with expertise in regulations, contracts, partnerships, management and cost efficiency.  Mr. Oliveira obtained a MBA from the Federal University of Minas Gerais in 2004, and a Bachelor of Science degree in Mechanical Engineering from the Pontificia Universidade Catolica de Minas Gerais.

Messrs. Audet and Oliveira have been instrumental in making our Caburé project a success, and we look forward to their continued contributions.

Incentive Share Grants

The Company has achieved a significant milestone with the commencement of first natural gas production from our Caburé project.  In connection with our share-based compensation programs, the Board of Directors has approved a grant of Restricted Share Units ("RSUs") to officers and employees to purchase 900,000 common shares under Alvopetro's Stock Incentive Plan, of which 660,000 are being granted to officers.  These RSUs will vest evenly over the next 3 years and expire on the 5^th anniversary. The RSUs will be granted on August 17, 2020.

Annual General Meeting

Alvopetro's Annual General Meeting will be held on Wednesday September 23, 2020 at the Eighth Avenue Place Conference Centre, Suite 410 (Fourth Floor), 525 – 8th Avenue S.W., Calgary, Alberta Canada, beginning at 9:30 a.m. The Management Information Circular and all related meeting materials will be available on our website and www.sedar.com later this month. 

As a result of the COVID-19 pandemic and public health recommendations in place, Alvopetro will be strictly restricting physical access to the meeting to registered shareholders and duly appointed proxyholders and will not be permitting any others (including beneficial shareholders that hold their Shares through a broker or other intermediary) to attend.  Alvopetro will continue to monitor the situation and will take all actions necessary to protect the health and safety of our employees and all of our Shareholders who wish to attend.  Further details will be provided in advance of the meeting.  In the event it is not possible or advisable to hold the meeting in person, the Corporation will announce alternative arrangements for the meeting as promptly as practicable.

Corporate Presentation

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

Social Media

Follow Alvopetro on our social media channels at the following links:

Twitter - https://twitter.com/AlvopetroEnergy

Instagram - https://www.instagram.com/alvopetro/

LinkedIn - https://www.linkedin.com/company/alvopetro-energy-ltd

Alvopetro Energy Ltd.'s vision is to become a leading independent upstream and midstream operator in Brazil. Our strategy is to unlock the on-shore natural gas potential in the state of Bahia in Brazil, building off the development of our Caburé natural gas field and our strategic midstream infrastructure.

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.

All amounts contained in this new release are in United States dollars, unless otherwise stated and all tabular amounts are in thousands of United States dollars, except as otherwise noted.

Abbreviations:
10^3m^3	=	thousands of cubic metres
10^3m^3/d	=	thousands of cubic metres per day
BRL$	=	Brazilian Real
bbls/d	=	barrels of oil and/or natural gas liquids (condensate) per day
m^3/d	=	cubic metre per day
mmbtu	=	million British Thermal Units
mmcf	=	million cubic feet
mmcf/d	=	million cubic feet per day

BOE Disclosure. The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet per barrel (6Mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in this news release are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.

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 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 excluding 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 includes current assets less current liabilities and is used to evaluate the Company's financial resources. Operating netback is determined by dividing oil and condensate sales (after sales taxes) less royalties, transportation and production expenses by sales volumes. 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 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. For more information with respect to financial measures which have not been defined by GAAP, including reconciliations to the closest comparable GAAP measure, see the "Non-GAAP Measures" section of the Company's MD&A which may be accessed through the SEDAR website at www.sedar.com.

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 the plans relating to the Company's operational activities, and the expected gas sales and gas deliveries under Alvopetro's long-term gas sales agreement. The forward–looking statements are based on certain key expectations and assumptions made by Alvopetro, including but not limited to the timing of regulatory licenses and approvals, the success of future drilling, completion, recompletion and development activities, the outlook for commodity markets and ability to access capital markets, the impact of the COVID-19 pandemic, the performance of producing wells and reservoirs, well development and operating performance, general economic and business conditions, weather and access to drilling locations, the availability and cost of labour and services, environmental regulation, including regulation relating to hydraulic fracturing and stimulation, the ability to monetize hydrocarbons discovered, the regulatory and legal environment and other risks associated with oil and gas operations. 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.

SOURCE Alvopetro Energy Ltd.

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

Related Links

http://www.alvopetro.com/