Alvopetro Energy Ltd.
TSX VENTURE : ALV

Alvopetro Energy Ltd.

April 06, 2016 17:37 ET

Alvopetro Announces 2016 Capital Plan, Year-End 2015 Financial Results and Filing of Annual Information Form

CALGARY, ALBERTA--(Marketwired - April 6, 2016) - Alvopetro Energy Ltd. (TSX VENTURE:ALV) is pleased to announce our 2016 capital plan, fourth quarter 2015 and year-end 2015 financial results and the filing of our annual information form.

2016 Capital Plan

In 2016, we are primarily focused on building a natural gas business from our 197(2) discovery by securing a gas sales contract and finalizing the field commercialization plan. Concurrently, we continue our disciplined capital program in light of low commodity prices, focusing on high potential exploration prospects without impairing our ability to grow when commodity prices recover.

In the coming months, we plan to drill our 256(A1) well, which is a multi-zone prospect located on Block 256 and our largest natural gas exploration prospect to-date. Block 256 is located near existing State gas transmission infrastructure and the drilling of 256(A1) will fulfil our exploration work commitments on the Block.

Our $9.0 million 2016 capital plan is expected to be funded with existing cash balances on hand and includes:

  • The drilling of the 170(B1) well, which was completed in March 2016 and satisfied our Block 170 ANP work commitment;
  • Drilling our 256(A1) well; and
  • Advancing our Gomo resource play by testing the 183(1) well and defining deliverability through the use of fracture stimulations and reservoir modeling, pending receipt of regulatory approval.

2015 Year Highlights

  • Our drilling to date has resulted in four discoveries (197(1), 183(1), 197(2) and 182(B1)) and one dry hole at 170(B1). We plan to relinquish Block 170 to the ANP, given lack of prospectivity.
  • In 2015, we successfully tested three separate intervals in our 197(2) natural gas discovery. Pressure transient analysis forecasts potential post-stimulation rates with total deliverability averaging 15.9 MMcfpd (2,650 boepd) over the first three months of continuous production and averaging 10.2 MMcfpd (1,700 boepd) over the first year of continuous production.
  • Alvopetro's 197(2) contingent resources are comprised of a "best estimate" (2C) of 5.8 MMboe and our 2015 year-end reserves are 741 Mstb (total gross proved plus probable).
  • Our 197(2) contingent resources have a NPV10 of US $91.3 million (2C) and our 2015 year-end reserves have a NPV10 of US $9.5 million (total gross proved plus probable). The NPV10 value of our contingent resources reflects the value of our first conventional natural gas discovery and highlights the potential of our prospect inventory. Upon elimination of certain of the contingencies to commerciality, Alvopetro expects resources currently classified as contingent resources to be re-classified as reserves.
  • In December 2015, we brought the 182(B1) well on production at an average rate of 28 bopd, contributing total production of 366 barrels in the fourth quarter of 2015.
  • Alvopetro began 2015 with 11 conventional exploration prospects. We had two conventional exploration successes with our 197(2) and 182(B1) wells and ended 2015 with 20 prospects in our prospect inventory. We have three prospects in our prospect inventory targeting the same reservoir as our significant natural gas discovery on Block 197.

Financial Resources

Our cash, restricted cash and working capital resources total $29.4 million, including $28.7 million of cash and cash equivalents and $2.3 million of current restricted cash.

Financial and Operating Highlights - Fourth Quarter 2015

  • In Brazil's 13th Bid Round held on October 7, 2015, Alvopetro, in partnership with ENGIE (GDF SUEZ E&P Brasil Participações Limitada), was the successful bidder on four blocks, all located in the Recôncavo Basin, onshore Brazil. Alvopetro will operate all of the blocks acquired and holds a 65% participating interest, with ENGIE holding the remaining 35% participating interest. Alvopetro incurred total costs of $0.2 million in the three months ended December 31, 2015 in respect of bid round bonuses and fees to post the required letters of credit for work commitments.
  • On October 1, 2015, we sold our Aracaju field, eliminating all associated obligations and liabilities with respect to this mature field, which we viewed as having limited prospectivity. The Aracaju field was not included in any of our independent reserves or resource reports and the carrying amount of this field had been fully impaired. The agreement has an effective date of October 1, 2015 and will close on the date Brazil's National Agency of Petroleum, Natural Gas and Biofuels ("ANP") approves the transfer. In the three months ended December 31, 2015, the Company recorded a gain on this disposition of $0.4 million as a result of the release of the decommissioning liability.
  • Capital and other asset expenditures of $1.6 million in the fourth quarter included $0.5 million for rig mobilization and site construction costs for our 170(B1) well which was drilled in early 2016, $0.1 million in site construction costs for our 256(A1) well which Alvopetro plans to drill in 2016, $0.3 million in facilities costs to bring our 182(B1) well on production, bid round bonuses and other costs for the 13th Bid Round of $0.2 million, and capitalized G&A of $0.2 million.
  • We reported a net loss of $9.8 million in the fourth quarter. Included in the net loss was an impairment charge of $12.1 million on our exploration assets ($11.5 million) and property, plant and equipment assets ($0.6 million), offset by a deferred tax recovery of $3.0 million. The impairment charge to our exploration assets was largely in respect of costs incurred to date on the 182(B1) well and the 170(B1) well. The impairment charge to our property, plant and equipment assets related to our Bom Lugar field and was due to the continued decline in commodity prices.

Financial and Operating Highlights - Year-End 2015

  • In 2015, we reduced our capital spending in light of declining commodity prices. Capital and other asset expenditures decreased to $12.2 million in 2015, compared to $44.4 million in 2014. Alvopetro completed testing on its 197(2) gas discovery, drilled and tested the 182(B1) well, and began work on the 170(B1) well which was drilled in early 2016.
  • Alvopetro realized negative funds flow from operations in 2015, however funds flow improved compared to 2014 as a result of reduced realized foreign exchange losses in 2015 and savings on production and general and administrative expenses, offset by reduced oil sales in 2015.
  • Our total assets decreased from 2014 largely as a result of the $13.0 million impairment charge as well as the decline in Brazilian real ("BRL") denominated asset balances due to the 47% decline in the Brazilian real relative to the USD in 2015.
  • Alvopetro strategically relinquished four non-prospective blocks in 2015 and one block in 2016 eliminating the five well commitments associated with these blocks. The carrying value of these blocks had been fully impaired in the 2014 financial statements.

Summary of Q4 2015 and Year-End 2015 Results

The following table provides a summary of Alvopetro's financial and operating results for the periods noted. The audited 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. The summary of annual and quarterly results contained in this news release represents a comparison of the respective periods ended December 31, 2015 and the year ended December 31, 2014.

SELECTED QUARTERLY AND ANNUAL RESULTS

Three months ended
December 31,
Year ended
December 31,
2015 2014 2015 2014
Financial
($000s, except where noted)
Oil sales 116 212 535 1,106
Funds flow from operations (1) (1,017 ) (1,482 ) (4,966 ) (7,722 )
Per share - basic and diluted ($)(2) (0.01 ) (0.02 ) (0.06 ) (0.09 )
Net loss (9,797 ) (24,662 ) (12,424 ) (31,709 )
Per share - basic and diluted ($)(2) (0.12 ) (0.29 ) (0.15 ) (0.37 )
Capital and other asset expenditures 1,610 16,239 12,202 44,366
Total assets 84,284 124,557 84,284 124,557
Debt - - - -
Net working capital surplus (1) (3) 29,405 35,844 29,405 35,844
Common shares outstanding, end of year (000s)
Basic 85,167 85,167 85,167 85,167
Diluted (2) 92,010 89,734 92,010 89,734
Operations
Operating netback ($/bbl) (1)
Brent benchmark price 44.71 76.98 53.64 99.51
Discount (8.41 ) (14.63 ) (10.39 ) (8.85 )
Sales price 36.30 62.35 43.25 90.66
Transportation expenses (2.50 ) (2.65 ) (2.99 ) (3.61 )
Realized sales price 33.80 59.70 40.26 87.05
Royalties and production taxes (3.13 ) (4.71 ) (3.07 ) (8.77 )
Production expenses (56.32 ) (141.18 ) (70.49 ) (117.47 )
Operating netback (25.65 ) (86.19 ) (33.30 ) (39.19 )
Average daily crude oil production (bopd) 35 37 34 33

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 as at December 31, 2015.
(3) Includes current restricted cash of $2.3 million (December 31, 2014 - $3.4 million) but excludes non-current restricted cash of $nil (December 31, 2014 - $9.7 million).

Annual General Meeting

Alvopetro's Annual General Meeting is scheduled to be held on Thursday, May 19, 2016 at 9:00 a.m. at the Centrium Place Conference Centre, 2nd Floor (+15 level), 332 - 6th Avenue S.W. Calgary, Alberta, Canada.

To view Alvopetro's audited consolidated financial statements, the related MD&A and the annual information form ("AIF") for the years ended December 31, 2015 and December 31, 2014 please visit our website at www.alvopetro.com or www.sedar.com. To the extent investors do not have access to the internet, copies of the audited consolidated financial statements, the related MD&A and the AIF can be obtained on request without charge by contacting Alvopetro at 587.794.4224 or at 1175, 332-6th Avenue SW, Calgary, Alberta, T2P 0B2.

Updated Corporate Presentation

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

Annual Information Form

Alvopetro has filed its annual information form (AIF) with the Canadian securities regulators on SEDAR. The AIF includes the disclosure and reports relating to oil and gas reserves data and other disclosures for oil and gas activities required pursuant to National Instrument 51-101 of the Canadian Securities Administrators. The AIF may be accessed electronically from at www.sedar.com.

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 resource play.

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 news release are in United States dollars, unless otherwise noted.

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", "plan", "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 financial results and operating results, reserves and potential 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 expectations and assumptions concerning testing results, the timing of regulatory licenses and approvals, 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.

Abbreviations:
Mcfpd = thousand cubic feet per day
MMcf = million cubic feet
MMcfpd = million cubic feet per day
Mstb = thousand stock tank barrels
Boepd = barrels of oil equivalent 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.

Test Results. Any references in this news release to test results, production from testing and performance rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such well will continue production and decline thereafter. Test results are not necessarily indicative of long-term performance of the relevant well or fields or of ultimate recovery of hydrocarbons.

Supplementary Information of Oil and Natural Gas Resources and Reserves. The disclosure in this news release summarizes certain information contained in the independent resource report of DeGoyler and MacNaughton ("D&M Report") dated effective June 30, 2015 and is supplemental to the disclosure required under NI 51-101. The D&M report estimates the discovered petroleum initially-in-place and the contingent resources associated with Alvopetro's Blocks 197 and 198, and there are no reserves, prospective resources, unrecoverable or recoverable undiscovered petroleum initially-in-place associated, nor any unrecoverable discovered petroleum initially-in-place, with these blocks. Full disclosure with respect to the Company's resources and reserves as at December 31, 2015 is contained in the Company's annual information form for the year ended December 31, 2015 filed on SEDAR (www.sedar.com).

Non-GAAP Measures. This news release contains financial terms that are not considered measures under Canadian generally accepted accounting principles ("GAAP"), 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) less current liabilities (excluding the current portion of decommissioning obligations) and is used to evaluate the Company's financial leverage. Operating netback is determined by dividing oil sales less royalties and production taxes, transportation and operating 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 GAAP.

Contact Information

  • Alvopetro Energy Ltd.
    Corey C. Ruttan
    President, Chief Executive Officer and Director
    587.794.4224

    Alvopetro Energy Ltd.
    Alison Howard
    Chief Financial Officer
    587.794.4224
    info@alvopetro.com
    www.alvopetro.com