Alvopetro Inc.

Alvopetro Inc.

May 14, 2013 17:17 ET

Alvopetro Announces Brazil Resource Report

CALGARY, ALBERTA--(Marketwired - May 14, 2013) -

THIS NEWS RELEASE IS NOT FOR DISSEMINATION IN THE UNITED STATES OR TO ANY UNITED STATES NEWS SERVICES.

Alvopetro Inc. ("Alvopetro" or the "Company") today announces its has received an independent engineering evaluation of the prospective resources attributable to the oil and gas exploration blocks located in the Recôncavo Basin, Brazil (the "Resource Report") of Alvopetro S.A. Extração de Petróleo E Gás Natural ("Alvopetro S.A."), a Brazilian oil and gas company in which the Company has a 25 percent indirect ownership interest. The Resource Report is dated October 15, 2012 with an effective date of August 31, 2012 and was prepared by Petrotech Engineering Ltd. ("Petrotech") in compliance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities and the Canadian Oil and Gas Evaluation ("COGE") Handbook. The Resource Report was approved by the Company's Board of Directors on April 25, 2013.

Alvopetro S.A. owns a 100 percent working interest in exploration blocks 131, 132, 144, 157, and 197 located in the Recôncavo Basin of Brazil, which are subject to an additional gross overriding royalty of 2.5 percent. In addition, on or about May 9, 2013, Alvopetro S.A., subject to ANP approval, acquired a 100 working interest in block 183 and a 90 percent working interest in block 170, both of which are located in the Recôncavo Basin on lands adjacent to the Alvopetro S.A. lands. Block 170 is subject to an additional gross override of 5 percent. All production is subject to a royalty of 10 percent to the Government and 1 percent to the landowner. Collectively, these seven exploration blocks (including blocks 170 and 183) are referred to herein as the "Exploration Blocks".

In the evaluation of the prospective resources of the Exploration Blocks, the prospective resources are considered unconventional because they will require multistage fracture stimulation to enhance permeability in the reservoir in order for the oil to produce. Net cash flow is calculated at forecast prices and escalated costs on the prospective resources (prospects), to all future time and after deduction of the capital and operating costs, royalties, before deduction of income tax. All cash flow data is in U. S. dollars.

There is no certainty any portion of the resources will be discovered. If discovered there is no certainty that it will be commercially viable to produce any portion of the resources.

The following table presents Alvopetro S.A.'s 100 percent share of the gross and net share of the prospective resources and net share of the future present worth net present values before income tax, discounted at 0%, 5%, 10%, 15% and 20%, as follows:

L&M Oil Resources Before Tax NPV @
100% Gross Net 0% 5% 10% 15% 20%
Mbbl Mbbl Mbbl M$ M$ M$ M$ M$
Low Estimate 187,824 184,365 164,085 5,638,232 3,728,877 2,512,821 1,714,754 1,176,542
Best Estimate 450,144 443,120 394,377 21,037,437 14,534,640 10,392,304 7,649,621 5,769,427
High Estimate 882,612 870,352 774,613 46,127,951 32,083,312 23,159,311 17,250,279 13,190,792
Notes:
(1) "MBbls" means thousand barrels of oil.
(2) Numbers may not add up due to rounding.
(3) The above unrisked recoverable prospective resources are before deduction of royalties.

The Company has a 25 percent indirect working interest in Alvopetro S.A. and the Exploration Blocks. Accordingly, the Company's 25 percent share of the gross and net share of the prospective resources (prospects) and net share of the future present worth net present values before income tax, discounted at 0%, 5%, 10%, 15% and 20%, is as follows:

L&M Oil Resources Before Tax NPV @
100% Gross Net 0% 5% 10% 15% 20%
Mbbl Mbbl Mbbl M$ M$ M$ M$ M$
Low Estimate 46,956 46,091 41,021 1,409,558 932,219 628,205 428,689 294,136
Best Estimate 112,536 110,780 98,594 5,259,359 3,633,660 2,598,076 1,912,405 1,442,357
High Estimate 220,653 217,588 193,653 11,531,988 8,020,828 5,789,828 4,312,570 3,297,698
Notes:
(1) "MBbls" means thousand barrels of oil.
(2) Numbers may not add up due to rounding.
(3) The above unrisked recoverable prospective resources are before deduction of royalties.

Prospective resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and a chance of development. Not all exploration projects will result in discoveries. The chance that an exploration project will result in the discovery of petroleum is referred to as the "chance of discovery". Thus, for an undiscovered accumulation the chance of commerciality is the product of two risk components - the chance of discovery and the chance of development. The estimates of prospective resources contained in this material change report have been risked for the chance of discovery but have not been risked for the chance of development and hence are considered partially risked estimates.

Estimates of resources always involve uncertainty, and the degree of uncertainty can vary widely between accumulations and projects and over the life of a project. Consequently, estimates of resources should generally be quoted as a range according to the level of confidence associated with the estimates. The range of uncertainty of estimated recoverable volumes may be represented by either deterministic scenarios or by a probability distribution. Resources should be provided as low, best and high estimates as follows:

  • Low Estimate is considered to be a conservative estimate of the quantity that will actually be recovered. It is likely that the actual remaining quantities recovered will exceed the low estimate. If probabilistic methods are used, there should be at least a 90 percent probability (P90) that the quantities actually recovered will equal or exceed the low estimate.

  • Best Estimate is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. If probabilistic methods are used, there should be at least a 50 percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate.

  • High Estimate is considered to be an optimistic estimate of the quantity that will actually be recovered. It is unlikely that the actual remaining quantities recovered will exceed the high estimate. If probabilistic methods are used, there should be at least a 10 percent probability (P10) that the quantities actually recovered will equal or exceed the high estimate.

The Resource Report includes a number of assumptions relating to factors such as initial production rates, production decline rates, ultimate recovery of resources, timing and amount of capital expenditures, marketability of production, future prices of crude oil and natural gas, operating costs, well abandonment and salvage values, royalties and other government levies that may be imposed over the producing life of the resources. These assumptions were based on prices in use at the date the Resource Report was prepared, and many of these assumptions are subject to change and are beyond the Company's control.

Estimates with respect to resources that may be developed and produced in the future are often based upon volumetric calculations, probabilistic methods and upon analogy to similar types of resources, rather than upon actual production history. Estimates based on these methods generally are less reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production history will result in variations, which may be material, in the estimated resources. Resource estimates may require revision based on actual production experience.

There are numerous uncertainties inherent in estimating resources, including many factors beyond the Company's control, and no assurance can be given that the indicated level of resources or recovery of crude oil will be realized. In general, estimates of recoverable crude oil resources are based upon a number of factors and assumptions made as of the date on which the resource estimates were determined, such as geological and engineering estimates which have inherent uncertainties and the assumed effect of regulation by governmental agencies. All such estimates are, to some degree, uncertain, and classifications of resources are only attempts to define the degree of uncertainty involved.

Forecast Crude Oil Prices

The August 31, 2012 oil price for Brent crude oil on the NYMEX Futures closed at $US 107.29 per barrel. The crude sales price in blocks 183, 197, 170, 144, 156, 131 and 132 is to be based on the API gravity at the delivery point and a discount of $US17.00 per barrel against the Brent crude oil price as paid by Petrobras for 2012. The forecast oil price for Brent is based on the forecast of Sproule and Associates Inc. (www.sproule.com) at the request of the Company. The price discount from Petrobras is based on the percentage reduction from the Sproule forecast price. Prices after 2017 are escalated at 2% per year thereafter. The historical annual average Brent oil prices were taken from Sproule and Associates Inc.

The following summarizes the historical and forecast prices used in this evaluation as follows:

Brent Oil @ 39° API Blocks 183, 197, 170 144, 157, 131, 132 Oil @ 34° API
Year $/Bbl $/Bbl
2006 65.15
2007 72.57
2008 97.06
2009 61.53
2010 79.48
2011 111.22
2012 107.29 90.29
2013 104.14 87.64
2014 100.03 84.18
2015 99.79 83.98
2016 107.98 90.87
2017 110.13 92.68

Based on the Brazilian inflation index (taken from the Mundi Index), the cost escalation factor 5% per year is used.

Forward-Looking Statements and Information

This material change report contains forward-looking statements pertaining to the Company's prospective resources. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Management believes the expectations reflected in these forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this material change report should not be unduly relied upon. These statements speak only as of the date of this material change report. With respect to forward-looking statements contained in this material change report, assumptions have been made regarding, among other things: the acquisition by Alvopetro S.A. of Blocks 170 and 183,initial production rates, production decline rates, ultimate recovery of resources, timing and amount of capital expenditures, marketability of production, future prices of crude oil and natural gas, operating costs, well abandonment and salvage values, royalties and other government levies that may be imposed over the producing life of the resources. These assumptions were based on prices in use at the date the Resource Report was prepared, and many of these assumptions are subject to change and are beyond the Company's control. Actual results could differ materially from those anticipated in these forward-looking statements as a result of certain risk factors, including, but not limited to: that ANP approval of the acquisition of Blocks 170 and 183 will not be received, general economic, market and business conditions; risks related to the exploration, development and production of oil and natural gas; risks inherent in estimating resources; risks related to the timing of completion of the Company's projects; and the other factors discussed under the heading "Risk Factors" in the Company's annual information form for the year ended December 31, 2012 and the Company's other continuous disclosure documents filed from time to time with applicable securities regulatory authorities in Canada and which may be accessed on the Alvopetro's SEDAR profile at www.sedar.com.

Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements included in this material change report are expressly qualified by this cautionary statement and are made as of the date of material change report. The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or results or otherwise, except as required by applicable securities laws.

Contact Information

  • Alvopetro Inc.
    Mr. J. Cameron Bailey
    President and Chief Executive Officer
    (403) 398-3345 extension 2450
    (403) 398-3351 (FAX)
    cbailey@alvopetro.com

    Alvopetro Inc.
    Mr. Jamie Jeffs, CA
    Chief Financial Officer
    (403) 398-3345 extension 2470
    jjeffs@alvopetro.com

    Alvopetro Inc.
    Ms. Jocelyn Tochor
    Corporate Manager
    (403) 398-3345 extension 2466
    jtochor@alvopetro.com