Alvopetro Energy Ltd.
TSX VENTURE : ALV

Alvopetro Energy Ltd.

May 25, 2015 20:18 ET

Alvopetro Announces an Operational Update and First Quarter Financial and Operating Results

CALGARY, ALBERTA--(Marketwired - May 25, 2015) - Alvopetro Energy Ltd. (TSX VENTURE:ALV) is pleased to provide an operational update and announce our first quarter 2015 financial and operating results.

Operational Update

We drilled our first conventional exploration well, 197(2), late in 2014, reaching a total depth of 1,669 metres. Based on logs, the well encountered 78 metres of potential net natural gas pay, with an average 33% water saturation and an average porosity of 12%, using an 8% porosity cut-off. The well was completed and three zones totalling 25 metres were perforated, testing less than 20% of the overall net pay in the well, confirming a significant natural gas discovery. The results from the pressure transient analysis of all three zones, indicating a highly productive well of up to 12.5 MMcfpd (IP90), are summarized below:



Zone (Measured Depth)
Unstimulated Average 72-hour Test Rate (MMcfpd) Stimulated Deliverability IP90 (MMcfpd) Stimulated Deliverability
IP365 (MMcfpd)
1) 1,460 - 1,469 metres 3.6 9.2 4.4
2) 1,371 - 1,376 and 1,384 - 1,389 metres 1.9 1.5 1.4
3) 1,322 - 1,327 metres 3.2 1.8 1.1
Total 8.7 12.5 6.9

During the 72 hour test of each interval the well flowed natural gas, on an unstimulated basis, at an average rate of 101,000 m3/d (3.6 MMcfpd or 600 boepd) from the first interval, 53,000 m3/d (1.9 MMcfpd or 310 boepd) from the second interval and 89,500 m3/d (3.2 MMcfpd or 527 boepd) from the third interval. The pressure transient analysis forecasts potential post-stimulation rates with damage removed (expected to be achieved using a near well bore acid wash) on a combined basis indicating total deliverability of 12.5 MMcfpd (2,089 boepd) after three months (IP90) of continuous production and 6.9 MMcfpd (1,146 boepd) after one year (IP365) of continuous production.

During 2015, we will be working diligently to unlock the value associated with the 197(2) discovery including; securing a natural gas sales contract, defining development costs and timing, and independently certifying resource estimates for the discovery. While we are building a natural gas business in the state of Bahia, our capital program will be primarily focused on adding near-term production and cash flow from our oil prospects.

On May 24, 2015 we commenced drilling the 182(2) well located on Block 182. The well is a conventional oil prospect targeting the Agua Grande formation, with additional potential in the Sergi Formation and satisfies our current phase exploration work commitment. We have recently identified two additional prospects on this block.

During 2014, we focused significant effort on reprocessing and interpreting our extensive 3D seismic database, enabling us to expand our 9-prospect inventory of conventional exploration opportunities to an 18-prospect inventory. One of our more prospective conventional oil exploration opportunities is a shallow target on Block 170, at 2,000 metres vertical depth, that we plan to drill in the second half of 2015.

We acquired the remaining working interest in our Block 170, subject to Brazil's National Agency of Petroleum, Natural Gas and Biofuels approval. Prior to the acquisition, Alvopetro had a commitment to pay 100% of the cost of a well drilled to the Gomo Formation (3,200 metres vertical depth) to retain a 90% interest in the Gomo Formation and a 50% interest in all formations above the Gomo. This acquisition allows us to significantly reduce our capital commitments on Block 170 by drilling a shallower well and to retain 100% of the upside associated with this high priority prospect.

We are also sourcing a larger drilling rig capable of efficiently drilling our first Bom Lugar horizontal development oil well. It is expected this rig would also be used to drill the first of two conventional oil prospects on Block 107 which offsetting and analogous to our Bom Lugar producing field.

2015 Capital Plan

Alvopetro's strategy targets three core opportunities: lower risk development drilling on our mature fields, an expanding inventory of shallow conventional exploration prospects, and the development of the significant hydrocarbon potential present in our deep Gomo resource play. Our base capital plan of $17 million is fully funded from financial resources on hand and is expected to include:

  • Testing our 197(2) natural gas discovery;
  • Building a natural gas business by securing a natural gas sales contract, defining development costs and timing, and independently certifying resource estimates for the 197(2) discovery;
  • Currently drilling our 182(2) conventional oil exploration prospect;
  • Drilling one additional conventional oil exploration prospect (Block 170 or 107);
  • Drilling one oil development well on our Bom Lugar mature field; and
  • Advancing our Gomo resource play by completing and testing the 183(1) well and defining deliverability through the use of fracture stimulations and reservoir modelling.

Financial and Operating Highlights - Q1 2015

  • Capital and other asset expenditures in the first quarter included $0.4 million relating to completion and testing of our 197(2) well, $0.1 million relating to civil construction for future well sites, facility costs of $0.1 million, and capitalized general and administrative costs of $0.3 million.
  • Our cash, restricted cash and working capital resources remain strong at $43.7 million, with a working capital surplus of $35.5 million (including $36.7 million of cash and cash equivalents and $4.9 million of current restricted cash) as well as non-current restricted cash of $8.2 million.

Summary of Q1 2015 Financial and Operating Results

The following table provides a summary of Alvopetro's financial and operating results for the three months ended March 31, 2015 and March 31, 2014. The consolidated interim 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 SEDAR website at www.sedar.com.

SUMMARY OF Q1 2015 RESULTS
Q1 2015 Q1 2014
Financial
($000s, except where noted)
Oil sales 172 314
Funds flow from operations (1) (1,357 ) (3,016 )
Per share - basic and diluted ($) (0.02 ) (0.04 )
Net loss (1,563 ) (4,021 )
Per share - basic and diluted ($) (0.02 ) (0.05 )
Capital and other asset expenditures 1,354 7,371
Total assets 113,834 155,936
Debt - -
Net working capital surplus (1) (3) 35,497 65,716
Common shares outstanding, end of period (000s)
Basic 85,167 85,167
Diluted (2) 90,517 88,162
Operations
Operating netback ($/bbl) (1)
Brent benchmark price 55.16 107.90
Discount (9.65 ) (7.96 )
Sales price 45.51 99.94
Transportation expenses (4.23 ) (3.50 )
Realized sales price 41.28 96.44
Royalties and production taxes (3.97 ) (10.82 )
Production expenses (65.63 ) (103.12 )
Operating netback (28.32 ) (17.50 )
Average daily crude oil production (bopd) 42 35
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 March 31, 2015 and 2014.
(3) Includes current restricted cash of $4.9 million (March 31, 2014 - $6.0 million) but excludes non-current restricted cash of $8.2 million (March 31, 2014 - $21.7 million).

Updated Corporate Presentation

Our updated corporate presentation is available at http://www.alvopetro.com/corporate-presentation.

Annual General Meeting

Alvopetro's Annual General Meeting will be held on Tuesday, May 26, 2015 at 9:00 a.m. at the Centrium Place Conference Centre, 2nd Floor (+15 level), 332 - 6th Avenue S.W. Calgary, Alberta, Canada. All interested parties are invited to attend. Our Annual General Meeting will also be available via audio webcast: http://www.gowebcasting.com/6522.

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, while maintaining our focus on being a low cost operator. 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. Alvopetro's strong financial position, along with our talented team and highly prospective land base, position us to successfully pursue our strategy.

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.

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.

Abbreviations:
m3 = cubic metre
m3/d = cubic metre per day
Mcfpd = thousand cubic feet per day
MMcf = million cubic feet
MMcfpd = million cubic feet per day
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.

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 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

    Alvopetro Energy Ltd.
    E. John Koch
    Chief Operating Officer
    587.794.4224
    info@alvopetro.com
    www.alvopetro.com