Alvopetro Energy Ltd.
TSX VENTURE : ALV

Alvopetro Energy Ltd.

November 19, 2014 22:51 ET

Alvopetro Announces Third Quarter Financial and Operating Results and 2015 Capital Plan

CALGARY, ALBERTA--(Marketwired - Nov. 19, 2014) - Alvopetro Energy Ltd. (TSX VENTURE:ALV) is pleased to announce our third quarter 2014 financial and operating results and 2015 capital plan.

Financial and Operating Highlights

  • During the third quarter of 2014, we commenced drilling our 183(1) well and testing our 197(1) well.
  • We drilled the 183(1) well to a total depth of 3,550 metres. Based on open-hole logs, the well encountered 189 metres of potential net hydrocarbon pay over three main intervals.
  • We drilled the 197(1) well to a total depth of 3,275 metres and encountered 43 metres of potential net hydrocarbon pay over several separate intervals.
  • On November 4, we commenced drilling our third well, 197(2), a lower-risk shallow conventional target offsetting an existing natural gas discovery.
  • Our cash, restricted cash and working capital resources remain strong at $63.7 million.

OPERATIONAL UPDATE

We completed testing our 197(1) well in October 2014. The 197(1) well was drilled to a total depth of 3,275 metres and encountered 43 metres of potential net hydrocarbon pay over several separate intervals. The lowermost 6 metres of net pay was perforated and flowed natural gas, without stimulation, at a rate of 40 mcf/day, with no water. The test data characterizes the resource as liquids rich, high-heat content, gas in an unconventional reservoir and, as expected, will require the application of reservoir enhancement techniques. This gas interval is part of a large geobody that we have mapped using 3D seismic over a large area, and which has been confirmed by our 183(1) well results.

On October 3, we completed drilling our 183(1) well, reaching a total depth of 3,550 metres. Based on open-hole logs, the 183(1) well encountered 189 metres of potential net hydrocarbon pay.

Based on logs, we have a series of Upper Gomo sands in our 183(1) discovery well totaling 96 metres of potential net pay, using an 8% porosity cut-off. This Upper Gomo sequence includes a thick continuous column of sand with 46 metres of net pay, and a three metre zone with 14% porosity. These zones are stratigraphically distinct from the upper zone in 197(1) with log resistivity of 40 ohms, compared to the resistivity of 20 ohms measured in the uppermost tested zone in our 197(1) well.

Logs from our 183(1) well also indicate a natural gas zone with 93 metres of net pay, using a 4% porosity cut-off. Using 3D seismic and internal petrophysical analysis we have mapped this zone to be part of the same geobody as the natural gas discovery in the lowermost zone tested in our 197(1) well. Based on logs, mapping and ongoing technical analysis, we now internally estimate 1.3 TCF of total petroleum initially-in-place ("TPIIP") (natural gas) in this 5,460 acre geobody. Concurrently, we have completed the detailed 3D seismic interpretation and mapping of the upper Gomo interval that, based on open hole logs and petrophysical analysis, is expected to be hydrocarbon bearing. If this geobody is gas bearing, we estimate it contains resource potential similar to the lower geobody described above. If the geobody is oil bearing, we estimate it could contain in excess of 600 million barrels of TPIIP. Additional technical work and testing is required to determine the extent, if any, of potential commercial hydrocarbons associated with this well. We plan to commence a multi-zone testing program on the well with a service rig, subject to our drilling schedule and following receipt of regulatory approvals.

Our 197(1) and 183(1) wells have been significant milestones proving hydrocarbon potential for both oil and natural gas. The 197(1) well demonstrated natural gas deliverability on an unstimulated basis, at depth, in the core of our Gomo play fairway. The continued strong demand for natural gas and high energy prices in northeastern Brazil place Alvopetro in an excellent position to commercialize this large tight gas resource along with any potential commercial light oil accumulation.

On November 4, 2014, we commenced drilling our third well, 197(2), a shallow conventional exploration target offsetting an existing gas discovery. We are currently drilling at 626 metres to an expected total depth of 1,845 metres. After drilling this well, due to a third party obligation, we expect to release the rig for a period of 60 to 100 days and then plan to commence development drilling on our Bom Lugar mature oil field in the first half of 2015.

Summary of Q3 2014 Financial and Operating Results

The following table provides a summary of Alvopetro's financial and operating results for the three and nine months ended September 30, 2014 and September 30, 2013. 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.

Three months ended
September 30,
Nine months ended
September 30,
2014 2013 2014 2013
Financial
($000s, except where noted)
Oil sales 257 177 894 876
Funds flow from operations(1) (1,331 ) (997 ) (6,240 ) (3,146 )
Per share - basic and diluted ($)(2) (0.02 ) (0.01 ) (0.07 ) (0.04 )
Net loss (1,722 ) (7,439 ) (7,047 ) (10,004 )
Net loss attributable to common shareholders (1,722 ) (5,793 ) (7,047 ) (7,796 )
Per share - basic and diluted ($)(2) (0.02 ) (0.07 ) (0.08 ) (0.09 )
Capital expenditures 14,898 1,836 27,485 2,636
Total assets 151,779 47,363 151,779 47,363
Debt - - - -
Net working capital surplus (deficit)(1)(3) 45,104 (56 ) 45,104 (56 )
Common shares outstanding, end of year (000s)
Basic(2) 85,167 85,167 85,167 85,167
Diluted(4) 88,264 85,167 88,264 85,167
Operations
Operating netback ($/bbl)(1)
Brent benchmark price 103.38 109.71 107.02 108.24
Sales price 100.82 76.75 101.60 99.35
Transportation expenses (3.53 ) (2.94 ) (3.98 ) (3.06 )
Realized sales price 97.29 73.81 97.62 96.29
Royalties and production taxes (9.42 ) (6.54 ) (10.34 ) (5.56 )
Production expenses (104.35 ) (178.55 ) (108.31 ) (121.36 )
Operating netback (16.48 ) (111.28 ) (21.03 ) (30.63 )
Average daily crude oil production (bopd) 28 25 32 32

Notes:

(1) Non-GAAP measure. See "Non-GAAP Measures" section within this press release.
(2) All Alvopetro common shares currently outstanding were issued in connection with the Arrangement and there were no shares of Alvopetro Energy Ltd. outstanding at September 30, 2013. However, for comparison purposes and for all per share computations, the December 31, 2013 common share balance is assumed for September 30, 2013.
(3) Includes current restricted cash of $11.1 million (September 30, 2013 - $nil) but excludes non-current restricted cash of $18.6 million (September 30, 2013 - $nil).
(4) Consists of outstanding common shares and stock options of the Company as at September 30, 2014.

Financial Resources and Fourth Quarter 2014 Plans

In the first nine months of 2014, we invested $27.5 million and made extensive progress advancing our business objectives. We successfully completed drilling and completing our 197(1) well, drilling our 183(1) well and are currently drilling our 197(2) conventional prospect. In addition, we reprocessed 3D seismic over our land base, recovered and analyzed over 118 meters of core, and advanced our geological model resulting in the identification of an inventory of high potential prospects.

During the fourth quarter of 2014, we plan to complete drilling and testing our 197(2) well, an offset to an existing natural gas discovery. This is a lower geological risk location that, with success, will provide the first step for building a commercial natural gas business and support our additional natural gas exploration prospects and broader plans to develop the extensive Gomo natural gas potential we have discovered in our first operating year in Brazil.

Our work to-date has followed our plan of proving the commercial viability of the Gomo resource, which we will continue into 2015 with the completion and testing of our 183(1) well, including a fracture stimulation. This will allow us to advance our Gomo resource strategy with minor capital investment in 2015. This gives us the financial flexibility to focus our capital in 2015 on building a sustainable base of production and cash flow through oil-focused development and exploration drilling. Our existing financial resources provide Alvopetro flexibility to accomplish our 2015 capital plan.

2015 Capital Plan

Alvopetro's three-pronged strategy is to pursue our:

  • Mature Oil Fields; development drilling focused on generating near-term oil production and sustainable operating cash flows;
  • Shallow Conventional Oil Exploration; targeting prospects generated from our reprocessed 3D seismic database; and
  • Large Tight Hydrocarbon Resource; proving the commercial viability of the Gomo resource in the Recôncavo Basin.

Our 2015 base capital plan is estimated at $25 million. Our strong financial position enables us to fund the 2015 capital plan with our existing balance sheet, and provides the flexibility to expand the 2015 capital program with early success. This program positions Alvopetro to grow oil production and reserves while significantly advancing each aspect of our three-pronged strategy. With our diverse asset base and expanding inventory of opportunities, we plan to maximize value by achieving a balance between capital discipline and growth.

Mature Fields

We plan to drill two wells at Bom Lugar in 2015 targeting repeatable, low-cost, development and building near-term cash flow. The original Bom Lugar discovery well came on production at over 500 bopd and has cumulatively produced nearly 300,000 barrels of oil. With early success at Bom Lugar we have the flexibility to expand our development drilling program and our shallow conventional oil exploration program in 2015 and beyond.

Shallow Conventional Exploration

What started in 2013 as a theoretical exploration concept, has now evolved into a solid inventory of high-impact prospects. During 2014, Alvopetro focused on the reprocessing and interpretation of the extensive 3D seismic database over our blocks, enabling us to build an initial 9-well inventory of conventional exploration opportunities. Our 2015 capital plan will leverage our geotechnical work completed to-date and includes the drilling of the first of the oil exploration prospects.

Proving the Commercial Viability of the Gomo Resource

Our early capital expenditures were dedicated towards drilling our 197(1) and 183(1) wells that have advanced our initial Gomo light oil play concepts while proving up a significant deep, tight, natural gas opportunity. In 2015, our capital plan builds on these investments. In 2015, for the Gomo resource, we plan to focus on relatively lower-cost activities including completing and testing the 183(1) well, defining deliverability through the use of fracture stimulations and reservoir modelling, to provide the basis for a large-scale commercial development.

Updated Corporate Presentation

Our updated corporate presentation is available at 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 being the lowest cost operator and applying innovation to underexploited opportunities. Alvopetro aims to implement a large-scale, repeatable, low-risk, multi-well development program, utilizing advanced technology and completion techniques. Alvopetro's strong financial position, along with our experienced team of professionals, local operating capabilities and highly prospective land base, will enable us to efficiently develop our resource play opportunities.

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 press 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", "intend", "expect" 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 wells drilled to-date, 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 results on our wells drilled to-date, 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.

Testing and Well Results. Data obtained from the wells identified in this press release, including hydrocarbon shows, open-hole logging, net pay and porosities, should be considered to be preliminary until testing, detailed analysis and interpretation has been completed. Hydrocarbon shows can be seen during the drilling of a well in numerous circumstances and do not necessarily indicate a commercial discovery or the presence of commercial hydrocarbons in a well. There is no representation by Alvopetro that the data relating to our wells contained in this press release is necessarily indicative of long-term performance or ultimate recovery. The reader is cautioned not to unduly rely on such data as such data may not be indicative of future performance of the well or of expected production or operational results for Alvopetro in the future.

Meaning of boe: When used in this press release, boe means a barrel of oil equivalent on the basis of 1 boe to 6 thousand cubic feet of natural gas. boe per day or boe/d means a barrel of oil equivalent per day. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6 thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio of oil compared to natural gas based on currently prevailing prices is significantly different than the energy equivalency ratio of 1 boe to 6 thousand cubic feet of natural gas, utilizing such a conversion ratio may be misleading as an indication of value.

Total Petroleum Initially-In-Place ("TPIIP"). TPIIP are those quantities of petroleum estimated to exist originally in naturally occurring accumulations. It includes that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations, prior to production, plus those estimated quantities in accumulations yet to be discovered. There is no certainty that undiscovered resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.

Non-GAAP Measures. This press 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) and current liabilities and is used to evaluate the Corporation'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, 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.
    E. John Koch
    Chief Operating Officer
    587.794.4224

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