Fortaleza Energy Inc.

November 29, 2013 14:09 ET

Fortaleza Energy Announces Third Quarter 2013 Financial and Operating Results

CALGARY, ALBERTA--(Marketwired - Nov. 29, 2013) -

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

Fortaleza Energy Inc. ("Fortaleza" or the "Company", formerly known as Alvopetro Inc.) today announces its financial and operating results for the three and nine months ended September 30, 2013. The Company's financial statements and management's discussion and analysis for the three and nine months ended September 30, 2013 are available under the Company's profile on SEDAR (www.sedar.com).

Financial and Operating Summary
Three months ended September 30, Nine months ended September 30,
($000's except per share amounts) 2013 2012 2013 2012
Financial
Natural gas sales 239 147 648 617
Funds used in operations (1) (487 ) (890 ) (1,541 ) (2,923 )
Per share - basic (0.01 ) (0.02 ) (0.03 ) (0.05 )
Per share - diluted (0.01 ) (0.02 ) (0.03 ) (0.05 )
Net loss (994 ) (1,226 ) (2,261 ) (4,126 )
Per share - basic (0.02 ) (0.02 ) (0.04 ) (0.07 )
Per share - diluted (0.02 ) (0.02 ) (0.04 ) (0.07 )
Working capital deficiency (1) (2,200 ) (3,609 ) (2,200 ) (3,609 )
Operations
Average production:
Natural gas (Mcf/d) 505 391 446 541
Natural gas liquids (bbl/d) 13 9 11 13
Total (Mcfe/d) 585 445 512 619
Average sales price:
Natural gas ($/Mcf) 3.07 2.55 3.47 2.33
Natural gas liquids ($/bbl) 78.46 68.16 75.54 76.30
Total ($/Mcfe) 4.44 3.60 4.64 3.64
Operating netback (1) ($/Mcfe) 2.03 0.69 1.88 0.99
(1) The terms "funds from operations", "operating netback" and "working capital" are not recognized measures under IFRS. Management believes that in addition to net income, funds from operations and operating netback are useful supplemental measures as they provide an indication of the results generated by the Company's principal business activities before the consideration of how those activities are financed. Investors are cautioned, however, that these measures should not be construed as alternatives to net income determined in accordance with IFRS. The Company's method of calculating funds from operations may differ from that of other companies, and, accordingly it may not be comparable to measures used by other companies. The Company calculates funds from operations by taking cash flow from operating activities as determined under IFRS before changes in non-cash operating working capital and abandonment expenditures. Operating netback is calculated on a per Mcfe basis taking natural gas sales and deducting royalties, operating expenses and transportation expenses. Working capital is calculated as current assets less current liabilities.

Corporate Highlights

The following are the highlights for the quarter:

On November 19, 2013, the Company announced that it closed a transaction with Petrominerales Ltd. ("Petrominerales") to sell its 25 percent interest in 10 exploration blocks located in the Recôncavo Basin and three marginal fields located in Brazil for $9,000,000.

The Company entered into a purchase and sale agreement on March 5, 2012 with the shareholders of Alvorada Petróleo S.A. ("Alvorada") to acquire the shares of a newly established entity, Alvopetro S.A. Extração de Petróleo e Gás Natural ("Alvopetro S.A."), its assets consisting of most of the assets and operations of Alvorada being nine exploration blocks in the Recôncavo Basin and three marginal fields in Brazil. The acquisition was subject to, amongst other things, the approval of the Agencia Nacional do Petróleo, Gás Natural e Biocombustíveis of Brazil (the "ANP") which was granted in September, 2012.

The Company entered into an agreement on December 7, 2012 with Petrominerales for it to indirectly acquire 75 percent of Alvopetro S.A. for US$36,850,000, satisfying the purchase price with the Alvorada shareholders and becoming the manager of the Brazilian assets. Since the acquisition of the Brazilian assets, the Company has been aggressively pursuing financing options which efforts have been largely unsuccessful and lead to establishing a Special Committee of the Board consisting of the independent directors to examine strategic alternatives available to maximize the value of the Company. After a review of a number of alternatives, the Special Committee had determined that the best option available to the Company was to accept an offer from Petrominerales to acquire its interests in the Brazilian assets for $9,000,000.

The transaction was subject to the approval of the Company's shareholders. At a special meeting of the shareholders held on November 18, 2013, shareholders present in person and by proxy voted 99.6 percent in favor of the transaction and approved a change of name of the Company to Fortaleza Energy Inc. The proceeds will be used to repay trade payables which the Company has incurred to pursue its interests in Brazil and offer repayment of the principal amount of convertible debentures plus accrued interest. The Special Committee will continue to examine strategic alternatives and liquidity options available to Shareholders.

In September 2008, the Company re-filed its income tax returns for the 1997 to 1999 tax years to claim additional scientific research and experimental development credits and investment tax credits related to the bio-technology business of its predecessor company, which could result in a refund to the Company of approximately $3,700,000. Further communication with Canada Revenue Agency ("CRA") has indicated that CRA has agreed to comply with the court order and issue a notice of determination specifying CRA's position related to the expected refund.

In September 2013, the Company engaged Sayer Energy Advisors as agent to offer for sale its remaining oil and gas assets in Canada, consisting of a mature producing property in the Buick Creek area of NE British Columbia producing at approximately 100 boe/d and a shut-in natural gas property in the Pine Creek area of Alberta. The sales process concluded on October 3, 2013 with the Company receiving one offer, which was not accepted.

Natural Gas, Crude Oil and Natural Gas Liquids (NGL) Conversions

Certain crude oil and NGL volumes have been converted to cubic feet equivalent (cfe) on the basis of one barrel (bbl) to six thousand cubic feet (Mcf). Cfe may be misleading, particularly if used in isolation. A conversion ratio of one bbl to six Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent value equivalency at the well head.

Caution to Reader

This news release contains forward-looking information, including without limitation statements concerning the ability to continue as a going concern, the review of strategic alternatives and the anticipated income tax refund. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonable by Fortaleza at the time of preparation, may prove to be incorrect. The actual results achieved in future periods will vary from the information provided herein and the variations may be material.

The common shares of Fortaleza have not and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold in the United States or to any U.S. person except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws.

This press release shall not constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. The common shares of Fortaleza have not and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold in the United States or to any U.S. person except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws.

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