ALV Alvopetro Energy Ltd

CALGARY, AB, Feb. 26, 2024 /CNW/ - Alvopetro Energy Ltd. (TSXV:ALV) (OTCQX: ALVOF) announces our reserves as at December 31, 2023 with total proved plus probable ("2P") reserves of 8.7 MMboe and a before tax net present value discounted at 10% ("NPV10") of $309.7 million, risked best estimate contingent resources of 5.4 MMboe (NPV10 $126.1 million) and risked best estimate prospective resources of 9.6 Mmboe (NPV10 $184.9 million).  The reserves and resources data set forth herein is based on an independent reserves and resources assessment and evaluation prepared by GLJ Ltd. ("GLJ") dated February 26, 2024 with an effective date of December 31, 2023 (the "GLJ Reserves and Resources Report").  

The GLJ Reserves and Resources Report incorporates Alvopetro's working interest share of remaining recoverable reserves held by Alvopetro in the Caburé and Murucututu natural gas fields and the Bom Lugar and Mãe-da-lua oil fields as well as Alvopetro's working interest share of remaining recoverable resources held by Alvopetro in the Murucututu natural gas field. With respect to Murucututu, Bom Lugar, and Mãe-da-lua, Alvopetro's working interest share is 100%. With respect to the unitized area (the "Unit") which includes our Caburé and Caburé Leste fields (collectively referred to as "Caburé" in this news release) and two fields held by our third-party partner in the Unit, Alvopetro's working interest share as of December 31, 2023 was 49.1%, with the remaining 50.9% held by our partner. As previously announced by the Company, the first redetermination of the working interests to each party commenced in the fourth quarter of 2023. The parties engaged an independent expert (the "Expert") to evaluate the redetermination. Pursuant to the provisions of the UOA, where an Expert is engaged, the Expert's determination shall be made using what is commonly referred to as the "pendulum" method of dispute resolution. Under this method, the Expert is not required or permitted to provide their own interpretation but is required to select the single Final Proposal (between the two partner's respective Final Proposals), which, in the Expert's opinion, provides the most technically justified result of the application of the relevant information and data and material provided to the Expert consistent with the UOA and all related documents. As of the date of this news release, the outcome of the Expert's decision and the resulting working interest to Alvopetro following the decision is uncertain. The resulting impact on Alvopetro's reserves and future cash flows may be material and may have a material adverse effect on Alvopetro. The impact on Alvopetro's working interest will be effective on the first calendar day of the second month following the date of the decision of the Expert, subject to any government approvals that may be required. The decision of the Expert is expected near the end of the first quarter of 2024. The GLJ Reserves and Resource Report and the references included herein are based on the 49.1% interest in Caburé, Alvopetro's working interest share as of December 31, 2023. The reserves data included in this news release and in the GLJ Reserves and Resources Report may be materially impacted following the Expert's decision.

All references herein to $ refer to United States dollars, unless otherwise stated.

December 31, 2023 GLJ Reserves and Resource Report:

• Proved reserves ("1P") decreased 30% to 2.7 MMboe Proved reserves mainly due to 2023 production and technical revisions related to the 197-1 and 183-1 Murucututu wells. Alvopetro is working to enhance production from these wells with optimizations in 2024.
• 2P reserves decreased 4% from 9.0 to 8.7 MMboe after 0.8 MMboe of production in 2023. Production in 2023 was offset by improved recovery factors at Caburé due to the agreed Unit development plan and new additions associated with the discovery at the 183-A3 well in the Caruaçu Formation.
• Proved plus Probable plus Possible reserves ("3P") increased to 15.2 MMboe from 14.4 MMboe as a result of additions associated with the discovery at the 183-A3 well in the Caruaçu Formation.
• 2P NPV10 decreased 11% to $309.7 million due to changes in forecast natural gas prices and 2023 production offset mainly by additional value associated with discovered zones in the Caruaçu Formation on our Murucututu natural gas field.
• Risked best estimate contingent resources increased from 2.9 MMboe to 5.4 MMboe at December 31, 2023 with a NPV10 of $126.1 million, increases from December 31, 2022 of 84% and 103% respectively. The increases were associated with the discovery at the 183-A3 well in the Caruaçu Formation.
• Risked best estimate prospective resources decreased from 12.5 MMboe to 9.6 MMboe with a NPV10 of $184.9 million, decreases of 23% and 29% respectively from December 31, 2022. The decrease was due primarily to adjustments to the probabilistic models incorporating the logs results for the Gomo zone at the 183-A3 well.

SUMMARY

December 31, 2023 Gross Reserve and Gross Resource Volumes: ^{(1)(2)(3)(4)(5)(6)}

Net Present Value Before Tax Discounted at 10%:^{(1)(2)(3)(4)(5)(6)(7)(8)}

PRICING ASSUMPTIONS – FORECAST PRICES AND COSTS 

GLJ employed the following pricing and inflation rate assumptions as of January 1, 2024 in the GLJ Reserves and Resources Report in estimating reserves and resources data using forecast prices and costs.

As of February 1, 2024, Alvopetro's contracted natural gas price under the terms of our long-term gas sales agreement is based on the ceiling price within the contract. Pricing is forecast to stay slightly below the ceiling for future price adjustments. The ceiling price incorporates assumed US inflation of 2%.

GLJ RESERVES AND RESOURCES REPORT 

The GLJ Reserves and Resources Report has been prepared in accordance with the standards contained in the Canadian Oil and Gas Evaluation Handbook (the "COGE Handbook") that are consistent with the standards of National Instrument 51-101 ("NI 51-101"). GLJ is a qualified reserves evaluator as defined in NI 51-101. The GLJ Reserves and Resources Report was an evaluation of all reserves of Alvopetro including our working interest share as of December 31, 2023 of the Unit (referred to herein as the Caburé natural gas field), our Murucututu natural gas project, as well as our Bom Lugar and Mãe-da-lua oil fields. The GLJ Reserves and Resources Report also includes an evaluation of the gas resources of our Murucututu natural gas field.  In addition to the reserves assigned to our Murucututu field, contingent resource was assigned to the area in proximity to our existing Murucututu reserves, deemed to be discovered.  The area mapped by 3D seismic west and north of the area defined as contingent was assigned prospective resource. Additional reserves and resources information as required under NI 51-101 will be included in the Company's Annual Information Form for the 2023 fiscal year which will be filed on SEDAR+ (www.sedarplus.ca) by April 30, 2024.

December 31, 2023 Reserves Information:

Summary of Reserves ^(1)(2)(3)

Summary of Before Tax Net Present Value of Future Net Revenue - $000s ^{(1)(2)(3)(7)(8)}

Summary of After Tax Net Present Value of Future Net Revenue – $000s ^{(1)(2)(3)(7)(8)}

Future Development Costs ^{(1)(2)(3)(7)(8)}

The table below sets out the total development costs deducted in the estimation of future net revenue attributable to proved reserves, proved plus probable reserves and proved plus probable plus possible reserves (using forecast prices and costs), by field, in the GLJ Reserves and Resources Report. Total development costs include capital costs for drilling and completing wells and for facilities but excludes abandonment and reclamation costs.

The future development costs for the Caburé field include Alvopetro's working interest share (49.1%) for three development wells in the proved category and an additional two development wells in the probable and possible categories. Also included in future development costs for Caburé are costs associated with a facilities upgrade planned at the field for compression of natural gas to be delivered to Alvopetro's natural gas processing facility. In prior years, Alvopetro reflected all equipment rental payments associated with our Gas Treatment Agreement with Enerflex Ltd. as part of future development costs; however in 2023, such costs are now incorporated within operating expense along with other operating costs associated with the agreement. The future costs associated with equipment rental are also reflected as a capital lease obligation on our financial statements.

The future development costs for the Murucututu field in the proved category include one development well and stimulation costs for the 183-1 and 183-A3 wells and one project to improve recovery from the 197(1) well. The probable category also includes an additional two development wells along with additional stimulation projects at the 183-1 and 183-A3 wells. The possible category includes one additional well.

The future development costs for Bom Lugar in the proved category include costs to stimulate the BL-06 well drilled by Alvopetro in 2023. Costs in the probable category also include one development well and costs for facilities upgrade. Future development costs at the Mãe-da-lua field relate to a stimulation of the existing producing well.

Alvopetro's share of future development costs are summarized as follows:

Reconciliation of Alvopetro's Gross Reserves (Before Royalty) ^(1)(2)(3)(8)

December 31, 2023 Murucututu Contingent Resources Information:

Summary of Unrisked Company Gross Contingent Resources ^(1)(2)(5)(6)

Summary of Before Tax Net Present Value of Future Net Revenue of Unrisked Contingent Resources- $000s ^{(1)(2)(5)(6)(7)(8)}

The GLJ Contingent Resource Report for Murucututu assumes capital deployment starting in 2025 for the drilling and completion of wells with total project costs of $20.8 million and first commercial production in 2025. The information presented herein is based on company net project development costs. The recovery technology assumed for purposes of the estimate is based on established technologies utilized repeatedly in the industry.

There can be no certainty that the project will be developed on the timelines discussed herein. The project is based on a pre-development study. Development of the project is dependent on several contingencies as further described in this news release. Significant positive factors relevant to the estimate include existing production in close proximity, proximity to infrastructure, existing long-term gas sales agreement and corporate commitment to the project. Significant negative factors relevant to the estimate include reservoir performance and the economic viability of the project (with sensitivity to low commodity prices), access to and amount of capital required to develop resources at an acceptable cost, and regulatory approvals for planned activities including stimulations and new infrastructure developments.

Summary of Development Pending Risked Company Gross Contingent Resources^(1)(2)(5)(6)

The GLJ Reserves and Resources Report estimates the Chance of Development as the product of two main contingencies associated with the project development, which are: 1) the probability of corporate sanctioning, which GLJ estimates at 95%; 2) the probability of finalization of a development plan, which GLJ estimates at 95%. The product of these two contingencies is 90%.   As there is no risk related to discovery, the Chance of Commerciality for the contingent resource is therefore 90% which is the risk factor that has been applied to the Development Risked company gross contingent resources and the net present value figures reported below.

Summary of Development Pending Risked Before Tax Net Present Value of Future Net Revenue of Contingent Resources- $000s^{(1)(5)(6)(7)(8)}

December 31, 2023 Murucututu Prospective Resources Information:

Summary of Unrisked Company Gross Prospective Resources ^(1)(2)(4)(6)

Summary of Before Tax Net Present Value of Future Net Revenue of Unrisked Prospective Resources - $000s ^{(1)(4)(6)(7)(8)}

The GLJ Reserves and Resources Report for Murucututu prospective resources assumes capital deployment starting in 2026 for the drilling and completion of wells and pipeline expansion costs, with total project costs of $75.8 million and first commercial production in 2026. The information presented herein is based on company project development costs. The recovery technology assumed for purposes of the estimate is based on established technologies utilized repeatedly in the industry.

There can be no certainty that the project will be developed on the timelines discussed herein. Development of the project is dependent on several contingencies as further described in this news release. The project is based on a conceptual study. Significant positive factors relevant to the estimate include existing production in close proximity, proximity to infrastructure, existing long-term gas sales agreement and corporate commitment to the project. Significant negative factors relevant to the estimate include reservoir performance and the economic viability of the project (with sensitivity to low commodity prices), access to and amount of capital required to develop resources at an acceptable cost, and regulatory approvals for planned activities including stimulations and new infrastructure developments.

Summary of Development Risked Company Gross Prospective Resources^(1)(2)(4)(6)

The GLJ Reserves and Resources Report estimates the Chance of Commerciality as the product between the Chance of Discovery and the Chance of Development. The Chance of Discovery of the prospective resources has been assessed at 90%, while the Chance of Development has been assessed as the same as for the Contingent Resources described above at 90%. The resulting Chance of Commerciality is 81%, which has been applied to the company gross unrisked prospective resources and the net present value figures reported below.  

Summary of Development Risked Before Tax Net Present Value of Future Net Revenue of Prospective Resources- $000s^{(1)(4)(6)(7)(8)}

Upcoming 2023 Results and Live Webcast

Alvopetro anticipates announcing its 2023 fourth quarter and year-end results on March 19, 2024 after markets close and will host a live webcast to discuss the results at 8:00am Mountain time, on March 20, 2024. Details for joining the event are as follows:

DATE: March 20, 2024
TIME: 8:00 AM Mountain/10:00 AM Eastern
LINK: https://us06web.zoom.us/j/83279531812 https://us06web.zoom.us/j/83920744797
DIAL-IN NUMBERS: https://us06web.zoom.us/u/kdcVycQytc
WEBINAR ID: 839 2074 4797

The webcast will include a question-and-answer period. Online participants will be able to ask questions through the Zoom portal. Dial-in participants can email questions directly to socialmedia@alvopetro.com.

Corporate Presentation

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

FOOTNOTES

Alvopetro Energy Ltd.'s vision is to become a leading independent upstream and midstream operator in Brazil. Our strategy is to unlock the on-shore natural gas potential in the state of Bahia in Brazil, building off the development of our Caburé natural gas field and our strategic midstream infrastructure.

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, except as otherwise noted.

Abbreviations:

Oil and Natural Gas Advisories

Oil and Natural Gas Reserves

The disclosure in this news release summarizes certain information contained in the GLJ Reserves and Resources Report but represents only a portion of the disclosure required under NI 51-101. Full disclosure with respect to the Company's reserves as at December 31, 2023 will be included in the Company's annual information form for the year ended December 31, 2023 which will be filed on SEDAR+ (www.sedarplus.ca) on or before April 30, 2024. The GLJ Reserves and Resources Report incorporates Alvopetro's working interest share of remaining recoverable reserves and resources.  With respect to the Caburé natural gas field, Alvopetro's working interest was 49.1% as of December 31, 2023 but is subject to redetermination, the first of which is currently underway. The outcome of this redetermination is unknown and the resulting impact on the reserves and the net presented value of future net revenue attributable to such reserves as presented herein may be material.

All net present values in this press release are based on estimates of future operating and capital costs and GLJ's forecast prices as of December 31, 2023. The reserves definitions used in this evaluation are the standards defined by COGEH reserve definitions and are consistent with NI 51-101 and used by GLJ. The net present values of future net revenue attributable to the Alvopetro's reserves estimated by GLJ do not represent the fair market value of those reserves. Other assumptions and qualifications relating to costs, prices for future production and other matters are summarized herein. The recovery and reserve estimates of the Company's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates provided herein. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

Contingent Resources

This news release discloses estimates of Alvopetro's contingent resources and the net present value associated with net revenues associated with the production of such contingent resources as included in the GLJ Reserves and Resources Report. There is no certainty that it will be commercially viable to produce any portion of such contingent resources and the estimated future net revenues do not necessarily represent the fair market value of such contingent resources. Estimates of contingent resources involve additional risks over estimates of reserves. Full disclosure with respect to the Company's contingent resources as at December 31, 2023 will be contained in the Company's annual information form for the year ended December 31, 2023 which will be filed on SEDAR+ (www.sedarplus.ca)  on or before April 30, 2024.

Prospective Resources

This news release discloses estimates of Alvopetro's prospective resources included in the GLJ Reserves and Resources Report. There is no certainty that any portion of the prospective resources will be discovered and even if discovered, there is no certainty that it will be commercially viable to produce any portion. Estimates of prospective resources involve additional risks over estimates of reserves. The accuracy of any resources estimate is a function of the quality and quantity of available data and of engineering interpretation and judgment. While resources presented herein are considered reasonable, the estimates should be accepted with the understanding that reservoir performance subsequent to the date of the estimate may justify revision, either upward or downward. Full disclosure with respect to the Company's prospective resources as at December 31, 2023 will be contained in the Company's annual information form for the year ended December 31, 2023 which will be filed on SEDAR+ (www.sedarplus.ca) on or before April 30, 2024.

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.

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", "expect", "intend" and other similar words or expressions are intended to identify forward-looking information. Forward‐looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to vary significantly from the expectations discussed in the forward-looking statements. These forward-looking statements reflect current assumptions and expectations regarding future events. Accordingly, when relying on forward-looking statements to make decisions, Alvopetro cautions readers not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties. More particularly and without limitation, this news release contains forward-looking information concerning the redetermination and Alvopetro's working interest share of the unitized area and the potential impact of the redetermination on Alvopetro, plans relating to the Company's operational activities, proposed development activities and the timing for such activities, capital spending levels and future capital costs, the expected natural gas price, gas sales and gas deliveries under Alvopetro's long-term gas sales agreement. The forward‐looking statements are based on certain key expectations and assumptions made by Alvopetro, including but not limited to expectations and assumptions concerning the timing of regulatory licenses and approvals, equipment availability, the success of future drilling, completion, testing, recompletion and development activities, the performance of producing wells and reservoirs, well development and operating performance, expectations regarding Alvopetro's working interest and the outcome of any redeterminations, environmental regulation, including regulation relating to hydraulic fracturing and stimulation, the ability to monetize hydrocarbons discovered, the outlook for commodity markets and ability to access capital markets, foreign exchange rates, general economic and business conditions, the impact of the COVID-19 pandemic, weather and access to drilling locations, the availability and cost of labour and services, the regulatory and legal environment and other risks associated with oil and gas operations. 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 factors that could affect the operations or financial results of Alvopetro are included in our annual information form which may be accessed on Alvopetro's SEDAR+ profile at www.sedarplus.ca). 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.

SOURCE Alvopetro Energy Ltd.