Q4 2021 Alvopetro Energy Ltd Earnings Call
our fourth quarter results webcast. I'm joined today by Alison Howard, our Chief Financial Officer, and it's really a pleasure to be addressing our shareholders today. We posted another great quarter on a collective basis. You know, our strong results not only allowed us to start our dividend program to shareholders.
Webcast I'm joined today by Alison Howard, our Chief Financial Officer.
It's really a pleasure to be addressing our shareholders today, we posted another great quarter.
On a collective basis, our strong results not only allowed us to start our dividend program to shareholders about six months ahead of schedule last year in the third quarter and.
Alison Howard: About six months ahead of schedule last year in the third quarter, and we've now been able to announce a 33% increase in the dividend effect of the first quarter of this year with continued strong gas prices. Obviously, we'll spend some time talking about our fourth quarter results today, but we'll also talk about, I think, a very exciting 2022 capital plan for Alvo Petro.
And we've now been able to announce a 33% increase in the dividend effective the first quarter of this year with continued strong gas prices.
Obviously, we'll spend some time talking about our fourth quarter results today, but we'll also talk about I think a very exciting 2022 capital plan for our Petro.
Alison Howard: We'll let you read the cautionary statements at your leisure, and we'll just start with production. We've been announcing this on a monthly basis, but you can see, since we came on production July 5th of 2020, you know, we've had very strong production results, way exceeding expectations. I think the first.
I will let you read the cautionary statements at your leisure and we'll just start with production we've been announcing this on a monthly basis, but you can see.
Since we came on production in July of 2020.
We had very strong production results way exceeding expectations I think the first quarter that we announced in the third quarter of 2020 was more indicative of kind of what our pre commercialization expectations were and you can see we've been well above that all the way through last year.
Alison Howard: quarter that we announced in the third quarter of 2020 was more indicative of kind of what our pre-commercialization expectations were and you can see we've been well above that all the way through last year and that's continued into the early part of this year. Our fourth quarter production at 2,432 barrels of oil equivalent per day was up 25% year over year and virtually flat with the prior quarter. And with that I'll turn it back over to you.
And that's continued in the very early part of this year, our fourth quarter production at 2432 barrels of oil equivalent per day was up 25% year over year and virtually flat.
The prior quarter.
That all.
Turn it over to Allison.
Speaker Change: Thanks and good morning everyone. This first chart here is our operating net back, which is one of our non-GAAP measures and refers to our profitability per barrel of oil equivalent. So we start with our realized sales price at the top of the chart there, which was just over $44 in the fourth quarter.
Thanks, and good morning, everyone. This first chart here is our operating net back which is one of our non-GAAP measures.
Refers to our profitability per barrel of oil equivalent so we start with our.
Our realized sales price at the top of the chart, there, which was just over $44 in the fourth quarter.
Speaker Change: um and that was um our average realized sales price from natural gas which makes up the bulk of our production was just over seven dollars per mcf and then we deduct off our royalties which are shown in in orange and our production expenses which are shown in yellow and the green bar is our operating net back which is our profitability and and overall you can see that's been growing steadily since we came on production and on a
And not words.
Our average realized sales price from natural gas, which makes up the bulk of our production was just over $7 per Mcf and then we deduct off our royalties are attritional and in Orange and our production expenses, which are shown in yellow and the green bar is our operating netback, which is our profitability and overall.
You can see that's been growing steadily since we came on production and on a.
Speaker Change: You know, on a net back margin basis relative to our sales price, we're at over 80% and over 82% in the fourth quarter, which I think compares very strongly to our peers.
On a netback margin basis relative to our sales price were at over 80% and over 82% in the fourth quarter, which I think compares very strongly to our peers.
Speaker Change: As everyone knows, we did announce a sales price increase as of February 1st, so when we announce Q1, you should see a much higher realized price, and as most of our costs are fixed in nature, that shouldn't change too much, so Q1 should be looking pretty good going forward.
As everyone knows we did announce sales sales price increase as of February one so when we announced Q1 you should see a much higher realized price and is as most of our costs are fixed in nature that shouldn't change too much. So Q1 should be looking pretty good going forward.
Yes.
Speaker Change: This is our funds flow from operations, which is our cash flows from operating activities before changes in working capital. So there was $1.5 million decrease compared to Q3. If you recall back when we had our Q3 results, we did have some one-time non-recurring amounts recognized in other income in Q3, so there was a decrease of about $800,000 in other income.
This is our funds flow from operations, which is our cash flows from operating activities plus four on changes in working capital. So there was a $1 5 million decreased compared to Q3. If you recall back can we had our Q3 results. We did have some one time nonrecurring.
Amounts recognized in other income in Q3. So there was a decrease of about 800000 in other income.
Speaker Change: um so our q4 is more recurring other income amounts in nature so that will be more consistent going forward and then the other
So our Q4 is more recurring other income amounts in nature, so that will be more consistent going forward and then the other item.
Speaker Change: We did have just a half a million increase in GNA, just following our full year results and our funds flow from operations.
With me just have just a half a million increase in G&A just following our.
Our full year results in our funds flow from operations of.
Speaker Change: $25 million in the year. We did have an increase in our bonus accruals, so that was recognized in the fourth quarter.
$25 million in in the year, we did have an increase in our bonus accruals. So that was recognized in the fourth quarter.
Okay.
Yeah.
Speaker Change: Despite that reduction in funds for net income actually went up 1.1 million from Q3, so that was mostly due to non-cash charges, so things that you won't see going through our statement of cash flows. So these are things that get adjusted back out on our statement of cash flows. So a couple of the bigger items are foreign exchange losses and deferred tax.
Despite that reduction in funds for our net income actually went up.
$1 1 million from Q3.
So that was mostly in Q noncash charges with things that you won't see going through ours. Our statement of cash flows. So these are things that got adjusted back out on our statement of cash flows. So a couple of the bigger items are foreign exchange losses and deferred tax.
Speaker Change: I talked a little bit about the foreign exchange losses last quarter, but we do have some accounting foreign exchange losses recognized on intercompany loans.
You talked a little bit about the foreign exchange losses last quarter, but we do have.
So the accounting foreign exchange losses recognized on intercompany loans.
Speaker Change: And that for county purposes have to be reflected on our consolidated financial statements, even though they are intercompany in nature. So there was a lower foreign exchange loss in the fourth quarter compared to the third quarter, just because
And that for accounting purposes have to be reflected on our consolidated financial statements, even though theyre intercompany in nature. So there was a lower foreign exchange loss in the fourth quarter compared to the third quarter just because.
Speaker Change: the Brazilian currency devalued less from Q2, from Q3 to Q4 than it had from Q2 to Q3. So you will see fluctuation.
The Brazilian currency devalued.
From Q2 from Q3 to Q4 than it had from Q2 to Q3, So you will see fluctuation.
Speaker Change: on foreign exchange going forward when we see an appreciation in the Brazilian currency as we've seen thus far in Q1 of this year, then that you'd expect to see more of a foreign exchange gain, but ultimately it will depend on the ending foreign exchange rate at the end of the period that we're looking at.
On foreign exchange going forward, when we see an appreciation in the Brazilian currency as we've seen thus far in in Q1 of this year and not U S.
Expect to see more of a foreign exchange gain but ultimately it will depend on the ending foreign exchange rate at the end of the period that we're looking at.
A deferred tax in the third quarter, we did recognize the benefit of the CD any tax incentive we were qualified we received notification that we were qualified for that that reduces our overall tax rate in Brazil from the statutory rate of 34% to 15%.
Speaker Change: In the third quarter we did recognize the benefit of the Sudeni tax incentive. We were qualified, we received notification that we were qualified for that. That reduces our overall tax rate in Brazil from the statutory rate of 34 percent to 15 percent.
Speaker Change: So overall that's a benefit and you can see that reflected in a relatively low current tax relative to our income overall for the year, but because we have what's called a deferred tax asset, when that's valued at a lower tax rate that creates a deferred tax expense. So that was higher in Q3 when we recognized that the benefit of that lower tax rate.
So overall, that's a benefit and you can see that reflected in our relatively low current tax relative to our income overall for the year, but.
We have what's called the deferred tax asset.
The valued at a lower tax rate that creates a deferred tax expense. So that was higher in Q3, when we recognized that the benefit of that lower tax rates.
Speaker Change: and Q4 is lower than because that adjustment went through.
And in Q4 is lower than because of that adjustment went through.
Speaker Change: And then moving on, our working capital and cash balances have increased steadily. So our working capital is our current assets less current liabilities.
And then moving on.
Our working capital and cash balances have increased steadily through our working capital as our current assets less current liabilities.
Speaker Change: And that's the green bar that's shown there. So as of December 31st, our working capital was $9.1 million and the orange line shows our credit facility balance. So, you know, back when we commenced operations, we were fully drawn on our credit facility at just over $15 million owing.
And that's the Green bar that's shown there so as of December 31, our working capital was $9 1 million and the Orange line shows our credit facility balance so back when we commenced operations. We were fully drawn on our credit facility at just over $15 million, owing and we were down.
Speaker Change: And we were down to six and a half million as of December 31. So you can see that our our working capital, the height of the green bar there exceeds that credit facility balance by
<unk> $2 $6 5 million as of December 31, So you can see that our our working capital at the height of the Green bar there exceed that credit facility balance by $2 6 million as of December 31, and we did announce that we repaid another $1 5 million of that credit facility in February .
Speaker Change: 2.6 million as of December 31st and we did announce that we repaid another 1.5 million of that credit facility in February , so our balance reduced to 5 million.
So our balance.
<unk> two 5 million.
As of today after the payment.
Alright. Thank you also need I think to put that in perspective, we've repaid two thirds of our project finance enrollment in the first six quarters of production and that's a $5 million level you can see our drawn debt balance is actually down less than one quarter's funds flow from operations.
Speaker Change: All right. Thank you, Alison. Yeah, I think to put that in perspective, we repay two-thirds of our project financing loan in the first six quarters of production, and at the $5 million level, you can see our drawn debt balance is actually down to less than one quarter's funds from operations.
Speaker Change: So we had some requests from our shareholders to talk a little bit more about natural gas prices and how all that works. And these are there's a lot of lines here, but I'll try to slow down and take some more time today to talk through these. It's probably a good time to do it because we just announced our new reserve report. I'll walk through the results of that. But we did have some big increases in values. We talked about kind of what the.
So we had some requests from our shareholders too.
A little bit more about natural gas prices and how all that works.
There's a lot of lines here, but I'll try to slow down and take some more time to talk through these.
There's always a good time to do it because we just announced our new Reserve report I'll walk through the results of that but we did have some big increases.
And the values, we talked about.
What's the.
Speaker Change: the gas price forecast was looking like when we met last time. But just to explain this chart a little bit more, the way our gas sales agreement works is we have a formula that blends.
The gas price forecast was looking like when we met last time, but just to explain this chart a little bit more.
The way of our gas sales agreement works is we have a buffer.
Formula that blends three international benchmark prices over a relatively long period of time and the three of them are lower.
Speaker Change: three international benchmark prices over a kind of relatively long period of time. And the three of them are, the lower dotted line here is Henry Hub, US gas price.
Headline here is Henry hub gas price.
Speaker Change: The longer dash line in the middle here is Brent oil equivalent.
Longer dashed line in the Middle here is Brent oil equivalents.
Speaker Change: And then the upper dashed line here is UK NBP natural gas prices. So to the left of this red dotted line, those are all the historical prices.
And then the upper Dash line here as UK MVP natural gas prices. So to the left of this red dotted line those were all the historical prices and then to the right of the dotted line is what was used in generating these price forecast that you see below the graph.
Speaker Change: and then to the right of the dotted line is what was used in generating these price forecasts that you see below. So the graph on the left-hand side are the forecasts that GLJ, our independent reserve evaluator, used as of the end of last year in the NPVs that we announced on March 7th or 8th.
On the left hand side part of the forecast that AGL did ey, our independent reserve evaluators used as of the end of last year in the end the Tvs that we announced on March 7th the rate.
Speaker Change: So you can see here, relative to the kind of spot pricing at the time, they forecast a pretty steep decline in MVP, they forecast lower Brent prices, and then similarly as well, the same thing for Henry Hub. So the net effect of all that.
So you can see here relative to the kind of spot pricing at the time, they forecast a pretty steep decline in MVP.
<unk> costs lower.
Brent prices and then similarly as well.
Same thing for Henry hub, so the net effect of all of that is.
Speaker Change: is that we have a calculated gas price that's the blue line that you see here.
We have calculated gas price.
Balloon line that you see here.
Speaker Change: But we, as you know, have a ceiling, which is in green, and a floor within our contract, which is in red. So what happens is in the first few years of this, we actually end up with a gas price that's capped at the ceiling out to August 1st of 2024. And then you can see based on their forecast, it would dip back down below the ceiling on this chart.
But we as you know have a ceiling, which is in green.
Four within our contract which is in Red. So what happens is in the first few years of this we actually end up with a gas price that's capped at the ceiling.
Through August .
Harvest for 2024, and then you can see based on their forecast it would get back down below the.
The ceiling on this chart.
Speaker Change: So the other couple of key things to talk about is within these assumptions on both of these charts, we use US inflation for 2022 of 5%.
So the other couple of key things to talk about is within these assumptions on both of these charts we.
We use U S employees churn for 2022, 5%.
Speaker Change: 3% in 2023, and then 2% thereafter. So I think, you know, relative to current expectations, you know, there's, I think a consensus that inflation will be higher than that. And what the impact of that is, which is particularly relevant because our forecast price is actually at the ceiling, is that those inflation numbers adjust both the floor and the ceiling. So if we have higher inflation than that, then you'll see higher prices going forward.
3% in 2023, and then 2% thereafter, so I think well.
Relative to <unk> expectations.
There is I think a consensus that inflation will be higher than the and what the impact of that is which is particularly relevant because our forecast prices are actually at the ceiling is.
Inflation numbers.
Adjust both the floor and the ceiling. So if we have a higher inflation than that then youll see higher prices going forward.
What we're showing here on the right hand side of the year as if we redid. This as of March 16th using Q2 versus pricing.
Speaker Change: What we're showing on the right-hand side here is if we redid this as of March 16th using futures pricing, this is what the futures curves look like for each of these three benchmark prices. So again, Henry Hub on the bottom, Brent Oil here, and NBP is the upper line that you see here.
This is what the futures curves looks like for each of these three benchmark prices, so again and re up on the bottom Brent oil here.
MVP.
It's the upper line that you see here and the net effect is if we were to use todays forward pricing as we have you can see the black line and the Green line the.
Speaker Change: And then that effect is if we were to use today's for pricing is we have, you can see the black line and the green line. They're at the same level because that's the ceiling. The ceiling pricing extends quite a bit further. It actually goes out to February 1st.
Same level, because that's the ceiling the ceiling pricing extends quite a bit further it actually goes out to February 1st.
Speaker Change: um of uh of 20 uh
Of.
2012.
Speaker Change: sorry, 2026, and you can see it's much closer to the ceiling after that. So the net effect after that period of time is it's about a 15 to 20% increase in the forecast price.
Sorry, 2026 and.
And you can see it's much closer to the ceiling after that so the net effect.
After that period of time is it's about 15% to 20% increase in the forecast price.
Yeah.
The other thing to point out is if you actually look at the actual calculated price again, that's in the blue So theres, a significant spread and what the price Formula says and what the ceiling is so it's much higher than what you saw in the graph on the left hand side and what that means is that that's kind of a cushion on how much fees.
Speaker Change: The other thing to point out is if you actually look at the actual calculated price, again, that's in blue, so there's a significant spread in what the price formula says and what the ceiling is, so it's much higher than what you saw in the graph on the left-hand side. And what that means is that's kind of the cushion on how much these prices could reduce.
Rice's could reduce before you would see a reduction below the ceiling within our contracts. So I think we're well positioned.
Speaker Change: before you would see a reduction below the ceiling within our contract. So, I think we're well positioned. Obviously, we've got a strong gas price. You know, it certainly will have less volatility than what our peers will see going forward.
Obviously, we've got a strong gas price.
It's certainly we will have less volatile volatility than what our peers, we'll see going forward here.
Speaker Change: The last point I'm going to make on this slide is to just talk a little bit about currency.
The last point I am going to make on this slide is to just talk a little bit about currency.
Speaker Change: In reality, what happens every six months is our price gets set in local Brazilian currency. Right now, it's $1.94 per cubic meter.
In reality, what has what happens every six months as our price gets set in local Brazilian currency.
Right now, it's a $1 94 per cubic meter.
Speaker Change: And then that price stays in Brazilian currency for six months. So all these graphs here assume a Brazilian.
And then that price stays in Brazilian currency for six months. So all of these graphs here assume a Brazilian.
Speaker Change: a currency rate of 5.4 to 1. I think we're currently around 5.04. So, if that persists...
Currency rate of five four for one I think we're currently around $5 all before.
Or so.
If that persists.
Speaker Change: you would actually see a higher price than what we're reflecting on the graphs here.
You would actually see a high a higher price than what we're reflecting on the graphs here.
Okay.
Speaker Change: So, we also recently announced, I think, a fairly positive reserve and resource update that was on March 8. We had virtually no revisions to our volumes other than the reflection of the production from 2021. We'll talk about our 2022 capital program, but it's obviously very focused on growing our reserves in 2022.
So.
We also recently announced.
I think a fairly positive reserve and resource update that was on March eight we had virtually no revisions to our volumes other than the reflection of the production from 2021 I will talk about our 2022 capital program, but its obviously very focused on growing our reserves in 2022.
Speaker Change: With the increase in prices that I just finished talking about, we realized a 52% increase in our 2P NPD 10 before tax.
With the increase in prices that I just finished talking about we realized a 52% increase in our <unk> MTV and before tax.
Speaker Change: One other thing to point out is our 2P after-tax NPV is at 10%.
One other thing to point out is our <unk>. After tax NPV is it 10% is actually $256 million so quite close to this number.
Speaker Change: is actually $256 million, so quite close to this number. That was up 51% year-over-year as well, but our before-tax PVs are about 86% of the before-tax numbers, so a very high percentage.
That was up 51% year over year, as well, but our before tax Tvs or about 86% of the before tax number so very high percentage. It reflects the strength of being in Brazil. It reflects that stood any benefit that Allison talked about earlier, but I can assure you that that compares extremely favorable.
Speaker Change: The strength of being in Brazil, it reflects the benefit that Allison talked about earlier, but I can assure you that that compares extremely favorably to our peers.
<unk> to our peers.
Speaker Change: Our contingent resource that's associated with our America 2-2 global project had similar increases in NPV.
Our contingent resource that's associated with our Merck a Q2 global project.
Similar increases in Npv's.
Speaker Change: The contingent value increased 61% to $61 million, and the prospective resource value increased up to $209 million, which was a 44% increase.
The contingent value increased 61% to $61 million and the perspective resource value.
The increased up to $209 million, which was up 44% increase.
Speaker Change: increase. Obviously, none of these PVs include the potential associated with the two exploration wells that we're drilling the first of right now.
Obviously, none of these Tvs that include the potential associated with the two exploration wells that we're drilling.
First off right now.
Okay.
Speaker Change: So how this translates into our net asset value on a 2P reserve only basis, we almost we increased that to over $11 Canadian per share. And if you layer on the contingent and prospective resource of value associated with our Mercatutu project, that number almost doubles. So, you know, I think we've done pretty well off the benefit of some of those increased prices that we talked about earlier.
So how this translates into a net asset value on a <unk> reserve only basis.
<unk>.
We increased that to over $11 Canadian per share and a few layer on the contingent and prospective resource of value value associated.
Associated with our merger to two projects that number almost double so.
We've done pretty well off the benefit of some of those increased prices that we talked about earlier.
So now I'm going to shift and talk about our 2022 capital program I think up to this year, we've been very focused on aggressively repaying debt returning value to stakeholders building an extremely strong balance sheet, we basically pre funded a good portion of our capital program.
Speaker Change: So now I'm going to shift and talk about our 2022 capital program. I think up to this year, we've been very focused on aggressively repaying debt, returning value to stakeholders, building an extremely strong balance sheet. We basically pre-funded a good portion of our capital program. So we're excited to be drilling again. To put it in perspective, our near term goal is to achieve a production rate of 18 million cubic feet a day.
We're excited to be.
The drilling there again.
Put it in perspective, our near term goal is to achieve a production rate of 18 million cubic feet. A day. So that's 3000 barrels of oil equivalent per day plus on top of that we would have condensate and we've got a longer term vision to build a business model out to roughly 35 million cubic feet a day and it's it's really a three pronged.
Speaker Change: 3,000 barrels of oil equivalent per day, plus on top of that we would have condensate, and we've got a longer-term vision to build a business model out to roughly 35 million cubic feet a day. It's really a three-pronged strategy. It's all, for the most part, 100% working interest projects.
Strategy is all for the most part of 100% working interest projects.
Speaker Change: Starting with we do have some growth plans associated with our cabaret project and our midstream infrastructure. We're in the process of expanding our gas plant up to 18 million cubic foot a day capacity. We're hoping that there'll actually be more than that with this expansion. I'll talk on the next slide about our plans at the unit but we do have one well that's a combination development and exploration potential plan this year.
Starting with we do have some growth plans associated with third cavalry project in our midstream infrastructure. We are in the process of expanding our gas plant up to 18 million cubic foot a day capacity.
We're hoping this will actually be more than that with this expansion.
I'll talk on the next slide about our plans at the unit, but we do have one well thats a combination development and exploration potential plan this year.
Speaker Change: And then we've sped the first of two conventional exploration prospects, the 182C1 location. I'll spend some time showing you what we're targeting there and then talk about the timing. Immediately after that, we'll drill our 183B1 location. You can see best estimate perspective unrest resource of 4.6 and 5.9 million barrels of oil equivalent respectively with pretty high chances of success.
And then we've spud the first of two conventional exploration prospects. The 182 C. One location I'll spend some time showing you what we're targeting there and talk about the timing immediately after that we will drill our 180 <unk>. One location you can see best estimate perspective.
Sure.
On risk resource up four 6% and $5 9 million barrels of oil equivalent respectively with pretty high chances of success.
Speaker Change: And then the third leg of the stool really is our America 2-2 project. As many people know, we've got two existing wells that we they were our original wells drilled in Brazil, the 197-1 and the 183-1 wells. We've completed the extension of our pipeline network from the Cabaret unit area up to the 183 location. And we're well positioned now to execute our 2022 capital program. And I'll walk you through what that looks like.
And then the third leg of the stool really as our Mercury two project is in many people know we've got two existing wells.
That we are they were our original wells drilled in Brazil.
197, one in the 183, one wells we've completed the extension of our pipeline network from the cavalry unit area.
For the 183 locations.
And we're well positioned now to execute our 2022 capital program and I'll walk you through what that looks like.
Speaker Change: So just touching on capillary, we've got seven existing wells here. For the most part, the field's fairly fully developed. We actually increased our unit production capacity with our partner up to 600,000 cubic meters a day or just over 21 million cubic feet a day. If you recall, this was originally designed to be just under 16 million cubic feet a day.
So just touching on capital rate.
We've got the seven existing wells a year for the most part the fields fairly fully developed we actually increased our unit production capacity with our partner up to 600000 cubic meters a day or just over 21 million cubic feet. A day. If you recall. This was originally designed to be just under 16 million cubic feet a day on a gross.
Speaker Change: on a gross basis. The unit, you know, we've had many, many days and months where we're up around the 20 million cubic feet a day mark production. It's really capped by our existing capacity in our gas processing facility.
Space is the unit we've had many many days and months, where we're up around the 20 million cubic feet a day mark.
Production, it's really capped by our existing capacity in our gas processing facility.
Speaker Change: But one of the things we're going to be doing here starting next quarter is drilling this unit speed. Well, it's a combination of a development. Well, targeting the shallow formations.
But what are the things we're going to be doing here starting.
Next quarter is drilling this units well and it's a combination of a development well targeting the shallow formations.
Formations.
Speaker Change: But more excitingly probably is that we're going to extend the well deeper and target this deeper Karasu exploration target. So these are the same reservoirs that we're producing from on the eastern side of this main bounding fault here. And this is where most of the production and reserves are associated with right now. And we have similar prospectivity on the down thrown side of this fault and we'll get results from that next quarter.
But more excitingly, probably is that we're going to extend the well deeper.
And target this deeper carriers, who exploration targets. So these are the same reservoirs that were producing from on the eastern side of this main bounding fault here.
And this is where most of the production and reserves are associated with right now and we have similar cross activity on the down thrown side of this fall.
And we will get results from that next quarter.
Okay.
Speaker Change: Moving on to the conventional exploration program, we've got our 182c1 prospect that you see here. That's what we're drilling right now. We sped that on March 2nd and then right after that's completed, we'll move over and drill the 183b1 location. You can see them here and here on the yellow acreage. They're both 100% prospects.
So moving on to the conventional exploration program.
We've got our 180 HTC one prospect that you see here, that's what we're drilling right now we spud that on March 2nd Evan.
Then right. After that is completed we will move over and through all of the 183 B one location. So you can see them.
Here and here on the yellow acreage for both 100% prospects.
We've got some.
Speaker Change: This is some of our reprocessed 3D seismic. It's an Agua Grande structure map. What you're looking at is there's a main bounding fault that runs northwest to southeast here that separates the main parts of the basin. You can see all the analog pools circled in red and all the black lines here are all the different fault blocks. We're trying to drill into two undrilled fault blocks.
Just to give you this as some of our.
Reprocess.
<unk> seismic at Agua Grande structure map, what Youre looking at is there is a main bounding fault that runs northwest too.
Southeast here.
That separates the main parts of the basin.
You can see all the analog pools circled in red and all the Black line two or all the different fault blocks. So we're just we're trying to drill into two one drill fault blocks based on these other analog pools you can see at this depth the faults have good ceiling capacity in.
Speaker Change: Based on these other analog pools, you can see at this depth that the faults have good sealing capacity. Because we're close to production in a proven area with that good fault sealing capacity, that's why GLJ, our independent reserve evaluator, has been able to assign pretty good chances of success on both these prospects.
And because of our close to production and a proven area with that good thoughts on capacity, that's why G. L. J, our independent reserve evaluate or has been able to assign.
Pretty good chances of success on both of these prospects.
Speaker Change: Just a little bit of a zoom in on the well we're drilling right now. This is a 2900-metre location. It's a combination of multi-zone pre-rift prospects. We're targeting the Agua Grande formation and the Sergi formation here. This is the typical pretty good place set up. We've got prospective reservoir sands.
So just a little bit of a zoom in on the well we're drilling right now the 2900 meter location, it's a combination.
<unk> zones pre rift.
Respects, so we're targeting the Agua Grande formation in the <unk> formation in your and this is the typical pretty good place set up we've got perspective reservoir sands on the right here stacked up across the fault again the space minute shale. So thats typically are pretty good.
Speaker Change: On the right here, stacked up across the fault against basement and shale, so that's a typically a pretty good, like I said, play set up and again, contributing to the higher chances of success.
Like I said place that up and again contributing to the higher chances of success.
Speaker Change: We expect to have results from this to announce to shareholders sometime around the middle part of April .
We expect to have results from this to announce to shareholders sometime around the middle part of April .
So with that we'll move on to a more of a tissue project again. This is a 100% project you can see some more of our reprocessed seismic here in the two existing wells. We've got 197, one and 183 one both of these wells tested gas in this lower sequence.
Speaker Change: So with that, we'll move on to our Merica 2-2 project. Again, this is 100% project. You can see some more of our reprocessed seismic here in the two existing wells. We've got 197-1 and 183-1. Both of these wells tested gas in this lower sequence.
Speaker Change: We can map this sequence, it's the area between the yellow and red lines over a very large area. It's about a 5,500 acre geobody that we've identified, so that's about eight and a half sections of land.
We can map this sequence, it's the area between the yellow and red lines over a very large area.
It's about a 5500 acre geo bodies that we've identified so that's about $8 five sections of land.
Speaker Change: Like I said, we finished the pipeline extension from the Cabaret Hub up to the 183-1 well, and we're in the process of finishing our surface production facilities. You can see a picture of that on the bottom left. So we expect to have that well on production here early in the second quarter, and then we'll be positioned to complete the rest of our 2022 development plan. And what that's focused on is.
Like I said, we finished the pipeline extension from the cap rate hub up to the 183, one well and we're in the process of finishing our surface production facilities you can see a picture of that on the bottom left so we expect to have that well on production here early in the second quarter and then we'll be positioned to.
To complete the rest of our 2022 development plan and what Thats focused on is step one would be to stimulate the 197, one well tie that back into 183, and then start our fit for purpose development drilling program.
Speaker Change: Step one would be to stimulate the 197 one well, tie that back into 183, and then start our fit for purpose development drilling program.
Speaker Change: What that looks like is a Google Earth image here, but you can see our existing well pads at 183.1 and 197.1. We would have a new pad to drill the MERS 1, and you can see it's deviated directionally to the south, and it not only targets these prospective type gobo sands, but there's also some interesting uphole exploration potential that we'll target with that well.
What that looks like.
Google Earth immature, but you can see our existing well pads at 183, one in 197 one.
We would have at a new pad to drill the mers one and you can see it's deviated directionally to the south.
And it not only targets these perspective.
Tight global Sands, but there's also some interesting up hole exploration potential that will target with that well and then the second development well will go north from the one of the three one location number one location that you see immediately north of that so you could see us a deviated well, but little circles are all the bottom hole locations.
Speaker Change: and then the second development well will go north from the 183.1 location, the MER.1 location that you see immediately north of that, so you can see it's a deviated well, the little circles are all the bottom hole locations. On the charts on the right,
On the charts on the right. These are.
Speaker Change: the accumulation of our 2P reserves, our contingent resorts, and our prospective resorts.
The accumulation of our <unk> reserves or contingent resource of our prospective resource. The 2022 program really targets this lower works.
Speaker Change: The 2022 program really targets this lower wedge, so the lighter green colour. That's our 2P reserves, and in that we've got our two existing wells, 197.1.
The lighter green color that's R to P reserves in that we've got our two existing wells 197, one 183, one and then these two undeveloped locations Mers one in <unk>, one and then our capital program in future years, you can see it stacking in on the on the capital graph on the bottom.
Speaker Change: 183.1, and then these two undeveloped locations, MERS 1 and MER 1.
Speaker Change: and then our capital program in future years you can see it stacking in on the on the capital graph on the bottom but that would be targeting contingent and prospective resource and the plan would be you know with this
But that would be targeting contingent and prospective resource and the plan would be with this.
Speaker Change: pad-based development to just hopefully continually migrate in resource into reserves and production over time.
Base development to just hopefully continually migrate in resource into reserves and production over time here.
Yeah.
Speaker Change: So, this is just a slide from our new investor presentation to give you a sense for all these near-term catalysts. We've got a very busy program in 2022. Obviously, we started drilling the 182C1 well in March. That's underway. We'd follow that with the second exploration well. The little flames here show the timing of, if we have success on all these things, when would the production come on? So, for those two, because we're gonna build, if we had a success, we would build.
So.
This is just a slide from our new Investor presentation to give you a sense for all of these in the near term catalysts. We've got we've got a very busy program in 2022.
We started drilling the <unk> one well in March that's underway will follow that with the second exploration well the little Flames here show that the timing of if we have success on all these things when would the production come on so for those two because we're going to build a if we had a success we would build a pipeline after that.
Speaker Change: a pipeline after that, we wouldn't see the production until 2023.
Didn't see that production until 2023.
Speaker Change: Right now the unit seawall is forecast to be roughly drilled late in the second quarter and then a much shorter it's right offsetting the unit hub area so we'd be able to with our partner bring that on production fairly quickly.
We're right now the unit Seawell is forecast to be roughly drilled late in the second quarter and then a much shorter it's rate offsetting the unit hub area, so we'd be able to with our partner, bringing that on production fairly fairly quickly moves.
Speaker Change: Moving to the America 2-2 project, because we've got the pipeline already built, as soon as our production facility construction is complete, we'll be able to put that well on production.
Moving to the America two two project because we've got the pipeline already built as soon as our our production facility. Construction is complete we will be able to put that well on production.
Speaker Change: We're just waiting on our permit to do the stimulation and tie in for the 197-1 well, but hoping to have that on early in the third quarter. And then when we finish drilling our two exploration wells, that's when we'll start drilling our two development wells within the GOMO. You can see those slotted in here with production coming on late in the year and in the fourth quarter.
We're just waiting on a permit to do the stimulation and tie into the 197, one well, but hoping to have that on early in the third quarter.
And then when we finished drilling our two exploration wells, that's when we'll start drilling our two development wells within the <unk> you can see those slaughtered in here with production coming on.
Late in the year and in the fourth quarter.
Speaker Change: We talked about our gas processing facility, but that's scheduled to be on stream actually in June to increase our capacity up to 18 plus million cubic feet a day.
We've talked about our gas processing facility, but.
That's scheduled to be on stream actually in June .
To increase our capacity up to 18 plus million cubic feet a day.
Speaker Change: So, in conclusion, again, this is a summary slide from our corporate presentation, but I think we've had a lot of good announcements of late. Obviously, our gas price increased to over $11 US per MCF becomes effective on February 1st. As Allison pointed out, I think that will drive even stronger results and was really the.
So including conclusion again this is a summary slide from our corporate presentation, but I think we've had a lot of good or announcements of late.
Obviously, our gas price increase to over $11 U S per Mcf becomes effective on February one.
As Alison pointed out I think that will drive even stronger results and was really the.
Speaker Change: a driving reason for us being able to increase our dividend by 33% this quarter. Alison pointed to the margins, but that 82% margins and growing with these new gas prices, they really are best-in-class profitability per unit of production produced.
Driving reason for our for us being able to increase our dividend by 33% this quarter.
Alison pointed to the margins by that 82% margins and growing with these new gas prices. They really are best in class profitability per unit of production produced.
Speaker Change: We've been aggressive repaying debt, we were actually in a positive working capital net of debt position at the end of the quarter with $2.6 million outstanding and I think we've done a good job of creating an extremely strong balance sheet.
We've been aggressive repaying debt or we were actually in a positive working capital net of debt position at the end of the quarter with $2 $6 million outstanding and I think we've done a good job of creating an.
Extremely strong balance sheet.
Speaker Change: really good increases in our 2P net asset values and our
Really really good increases in our <unk> net asset values and our.
Speaker Change: and reserve values, I think we're still trading at an extremely attractive price relative to 2P net asset value at 46%. And when you combine that with a close to 8% yield, I think we really are quite a unique yield plus growth investment opportunity, especially when you consider all these near term and fairly high impact catalysts that we have from a really exciting 2022 capital program.
And we're in reserve values I think we're still trading at an extremely attractive price relative to <unk> net asset value at 46% and when you combine that with our close to 8% yield I think we really are quite a unique yield plus growth investment opportunity, especially.
When you consider all of these near term in fairly high impact catalysts that we have.
From a really exciting 2022 capital programs so.
Speaker Change: With that, we're going to turn it over to the question and answer portion of our session here.
With that we're going to turn it over to the question and answer portion of our session here.
Speaker Change: um maybe Allison you can remind people how to to log their questions. Yeah so you should be able to see a question and answer button at the bottom of your screen if you just want to go in there and type any questions you have we will answer them for anyone that's dialing in.
Maybe Alison you can remind people how to log their questions. Yeah. So you should be able to see your question answer button at the bottom of your screen. If you just want to go in there and take any questions. You have we will answer them for anyone that's dialing in.
Speaker Change: um you can send an an email to socialmedia at alvopetro.com and we can ensure that gets included and and if you have questions and and um afterwards want to follow up with with any of us obviously feel free to do that as well um maybe the first question
You can send an E mail chat social media Algo Petro Dot com and we can ensure that got concluded in and if you have question then and afterwards, we want to follow up with that with any of US obviously feel free to do that as well.
Maybe the first question that has come in is if you do you have an exploration success at either of the two.
Speaker Change: has come in is if you do have an exploration success at either of the two wells, so the 182C1 or the 183B1 that would follow, is all the natural gas from that expected to be sold under the same gas sales agreement or would you have to negotiate a new gas sales agreement?
<unk> for the 180 to see one or the 180 <unk> one that would follow.
Is all the natural gas from that expected to be sold under the same gas sales agreement or would you have to negotiate a new gas sales agreements.
Speaker Change: Yeah, you know, one of the things we didn't talk about on those gas pricing slides is although our price looks pretty attractive, if you compare it to what the state oil companies charging the local distribution companies right now, we're still selling at a significant discount to that. But that being said, we're very happy with our counterparty here. They've expressed
Yes, one of the things we didn't talk about on those gas pricing slides is although our price list looks pretty attractive if you compare it to what the state oil companies charging the local distribution companies right now we're still selling at a significant discount to that but that being said, we're very happy with our counterparty here.
Speaker Change: interest in demand for as pretty much as much gas as we could possibly give them. So, you know, we're confident that our longer term 35 million cubic foot a day target, you know, could be completely absorbed by the local distribution company. At those levels, it would account for, you know, roughly close to about a quarter of their demand.
I've expressed.
Interest and demand for as pretty much as much gas as we could possibly give them. So we're confident that our longer term 35 million cubic foot a day target could.
Could be completely absorbed by the local distribution company.
<unk> levels or would account for roughly close to about a quarter of their demand.
Speaker Change: And on the gas price, is there potential to sell incremental volume at an even higher price than?
And on the gas price is there potential to sell incremental volume at an even higher price then.
Speaker Change: Well, yeah, I touched on that. I guess in theory, yes, because the state oil company selling at a higher price.
Yes, I touched on that I guess in theory, yes, because the state oil company selling at a higher price.
Speaker Change: But I think for now, you know, like I said, we're happy selling to Bahia Gas at these prices where we have a big advantage relative to our peers and that we have a connection directly into the city gate in the basin that we're producing. So it's, you know, we're positioned extremely well. We're 15 kilometers north of the main industrial complex where most of the gas gets.
But I think for now.
Like I said with <unk>.
We're happy to sell into the.
Gas at these prices, where we have a big advantage relative to our peers and that we have a connection directly into the city gate.
In the basin that we're producing so we're.
We're positioned extremely well were 15 kilometers north of the main industrial complex, where most most of the gas gets yes.
Speaker Change: gets consumed and we're, you know, one of the only companies, again, with a direct tie-in. So, for a lot of peers, if they were to have to ship gas through the national infrastructure to a city gate, you know, they'd have about a $1.50 an MCF disadvantage relative to Alopec.
Just consume and we're one of the only companies again with a direct tie in so for a lot of peers. If they were to have to ship gas through the national infrastructure to a city gate, we'd have about $1 50, an mcf disadvantage relative tell petro.
Yes.
Speaker Change: on this, on success of those exploration wells, how long to get to production.
On the unsuccessful exploration wells, how long to get to production.
Speaker Change: Yeah, so I touched on that on the catalyst slide, but it's, it's, you know, roughly a year, we've done a lot of upfront work, assuming success. We're doing some final engineering in them, you know, such that we'd be able to immediately upon success submit a permit. So we've done all the early lead time items and would be, like I said, positioned almost immediately after a success be in a position to be able to submit those. So, you know, if you said six to
Yeah, So I touched on that on the catalyst slide, but it's it's roughly a year we've done a lot of upfront work assuming success.
We're doing some final engineering in them.
Such that we'd be able to immediately upon success submit a permit so we've done all the early lead time items and would be like I said positioned almost immediately after our success be in a position to be able to submit those so.
If you said six.
Speaker Change: six to nine months for permitting, and then you've got roughly three to five months for.
Six to nine months for permitting and then you've got.
Roughly.
Three to three to five months for.
For construction.
Speaker Change: What is your CAPEX guidance for 2022 and production expectations and cash tax payable?
What is your Capex guidance for 2022 and production expectations and cash tax payable.
Yes, well, we haven't provided guidance for 2022, but we have walked through.
Speaker Change: We haven't provided guidance for 2022 but we have walked through each of those pieces of capital that show up on that near-term catalyst. We could walk through that quickly. I don't have it on the screen but I can do that for you. The 2 exploration wells that we're drilling are roughly $3.5M-$3.6M each. If we were to test those, they'd be roughly half a million dollars each to test.
Each of those pieces of capital that show up on that near term catalysts.
We could walk through that quicker.
Quickly I don't have it on the screen, but I can I can do that for you. This the two exploration wells that we're drilling are roughly $3 five $3 $6 million. Each if we were to test those they'd be roughly half a million dollars each to test them.
Speaker Change: Our share of the Unit C well, you know, roughly is about a, let's call it a million dollars.
Our share of the unit Seawell.
Roughly it's about let's call it $1 million.
Speaker Change: and Alison will correct me if I make any mistakes through the piece here. The tie-in of the 183-1 well and the EPF construction project did span year-end, so that one's a little bit more complicated. I might need Alison's help with the portion that would show up in 2020. Yeah, there's about another $1.3 million to finish that project in 2022.
I also will correct me, if I make any mistake through the piece here.
The tie in of the 183, one well and the ETF construction project.
Did span the year end, so that one is a little bit more complicated that might be allison's help with a portion of that would show up in 2020, yet there's about another $1 3 million to finish that project in 2020 team here.
Alison Howard: Thank you, and then we've got, and you can use the budget.
Thank you and then we've got and we get into the budget.
Yeah.
Alison Howard: I'll come back to the $197.1M stimulation and tie in. The fit-for-purpose GOML wells that we have here would be roughly $6M a piece.
Yes.
I'll come back to the 197, one stimulation and tie in the fit for purpose Gomel wells that we have here would be roughly $6 million a piece.
Alison Howard: And then the gas processing facility, this was actually within our gas processing agreement when we originally did our deal, so this isn't really a capital cost. It will increase our capital lease payment by $35,000 a month when that comes on production. And the 197.1 stimulation and tie-in is budgeted at $3 million.
And then the gas processing facility. This is actually Justin Inc. This was actually within our gas processing agreement. When we originally did our deal. So this isn't really a capital cost it will increase our capital lease payments by $35000 a month when that comes on production.
And the 197, one stimulation and tie them is budgeted at $3 million.
Alison Howard: And then there are some other miscellaneous costs that will show up in our financial statements, like some capitalized GNA, et cetera, but those are the big components.
And then there are some other miscellaneous costs that will show up in our financial statements like some some capitalized G&A et cetera, but those are the big big components.
Speaker Change: The next question we'll go to is, what are your thoughts on uses for excess free cash flow and liquidity? Will you have a more formal dividend policy?
The next question will go to you is what are your thoughts on uses for excess free cash flow and liquidity, but you have a more formal dividend policy.
Uh huh.
Speaker Change: Yeah. So, you know, we've been talking about this for literally years. Our plan has always been to take roughly half of our cash flows and return those to stakeholders and the other half invest in organic growth opportunities. And I think, you know, with the resurgence of oil and gas pricing, you're seeing almost all of our peers adopt, you know, similar policies.
Yes.
No.
We've been talking about this for literally years. Our plan has always been to take roughly half of our cash flows and return those to stakeholders and the other half invest in organic growth opportunities and I think with the resurgence of oil and gas pricing youre seeing almost all of our peers adopt similar policies.
Speaker Change: I would say that the half that's been going to stakeholders, and frankly, we've probably been more than half to date.
I would say the half that's been going to stakeholders and frankly, we probably been more than half to date because the capital is just starting here this year.
Speaker Change: that the capital's just starting here this year, has really been focused on a very aggressive basis, repaying the debt.
Really been focused on in a very aggressive basis repaying debt the debt that we have outstanding and we would probably expect to continue to do that so the obvious question goes when we get to zero debt, which is not too far off at the pace, we've been going thats not too far into the <unk>.
Speaker Change: that we have outstanding, and we would probably expect to continue to do that. So, you know, the obvious question goes, when we get to zero debt, which is, you know, not too far at the pace we've been going, it's not too far into the into the horizon here. You know, what do we do with that other portion of the bucket that's getting allocated to stakeholders? So.
Into the horizon here, what do we do with that other portion of.
The bucket, that's getting allocated to stakeholders. So that's a decision for the board to make at that time, and we get questions about.
Speaker Change: You know, that's a decision for the board to make at that time. And, you know, there's, you know, we get questions about.
Speaker Change: You know, would you do share buybacks and dividends? And, you know, but that's roughly our policy that we've been pursuing. And I think we've been sticking pretty close to it.
Would you do share buybacks and dividends.
But that's roughly our policy that we've been pursuing and I think we've been sticking pretty close to it.
Speaker Change: Okay, the next question goes back to the exploration wells. Will your open hole logs pretty reasonably define the productive nature of those wells?
Okay. The next question comes back to the exploration of all your open hole logs pretty reasonably defined the productive nature of those wells.
Speaker Change: Yeah, I think we've had good success with our logs, you know, defining what's net pay and what the quality of the net pay is.
Yes, I think we've had good success with our logs to define.
Defining what's net pay and what the quality of the net pay us.
Speaker Change: you know, ultimately, you know, that will help like it will, it will show what the porosity is, but the permanent the permeability
<unk>.
Ultimately that will help likable it will show what the porosity is but if the permit the permeability portion of that equation is really.
Speaker Change: portion of that equation is really, you know, we need to pass the wells. So we would do that with a success.
We need to test the wells. So we would do that with the success, we didn't put that on our timeline that I showed you before but that would happen very quickly. After after open hole logs, we would move the rig off come in and test the well in parallel with drilling.
Speaker Change: You know, we didn't put that on our timeline that I showed you before, but that would happen, you know, very quickly after after open whole lot.
Speaker Change: We'd move the rig off, come in, test the well in parallel with drilling the second well.
Second well.
Speaker Change: Great, and there are no other questions at this time, but again, as I mentioned before, if anyone has any questions afterwards, feel free to reach out to us and we'll ensure your questions get answered.
Great and there are no other questions at this time, but again as I mentioned before if anyone has any questions afterwards feel free to reach out to us.
I'll answer your questions get answered.
Speaker Change: All right. Well, thank you again, everyone, for attending. It's been a really exciting time and we're looking forward to updating you on our progress as our 2022 capital program progresses. Thank you again.
Alright, well. Thank you again, everyone for attending it's been a really exciting time and we're looking forward to updating you on our progress as our 2020 capital program progresses. Thank you again.
Thanks.
Yeah.