Q1 2024 Alvopetro Energy Ltd Earnings Call
Okay.
Operator: Great. Thank you, Alison.
Great. Thank you Allison.
Corey Christopher Ruttan: So just to start again with our average daily production. I think we've presented this quite a few times. As a reminder, we came on production in July of 2020. We've added this black dash line to this slide for this purpose, just to show you the firm volumes that we had committed to the HEA gas. So you can see that when we first came on production, we were almost exactly equal.
Operator: Yes.
Corey Christopher Ruttan: So just to start again with our.
Corey Christopher Ruttan: Average daily production.
Corey Christopher Ruttan: I think we presented there's quite a few times. A reminder, we came on production in July of 2020.
Corey Christopher Ruttan: We've added this black dashed lines. This slide for this purpose just to show you the firm volumes that we had committed with the heat gas.
Corey Christopher Ruttan: So you can see when we first came on production we were almost exactly equal.
Corey Christopher Ruttan: Our share of the cavity unit production plateau at time, that plateau increased, and we also were able to increase our production from the unit well above those pre-commercialization expectations, and Bahia Gas was able to sell all that gas on an on-premise basis under our contract, starting in the second quarter of 2023, our partners started nominating for more gas, and we've been back up and running closer to that Bahia Gas firm level since then, our production, we had previously announced this was, it had increased quite a bit in the fourth quarter, and it had decreased back down in the first quarter of 2024, and we did, with yesterday's announcement, announce a production of 1,808 barrels of oil equivalent per day. So that was up about 6% from our Q1 average.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: Kathy.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: We also.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: About increased.
Corey Christopher Ruttan: On the unit.
Corey Christopher Ruttan: Well pre commercialization.
Corey Christopher Ruttan: <unk> was able to solve.
Corey Christopher Ruttan: Under our contract.
Corey Christopher Ruttan: Contract.
Corey Christopher Ruttan: So in the second quarter of 2020.
Speaker Change: Starting now.
Corey Christopher Ruttan: The other thing that has been, I think, about 4 months through this period, we have had Bahia Gas eliminate our production because of some demand disruptions, and you'll see that reflected in the companies where we're slightly below the Bahia Gas firm levels. Just talk about a couple of things. Our strategy here is to add more 100% work to production to our portfolio, so that no matter what's happening with production from the unit, we The other thing that happened is we just finished our first retermination of the unit, so once that becomes effective, our share of new production goes up to about 2,300 barrels of oil equivalent per day.
Corey Christopher Ruttan: For mortgage.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: From levels.
Corey Christopher Ruttan: Our production.
Corey Christopher Ruttan: Yes.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: Quite a bit.
Speaker Change: I don't know.
Corey Christopher Ruttan: For 2024.
Corey Christopher Ruttan: Yes.
Corey Christopher Ruttan: Peak production.
Corey Christopher Ruttan: Eric.
Corey Christopher Ruttan: Great.
Corey Christopher Ruttan: For our Q1 average.
Corey Christopher Ruttan: The only thing.
Corey Christopher Ruttan: So with that result, and with an expanding production base for our other projects, then that will position us as well to also increase the firm volumes under our contract so we can increase this black dash line and increase the guaranteed minimum amount of our cash flow level. So just a little bit on the CABRI unit redetermination process; our unit operating agreement did contain their somewhat typical redetermination provisions, which can happen from time to time. The first of these was completed in April of this year.
Corey Christopher Ruttan: Sure.
Corey Christopher Ruttan: I think about four months through this period.
Corey Christopher Ruttan: Yeah.
Corey Christopher Ruttan: Yeah.
Corey Christopher Ruttan: Yeah.
Corey Christopher Ruttan: Our production system.
Corey Christopher Ruttan: Yeah.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: Hello.
Corey Christopher Ruttan: Firm levels.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: And the result is that our working interest in the unit increases to 56.2% from 49.1%. Sorry, there's a typo there. The increase is from 49.1%. And, What that does is, as I mentioned on the previous slide, it increases our production entitlement from the unit to almost 14 million cubic feet a day. We did have GLJ prepare pro forma reserves reflecting the redetermined working interest as though it had happened when we completed our reserves at December 31, 2023.
Corey Christopher Ruttan: Difficult.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: Sure.
Corey Christopher Ruttan: Yeah.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: Production.
Corey Christopher Ruttan: Golar.
Corey Christopher Ruttan: Production from <unk>.
Corey Christopher Ruttan: Awesome.
Speaker Change: Good morning.
Corey Christopher Ruttan: Great.
Corey Christopher Ruttan: <unk>.
Corey Christopher Ruttan: Yes.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: Terminix.
Corey Christopher Ruttan: So with that.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: Our share of production.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: Great.
Corey Christopher Ruttan: So.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: Trading remains strong.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: The analysis as well.
Corey Christopher Ruttan: Increased firm.
Corey Christopher Ruttan: Volumes under our contracts. So we can increase this black dashed line up and increase the guaranteed minimum amount of our cash flow levels.
Corey Christopher Ruttan: And what that shows is that our 2P volumes increased by 11%, up to 9.6 million barrels of oil equivalent. And our 2P NPVs went up by a similar amount, 11%, up to $342 million. Our unit operating agreement does stipulate that expert decisions are to be binding and that the redetermination is to be effective on June 1st, and it does provide the right for Alvopetro to operate as a result of that
Corey Christopher Ruttan: Yeah.
Corey Christopher Ruttan: So just a little bit on the cavalry unit Redetermination process. Our unit operating agreement did contain they're somewhat typical reader redetermination provisions, which can happen from time to time. The first of these was completed.
Corey Christopher Ruttan: April of this year and the result is that our working interest in the unit increases to 56, 2% from 49 one.
Corey Christopher Ruttan: 1%.
Corey Christopher Ruttan: Sorry, there's a typo error increased from $49 one.
Corey Christopher Ruttan: We have noted in our previous disclosures that our partner is disputing this result, and because of that, Alvopetro moved to file an emergency arbitration injunction process to seek to make the decision effective as prescribed in our unit agreements. I think regardless of that decision in the emergency procedure, it is likely that the dispute will ultimately be heard by a full arbitration panel or tribunal, but our attempt with this emergency process is to make it effective in the interim period here.
Corey Christopher Ruttan: Sure.
Corey Christopher Ruttan: And.
Corey Christopher Ruttan: What that does is as I had mentioned on the previous slide and increases our production entitlement from a unit to almost 14 million cubic feet a day.
Corey Christopher Ruttan: We did have Doj prepare pro forma reserves, reflecting the redetermination working interest.
Corey Christopher Ruttan: Is it as though it had happened when we completed our reserves at December 31 2023.
Corey Christopher Ruttan: And what that shows is that our <unk> volumes increased by 11% up to $9 6 million barrels of oil equivalent and our <unk> go up a biosimilar amount, 11% up to $342 million.
Corey Christopher Ruttan: I'm going to talk about our gas sales agreement with BEHEA Gas. Just to recap, our gas sales agreement gets reset semi-annually on February 1st and August 1st of each year. It's based on three different international benchmark prices, which are the grey dashed lines that you see here. So this lower one is the US Henry Hub price. This upper one is UK NBP prices, and then this dashed line that you can see through here is Brent oil equivalent prices.
Corey Christopher Ruttan: Our unit operating agreement done stipulate that expert decisions are to be binding.
Corey Christopher Ruttan: The Redetermination is to be effective on June one and it does provide the right for our Petro to operator as a result of that decision.
Corey Christopher Ruttan: We have noted in our previous disclosures that our partner is disputing.
Corey Christopher Ruttan: This result, and because of that album Petro move to file a emergency arbitration injunction process to seek to make that decision effective as prescribed in our unit agreements.
Corey Christopher Ruttan: So left of this vertical red dashed line is all the historical prices. And then, in the future, this is the forward strip pricing as of May 6th that you see here. So the black line is the output of the formula within our contract. We also have a Florida ceiling in red and green, respectively.
Corey Christopher Ruttan: I think regardless of that decision and the emergency procedure. It is likely that the dispute will ultimately be hurt by a full arbitration panel.
Corey Christopher Ruttan: Our trip Udall, but our attempt with this emergency processes is to make it effective in the interim period here.
Corey Christopher Ruttan: Both those do escalate based on US inflation. And you can see we're pretty close to the ceiling based on these forecast prices. It drops just slightly below it on the reset in February of 2025 based on these prices. And the black dashed line that you can just barely see here is the price that was used in our reserve report, so we're almost exactly still at that price expectation.
Corey Christopher Ruttan: Just talk about our gas sales agreement with DEA gas.
Corey Christopher Ruttan: Just to recap our gas sales agreement gets reset semi annually on February one and August 1st of each year.
Corey Christopher Ruttan: On three different international benchmark prices, which are the gray dash lines that you see here. So this lower when as U S. Henry hub prices. This upper one is UK and BP prices and then this dash line that you see through here is Brent oil equivalent prices. So lack of this vertical red Dash line is all of the historical.
Corey Christopher Ruttan: So, just moving on to results from this first quarter of 2024, we'll talk about our operating net back here on this slide. Reminder that that's a non-gap measure that measures our operating profitability. We express it in per barrel of oil equivalent, and that's computed as our realized sales price, which is at the very top of the bar chart. And then we subtract our royalties, which are in orange, and our production expenses, which are in gray.
Corey Christopher Ruttan: Prices and then in the future of this is the forward strip pricing as of May six.
Corey Christopher Ruttan: That you see here so the black line is the output of the formula within our within our contract. We also have a floor or ceiling in red and green respectively. Both those do escalate based on U S inflation and you can see we're pretty close to the ceiling based on these these forecast prices I've drops just slightly.
Corey Christopher Ruttan: And then the green bar is our overall operating profit or operating net back here. So, this quarter, our realized sales price per BOE was $75.94. That was a slight decrease from last quarter. However, our royalties were relatively consistent from last quarter. As a percentage of the sales price, it worked out to about 2.7%. Our royalties on natural gas are based on an A&P reference price, which is more closely similar to Henry Habba, a proxy for the value of the raw, unprocessed gas.
Corey Christopher Ruttan: On the reset on February.
Corey Christopher Ruttan: 2025 basis based on these prices and the Black Dash line that you can just barely see here is that as the price that was used in our reserve report. So we're almost exactly still spill out that price expectation.
Corey Christopher Ruttan: So just moving on to results from the first quarter of 2024.
Corey Christopher Ruttan: We'll talk about our operating netback here on this slide reminder, that that's a non-GAAP measure that measures our operating profitability. We express it in per barrel of oil equivalent and that's computed as our realized sales price, which is at the very top of the bar charts, and then we subtract off our royalties which are in orange.
Corey Christopher Ruttan: So, overall, that's the expected rate is lower than the stated royalty rate on our fields in Brazil. And then production expenses, those were higher at $7.76 this quarter. Most of our production expenses are fixed in nature.
Corey Christopher Ruttan: Our production expense since mature and gray.
Corey Christopher Ruttan: So, when we have that 21% reduction in sales volumes from Q4, our overall cost per BOE did go up. In addition, overall, our operating costs in Q1 were about $49,000 higher than Q4. That was mainly due to some workovers that we completed in the first quarter.
Corey Christopher Ruttan: And then the Green bar is our overall operating profit our operating netback here so.
Corey Christopher Ruttan: This quarter, our realized sales pace.
Corey Christopher Ruttan: <unk> was $75 94.
Corey Christopher Ruttan: A slight decrease from last quarter, our royalties were relatively consistent from last quarter as a percentage of the sales price it worked out to about two 7%.
Corey Christopher Ruttan: So, that gave us a net back this quarter of $66.16. And while that's down about $3.53 from last quarter, when you look at that relative to our realized price of just under $76, that's a profit margin or net back margin of 87%, which is very high in this industry. When you look at other peers operating in Latin America and North America, this is best in class.
Corey Christopher Ruttan: Our our royalties on natural gas or based on an A&P reference price.
Corey Christopher Ruttan: More closely.
Corey Christopher Ruttan: Closely similar to Henry hub.
Corey Christopher Ruttan: Proxy for the value that raw unprocessed gas. So overall effective rate is lower than the standard royalty rate on our fields in Brazil.
Corey Christopher Ruttan: Production expenses those were higher at $7 76.
Corey Christopher Ruttan: First quarter most of our production expenses are fixed in nature. So when we have that 21% reduction in sales volumes from Q4, our overall cost per BOE did go up in.
Corey Christopher Ruttan: And when we add to that, you know, this is expressed before income tax. But our income tax rate in Brazil is just over 15% due to this benefit that we get on virtually all of our profits in Brazil. So overall, this helps us to generate very strong funds, which will go here. So again, funds flow from operations, and it's basically cash flow from operating activities before changes in working capital.
Corey Christopher Ruttan: Overall, our costs are.
Corey Christopher Ruttan: Our operating costs in Q1 were about 49000 higher than Q4 that was mainly due to some workovers that we complete eight completed in the first quarter.
Corey Christopher Ruttan: When we compare to Q4, which is on the left-hand side here at 12.4 million, we did see a decrease of about 3.9 million this quarter, most of that was due to that 21% reduction in sales volume. The realized price reduction that I talked about on the previous slide, those production expenses, as I mentioned, were a little bit higher.
Corey Christopher Ruttan: So that gave us a net back this quarter at <unk> $66 16, and while that's down about $3 53 from last quarter.
Corey Christopher Ruttan: When you look at that relative to our realized price of just under $76. That's a profit margin or netback margin of 87%, which.
Corey Christopher Ruttan: It's very high.
Corey Christopher Ruttan: Industry. When you look at other peers operating in Latin America, and North America. This is best in class.
Corey Christopher Ruttan: G&A in Q4 was a bit lower because we had reductions for the final 2023 bonus amount. So, consequently, G&A this quarter is a little bit higher. Overall, very strong funds flow, still at 8.5 million. Moving on to net income. So despite that reduction in our fund flow, we did see a $3.9 million increase in our net income from $652,000 last quarter to $4.6 million this quarter. Most of that was due to changes in impairment.
Corey Christopher Ruttan: And when we layer on to that this is expressed before before income tax.
Corey Christopher Ruttan: But our income tax rate in Brazil, let's just over 15% due to the benefit that we got.
Corey Christopher Ruttan: On virtually all of our profits in Brazil. So overall that helps us to generate very strong funds flow.
Corey Christopher Ruttan: Next we'll go to here. So again, thanks, both from operations as is basically cash flow from operating activities before changes in working capital.
Corey Christopher Ruttan: When we compare to Q4, which is on the left hand side. There at $12 4 million. We did see a decrease of about $3 9 million. This quarter. Most of that was due to that 21% reduction in sales volumes.
Corey Christopher Ruttan: We did have just under $11 million of impairment losses in Q4, and that is partially offset by foreign exchange losses this period versus gains last quarter, and then higher deferred tax. Last quarter was impacted by, you know, deferred tax asset recoveries on those impairment losses. So overall, the quarter had $4.6 million net income. On the balance sheet side, these green bars here show our progression of working capital through the various quarters since coming on production.
Corey Christopher Ruttan: Also the realized price reduction that I talked about on the previous slide.
Corey Christopher Ruttan: Those production expenses as I mentioned, we're a little bit higher G&A in Q4 was a bit lower because we had.
Corey Christopher Ruttan: Reductions for final 2023 bonus amount. So consequently, G&A this quarter is a little bit higher overall very strong funds flow cell at $8 5 million.
Corey Christopher Ruttan: As of March 31, we have over $15 million of working capital, which is current assets less current liabilities. That includes cash of just under $17.5 million. And a reminder that we fully repaid our credit facility back in September of 2022 and have been debt-free since then. So we are well positioned with a very strong balance sheet going forward for our plans.
Corey Christopher Ruttan: Moving on to net income so despite that reduction in our in our funds flow.
Corey Christopher Ruttan: We did see at $3 $9 million increase in our net income from the 652000 <unk>.
Corey Christopher Ruttan: Last quarter to $4 6 million this quarter.
Corey Christopher Ruttan: Most of that was due to changes in impairment we did have.
Corey Christopher Ruttan: Just under $11 million of impairment losses booked in Q4.
Corey Christopher Ruttan: And that is partially offset by foreign exchange losses this period versus gains.
Corey Christopher Ruttan: All right, thank you, Alison. So we did previously announce our Q1 dividend. We did reduce that based on the production decrease that we talked about in the anticipated reduction in cash flow or funds flow from operations, consistent with our long-standing policy to return roughly half of our cash flows to stakeholders and reinvest the other half in organic growth. In total, since we started the dividend in the third quarter of 2021, we paid out over $40 million US, or the equivalent of $1.13 per share US of cumulative dividends to shareholders. Based on our current share price, that $0.09 dividend translates into a yield of just over 10%.
Corey Christopher Ruttan: Last quarter, and then higher deferred tax.
Corey Christopher Ruttan: Last quarter was impacted by deferred tax asset recoveries on those impairment losses. So overall the quarter up $4 6 million net income.
Corey Christopher Ruttan: On the balance sheet side. These are these green bars here show our progression of working capital through the various quarters since coming on production as of March 31, we have over $15 million of working capital, which is current assets less current liabilities that includes cash of just under 2017.
Corey Christopher Ruttan: $5 million and a reminder, that we fully repaid our credit facility back in September of 2022 and have been debt free since then.
Corey Christopher Ruttan: So we are well positioned with a very strong balance sheets.
Corey Christopher Ruttan: So, you know, this disciplined capital allocation model that we talk about, again, the idea is to reinvest half of our cash flows in organic growth and return the other half to stakeholders. This chart here, all the black dots and the green line that you see here are the funds flow from operations that we've had quarter over quarter. Alison walked you through the $8 and a half million that we generated this quarter.
Corey Christopher Ruttan: Farther forward a plan.
Speaker Change: Alright. Thank you Allison So we did previously announced our Q1 dividend.
Corey Christopher Ruttan: We did reduce that based on the production decrease that we talked about it and we anticipate a reduction in cash flow.
Corey Christopher Ruttan: Our funds flow from operations.
Corey Christopher Ruttan: Consistent with our longstanding policy to return roughly half of our cash flows to stakeholders and reinvest the other half in the organic growth.
Corey Christopher Ruttan: And then each of the bars just shows where we've invested that money. So, a reminder at the very beginning, we pre-invested in our Cadbury unit to get that into production. So we had very little capital requirements in yellow.
Corey Christopher Ruttan: In total since we started the dividend in the third quarter of 2021.
Corey Christopher Ruttan: We paid out over $40 million U S.
Corey Christopher Ruttan: And almost all of the cash flow went to an accelerated repayment of our outstanding debt. We did buy back some shares in the third quarter, and then we also started the dividend in the third quarter of 2021. So, the dark green wedge that you see there.
Corey Christopher Ruttan: Or the equivalent of $1 13 per share U S of cumulative dividends to shareholders.
Corey Christopher Ruttan: Based on our current share price at nine nine.
Corey Christopher Ruttan: Dividend translates into a yield just over 10% right now.
Corey Christopher Ruttan: So this disciplined capital allocation model that we talk about again.
Corey Christopher Ruttan: And then more recently, you have seen us investing in capital expenditures, which are in yellow. In total, if you look at that, since we came on production from the Cadbury unit to the end of the first quarter here, you can see this has been quite balanced. We've had 48% of our cash flows, which have totaled now $139 million. About half of that has gone back to stakeholders in the various forms of the capital lease on our gas plant, debt, and interest payments, and the vast majority of that's in the form of dividends. And about 43% has been reinvested.
Corey Christopher Ruttan: The idea is to reinvest half of our cash flows inorganic growth and return the other half to stakeholders.
Corey Christopher Ruttan: The chart here all of the black dots in the Green line that you see here is the funds flow from operations that we've had quarter over quarter. Alison walked you through the $8 $5 million that we generated this quarter and then each of the borrowers just shows where we've invested that money. So a reminder, at the very beginning.
Corey Christopher Ruttan: We pre invested in our in the camera unit to get that our production. So we had very little capital requirements in yellow and almost all of the cash flow went to an accelerated repayment of our outstanding debt.
Corey Christopher Ruttan: The rest of it, this blank portion of the pie here, 9% of that's gone to build the cash and working capital position that Allison walked you through a couple of slides. So, just to talk about our organic growth plan going forward. Again, our near-term objective is to be at 18 million cubic feet a day or 3,000 barrels of oil equivalent per day. From our core business, we did expand the gas plant back in the middle part of 2022. The cabaret unit has been performing quite well.
Corey Christopher Ruttan: We did buyback some shares in the third quarter and then we also have 2021 and then we also started the dividend in the third quarter of 2021. So the dark Green works that you see there and then more recently you have seen us investing in capital expenditures, which are in yellow.
Corey Christopher Ruttan: In total if you look at that since we came on production from from the cavalry unit to the end of the first quarter here you can see this has been quite balanced.
Corey Christopher Ruttan: We expanded the productive capacity along with our partner. And then the biggest part of this is, you know, because of the redetermination result, our share of the unit production is expected to increase here once that becomes effective. With respect to our Merica 2-2 asset, which I'm sorry about, the cabaret unit sits right here; the gas flows down this pipeline to our gas processing facility that sits to the west. Our main growth acreage sits immediately north of the cabaret unit. It's all 100% working interest. We call it Murakatutu.
Corey Christopher Ruttan: We've had 48% of our cash flows which have totaled a.
Corey Christopher Ruttan: $139 million.
Corey Christopher Ruttan: Half of that has gone back to stakeholders in the various forms of either the capital lease on our gas plant debt and interest payments and the vast majority of that's in the form of dividends and.
Corey Christopher Ruttan: And about 43% has been reinvested the rest of it.
Corey Christopher Ruttan: The blinded portion of the pie here, 90% of that is going to build the cash and working capital position that Allison will walk you through a couple slides ago.
Corey Christopher Ruttan: So just to talk about our organic growth plan going forward again, our near term objective is to be at 80 million cubic feet, a day or 3000 barrels of oil equivalent per day.
Corey Christopher Ruttan: We've got three existing wells. They're all pipeline connected back to the unit here. We're just in the process of doing optimization projects on each of those three wells. So we just completed a chemical treatment program on our 197.1 well, and that well is in the process of being brought on production now. The recompletion that we've got planned for the 183.1 well is expected to start here in the next couple of weeks.
Corey Christopher Ruttan: From our core business.
Corey Christopher Ruttan: We did expand the gas plant back in the middle part of 2022.
Corey Christopher Ruttan: The cavalry unit has been performing quite well, we expanded the productive capacity along with our partner.
Corey Christopher Ruttan: The biggest part of this is because of the Redetermination result, our share of the unit production.
Corey Christopher Ruttan: And then following that activity, we'll do the final completion in our 183.83 well, targeting a number of the Karasu zones that we encountered in that well. So, the idea is to take that recipe that we have and then apply that to a much broader development plan. It's a multi-year, multi-zone development plan covering this entire asset. We have had this asset assessed by GLJ, our independent reserve evaluator, and they've assigned a combination of 2P reserves and risk-best estimated contingent and prospective resources to it of 4.6, 5.4, and 9.6 million barrels of oil equivalents, respectively.
Corey Christopher Ruttan: As expected to increase here once that becomes effective.
Corey Christopher Ruttan: With respect.
Corey Christopher Ruttan: Back to our Merck, a Q2 asset, which so sorry, the cavalry unit sits right here the gas flows down the pipeline to our gas processing facilities. It sits to the west our main growth acreage sits immediately doors of the cap or a unit. It's all 100% working interest we call it <unk>, but we've got.
Corey Christopher Ruttan: Three existing wells Theyre, all pipeline connected back to the unit here. We're just in the process of doing optimization projects at each of those three wells. So.
Corey Christopher Ruttan: We just completed a chemical treatment program on our 197 to one well and that wells on in the process of <unk>.
Corey Christopher Ruttan: So there's a lot of growth potential for us here. We can execute this on an organic basis, and we're looking forward to migrating this resource into production and cash flows over the coming years. So, just to conclude, to re-summarize this, I think I've said this before, but I do firmly believe Alvopetro continues to offer a very attractive investment proposition, no matter what your focus is. You know, I think our results speak for themselves, but we're generating industry-leading operating margins off the back of very attractive gas prices.
Corey Christopher Ruttan: <unk> brought on production now re completion that we planned in the 183 one well.
Corey Christopher Ruttan: As expected start here in the next couple of weeks and then following that activity will do the final completion in our 183, a three well targeting a number of the <unk> zones that we encountered in that well.
Corey Christopher Ruttan: So and then the idea is to take that recipe that we have.
Corey Christopher Ruttan: And then apply that to a much broader development plan, it's a multiyear multi zone development plan covering this entire asset we have had this asset assessed by AGL, Jay our independent reserve evaluators.
Corey Christopher Ruttan: We've got a clean balance sheet with extremely strong free cash flow generation capacity that helps really underpin this balanced reinvestment and stakeholder return model that we have. For value investors, we're trading at about one-third of our 2P NABs. For yield investors, the dividend represents about a 10% dividend yield with dividends paid quarterly in the U.S. And for growth investors, we certainly have a very exciting and organically funded capital program that has a lot of potential, especially when you compare it to our current enterprise value. So with that, I'm going to stop sharing the presentation, and we'll turn it over to questions and answers.
Corey Christopher Ruttan: And they are assigned the combination of <unk> reserves and risks best estimated contingent and prospective resource to this.
Corey Christopher Ruttan: 465, 4% to $9 6 million barrels of oil equivalent respectively.
Corey Christopher Ruttan: So theres a lot of growth potential for us here, we can execute this on an organic basis on that basis, and we're looking forward to migrating this resource into production and cash flows over the coming years.
Corey Christopher Ruttan: Okay.
Speaker Change: So just to conclude.
Corey Christopher Ruttan: To re summarize this.
Corey Christopher Ruttan: I think I've said this before but I do firmly believe abo petrol continues to offer a very attractive investment proposition no matter what your focus is.
Corey Christopher Ruttan: I think our results speak for themselves, but we're we're generating industry, leading operating margins off the back of a very attractive gas prices, we've got a clean balance sheet with extremely strong free cash flow generation capacity that helps.
Unknown Shareholder: Okay, the first question that we have is, are you inclined to exercise your right to operate a cabaret? Are there clear advantages to that?
Corey Christopher Ruttan: Yes, you know, with a working interest over 50%, our preference would be to operate the field. There is a development plan that we've agreed to with our partner, and we'd like to see that executed on an expedited basis. There are five wells planned there. And yeah, that's our intention.
Corey Christopher Ruttan: Really underpin this balanced reinvestment and stakeholder return model that we've got for value investors were trading at about one third of our <unk> for yield investors. The dividend represents about a 10% dividend yield with dividends paid quarterly in the U S dollars and for growth investments.
Unknown Shareholder: Can you give an update on how you see the Brazilian gas market demand and, more specifically, the region you are working in? Has there been a significant impact from strong renewable power generation, and how much of this is structural versus transitory?
Corey Christopher Ruttan: <unk>.
Unknown Shareholder: We certainly have a very exciting and organically funded capital program that has a lot of potential, especially when you compare it to our current enterprise value.
Unknown Shareholder: So with that.
Speaker Change: Stop sharing the presentation and we'll turn it over to.
Corey Christopher Ruttan: Yeah, so there are a couple parts to this. So we'll talk about Bahia Gas. One of the things that they are due to is that they have, you know, I think up to 10 suppliers of natural gas now. So they've been, you know, one of the leaders probably in diversifying their portfolio of gas as the gas market opened up in Brazil. And then they've got hundreds or thousands of customers that consume the gas. I think there has been, you know, probably close to 8 or 9% impact on demand that's happened to their demand base. It's otherwise pretty stable,
Corey Christopher Ruttan: A question and answer.
Corey Christopher Ruttan: Yeah.
Speaker Change: Okay. The first question that I have is are you inclined to exercise your right to operate cabaret are there are clear advantages to that.
Corey Christopher Ruttan: Yes.
Corey Christopher Ruttan: Working interest over 50% of our preference would be to operate the field. There is a development plan that we've agreed to with our partner we'd like to see that executed on an expedited basis Theres five wells planned there.
Corey Christopher Ruttan: And yes, that's our attention.
Corey Christopher Ruttan: They are impacted from time to time due to plant turnarounds or temporary disruptions within their customer base. The other thing they did was they basically committed to all their supply on a firm basis for both 2023 and 2024, quite far in advance. So, especially for this year, it reduces their ability to kind of manage any of those demand decreases that I talked about. But for 2025, they've completely, you know, they're going through a process now to contract all that firm supply.
Corey Christopher Ruttan: Okay.
Corey Christopher Ruttan: Can you give an update on how you see the Brazilian gas market demand and more specifically the region. You are working in has there been a significant impact from strong renewable power generation and how much of this is structural versus transitory.
Corey Christopher Ruttan: Yes, so a couple of parts. There. So we will talk about Bahia gas one of the things that they are do they have I think up to 10 suppliers of natural gas now so they had been.
Corey Christopher Ruttan: Yeah.
Corey Christopher Ruttan: One of the leaders probably in.
Corey Christopher Ruttan: Diversifying their portfolio of gas as the gas market opened up in Brazil, and then they've got hundreds of thousands of customers that consume the gas.
Corey Christopher Ruttan: So, they'll be able to make those adjustments. And we have the ability, you know; the ideal thing for us would be to increase our firm volumes under our contract. And they're still quite keen to be prioritizing Alvopetro Gas, partly because we're directly connected to their distribution network. So, it, you know, helps improve our net realized price, but it also helps reduce the absolute cost of the gas to the end consumer.
Corey Christopher Ruttan: I think there has been.
Corey Christopher Ruttan: You'll probably.
Corey Christopher Ruttan: Close to eight or 9% impact on demand that's happened.
Corey Christopher Ruttan: To their to their demand basis, otherwise pretty stable they are impacted from time to time.
Corey Christopher Ruttan: Due to plant turnarounds or temporary disruptions within there.
Corey Christopher Ruttan: Within their customer base.
Unknown Shareholder: The second part of your question is, you know, renewable energy. Yes, Brazil has been, you know, quite aggressive in adding renewable electrical generation. I would say that the demand wedge is kind of treated separately so that, you know, the natural gas component or competition for that would be in thermal power plants. And I would say, you know, Brazil generates a lot of its electricity through either hydroelectric or renewables. So, you know, there certainly has been an impact on the thermal power side with respect to how often those plants are dispatched because of renewable energy.
Corey Christopher Ruttan: The other thing what they did is they basically committed to all their supply on a firm basis for both 2023 and 2024 quite far in advance so.
Unknown Shareholder: Specially for this year it reduces their ability to kind of manage any of those.
Unknown Shareholder: Demand decreases that I talked about but for 2025.
Unknown Shareholder: We've completely there.
Unknown Shareholder: They're going through a process now to contract all of that firm supply so.
Unknown Shareholder: Be able to make those adjustments and we have the ability.
Unknown Shareholder: Ivy opening for us would be to increase our firm volumes under our contract and they are still quite keen to be prioritizing elbow petrol gas, partly because were directly.
Alison Leanne Howard: Can you give an update on expected CapEx for 2024 and how this has changed from guidance in the 2023 annual filing? I can do that.
Unknown Shareholder: Ah connected into their distribution network. So it helps.
Alison Leanne Howard: Helps improve our net realized price, but it also helps reduce the absolute cost of the gas to the end consumer.
Alison Leanne Howard: We don't really give guidance on the overall CAPEX, but we do go through the specific projects we have in detail within the MD&A that we file. So nothing; there have been no material changes since the Q4 filing on March 19th. So our main projects in the Mirka-Tutu field are the projects in the two wells, 183.1, the recompletions in 183.1 and 183.83, as well as a plan in 197.1 to optimize production there.
Alison Leanne Howard: The second part of your question is renewables, yes, Brazil has been.
Alison Leanne Howard: Quite aggressive on the on adding renewable electrical generation.
Alison Leanne Howard: I would say that demand, where it just kind of treated separately so that.
Alison Leanne Howard: The natural gas component.
Alison Leanne Howard: Competition for that would be in thermal power plants.
Alison Leanne Howard: And I would say.
Alison Leanne Howard: Brazil generates a lot of their electricity through either hydroelectric for renewables.
Alison Leanne Howard: So.
Alison Leanne Howard: There certainly has been an impact on the thermal power side with respect to how often those plants are dispatched because of that renewable energy.
Alison Leanne Howard: So that total for the year is about $4.2 million. We did have some spending in Q1, so we have about $3.7 million remaining for the rest of the year. At Cabaret, we have this five-well development planned at the unit that Corey referred to. That'll go from 2024 into 2025. At our new working interest, that's estimated at $7.1 million with $4.2 million in 2024. We have the facilities upgrade plan that's 100% Alvopetro. That totals $3.2 million.
Alison Leanne Howard: Can you give an update on expected capex for 2024, and how that can change from guidance in the 2023 annual filings.
Speaker Change: So I can do that and we don't really give guidance on the overall capex that we do go through the spin.
Alison Leanne Howard: Specific projects, we have in detail within the MD&A that we file.
Alison Leanne Howard: So nothing there has been no material changes since the.
Alison Leanne Howard: There was $1.4 million in Q1, so approximately $1.8-$1.9 million remaining on that. And then on our exploration blocks, we do have a stimulation planned on one well there, and that's about half a million. So those are the main things. With respect to the unit and the redetermination there, once that's finalized and effective, there is some historical catch-up on the CAFX at the new working interest. So that would be added on top of that.
Alison Leanne Howard: Q4 filing on March 19th so our main projects.
Alison Leanne Howard: America Q2 feels we have the projects.
Alison Leanne Howard: The <unk> hundred one the re completions on 183, one in 180 383.
Alison Leanne Howard: As well as.
Alison Leanne Howard: Our plan.
Alison Leanne Howard: 197 wanted to optimize production there.
Alison Leanne Howard: So those total for the year about $4 2 million. We did have some spending in Q1, so about $3 $7 million remaining for the rest of the year.
Alison Leanne Howard: At <unk>, we have this five well development plan at the at the unit that Craig referred to that will go in.
Alison Leanne Howard: That's estimated at $1.2 million right now. Unknown Speaker ________________________________________________ Next question, given the continued strong free cash flow, the large cash position, the decline in share price, and the cut to the dividend, what are your thoughts on the buyback?
Alison Leanne Howard: In 2024, and 2025 at our new working interest.
Alison Leanne Howard: That's estimated at $7 1 million with $4 2 million in 2024, we have the facilities upgrade plan, that's 100% alcohol Petro that totals $3 2 million. There was about there was $1 4 million in Q1 to approximately.
Unknown Shareholder: Yeah, we've talked about this a lot. I think, you know, this is something that the board, especially at these valuations, will be looking at as we make decisions on the stakeholder return portion of the pie. And, particularly, I think as we increase the cash flow back up, you know, I think it's a good opportunity to reevaluate that. So, ultimately, it's up to the board, and it's something we'll be looking at in the context of dividends and buybacks.
Unknown Shareholder: 181 $9 million remaining on that and then on our exploration blocks, we do have a stimulation planned on.
Unknown Shareholder: One well there and that's about half a million. So those are the main things with respect to the unit and the Redetermination there once that finalized and effective there is some historical catch up on the Capex at the new working interest.
Alison Leanne Howard: Okay, and I just checked the social media email, and there are no questions there. And I think that is the end of the questions that we have through the zoom portal as well.
Alison Leanne Howard: So that would be added on top of that that's estimated at $1 2 million right now.
Corey Christopher Ruttan: All right, thank you, Alison. Thank you for everyone joining today. If you didn't have a chance to ask your question, as always, feel free to reach out to myself or Alison, and we're looking forward to updating you on the next call. Thank you very much.
Speaker Change: Next question given the continued strong free cash flow large cash position decline in share price and the cut to the dividend what are your thoughts on buybacks.
Corey Christopher Ruttan: Yes, we've talked about this a lot I think this is something that the board, especially at these valuations will be looking at as we make decisions on the stakeholder return a portion of the pie.
Corey Christopher Ruttan: And particularly I think as we increase the cash flow back up.
Corey Christopher Ruttan: I think it's a good opportunity to reevaluate that.
Corey Christopher Ruttan: <unk>.
Corey Christopher Ruttan: Ultimately, it's up to the board and that's something we'll be looking at in the context of.
Corey Christopher Ruttan: Dividends <unk> buybacks.
Corey Christopher Ruttan: Okay and.
Corey Christopher Ruttan: The social media email and Theres no question, there and I think that is the conclusion of the questions that we have through the zoom portal as well.
Corey Christopher Ruttan: Alright. Thank you Allison. Thank you for everyone. Joining today, if you didn't have a chance to ask your questions as always feel free to reach out to myself or Alison.
Corey Christopher Ruttan: We're looking forward to updating you on the next call. Thank you very much. Thank you.