Q3 2024 Alvopetro Energy Ltd Earnings Call

To $9 9 million.

order from $7.9 million to $9.9 million. Overall, that was mainly due to that 29% increase in sales volumes, partially offset by the reduced realized sales prices, which I talked about earlier, and then also the higher production expenses.

Overall that was mainly due to that 29% increase in sales volumes.

Partially offset by the reduced realized sales prices, which I talked about earlier and then also the higher production expenses.

Similarly, net income we saw $4 8 million increase in net income compared to Q2.

Similarly, net income, we saw a $4.8 million increase in net income compared to Q2.

Again that was mainly due to higher overall sales volumes in our overall operating net back in dollar terms went up $1 9 million.

Again, that was mainly due to higher overall sales volumes, and our overall operating net back in dollar terms went up $1.9 million. The other big driver there was foreign exchange. We had a gain of $0.6 million this quarter compared to a loss.

The other big driver there was foreign exchange, we had a gain of $6 million this quarter compared to a loss.

Last quarter of $3 2 million so.

Last quarter 3.2 million so we did see a big adjustment for that and offsetting those increases were additional depletion and depreciation due to increased production levels and then also higher deferred tax.

We did see a big adjustment for that and offsetting those increases were additional depletion and depreciation due to increased production levels and then also higher deferred tax.

On that foreign exchange.

On that foreign exchange component there, just a reminder that

<unk>. They are just a reminder that.

Mainly foreign exchange losses, British change gains and losses recognized by our Brazilian subsidiary on U S dollar amount so.

Mainly, foreign exchange gains and losses recognized by our Brazilian subsidiary on U.S. dollar amounts. So it's U.S. dollar intercompany loans between the Canadian parent company and the Brazilian subsidiary, and then also U.S. dollar capital lease.

It's U S dollar intercompany loans between the Canadian parent company and the Brazilian subsidiary and then also.

U S dollar capital lease in.

Brookdale so although overall the average rate in Q3 the average.

in Brazil. So, although overall the average rate in Q3, the average AI had depreciated relative to the US dollar compared to Q2,

<unk> had depreciated relative to.

The U S dollar compared to Q2.

Right, which is used to determine the foreign exchange that goes through the income statement on those U S. Dollar amount there was an improvement as of September 30, compared to June 30. So we did have a gain this period.

which is used to determine, you know, the foreign exchange that goes through the income statement on those U.S. dollar amounts. There was an improvement as of September 30th compared to June 30th, so we did have a gain in this period.

Okay.

And then just quickly on the balance sheet. We continue to have a very strong balance sheet. We ended the period with working capital of $15 8 million.

Up about $1.2 million from last quarter.

And we had cash of $24 5 million on our balance sheet at that time and a reminder, we are debt free and have been for over two years now we repeat our credit facility.

and we had cash of $24.5 million on our balance sheet at that time. And a reminder, we are debt-free and have been for over two years now. We repaid our credit facility fully repaid it in September of 2022.

When we reported in September of 2022.

Alright, Thank you Alison just to walk through the dividends, we did introduce this back in the third quarter of 2021.

All right, thank you, Alison. Just to walk through the dividends, we did introduce this back in the third quarter of 2021.

Eight nine cents per quarter each of the quarters, so far in 2020 or that translates into a current yield of over 10% based on our share price.

We've paid nine cents U.S. per quarter each of the quarters so far in 2024. That translates into a current yield of over 10% based on our share price.

And in total since inception this represents over U S $47 million, that's been paid out to shareholders.

And in total, since inception, this represents over U.S. $47 million that's been paid out to shareholders, or U.S. $1.31 per share.

Our U S $1 31 per share.

Yeah.

Great.

So again this graph that we show each quarter demonstrates our balanced and disciplined capital allocation and stakeholder return model that we've been following.

Speaker Change: He was here earlier this year. So hi. Wow. OK, cool. OK, great. Thanks, Casey. OK, great. That's great. You'll just a little. OK, so let's put this on here. OK.

[inaudible]

Speaker Change: So again, this graph that we show each quarter demonstrates our balanced and disciplined capital allocation and stakeholder return model that we've been following. As a reminder, that model looks to reinvest roughly half of our cash flows in organic growth.

Speaker Change: Reminder, that model looks to reinvest roughly half of our cash flow is inorganic growth and return the other half to stakeholders. So.

Speaker Change: and return the other half to stakeholders. So you can see the chart on the left each quarter since we came on production from our cabaret project. The lines with the black dots

Speaker Change: You can see the chart on the left each quarter since we came on production.

Speaker Change: From our cap rate project the lines with the black dots are the funds flow from operations each quarter else and walk you through that $9 $9 million this quarter, which was up about 25% from the prior quarter and then each of the stacking bar shows where that cash flow or basically.

Speaker Change: are the funds sold from operations each quarter. Alison walked you through that $9.9 million this quarter, which was up about 25% from the prior quarter.

Speaker Change: The cash outflows so the red represents.

Speaker Change: The amounts reinvested in our business, which in the third quarter accounted for 48% of the funds flow and then the various shades of green are the returns to stakeholders, which in the third quarter amounted to 42% and then because of the stacking the height of the stack bars below the dot.

Speaker Change: and then the various shades of green are the returns to stakeholders which in the third quarter amounted to 42 percent and then because the stacking the height of the stacking bar is below the dot

Speaker Change: That contributed to the increase in cash and working capital, but also reviewed earlier.

Speaker Change: The other thing that's new this quarter you can see this little green wedge at the top of the stacking bar that does represent.

Speaker Change: Share buyback program that we introduced.

Speaker Change: The share buyback program that we introduced late in August, and most of those purchases happened in September, totaled about a quarter of a million dollars, the U.S. in the

Speaker Change: In late August and most of those purchases happened in September.

Speaker Change: Totals about a quarter of a $1 million.

Speaker Change: Yes.

Speaker Change: In the third quarter and has been continuing here into the fourth quarter.

Speaker Change: in the third quarter and has been continuing here into the fourth quarter.

Speaker Change: The Pie chart that you see here just represents since coming on production.

Speaker Change: The pie chart that you see here just represents, since coming on production, in total you can see that we've now had cumulative funds flow from operations totaling $156 million. Of that, 43% has been reinvested.

Speaker Change: In total you can see that we've now had cumulative funds flow from operations totaling.

Speaker Change: $156 million of that 43% has been reinvested.

Speaker Change: And 48% of its been returned to stakeholders with the remaining 9% building that cash and working capital position to really help preserve financial flexibility.

Speaker Change: And 48% of it's been returned to stakeholders, with the remaining 9% building that cash and working capital position to really help preserve financial flexibility for us as we move forward.

Speaker Change: For us as we move forward.

Speaker Change: Yes.

Speaker Change: So just talking about our organic growth program moving forward.

So, just talking about our Organic Growth Program moving forward.

Speaker Change: I think we've established a pretty strong platform to build on.

Speaker Change: I think we've established a pretty strong platform to build on, to reiterate our near-term goal is to get to 18 million cubic feet a day or 3,000 barrels of oil equivalent per day, and that would fill, or depending on the gas specification going through our plant, come close to filling our current capacity within the facility.

Speaker Change: To reiterate our near term goal is to get to 18 million cubic feet, a day or 3000 barrels of oil equivalent per day and that would fill or depending on the gas specification going through our plants come close to filling our current capacity within it within the facility and most of this growth.

Speaker Change: Planned to come from really our two core assets firstly at the unit.

Speaker Change: And most of this growth is planned to come from really our two core assets, firstly at the unit.

Speaker Change: We do have a five well development program.

Speaker Change: We do have a five-well development program here. Our best guess on that would be that that would start sometime early next year.

Speaker Change: Our best guess on that would be that that would start sometime early next year and then.

Speaker Change: In addition to that just sitting immediately north of Calgary, which sits here as a reminder is our <unk> project. This is a 100% working interest project.

Speaker Change: We did announce recently a very positive result at our 180 383, well and Adrian will walk you through our growth plans here, but we're really looking to migrate all of this reserves and contingent and prospective resource that we've got booked on the SaaS side into production and cash flow over the coming months.

Speaker Change: Five years and I think.

Speaker Change: We're quite excited about the results that we have at what 8383.

Speaker Change: Yeah.

Speaker Change: So our.

Speaker Change: <unk> Q2 gas resource. This is Corey mentioned on our 100% working interest asset and this fits directly north of the cavalry unit.

Speaker Change: This is connected to our midstream infrastructure in connected car sales point.

Speaker Change: This represents a $4 six.

Speaker Change: Million Boe of <unk> reserves.

Speaker Change: Got a lot of <unk>.

Speaker Change: <unk> for growth for our professional.

Speaker Change: And we we.

Speaker Change: We made some strong advances in the <unk>.

Speaker Change: Third quarter at Merck to two we now have $183 three on production.

Speaker Change: He pointed out and we saw in our sales numbers.

Speaker Change: We brought this online and we have we have one 8 million standard cubic feet average in October this well bore.

Speaker Change: And this this completion we did put.

Speaker Change:

Speaker Change: 516 of the zones, you see on the <unk>.

Speaker Change: On the right. We brought those online those are all curious who production.

Speaker Change: And we have those online and we're quite quite excited about the initial results. We see in the <unk> portion of this asset if you look at the plot in the middle the contour plot you can see the Wellbore that we brought online which is 180 383. So we're currently planning a wellbore directly to the south of that.

Speaker Change: The uptick in construction and we'll be looking forward to initiating that drilling program at the end of 2024 as a follow up to our current results.

Speaker Change: The book.

Speaker Change: Picture on the bottom right shows an aerial photo of this asset Wellbore that we brought on line is where the most is there on the bottom right.

Speaker Change: Processing facility or the sorry the field.

Speaker Change: Facility.

Speaker Change: Pipeline connected to the processing facility.

Pat: Pat in that same picture on the top left is where we'll be drilling our follow up well, which will be up to construction.

Speaker Change: You can see that there is some other other locations and room for growth as follow ups to our other purpose.

Speaker Change: Serves in that in that field. So we look forward to the development here.

Speaker Change: Alright.

Speaker Change: This does conclude.

Speaker Change: Really still feel very strongly that Petra offers a very attractive investment proposition no matter, where your focus is.

Speaker Change: I hope everyone agrees, we've been delivering some pretty strong results off the back of industry, leading operating net backs.

Speaker Change: Very attractive natural gas pricing, we've got a very clean balance sheet and strong free cash flow generation capacity that really helps underpin that balanced and disciplined.

Speaker Change: Stakeholder return model that we implemented quite a long time ago for value investors were trading at about a third of our <unk> NAV.

Speaker Change: Yield investors that U S <unk> per dividend paid quarterly translates into a yield of over 10% and for growth investors I think we've got a very exciting organically funded capital program that has the potential to unlock.

Speaker Change: Unlock an awful lot of value here over the near term, especially when you compare it to our current enterprise value and I think we've demonstrated some of that potential with the recent 180, 383% success that Adrian talked about and we certainly look forward to following that up with another well here.

Speaker Change: Starting later this year.

Speaker Change: With that I think we will start the question and answer period I'll stop sharing a presentation.

Speaker Change: Great. So we have a couple of questions to start with on the CIB.

Speaker Change: How many shares have you repurchased this year is the first question I can answer that one.

Speaker Change: So in Q3, we repurchased 62800 shares and then in October another 41700 shares so thats.

Speaker Change: Just over 103000 to date and then the next question is around this and do you expect the repurchase plan to eventually reduce the shares outstanding.

Speaker Change: After employee stock plan issuances et cetera.

Speaker Change: Yeah.

Speaker Change: Well, yes again.

Speaker Change: We're allocating.

Speaker Change: The portion of our stakeholder return payments I guess, the 50% of cash flow to the extent that our capital lease in our at our current dividend or the dividend that we pay in the future is less than that we're taking that money and allocating it to the to the issuer bid. So the the answer depends on the results.

Speaker Change: And the pace at which we're repurchasing shares.

Speaker Change: Okay, and then in follow up to that there is a question in 2024. It appears you've been distributing less than 50% shareholders. Despite the strong balance sheet is there a plan to get it back up to 50% and at this through buybacks or higher dividend.

Speaker Change: Yes, I think from inception, we're still pretty close and it's not written in stone to be clear, but but we're trying to use that 50% is a pretty close guideline I think since inception, we've been almost at that Q3 was a little bit lower than that partly because the results were so strong.

Speaker Change: And the budget that we allocated to the issuer bid didnt necessarily we only had one month's worth of issuer bid timing issuer bid, meaning the share repurchase program. So that budget is effectively there for the share repurchases that will happen through the duration of that program with lost all the way through till August.

Speaker Change: Two of next year, and we're hopefully off the back of some continued positive results be able to add to that bucket.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Could you provide some details on the capex spend for the quarter, along with guidance for Q4 and 2025 if possible.

Speaker Change: I can maybe comment.

Speaker Change: On that.

Speaker Change: So in the quarter, we had $4 7 million of capital expenditures. The main projects. This quarter were the completion of that $183 83, and 183, one on our Merck Q2 fields.

Speaker Change: So that was roughly $3 5 million of expenditures total overall on America <unk>.

Speaker Change: $3 8 million with capitalized G&A.

Speaker Change: And then the other big project to be arguing that facility's upgrade for compression at our at our cavalry deals. So there was approximately $6 million and spending on that and then and those were the main projects.

Speaker Change: This quarter.

Speaker Change: Moving on to kind of upcoming projects, we're still working on our 2025 plan.

Speaker Change: The main projects, which we've talked about are the unit development wells at that unit or cost per that is forecasted to be about $7 million and then.

Speaker Change: Also we will be finishing up the facilities upgrade at cabaret as well that's another approximately $1 million and then going forward. The next state plan at what Adrian was talking about is are our new well <unk> Q2, we are still finalizing the well design on that so we haven't finalized the capped.

Speaker Change: <unk> spending.

Speaker Change: For that yet, but it will be similar to what was in our reserve.

Speaker Change: Reported previously.

Speaker Change: And those are the main projects that are coming out from a capex perspective.

Speaker Change: Great.

Speaker Change: Okay.

Speaker Change:

Speaker Change: Right.

Speaker Change: Any guidance on Bahia gas nominations for Q4.

Speaker Change: Okay.

Speaker Change: Well so.

Speaker Change: So we've got October already already announced.

Speaker Change: We're currently producing around the firm volumes within our contract.

Speaker Change: It's hard to predict we just they don't indicate.

Speaker Change: To really comment on it for sure.

Speaker Change: For December.

Speaker Change: What's been happening is it's been being adjusted kind of on a daily or quarterly they are.

Speaker Change: Weekly basis sorry.

Speaker Change: Any update on the arbitration surrounding the Redetermination the cavalry Richmond Trust.

Speaker Change: No just that it's in the it's in the fall and kind of arbitration process. So we're still in the Finalization of the arbitrators I think that should be completed here over the next month.

Speaker Change: But these processes tend to be quite slow in Brazil.

Speaker Change: Well not only Brazil everywhere so.

Speaker Change: Okay.

Speaker Change: Just shifting to Brazil overall, given that Brazil hydro output power has been affected during the last month. It appears that Brazil is moving to fossil energy S teen any record coal imports.

Speaker Change: Any increase in gas demand.

Speaker Change: Yes, yes. So this is a seasonal thing in Brazil for sure.

Speaker Change: I think above 93% of Brazil's energy comes from either hydroelectric or renewable sources wind and solar mainly.

Speaker Change: But even with that obviously, the hydro component has affected a little bit or a lot by how much. It's raining. So we went through a drier phase that did result in more dispatch of the thermal.

Speaker Change: Electrical generation capacity within the country.

Speaker Change: The rains have started demand or pressures on that have decreased.

Speaker Change: As a system for kind of going red yellow green as it pertains to the water levels in.

Speaker Change: In the reservoirs and I think we're now back down to a yellow level.

Speaker Change: The other phenomenon, though thats changed because theres so much of the base electrical supply coming from those renewable sources.

Speaker Change: <unk> with these things is.

Speaker Change: It's not always Wendy and its not always sunny when you've got the peak energy demand within the country. So the natural gas in the thermal power component is going to be I think continue to play a key role.