Q4 2024 Alvopetro Energy Ltd Earnings Call
We'll have to carry through that foreign exchange losses from the subsidiary on the consolidated statements.
And then that's just slightly offsetting that is the lower current tax and lower deferred tax.
Yeah.
I'm moving on to the balance sheet. The speech green bars here are showing their working capital, including all of our cash balances you know this essentially came on production so.
Nice strong balance sheet, we ended the year with $13 2 million of working capital and so still very strong working capital balances and just a reminder, we are debt free and have been since September of 2022.
Thank you.
So just moving onto our dividend history here in 2020 four we pay dividends at a rate of nine since U S per per share per quarter.
With the GSA, a gas sales agreement adjustments and the higher sales volumes that were reflecting through Q1 here. We did announce yesterday an increase in the dividend for the first quarter of 2025 up to <unk> per share and.
And if you consider this since inception of the dividend in the third quarter of 2021.
Now we will now have paid us $1 50.
<unk> per share dividends out to shareholders. Since then and that totals over $54 million U S.
Yeah.
To speak once again to a more disciplined capital allocation model, where we're looking to balance.
Basically take half of our cash flows and invest that in organic growth and then take the other half and return it to stakeholders described tries to kind of reflect that.
The lines that you see on the chart here with the Black dots are all of the cash inflows that we've had or that funds from operations each quarter. Since our project came on stream you can see in the fourth quarter cash inflows of $7 million all the stacking bars show the cash outflows in each particular quarter.
Where that went to their various shades of green or stakeholder buckets.
The yellow stacking portion is the capital expenditures into organic growth you can see in the fourth quarter that some of those did exceed funds flow from operations a little bit.
But for all of 2024.
And what that looked like was.
46% of our funds flow was returned or sorry spent on capital expenditures and just under 49% was returned to stakeholders with the remaining five 5%.
Effectively reflecting an increase in net cash and working capital position that Alison just walk you through on the Pie chart you can see since inception, we've actually had cumulative funds flow from operations of over $163 million.
44% of Thats been reinvested, 48% returned to stakeholders at 7% of it's gone to that building cash and working capital for future flexibility.
Yeah.
Late last year, we did announced an upgrade to our gas sales agreement.
It became effective January one 2025, so like I said, we've increased our firm sales to Bahia gas by one third.
We adjusted the price.
Quarterly price mechanism, so that its recalculated quarterly now and it's based on Brent and Henry hub benchmark prices.
That effect was as of February one 2025 are realized NAV.
Gas price is over $10 50 U S per Mcf.
We did remove the old contractual floor and ceiling provisions that we had in our old contract and given that we were pretty close to the ceiling I think that's probably a net positive.
We did it also enhanced the supply failure penalty mechanisms so that it reduces our potential exposure.
The take or pay mechanisms that.
Ensure that Bahia gas is taking an appropriate amount of gas.
Changed and the updated contract does extend through to the end of 2035.
The last point I'll make here is the really nice thing about all this infrastructure that we have is one it's 100% alcohol Petro working interest and two it was all basically underpinned by the development of our cap rate asset. So we're really well positioned now to bring new gas on on a very low cost basis. Because these are big all the infrastructure.
<unk> midstream part of our commercialization solution here is all basically fixed costs. So when you look at the drilling program that Adrian will walkthrough for Merck or <unk>. It's all pipeline connected we can bring it on immediately at virtually.
Very small incremental cost.
We recently completed our 2024 year end Reserve report, which highlights the advancements we made in 2024. This report shows that we have a total of $4 5 million Boe.
Yeah.
A barrel of oil equivalent of proved reserves and $9 1 million Boe.
Most probable we saw a 65% increase in the <unk> and a 5% increase in the two P volumes year over year and the strong reserve replacement ratios.
This increase was the combined results of the Redetermination that was done during the year and the strong production results from the <unk> Zone America two two.
As you can see on the chart. Our current enterprise value is about the same as the proved NPV 10 of just the cavalry asset alone.
So production from the cap rate asset remains strong this asset which were 56, 2% working interest now.
We began operating it and we took over operating it in 2024 in August.
August of 2024.
And in January of this year, we completed the installation of our compression system at this at this deal which serves to reduce the gathering line pressures.
The production of <unk>.
Deliverability of the asset.
And as Corey mentioned, we can increase the.
We're going to start a drilling program in this asset starting.
Speaker Change: Next quarter to add five more wells into the unit here and there.
Speaker Change: These are the black dots you can see on the bottom right hand.
Speaker Change: Actually there so we're increasing the deliverability of this unit with those those infill wells.
Speaker Change: Okay.
Speaker Change: And.
Speaker Change: Our other focus for 2025 is the continued development of the <unk> zone, the Merck and <unk> field, which is just north of our craft Castlereagh asset.
Speaker Change: The 180, 383, well, which we put on production in September has had a excellent production and it's been performing above our expectations.
Speaker Change: So currently we're drilling an up tick well into the same structure targeting a 110 meters up dip in the <unk> zone.
Speaker Change: And intend to finish that well in the in the next month here.
Speaker Change: So we're currently drilling that right now.
Speaker Change: We have an additional follow up location.
Speaker Change: At the same pattern.
Speaker Change: What we're doing now with the ability to drill another follow up locations later this year.
Speaker Change: So we continue to evolve the multi year development plan for this market to asset the picture on the left here shows the the red lines in the Red dots are.
Speaker Change: Sure.
Pipelines in our pads or wells that are existing in the white shows the multiyear debelle development potential of what we can add both in <unk> and in the Gulf oil reservoirs at this field.
Speaker Change: This project can be funded organically and has the potential to get up to 20 million standard cubic feet a day.
Speaker Change: So with success here, we feel we can more than double the size and value of the company with the opportunity alone.
Adrian: Alright, Thank you Adrian.
Adrian: On February 5th of 2025, we did announce our strategic entry back into the Western Canadian sedimentary basin are in this initial focus area here is in the manville heavy oil fairway, which sits just so.
Lloyd: Lloyd administer.
Lloyd: These are multi zone reservoirs that you can see characterized here.
Lloyd: With large amounts of original oil in place on the on a per mile or per section basis.
Lloyd:
Lloyd:
Lloyd: I would say that this opportunity is quite consistent with our long standing approach, where we're trying to bring.
Lloyd: New ideas and new technologies to bear to look to ways to apply that technology to unlock new opportunities.
Lloyd: I think this map does a good job of showing that evolution of technology in the western Canadian sedimentary basis, you can see a bunch of them.
Lloyd: Simple vertical wells that was kind of the original phase.
Lloyd: Then you can see some horizontal wells that were drilled.
Lloyd: And now the.
Lloyd: New evolution of the technology is basically open a whole multi groups.
Lloyd: Multi open hole multilateral wells, so youre drilling a single.
Lloyd: Leg.
Lloyd: Into the formation you case that and then from there you drill open hole without casing.
Lloyd: A lot of rules and in our case, we're drilling six laterals per per location.
Lloyd: And youre trying to maximize the reservoir contact with all of that does that open the whole contact with the reservoir. So what we've done here is we've partnered with an established operator, they've got a great track record I think.
Lloyd: Our deal was to pay 100% of the first two earning wells to earn a 50% working interest in not to just over 19 sections of land. So on a net basis over 6100 acres to ourselves the future wells, obviously will be funded at 50 50 with our partner.
Lloyd: We've already completed drilling the first two of those we've actually.
In total got over 15 kilometers of open hole lateral in contact with the reservoir and we expect to have both of those wells on production within the next 30 days and then with success I think this has an opportunity to have a big inventory of locations for us and it really.
Lloyd: Very quickly can become self funding based on strong economics with strong Irr's quick payouts.
Lloyd:
Lloyd: It's been a really complements our Brazilian opportunity quite nicely and further supports our capital allocation model.
Lloyd: So in conclusion, certainly think Alba Petro continues to offer an extremely attractive investment proposition are still continue to deliver very strong results with off the back of very strong natural gas prices with industry, leading operating net backs and operating netback margins.
Lloyd: Obviously, we've started to.
Lloyd: 25, with some pretty strong production levels, which should lead to a nice Q1 for us we've got a clean balance sheet strong free cash flow generation capacity no debt and all of that helps support that capital allocation model that I talked about for value investors like Adrian pointed out were trading at less than our <unk> NAV right.
Lloyd: Now trading at less than a third of our two of <unk>.
Lloyd: For yield investors.
Lloyd: Upgraded dividend to <unk> <unk> per share translates into a dividend yield of over 12% at current share prices and then for growth investors I do think we have a very exciting organically funded capital program.
Lloyd: And if you look at the potential values at that can unlock especially relative to our current enterprise value. I think 2025 is going to be an exciting year and now considering that we can also deploy capital into high rates of return opportunities in both Brazil, and Canada, I think it's a more exciting time than ever so.
Lloyd: With that I'll stop sharing the presentation and we'll start with the question and answer.
Lloyd: Okay.
Lloyd: Oh, okay.
Lloyd: So one of the questions that Permian and.
Lloyd: Can you remind us what the firm volume numbers again are with what's the new thinking a gas contract.
Lloyd: Yes, so we increase and we will get we will get our units potentially mix mixed up here, but.
Lloyd: It's 300000 cubic meters a day was the old.
Lloyd: Amount and we increased that to 400000 cubic meters a day.
Lloyd: And it gets further complicated unfortunately by the fact that.
Lloyd: It's measured in heat equivalent unit. So if you look back we work through all this math in a previous press release that we put out or maybe get adrianne to help me with some with some of the numbers.
Lloyd: But to meet our.
Lloyd: To meet our current firm obligations it translates into 13.
Lloyd: Send it to you.
Lloyd: 13.
Lloyd: 13 million cubic feet a day.
Lloyd: Which if you translate that and divide that by six into it. So it gets a little over call. It 'twenty 100 barrels of oil equivalent per day.
Lloyd: Yeah.
Lloyd: Okay.
Lloyd: Okay. So and then there are some questions on Canada, why enter Canada, which is facing a cure for lowering that Boston church behind that box and in Brazil.
Lloyd: If you can comment on that.
Lloyd: Yeah. So what we've always done is to look for the best combinations of geological prospecting and fiscal regime, and we've looked for lots of opportunities out there and when we filtered all those.
Lloyd: And you look you got to remember we're doing this on a Canadian dollar basis.
Lloyd: These Canadian opportunities actually stack up very well on a rate of return basis, yes. The absolute netback is lower the operating netback margins a bit lower but the payouts and the irr's are very compelling.
Lloyd: I think it also was a nice complement like the reality in Brazil is we're dealing with projects that tend to have longer timelines larger longer execution cycles.
Lloyd: Sometimes deal with a service company environment, that's challenging and I think the team is doing an amazing job of navigating all that and when you have success. It can generate great rates of return, which we're showing but when we looked at adding inventory.
Lloyd: The Canadian opportunity was just quite unique in that it had a completely different risk profile and then secondly, the other reality is there is a ton of these opportunities available in Canada, whereas in Brazil. It is very competitive and it's just.
Lloyd: It's just harder to build.
Lloyd: This type of inventory in a place like Brazil on it doesn't mean that we're not going to keep doing it in Brazil. We just felt like it was prudent to have two platforms to have to invest capital in.
Lloyd: So when we look at all of those opportunities globally.
Lloyd: Right in our backyard really stacks up quite nicely.
Lloyd: Okay, and then staying on the Canada Okay.
Lloyd: If you can comment on your future plans are there plans to drill additional wells that trial, yes.
Lloyd: So obviously.
Lloyd: We're pretty happy with this week, we just got started with this 40 days ago, when we've already drilled a drill two well. So I think it's a good start we've obviously, we've got a partner here, we want to see the results from the initial wells, we'll obviously watch oil prices and we will work with our partner to develop a capital program for the second half of this year, but I hope to.
Lloyd: Drilling at least.
Lloyd: Two to four additional wells here this year and hopefully that that's growing I think after we get through that our capital program. It would effectively be self funding going forward with a reasonable level of success, we're pretty excited about this.
Lloyd: Yeah.
Lloyd: Okay, and then some more specifics on diskette, Saskatchewan and initial cube wells that have been drilled.
Lloyd: What is the expected initial production rate and hydrocarbon mix EM.
Lloyd: How does the production type curve look and ultimate recovery.
Yeah.
Lloyd: And just because these are the first two wells, we haven't come out with a lot of definitive guidance on this I think we will let the results speak for themselves. I think you can look at some other operators that are active in this area.
Lloyd: And depending on which reservoir youre targeting and how thick. It is the results can range widely but.
Lloyd: Directionally the wells could come on between 100 120 barrels a day in and cumulatively produced.
Lloyd: Between 100000 920000 barrels of oil equivalent over the life of the wells the rates of return are extremely compelling.
Lloyd: Yeah.
Lloyd: I'm, sorry, just jumping around a little next year.
Lloyd: But did you give out 2025 guidance for activity and production in both countries.
Lloyd: Yes, I think we kind of have I guess absent the Canadian stuff, we wanted to get through.
Lloyd: I've, just now Directionally, giving you a range of guidance I guess, but.
Lloyd: I think the capital program will be quite flexible based on based on results and based on commodity prices.
Lloyd: And there's a specific question around the Canadian firm and.
Lloyd: A question around so you paid 50% for you paid for the first two wells for a 50% working interest what happens on the additional wells, but just the treatment of the revenues going forward.
Lloyd: Yes. So this is kind of a typical farming, where we paid a 100% Canadian about roughly $4 million two to drill those first two wells and complete them adequate.
Lloyd: Which translates to just a little under $2 $8 million U S and we earn a 50% working interest in the production from those two wells and then every well going forward, we pay 50% of those wells and we earned 50% of them.
Lloyd: And we've earned now 19 over 19 sections of land on a gross basis.
Lloyd:
Lloyd: <unk> production forecast is $15 9 million cubic feet a day.
Speaker Change: In 2025 is this dependent on demand or have you already factored in some potential curtailment.
Lloyd: No that would be certainly dependent on demand.
Speaker Change: Receipts from Bas.
Speaker Change: There's a question around hedging and foreign exchange.
Speaker Change: Have we looked at hedging foreign exchange gains and losses.
Speaker Change: So we do evaluate that so the fact is it's been quite costly in Brazil, we have entered into some contracts in the past they've been relatively expensive, but we can look at that.
Speaker Change: All the time.
Speaker Change: Here. So we will continue to do so.
Speaker Change: And the only other comment.
Speaker Change: The other comment I'd make is like the foreign exchange.
Speaker Change: Volatility then Alison walked you through re in the on the net income side, a lot of that relates to intercompany loans.
Between Canada between our subsidiary in Brazil, and Canada.
Speaker Change: So it's.
Speaker Change: Frankly that earnings volatility would be probably difficult to manage but it is an intercompany item.
Speaker Change: We're also trying to manage that through just making sure we have the right cash balances in Brazil, obviously, we earn quite a bit higher interest rate, but we are subject to.
Speaker Change: Foreign exchange fluctuations. So we're mindful of that and then lastly, with our upgraded gas sales agreement one of the things nice things about the quarterly adjustment mechanism.
Speaker Change: We have much quicker.
Speaker Change: Adjustments for commodity price movements as well as foreign ex foreign currency movements and because it's reset every quarter.
Speaker Change: Our exposure like we do have our price fixed in local currency, but now it's only for three months instead of six months. So we have reduced that exposure I would say.
Speaker Change: Are there any further steps to come with the cavalry Redetermination that was just stupid.
Speaker Change: Yes, I think we've got a lot of disclosure in there about that as previously announced.
Speaker Change: We did go through an emergency arbitration procedure too.
Speaker Change: On a.
Speaker Change: Term basis validate that the expert decisions binding which is what the agreement say.
Speaker Change: But that does go into a full form arbitration. So that's something that we'll be working through it'll it'll probably extend well into next year.
Speaker Change: So there was a question about the allocation of funds flow diagram that I'm quite I went through earlier and if we looked at those.
Speaker Change: Percentages.
Speaker Change: Since post repayment of the credit facility.
Speaker Change: If you give me a second here.
Speaker Change: Just a quick.
Speaker Change: Yeah.
Speaker Change: Alright.
Speaker Change: I did a quick.
Speaker Change: Look at that so.
Speaker Change: If we looked at since October of 2022, our funds flow has been about $94 5 million.
Speaker Change: 52% of that has been dedicated to Capex and then the other and then 45%.
Speaker Change: Or actually close to 46% and stakeholder returns.
Speaker Change: So we can certainly provide that information going forward as well as that peaceful.
Speaker Change: So people.
Speaker Change:
Speaker Change: Just going back to the questions.
Speaker Change: There was a question about how many shares can be buyback in Q4. So a 126000 shares were repurchased in Q4 and a total of 189000 in 2024 mm theres been 59000 repurchased and cancelled.
Speaker Change: The end of February.
Speaker Change: This year just a reminder, we do make those filings on Si.
Speaker Change: Basis that goes through all of those details.
Stan: And then Stan on the share buyback front, there's a question around.
Stan: What are our thoughts on share buybacks in 2025 versus drilling new wells given you have a very strong balance sheet.
Stan: Right now.
Stan: Yes.
Stan: I think this is something we look at every quarter right now we're continuing forward with our normal course issuer bid kind of how we've been going.
Stan: We increased the dividend we would expect that to result in.
Stan: Pretty close to the 50% of cash flow going to stakeholders in the first quarter and I think as you know.
Stan: If we can if we can increase our cash flows through the year, which is what our business plan would be that we can have a discussion around where that incremental capital goes into those three buckets, whether it's more dividends more share buybacks or capital program and.
Stan: Some of that will be a function of the results that we're generating with the capital and commodity prices as well so.
Stan: Im going to lock ourselves into any one any one direction today.
Speaker Change: And then a question on the dividend and the increase that was announced yesterday can you explain the rationale for increasing now versus waiting until Brazil production is over the 2022 high up.
Stan: Close to 2600 Boe per day.
Speaker Change: Yes.
Speaker Change: We were just trying to be consistent with our stated objective and with the increase in production with the improvement in the gas sales agreement I think our business has strengthened quite considerably, especially.
Speaker Change: From a contractual perspective, and then from an operational perspective, we built productive capacity with.
Speaker Change: Cabaret and the success in Mercury two two so it felt like the right time to increase that base base dividend.
Speaker Change: And then there's a question here on coverage that's just come in.
Speaker Change: The company intends to add five more wells in the cavalry field will that increase the amount of reserves to be replaced and lead to the field team to plead it faster.
Speaker Change: Well.
Speaker Change: Yes, there is no there isn't that there is an element of.
Speaker Change: Building productive capacity I think we do have the potential over the especially with the northern wells that we're drilling potentially add some additional reserves.
Speaker Change: But I think that's a fair comment.
Speaker Change: Good portion of this is to prolong and potentially increase the productive plateau of the field.
Speaker Change:
Speaker Change: Yes.
Speaker Change: And another question has come in are you looking at other opportunities beyond Brazil, and Canada argue these projects take up most of the capital allocation you are projecting.
Speaker Change: Uh huh.
Speaker Change: Well, we tend not to talk about business development details, but yes, we are obviously keeping.
Speaker Change: Two with opportunities that might be available, but we're pretty happy.
Speaker Change: With the inventory of organic drilling opportunities that we've got in the mix right now but I.
Speaker Change: I think especially like I said in Canada. There is a lot of lower risk drilling opportunities that frankly, just arent being funded because of the scarcity of capital. So I think we're well positioned.
Speaker Change: Ill be there or elsewhere too.
Speaker Change: To build our business.
Speaker Change: And with that there's no other questions that have come in.
Speaker Change: Alright, well once again, thank you for your support and thanks for tuning in we look forward to updating you next quarter and if you have any questions in the interim feel free to give any one of a cycle. Thank you.