Q4 2024 Alvopetro Energy Ltd Earnings Call
Corey Ruttan: I'm Corey Ruttan, President and CEO, and I'm joined by Alison Howard, our CFO, and Adrian Audet, our Vice President, Asset Management.
CEO and I'm joined by Alex and Howard, our CFO and Adrian <unk>, Our Vice President asset management.
Corey Ruttan: Good morning, everyone. Yes, thanks for joining us this morning. Just a few administrative points before we begin. We are recording today's webcast, and there will be a replay available on our website later on today. All attendees have been placed in listen-in only mode for the duration of the webcast, but we will be hosting a Q&A session at the end of the presentation. And if you have any questions, you can use the Zoom Q&A button to submit those. Alternatively, if you're listening in on your phone, you can send any questions to socialmedia at alvopetro.com. And then lastly, just a reminder, we do go through various non-GAAP measures, and we make forward statements and go through some other reserve metrics.
Good morning, everyone. Thanks for joining us this morning, just administrative points before we begin.
We are recording today's webcast and there will be a replay available on our website later on today.
All attendees had been placed in listen only mode for the duration of a wet webcast that we will be hosting <unk> session at the end of the presentation and if you have any questions. You can use the zoom Q&A button to submit those alternatively, if you are listening in on your phone you can send any questions to social media at a whole patch.
<unk> Dot com.
And then lastly, just a reminder, we do go through various non-GAAP measures and we make forward looking statements and go through some other reserve metrics and we're going.
Corey Ruttan: And we aren't going to go through all of that in detail, but we do encourage you to read the cautionary statements and other disclosures that are at the end of our presentation posted on our website, or all the calculations are in more detail in our MD&E, which we just released yesterday.
I'll go through all of that in detail, but we do encourage you to read the cautionary statements and other disclosures that are at the end of our presentation posted on our website or all.
All the calculations are in more detail in our MD&A, which we just released yesterday.
Corey Ruttan: Thank you, Alison. So to start off, just this chart obviously shows our production since we started natural gas sales from our Cabaret project in July of 2020. Reminder, our pre-commercialization guidance was equal to our firm sales to Bahia Gas at the time, which was also equal to the unit productive capacity multiplied by our working interest at the time, which was about 1800 barrels of oil equivalent per day, which was pretty consistent with the second half of 2020 production. And then you can see we went through a period of time where we significantly exceeded that guidance as we were selling flexible and interruptible gas to Bahia Gas.
Austin: Thank you Austin.
Austin: So to start off just discharged obviously shows our production since we started natural gas sales from our cap rate project in July of 2020.
Austin: A reminder, our pre commercialization guidance was equal to our phone sales to the <unk> gas at the time, which was also equal to the unit productive capacity multiply it by our working interest at the time.
Austin: It was about 1800 barrels of oil equivalent per day, which was pretty consistent with the second half of 2020 production and then you can see we went through.
Austin: Period of time, where we significantly exceeded those that guidance as we were selling flexible and interruptible gas to be a gas. We also expanded our gas plant in the third quarter of 2022.
Corey Ruttan: We also expanded our gas plant in the third quarter of 2022.
Corey Ruttan: And then as you recall, probably in 2024 in particular, we were impacted by the fact that Bahia Gas had committed to too much firm capacity relative to their demand, and they did have some demand disruptions. Bahia Gas did have the opportunity to adjust for all that at the end of 2024 and entering 2025. So they've reduced their overall firm commitments. And at the same time, Alvopetro's firm supply actually increased by 33%, so we're a much bigger portion of Bahia Gas' market share now. The result's been a pretty good start to 2025. You can see our January and February production has averaged 2375 barrels of oil equivalent per day, which is up 37% from the Q4 production that we just announced and the results that we announced yesterday.
Austin: And then as you.
Austin: Recall, probably in 2024 in particular, we were impacted by the fact that the heated gas had committed to too much firm capacity relative to their demand and they did have some demand disruptions.
Austin: <unk> did have the opportunity to adjust for all that at the end of 2024 and entering 2025, so they've reduced their overall firm commitments.
Austin: And at the same time algo petrol.
Austin: Firm supply actually increased by 33%. So we're a much bigger portion of your gas is market share now. The result has been a pretty good start to 2025, you can see our January and February production has averaged two 375 barrels of oil equivalent per day, which was up 37% from the <unk>.
Austin: Q4 production that we just announced and the results that we announced yesterday and then just to speak to our strategy as we move through 2025 again, we're looking to add more 100% working interest production to the mix build our production capacity further.
Corey Ruttan: And then just to speak to our strategy as we move through 2025, again, we're looking to add more 100% working interest production to the mix, build our production capacity further, and be in a position that we can commit to even higher levels of firm next year and hopefully sell that gas through the rest of this year also on a flexible basis, given how Bahia Gas has readjusted their supply.
Austin: And be in a position that we can commit to even higher levels of firm next year and hopefully sell that gas through the rest of this year also on a flexible basis given.
Austin: How bahia gases.
Austin: Adjusted their supply mix.
Alison Howard: Okay, so just going into some detail on our results that were just released yesterday. The first thing here is the operating net back, which is those green bars that you see on the chart. This is one of those non-gap measures I referred to earlier. Operating net back is essentially our net operating income expressed on a per unit basis. We express it in barrels of oil equivalent, or BOE. A reminder, it's computed at our realized sales price, which is at the top of the chart. We deduct off royalties in orange, production expenses in gray, and then the green bars again are our operating net back.
Austin: Okay.
Austin: And some detail on our results that were just released yesterday the <unk>.
Austin: First thing here is the operating netback, which into those green bars that you see on the chart. This is one of those non-GAAP measures that I referred to earlier.
Austin: That bank is essentially our net operating income expressed on a per unit basis, We express it in barrels of oil equivalent or Boe.
Austin: A reminder.
Austin: You did at our realized sales price, which is at the top of the chart, we deduct off royalties and Orange production expenses in gray and the green bars again operating netback. So.
Alison Howard: So in Q4 on the realized sales price, we did see a reduction of about 4% compared to Q3. Our natural gas sales price was $10.51 per MCF. That was also down about 4% from last quarter. Our contracted price was essentially equivalent to Q3 in local currency, but with the devaluation of the Brazilian REI relative to the U.S. dollar when we expressed that for reporting purposes in U.S. dollar equivalent, there was a slight decrease there. Royalties, that's the orange bar, $2.15 per BOE in a quarter. That's an effective royalty rate of 3.4%, which is relatively consistent with past quarters.
Austin: In Q4 on the realized sales price, we did see a reduction of about 4% compared to Q3.
Austin: Our natural gas sales price was $10 51 per Mcf that was also down about 4% from last quarter, our contracted price was SME.
Austin: Essentially equivalent to Q3 in local currency, but with the devaluation of the Brazilian AI relative to the U S dollar.
Austin: When we express that for reporting purposes in the U S dollar equivalent there was that.
Austin: Slight decrease their royalty is that's the Orange bar.
Austin: $2 <unk> per Boe in a quarter, that's an effective royalty rate of three 4%, which is relatively consistent with.
Austin: Last quarter as a reminder, our natural gas royalties are based on a reference price which is more.
Alison Howard: A reminder, our natural gas royalties are based on a reference price, which is more based on a value of raw and processed gas, so closer to Henry Hub. So relative to our gas price, it results in a lower effective royalty rate. On the production expenses, on a dollar basis, production expenses went up about only about $19,000 in the quarter compared to last quarter, but we did have that 17% reduction in volume. So on a per BOE basis, we saw an increase. Overall operating net back of $55.09, down $4.10 from last quarter. But again, if you compare that to the real life sales price, it's still a very high operating net back margin at 86%.
Austin: Based on a value of raw unprocessed gas so closer to Henry hub, so relative to our gas price. There is it results in a lower effective royalty rate on the production expenses on a dollar basis.
Austin: <unk> expenses went up about only about $19000 in the quarter compared to last quarter, but we did have that 17% reduction in volumes. So on a per BOE basis, we saw an increase.
Austin: Overall operating net back of $55.
Austin: <unk> down $4.10 from last quarter.
Austin: But again, if you compare that to the realized sales price, it's still a very high operating netback margin at 86%.
Alison Howard: We've said this before and we'll say it again, if you compare that to any other companies operating in South America or North America, these are very high net back margins. With our lower tax rate applicable in Brazil on our project, with our tax incentives, it really allows us to generate significant funds flow from operations at these production levels.
Austin: We've said this before and I'll say it again, if you compare that to any other company.
Austin: In South America, or North America. These are very high net back margins and with our lower tax rate applicable in Brazil on our project with our tax incentives it really allows us to generate significant.
Austin: Significant funds flow from operations these production levels.
Alison Howard: So moving on to fund flow, again, that's a non-gap measure, closest to cash flow from operating activities, but before changes in working capital.
Austin: So moving on on slow again, that's a non-GAAP measure closest to our cash flow from operating activities before changes in working capital. So this chart is just showing the change from Q3 to Q4. So there was a decrease of $2 9 million compared to Q3 the.
Alison Howard: So this chart is just showing the change from Q3 to Q4. So there was a decrease of $2.9 million compared to Q3. The majority of that is that 17% reduction in sales volumes, slightly lower realized price, as I mentioned on the last slide, and then some higher G&E at Q4, just with some final year-end adjustments, and then slightly lower current tax. So funds flow from operations of $7 million in order.
Austin: Any of that is that 17% reduction in sales volumes and slightly lower realized price as I mentioned on the last slide.
Austin: And then some higher G&A at year at Q4, just with some final year end adjustments and then slightly lower current tax so funds flow from operations of $7 million.
Alison Howard: Similarly, on net income, we saw a decrease of $4.9 million compared to Q3, most of that was, or a lot of that was the lower operating net back with those lower sales volumes and lower realized prices, the G&A that we just talked about. And then the one big swing there is foreign exchange. So we had a foreign exchange gain of $600,000 in Q3 compared to a loss of $2 million in Q4. So that was a swing of $2.6 million. And just a reminder, that is virtually all related to U.S. dollar denominated balances and foreign exchange losses recognized in our local Brazilian subsidiary on that fluctuation of the local currency relative to U.S.
Austin: Similarly on net income we saw a decrease of $4 9 million compared to Q3 I'm most of that was or a lot of that was the lower operating netback with those lower sales volumes and lower realized prices. The journey that we just talked about.
Austin: And then the one big swing there is.
Austin: Foreign exchange. So we had a foreign exchange gain of 600000 in Q3 compared to a loss of 2 million in Q4. So that was a swing of $2 6 million and just a reminder that.
Austin: Is virtually all related to U S dollar denominated balances and foreign exchange losses recognized in our local Brazilian subsidiary.
Austin: On that fluctuation of the local currency relative to U S dollars and while we report in U S dollars, we still have to carry through that foreign exchange losses from the subsidiary on the consolidated statements.
Alison Howard: dollars. And while we report in U.S. dollars, we still have to carry through that foreign exchange loss from the subsidiary on the consolidated statement.
Alison Howard: and then that's just slightly offsetting that is the lower current tax and lower deferred Moving on to the balance sheet.
Austin: And then that just slightly offsetting that is the lower current tax and lower deferred tax.
Austin: Okay.
Austin: Moving onto the balance sheet that speeds green bars here are showing our working capital, including all of our cash balances. You know this is since we came on production. So a nice strong balance sheet. We ended the year with $13 2 million of working capital and so still very <unk>.
Alison Howard: These green bars here are showing our working capital, including all of our cash balances. You know, this is since we 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.
Austin: Strong working capital balances and just a reminder, we are debt free and have been since September of 2022.
Alison Howard: And just a reminder, we are debt free and have been since September of 2022.
Unknown Executive: For more information visit www.FEMA.gov Thank you.
Austin: Thank you.
Corey Ruttan: So just moving on to our dividend history here. In 2024, we paid dividends at a rate of $0.09 per share per quarter. With the GSA gas sales agreement adjustments and the higher sales volumes that we're reflecting through Q1 here, we did announce yesterday an increase in the dividend for the first quarter of 2025 up to $0.10 per share. And if you consider this since inception of the dividend in the third quarter of 2021, we will now have paid U.S. $1.50 per share dividends out to shareholders since then, and that totals over $54 million U.S. Just to speak once again to our 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.
Austin: So just moving onto our dividend history here.
Austin: In 2024, we pay dividends at a rate of nine cents per share per quarter.
Austin: With the GSA 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> <unk> per share.
Austin: And if you consider this since inception of the dividend in the third quarter of 2021.
Austin: Now, we'll now have paid us $1 50.
Austin: <unk> per share dividends to shareholders since then and that totals over $54 million U S.
Austin: Okay.
Austin: Uh huh.
Austin: To speak once again to a more disciplined capital allocation model, where we're looking to balance.
Austin: Basically take half of our cash flows and invest that in organic growth and then take the other half in returns to stakeholders. This graph tries to kind of reflect that.
Corey Ruttan: This graph tries to kind of reflect that. The lines that you see on the chart here with the black dots are all the cash inflows that we've had or the funds flow from operations each quarter since our project came on stream. You can see the fourth quarter cash inflows of $7 million. All the stacking bars show the cash outflows in each particular quarter and where that went to the various shades of green are the stakeholder buckets and 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.
The lines that you see on the chart here with the Black dots are all of the cash inflows that we've had or the funds flow from operations each quarter since our project came on stream.
Austin: See in the fourth quarter cash inflows of $7 million all the stacking bars show the cash outflows in each particular quarter and where that went to their various shades of green or the stakeholder buckets and the yellow stacking portion is the capital expenditures into organic growth you can see in the fourth.
Austin: Quarter that some of those did exceed funds flow from operations a little bit.
Corey Ruttan: But for all of 2024, 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 5.5% effectively reflecting an increase in that cash and working capital position that Allison just walked 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 that's been reinvested, 48% returned to stakeholders, and 7% of it's gone to that building cash and working capital for future flexibility.
Austin: But for all of 2024.
Austin: What that looked like was.
Austin: 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%.
Austin: Effectively Roe, 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.
Austin: 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.
Austin: Okay.
Corey Ruttan: Late last year, we did announce an upgrade to our gas sales agreement. It became effective January 1st, 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 it's recalculated quarterly now. And it's based on Brent and Henry Hub benchmark prices. The net effect was as of February 1st, 2025, our realized natural gas price is over $10.50 US 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.
Austin: Late last year, we did announce an upgrade to our gas sales agreement.
Austin: It became effective January one 2025, so we're like I said, we've increased our firm sales to Bahia gas by one third.
Austin: Adjusted the price.
Quarterly price mechanism.
Austin: That is recalculated quarterly now and it's based on Brent and Henry hub benchmark prices. The net effect was as of February one 2025, our realized natural gas price is over $10 50 U S per Mcf.
Austin: We did remove the old contractual floor and ceiling provisions.
Austin: That we had in our old contract and given that we were pretty close to the ceiling I think thats, probably a net positive.
Corey Ruttan: We did also enhance the supply failure penalty mechanism so that it reduces our potential exposure. The take or pay mechanisms that ensure that Bahia Gas is taking an appropriate amount of gas remain in place unchanged.
Austin: We did have also enhanced the supply failure penalty mechanisms so that it reduces our potential exposure.
Austin: The take or pay mechanisms that ensure.
Austin: To ensure that your gas is taking an appropriate amount of gas remain in place unchanged and the updated contract does extend through to the end of 2035.
Corey Ruttan: 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% Alvopetro working interest. And two, it was all basically underpinned by the development of our cabaret assets. So we're really well positioned now to bring new gas on a very low cost basis. Because these are all the infrastructure and midstream part of our commercialization solution here is all basically fixed costs. So when you look at the drilling program that Adrian will walk through for Merica 2-2, it's all pipeline connected.
Austin: 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.
Austin: 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 at a very low cost basis. Because these are big it's all all the infrastructure in the midstream part of our commercialization solution here is all basically fixed costs. So when you look at the drilling program that Adrian will work.
Austin: Through for Merck or <unk>.
Austin: All pipeline connected we can bring it on immediately put virtually very small incremental cost.
Corey Ruttan: We can bring it on immediately at virtually very small incremental costs.
Adrian Audet: 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 Barrels of Oil Equipment Approved Reserves and 9.1 million BOE approved was probable. We saw a 65% increase in the 1P and a 5% increase in the 2P volumes year-over-year and a strong reserve replacement ratio. This increase was the combined result of the redetermination that was done during the year and the strong production results from the Kura Sioux zone at Merica 2-2.
Austin: We've recently completed our 2024 year end Reserve report, which highlights the advancements we made in 2020 for this report shows that we have a total of $4 5 million Boe.
Austin: Uh huh.
Austin: A barrel of oil equivalent of proved reserves.
Austin: 1 million Boe.
Austin: Probably we saw a 65% increase in the <unk> and a 5% increase in the two P volumes year over year and a strong reserve replacement ratios.
Austin: This increase was the combined results of the Redetermination that was done during the year and the strong production results from the <unk> zone at American.
Adrian Audet: As you can see on the chart, our current enterprise value is about the same as the approved NPV 10 of just the Cabaret asset alone. Production from the Cabaret asset remains strong. This asset, which we are 56.2% working interest now, we began operating it in, or we took over operating it in 2024, in August of 2024. And in January of this year, we completed the installation of a compression system at this field, which serves to reduce the gathering line pressures and increase the production or deliverability of the asset. And as Corey mentioned, we're going to increase the, uh, uh, we're going to start a drilling program in this asset, uh, starting, uh, next quarter to add five more wells into the unit here.
Austin: 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.
Austin: So production from the cap rate asset remains strong.
Austin: <unk>, which were 56, 2% working interest now.
Austin: We began operating it and we took over operating at in 2024 in.
Austin: August of 2024.
Austin: And in January of this year, we completed the installation of our compression system.
Austin: This at this field, which serves to reduce the gathering line pressures.
Austin: Increased production.
Austin: The deliverability of the asset.
Austin: And as Corey mentioned, we can increase the.
Austin: But we're going to start a drilling program in this asset starting.
Austin: The next quarter to add five more wells into the unit here and there.
Adrian Audet: And these are the black dots you can see on the bottom right hand picture there. So we're increasing the deliverability of this unit with those those infill wells.
Austin: These are the black dots you can see in the bottom right hand.
Austin: Sure there so we're increasing the deliverability of this unit with those those infill wells.
Austin: Okay.
Adrian Audet: And our other focus for 2025 is the continued development of the Kora Sioux Zone at the Murigatutu Field, which is just north of our craft cabaret asset. So the 183A3 well, which we put on production in September, has had excellent production and it's been performing above our expectations. So currently we're drilling an optive well into the same structure, targeting 110 meters optive in the Colorado Rossiew zone and intend to finish that well in the, in the next month here. So we're currently drilling that right. And we have an additional follow up location at the same pad as the well we're drilling now with the ability to drill another follow up location later this year.
Austin: Okay.
Austin: Our other focus for 2025 is the continued.
Austin: Development of the <unk> zone at the Merck and <unk> field, which is just north of aircraft the cavalry asset.
Austin: So the 180, 383, well, which we put on production in September.
Austin: Had a excellent production has been performing above our expectations.
Austin: So currently we're drilling an up dip well into the same structure targeting a 110 meters.
Austin: In the <unk> zone.
Austin: And intend to finish that well in the in the next month here.
Austin: So we're currently drilling bad right now.
Austin: And we have an additional follow up location.
Austin: At the same pattern the well we're drilling now with the ability to drill another follow up locations later this year.
Adrian Audet: So we continue to evolve the multi-year development plan for this Mercatube 2 asset. The picture on the left here shows the red lines and the red dots are pipelines and our paths and our wells that are existing and then the white shows the multi-year develop development potential of what we both in the Karasu and in the Gomo reservoirs of this field. This project can be funded organically and has the potential to get up to 20 million centicubic feet a day. So with success here, we feel we can more than double the size and value of the company with this opportunity along.
Austin: So we continue to evolve the multi years development plan for this market to asset the picture on the left here shows the the red lines in the Red dots are.
Austin: Yeah.
Austin: Pipelines in our pads or wells that are existing in the way. It shows the multiyear debelle development potential of what we can add both in <unk> and in the Gulf oil reservoirs in this field.
Austin: This project can be funded organically and that has the potential to get up to 20 million standard cubic feet a day.
Austin: So with the success here, we feel we can more than double the size and value of the company, but that opportunity alone.
Corey Ruttan: Thank you, Adrian. So on February 5 of 2025, we did announce our strategic entry back into the Western Canadian Sedimentary Basin. Our initial focus area here is in the Manville Heavy Oil Fairway, which sits just south of Lloyd Minister. These are multi-zone reservoirs that you can see characterized here, with large amounts of original oil in place on a per mile or per section basis.
unknown: Great. Thank you Adrian.
unknown: 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.
unknown: Administer.
unknown: These are multi zone reservoirs that you can see characterized here.
unknown: With large amounts of original oil in place on the on a per mile or per section basis.
Corey Ruttan: For more information, visit www.fema.gov I would say that this opportunity is quite consistent with our long-standing approach where we're trying to bring new ideas and new technologies to bear to look to ways to apply that technology to unlock new opportunities. I think this map does a good job of showing that evolution of technology in the Western Canadian sedimentary basin. So you can see a bunch of you know, simple vertical wells, that was kind of the original phase. Then you can see some horizontal wells that were drilled. And now the new evolution of the technology is basically open hole multi-hoops.
unknown:
unknown: I would say that this opportunity is quite consistent with our long standing approach, where we're trying to bring in.
unknown: New ideas and new technologies to bear to look to ways to apply that technology to unlock new opportunities.
unknown: I think this map does a good job of showing that evolution of technology in the western Canadian sedimentary basin as you can see a bunch of.
Simple vertical wells that was kind of the original phase.
unknown: Then you can see some horizontal wells that were drilled.
unknown: And now the new evolution of the technology is basically open hole multi groups.
Corey Ruttan: sorry, multi, open hole multilateral wells. So you're drilling a single leg into the formation, you case that, and then from there, you drill an open hole without casing a number of laterals. And in our case, we're drilling six laterals per location. And you're trying to maximize the reservoir contact with all that open hole contact with the reservoir.
unknown: Sorry, multi open hole multilateral wells, so youre drilling a single.
unknown: Leg in.
unknown: The formation you case that and then from there you drill.
unknown: Open hole without casing, a number of laterals and in our case, we're drilling six laterals per per location.
unknown: 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.
Corey Ruttan: So what we've done here is we've partnered with an established operator. They've got a great track record. I think our deal was to pay 100% of the first two earning wells to earn a 50% working interest in just over 19 sections of land. So on a net basis over 6,100 acres to ourselves. The future wells obviously will be funded 50-50 with a partner. 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 those wells on production within the next 30 days.
unknown: Our deal was to pay 100% of the first two earning wells to earn a 50% working interest and I think just over 19 sections of land. So on a net basis over 6100 acres to ourselves that future wells, obviously will be funded 50 50 with our partner.
unknown: We've already completed drilling the first two of those we've actually.
unknown: In total got over 15 kilometers of open hole lateral in contact with the reservoir and we expect to have both of those wells are 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.
Corey Ruttan: And then with success, I think this has an opportunity to have a big inventory of locations for us. And it really very quickly can become self-funding based on strong economics with strong IRRs, quick payouts. And it really compliments our Brazilian opportunity quite nicely and further supports our capital allocation model.
unknown: Very quickly can become self funding based on strong economics with strong IRR as quick payouts.
unknown:
unknown: And it really complements our Brazilian opportunity quite nicely and further supports our capital allocation model.
unknown: Yeah.
Corey Ruttan: So in conclusion, certainly think Alvopetro continues to offer an extremely attractive investment proposition, still continues to deliver very strong results with off the back of very strong natural gas prices with industry leading operating netbacks and operating netback margins. Obviously, we've started 2025 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 that helps support that capital allocation model that I talked about. For value investors, like Adrian pointed out, we're trading at less than our 1 PNAB right now, trading at less than a third of our 2 PNAB.
unknown: So in conclusion, certainly think Albert Petro continues to offer an extremely attractive investment proposition.
unknown: <unk> continued 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.
unknown: Obviously, we've started.
unknown: 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.
unknown: Now trading at less than a third of our two of <unk>.
Corey Ruttan: For yield investors, the upgraded dividend to $0.10 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. And if you look at the potential value that 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.
unknown: For yield investors.
unknown: The upgraded dividend <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.
unknown: 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.
Corey Ruttan: So with that, I'll stop sharing the presentation and we'll start with the question and answer. So one of the questions that's come in is, can you remind us what the firm volume numbers again are with the new Bahia gas? Yeah, so we increase and we'll get our we'll get our units potentially mixed mixed up here. But it's 300,000 cubic meters a day was the old amount and we increased that to 400,000 cubic meters a day. And it gets further complicated, unfortunately, by the fact that it's measured in heat equivalent units.
unknown: With that we'll stop sharing the presentation and we'll start with the question and answer.
unknown: Okay.
unknown: Oh, okay.
unknown: So.
unknown: One of the question.
unknown: And can you remind us what the firm volume numbers again are with <unk>.
unknown: With the new gas contracts.
unknown: Yes, so we increase and we will get we will get our units potentially mixed mixed up here, but.
Speaker Change: Is 300000 cubic meters a day was the old.
Speaker Change: Amount and we increased that to 400000 cubic meters a day.
Speaker Change: And it gets further complicated unfortunately by the fact that.
Speaker Change: <unk>.
Speaker Change: It's measured in heat equivalent unit. So if you look back we worked through all this math in a previous press release that we put out or maybe get Adrian to help me with some good with some of the numbers.
Corey Ruttan: So if you look back, we worked through all this math in a previous press release that we put out, I'll maybe get Adrian to help me with some of the numbers. But to meet our to meet our current firm obligations, it translates into, is it 13? from Santa Cruz, L.A., Well, 13 million cubic feet a day, which if you translate that and divide that by six into BOEs, it's a little over, you know, call it 2100 barrels of oil equivalent per day. So pretty close. Yeah.
Speaker Change: But to meet our.
Speaker Change: To meet our current firm obligations and translates into 13.
Speaker Change: Sandy.
Speaker Change: 13.
Speaker Change: It's about 13 million cubic feet a day.
Speaker Change: If you translate that and divide that by six into Bowie that so it gets a little over <unk>.
Speaker Change: Call. It 'twenty 100 barrels of oil equivalent per day, so pretty close yes.
Speaker Change: Yes.
Speaker Change: Okay.
Corey Ruttan: Okay, so and then there's some questions on Canada. Why enter Canada, which is facing a tariff or lower netbox compared to the high netbox in Brazil? If you can comment on that. Yeah, so what we've always done is look for the best combinations of geological prospectivity and fiscal regime. And, you know, we've looked for lots of opportunities out there. And when we filtered all those, and you look, you got to remember, we're doing this on a Canadian dollar basis. You know, these Canadian opportunities actually stack up very well on a rate of return basis. Yeah, the absolute net back is lower, the operating net back margins a bit lower, but the payouts and the IRRs are very compelling.
Speaker Change: Okay. So and then there are some questions on Canada, why enter Canada, which is facing a tariff or lower net Boston church behind that box in Brazil.
Speaker Change: If you can comment on that.
Speaker Change: Yeah. So what we've always got 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.
Speaker Change: And you look you got to remember we're doing this on a Canadian dollar basis.
Speaker Change: These Canadian opportunities actually stack up very well on a rate of return basis, yes. The absolute netback is lower the operating that back margins a bit lower but the payouts and the irr's are very compelling.
Corey Ruttan: I think it also was a nice compliment, like the reality in Brazil is, you know, we're dealing with projects that tend to have longer timelines, longer execution cycles. You know, we sometimes deal with a service company environment that's challenging. And I think the team's doing an amazing job of navigating all that. And when you have success, it can generate great rates of return, which we're showing.
Speaker Change: I think it also with a nice complement like the reality in Brazil is we're dealing with projects that tend to have longer timelines larger longer execution cycles, we 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.
Speaker Change: Yes, it can generate great rates of return, which we're showing but when we looked at adding inventory.
Corey Ruttan: But when we looked at adding inventory, you know, the Canadian opportunity was just quite unique in that it had a completely different risk profile. And then secondly, the other reality is there's a ton of these opportunities available in Canada, whereas in Brazil, it's very competitive. And, you know, it's just harder to build, you know, this type of inventory in a place like Brazil. And 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 invest capital in. So when we look at all those opportunities globally, you know, right in our backyard really stacks up quite nicely.
Speaker Change: The Canadian opportunity was just quite unique in that it had a completely different risk profile.
Speaker Change: 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 it's just harder to build.
Speaker Change: This type of inventory and 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 so when we look at all of those opportunities globally right in our backyard really stacks up quite nicely.
Speaker Change: Okay.
Corey Ruttan: Okay, and then staying on the Canada focus, if you can comment on future plans or their plans to drill additional wells, etc. Yeah, so obviously, you know, we're pretty happy with this. We just got started with this 40 days ago, we've already drilled two wells. So I think it's a good start. 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'll work with our partner to develop a capital program for the second half of this year. But, you know, I hope to be drilling at least, you know, two to four additional wells here this year.
Speaker Change: Okay, and then staying on the Canada. Okay. If you can comment on future plans are there plans to drill additional wells that trial.
Speaker Change: Yes, so obviously.
Speaker Change: We're pretty happy with this week, we just got started with this 40 days ago, when we've already drilled drill two well. So I think it's a good start with 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 be.
Speaker Change: Drilling at least.
Speaker Change: Two to four additional wells here this year and hopefully that that's growing I think after we get through that that capital program. It would effectively be self funding going forward with a reasonable level of success that we're pretty excited about this.
Corey Ruttan: And hopefully that's growing. I think after we get through that capital program, it would effectively be self-funding going forward, you know, with a reasonable level of success. So we're pretty excited about that.
Speaker Change: Yeah.
Corey Ruttan: Okay, and then some more specifics on Saskatchewan and the initial two wells that have been drilled. What is the expected initial production rate and hydrocarbon mix? And how does the production type curve look and ultimate recovery? Yeah.
Speaker Change: Okay, and then some more specifics on diskette, Saskatchewan and initial cube wells that have been drilled.
Speaker Change: What is the expected initial production rate and hydrocarbon mix and how does the production type curves look and ultimate recovery.
Speaker Change: Yes.
Corey Ruttan: And, you know, just because these are the first two wells, we haven't come up with a lot of definitive guidance on this, I think we'll let the results speak for themselves. I think you can look at some other operators that are active in this area, you know, and depending on which reservoir you're targeting and how thick it is, the results can range widely. But, you know, directionally, if the wells could come on between 100 and 120 barrels a day and, and cumulatively produce between, you know, between 100,000 and 120,000 barrels of oil equivalent over the life of the wells, the rates of return are extremely competitive.
Speaker Change: 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.
Speaker Change: And depending on which reservoir youre targeting and how thick. It is the results can range widely but.
Speaker Change: Directionally, if the wells could come on between 100, and 120 barrels a day in and cumulatively produced.
Between 100000, or 920000 barrels of oil equivalent over the life of the wells the rates of return are extremely compelling.
Speaker Change: Okay.
Speaker Change: Uh huh.
Corey Ruttan: Sorry, just jumping around a little bit here.
Speaker Change: Sorry, I am jumping around a little bit here.
Corey Ruttan: Will you give out 2025 guidance for activity and production in both countries?
Speaker Change: But did you give out 2025 guidance for activity and production in both countries.
Corey Ruttan: Bye. Yeah, I think we kind of have, I guess, absent, you know, the Canadian stuff we wanted to get through, you know, I've just now directionally given you a range of guidance, I guess, but, you know, I think the capital program will be quite flexible based on based on results and based on commodity prices.
Speaker Change: Yes, I think we kind of have I guess absent the Canadian stuff, we wanted to get through.
Speaker Change: I've, just now Directionally, giving you a range of guidance I guess, but.
Speaker Change: I think the capital program will be quite flexible based on based on results and based on commodity prices.
Speaker Change: Okay.
Corey Ruttan: And there's a specific question around the Canadian farm in. So the question around so you paid 50% for you paid for the first two wells for 50% working interest, but what happens on the additional wells and what is the treatment of the revenues going forward? Yeah, so this is kind of a typical farming where we paid 100% Canadian about roughly $4 million to drill those first two wells and complete them and equip them, which translates just a little under $2.8 million US. And we earn a 50% working interest in the production from those two wells.
Speaker Change: And there's a specific question around the Canadian Farhan.
Speaker Change: So a question around so you paid 50%.
Speaker Change: You paid for the first two wells for a 50% working interest what happens on the additional wells and what is the treatment of their revenues going forward.
Speaker Change: Yes. So this is kind of a typical farming, where we paid a 100, so Canadian about roughly $4 million two to drill those first two wells and complete them in equipment.
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.
Corey Ruttan: And then every well going forward, we pay 50% of those wells and we earn 50% of them. And we've earned now 19, over 19 sections of land on a gross basis. The 2P production forecast is 15.9 million cubic feet a day in 2025. Is this dependent on demand?
Speaker Change: And we've earned now 19 over 19 sections of land on a gross basis.
Speaker Change:
Speaker Change: <unk> production forecast is $15 9 million cubic feet. A day in 2025 is this dependent on demand or have you already factored in some potential car count.
Corey Ruttan: Or have you already factored in some potential No, that would be certainly dependent on demand and the receipts from VHF.
Speaker Change: That would be certainly dependent on demand.
Speaker Change: Receipts from be it gas.
Corey Ruttan: There's a question around hedging and foreign exchange. Have we looked at hedging foreign exchange gains and losses? So we do evaluate that.
Speaker Change: There's a question around hedging and foreign exchange them 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.
Corey Ruttan: 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 do look at that all the time.
Speaker Change: Relatively expensive, but we do look at that.
Speaker Change: All the time.
Corey Ruttan: Unknown Executive, Adrian Audet, Alvopetro Energy Unknown Executive, Adrian Audet, Alvopetro Energy Are there any further steps to come with the cabaret redetermination that was disputed? Yeah, I think we've got a lot of disclosure in there about that as previously announced. We did go through an emergency arbitration procedure to on a on a interim basis validate that the expert decisions binding, which is what the agreements say. But that does then go into a full form arbitration.
Speaker Change: Sure. So so we will continue to do so.
Speaker Change: And the only other comment I'll start.
Speaker Change: The only other comment I'd make is like the foreign exchange.
Speaker Change: Volatility that Alison walked you through in the on the net income side, a lot of that relates to intercompany loans.
Speaker Change: <unk>, 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 foreign.
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 is we have much quicker.
Speaker Change: Adjustments for commodity price movements as well as foreign extra 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 units.
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 interim.
Speaker Change: Interim basis validate that the expert decisions binding which is what the agreement say.
Speaker Change: But that does then 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.
Corey Ruttan: So that's something that we'll be working through, it'll it'll probably extend well in So there was a question about the allocation of funds flow diagram that Corey went through earlier. And if we looked at those percentages just since post-repayment of the credit facility. So if you give me a second here.
So there was a question about the allocation of funds flow diagram that Craig went through earlier and if we looked at those.
Speaker Change: Percentages.
Speaker Change: Just since post repayment of the credit facility. So if you give me a second here.
Corey Ruttan: Need Ahead, I did a quick look at that. So if we look at since October of 2022, our funds flow has been about $94.5 million. 52% of that has been dedicated to CapEx. And then the other So we can certainly provide that information going forward as well if that's useful to people.
Speaker Change: Okay real quick.
Yeah.
Speaker Change: Alright.
Speaker Change: I did a quick.
Speaker Change: Look at that so if we looked at since October of 2022, our funds flow has been about $94 5 million 50.
Speaker Change: 52% of that has been dedicated to capex.
Speaker Change: And then the other and then 45%.
Speaker Change: Our or actually close to 46% and stakeholder returns.
Speaker Change: So we can certainly provide that information going forward as well if that's useful.
Speaker Change: So people.
Corey Ruttan: and then. going back to the questions.
Speaker Change:
Speaker Change: Just going back to the questions.
Corey Ruttan: There was a question about how many shares did we buy back in Q4? So 126,000 shares were repurchased in Q4, and a total of 189,000 in 2024. There's been 59,000 repurchased and cancelled to the end of February of this year.
Speaker Change: There was a question about how many shares give me 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 them till the end of February.
Speaker Change: This year just a reminder, we do make those filings on C&I on a monthly basis that goes through all of those details.
Corey Ruttan: Just a reminder, we do make those filings on SETI on a monthly basis that goes through all of those details.
Corey Ruttan: And then staying on the share buyback front, there's a question around what are our thoughts on share buybacks in 2025 versus drilling new wells given we have a very strong balance sheet right Yeah, you know, I think this is something we look at every quarter. Right now, you know, we're continuing forth with our normal course issuer bid, kind of how we've been going. We increase the dividend, we would expect that to result in, you know, pretty close to the to the 50% of cash flow going to stakeholders in the first quarter. And I think, as you know, 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, you know, where that incremental capital goes into those three buckets, whether it's more dividends, more share buybacks, or more capital program.
Speaker Change: And then.
Speaker Change: Dan on the share buyback front, there's a question around <unk>.
Speaker Change: What are our thoughts on share buybacks in 2025 versus drilling new wells given you have a very strong balance sheet.
Speaker Change: Right now.
Speaker Change: Yes.
Speaker Change: 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.
Speaker Change: We increased the dividend we would expect that to result in.
Speaker Change: Pretty close to the to the 50% of cash flow going to stakeholders in the first quarter and I think as.
Speaker Change: 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.
Speaker Change: Where that incremental capital goes into those three buckets, whether it's more dividends more share buybacks or capital program and some of that will be a function of the results that we're generating with the capital and commodity prices as well. So we're not going to lock ourselves into any one any one direction.
Corey Ruttan: And, you know, some of that will be a function of the results that we're generating with the capital and commodity prices as well. So, you know, we're not going to lock ourselves into any one direction today.
Speaker Change: Hey.
Corey Ruttan: 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 of close to 2600 VOE per day? Yeah, you know, we were just trying to be consistent with our stated objective and, and, you know, with the increase in production with the improvement in the gas sales agreement, I think our business is strengthened quite considerably, especially, you know, From a contractual perspective, and then from an operational perspective, we built productive capacity with Cabaret and the success in Mercatutu.
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.
Speaker Change: Close to 2600 Boe per day.
Speaker Change: Yes, 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 cabaret and the success in Merck her to do so it felt like the right time to increase that base base dividend.
Corey Ruttan: So it felt like the right time to increase that that base based And then there's a question here on Cabaret that's just come in. The company intends to add five more wells in the Cabaret field. Will that increase the amount of reserves to be replaced and lead to the field being depleted faster? Well, yeah, no, there is an element of, you know, building production capacity. I think we do have the potential, especially with the northern wells that we're drilling, you know, potentially add some additional reserves. But I think that's a fair comment that, you know, a good portion of this is to prolong and potentially increase the productive plateau of the field.
Speaker Change: Okay.
Speaker Change: And then there's a question here on <unk>, 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 SDLP 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 time.
Speaker Change: Especially with the northern wells that we're drilling potentially add some additional reserves.
Speaker Change: But I think Thats a fair comment.
Speaker Change: A good portion of this is to prolong and potentially increase the productive plateau of the field.
Speaker Change:
Corey Ruttan: Yeah.
Speaker Change: Okay.
Corey Ruttan: And another question has come in. Are you looking at other opportunities beyond Brazil and Canada, or do these projects take up most of the capital allocation you are projecting?
Speaker Change: And another question has come in are you looking at other opportunities beyond Brazil, and Canada Rgd's projects pick up most of the capital allocation you are projecting.
Speaker Change: Uh huh.
Corey Ruttan: Well, we tend not to talk about business development details. But yeah, I know, you know, we are obviously keeping in tune with opportunities that might be available. But we're pretty happy with the inventory of organic drilling opportunities that we've got in the mix right now. But, you know, I think, especially like I said, in Canada, there's a lot of lower risk drilling opportunities that frankly, just aren't being funded because of the scarcity of capital. So I think we're well positioned, you know, be it there or elsewhere to build our business.
Speaker Change: Well, we tend not to talk about business development details, but yes, no. 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.
Speaker Change: 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.
Corey Ruttan: Okay, and with that, there's no other questions that have come in.
Speaker Change: Okay and with that there is no other questions that 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 our call. Thank you.
Corey Ruttan: Goodbye.
Speaker Change: Goodbye.