Q1 2025 Alvopetro Energy Ltd Earnings Call
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Howard: [music] you have joined the meeting as an attendee and will be muted throughout the meeting and president and CEO and I'm joined by ALS in Howard.
<unk> financial Officer, and Adrian <unk>, our Vice President asset management.
Speaker Change: Good morning, everyone and thank you for joining us. This morning, just a few administrative points before we start.
Speaker Change: We are recording today's call and there will be a replay on our website later on this afternoon.
Speaker Change: In addition, all attendees had been placed in listen only mode for the duration of the call.
Speaker Change: As per usual, we will have a Q&A session at the end of the presentation and you can start logging any questions now using the Q&A button that you should see on your screen if you've dialed in by phone you can send us any questions to social media at <unk> Dot com.
Speaker Change: And lastly, just before we start here, we do make various forward looking statements and we go through non-GAAP measures throughout the presentation and so just please review all of the cautionary statements and other disclosures that you can find at the end of our presentation, which is posted on our website and also in our most recent MD&A.
Speaker Change: <unk>, which we just released yesterday.
Austin: Thank you Austin.
Austin: So let's start off with our production results here just as a recap if you remember before we came on production from our cap rate project, our pre commercialization production guidance was basically equal to our firm sales under our Bahia gas contract at that time.
Austin: And it was also equal to the unit.
Austin: The capacity multiplied by our working interest in the unit.
Austin: Since we started production in July of 2020, we've either met or significantly exceeded that expectation I would say there was a considerable amount of time through 2021.
Austin: Through to 2023, where the EU gas was able to take.
Austin: A lot of flexible gas in addition to the firm volumes that we had committed to in.
Austin: In 2024 that did change a little bit.
Speaker Change: The huge acid committed to their firm supply quite a ways in advance and they did have some demand disruption. So what we did is late in 2020 for two things happened in Bahia gas reduce their overall amount of firm commitments and at the same time, our Petro increased.
Austin: We increased our share of our firm volumes under our Bahia gas contract by a third.
Austin: And what you can see is that has resulted in a pretty nice uptick in production in the first quarter, which we had previously released 2446 barrels of oil equivalent per day, which is up about 41% quarter over quarter and you can see we just announced April production here.
Austin: Sure.
Austin: Yesterday, as well and you'll notice. It does include this very initial parts of our newly added Canadian oil production as well, but overall pretty flat from the from the first quarter.
Austin: We will talk about our plans on all of those assets, but our strategy basically through the rest of the year is to add more 100% working interest natural gas production.
Austin: From Brazil, and also we expect to drill another up to another four wells in Canada to further expand the oil production platform.
Speaker Change: Okay. So we just released our Q1 2025 results yesterday afternoon, and we will just go through some of the key highlight just to start here. This is our operating netback, it's one of those non-GAAP measures.
Speaker Change: I talked about earlier, it's a measure of our operating profitability, we measure that on a per barrel of oil equivalent basis our per Boe.
Speaker Change: Just a reminder, that calculated we start with our realized sales price, which is the top of the bar chart, we deduct off royalties and Orange production expenses in Gray and then the operating netback is the Green bar that you see on the chart. So looking at Q1 2025 here on a on the price.
Speaker Change: <unk> basis, we're very consistent with last quarter, a decrease of about 21 cents per Boe.
Speaker Change: And that incorporated our natural gas sales price of $10 44 per Mcf for the quarter.
Speaker Change: And the royalties, which is the orange bar, you'll see a big jump there in our royalties in Q1.
Speaker Change: That stems from some additional royalties we recognized this period relating to our gross overriding royalty that we have on some of our blocks in Brazil, including <unk>.
Speaker Change: Our block that is on both our cabaret in our market Q2 natural gas fields, and then to Steve just stem from the computation of that gross overriding royalty on natural gas and.
Speaker Change: So we have recognized an additional amount this quarter for that.
Speaker Change: Important to note that that and that amount that we recognized in Q1 and does include the historical amounts going back to since natural gas sales commenced in July 2020, and so we arent expecting this level of royalty rate going forward.
Speaker Change: Ultimately it will depend on forecasted commodity prices, but we are expecting more in the 5% to 6% range as a percentage of our realized price.
Speaker Change: On the production expenses, that's the gray bar.
Speaker Change: Production expenses were relatively consistent with last quarter. They were up just about 100000 overall on a dollar basis the good.
Speaker Change: Starts our compression operation. This this quarter. So there were some additional costs associated with that but overall, we saw a decrease of $1 34 per Boe.
Speaker Change: On on the cost because we did have higher production in the period and most of our production expenses are fixed in nature, so with higher higher volumes, we have lower cost per Boe.
Speaker Change: Overall, our netback for the period $50 77, so again.
Speaker Change: A decrease.
Speaker Change: Of over $4 compared to last quarter, but still very strong net backs and relative to our realized price margins of 80% even with that additional royalty amount recognized this period. So this has allowed us to generate you know really strong cash flows and funds flow from operating activities on.
Speaker Change: This base level of.
Speaker Change: Production.
Speaker Change: And so as we move on to <unk>.
Speaker Change: I think slow. So this chart is just showing the change compared to last last quarter. So last quarter. So that's just under 70 million of funds flow from operations compared to $9 2 million. This quarter. So an increase of $2 3 million most of that was the 41% increase in sales volumes that we saw him.
Speaker Change: Offsetting that are partially was the additional royalties and like slight addition in our production expenses and then current tax was also higher.
Speaker Change: With the higher earnings G&A was lower so that helped on the plus side.
Speaker Change: And similarly on net income we saw a significant increase in our net income this period for the same reasons that we just went through on the funds flow.
Speaker Change: But also impacting net income.
Speaker Change: And its various non cash items, so the big one being foreign exchange, we had a foreign exchange gain period of about 900000 U S compared to a loss of 2 million last quarter. So that's a swing in net income of $2 9 million.
Speaker Change: And then offsetting that is higher depletion with the higher production and then higher finance expense and then overall, our current and deferred tax as well.
Speaker Change: Moving on to the balance sheet. This chart shows our working capital, including cash balances. We go back to when we started.
Speaker Change: Natural gas sales in Q3 of 2020 and this is our working capital balance at the end of each period.
Speaker Change: Reminder, we are debt free and have been since we repaid our.
Speaker Change: Initial credit facility back in fully repaid by September of 2022.
Speaker Change: This quarter, our working capital was $9 7 million, including cash of $17 three $3 million. So still very strong working capital and strong balance sheet, which positions us well going forward and we did see a decrease in our working capital we had.
Speaker Change: Capital projects running in both Canada, and Brazil for our Capex was higher this quarter, but overall still very strong on our balance sheet.
Speaker Change: Okay.
Speaker Change: Great. Thank you Allison so as we announced previously with the increase in production that we saw in Q1, we did make the decision to increase the dividend to <unk>.
Speaker Change: <unk> per share for Q1 that everyone should have received it.
Speaker Change: Already and what that does is it brings up the total amount of dividends that we paid since we started.
Speaker Change: Paying dividends in Q3 of 2021 up to U S $1 50 per share.
Speaker Change: That dividend translates into a current yield of over 10%.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Most of you know we've been following this.
Speaker Change: In our opinion, a more balanced and disciplined capital allocation model.
Speaker Change: Reinvesting roughly half of our cash flows and organic growth and then take them and the other half in returning that to stakeholders.
Speaker Change: A reminder, at the beginning of the project all the various shades of green or the returns to stakeholders in the bars up to start with sorry, all the cash inflows each quarter denoted by the black dots on the Green line. Here has also noted we had an increase up to $9 $2 million U S. In Q1 of 2025.
Speaker Change: The life of the project you can see all the different cash outflows each quarter or the stacking borrowers. So the green are the are the stakeholder returns like Allison said.
Speaker Change: Repaid the debt on an accelerated basis, we then introduced the dividend and more recently in yellow you've seen more investments.
Speaker Change: In our organic growth and in particular in Q1 like Allison noted, we had drilling projects happening in Brazil, as well as our first two earning wells on the project in Western Canada, So certainly a higher spending period for us.
Speaker Change: In total since we've come on production from cap rate.
Speaker Change: We've now generated just under $173 million of funds flow from operations.
Speaker Change: 47% of that's been reinvested, 48% has been returned to the various form of stakeholders and the remaining roughly 5%.
Speaker Change: Is the portion where we built cash from working capital for future financial flexibility.
Speaker Change: Okay.
Speaker Change: Alright.
Speaker Change: We've established a strong platform and now our focus is firmly set on our next growth.
Speaker Change: <unk> are a near term target is to be at 80 million standard cubic feet or 3000 Boe per day and fill our current gas plant capacity to maximize the revenue from these strategic assets.
Speaker Change: Our long term vision is to to double this with the growth plan to come from our existing land base. So the field on the south to our core fields of operations, which is cabaret.
Speaker Change: It has been performing quite well over the last five years for and we're looking forward to expanding this unit capacity with the addition of five development wells that we expect to start this quarter.
Speaker Change: But our biggest growth opportunity is set to come from our Merck due to field, which is the field to the north of that.
Speaker Change: And this is our larger land base, it's 5500 acres of mapped gas resource.
Speaker Change: <unk> is a sign of the combination of <unk> reserves contingent and prospective resource to this opportunity and our GP reserves alone are $4 million to $5 million.
Speaker Change: Barrels of oil equivalent.
Speaker Change: So we're looking to migrate this reserve base into production and cash flow support of our longer term growth objectives.
Speaker Change: So I just wanted to talk a little bit more about America Q2 in this in this project. So this is a 100% Apple petzel working interest itself multi zone gas play both in the <unk>.
Speaker Change: <unk> and the <unk> formation.
Speaker Change: This project Leverages on our existing infrastructure, so our existing sales point.
Speaker Change: Pipeline connected to our gas processing facility.
Speaker Change: We've utilized <unk> seismic to plan as field development and right now it's allowed us to target the <unk> formation, which is the focus of our development in the short term so.
Speaker Change: So our most recent drove well, which is $183 three which is the well logs that you see on the right.
Speaker Change: We encountered a 128 meters of net pay 116 of these meters wherein the cover suite formation for sequences.
Speaker Change: John on that well logs.
Speaker Change: When we brought on production in September we had over 2 million standard cubic feet per day.
Speaker Change: Of gas flow rates was above or significantly above our expectations.
Speaker Change: In April we just completed a workover to this well size slate some lower sections of the reservoir pressure flowing water and we've now brought it back online.
Speaker Change: And are flowing and recovering the completion fluids with the with the gas.
Currently we're drilling a well.
Speaker Change: Which is the white you see on the on the map there.
Speaker Change: Called 183, <unk> four and this is targeted to be blunt 100 meters out of the three well.
Speaker Change: We've had some operational.
Speaker Change: Operational setbacks and we are currently drilling a sidetrack after we became differentially stock.
Speaker Change: In a certain portion of this reservoir.
Speaker Change: And the portions of the reservoir that we had drilled previously to becoming stock were very encouraging showed good sand development philosophy.
Speaker Change: They may or may not have led to this differential sticking issue.
Speaker Change: Our team remains focused on ensuring we execute.
Speaker Change: Finalization of this project effectively.
Speaker Change: And we look forward to logging encasing as well. So we can take these geological results and plan to future wells in this <unk> structure.
Speaker Change: Okay.
Speaker Change: Alright, Thank you Adrian so.
Speaker Change: Moving on to the strategic entry into the Western Canadian sedimentary basin that we announced on February five.
Speaker Change: Our initial focus area here as demand Bill stack, which sits on the eastern side of Alberta and on the Western side of Saskatchewan, just self employed administer here's where we're located.
Speaker Change: It's a multi zone, depending on where you are at in the play you can sometimes get several of these sands.
Speaker Change: But there is a different zones, depending where you are although very good porosity. So you end up with an awful lot of original oil in place on a per square mile basis and basis, even if you're only talking about a three to five meters sandvik and with that excellent reservoir quality can pack a lot of oil in place.
Speaker Change: In a small area.
Speaker Change: One of the things that we're doing here. This graphic to shows you the evolution of the technology that's been deployed into the into this resource.
Speaker Change: Historically, if you were to develop say a quarter section of land using vertical wells you would've had to drill 30 to two wells into that quarter section that you see on the left hand side and then if you would've used horizontal wells you drill roughly for them to access the same amount of reservoir and now what's being widely.
Speaker Change: Deployed and we successfully deployed this with our first two wells as you drill.
Speaker Change: Into the target formation.
Speaker Change: And you get roughly horizontal at that stage.
Speaker Change: Thats the intermediate casing point, you run casing, and then you drill out of that and you drill.
Speaker Change: In our case roughly six mile long open hole horizontal legs.
Speaker Change: To maximize your access to the reservoirs. So instead of fracking your beer basically getting that access to the reservoir.
Speaker Change: Through the drill bit.
Speaker Change: And we're pretty excited about the first two wells we've drilled in total those two wells accessed over 15 kilometers of open hole.
Speaker Change: So like I said, the first two earning wells have been drilled we've added in addition to that we've been adding to the land base. We're now 50% working interest owner in 'twenty five sections of highly prospective land in this play that's over 7900 acres of net land to tell with Petro.
Speaker Change: And.
Speaker Change: We had some questions.
Speaker Change: Asking us, okay, well, why Canada, and all of that and I, just thought I'd walk through kind of the thought process a little bit on this.
Speaker Change: When we were looking we're always looking for opportunities to add to our inventory.
Speaker Change: And obviously, our first priority would be in Brazil to be able to bring additional gas into our strategic infrastructure that we build.
Speaker Change: The reality when you look in Brazil, because theres not that many transactions and the ones that do happen tend to be very large relative to our market capitalization and the prices tend to be pretty high.
Speaker Change: So we'll continue to do that to be clear, but when we started to look elsewhere Western Canada really rose to the top for US we always look for things that have occurred.
Speaker Change: Best combinations of geological prospectively in fiscal regime, and we also like to be able to apply technology to opportunities that maybe haven't been applied where it hasnt been applied before so this was a pretty good fit we've got low geological risk.
Speaker Change: And if you and the other thing we wanted to do is kind of contrast, the risk profile and timelines that we've got with our Brazilian assets Theyre very.
Speaker Change: High rate of return, but the timelines tend to be a bit longer and we do operate in a more challenging service environment. So youll see from the first two wells that we drilled we've got an excellent and competitive service environment. The individual well costs are quite low by comparison.
Speaker Change: And like I saw showed you on the previous slide we can apply leading edge technology. This play very strong economics, we've got very short cycle times and rapid payouts were targeting under a year payouts and the other thing is when you look at Western Canada. There is a lot of opportunities and especially when you see commodity.
Prices dip down a little bit like we've seen over the last little bit I think it creates even more opportunities and we're very well positioned with our balance sheet and our strong base of cash flow to be positioned to capitalize on those so.
Speaker Change: The last point I'll need to really.
Speaker Change: Maybe resonate.
Speaker Change: To put this all in perspective, we signed the farm in agreement on February 5th.
Speaker Change: From that date with our partner.
Speaker Change: Two.
Speaker Change: Two locations licensed to surface land acquisition agreements.
We executed two separate drilling pads constructed and two wells drilled sequentially all drilled.
Speaker Change: I said drove added drilling six legs, each accessing 15 kilometers of open hole and that was all done within 45 days in both of those wells were on production.
Speaker Change: By early April so.
Speaker Change:
Speaker Change: Pretty Stark contrast, I would say and the other nice thing is both of the wells were drilled under budget and I would say the early production results, where there is a cleanup period during April as well the first full month from both wells will be in May, but we're pretty excited about the results and they are certainly exceeding our pre farm in expectations.
Speaker Change: And we've got plans to drill up to another four of those locations this year.
Speaker Change: Okay.
Speaker Change: So with that.
Speaker Change: We continue to strongly believe that elbow Petro offers an attractive investment proposition no matter, what youre investing focus is as Allison highlighted I think we continued to deliver some pretty strong results with very attractive natural gas prices industry, leading operating net backs and margins.
Speaker Change: Our 41% increase in production in Q1, obviously.
Speaker Change: Continues to deliver some very strong free cash flows and with a clean balance sheet I think that all underpins our more balanced and disciplined capital allocation model that we've got for value investors were trading still at less than <unk> <unk>.
Speaker Change: About 40% of our <unk> for yield investors, our quarterly dividend U S <unk> <unk> per share.
Speaker Change: Translates into a yield of over 10% and for growth and investors I think we've gotten.
Speaker Change: A very exciting and organically funded capital program.
Speaker Change: This year that I think can unlock an awful lot of value for shareholders, especially when you contrast, it to our current enterprise value.
Speaker Change: Value so.
Speaker Change: We've significantly strengthened our disciplined capital allocation and stakeholder return model by combining.
Speaker Change: Our growth inventory in Brazil, that's underpinned by our high natural gas prices with the new inventory of attractive oil drilling locations in Canada and in an opportunity rich environment. So we're certainly looking forward to the capital program. This year and we look forward to updating you as the year progresses and with that I think we will turn it over to the.
Speaker Change: The question and answer period.
Speaker Change: <unk>.
Speaker Change: Stop sharing gear.
Speaker Change: Okay.
Speaker Change: Okay. So we do have a few questions in that.
Speaker Change: Canada operations are online and producing how will you balance investment decision between Canada and Brazil.
Speaker Change: So our system.
Speaker Change: But my desktop there.
Speaker Change: Yes, so at the end of the day I think a lot of this comes down to two the rates return available in both the prospects.
Speaker Change: I think it's also important to note.
Speaker Change: We continue to realize extremely strong natural gas prices in Brazil, and we've invested in some highly strategic infrastructure. So theres always going to be a motivation to maximize the value associated with that.
Speaker Change: I think the reality in Brazil is we do have.
Speaker Change: Timelines that are longer so in my opinion, it's really nice to have a complement of.
Speaker Change: Oil drilling locations that can be executed on a quick timeline and smaller individual chunks to complement that so there'll be a bit of a balance and obviously, we'll be watching commodity prices as well.
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: On the Canadian side can you comment on how the.
Speaker Change: The Canadian oil sales are contracted and how the pricing works on that.
Speaker Change: Yes, there is.
Speaker Change: It gets basically bid out every every month.
Speaker Change: Or for a period of time and there is roughly six different off takers that can take it typically the oils crop between 20 and 30 kilometers.
Speaker Change: To a delivery point the oil prices.
Speaker Change: Off of Western Canadian select so western Canadian select has typically been trading right now I think it's about $13 U S discount to <unk>.
Speaker Change: And then on top of that between the trucking and some quality adjustments would typically price about $10 Canadian below Western Canadian select.
Speaker Change: And will the off takers happily take increased volume.
Speaker Change: Yes.
Speaker Change: That's not a restriction.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Could you run through that royalty rate payable in Canada, and how cost for work on the Canadian asset.
Speaker Change: Well on the particular assets in Saskatchewan Theres a of royalty incentive for multi multilateral wells of two 5% and then there is the gross overriding royalty of an additional.
Speaker Change: 6% that's payable on the Saskatchewan operations on the tax side.
Speaker Change: We do have a tax losses that we haven't recognized any benefit for from a deferred tax perspective as of December 31 that was around 7 million U S. So there is a lot of tax pools existing already to offset.
Speaker Change: Future earnings and then obviously these new investments are also deductible going forward for tax purposes.
Speaker Change: Hum.
Speaker Change: A couple more questions here on Saskatchewan is there any other capex above and beyond the approximately one 3 million per well in Canada.
Speaker Change: Okay.
Speaker Change: Not on them until they are right now, it's really just the drilling completion and equipping costs.
Speaker Change: Like I said those first two wells came in under AFP I forgot our development basis, we would with our partner both expect dose dose.
Speaker Change: The cost to come down probably at least 10% or more.
Speaker Change: And do you have any expectation on the operating cost per barrel in Saskatchewan, Canada.
Speaker Change: Yes, I think over the lifecycle of the well I think we've modeled in $20, but I think yield.
Speaker Change: It's a function.
Speaker Change: It's a function of.
Speaker Change: Your oil production rates and your oil cuts.
Speaker Change: But I think it will be much lower than that as we start up new production.
Speaker Change: Based on the wells that you have drilled an analog wells.
Speaker Change: What is the expectation of the average first year production rate for these men they'll wells.
Speaker Change: Yes, so a lot of pre farm in basis, we basically had modeled a type well that came on production between 100 and 120 barrels of oil per day ultimately targeting.
Speaker Change: Expected ultimate recoveries on a per well basis of between 100 and 120000 barrels per well.
Speaker Change: Okay.
Speaker Change: With that he would be able to generate rates of return.
Speaker Change: Excuse me approaching 100% in their payouts of less than a year.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Is there any oil price that would have you reducing your planned additional four wells this year in Canada.
Speaker Change: Yeah, obviously, we've been working with our partner to make those decisions I think these investments make sense, regardless, but obviously the oil prices, especially in the first six to 12 months are important to the rates of return but.
Speaker Change: With the right production rates I think they are pretty pretty robust steepen at current prices.
Speaker Change: And at the current forward curve, how many wells do you are you commenting on how many wells do you expect to drill in 2026 note. We're not commenting on that yet I think we will incorporate the results from the program. This year and then continue to roll it out but some of these areas. We do have stocked potential and have the opportunity for <unk>.
Speaker Change: Wells into into multiple formations.
Speaker Change: Okay. So just moving on.
Speaker Change: On Merck Q2 has there been any success drilling in the deeper formation is this still a viable prospect or are you focused on.
Speaker Change: Terrorists sale going forward in Q2.
Speaker Change: Yeah. So just talking about the evolution of America to I guess, the first wells, we drilled there were into the <unk> 197, well continues to produce from from the <unk> at a pretty consistent rate.
Speaker Change: With the success that we had late last year.
Speaker Change: 180 383 in the <unk>. This is a shallower part of the reservoir and with the rates that we were able to achieve there.
Speaker Change: Obviously, we're pretty excited about that so we're going to prioritize that.
Speaker Change: The gogo in the in that shallow are actually based on our seismic things a little bit and as we go to the north the Gulfport gets quite a bit thicker, but I would say, yes that will we will do this in a stepwise fashion and focus on the terrorists, who first and then.
Speaker Change: Move further and further down depth into the go lives as a second phase.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: We have also been a number of unsuccessful wells.
Speaker Change: What has been learned from these wells.
Speaker Change: Yes, I think the question. This one came in before hand. The question listed off some of the wells. So I'll just first of all start with sometimes we do get a bit of confusion because block 183, the eastern part of the block is part of Mercury two two so we have wells with a 183 name that are really mercury two wells.
Speaker Change: And then on the western side of that block we have drilled.
Speaker Change: Exploration prospects I'll, just break that down in the list.
Speaker Change: It listed 183, three so to be clear Thats, a very successful well that's the well that we.
Speaker Change: Completed and brought on production I think in September of last year that really was the catalyst for the care of a suite of development at Merck to do so.
Speaker Change: Again, thats very successful similarly, 183 D for is the well that Adrian talked about the white dot on that map. It's the wells that were also drilling into the <unk> formation.
Speaker Change: So, it's a $183 million III, but so up dip of about 100, 110 liters up dip from that well.
Speaker Change: It is currently being drilled so carve those ones out.
Speaker Change: Yes, 183, B one was one of the wells that was listed we did as you recall have a very high rate test natural gas test in the Agua Grande formation, but unfortunately, it was a very small compartments. So we had depletion rate out of the gate. We also tested oil from the <unk> formation.
Speaker Change: Deeper, but in our opinion at rates that were probably sub sub economics. So it really wasn't a focus for us the <unk> one well was an unsuccessful full exploration well and I would say look our.
Speaker Change: Is it really met our expectations and as a result, we have been focusing on our natural gas opportunities.
Speaker Change: And then with respect to.
Speaker Change: I guess, it's probably worth talking about the E&P business is a risky business. So our chance of success on exploration wells is typically let's call it 20% to 30%. So we need to keep that in perspective, but we also need to realize that every time, we have a success.
Speaker Change: That leads to ultimately ideally a big development in a lot of value that we can create and we've seen that at both Mercury <unk> and Tara Sue So what we do is when we're making these investment decisions. We're trying to use the best information possible. We do all the work we can to try to derisk the prospects.
Speaker Change: In advance as best we can we can't eliminate the risk obviously.
Speaker Change: Things that we do are like we've reprocessed all the three D seismic in the basin to a much higher standard and that's one of the tools that we use.
Speaker Change: And then the other thing we do is you've got to make sure you're drilling a portfolio of opportunities so that youre growing many wells and increasing your overall chances of success and I think we've done that like I said.
Speaker Change: With our with our as demonstrated by <unk> cabaret in Merck <unk>.
Speaker Change: The other thing we do is obviously, we learn from all the successes and the wells that are successful we incorporate those learnings.
Speaker Change: Our future investment decisions.
Speaker Change: And then lastly, I would say operationally, we do have a continuous improvement culture at <unk> I think we're constantly working with our service providers to try to improve our operations.
Speaker Change: We look at all of our operational practices and procedures to implement improvements.
Speaker Change: Then we get subject matter experts in when required.
Speaker Change:
Speaker Change: To really improve the execution of the projects and the other thing that we've done as demonstrated in $183 83, and with the size of it because we're trying to bring north American ideas and innovations and technologies to bear where they maybe haven't been applied before so that's a little bit.
Speaker Change: About our approach on that.
Speaker Change: Just wanted to follow up on that and what it would be worthwhile to contract more extensive drilling contractor in in the market to access.
Speaker Change: Drilling and service expertise.
Speaker Change: Is that been a consideration yes, no for sure. It is in every time, we do a drilling project. We go out for a request for.
Speaker Change: For proposal, we get all the bids impossible and we're evaluating them prices just one small component of that evaluation.
The quality of the equipment and all that is a massive part of the selection. So the reality is we don't have as many choices as we would have in western Canada. So we have to work with our service providers.
Speaker Change: There's other companies in Brazil that have taken.
Speaker Change: Things into their own hands and built their own entire service businesses, which in some cases I think there is an example of one of our peers in Brazil that has done that and I think they've got some good quality equipment. They've also got 15 or 1700 employees that are managing that business.
Speaker Change: The other reality is if we had a more continuous drilling program. It does help with that so.
Speaker Change: Our reality is we've got a little bit more of a lumpy drilling program. So we just need to try to manage that as best as possible.
Speaker Change: Okay, just moving back on Brookdale here can you clarify the expected Brazilian royalty going forward. So as I mentioned that the Q1 had included some historical.
Speaker Change: Royalty adjustments so hence our it was about 11, 9% effective royalty rate in Q1.
Speaker Change: Going forward ultimately it'll depend on forecasted commodity prices that we're forecasting more like 5% to 6%.
Speaker Change: Okay.
Speaker Change: Back to Canada do you have a set wty price that would require.
Speaker Change: Would be required to hit payback in 12 months.
Speaker Change: Yes, so that was basically the economics that we ran when we entered into departments. So we were probably closer to $70 WTO.
Speaker Change: And then on the corporate side to what extent would major players in Brazil be interested in acquiring our Brazilian assets.
Speaker Change: Yes, well thats hard to speculate on that but I think we built a pretty impressive platform and and we have some highly strategic midstream infrastructure in a very attractive gas sales agreements. So yes, no I would think thats attractive, but we don't.
Speaker Change: Think too much about that we try to focus on the business and making sure we're growing the business and adding value for shareholders.
Speaker Change: Okay and with that we don't we have no further questions.
Speaker Change: All right well. Thank you everyone for attending if you've got any questions. After the fact feel free to give any of US a call and again, we look forward to doing this again in three months.
Speaker Change: Goodbye.