Alvopetro Announces Operational Update, Updated 2015 Capital Plan, Year-End 2014 Financial Results and Filing of Annual Information Form
Alvopetro Energy Ltd. (TSX VENTURE:ALV) is pleased to provide an operational update, our updated 2015 capital plan, announce our fourth quarter 2014 and year-end 2014 financial results and the filing of our annual information form.
We recently tested the first and second intervals of our 197(2) well. During the 72 hour test of each interval, the well flowed natural gas, on an unstimulated basis, at an average rate of 101,000 m3/d (3.6 MMcfpd or 600 boepd) from the first interval and 53,000 m3/d (1.9 MMcfpd or 310 boepd) from the second interval. The testing and evaluation of this well continues. We are very pleased with the results to date indicating high deliverability of the 197(2) well with the potential to add meaningful future reserves and production. The initial pressure transient analysis of the first interval alone forecasts potential post-stimulation rates at 261,000 m3/d (9.2 MMcfpd or 1,530 boepd) after three months of continuous production and 125,000 m3/d (4.4 MMcfpd or 730 boepd) after one year of continuous production, in both instances at 1,000 psi sandface pressure.
The 197(2) well is currently shut-in to measure reservoir pressure and obtain pressure build-up data to undertake a pressure transient analysis, which will allow Alvopetro to predict the deliverability of the second interval. After completing the pressure build-up test, the second interval will be temporarily suspended with a retrievable bridge plug and the completion will proceed up-hole to test the third uppermost interval within the gas column.
In the second quarter of 2015, we plan to drill our 182(2) well, located on Block 182. The 182(2) well is a conventional prospect targeting the Agua Grande formation, with additional potential in the Sergi Formation and satisfies our current phase exploration work commitment. We have recently identified two additional prospects on this block.
During 2014, Alvopetro focused significant effort on reprocessing and interpreting our extensive 3D seismic database, enabling us to expand our 9-well inventory of conventional exploration opportunities to an 18-well inventory. Of our 18-well prospect inventory, three prospects are analogous to our 197(2) discovery. The remainder of our 2015 drilling program is expected to commence in the second half of 2015, subject to equipment availability.
Updated 2015 Capital Plan
Alvopetro’s strategy targets three core opportunities, being: lower risk development drilling on our mature fields, an expanding inventory of shallow conventional exploration prospects, and the development of the significant hydrocarbon potential present in our deep Gomo resource play. Our original 2015 base capital plan was estimated at $25 million. In light of the significant natural gas discovery at our 197(2) well, worldwide commodity prices and anticipated reductions in oilfield service costs, we have revised our base capital plan to $17 million. Our base 2015 capital forecast is expected to include:
- Drilling one oil development well on our Bom Lugar mature field;
- Drilling our 182(2) conventional oil exploration prospect;
- Drilling one additional conventional oil exploration prospect; and
- Advancing our Gomo resource play by completing and testing the 183(1) well and defining deliverability through the use of fracture stimulations and reservoir modelling.
Financial Resources and Commitments
Our financial resources remain strong at $45.6 million at year-end and, combined with our recent relinquishment of less prospective blocks (131, 132, 144, and 157) and the elimination of the associated four well commitment, allow us to focus our capital on our higher impact and more prospective assets. Our year-end December 31, 2014 financial statements and financial resources already reflect the costs associated with these relinquishments and our financial flexibility will be even further improved upon the release of credit support associated with the performance guarantees. Of our 12 remaining exploration blocks, seven were acquired in the 11th and 12th Brazil Bid Rounds, providing us with a timeframe for completion of commitments on these blocks extending to August 2016 and May 2017, respectively.
Alvopetro remains committed to a disciplined and balanced approach to our business during this current volatility in world oil and gas markets, allowing us to preserve our significant financial flexibility and remain well-positioned to execute on opportunities.
Financial and Operating Highlights – Fourth Quarter 2014
- In December 2014, we completed drilling our 197(2) well on Block 197, which reached a total depth of 1,669 metres and encountered 78 metres of potential net natural gas pay.
- In October 2014, we completed drilling our 183(1) well, reaching a total depth of 3,550 metres and encountered 189 metres of potential net hydrocarbon pay over several intervals.
- The 197(1) well was drilled to a total depth of 3,275 metres and encountered 43 metres of potential net hydrocarbon pay over several separate intervals. We completed testing of our 197(1) well in October 2014, and the lowermost 6 metres of net pay was perforated and flowed natural gas, without stimulation, at a rate of 40 Mcfpd, with no water.
- In December 2014, Export Development Canada (“EDC”) guaranteed $15.1 million of the Company’s commitments in Brazil. Previously these commitments were supported by cash collateral held through a CAD $45 million facility with a Canadian chartered bank. EDC’s guarantee allowed for the December 31st release of $15.1 million from restricted cash to cash and cash equivalents, further improving our financial flexibility.
- We reported a net loss of $24.7 million in the fourth quarter as a result of a $22.6 million impairment charge to our exploration assets ($20.3 million) and our property, plant and equipment assets ($2.3 million). The impairment charge to our exploration assets was due to the decision to relinquish four exploration blocks and the impairment of an additional block due to limited identified prospectivity at this time. The impairment charge to our property, plant and equipment assets related to our Bom Lugar field and was mainly as a result of declining commodity prices.
- Our cash, restricted cash and working capital resources remain strong at $45.6 million, with a working capital surplus of $35.8 million (including $40.9 million of cash and cash equivalents and $3.4 million of current restricted cash) as well as non-current restricted cash of $9.7 million.
2014 Financial Highlights
- Capital expenditures increased significantly in 2014 compared to 2013 as a result of our extensive capital program in 2014 which included drilling and testing our 197(1) well, drilling our 183(1) well, drilling our 197(2) well, inventory purchases for long-lead items for future wells and $5.7 million for anticipated performance guarantee payments.
- Alvopetro’s funds flow from operations decreased in 2014 compared to 2013, largely as a result of increased G&A expenses incurred as a stand-alone company for the full year in 2014 compared to only one month in 2013, decreased oil sales due to lower commodity prices, increased production expenses as a result of workover activities, and a realized foreign exchange loss on the conversion of Canadian dollar denominated balances to U.S. dollars.
- Total assets decreased from 2014 primarily as a result of the $22.6 million impairment charge booked to exploration and evaluation assets and property, plant and equipment as well as the decline in Brazilian real denominated asset balances.
Summary of Q4 2014 and Year-End 2014 Results
The following table provides a summary of Alvopetro’s financial and operating results for the periods noted. The audited consolidated financial statements with the Management’s Discussion and Analysis (“MD&A”) are available on our website at www.alvopetro.com and will be available on the System for Electronic Document Analysis and Retrieval (SEDAR) website at www.sedar.com. The summary of annual and quarterly results contained in this news release represents a comparison of the year ended December 31, 2014 and the year ended December 31, 2013.
SELECTED QUARTERLY AND ANNUAL RESULTS
|($000s, except where noted)|
|Funds flow from operations (1)||(1,482||)||(7,722||)||(4,836||)|
|Per share – basic and diluted ($)(2)||(0.02||)||(0.09||)||(0.06||)|
|Net loss attributable to common shareholders||(24,662||)||(31,709||)||(7,398||)|
|Per share – basic and diluted ($)(2)||(0.29||)||(0.37||)||(0.09||)|
|Capital and other asset expenditures||16,239||44,366||7,709|
|Net working capital surplus (1) (3)||35,844||35,844||98,507|
|Common shares outstanding, end of year (000s)|
|Operating netback ($/bbl) (1)|
|Brent benchmark price||76.98||99.51||108.52|
|Realized sales price||59.70||87.06||94.09|
|Royalties and production taxes||(4.71||)||(8.77||)||(9.58||)|
|Average daily crude oil production (bopd)||37||33||35|
|(1)||Non-GAAP measure. See “Non-GAAP Measures” section within this news release.|
|(2)||Consists of outstanding common shares and stock options of the Company as at December 31, 2014.|
|(3)||Includes current restricted cash of $3.4 million (December 31, 2013 – $nil) but excludes non-current restricted cash of $9.7 million.|
Annual General Meeting
Alvopetro’s Annual General Meeting is scheduled to be held on Tuesday, May 26, 2015 at 9:00 a.m. at the Centrium Place Conference Centre, 2nd Floor (+15 level), 332 – 6th Avenue S.W. Calgary, Alberta, Canada. All interested parties are invited to attend. Our Annual General Meeting will also be available via audio webcast: http://www.gowebcasting.com/6522.
To view Alvopetro’s audited consolidated financial statements, the related MD&A and the annual information form (“AIF”) for the years ended December 31, 2014 and December 31, 2013 please visit our website at www.alvopetro.com or www.sedar.com. To the extent investors do not have access to the internet, copies of the audited consolidated financial statements, the related MD&A and the AIF can be obtained on request without charge by contacting Alvopetro at 587.794.4224 or at 1175, 332-6th Avenue SW, Calgary, Alberta, T2P 0B2.
Letter to Shareholders and Updated Corporate Presentation
Alvopetro’s annual letter to shareholders is available on our website at www.alvopetro.com/shareholder-documents, and our updated corporate presentation is available at: http://www.alvopetro.com/corporate-presentation.
Annual Information Form
Alvopetro has filed its AIF with the Canadian securities regulators on SEDAR. The AIF includes the disclosure and reports relating to oil and gas reserves data and other disclosures for oil and gas activities required pursuant to National Instrument 51-101 of the Canadian Securities Administrators. The AIF may be accessed electronically from our website at www.alvopetro.com or www.sedar.com.
Alvopetro Energy Ltd.’s vision is to be the premier independent exploration and production company in Brazil, maximizing shareholder value by applying innovation to underexploited opportunities, while maintaining our focus on being a low cost operator. Our strategy is to pursue development of our highly prospective land base with a three-pronged approach targeting lower risk development drilling on our mature fields, shallow conventional exploration opportunities, and the development of the significant hydrocarbon opportunity present in our deep Gomo resource play. Alvopetro’s strong financial position, along with our exceptionally talented technical team, local operating capabilities, and highly prospective land base, position us to successfully develop our opportunities.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.
All amounts contained in this news release are in United States dollars, unless otherwise noted.
Forward-Looking Statements and Cautionary Language. This news release contains “forward-looking information” within the meaning of applicable securities laws. The use of any of the words “will”, “plan”, “intend” and other similar words or expressions are intended to identify forward-looking information. More particularly and without limitation, this news release contains forward-looking information concerning financial results and operating results, reserves and potential hydrocarbons in our assets, exploration and development prospects of Alvopetro and the expected timing of certain of Alvopetro’s testing and operational activities. The forward‐looking statements are based on certain key expectations and assumptions made by Alvopetro, including expectations and assumptions concerning testing results, the timing of regulatory licenses and approvals, availability of capital, the success of future drilling and development activities, prevailing commodity prices and economic conditions, the availability of labour and services, the ability to transport and market our production, timing of completion of infrastructure and transportation projects, weather and access to drilling locations. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors. Although Alvopetro believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Alvopetro can give no assurance that it will prove to be correct. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the operations or financial results of Alvopetro are included in our annual information form which may be accessed through the SEDAR website at www.sedar.com. The forward-looking information contained in this news release is made as of the date hereof and Alvopetro undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
Test Results. Any references in this news release to test results, production from testing and performance rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such well will continue production and decline thereafter. Test results are not necessarily indicative of long-term performance of the relevant well or fields or of ultimate recovery of hydrocarbons.
|m3/d||=||cubic metre per day|
|Mcfpd||=||thousand cubic feet per day|
|MMcf||=||million cubic feet|
|MMcfpd||=||million cubic feet per day|
|Boepd||=||barrels of oil equivalent per day|
BOE Disclosure. The term barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet per barrel (6Mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in this news release are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.
Non-GAAP Measures. This news release contains financial terms that are not considered measures under Canadian generally accepted accounting principles (“GAAP”), such as funds flow from operations, funds flow per share, net working capital surplus and operating netback. These measures are commonly utilized in the oil and gas industry and are considered informative for management and shareholders. Specifically, funds flow from operations and funds flow per share reflect cash generated from operating activities before changes in non-cash working capital. Management considers funds flow from operations and funds flow per share important as they help evaluate performance and demonstrate the Company’s ability to generate sufficient cash to fund future growth opportunities. Net working capital surplus includes current assets (including current restricted cash) less current liabilities and is used to evaluate the Company’s financial leverage. Operating netback is determined by dividing oil sales less royalties and production taxes, transportation and operating expenses by sales volume of produced oil. Management considers operating netback important as it is a measure of profitability per barrel sold and reflects the economic quality of production. Funds flow from operations, funds flow per share, net working capital surplus and operating netbacks may not be comparable to those reported by other companies nor should they be viewed as an alternative to cash flow from operations, net income or other measures of financial performance calculated in accordance with GAAP.