Alvopetro Energy Ltd. press release

Alvopetro Announces 17% Increase in Quarterly Dividend to US$0.14/share, Year End 2022 Financial Results, Filing of Annual Information Form, Automatic Share Repurchase Plan and an Operational Update

2023-03-21

TSXV - TSX Venture Exchange · Natural Gas · Natural Gas Liquids · Oil · Canada · Corporate Finance

Canada NewsWire

CALGARY, AB , March 21, 2023 /CNW/ - Alvopetro Energy Ltd. (TSXV: ALV) (OTCQX: ALVOF) is pleased to announce a 17% increase in our quarterly dividend, to US$0.14 per common share, our financial results for the year ended December 31, 2022 , filing of our annual information form, an automatic share repurchase plan, and an operational update.

All references herein to $ refer to United States dollars, unless otherwise stated and all tabular amounts are in thousands of United States dollars, except as otherwise noted.

President & CEO, Corey C. Ruttan commented:

"We are very pleased with our 2022 results, from revenues of $63.5 million we generated $49.9 million of funds flow from operations and net income of $31.7 million , increases of 82%, 102% and 467% respectively, year over year. This represents industry leading operating netback margins underpinning our disciplined capital allocation model that balances organic growth and stakeholder returns. Since commencing production from our Caburé project in 2020, we have repaid all outstanding debt and today's announcement represents the third increase in our quarterly dividend since Q1 2022. With this, we will have already returned $22 million ( $0.62 /share) to shareholders in the form of dividends. We are also firmly focused on our next phase of growth and are looking forward to an exciting 2023 capital program."

Quarterly Dividend Increased 17% to $0.14 per Share

Alvopetro is pleased to announce that our Board of Directors has approved a 17% increase in our quarterly dividend, to $0 .14 per common share, payable in cash on April 14, 2023, to shareholders of record on March 31, 2023. This dividend is designated as an "eligible dividend" for Canadian income tax purposes.

Dividend payments to non-residents of Canada will be subject to withholding taxes at the Canadian statutory rate of 25%. Shareholders may be entitled to a reduced withholding tax rate under a tax treaty between their country of residence and Canada. For further information, see Alvopetro's website at https://alvopetro.com/Dividends-Non-resident-Shareholders .

Operational Update

Our average daily sales have continued at strong rates in 2023, averaging 2,754 boepd in January and a new daily record of 2,866 boepd in February. Effective February 1, 2023 , our natural gas price increased to BRL2.00 /m 3 and is effective for all natural gas sales from February 1 to July 31, 2023 . Including recently approved and enhanced sales tax credits, our realized gas price, net of sales taxes, for the month of February was approximately $12.23 /Mcf (based on our average heat content to date and the average February 2023 BRL/USD foreign exchange rate of 5.17).

On February 6, 2023 , we announced our 2023 capital program, focused on lower risk development opportunities on our Murucututu natural gas project and our Bom Lugar oil field. We have commenced stimulation operations at our 197(1) well on Murucututu. The 197(1) well location has already been tied in to our 183(1) facility and we expect to commence production from the well in the second quarter. Following this stimulation, we plan to drill two follow-up wells at Murucututu, with one well having additional uphole exploration potential. We have budgeted total capital expenditures of $16 million for our Murucututu project in 2023.

On our Bom Lugar field, we plan to drill up to two development wells in 2023, targeting the Caruaçu Formation with additional potential in the deeper Gomo and Agua Grande Formations, the first of which is planned for the second quarter. Total capital expenditures of up to $11 million are budgeted at Bom Lugar.

Additional capital spending budgeted for 2023 includes $3 million on our Caburé field for the expansion of unit facilities and drilling two additional wells, $0.5 million at our Mãe-da-lua field for stimulation of the existing well and $0.4 million in capital expenditures at our 182-C2 and 183-B2 wells.

Automatic Share Repurchase Plan

In January 2023 , we received approval from the TSX Venture Exchange ("TSXV") for a normal course issuer bid (the "NCIB") as more particularly described in our news release dated January 3, 2023 . The terms of the NCIB permit Alvopetro to repurchase up to 2,876,414 common shares from January 6, 2023 to the earlier of January 5, 2024 or when the NCIB is completed or terminated by Alvopetro. No repurchases have been made under the NCIB to date.

Alvopetro intends to enter into an automatic share purchase plan ("ASPP") with our designated broker, subject to the approval of the TSXV. The ASPP is intended to allow for the purchase of common shares under the NCIB at times when the Corporation may not ordinarily be permitted to purchase common shares due to regulatory restrictions and customary self-imposed blackout periods.

The ASPP is to be implemented upon TSXV approval and would allow the designated broker to purchase common shares pursuant to the proposed ASPP until the expiry of the NCIB on January 5, 2024 . Such purchases will be determined by the broker at its sole discretion based on the purchasing parameters set out by the Corporation in accordance with the rules of the TSXV, applicable securities laws and the terms of the ASPP. The ASPP will terminate on the earlier of the date on which: (i) the NCIB expires; (ii) the maximum number of common shares have been purchased under the ASPP; and (iii) the Corporation terminates the ASPP in accordance with its terms.

Outside of the ASPP and outside of pre-determined blackout periods, common shares may continue to be purchased under the NCIB based on management's discretion, in compliance with the rules of the TSXV and applicable securities laws. All purchases made under the ASPP will be included in the number of common shares available for purchase under the NCIB.

December 31, 2022 Reserves and Net Asset Value

On February 28, 2023 , Alvopetro announced its December 31, 2022 reserves based upon the independent reserve assessment and evaluation prepared by GLJ Ltd. ("GLJ") dated February 27, 2023 with an effective date of December 31, 2022 (the "GLJ Reserves and Resources Report").

Key highlights from the GLJ Reserves and Resources Report 1 :

2P net present value before tax discounted at 10% ("NPV10") increased 17% to $348.2 million . Proved reserves ("1P") decreased 12% to 3.9 MMboe and 2P reserves increased 3% to 9.0 MMboe after 0.9 MMboe of production in 2022. 2P production replacement ratio of 132%. 2P F&D costs of $28.66 /boe. 2P recycle ratio of 2.1 times. 2P Net Asset Value of CAD$13.70 /share ( $9.99 /share) before any potential from contingent or prospective resources. Risked best estimate contingent resource of 2.9 MMboe (NPV10 $62.2 million ) and risked best estimate prospective resource of 12.5 MMboe (NPV10 $259.1 million ).

| 1 Refer to the section entitled "Oil and Natural Gas Advisories" for additional disclosures regarding oil and natural gas reserves, contingent resources and prospective resources. In addition refer to "Oil and – Natural Gas Advisories - Other Metrics" and "Non-GAAP and Other Financial Measures" for additional disclosures and assumptions used in calculating production replacement ratio, F&D costs, recycle ratio, net asset value and net asset value per share. |

Financial and Operating Highlights – Fourth Quarter of 2022

Our average daily sales increased to a new quarterly record of 2,724 boepd (+3% from Q3 2022 and +12% from Q4 2021). With natural gas sales in Q4 2022 continuing at the ceiling price in our contract, our average realized natural gas price was $11.18 /Mcf (+58% from Q4 2021) and our average realized price per boe was $68.13 (+54% from Q4 2021). Higher realized prices and record daily sales volumes resulted in a 73% increase in our natural gas, condensate and oil revenue compared to Q4 2021. Our operating netback was $60.08 per boe in Q4 2022, an improvement of $23.70 per boe from Q4 2021 (+65%) and $0.25 per boe from Q3 2022. We generated funds flows from operations of $13.2 million ( $0.36 per basic share and $0.35 per diluted share), an increase of $6.7 million compared to Q4 2021 and a decrease of $0.2 million compared to Q3 2022. We reported net income of $5.2 million in Q4 2022, an increase of $2.4 million (+87%) compared to Q4 2021. Net income was impacted by impairment expense of $6.3 million recognized on exploration assets. Capital expenditures totaled $5.9 million , including drilling and testing costs for our 182-C2 well, testing of the Unit-C well and facilities expenditures at the Caburé unit, testing costs for our 183-B1 well, development costs on our Murucututu project and long-lead purchases. Our Q4 2022 dividend increased 50% to $0.12 per share. The Q4 2022 dividend was paid on January 13, 2023 to shareholders of record on December 30, 2022 . Our cash and working capital increased to $14.7 million , an improvement of $2.5 million compared to September 30, 2022 and an increase of $12.1 million compared to December 31, 2021 working capital net of debt of $2.6 million .

Financial and Operating Highlights – Year Ended December 31, 2022

Our annual sales averaged 2,557 boepd (95% natural gas, 4% NGLs from condensate and marginal crude oil production), an increase of 8% compared to 2021. We reported net income of $31.7 million , compared to $5.6 million in 2021 (+467%). We generated funds flow from operations of $49.9 million ( $1.44 per basic share on $1.35 per diluted share) compared to $24.6 million in 2021 ( $0.74 per basic share and $0.71 per diluted share). Capital expenditures totaled $24.8 million in 2022. In the third quarter of 2022, all outstanding warrants were exercised. Alvopetro received cash proceeds of $2.4 million and issued a total of 2,081,616 common shares on the exercise. The credit facility was fully repaid in September 2022 and has been cancelled. Dividends totaled $0.36 per share in 2022 compared to $0.12 per share in 2021 (+200%).

The following table provides a summary of Alvopetro's financial and operating results for periods noted. The 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 .

| | As at and Three Months Ended

December 31, | As at and Year Ended

December 31, | | | | | | | 2022 | 2021 | Change (%) | 2022 | 2021 | Change (%) | | Financial | | | | | | | | ($000s, except where noted) | | | | | | | | Natural gas, oil and condensate sales | 17,077 | 9,896 | 73 | 63,508 | 34,980 | 82 | | Net income | 5,191 | 2,778 | 87 | 31,732 | 5,595 | 467 | | Per share – basic ($) (1) | 0.14 | 0.08 | 75 | 0.92 | 0.17 | 441 | | Per share – diluted ($) (1) | 0.14 | 0.08 | 75 | 0.86 | 0.16 | 438 | | Cash flow from operating activities | 12,366 | 7,088 | 74 | 47,534 | 24,291 | 96 | | Per share – basic ($) (1) | 0.34 | 0.21 | 62 | 1.37 | 0.73 | 88 | | Per share – diluted ($) (1) | 0.33 | 0.20 | 65 | 1.29 | 0.70 | 84 | | Funds flow from operations (2) | 13,193 | 6,480 | 104 | 49,879 | 24,637 | 102 | | Per share – basic ($) (1) | 0.36 | 0.19 | 89 | 1.44 | 0.74 | 95 | | Per share – diluted ($) (1) | 0.35 | 0.18 | 94 | 1.35 | 0.71 | 90 | | Dividends declared | 4,357 | 2,034 | 114 | 12,697 | 4,057 | 213 | | Per share (1) | 0.12 | 0.06 | 100 | 0.36 | 0.12 | 200 | | Capital expenditures | 5,944 | 1,470 | 304 | 24,795 | 4,513 | 449 | | Cash and cash equivalents | 19,784 | 11,469 | 72 | 19,784 | 11,469 | 72 | | Net working capital surplus (2) | 14,698 | 9,097 | 62 | 14,698 | 9,097 | 62 | | Working capital, net of debt (2) | 14,698 | 2,552 | 476 | 14,698 | 2,552 | 476 | | Weighted average shares outstanding | | | | | | | | Basic (000s) (1) | 36,231 | 33,824 | 7 | 34,642 | 33,103 | 5 | | Diluted (000s) (1) | 37,298 | 35,986 | 4 | 36,919 | 34,928 | 6 | | Operations | | | | | | | | Natural gas, NGLs and crude oil sales: | | | | | | | | Natural gas (Mcfpd) | 15,546 | 13,966 | 11 | 14,647 | 13,517 | 8 | | NGLs – condensate (bopd) | 128 | 103 | 24 | 110 | 103 | 7 | | Oil (bopd) | 5 | 2 | 150 | 6 | 2 | 200 | | Total (boepd) | 2,724 | 2,432 | 12 | 2,557 | 2,358 | 8 | | | | | | | | | | Average realized prices (2) : | | | | | | | | Natural gas ($/Mcf) | 11.18 | 7.07 | 58 | 11.07 | 6.50 | 70 | | NGLs – condensate ($/bbl) | 89.29 | 84.36 | 6 | 103.50 | 75.89 | 36 | | Oil ($/bbl) | 79.50 | 76.47 | 4 | 82.67 | 63.61 | 30 | | Company total ($/boe) | 68.13 | 44.22 | 54 | 68.04 | 40.64 | 67 | | | | | | | | | | Operating netback ($/boe) (2) | | | | | | | | Realized sales price | 68.13 | 44.22 | 54 | 68.04 | 40.64 | 67 | | Royalties | (4.15) | (4.22) | (2) | (4.81) | (3.61) | 33 | | Production expenses | (3.90) | (3.62) | 8 | (3.80) | (3.64) | 4 | | Operating netback | 60.08 | 36.38 | 65 | 59.43 | 33.39 | 78 | | Operating netback margin (2) | 88 % | 82 % | 7 | 87 % | 82 % | 6 |

| Notes: | | (1) Per share amounts are based on weighted average shares outstanding other than dividends per share, which is based on the number of common shares outstanding at each dividend record date. The weighted average number of diluted common shares outstanding in the computation of funds flow from operations and cash flows from operating activities per share is the same as for net income per share. | | (2) See " _Non-GAAP and Other Financial Measures _" section within this news release. |

2022 Results Webcast

Alvopetro will host a live webcast to discuss 2022 financial results at 9:00 am Mountain time on Wednesday March 22, 2023. Details for joining the event are as follows:

DATE: March 22, 2023 TIME: 9:00 AM Mountain/ 11:00 AM Eastern LINK: https://us06web.zoom.us/j/83279531812 DIAL-IN NUMBERS: https://us06web.zoom.us/u/kcfqlsznW WEBINAR ID: 832 7953 1812

The webcast will include a question and answer period. Online participants will be able to ask questions through the Zoom portal. Dial-in participants can email questions directly to socialmedia@alvopetro.com .

Annual Information Form

Alvopetro has filed its annual information form ("AIF") with the Canadian securities regulators on SEDAR. The AIF includes the disclosure and reports relating to oil and gas reserves data and other oil and gas information required pursuant to National Instrument 51-101 of the Canadian Securities Administrators. The AIF may be accessed electronically at www.sedar.com .

Corporate Presentation

Alvopetro's updated corporate presentation is available on our website at:

http://www.alvopetro.com/corporate-presentation .

Social Media

Follow Alvopetro on our social media channels at the following links:

Twitter - https://twitter.com/AlvopetroEnergy Instagram - https://www.instagram.com/alvopetro/ LinkedIn - https://www.linkedin.com/company/alvopetro-energy-ltd

_Alvopetro Energy Ltd.'s __vision is to become a leading independent upstream and midstream operator in Brazil . Our strategy is to unlock the on-shore natural gas potential in the state of Bahia in Brazil , building off the development of our Caburé natural gas field and our strategic midstream infrastructure. _

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.

Abbreviations:

| $000s | = | thousands of U.S. dollars | | 1P | = | proved reserves | | 2P | = | proved plus probable reserves | | bbls | = | barrels | | boepd | = | barrels of oil equivalent ("boe") per day | | bopd | = | barrels of oil and/or natural gas liquids (condensate) per day | | BRL | = | Brazilian Real | | CAD | = | Canadian dollars | | F&D | = | finding and development costs | | FDC | = | future development costs | | m 3 | = | cubic metre | | Mcf | = | thousand cubic feet | | Mcfpd | = | thousand cubic feet per day | | MMcf | = | million cubic feet | | MMcfpd | = | million cubic feet per day | | NGLs | = | natural gas liquids | | Q4 2021 | = | three months ended December 31, 2021 | | Q3 2022 | = | three months ended September 30, 2022 | | Q4 2022 | = | three months ended December 31, 2022 |

Oil and Natural Gas Advisories

Oil and Natural Gas Reserves

The disclosure in this news release summarizes certain information contained in the GLJ Reserves and Resources Report but represents only a portion of the disclosure required under National Instrument 51-101 ("NI 51-101"). For additional details, see our news release dated February 28, 2023 . Full disclosure with respect to the Company's reserves as at December 31, 2022 is contained in the Company's annual information form for the year ended December 31, 2022 which has been filed on SEDAR ( www.sedar.com ). All net present values in this press release are based on estimates of future operating and capital costs and GLJ's forecast prices as of December 31, 2022 . The reserves definitions used in this evaluation are the standards defined by the Canadian Oil and Gas Evaluation Handbook (COGEH) reserve definitions, are consistent with NI 51-101 and are used by GLJ. The net present values of future net revenue attributable to the Alvopetro's reserves estimated by GLJ do not represent the fair market value of those reserves. Other assumptions and qualifications relating to costs, prices for future production and other matters are summarized herein. The recovery and reserve estimates of the Company's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates provided herein. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

Contingent Resources

This news release discloses estimates of Alvopetro's contingent resources and the net present value associated with net revenues associated with the production of such contingent resources as included in the GLJ Reserves and Resources Report. There is no certainty that it will be commercially viable to produce any portion of such contingent resources and the estimated future net revenues do not necessarily represent the fair market value of such contingent resources. Estimates of contingent resources involve additional risks over estimates of reserves. For additional details with respect to Alvopetro's contingent resources evaluated as at December 31, 2022 , see our news release dated February 28, 2023 and additional details contained in the Company's annual information form for the year ended December 31, 2022 which has been filed on SEDAR ( www.sedar.com ).

Prospective Resources

This news release discloses estimates of Alvopetro's prospective resources included in the GLJ Reserves and Resources Report. There is no certainty that any portion of the prospective resources will be discovered and even if discovered, there is no certainty that it will be commercially viable to produce any portion. Estimates of prospective resources involve additional risks over estimates of reserves. The accuracy of any resources estimate is a function of the quality and quantity of available data and of engineering interpretation and judgment. While resources presented herein are considered reasonable, the estimates should be accepted with the understanding that reservoir performance subsequent to the date of the estimate may justify revision, either upward or downward. For additional details with respect to Alvopetro's prospective resources evaluated as at December 31, 2022 , see our news release dated February 28, 2023 and additional details contained in the Company's annual information form for the year ended December 31, 2022 which has been filed on SEDAR ( www.sedar.com ).

Other Metrics

This press release contains metrics commonly used in the oil and natural gas industry, which have been prepared by management, including "F&D costs", "net asset value", "net asset value per share", "production replacement ratio" and "recycle ratio". These terms do not have a standardized meaning and may not be comparable to similar measures presented by other companies, and therefore should not be used to make such comparisons.