Alvopetro Energy Ltd. press release

Alvopetro Announces 2022 Year End Reserves with a 17% Increase in 2P NPV Before Tax

2023-02-28

TSXV - TSX Venture Exchange · Natural Gas · Natural Gas Liquids · Oil · Canada · Resource Estimate

Canada NewsWire

CALGARY, AB , Feb. 28, 2023 /CNW/ - Alvopetro Energy Ltd. (TSXV: ALV) (OTCQX: ALVOF) announces our reserves as at December 31, 2022 with total proved plus probable ("2P") reserves of 9.0 MMboe and a before tax net present value discounted at 10% of $348.2 million . 2P reserve additions replaced 132% of 2022 production. 2P reserve volumes increased by 3%, despite 0.9 MMboe of production in 2022, due to reserve additions associated mainly with two additional Murucututu development locations (previously included in contingent resources). The before tax net present value of our 2P reserves (discounted at 10%) increased by 17% from December 31, 2021 , due to reserve additions and increases in forecasted natural gas prices. Alvopetro also announces the December 31, 2022 assessment of the Company's Murucututu natural gas resource with risked best estimate contingent resource of 2.9 MMboe and risked best estimate prospective resource of 12.5 MMboe. The Murucututu natural gas contingent and prospective resource values (risked best estimate net present value before tax, discounted at 10%) are $62.2 million and $259.1 million , respectively. The reserves and resources data set forth herein is based on an independent reserves and resources 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").

All references herein to $ refer to United States dollars, unless otherwise stated.

December 31, 2022 GLJ Reserves and Resource Report Highlights

2P net present value before tax discounted at 10% 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 (1) of 132%. 2P F&D costs (1) estimated at $28.66 /boe. 2P recycle ratio (1) estimated at 2.1 times. 2P Net Asset Value (1) of CAD$13.56 /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 ).

Corey Ruttan , President and Chief Executive Officer, commented:

"Our 2022 year-end reserves and resource evaluations highlight the continued strong profitability from our Caburé natural gas field and the long-term potential of our Murucututu project. The increase in forecasted cash flows reflects the impact of reserve additions associated with our near-term development plans on our Murucututu asset and increases in forecasted natural gas prices under our long-term gas sales agreement. Our 2023 capital program is focused on lower risk development opportunities including accelerated activity on our Murucututu asset targeting the long-term natural gas potential of this field."

| (1) | Refer to the sections entitled " _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. |

SUMMARY

December 31, 2022 Gross Reserve and Gross Resource Volumes : (1)(2)(3)(4)(5)(6)

| December 31, 2022 Reserves (Gross) | Total Proved

(1P) | Total Proved

plus Probable

(2P) | Total Proved plus

Probable plus Possible

(3P) | | | (Mboe) | (Mboe) | (Mboe) | | Caburé Natural Gas Field | 2,505 | 4,146 | 5,637 | | Murucututu Natural Gas Field | 1,232 | 4,584 | 8,149 | | Bom Lugar Oil Field | 148 | 269 | 542 | | Mãe-da-lua Oil Field | 25 | 38 | 55 | | Total Company Reserves | 3,909 | 9,037 | 14,382 | | See 'Footnotes' section at the end of this news release | | | | | | | | | | December 31, 2022 Murucututu Resources (Gross) | Low Estimate | Best Estimate | High Estimate | | | (Mboe) | (Mboe) | (Mboe) | | Risked Contingent Resource

Risked Prospective Resource | 2,639

6,774 | 2,907

12,501 | 4,228

18,481 | | See 'Footnotes' section at the end of this news release | | | |

Net Present Value Before Tax Discounted at 10% : (1)(2)(3)(4)(5)(6)(7)(8)

| Reserves | 1P | 2P | 3P | | | ($000s) | ($000s) | ($000s) | | Caburé Property | 134,023 | 211,924 | 270,744 | | Murucututu Property | 33,034 | 126,946 | 222,675 | | Other Properties | 3,693 | 9,306 | 18,542 | | Total Company | 170,751 | 348,176 | 511,961 | | See 'Footnotes' section at the end of this news release | | | | | | | | | | Murucututu Resource | Low Estimate | Best Estimate | High Estimate | | | ($000s) | ($000s) | ($000s) | | Risked Contingent Resource

Risked Prospective Resource | 58,892

128,581 | 62,218

259,119 | 92,105

383,605 | | See 'Footnotes' section at the end of this news release | | | |

NET ASSET VALUE

Following the December 31, 2022 reserves evaluation, based on the before tax net present value of Alvopetro's 2P reserves (discounted at 10%), our total 2P net asset value is $362.9 million ; CAD$13.56 per common share outstanding. Our 2P net asset value of $362.9 million is before including the before tax net present value (discounted at 10%) of our risked best estimate risked contingent resource of $62.2 million and our risked prospective resource of $259.1 million from the Murucututu natural gas field.

| Net Asset Value (in $000s, other than per share amounts) | 1P | 2P | 3P | | Before Tax Net Present Value, Discounted at 10% ($000s) | 170,751 | 348,176 | 511,961 | | Net working capital – as at December 31, 2022 (1)(2) | 14,698 | 14,698 | 14,698 | | Total Net Asset Value (2),(3)(4) | 185,449 | 362,874 | 526,659 | | CAD per basic share (5) | 6.93 | 13.56 | 19.69 |

| (1) | Working capital is estimated as of December 31, 2022 and based on unaudited financial information and is subject to change. See "Unaudited Financial Information" in this press release. | | (2) | Non-GAAP measure. See ' _Non-GAAP and Other Financial Measures _' in this news release for additional details. | | (3) | Alvopetro has reflected the contractual obligations pursuant to our September 2018 Gas Treatment Agreement with Enerflex, including the equipment rental component of the agreement which is treated as a right of use asset and reflected as a capital lease obligation on our financial statements. As the future capital lease payments reduce the forecasted future net revenue in all reserves categories, the capital lease obligation as reflected on the Company's financial statements has not been included in the table above. | | (4) | The net asset value reflected above includes the present value of before tax cash flows from the Company's reserves only. No amounts have been included with respect to contingent or prospective resource volumes. | | (5) | Converted to Canadian dollars ("CAD") based on the exchange rate on February 27, 2023. The per share calculation is computed based on 36.3 million common shares outstanding as of February 27, 2023. |

PRICING ASSUMPTIONS – FORECAST PRICES AND COSTS

GLJ employed the following pricing and inflation rate assumptions as of January 1, 2023 in the GLJ Reserves and Resources Report in estimating reserves and resources data using forecast prices and costs.

| Year | Brent Blend

Crude Oil FOB

North Sea

($/Bbl) | National

Balancing Point

(UK)

($/MMBtu) | NYMEX Henry Hub

Near Month

Contract

($/MMBtu) | Alvopetro-Bahiagas

Gas Contract

$/MMBtu

(Current Year) | Alvopetro-Bahiagas

Gas Contract

$/MMBtu

(Previous Year) | Change from prior

year | | 2023 | 80.00 | 28.00 | 4.71 | 10.61 | 10.09 | 5 % | | 2024 | 80.50 | 24.15 | 4.50 | 10.96 | 9.86 | 11 % | | 2025 | 81.50 | 20.00 | 4.27 | 10.79 | 9.00 | 20 % | | 2026 | 82.00 | 14.00 | 4.35 | 11.01 | 8.89 | 24 % | | 2027 | 82.53 | 10.75 | 4.44 | 11.12 | 8.99 | 24 % | | 2028 | 84.14 | 10.98 | 4.53 | 10.75 | 9.15 | 17 % | | 2029 | 85.85 | 11.20 | 4.62 | 10.73 | 9.33 | 15 % | | 2030 | 87.58 | 11.43 | 4.71 | 10.88 | 9.52 | 14 % | | 2031 | 89.32 | 11.66 | 4.80 | 11.09 | 9.71 | 14 % | | 2032* | 91.11 | 11.89 | 4.90 | 11.30 | 9.90 | 14 % |

| *Escalated at 2% per year thereafter |

As of February 1, 2023 , Alvopetro's contracted natural gas price under the terms of our long-term gas sales agreement is based on the ceiling price within the contract and is forecasted to remain at the ceiling price until 2027. The ceiling price incorporates assumed US inflation of 3% in 2023 and 2% thereafter.

GLJ RESERVES AND RESOURCES REPORT

The GLJ Reserves and Resources Report has been prepared in accordance with the standards contained in the Canadian Oil and Gas Evaluation Handbook ("COGEH") that are consistent with the standards of National Instrument 51-101 ("NI 51-101"). GLJ is a qualified reserves evaluator as defined in NI 51-101. The GLJ Reserves and Resources Report was an evaluation of all reserves of Alvopetro including our Caburé and Caburé Leste natural gas fields (collectively referred to as our Caburé natural gas field), our Murucututu natural gas project (previously referred to as Gomo), as well as our Bom Lugar and Mãe-da-lua oil fields. The GLJ Reserves and Resources Report also includes an evaluation of the gas resources of our Murucututu natural gas. In addition to the reserves assigned to our two existing Murucututu wells (197-1 and 183-1) and four additional development locations, contingent resource was assigned to the area in proximity to our existing Murucututu reserves, deemed to be discovered. The area mapped by 3D seismic west and north of the area defined as contingent was assigned prospective resource. Additional reserves and resources information as required under NI 51-101 will be included in the Company's Annual Information Form for the 2022 fiscal year which will be filed on SEDAR by April 30, 2023 .

December 31, 2022 Reserves Information:

Summary of Reserves (1)(2)(3)

| | | | | | | | | | | | Light & Medium Oil | Conventional Natural Gas | Natural Gas Liquids | Oil Equivalent | | | | | | | Company

Gross | Company Net | Company Gross | Company Net | Company Gross | Company Net | Company Gross | Company Net | | | (Mbbl) | (Mbbl) | (MMcf) | (MMcf) | (Mbbl) | (Mbbl) | (Mboe) | (Mboe) | | Proved | | | | | | | | | | Producing | - | - | 16,291 | 15,435 | 223 | 211 | 2,938 | 2,784 | | Developed Non-Producing | 25 | 22 | - | - | - | - | 25 | 22 | | Undeveloped | 148 | 140 | 4,040 | 3,787 | 125 | 117 | 946 | 888 | | Total Proved | 173 | 162 | 20,332 | 19,222 | 348 | 328 | 3,909 | 3,694 | | Probable | 133 | 125 | 26,278 | 24,760 | 614 | 578 | 5,128 | 4,830 | | Total Proved plus Probable | 306 | 287 | 46,610 | 43,982 | 962 | 906 | 9,037 | 8,524 | | Possible | 290 | 273 | 26,499 | 24,938 | 639 | 600 | 5,345 | 5,029 | | Total Proved plus Probable plus Possible | 596 | 561 | 73,108 | 68,919 | 1,601 | 1,506 | 14,382 | 13,553 |

| See 'Footnotes' section at the end of this news release |

_ Summary of Before Tax Net Present Value of Future Net Revenue - $000s (1)(2)(3)(7)(8) _

| | Undiscounted | 5 % | 10 % | 15 % | 20 % | | | Proved | | | | | | | | | Producing | 175,155 | 159,578 | 146,947 | 136,806 | 128,400 | | | Developed Non-Producing | 454 | 453 | 446 | 437 | 427 | | | Undeveloped | 45,093 | 31,327 | 23,358 | 18,120 | 14,394 | | Total Proved | 220,702 | 191,358 | 170,751 | 155,363 | 143,221 | | | Probable | 380,085 | 240,807 | 177,426 | 140,449 | 115,665 | | | Total Proved plus Probable | 600,787 | 432,165 | 348,176 | 295,813 | 258,886 | | | Possible | 441,963 | 239,781 | 163,785 | 124,468 | 99,884 | | | Total Proved plus Probable plus Possible | 1,042,750 | 671,946 | 511,961 | 420,280 | 358,770 | |

| See 'Footnotes' section at the end of this news release |

_ Summary of After Tax Net Present Value of Future Net Revenue – $000s (1)(2)(3)(7)(8) _

| | Undiscounted | 5 % | 10 % | 15 % | 20 % | | | Proved | | | | | | | | | Producing | 156,035 | 143,855 | 133,178 | 124,356 | 116,937 | | | Developed Non-Producing | 383 | 384 | 380 | 373 | 365 | | | Undeveloped | 35,724 | 25,247 | 18,962 | 14,727 | 11,662 | | Total Proved | 192,142 | 169,486 | 152,520 | 139,456 | 128,964 | | | Probable | 289,379 | 190,348 | 142,952 | 114,291 | 94,583 | | | Total Proved plus Probable | 481,521 | 359,834 | 295,473 | 253,747 | 223,547 | | | Possible | 329,908 | 187,660 | 131,716 | 101,493 | 82,000 | | | Total Proved plus Probable plus Possible | 811,428 | 547,494 | 427,189 | 355,240 | 305,546 | |

| See 'Footnotes' section at the end of this news release |

_ Future Development Costs (1)(2)(3)(7)(8) _

The table below sets out the total development costs deducted in the estimation of future net revenue attributable to proved reserves, proved plus probable reserves and proved plus probable plus possible reserves (using forecast prices and costs), by field, in the GLJ Reserves and Resources Report. Total development costs include capital costs for drilling and facility and pipeline expenditures but excludes abandonment and reclamation costs.

Under each reserve category, Alvopetro has elected to reflect 100% of the contractual obligations pursuant to our Gas Treatment Agreement with Enerflex, including all operating, capital, and related financing costs for the full duration of the agreement. These costs are mainly attributable to the Caburé field and also represent the majority of the future development costs for the Caburé field in the table below. The future costs associated with equipment rental are also reflected as a capital lease obligation on our financial statements. Also included in future development costs for the Caburé field are two step-out wells and expansion of the unit facilities.

The future development costs for the Murucututu field in the proved category are for two development locations in the field and the stimulation of the 197(1) well. In the probable and possible categories, there are future development costs for two additional development locations. Also included in the Murucututu future development costs for all reserve categories are a portion of the anticipated contractual obligations associated with the expansion of the gas treatment facility. The future development costs for Bom Lugar in the proved category include costs for one development well and facilities upgrade. A second development well is included in the future development costs for the possible category for Bom Lugar. Future development costs at the Mãe-da-lua field relate to a stimulation of the existing producing well.

| $000s, Undiscounted | 2023 | 2024 | 2025 | 2026 | 2027 | Remaining | Total | | | Proved | | | | | | | | | | | Caburé Natural Gas Field | 4,539 | 1,730 | 6,676 | - | - | - | 12,944 | | | Murucututu Gas Field | 8,480 | 6,295 | 420 | - | - | - | 15,195 | | | Bom Lugar Oil Field | 3,910 | - | - | - | - | - | 3,910 | | | Mãe-da-lua Oil Field | 540 | - | - | - | - | - | 540 | | Total Proved | 17,469 | 8,025 | 7,096 | - | - | - | 32,590 | | | Proved Plus Probable | | | | | | | | | | | Caburé Natural Gas Field | 4,539 | 1,730 | 1,730 | 1,730 | 4,409 | - | 14,138 | | | Murucututu Gas Field | 14,680 | 13,190 | 420 | 420 | 420 | - | 29,130 | | | Bom Lugar Oil Field | 4,810 | - | - | - | - | - | 4,810 | | | Mãe-da-lua Oil Field | 540 | - | - | - | - | - | 540 | | Total Proved Plus Probable | 24,569 | 14,920 | 2,150 | 2,150 | 4,829 | - | 48,618 | | | Proved Plus Probable Plus Possible | | | | | | | | | | | Caburé Natural Gas Field | 4,539 | 1,730 | 1,730 | 1,730 | 1,730 | 3,622 | 15,080 | | | Murucututu Gas Field | 14,680 | 13,190 | 420 | 420 | 420 | 840 | 29,970 | | | Bom Lugar Oil Field | 9,650 | - | - | - | - | - | 9,650 | | | Mãe-da-lua Oil Field | 540 | - | - | - | - | - | 540 | | Total Proved Plus Probable Plus Possible | 29,409 | 14,920 | 2,150 | 2,150 | 2,150 | 4,462 | 55,240 | |

| See 'Footnotes' section at the end of this news release |

_ Reconciliation of Alvopetro's Gross Reserves (Before Royalty) (1)(2)(3)(8) _

| | | | | | | | | Proved (Mboe) | Probable (Mboe) | Proved Plus

Probable (Mboe) | Possible

(Mboe) | Proved plus

Probable plus

Possible

(Mboe) | | December 31, 2021 | 4,421 | 4,316 | 8,737 | 4,639 | 13,376 | | Extensions | 182 | 808 | 990 | 990 | 1,980 | | Technical Revisions | 239 | 4 | 242 | (283) | (41) | | Economic Factors | 1 | - | 1 | (1) | - | | Production | (933) | - | (933) | - | (933) | | December 31, 2022 | 3,909 | 5,128 | 9,037 | 5,345 | 14,382 |

| See 'Footnotes' section at the end of this news release |

December 31, 2022 Murucututu Contingent Resources Information:

Summary of Unrisked Company Gross Contingent Resources (1)(2)(5)(6)

| Development Pending Economic Contingent Resources | Low Estimate | Best Estimate | High Estimate | | Conventional natural gas (MMcf) | 14,800 | 16,302 | 23,711 | | Natural gas liquids (Mbbl) | 457 | 504 | 733 | | Oil equivalent (Mboe) | 2,924 | 3,221 | 4,684 |

| See 'Footnotes' section at the end of this news release. |

_ Summary of Before Tax Net Present Value of Future Net Revenue of Unrisked Contingent Resources- $000s (1)(2)(5)(6)(7)(8) _

| | Undiscounted | 5 % | 10 % | 15 % | 20 % | | Low Estimate | 197,575 | 103,633 | 65,254 | 45,386 | 33,458 | | Best Estimate | 228,494 | 112,051 | 68,940 | 47,609 | 35,054 | | High Estimate | 367,713 | 168,900 | 102,055 | 70,600 | 52,486 |

| See 'Footnotes' section at the end of this news release . |

The GLJ Contingent Resource Report for Murucututu assumes capital deployment starting in 2024 for the drilling of wells with total project costs of $19.1 million and first commercial production in 2024. The information presented herein is based on company net project development costs. The recovery technology assumed for purposes of the estimate is based on established technologies utilized repeatedly in the industry.

There can be no certainty that the project will be developed on the timelines discussed herein. The project is based on a pre-development study. Development of the project is dependent on several contingencies as further described in this news release. Significant positive factors relevant to the estimate include existing production in close proximity, proximity to infrastructure, existing long-term gas sales agreement and corporate commitment to the project. Significant negative factors relevant to the estimate include reservoir performance and the economic viability of the project (with sensitivity to low commodity prices), access to and amount of capital required to develop resources at an acceptable cost, and regulatory approvals for planned activities including stimulations and new infrastructure developments.

Summary of Development Pending Risked Company Gross Contingent Resources (1)(2)(5)(6)

The GLJ Reserves and Resources Report estimates the Chance of Development as the product of two main contingencies associated with the project development, which are: 1) the probability of corporate sanctioning, which GLJ estimates at 95%; 2) the probability of finalization of a development plan, which GLJ estimates at 95%. The product of these two contingencies is 90%. As there is no risk related to discovery, the Chance of Commerciality for the contingent resource is therefore 90% which is the risk factor that has been applied to the Development Risked company gross contingent resources and the net present value figures reported below.

| | Low Estimate | Best Estimate | High Estimate | | Conventional natural gas (MMcf) | 13,357 | 14,713 | 21,399 | | Natural gas liquids (Mbbl) | 413 | 455 | 661 | | Oil equivalent (Mboe) | 2,639 | 2,907 | 4,228 |

| See 'Footnotes' section at the end of this news release. |

_ Summary of Development Pending Risked Before Tax Net Present Value of Future Net Revenue of Contingent Resources- $000s (1)(5)(6)(7)(8) _

| | Undiscounted | 5 % | 10 % | 15 % | 20 % | | Low Estimate | 178,311 | 93,529 | 58,892 | 40,961 | 30,196 | | Best Estimate | 206,216 | 101,126 | 62,218 | 42,967 | 31,636 | | High Estimate | 331,861 | 152,432 | 92,105 | 63,716 | 47,369 |

| See 'Footnotes' section at the end of this news release. |

December 31, 2022 Murucututu Prospective Resources Information:

Summary of Unrisked Company Gross Prospective Resources (1)(2)(4)(6)

| Prospective Resources | Low | Best | High | | Conventional natural gas (MMcf) | 42,273 | 78,017 | 115,335 | | Natural gas liquids (Mbbl) | 1,306 | 2,410 | 3,563 | | Oil equivalent (Mboe) | 8,351 | 15,413 | 22,786 |