Alvopetro Energy Ltd. press release

Alvopetro Announces 2021 Year End Reserves With a 52% Increase In 2P NPV Before Tax

2022-03-08

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

Canada NewsWire

CALGARY, AB , March 8, 2022 /CNW/ - Alvopetro Energy Ltd. (TSXV:ALV) (OTCQX: ALVOF) announces our reserves as at December 31, 2021 with total proved plus probable ("2P") reserves of 8.7 mmboe and a before tax net present value discounted at 10% of $297.0 million . The before tax net present value of our 2P reserves (discounted at 10%) increased by 52% from December 31, 2020 , primarily due to increases in forecasted natural gas prices. 2P reserve volumes decreased by 9% due to 2021 production. In addition, Alvopetro announces the December 31, 2021 assessment of the Company's Murucututu natural gas resource (previously referred to as the Gomo natural gas resource) with risked best estimate contingent resource of 3.5 mmboe and risked best estimate prospective resource of 12.1 mmboe, both of which are virtually unchanged from December 31, 2020 . The Murucututu natural gas contingent and prospective resource values (risked best estimate net present value before tax, discounted at 10%) increased by 61% to $60.7 million and by 44% to $208.7 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 March 7, 2022 with an effective date of December 31, 2021 (the "GLJ Reserves and Resources Report").

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

December 31, 2021 GLJ Reserves and Resource Report Highlights

2P net present value before tax discounted at 10% increased 52% to $297.0 million primarily due to higher forecasted commodity prices. Proved reserves ("1P") and 2P reserves decreased to 4.4 mmboe (-13%) and 8.7 mmboe (-9%) respectively, due to 2021 production volumes. This represents a 2P Net Asset Value of CAD$11.20 /share ( $8.77 /share). Risked best estimate contingent and risked best estimate prospective resource of 3.5 mmboe and 12.1 mmboe, respectively were consistent with prior year with an increase of 61% and 44% respectively on risked best estimate before tax net present value discounted at 10%, due primarily to higher forecasted commodity prices.

Corey Ruttan , President and Chief Executive Officer, commented:

"Our 2021 year-end reserves and resource evaluations highlight the 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 global commodity prices on our forecasted natural gas prices under our long-term gas sales agreement and our most recent price increase effective February 1, 2022 . Our 2022 capital program is focused on natural gas exploration and development aimed at expanding our production and reserve base and maximizing the utilization of our strategic midstream infrastructure that is concurrently being expanded to a capacity of at least 500,000 m3/d (17.7 mmcfpd)."

SUMMARY

December 31, 2021 Gross Reserve and Gross Resource Volumes : (1)(5)(6)(7)(8)(9)(10)(11)(14)

| | | | | | December 31, 2021 Reserves (Gross) | Total Proved (1P) | Total Proved plus Probable (2P) | Total Proved plus Probable plus Possible (3P) | | | (Mboe) | (Mboe) | (Mboe) | | Caburé Property | 3,224 | 5,141 | 6,796 | | Murucututu Property | 1,024 | 3,286 | 5,974 | | Other Properties | 173 | 310 | 606 | | Total Company Reserves | 4,421 | 8,737 | 13,376 | | See 'Footnotes' section at the end of this news release | | | | | | | | | | | | | | | December 31, 2021 Murucututu Resources (Gross) | Low Estimate | Best Estimate | High Estimate | | | (Mboe) | (Mboe) | (Mboe) | | Risked Contingent Resource

Risked Prospective Resource | 2,715

6,555 | 3,465

12,127 | 5,697

17,937 |

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

Net present value before tax discounted at 10% : ( 2)(5)(6)(7)(8)(9)(10)(11)(12)(13)

| | | | | | Reserves | 1P | 2P | 3P | | | (MUS) | (MUS) | (MUS) | | Caburé Property | 150,414 | 216,859 | 265,483 | | Murucututu Property | 20,239 | 72,307 | 135,821 | | Other Properties | 3,107 | 7,833 | 15,418 | | Total Company | 173,759 | 297,000 | 416,723 | | See 'Footnotes' section at the end of this news release | | | | | | | | | | | | | | | Murucututu Resource | Low Estimate | Best Estimate | High Estimate | | | (MUS) | (MUS) | (MUS) | | Risked Contingent Resource

Risked Prospective Resource | 48,505

100,348 | 60,669

208,677 | 108,043

312,055 |

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

NET ASSET VALUE

Following the December 31, 2021 reserves evaluation, based on the before tax net present value of Alvopetro's 2P reserves (discounted at 10%), our total net asset value is $297.3 million ; CAD$11.20 per common share outstanding. Our 2P net asset value of $297.3 million is before including the before tax net present value (discounted at 10%) of our risked best estimate risked contingent resource of $60.7 million and our risked prospective resource of $208.7 million from the Murucututu natural gas field.

| | | | | | Net Asset Value (in MUS, other than per share amounts) | 1P | 2P | 3P | | Before Tax Net Present Value, discounted at 10% (MUS) | 173,759 | 297,000 | 416,723 | | Working capital net of debt – as at September 30, 2021 (a)(b) | 294 | 294 | 294 | | Total Net Asset Value (b),(c)(d) | 174,053 | 297,294 | 417,017 | | CAD per basic share (e) | 6.56 | 11.20 | 15.71 |

| a) | Working capital net of debt is computed as the Company's net working capital the carrying amount of the Company's Credit Facility, decreased by net working capital surplus, as of September 30, 2021. | | b) | Non-GAAP measure. See ' _Non-GAAP Measures _' in this news release. | | c) | 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. | | d) | 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. | | e) | Converted to Canadian dollars ("CAD") based on the exchange rate on March 7, 2022. The per share calculation is computed based on 33.9 million common shares outstanding as of March 7, 2022. |

PRICING ASSUMPTIONS – FORECAST PRICES AND COSTS

GLJ employed the following pricing and inflation rate assumptions as of January 1, 2022 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 | | 2022 | 76.00 | 20.75 | 3.80 | 9.51 | 6.40 | 49% | | 2023 | 72.51 | 12.00 | 3.50 | 10.09 | 6.65 | 52% | | 2024 | 71.24 | 8.50 | 3.15 | 9.86 | 6.89 | 43% | | 2025 | 72.66 | 8.67 | 3.21 | 9.00 | 7.14 | 26% | | 2026 | 74.12 | 8.84 | 3.28 | 8.89 | 7.31 | 22% | | 2027 | 75.59 | 9.02 | 3.34 | 8.99 | 7.45 | 21% | | 2028 | 77.11 | 9.20 | 3.41 | 9.15 | 7.59 | 21% | | 2029 | 78.66 | 9.39 | 3.48 | 9.33 | 7.74 | 21% | | 2030 | 80.22 | 9.57 | 3.55 | 9.52 | 7.90 | 21% | | 2031* | 81.83 | 9.76 | 3.62 | 9.71 | 8.06 | 20% |

| _*Escalated at 2% per year thereafter _ |

As of February 1, 2022 , 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 2024. The forecasted prices in the GLJ Reserves and Resource Report do not reflect the most recent increase in global commodity prices which further extends the period under which Alvopetro's contracted price will be at the ceiling in the contract. The ceiling price incorporates assumed US inflation of 5% in 2022, 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 two 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 2021 fiscal year which will be filed on SEDAR by April 30, 2022 .

December 31, 2021 Reserves Information:

Summary of Reserves (1)(3)(4)(5)(7)(8)

| | | | | | | | | | | | | Light & Medium Oil | Residue 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 | 0 | 0 | 18,267 | 17,287 | 180 | 171 | 3,224 | 3,052 | | | Developed Non-Producing | 26 | 23 | 2,095 | 1,953 | 52 | 48 | 427 | 397 | | | Undeveloped | 147 | 138 | 3,254 | 3,012 | 80 | 74 | 770 | 714 | | Total Proved | 173 | 161 | 23,616 | 22,252 | 312 | 294 | 4,421 | 4,163 | | | Probable | 137 | 128 | 22,731 | 21,331 | 390 | 365 | 4,316 | 4,048 | | | Total Proved plus Probable | 310 | 289 | 46,347 | 43,583 | 702 | 659 | 8,737 | 8,212 | | | Possible | 296 | 277 | 23,401 | 21,866 | 443 | 413 | 4,639 | 4,334 | | | Total Proved plus Probable plus Possible | 606 | 565 | 69,748 | 65,448 | 1,146 | 1,072 | 13,376 | 12,545 | |

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

Summary of Before Tax Net Present Value of Future Net Revenue - M US ( 2)(5)(7)(8)(12)(13)

| | | | | | | | | | Undiscounted | 5% | 10% | 15% | 20% | | | Proved | | | | | | | | | Producing | 175,800 | 162,812 | 150,414 | 139,568 | 130,152 | | | Developed Non-Producing | 13,952 | 10,341 | 7,977 | 6,411 | 5,327 | | | Undeveloped | 35,028 | 22,103 | 15,369 | 11,298 | 8,559 | | Total Proved | 224,780 | 195,256 | 173,759 | 157,277 | 144,037 | | | Probable | 267,646 | 168,096 | 123,240 | 96,623 | 78,449 | | | Total Proved plus Probable | 492,425 | 363,352 | 297,000 | 253,900 | 222,486 | | | Possible | 316,880 | 175,731 | 119,723 | 89,422 | 70,217 | | | Total Proved plus Probable plus Possible | 809,305 | 539,083 | 416,723 | 343,322 | 292,703 | |

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

Summary of After Tax Net Present Value of Future Net Revenue – M US ( 2)(5)(7)(8)(12)(13)

| | | | | | | | | | Undiscounted | 5% | 10% | 15% | 20% | | | Proved | | | | | | | | | Producing | 158,208 | 146,984 | 136,050 | 126,439 | 118,078 | | | Developed Non-Producing | 11,493 | 8,683 | 6,730 | 5,402 | 4,469 | | | Undeveloped | 26,984 | 17,474 | 12,283 | 9,039 | 6,802 | | Total Proved | 196,686 | 173,141 | 155,064 | 140,880 | 129,349 | | | Probable | 207,798 | 135,466 | 100,859 | 79,563 | 64,708 | | | Total Proved plus Probable | 404,484 | 308,607 | 255,923 | 220,443 | 194,057 | | | Possible | 241,128 | 139,526 | 97,153 | 73,331 | 57,863 | | | Total Proved plus Probable plus Possible | 645,612 | 448,133 | 353,076 | 293,774 | 251,919 | |

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

Future Development Costs ( 2)(5)(7)(8)(12)(13)

The table below sets out the total development costs deducted in the estimation in the GLJ Reserves and Resources Report 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. 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 other than future anticipated equipment rental costs associated with the facility expansion, which will be reflected once completed.

The future development costs for the Murucututu field in the proved category are for the remaining costs anticipated in 2022 for the pipeline and field facility development to tie-in the 183(1) well to Alvopetro's midstream assets, as well as a development location. In the probable and possible categories, there are future development costs for an additional development location and the stimulation and tie-in of the 197(1) well. 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 a directional wellbore and facilities upgrade. A second directional 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.

| | | | | | | | | | | MUS, Undiscounted | 2022 | 2024 | 2024 | 2025 | 2026 | Remaining | Total | | | Proved | | | | | | | | | | | Caburé Natural Gas Field | 3,000 | 1,730 | 1,730 | 1,730 | 5,096 | - | 13,286 | | | Murucututu Gas Field | 10,550 | 433 | 441 | - | - | - | 11,424 | | | Bom Lugar Oil Field | 333 | 2,771 | - | - | - | - | 3,104 | | | Mãe-da-lua Oil Field | - | 439 | - | - | - | - | 439 | | Total Proved | 13,883 | 5,373 | 2,171 | 1,730 | 5,096 | - | 28,253 | | | Proved Plus Probable | | | | | | | | | | | Caburé Natural Gas Field | 3,000 | 1,730 | 1,730 | 1,730 | 1,730 | 4,237 | 14,157 | | | Murucututu Gas Field | 16,350 | 1,463 | 441 | 450 | 459 | 468 | 19,631 | | | Bom Lugar Oil Field | 333 | 3,517 | - | - | - | - | 3,850 | | | Mãe-da-lua Oil Field | 0 | 439 | - | - | - | - | 439 | | Total Proved Plus Probable | 19,638 | 7,149 | 2,171 | 2,180 | 2,189 | 4,705 | 38,078 | | | Proved Plus Probable Plus Possible | | | | | | | | | | | Caburé Natural Gas Field | 3,000 | 1,730 | 1,730 | 1,730 | 1,730 | 5,786 | 15,706 | | | Murucututu Gas Field | 16,350 | 1,463 | 441 | 450 | 459 | 946 | 20,109 | | | Bom Lugar Oil Field | 333 | 7,514 | - | - | - | - | 7,847 | | | Mãe-da-lua Oil Field | 0 | 439 | - | - | - | - | 439 | | Total Proved Plus Probable Plus Possible | 19,683 | 11,146 | 2,171 | 2,180 | 2,189 | 6,732 | 44,101 | |

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

Reconciliation of Alvopetro's Gross Reserves (Before Royalty) (1) (5)(7)(8)(13)

| | | | | | | | | Proved (Mboe) | Probable (Mboe) | Proved Plus Probable (Mboe) | Possible (Mboe) | Proved plus Probable plus Possible

(Mboe) | | December 31, 2020 | 5,108 | 4,485 | 9,593 | 4,615 | 14,209 | | Extensions | 176 | (176) | - | - | - | | Technical Revisions | (12) | 11 | (1) | 24 | 23 | | Economic Factors | 9 | (4) | 5 | - | 5 | | Production | (861) | - | (861) | - | (861) | | December 31, 2021 | 4,421 | 4,316 | 8,737 | 4,639 | 13,376 |

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

December 31, 2021 Murucututu Contingent Resources Information:

Summary of Unrisked Company Gross Contingent Resources (1)(3)(4)(5)(7)(10)(11)

| | | | | | Development Pending Economic Contingent Resources | Low Estimate | Best Estimate | High Estimate | | Residue gas (MMcf) | 15,719 | 20,061 | 32,984 | | Natural gas liquids (Mbbl) | 389 | 496 | 815 | | Oil equivalent (Mboe) | 3,008 | 3,839 | 6,313 |

| 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- M US (2)(5)(10)(11)(12)(13)

| | | | | | | | | Undiscounted | 5% | 10% | 15% | 20% | | Low Estimate | 158,700 | 84,965 | 53,745 | 37,370 | 27,487 | | Best Estimate | 222,759 | 109,139 | 67,223 | 46,563 | 34,432 | | High Estimate | 415,317 | 193,940 | 119,715 | 84,746 | 64,509 |

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

The GLJ Contingent Resource Report for Murucututu assumes capital deployment during 2023 for the drilling of wells and expansion of facilities, with total project costs of $23.9 million and first commercial production in 2023. There can be no certainty that the project will developed on the timelines discussed herein. Development of the project is dependent on several contingencies as further described in this news release. The information presented herein is based on company net project development costs.

Summary of Development Pending Risked Company Gross Contingent Resources (1)(3)(4)(5)(7)(10)(11)

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 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 | | Residue gas (MMcf) | 14,187 | 18,105 | 29,768 | | Natural Gas Liquids (Mbbl) | 351 | 448 | 736 | | Oil equivalent (Mboe) | 2,715 | 3,465 | 5,697 |

| 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- M US (2)(5)(10)(11)(12)(13)

| | | | | | | | | Undiscounted | 5% | 10% | 15% | 20% | | Low Estimate | 143,226 | 76,681 | 48,505 | 33,726 | 24,807 | | Best Estimate | 201,040 | 98,498 | 60,669 | 42,023 | 31,074 | | High Estimate | 374,824 | 175,031 | 108,043 | 76,483 | 58,219 |

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

December 31, 2021 Murucututu Prospective Resources Information:

Summary of Unrisked Company Gross Prospective Resources (1)(3)(4)(5)(7)(9)(11)

| | | | | | Prospective Resources | Low | Best | High | | Residue gas (MMcf) | 42,228 | 78,126 | 115,553 | | Natural gas liquids (Mbbl) | 1,044 | 1,931 | 2,856 | | Oil equivalent (Mboe) | 8,082 | 14,952 | 22,115 |

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

Summary of Before Tax Net Present Value of Future Net Revenue of Unrisked Prospective Resources- M US (2)(5)(9)(11)(12)(13)

| | | | | | | | | Undiscounted | 5% | 10% | 15% | 20% | | Low Estimate | 474,489 | 220,405 | 123,722 | 77,245 | 51,350 | | Best Estimate | 1,005,490 | 449,220 | 257,284 | 167,675 | 117,555 | | High Estimate | 1,584,857 | 678,025 | 384,741 | 252,103 | 178,690 |