CALGARY, ALBERTA -- (Marketwired) -- 10/08/15 -- Alvopetro Energy Ltd. (TSX VENTURE: ALV) is pleased to announce that DeGolyer and MacNaughton ("D&M") has completed an independent contingent resource report of our 197(2) conventional natural gas pool located on Blocks 197 and 198 in the Reconcavo Basin onshore Brazil.
The D&M report quantifies Alvopetro's contingent resources with a "best estimate" (2C) of 5.8 million barrels of oil equivalent (mmboe), 3.4 million mmboe "low estimate" (1C) and 8.1 mmboe "high estimate" (3C). The 10% discounted net present value (NPV10) estimated by the D&M Report is US$91.3 million (2C), US$61.9 million (1C), and US$137.1 million (3C).
This D&M Report reflects the significant value of our first conventional natural gas discovery and highlights a small portion of the potential that exists in our current inventory of 23 conventional exploration prospects. Our 197(2) resource will be more extensively delineated through future drilling, including a step-out well on Block 198 planned outside the existing seismic control in the 3C area defined by D&M.
Contingent Resource Summary
The resource data set forth in this news release is based upon an independent contingent resource assessment and evaluation prepared by D&M dated October 8, 2015, with an effective date of June 30, 2015 (the "D&M Report"). The D&M Report was prepared in accordance with the COGE Handbook and National Instrument 51-101 of the Canadian Securities Administrators ("NI 51-101").
Alvopetro holds a 100% interest in Blocks 197 and 198, and the contingent resources estimated in the D&M Report are assumed to be developed under unitization of Blocks 197, 198, 211 and 212. Under Brazilian and ANP regulation, petroleum accumulations straddling two or more licensed blocks must undergo unitization in order to promote efficient exploration and development of the accumulation. Participation interests, which represent the percentage share of ownership in each license block in the accumulation, have been assumed in the D&M Report for Blocks 197, 198, 211 and 212 in the 1C, 2C and 3C contingent resources classifications based on the discovered non-associated gas initially-in-place (DPIIP) associated with each block. These assumptions do not reflect actual participation interests to be agreed upon by all parties with interests in Blocks 197, 198, 211 and 212.
Summary of Company Gross Contingent Resources (1), (2), (3), (5), (7), (12),
(13), (14), (15)
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Development Pending Economic Contingent 2C "Best" 1C "Low" 3C "High"
Resources
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Natural gas sales (mmcf) 33,483 19,538 46,500
Condensate (mbbl) 234 138 326
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Barrels of oil equivalent (mboe) 5,815 3,394 8,076
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See 'Footnotes' section at the end of this news release.
Summary of Before Tax Net Present Value of Future Net Revenue of Contingent
Resources- MUS$ (1), (2), (3), (4), (5), (6), (7), (9), (11)
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Undiscounted 5% 10% 15% 20%
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2C "Best Estimate" 165,458 121,935 91,337 69,273 53,014
1C "Low Estimate" 109,113 81,672 61,859 47,318 36,490
3C "High Estimate" 245,736 182,425 137,096 104,013 79,450
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See 'Footnotes' section at the end of this news release.
Summary of Discovered Non-Associated Gas Initially-in-Place (DPIIP) (1),
(3), (5), (12), (13), (14)
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2C "Best" 1C "Low" 3C "High"
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Non-Associated Gas (mmcf) 45,187 28,145 59,957
Total Barrels of oil equivalent (mboe) 7,531 4,691 9,993
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See 'Footnotes' section at the end of this news release.
The table below sets out the project development costs assumed in the D&M Report in the estimation of future net revenue attributable to contingent resources and assumes first commercial production on January 1, 2017. The D&M Report assumes capital deployment during 2016 for the construction of facilities, flowlines and development wells. There can be no certainty that the project will developed on the timelines discussed herein. Development of the project is dependent on a number of contingencies as further described in this news release. The information presented herein is based on company net project development costs.
Assumed Project Development Costs (3), (4), (11)
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MUS$ 2C ("Best") 1C ("Low") 3C ("High")
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2015 - - -
2016 24,088 13,330 35,082
2017 14 12 22
2018 14 12 22
2019 14 12 22
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Remaining Years 2,098 1,144 3,063
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Total Undiscounted 26,228 14,510 38,211
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See 'Footnotes' section at the end of this news release.
D&M Report 10-Year Projected Production Profile of Company Gross Sales Gas (1), (2), (3), (4), (5), (7),(9), (13)
---------------------------------------------------------------------------- ---------------------------------------------------------------------------- mmcf 2015 2016 2017 2018 2019 2020 ---------------------------------------------------------------------------- 2C "Best Estimate" - - 4,461 4,461 4,455 3,956 1C "Low Estimate" - - 2,757 2,757 2,757 2,535 3C "High Estimate" - - 6,114 6,114 6,114 6,130 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- mmcf 2021 2022 2023 2024 2025 2026 2027 ---------------------------------------------------------------------------- 2C "Best Estimate" 3,183 2,585 2,116 1,749 1,449 1,215 1,025 1C "Low Estimate" 2,153 1,832 1,552 1,311 1,092 795 - 3C "High Estimate" 5,646 4,208 3,131 2,379 1,829 1,433 1,138 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
See 'Footnotes' section at the end of this news release.
In accordance with the new NI 51-101 guidelines introduced effective July 15, 2015, volumes and potential net present value of development pending contingent resources is required to be adjusted for risk of development ("Development Risked"). The D&M report estimates the chance of development risk factor as the product of three commercial variables associated with the project development, being: 1) the probability of securing as gas sales agreement, which D&M estimates at 85%; 2) the probability of unitization, which D&M estimates at 100%; and 3) the probability of government approval of a plan of development, which D&M estimates at D&M at 85%. The product of these three commercial variables is 72.25%, 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.
Summary of Development Risked Company Gross Contingent Resources (1), (2),
(3), (7), (8), (12), (13, (14)
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2C "Best" 1C "Low" 3C "High"
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Natural gas sales (mmcf) 24,191 14,116 33,596
Condensate (mbbl) 169 100 236
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Barrels of oil equivalent (mmboe) 4,201 2,452 5,835
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See 'Footnotes' section at the end of this news release.
Summary of Development Risked Before Tax Net Present Value of Future Net
Revenue of Contingent Resources- MUS$ (1), (2), (3), (4), (5), (6), (7),
(8), (9), (11)
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Undiscounted 5% 10% 15% 20%
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2C "Best Estimate" 119,543 88,098 65,991 50,050 38,303
1C "Low Estimate" 78,834 59,008 44,693 34,187 26,364
3C "High Estimate" 177,544 131,802 99,052 75,149 57,403
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See 'Footnotes' section at the end of this news release.
Footnotes:
1. Contingent Resources are defined in the COGE Handbook as those
quantities of petroleum estimated, as of a given date, to be potentially
recoverable from known accumulations using established technology or
technology under development, but are not currently considered to be
commercially recoverable due to one or more contingencies. Contingencies
may include factors such as economic, legal, environmental, political
and regulatory matters or a lack of markets. It is also appropriate to
classify as contingent resources the estimated discovered recoverable
quantities associated with a project in the early evaluation stage. For
various reasons, including lack of unitization agreement, lack of
internal and government approved plans for development, lack of defined
infrastructure and lack of an approved gas sales contact, there is
uncertainty of the commerciality of these contingent resources, and as
such, the contingent resources estimated herein cannot be classified as
reserves. The specific outstanding contingencies applicable to the
contingent resources disclosed herein are lack of a gas sales agreement,
lack of unitization agreement, and lack of government approval of a plan
for development.
2. The Contingent Resources estimated in the D&M Report are classified as
"economic contingent resources", which are those contingent resources
that are currently economically recoverable. All such resources are
further sub-classified with a project status of "development pending",
meaning that resolution of the final conditions for development are
being actively pursued.
3. "Low estimate" (C1) is considered to be a conservative estimate of the
quantity of resources that will actually be recovered. It is likely that
the actual remaining quantities recovered will exceed the low estimate.
Those resources in the low estimate range have the highest degree of
certainty - a 90% confidence level - that the actual quantities
recovered will be equal or exceed the estimate. "Best estimate" (C2) is
considered to be the best estimate of the quantity of resources that
will actually be recovered. It is equally likely that the actual
remaining quantities recovered will be greater or less than the best
estimate. Those resources that fall within the best estimate have a 50%
confidence level that the actual quantities recovered will be equal or
exceed the estimate. "High estimate" (C3) is considered to be an
optimistic estimate of the quantity of resources that will actually be
recovered. It is unlikely that the actual remaining quantities of
resources recovered will equal or exceed the high estimate. Those
resources in the high estimate have a lower degree of certainty - a 10%
confidence level - that the actual quantities recovered will equal or
exceed the estimate.
4. The tables above are a summary of the contingent resources of Alvopetro
and the net present value of future net revenue attributable to such
contingent resources as evaluated in the D&M Report based on constant
price and cost assumptions. The D&M Report uses a constant natural gas
price of US$8.53 per mcf and a constant condensate price of US$52.00 per
barrel, such prices based on the average publically reported prices paid
for natural gas in northeastern Brazil for the 12 month period ended
April, 2015. Prices and costs were not adjusted for inflation. Alvopetro
is currently in discussions with numerous counterparties with respect to
securing our natural gas discovery. The sales price ultimately realized
by Alvopetro may differ significantly from sales prices assumed in the
D&M Report.
5. The DPIIP and contingent resources estimates set out herein are
expressed as company gross contingent resources. Gross contingent
resources are defined as the total estimated gas and condensate that is
potentially recoverable from known accumulations after June 30, 2015.
Company gross contingent resources are defined as that portion of the
gross contingent resources potentially to be produced that are
attributable to Alvopetro's assumed unitized interest before deduction
of any royalty burden. The Company gross working interest share of
resources was estimated based on DPIIP and ultimately will be subject to
the terms agreed to in the unitization required with adjacent resource
owners.
6. The net present value of future net revenue attributable to Alvopetro's
contingent resources is stated without provision for interest costs and
general and administrative costs, but after providing for estimated
royalties, production costs, development costs, other income, future
capital expenditures, and well abandonment costs. The royalty burdens
set out in the D&M Report include a Brazilian government royalty of 11%
and an overriding royalty on Block 197 of 2.5%, both such royalty
obligations are paid in cash. The net present values of future net
revenue attributable to the Alvopetro's contingent resources estimated
by D&M do not represent the fair market value of those resources. Other
assumptions and qualifications relating to project development costs,
pricing and other matters are summarized herein.
7. The recovery estimates of the Company's contingent resources provided
herein are estimates only and there is no guarantee that the estimated
resources will be recovered. There is uncertainty that it will be
commercially viable to produce any portion of the resources. Actual
recovered resource may be greater than or less than the estimates
provided herein.
8. An estimate of Development Risked net present value of future net
revenue of contingent resources is preliminary in nature and is provided
to assist the reader in reaching an opinion on the merit and likelihood
of the company proceeding with the required investment. It includes
contingent resources that are considered too uncertain with respect to
the chance of development to be classified as reserves. There is
uncertainty that the Development Risked net present value of future net
revenue will be realized.
9. The tables in this news release summarize the data contained in the D&M
Report and as a result may contain slightly different numbers than such
report due to rounding. Also due to rounding, certain columns may not
add exactly.
10. The D&M report quantifies the DPIIP and the contingent resources for
Alvopetro's Blocks 197 and 198. There are no reserves, prospective
resources, unrecoverable or recoverable undiscovered petroleum
initially-in-place, nor any unrecoverable discovered petroleum
initially-in-place associated with Blocks 197 and 198 in the D&M Report
or this news release.
11. MUS$ = 000's of U.S. dollars
12. mcf = thousand cubic feet
13. mmcf = million cubic feet
14. mbbl = thousand barrels
15. mboe = thousand barrels of oil equivalent
OPERATIONAL UPDATE
In Brazil's 13th Bid Round held on October 7, 2015, Alvopetro, in partnership with ENGIE (GDF SUEZ E&P Brasil Participacoes Limitada), was the successful bidder on four blocks, all located in the Reconcavo Basin, onshore Brazil. Alvopetro will operate all of the blocks acquired and holds a 65% participating interest, with ENGIE holding the 35% remaining participating interest.
Alvopetro is very pleased to commence this partnership with ENGIE in Brazil. ENGIE is a global energy player and an expert operator in the three businesses; electricity, natural gas and energy services. ENGIE has upstream assets in 14 countries and is the largest independent power producer in the world, with power generation capacity of 115 Gigawatts. In Brazil, ENGIE is the largest private power producer with 8,765 Megawatts in operation and 4,515 Megawatts under construction. Following this Bid Round, Alvopetro holds and operates 16 exploration blocks and two mature fields, comprising 153,330 gross acres (142,625 net acres.)
In the third quarter, the pressure transient build-up analysis data for our 182(B1) well crude oil discovery indicates an expected initial oil rate of 123 bopd from the Agua Grande Formation. In addition, our 182(B1) well tested 46 bopd from the Candeias Formation. Subject to receipt of customary regulatory approvals, we expect to commence long-term production testing from the well before the end of 2015 by commingling the Candeias and Agua Grande zones. In January 2016, we plan to drill our next conventional oil prospect on Block 170.
We continue to be prudent and patient with our capital activity in light of world crude oil prices, and to benefit from reduced service sector activity and equipment prices to improve our long-term capital efficiencies.
UPDATED CORPORATE PRESENTATION
Our updated corporate presentation is available at http://www.alvopetro.com/corporate-presentation.
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. Our strategy is to focus on three core opportunities including lower risk development drilling on our mature fields, shallow conventional exploration, and the development of the significant hydrocarbon potential present in our deep Gomo resource play.
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.
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.
Disclosure of Oil and Gas Information
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.
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. 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.
Discovered Petroleum Initially-in-Place. DPIIP is defined is that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations prior to production. The recoverable portion of discovered petroleum initially-in-place includes production, reserves and contingent resources; the remainder is unrecoverable. There is no certainty that it will be commercially viable to produce any portion of the resources.
Supplementary Information of Oil and Natural Gas Resources and Reserves. The disclosure in this news release summarizes certain information contained in the D&M Report and is supplemental to the disclosure required under NI 51-101. The D&M report estimates the DPIIP and the contingent resources associated with Alvopetro's Blocks 197 and 198, and there are no reserves, prospective resources, unrecoverable or recoverable undiscovered petroleum initially-in-place associated, nor any unrecoverable discovered petroleum initially-in-place with these blocks. Full disclosure with respect to the Company's reserves as at December 31, 2014 is contained in the Company's annual information form for the year ended December 31, 2014 filed on SEDAR (www.sedar.com).
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", "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 contingent resources and potential hydrocarbons, 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 Alvopetro's 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.
Contacts:
Alvopetro Energy Ltd.
Corey C. Ruttan
President, Chief Executive Officer and Director
587.794.4224
www.alvopetro.com
