Alvopetro Announces Long-Term Natural Gas Sales Agreement and Strategy

CALGARY, May 7, 2018 /CNW/ - Alvopetro Energy Ltd. (TSX-V:ALV) announces a long-term natural gas sales agreement (GSA) and our natural gas commercialization plan.  These agreements are the foundation for unlocking significant value from our natural gas opportunities, including the value associated with our recently unitized Caburé natural gas field.  This is a precedent-setting agreement, being Bahiagás' first GSA with an independent producer in the State of Bahia. 

Highlights

• February 2018 gas price US$6.54/mmbtu (resets next in August 2018).
• US$5.00 floor and US$8.50/mmbtu ceiling prices, both escalating based on US inflation.
• Gas deliveries to commence at the end of 2019.
• Strong project economics underpinned entirely by Caburé project with significant upside.
• Caburé field recently unitized, early development capital fully funded initially by partner, field development underway.
• Expanded opportunities from 2-well discovered Gomo resource, new reserve additions from nearby exploration prospects, and third-party gas production.
• Strategy to focus on delivering cash returns to shareholders and other stakeholders.

Natural Gas Sales Agreement

Alvopetro has finalized a GSA with the Bahia State natural gas distribution company, Bahiagás.  The natural gas price to be received under the agreement is set semi-annually using a trailing weighted average basket of benchmark reference prices including; Henry Hub (HH – United States) and National Balancing Point (NBP – United Kingdom) natural gas prices, and Brent crude oil prices.  The calculated natural gas price under the GSA for the month of February 2018 was US$6.54/mmbtu. Future prices are subject to a floor of US$5.00/mmbtu and a ceiling of US$8.50/mmbtu.  Both the floor and ceiling will be escalated based on United States inflation (CPI).  The calculated natural gas price is to be grossed up for local sales taxes including PIS, COFINS and ICMS. The GSA initially provides for the sale of 5.3 mmcfpd (150,000 m3/d) on a firm basis and up to 12.4 mmcfpd (350,000 m3/d) on an interruptible basis, adjustable annually. The GSA has take-or-pay provisions and supply failure penalties to ensure performance by both parties.  The parties have committed to start deliveries at the end of 2019, or earlier with mutual consent.

Natural Gas Commercialization Plan

The Bahiagás commercialization plan involves Bahiagás constructing a 15-kilometre pipeline and a new city gate delivery point with a design capacity of 35 mmcfpd (1.0 million cubic metres).  Alvopetro is responsible for the construction of a natural gas processing facility (UPGN) and an 11-kilometre pipeline from the Caburé unit to the UPGN/city gate.  Alvopetro has secured the surface location for both the UPGN and city gate, completed all field survey work for the pipeline right of way, completed all the required upfront engineering and permitting work, and the application for construction has been submitted for regulatory approval.  This is highly strategic infrastructure for Alvopetro and for all producers and consumers in the Recôncavo Basin.  The UPGN will be the only independently‑owned gas processing facility in the State of Bahia capable of delivering sales-spec natural gas to the market.  These investments are critical to unlocking the value of our natural gas portfolio and to the expansion of the natural gas industry in Bahia.

Upstream/Midstream Strategy

Alvopetro's strategy is to unlock the on-shore natural gas potential in the state of Bahia, building off the development of our Caburé natural gas field and the construction of strategic midstream infrastructure. We are creating an upstream/midstream hybrid corporate vehicle to provide sustainable returns to our shareholders.  Our plan is to create a disciplined long-term return model where at least half of our net cashflows are distributed to stakeholders as dividends to our shareholders and/or as interest payments to infrastructure-related debtholders.

Updated Corporate Presentation

Alvopetro's updated corporate presentation is available at: http://www.alvopetro.com/corporate-presentation.

Alvopetro Energy Ltd.'s 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 the construction of 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.

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 (6 Mcf/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.

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", "expect", "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 anticipated outcomes of regulatory determinations, future results from operations, projected financial results and financing requirements, future capital and operating costs, future production rates, proposed exploration and development activities, sources and availability of capital, and capital spending levels. The forward‐looking statements are based on certain key expectations and assumptions made by Alvopetro, including but not limited to regulatory requirements including the completion of the unitization of certain fields, securing gas sales agreements, the timing of regulatory licenses and approvals, the success of future drilling, completion, recompletion and development activities, the outlook for commodity markets and ability to access capital markets, the performance of producing wells and reservoirs, well development and operating performance, general economic and business conditions, weather and access to drilling locations, the availability and cost of labour and services, environmental regulation, including regulation relating to hydraulic fracturing and stimulation, the ability to monetize hydrocarbons discovered, the regulatory and legal environment and other risks associated with oil and gas operations. 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.

SOURCE Alvopetro Energy Ltd.