Alvopetro Energy Ltd. announces our financial results for the year ended December 31, 2023, a quarterly dividend of US$0.09 per common share and filing of our annual information form.
Recent Updates
On February 26, 2024, we announced our December 31, 2023 reserves based on the independent reserve assessment and evaluation prepared by GLJ Ltd. ("GLJ") dated February 26, 2024 with an effective date of December 31, 2023 (the "GLJ Reserves and Resources Report"). Our December 31, 2023 reserves included total proved plus probable reserves of 8.7 MMboe with a before tax net present value discounted at 10% of $309.7 million. We also announced the Murucututu resources assessment with risked best estimate contingent resource of 5.4 MMboe (before tax net present value discounted at 10% of $126.1 million) and risked best estimate prospective resource of 9.6 MMboe (before tax net present value discounted at 10% of $184.9 million. With respect to the Caburé natural gas field, the reserves assigned in the GLJ Reserves and Resource Report are based on Alvopetro's 49.1% working interest as of December 31, 2023 in the unitized area (the "Unit") which includes Caburé. As previously announced, the working interest is subject to redeterminations, the first of which is currently underway. Alvopetro and its partner in the Unit have engaged an independent expert (the "Expert") to decide on the redetermined working interest to each party. The decision of the Expert is expected near the end of the first quarter of 2024. The outcome of the Expert's decision and the resulting working interest to Alvopetro following the decision is uncertain. The resulting impact on Alvopetro's reserves and future cash flows may be material and may have a material adverse effect on Alvopetro.
Alvopetro's daily sales volumes averaged 1,592 boepd In January and February including 9.1 MMcfpd of natural gas, natural gas liquids sales from condensate of 75 bopd and oil sales of 14 bopd, a decrease of 26% from Q4 2023 sales volumes due to reductions in demand from Bahiagás. Demand resumed in early March and natural gas sales have averaged 11.2 MMcfpd to date in March based on field estimates.
Effective February 1, 2024, our natural gas price under our long-term gas sales agreement with Bahiagás was adjusted to BRL1.94/m3. Our realized gas price, net of sales taxes, is approximately $12.36/Mcf (based on our average heat content to date and the January 31, 2024 BRL/USD foreign exchange rate of 4.95). The contracted price is based on the adjusted ceiling price of $10.58/MMBtu which increased 0.5% from the August 1, 2023 price due to the US inflation adjustment for the six-month period. With the appreciation of the BRL relative to the USD in the second half of 2023 compared to the first half of 2023, the BRL contracted price decreased from BRL1.99/m3 as of August 1, 2023 to BRL1.94/m3 as of February 1, 2024. This price is effective for all natural gas sales from February 1 to July 31, 2024.
In 2024, Alvopetro is focused on capital projects aimed at optimizing production rates from our three existing wells on our 100% owned and operated Murucututu natural field with total forecasted capital expenditures on the field of $4.1 million. We are planning recompletions of both our 183-A3 well and our 183(1) well, targeting both the Caruaçu and Gomo Formations along with a project on our 197(1) well. At the Caburé Unit, Alvopetro and its partner have agreed to a development plan including drilling and completing five wells in 2024 and 2025. Alvopetro's share of these wells, based on the December 31, 2023 working interest of 49.1% is estimated at $6.2 million, with $4.4 million forecasted in 2024. In addition, Alvopetro has a facilities upgrade planned at the field for an estimated $3.2 million relating to compression of natural gas to be delivered to Alvopetro's 100%-owned natural gas processing facility. On our exploration assets, Alvopetro has planned a stimulation of the 183-B1 well on Block 183 to improve recovery rates.
Financial and Operating Highlights – Fourth Quarter of 2023
Our daily sales averaged 2,143 boepd during the quarter, an increase of 26% from Q3 2023 which had been impacted by lower demand from Bahiagás and a decrease of 21% from Q4 2022 due to reduced natural gas availability from the Caburé natural gas field following increased nominations from our partner on the field.
Our average realized natural gas price increased to $12.85/Mcf, a 15% increase from Q4 2022 with the 3% increase in our contracted BRL-denominated natural gas price, enhanced sales tax credits available in 2023 and a 6% appreciation in the average BRL to USD in Q4 2023 compared to Q4 2022. With the higher natural gas price, our overall realized price per boe was $77.60 (+14% from Q4 2022).
Our natural gas, condensate and oil revenue was $15.3 million in Q4 2023, a decrease of $1.8 million (-10%) compared to Q4 2022 and an increase of $3.0 million (+24%) compared to Q3 2023.
Our operating netback in the quarter was $69.69 per boe (+$9.61 per boe from Q4 2022) with higher realized sales prices and lower royalties, partially offset by the impact of fixed operating costs with lower sales volumes.
We generated funds flows from operations of $12.4 million ($0.33 per basic and per diluted share), a decrease of $0.8 million compared to Q4 2022 and an increase of $2.8 million compared to Q3 2023.
We reported net income of $0.7 million in Q4 2023, a decrease of $4.5 million compared to Q4 2022 and a decrease of $5.2 million compared to Q3 2023. Net income in Q4 2023 included impairment losses of $11.0 million (Q4 2022 - $6.3 million).
Capital expenditures totaled $4.9 million, including drilling and completion costs for the 183-A3 well on our Murucututu natural gas field, completion costs for the BL-06 well on our Bom Lugar field, and long-lead purchases for future capital projects.
Our working capital surplus was $13.1 million as of December 31, 2023, increasing $1.7 million from September 30, 2023, and decreasing $1.6 million from December 31, 2022.
Financial and Operating Highlights – Year Ended December 31, 2023
Our annual sales averaged 2,142 boepd (95% natural gas, 5% NGLs from condensate and marginal crude oil production), a decrease of 16% compared to 2022.
We reported net income of $28.5 million, compared to $31.7 million in 2022 (-10%).
We generated funds flow from operations of $48.0 million ($1.29 per basic share and $1.27 per diluted share), a decrease of $1.8 million compared to 2022.
Capital expenditures totaled $27.4 million in 2023.
Dividends declared totaled $0.56 per share in 2023 compared to $0.36 per share in 2022 (+56%).
Quarterly Dividend of US$0.09 per Share
With lower production levels forecast in the first quarter of 2024 and consistent with our long standing balanced stakeholder return model, our Board of Directors determined it was appropriate to reduce the quarterly dividend and declared a quarterly dividend of US$0.09 per common share, payable in cash on April 15, 2024, to shareholders of record at the close of business on March 28, 2024. 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.
