Alvopetro Energy Ltd.

good morning uh thank you for joining us today for our second quarter 2022 results webcast i'm corey rutan president and ceo and this is alice allison howard our chief financial officer and i'm going to turn it over to allison to start uh thanks corey and good morning everyone uh just a reminder that this webcast is being recorded today and there will be a replay available on our website shortly after the call

All participants are in listen-only mode for the duration of the webcast, but we will be hosting a Q&A session after our presentation, and so we encourage you to use the Q&A feature within Zoom. You can insert any questions by hitting that Q&A button that you see on your screen, and we will go through those at the end of the at the end of the call and if you are dialing in, you can send in any questions to email at socialmedia at elvopetro.com and we will also get to those at the end of the presentation. These are our cautionary statements. I'm not going to go through these in detail, but I do encourage you to visit our website and review those within our corporate presentation. So just starting things off today, I think you'll have seen that we did a financial statement restatement of our prior year financials. So I just wanted to give a bit of a summary on that. So this all stems from accounting for actually the 2012 acquisition of these Brazil assets and purchase price accounting with respect to some fair value adjustments. Amy Nunez, Under ifrs we are required to carry certain fair value adjustments in local currency of our subsidiary, which is the Brazilian hey I. Amy Nunez, And we had carried these in US dollars, and so, when we correct for this and we carry and local currency every period and date it gets revalued. based on the new US dollar foreign exchange rate at that time. So what happens is when we look at the adjustments in aggregate is there's an overall reduction in the carrying value of our E&E and PP&E assets on our balance sheet just due to the devaluation of the Brazilian HAI relative to the US dollar since 2012. That's Catherine Vladutiu, CA OSDSU, Partially offset on the balance sheet by the recognition of a higher deferred tax asset, because we have lower accounting carrying value. Catherine Vladutiu, CA OSDSU, And then, overall, are retained earnings actually increases from what we reported previously due to lower impairment charges in US dollar equivalent and lower depletion expense and that higher deferred tax recovery. So I think the key takeaway here is that, you know, this doesn't have anything to do with our operations. There's no change in our cash or our working capital. There's no change overall in funds flow from operations that we reported or cash flows from financing or investing activities. There's, you know, there's no change in our business overall. These are all accounting adjustments, but I do encourage you to review the financial statements and the note disclosure that goes through this in even more detail. And of course, if you have any questions, feel free to contact me directly and I'm happy to walk through that in more detail. And I will now turn it back over to Corey.

All right, thank you. So we obviously continue to post some pretty strong production results ahead of the pre-commercialization expectations that we'd set. Our Q2 production was impacted as we previously announced. by our planned five-day shutdown of our gas plant in connection with the expansion, which is now complete. And you can see our July production was another good month for us at over 2,500 barrels of oil equivalent per day, which is up 7% over our Q2 average. With the expansion now complete, we have the capacity to process and produce up to about 3,000 barrels of oil equivalent per day. If you look at our past production, obviously it's been incredibly stable. The limiting factor really was the plant capacity. Going forward, our production will be more dictated by production availability from the unit in combination with our partner, as well as the timing and quantum of future production additions from our new projects, which we'll talk about during this presentation. So that being said, you know, we do have the ability to produce at higher levels, which is great, but you may also expect a little bit more volatility, certainly than what you've seen from the past experience. This is a graph that we show on all our quarterly earnings calls. It shows our gas pricing mechanism within our gas sales agreement. Just as a reminder, the three different gray dashed lines that you see there are the three international benchmark prices that get used to calculate our realized gas price, those being UK NBP gas price, US Henry Hub gas price, and Brent oil equivalent. The black dark line is our actual realized price for Alpo Petro. If you recall, we had a very large increase in that effective February 1st of this year, it's about a 50% increase. And then in addition to that, we had an appreciation of the local currency, which actually ended up meaning that we realized through the first half of this year, a price higher than our contractual ceiling, which is noted in green. We then did have another price redetermination. We just announced that that was effective August 1st, just 10 or 12 days ago. We did have an increase in our U.S. dollar denominated ceiling price by about 6% up to over $10 U.S. per MMBTU. But because of this appreciation that we benefited from through the first half of the year, the local currency denominated price stayed pretty consistent at $1.94 per cubic meter. The net effect using the July closing FX rate was just over $11. us per mcf if we look at this going forward so the red the red dashed line to the right of that what we're doing is we're forecasting that the price is going forward based on the strip pricing on on august 10th so these are the market uh forward prices for each of the the benchmark prices you can see the nbp price is actually off the graph uh to the north and or to to the top in the near-term portion The net effect of that is if you calculate using the formula, you get this dark blue line. And as we've talked about before, because of our ceiling, obviously our price would match the ceiling. And what's changed from the last time we looked at this is this gap has widened quite a bit and it's also extended. So we now are forecasting based on these prices that we would be at the ceiling all the way through the 2027 period that you see on this graph. um and what this really means is that commodity prices have the ability to be actually quite a bit lower than these forecast prices before we would realize any reduction in our realized gas price so it really does highlight the hedgy nature of our gas sales agreement uh so this chart here shows our operating net back which is