Alvopetro Energy Ltd.

dialing in, you can send any questions you have to socialmedia at elvopetro.com, and we will also get to those questions. And lastly, just a friendly reminder that we do go through various non-GAAP measures throughout this presentation, as well as make various forward-looking statements, so please review all of the cautionary statements and other disclosures that you can find at the end of our presentation that's posted on our website.

Thank you, Alison. So just to start with production here. So since we came on production from our cabaret project on July 5th of 2020, I think we've posted some pretty good results here. Just a reminder, our first couple of quarters, we came on production roughly at our pre-commercialization expectation levels, which were equal to our firm volumes within our Bahia gas contract and also equal to our share of unit, our working interest share of unit production. For several quarters after that, our partner wasn't nominating for gas and we were able to sell all that access to Bahia gas on a flexible or interruptible basis. So you saw some pretty significant production increases through this period of time We also expanded our gas plant, our gas processing facility in the third quarter of 2022 and had an increase there as well. And then in the second quarter of last year, our partners started nominating for more gas and we also saw some demand impacts in the state of Bahia that resulted in lower nominations from Bahia Gas than what we had seen previously. So we went through this period of time and then last month, as we announced yesterday, we had a nice increase in the month of July. We agreed to review the pricing on just our flexible volumes within our contract on a monthly basis. And the result was a 49% increase when you compare that to the 1,629 barrels of oil equivalent that we produced in the second quarter to the 2,432 barrels of oil equivalent that we produced and sold in the month of July. So our strategy continues to be adding more 100% working interest production from our Meraka Tutu project. I think we've got some exciting results that we should be announcing here over the coming month. And then Adrian will walk through that with you later in the presentation. But our objective is to be at our, with the addition of some of those volumes to be approaching our near term 3000 barrel of oil equivalent per day goal. We talked about the redetermination in our last call. I think one or two days after that, we announced the result of our emergency arbitration proceeding as well. So just to recap for people, though, we did have a positive result as a result of the redetermination process. It became effective on June 1st with our interest, working interest in the unit increasing to just over 56%. And that transition of unit operatorship to Albo Petro is also underway. We have previously advised that our partners disputing that, like I said, right after our last call, we announced that we got an emergency arbitration order that grants the interim effectiveness of the expert decision. until a long-form arbitration can be completed. To be clear, our UOA does dictate that expert decisions and this redetermination process, such as this redetermination process, is to be binding. So we also, in our release yesterday, announced our latest semi-annual price update under our gas sales agreement. Just a reminder how this works. We've got a long-term gas sales agreement with Bahia Gas. The prices are calculated based on three international benchmark prices. So you can see them in the various grey dashed lines. This low one is US Henry Hub gas prices. This upper one is UK NBP gas prices. And the middle one that you see here is Brent oil equivalent prices. So you blend those together, average them over a period of time, and it calculates Elbow Petro's price in the black. You can see we've been roughly at the ceiling. We do have a ceiling and a floor within the contract, which is the green and the red. Both of those escalate based on US inflation. So we just announced our latest reset here. On a Brazilian RAI basis, the price was virtually unchanged from the last price that we saw. But because we have had some devaluation of the Brazilian currency, we did see a U.S. dollar denominated a slight decrease in our price to just under U.S. $11 per MCF. And you can see we're just slightly below the ceiling price within our contract. And then if we use the forward curves in the market as of yesterday, which is to the right of this line for each of those three different benchmark prices, you see the calculated price that's just slightly below our ceiling here for the duration of this chart that you see.

So just jumping into the results that we released yesterday starting off with our operating net back that is one of the non gap measures that that we look to that is basically are operating profitability per be expressed in barrel of oil equivalent. And just as a reminder, we compute that. It's the realized sales price. Those are the numbers at the very top of the stacking bar chart. And we deduct off royalties in orange and production expenses in the gray bar. And that gets us the operating net back, which is the green bar there. So in the second quarter, we did see a reduction in our realized sales price down to just below $72 per BOE. That was mainly due to a reduction in our effective US dollar realized price on our natural gas sales. That went from $12.57 for MCF in the first quarter to $11.83 in the second quarter. Royalties were relatively consistent this quarter with last quarter, effective royalty rate of about 2.7% on our realized price. Just as a reminder, statutory royalty rate in Brazil is between five and a half and 11%. But with royalties on natural gas, it's based on more of a raw on unprocessed value of that natural gas. So it's closer to a Henry hub equivalent that the royalties get paid on. So that results in a lower effective rate. And then on the production expenses side, we did have a reduction in volumes this quarter and a lot of our operating expenses are fixed in nature. But despite that, we did have a reduction of over $2 per BOE compared to last quarter. It was about $351,000 lower than Q1 and that was mainly due to some historical tax credits that we were able to get this in Q2 to recognize in Q2. So overall, that reduced our operating expenses this quarter and resulted in a lower cost per VOE. And that gave us a net back of $64.30 for the quarter. It's down about $1.86 from last quarter. Again, that's mostly due to the pricing. Still, relative to our realized price, we're looking at a margin of 89%, and, you know, we've went through this in past quarters, that's really, you know, top tier operating net box when you compare it to other South American companies or companies operating in Canada and the US. And when we layer into that, you know, we have a nice tax incentive in Brazil that really reduces our tax rate to about 15%. So that helps us generate significant funds flow even in periods like this quarter where our production was down about 4% from last quarter. So Moving on to funds flow. So again, this is one of the non-GAAP measures that we look at, and it's basically cash flow from operating activities, but before changes in working capital. So we did see about a $600,000 decrease in our funds flow compared to Q1. Most of that was due to the lower sales volumes and lower realized prices. G&A was a little bit higher and then offsetting that was that lower production expenses that I referred to and lower current tax. And so we ended the quarter with funds flow of 7.9 million. On the net income side, similarly, that was impacted as well by lower operating net back with the lower pricing and lower sales volumes in the period. But the biggest significant adjustment here on net income was foreign exchange losses. So any of the U.S. dollar denominated liabilities of our Brazilian subsidiary, those result in a foreign exchange loss on the local books that gets picked up on our U.S. dollar statement. So we did see with the devaluation of the Brazilian rail from March 31st to June 30th, increased losses in our Brazilian subsidiary on that. So foreign exchange losses were the biggest contributor there in that 2.2 million reduction in net income, partially offsetting that was lower current tax, which I already mentioned, and then also lower deferred tax and depletion and depreciation. On the balance sheet side, we continue to have a very strong balance sheet. We, just as a reminder, we are debt free. We repaid our credit facility back in September of 2022. It was fully repaid. And so we ended the quarter with 14.7 million of working capital. And I think of that, it's about 19.7 million of cash. So just going through our dividend history, we have been paying dividends since the third quarter of 2021. We've paid every quarter at these varying amounts. This is just part of our longstanding balance stakeholder return and reinvestment model. So to date, we've paid $1.22 US per share in dividends, and that has amounted to just under $44 million US dollars. The Q2 dividend, we announced that in June. It was paid already in July. It was consistent with our Q1 dividend of $0.09 per share, and that was reduced relative to 2023 just with the lower production volumes we've seen to date or seen up to the end of Q2 anyway, and then lower cash flows. But overall, that's a dividend yield of just over 10% at these current prices.