Alvopetro Energy Ltd.

points before we begin. We will be recording today's webcast and we will have a replay available on our website later on this afternoon. All participants are in listening only mode for the duration of the webcast, but we will have a Q&A session at the end of the presentation. If you are watching online through Zoom, you can use the Q&A button on your Zoom screen there and start logging any questions, and we'll get to those at the end of the presentation. If you've dialed in on your phone, you can send any questions by email to socialmedia at alvopetro.com. And then lastly, just a reminder on these calls, we always go through some non-GAAP measures and also make some forward-looking statements. So, you know, please review all of our disclosures on those items, both in our MD&A that was released yesterday and our press release, as well as the presentation that's on our website. There's additional disclosures on those. And with that, I'll turn it to Corey.

All right. Thank you, Alison. So to start with, just talk about our production results in the third quarter. We averaged a little over 2,100 barrels of oil equivalent per day in the third quarter that was previously announced. It was up 29% quarter over quarter and up 24% if you compare it to the third quarter of last year. We also did announce our October production, which was 1,912 barrels of oil equivalent per day. That was impacted for at least portions of the month based on Bahia Gas's demand through October. One of the other nice things to point out is that our new 183A3 well accounted for about 17% of our production in the month of October, and that well continues quite strongly for us. And Adrian will review that later in the presentation. And again, just focusing on our strategy going forward here is what we're looking to do is add more productive capacity from our near-term development drilling program at the unit with Cabaret. and to also add more 100% working interest production from our MRCA 2-2 project through our organically funded capital program so that we can maximize the throughput through our gas plant and ultimately work towards our near-term goal of 3,000 barrels of oil equivalent per day. An expanded productive capacity will also give us flexibility to look at increasing the firm volumes within our Bahia gas contract. which would then lead to increasing kind of the firm or base monthly cash flows that we have on a quarterly basis.

Okay, so just jumping into some highlights from our Q3 results that were released yesterday. Just to start with our operating net back, that is one of those non-GAAP measures I was referring to earlier. This is our operating profitability and we measure and we reflect that in per barrels of oil equivalent. So that's computed based on a realized price. If you start at the top of those stacking bar charts, we deduct off royalties, which is the orange bars and then production expenses, which is the gray bars. And then our operating net back or operating profit per BOE is the green bars. You can see we did see a reduction of just over $5 per BOE from Q2. That was due to a reduction in our realized sales price from $71.97 last quarter to $66.46 this quarter. That was mainly on the US dollar equivalent of our realized gas price. So our realized price in Q2 was $11.83. and we dropped 91 cents to 10.92 per MCF in Q3. That was largely due to foreign currency fluctuations. If you recall, our gas price is set semi-annually based on U.S. dollar benchmark prices, but then it gets set every six months in local currency and local Brazilian reais. And the average reais relative to the U.S. dollar was lower in Q3, was about all close to 7% lower in Q3 than Q2. So that accounted for the majority of that reduction in our overall realized price. The royalties are relatively consistent with last quarter, $1.89 per BOE. That's about 2.8% effective royalty rate, which is quite low. On the production expenses side, we did see a reduction in our per BOE costs by 35 cents per BOE. Actually, our production expenses, if you recall last quarter, we benefited from some historical tax credits. So our production expenses were quite a bit lower last quarter overall in dollar terms. This quarter, they went up about $193,000 just due to the fact that we didn't have that one-time historical tax credit adjustment this quarter. But overall, with higher, the 29% increase in sales volumes, our per BOE costs were down. Overall operating net back of just over $59 this quarter. And when you look at that relative to the $66 sales price, that's a profit margin of 89%. You know, we talk about this every quarter, but that's really best in class when looking at other companies like Albo Petro operating in Brazil, in other countries in South America, and also in North America. And when you layer in the fact that our... our project in Brazil is eligible for a 15% tax rate, we're able to generate significant cash flows from operating activities on this base level of production. So just moving on to funds flow from operations, which is a non-GAAP measure, most closely aligned with cash flow from operating activities, but before working capital, we did see a $2 million increase this quarter from $7.9 million to $9.9 million. Overall, that was mainly due to that 29% increase in sales volumes, partially offset by the reduced realized sales prices, which I talked about earlier, and then also the higher production expenses. Similarly, net income, we saw a $4.8 million increase in net income compared to Q2. Again, that was mainly due to higher overall sales volumes and our overall operating net back in dollar terms went up 1.9 million. The other big driver there was foreign exchange. We had a gain of 0.6 million this quarter compared to a loss last quarter of 3.2 million. So We did see a big adjustment for that and offsetting those increases were additional depletion and depreciation due to increased production levels and then also higher deferred tax. On that foreign exchange component there, just a reminder that's mainly foreign exchange gains and losses recognized by our Brazilian subsidiary on US dollar amounts. It's US dollar intercompany loans between the Canadian parent company and the Brazilian subsidiary, and then also US dollar capital lease in Brazil. So although overall the average rates in Q3, the average HAI had depreciated relative to the US dollar compared to Q2, period end rate, which is used to determine, you know, the foreign exchange that goes through the income statement on those US dollar amounts. There was an improvement as of September 30th compared to June 30th. So we did have a gain this period. And then just quickly on the balance sheet, we continue to have a very strong balance sheet. We ended the period with working capital of $15.8 million, up about $1.2 million from last quarter. And we had cash of $24.5 million on our balance sheet at that time. And a reminder, we are debt-free and have been for over two years now. We repaid our credit facility, fully repaid it in September of 2022.