Alvopetro Energy Ltd.

Just a few administrative points before we begin. We are recording today's call and we will have a replay available on our website later on this afternoon. All attendees have been placed in listen-in only mode for the duration of the webcast, but we will have a Q&A session at the end of our presentation. So if you have any questions, you can start sending those in now using the Zoom Q&A button that you should see on your screen. If you've dialed in by phone, you can send us any questions to socialmedia at albopetro.com. Lastly, we do go through various non-GAAP measures and we make forward-looking statements throughout this presentation. So we do encourage you to review all the cautionary statements and additional disclosures, both on our corporate presentation and on our most recent management discussion and analysis that was just released yesterday for Q2.

All right. Thank you, Alison. So as we previously announced, we did upgrade our gas sales agreement with Bahia Gas late last year, and as part of that we did increase our firm gas sales volumes by 33%. That, combined with some considerable operational successes, has resulted in a very strong start to 2025 for us. As per last quarter, Our production was up 41% quarter over quarter in Q1 and we had a similarly strong quarter in the second quarter here. Pretty consistent with Q1 and up 50% from the second quarter of last year. We did have some facility maintenance and inspections in Brazil that did impact the quarter. And that was offset by the addition of our new production in Western Canada that averaged 138 barrels of oil per day. As you can see here, our July production did continue at pretty consistent levels, averaging almost 2300 barrels of oil equivalent per day in Brazil and 134 barrels of oil per day in Canada. Adrian will walk through this later, but our strategy here through the rest of this year is to add additional 100% working interest productive capacity in Brazil with a target of getting to 3,000 barrels of oil equivalent per day. and be in a position again to increase our firm sales volumes for 2026. And then in Canada, you'll see we have drilled an additional couple of wells that will be brought on production here later this month, and we expect to drill a couple more as we exit this year.

So just jumping into some of the key highlights from our results released yesterday, this first slide here that we'll go through is our operating net back. Again, a reminder that is a non-GAAP measure. It's a measure of our operating profitability. We express it in per barrel of oil equivalent, and that's the green bars that you see on the chart. So to compute that, we start with our realized price. At the very top of the chart, we deduct off royalties in the orange bar. The gray bar, we've aggregated both our production expenses and transportation expenses. And then the net result is our operating net back. So looking at Q2 2025, we saw a marginal decrease about 47 cents per BOE in our realized price, overall average realized price company-wide. So we did actually have an increase in our realized natural gas price in Brazil up 2% to 10.62 per MCF. But with bringing on our Canadian operations, our overall company-wide realized price did decrease just marginally. On the royalties, that orange bar, our royalties were down 463 from last quarter. If you recall our last earnings call, we did have some historical adjustments in Q1 recognized relating to a dispute on our gross overriding royalties on natural gas. So without those historical amounts in art, we did see a decrease in our overall royalties this quarter on an effective royalty rate as a percentage of sales. It was 4.7%, which was 4.2% in Brazil. And then in Canada, 16.3% in Canada. It does include our crown royalty charges. any gross overriding royalties applicable. And then on freehold lands, our freehold royalty rate, as well as Saskatchewan resource surcharge. Moving on to production expenses and transportation expenses, we've aggregated that in that gray bar there, totaling $5.51 this quarter, including production expenses of $5.37, which is relatively consistent with last quarter. And then we do have transportation expense in Canada for clean oil trucking, that worked out to 14 cents per BOE company-wide. So overall, we generated a net back of $54.72. That was up close to $4 from last quarter. And that includes a Brazil operating net back of $56.08, which was up over $5 from last quarter. And then in Canada, $32.07 US operating net back. So overall, really strong netbacks still in place here. If you look at our operating netback margin, which is that line at the top, that's our operating netback expressed as a percentage of our realized price. We are at 87% this quarter and overall for the last six quarters, you know, well above 80%. And that's, you know, really best in class netback margins compared to companies operating in Canada. And in South America, and you layer in the fact that we have a very low effective rate in Brazil, we're eligible for a tax incentive of 15%. And the fact that in Canada, we have significant tax pools to offset our current earnings in Canada. So we're not expecting tax in Canada this year. Overall, that allows us to generate really strong funds flow from operations. So going into funds flow here, just a reminder, that's cash flow from operating activities before changes in working capital. So this chart just highlights the change from Q1 of $9.2 million this quarter. We're up $1.1 million to $10.4 million of funds flow. Basically, all of that is due to that royalty change without those historical royalty amounts that I talked about in the operating net back discussion. Similarly on net income, overall operating net back higher with those lower royalties, depletion and depreciation expense also decreased compared to last quarter. And then those were offset by lower foreign exchange gains this period and then higher current and deferred tax. So overall net income went up about 800,000 to 6.8 million this quarter. On the balance sheet side, these green bars that you see go through our working capital, including cash balances. We've shown this since we started natural gas sales back in July 2020, so over five years now. This quarter, our working capital was $6.8 million. So we did see a bit of a decrease from Q1 and Q4 2024. Just we have had higher capital spending the last two quarters, as you've seen. So that has resulted in a decrease in working capital, but still a very strong working capital position. And our cash balance is still 15 million as of June 30th. And we are debt free as well, I should point out.