Alvopetro Energy Ltd.

Good morning. Thank you for joining us today for our Q2 2026 results webcast. I'm Corey Ruttan, President and CEO, and I'm joined by Alison Howard, our Chief Financial Officer, and Adrian Audet, our Vice President, Asset Management.

Hi, everyone. Just a few administrative points before we begin. We will be recording today's webcast, and we'll have a replay available on our website later on today. All of the pennies have been placed in listen-in only mode, but we will be hosting a Q&A session that we'll get to at the end of our presentation. You can start logging any questions you have now using the Zoom Q&A feature. You should see a button on your screen there, so you can start sending in any questions at any time. If you dialed in by phone, you can send questions to socialmedia at elvopetro.com. Lastly, we will be going through various non-gap measures, oil and gas metrics, and we will be making some forward looking statements throughout this presentation so please do read the various cautionary statements we have at the end of our corporate presentation that's posted to our website and all of the further disclosures that are in our MD&A also on our website.

Talk about our production. I recall we had some pretty strong results last year. We had 41% year-over-year production growth last year. But certainly the first half, our first part of 2026 here is off to a pretty strong start as well. If you remember, we had record quarterly production in Q1 at over 3,100 barrels a day. Q2 at 3,067 barrels of oil equivalent per day was pretty consistent with that. and we also announced yesterday our July production update, which again is over 3,100 barrels a day. So first seven months of 2026, again quite strong, roughly another 25% over that 2025 average that we had.

Okay, so we'll just go through some key highlights from our Q2 results. So starting with our operating FF, which is the green bar that you see on the chart there. Operating net back is a non-yap measure. It's a measure of our operating profitability. We express it on a per barrel of oil equivalent basis. To compute that, you start with your realized sales price, which we see at the top of the bar chart. You deduct off royalties in orange. We've combined production expenses and transportation expenses in the gray bar, and then the net result is our operating net back. So looking at Q2 2026, We saw close to a $7 per VOE increase in our real-life sales price, so a nice uptick there with higher commodity prices throughout the quarter, including natural gas sales of $10.98 per MCF, which was up 8% up from C1. Our royalties, the orange bar, despite higher prices, our actual effective royalty rate and our overall royalties per VOE decreased into the period, That just highlights the strength of the fiscal regime in Brazil that we have. Our royalties there, the effective rate was 5.3% this quarter, and in Canada, just under 15%. And then on our production and transportation expenses, again, once again, low production costs, less than $6 per VOE, so very attractive costs. Structure there and that generated an operating net back of $59.08 per VOE up again just under $7 per VOE driven by those higher realized prices in the quarter. When looking at our realized price of $59.08 relative, or sorry our operating net back of $59.08 relative to our realized price of $68.72, that's an operating net back margin of 86% which is You know, truly best in class and I think really highlights what we're doing in Brazil and the kind of cash flow we can generate on this production. And I don't think you find another company our size operating in Canada and internationally with these sorts of netbacks. And when you layer in the fact that we have a tax incentive in Brazil that reduces our tax rate to just over 15%, we're not currently taxable in Canada. So we aren't paying any tax on our cash flows out of Canada. That just allows us to generate really significant fund flow on these barrels that we're producing. So looking at our fund flow, so that's cash flows from operating activities before changes in working capital. This chart just shows the change from our Q1 fund flow of $12.5 million Thank you. Thank you. to highlight what I was talking to you on the last slide, and this is really significant cash flows that we're generating, which is great. Net income, very similar story there. An increase of $1.7 million, again, driven by those higher prices. We did have some increases in some non-cash expenses, so depletion and impairment were up. Our foreign exchange gains were down marginally compared to last quarter, and then our deferred tax was actually lower, so that increased our overall net income, so net income of $9.8 million this quarter.

All right, so as we previously announced, we paid a U.S. $0.12 per share dividend in the second quarter of this year. That represents a yield of just under 7% at current share prices. and since inception of the dividend in the third quarter of 2021, we've now paid U.S. $2.06 per share or $75 million U.S. in dividends back to shareholders. So pretty proud of this. This is a chart we showed just to highlight our more disciplined capital allocation model where we're balancing organic growth and returns to stakeholders. The chart on the left here, you've seen this a lot. The green lines with black dots are our cash inflows, our funds flow from operations every quarter that Alison reviewed. You can see, yeah, just over $14 million in Q2 of 2026. That was up 13% from Q1 and up 36% from Q2, or the comparable quarter in 2025. The bars on this chart, all the different shades of green, show the returns to stakeholders. You recall we Thank you for joining us. half of that's gone to reinvestments in capital expenditures and organic growth, and just shy of 50% has gone to the various forms of stakeholder returns, so pretty consistent with that model that we've established quite some time ago. From just an update on our gas pricing situation, recall we do have two contracts that we're pricing gas under right now. Our original QDC1, which comprises about 80% of our firm volumes right now, is the red line. There's a formula in the appendix, the detailed formulas in the appendix, or the notes to the presentation, but it moves based on Henry Hub and Brist. and then 20% of our gas is being priced under QDC and that's entirely a function of Brent oil prices so you can see with the appreciation in Brent oil prices we have seen an uptick in that. The green is the weighted average between those two formulas. We announced not too long ago that our August 1st price reset just increased up to $11.70 So we've established a strong platform in Brazil. I think we have a solid multi-year growth plan.

Now, 2026 is really focused on our next phase of growth for America 2-2, following up on the earlier successes here. So this year, we're increasing field processing and takeaway capacity four-fold for the field facility of America 2-2. The off-site fabrication of the main processing equipment for this expansion is underway, and we look forward to installing this equipment in the field over the coming quarter. We're also expanding and the rest of the team. We have a drilling rig right now sitting and working at the H2 location, so that's the picture in the top right. So we're in the final phase of this well, and we plan on finishing this well sometime in August. Yeah, you can see the top right there. are currently tied into our production facility, so once we complete it, we expect to have flow back to production. This well is targeting the prospective resource area of the Carver Zoo Reservoir. We are also finishing the de-drilling pad right now to support a four-well direct-to-development location, so that's the picture on the bottom right, so that's a four-well pad, and the pad will be connected via an 8-inch pipeline to our Mercatutu facility. So once the drilling rig is done at our H2 location, we'll move there and target the up-dip wells and that cargo-suit structure.

Alright, just to recap on our Western Canadian asset base. Again, we're focused on the Manville Stack Plate Fairway on the Saskatchewan side of the border. You can see in the green dash outline here. We've fully earned all the activity on our two farm ends that we did last year, so we have and a 50% interest in 104 sections of land now. And to date, you know, we think we've delineated three core areas so far and we've got an attractive inventory of over 100 Tier 1 drilling locations and we're working to move our next phase of drilling forward here. So, Just before we jump into the Q&A, just to summarize, I think, you know, again, we've got some very high-quality assets here with some strategic infrastructure, very attractive natural gas pricing with industry-leading margins and extremely strong free cash flow generation capacity. And that all helps support that more balanced and disciplined capital allocation model that we have. For value investors, we're currently trading at about two-thirds of our 2P NPVs. For yield investors, like I said, that $0.12 per share dividend that we paid represents a yield of close to 7%. And for growth investors, I think we've got an extremely exciting capital program here this year that has the potential to unlock an awful lot of value, especially when you consider it relative to our current enterprise value. And I think we've coupled some very strong growth prospects in Brazil now with an attractive inventory of opportunities in Western Canada. which is a nice balance and just remember we had a pretty strong year last year with 41% year-over-year growth but 2026 is shaping up to be another pretty good year for us as you can see and I think our capital program from this year will position us extremely well to continue that growth trajectory into next year and beyond. So we'll just start the Q&A section. I'll stop sharing the screen.

Okay, perfect. So we have a couple questions around Brazil and how many drilling locations over how many years in Brazil, how many inventory locations we have to drill in Brazil.

Yeah, for our QRSU structure and the reserve report for that development, we have six locations. We just finished drilling one of those, so we have five remaining locations. As I noted, we're drilling the H2 location. That is a prospective resource location, so that would be part of those five. And then from the GOMO structure, we have two locations, and then we have a number of fall-on locations in the prospective and contingent resource categories.

Okay, you've noticed that you're adding more wells sooner in Brazil and increasing field capacity. However, your gas sales contract is still 500,000 cubic meters a day. How can we expect this activity to translate to production and sales increases and when?

Yes, so maybe walk through this in steps. Like Adrian just talked about us completing the D1 well in the short term here, literally in the next couple of weeks we expect to have that on production. And I would look at that a little bit more as adding redundancy or insurance of well productive capacity beyond what we have today. But it's going through our existing facility infrastructure, so it really helps support that current behavior. I think it is reasonable in the short term to assume that we stay probably closer to those half one production levels that I walked through earlier. The next kind of key milestone is basically when we get the UPGN optimization or project completed that Adrian talked about, we're still trying to target that to be done ideally by the end of September. and then that gives us more flexibility to produce a higher percentage of our production from our America Tutu field. But in advance of the America Tutu projects being done, which I'll talk about next, Thank you for joining us. and then we can, you know, layer in additional flexible sales to Peguia Gas and or add additional firm sales like we've done in the last couple of years to expand our sales capacity to match those facilities expansions. And then the drilling projects that we're doing are obviously America T2 focused. We've accelerated some of that from 2027 into 2026 to take advantage of kind of that continuous drilling program with our current drilling rig but we'll be building productive capacity to match those production facility enhancements that we're doing this year.

We have a few questions on Canada, specifically why we've seen little well growth within Canada, especially in the context of oil prices being quite strong and yet we have little drilling activity Can you update on plans for Canada for the second half of 2026?

Yeah, no, those are fair and good questions. I think earlier we had guided that we were hoping to be doing some activity here this summer. We are working with our partner to advance those programs. We do have mechanisms within our contracts and within the standard agreements in Canada that we can also drive activity forward and the pace of activity, so we're In parallel, we're preparing that path, but in reality, it probably means we're growing sometime in the winter as opposed to we thought we could get a couple wells down here this summer.

Delving a bit more into Canada, there was a question about if we had any CAPEX spending in Canada during the quarter, and we didn't really. There was very minimal activity in Canada. and then there is a question about the base decline on the existing seven wells.

Yeah, no, there, you know, obviously there is some, you know, we've moved into kind of a flatter part of the production curve now. We did have some production interruptions due to, like, basically just engine shutdowns from overheating during the kind of some exceptionally hot periods here, but, you know, that was obviously So there was some downtime in there, but I think we moved into the flatter part of the curve.

Shifting back to Brazil and our 183D1 well, it was noted as completed in three intervals, but June press release guided up to seven. Is there any rationale for there being only three intervals? Are there remaining intervals behind pipe for later re-completion?

Yeah, I can answer that. So, yeah, initially we had looked into completing seven intervals. When we finalized our completion program, we did target it up to five intervals in that program, but due to a couple of operational challenges as we went through the program, we were only able to complete three. Now, those three are each in the individual CalRSU sub-sequences, so we have a strong simulation.

Okay, and then back to on Merck Q2 overall, is there any reasoning for the volume reduction from to 3.6 million cubic feet a day in July from 4.3 million on average in Q2?

No, I wouldn't read much into that. I think it's just us balancing the production between Cabaret and Merck Q2 and managing our facilities.

And then can you walk through why the price reset for August 1st was lower than the one that was initially indicated during Q1?

Yeah, no, good question. That's the challenge. The best information we can provide when we're doing those projections, which I walked through earlier, We have a few questions, more corporate questions. Any reasoning for no stock buyback Well, this is something that at the board level we're discussing all the time. And I know our shareholders have a lot of mixed views on this. But yeah, the 50% of the pie that's going back to stakeholders, obviously, you know, we can do buybacks or dividends. Recognize we are in a phase here where we made a decision to accelerate some of the capital Well, first of all, Yeah, there's obviously a lot of opportunities in Western Canada, so we don't talk about specifics on those things, but there certainly are a lot of opportunities that come our way, and we continue to look at them, but we can't comment too much on those things.

And then one other question here about our cash position. The cash position continues to increase. What are your current thoughts on the size of this cash position? Are there plans to accelerate CapEx or return the excess to shareholders? or are you keeping the powder dry for acquisitions?

Yeah, well, mostly it relates to that. Yeah, we put some debt capital in place last year. We haven't really used it. So that's part of the issue is that cash is still kind of sitting there. But part of the reason we did it is it gives us the flexibility to do things like accelerating those couple of wells that we had planned for the first half of next year We're now drilling one of them and we'll be drilling the next one immediately following that. So that's part of the reason we put it there. We will use some of it to do that activity.

And then there is a question. What is the second half of 2026 CapEx expected to be? Is it in line with the initial full year guidance for CapEx? So, yeah, we did have some disclosure in our MD&A about this. Our CapEx in the second half of 2026 is forecasted to be Just over $29 million U.S. and that's largely because we've now accelerated those two wells that Corey just mentioned. So, it was two MRF 2-2 wells, so it is higher than our initial guidance. And yeah, that's the reasoning and that kind of ties into the answer on, you know, the cash balance that we're sitting on right now as well. Let me just check social media. Oops. Okay, we have no further questions at this time.

All right. Well, thank you everyone for joining. Feel free to call if you have any questions following this, and we look forward to updating you at the end of November.

Thanks, everyone.