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Alvopetro Announces First Natural Gas Deliveries to Bahiagas

Source: 7/6/2020, Location: South America

Alvopetro Energy Ltd. announces that we have commenced natural gas deliveries from our flagship Caburé Project under our long-term Gas Sales Agreement with Bahiagás. The Caburé Project is the culmination of a conventional upstream natural gas development coupled with a natural gas commercial solution that includes highly strategic midstream assets. Commercial deliveries commenced on July 5th and on July 6th we have ramped up to our planned daily Firm delivery rate of 10.6 mmcfpd (300,000 m3/d).

Upstream Caburé Unit Development (49.1% Alvopetro)
Our Caburé natural gas field is a joint Unit development (Alvopetro 49.1% working interest). The field now has a total of seven wells, with six of these wells tied into recently expanded production facilities that are delivering Alvopetro's share of natural gas from the Unit. The Unit has a planned gross production plateau rate of 15.9 mmcfpd (450,000 m3/d). Depending on our partner's delivery nominations, we have the ability to produce up to 450,000 m3/d against Alvopetro's share of reserves from the Caburé Unit. During the commission phase of our midstream assets the Unit delivered Alvopetro a total of 59.3 mmcf (1.68 e6m3) of gas at rates up to 11.7 mmcfpd (330,000 m3/d).

Gas Sales Agreement (100% Alvopetro)
Alvopetro's share of natural gas produced from the Caburé Unit is being sold under our long-term gas sales agreement ("GSA") with Bahiagás, the local distribution company for the state of Bahia. Bahiagás commenced the prepayment of natural gas effective May 1, 2020 at a rate of 120,000 m3/d with a price of BRL$0.867/m3 (US$4.31/mmbtu). July deliveries are priced at BRL$1.02/m3 (US$5.13/mmbtu). As part of our GSA, Bahiagás extended their distribution network by 15 kilometres and constructed a new gas receiving station (City Gate) at the Facility site, this new infrastructure has a capacity of up to 70 mmcfpd (2.0 million m3). Construction of these projects was completed in early July 2020. Our Firm deliveries under our contract are currently set at 10.6 mmcfpd (300,000 m3/d) and the agreement currently provides for deliveries of up to 17.6 mmcfpd (500,000 m3/d).

Caburé Midstream Project (100% Alvopetro)
Our Caburé Midstream Project includes an 11-kilometre Transfer Pipeline and a Gas Treatment Facility ("Facility"). Construction of the Transfer Pipeline and Facility were completed earlier in 2020 and commissioning was completed in May 2020. The Transfer Pipeline and Facility both have capacities of up to 17.6 mmcfpd (500,000 m3/d). The Facility is a mechanical refrigeration plant and was constructed and is being operated by Enerflex. The Facility allows Alvopetro to deliver sales specified quality natural gas into Bahia State's natural gas market.

Project Benefits
During construction, our project generated over 400 jobs in the State of Bahia. Our natural gas is priced attractively and helps retain and stimulate industrial activity in the State of Bahia. Compared to fuel oil, this cleaner burning natural gas generates a 53% reduction in greenhouse gas emissions for electrical power generation. Over the life of the project it is estimated to generate over US$20 million in royalties and taxes. A significant percentage of the free cash flows from this project are expected to be reinvested in growing our business in Brazil.

Corey Ruttan, President and CEO, commented, "This is a very exciting time for Alvopetro. I am very proud of the collective contributions that everyone has made to make this project a success in the face of a very challenging environment. I want to thank Bahiagas, our Unit partner, our contractors, our capital providers, the regulatory agencies in Brazil, and all of our employees for their hard work and perseverance in reaching this important milestone. This project is the first of its kind in Brazil. We are the first independent company with the capability to process natural gas to sales specification and sell it to a local distribution company. This now positions us to realize the benefits from our Caburé project and it allows us to unlock the remining natural gas potential in our portfolio as we focus on our next stage of growth."

Future Growth
We plan to continue the evaluation of the Gomo deliverability at our 183-1 wellbore and expect to undertake further testing in the second half of 2020, subject to the approval of the ANP. Concurrently we plan to complete the permitting process for an 8-kilometre flowline to connect the well to our Caburé Transfer Pipeline.

We recently received our environmental permit for natural gas focused exploration drilling on Block 182 and we expect to be in a position to start activity on this block later this year. Our medium-term objective is to reinvest cash flows in the upstream part of our business or new business development initiatives to maximize the utilization through our Facility and GSA.

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