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Alvopetro Details 2015 Capital Spend in Brazil

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Alvopetro Details 2015 Capital Spend in Brazil

Alvopetro Energy Ltd. has announced third quarter 2014 financial and operating results and 2015 capital plan.

Financial and Operating Highlights

  • During the third quarter of 2014, we commenced drilling our 183(1) well and testing our 197(1) well.
  • We drilled the 183(1) well to a total depth of 3,550 metres. Based on open-hole logs, the well encountered 189 metres of potential net hydrocarbon pay over three main intervals.
  • We drilled the 197(1) well to a total depth of 3,275 metres and encountered 43 metres of potential net hydrocarbon pay over several separate intervals.
  • On November 4, we commenced drilling our third well, 197(2), a lower-risk shallow conventional target offsetting an existing natural gas discovery.
  • Our cash, restricted cash and working capital resources remain strong at $63.7 million.

Operational Update

  • We completed testing our 197(1) well in October 2014. The 197(1) well was drilled to a total depth of 3,275 metres and encountered 43 metres of potential net hydrocarbon pay over several separate intervals. The lowermost 6 metres of net pay was perforated and flowed natural gas, without stimulation, at a rate of 40 mcf/day, with no water. The test data characterizes the resource as liquids rich, high-heat content, gas in an unconventional reservoir and, as expected, will require the application of reservoir enhancement techniques. This gas interval is part of a large geobody that we have mapped using 3D seismic over a large area, and which has been confirmed by our 183(1) well results.
  • On October 3, we completed drilling our 183(1) well, reaching a total depth of 3,550 metres. Based on open-hole logs, the 183(1) well encountered 189 metres of potential net hydrocarbon pay.
  • Based on logs, we have a series of Upper Gomo sands in our 183(1) discovery well totaling 96 metres of potential net pay, using an 8% porosity cut-off. This Upper Gomo sequence includes a thick continuous column of sand with 46 metres of net pay, and a three metre zone with 14% porosity. These zones are stratigraphically distinct from the upper zone in 197(1) with log resistivity of 40 ohms, compared to the resistivity of 20 ohms measured in the uppermost tested zone in our 197(1) well.
  • Logs from our 183(1) well also indicate a natural gas zone with 93 metres of net pay, using a 4% porosity cut-off. Using 3D seismic and internal petrophysical analysis we have mapped this zone to be part of the same geobody as the natural gas discovery in the lowermost zone tested in our 197(1) well. Based on logs, mapping and ongoing technical analysis, we now internally estimate 1.3 TCF of total petroleum initially-in-place (TPIIP) (natural gas) in this 5,460 acre geobody. Concurrently, we have completed the detailed 3D seismic interpretation and mapping of the upper Gomo interval that, based on open hole logs and petrophysical analysis, is expected to be hydrocarbon bearing. If this geobody is gas bearing, we estimate it contains resource potential similar to the lower geobody described above. If the geobody is oil bearing, we estimate it could contain in excess of 600 million barrels of TPIIP. Additional technical work and testing is required to determine the extent, if any, of potential commercial hydrocarbons associated with this well. We plan to commence a multi-zone testing program on the well with a service rig, subject to our drilling schedule and following receipt of regulatory approvals.
  • Our 197(1) and 183(1) wells have been significant milestones proving hydrocarbon potential for both oil and natural gas. The 197(1) well demonstrated natural gas deliverability on an unstimulated basis, at depth, in the core of our Gomo play fairway. The continued strong demand for natural gas and high energy prices in northeastern Brazil place Alvopetro in an excellent position to commercialize this large tight gas resource along with any potential commercial light oil accumulation.
  • On November 4, 2014, we commenced drilling our third well, 197(2), a shallow conventional exploration target offsetting an existing gas discovery. We are currently drilling at 626 metres to an expected total depth of 1,845 metres. After drilling this well, due to a third party obligation, we expect to release the rig for a period of 60 to 100 days and then plan to commence development drilling on our Bom Lugar mature oil field in the first half of 2015.

Financial Resources and Fourth Quarter 2014 Plans

  • In the first nine months of 2014, we invested $27.5 million and made extensive progress advancing our business objectives. We successfully completed drilling and completing our 197(1) well, drilling our 183(1) well and are currently drilling our 197(2) conventional prospect. In addition, we reprocessed 3D seismic over our land base, recovered and analyzed over 118 meters of core, and advanced our geological model resulting in the identification of an inventory of high potential prospects.
  • During the fourth quarter of 2014, we plan to complete drilling and testing our 197(2) well, an offset to an existing natural gas discovery. This is a lower geological risk location that, with success, will provide the first step for building a commercial natural gas business and support our additional natural gas exploration prospects and broader plans to develop the extensive Gomo natural gas potential we have discovered in our first operating year in Brazil.
  • Our work to-date has followed our plan of proving the commercial viability of the Gomo resource, which we will continue into 2015 with the completion and testing of our 183(1) well, including a fracture stimulation. This will allow us to advance our Gomo resource strategy with minor capital investment in 2015. This gives us the financial flexibility to focus our capital in 2015 on building a sustainable base of production and cash flow through oil-focused development and exploration drilling. Our existing financial resources provide Alvopetro flexibility to accomplish our 2015 capital plan.

2015 Capital Plan

Alvopetro's three-pronged strategy is to pursue our:

  • Mature Oil Fields; development drilling focused on generating near-term oil production and sustainable operating cash flows;
  • Shallow Conventional Oil Exploration; targeting prospects generated from our reprocessed 3D seismic database; and
  • Large Tight Hydrocarbon Resource; proving the commercial viability of the Gomo resource in the Recôncavo Basin.
  • Our 2015 base capital plan is estimated at $25 million. Our strong financial position enables us to fund the 2015 capital plan with our existing balance sheet, and provides the flexibility to expand the 2015 capital program with early success. This program positions Alvopetro to grow oil production and reserves while significantly advancing each aspect of our three-pronged strategy. With our diverse asset base and expanding inventory of opportunities, we plan to maximize value by achieving a balance between capital discipline and growth.

Mature Fields

We plan to drill two wells at Bom Lugar in 2015 targeting repeatable, low-cost, development and building near-term cash flow. The original Bom Lugar discovery well came on production at over 500 bopd and has cumulatively produced nearly 300,000 barrels of oil. With early success at Bom Lugar we have the flexibility to expand our development drilling program and our shallow conventional oil exploration program in 2015 and beyond.

Shallow Conventional Exploration

What started in 2013 as a theoretical exploration concept, has now evolved into a solid inventory of high-impact prospects. During 2014, Alvopetro focused on the reprocessing and interpretation of the extensive 3D seismic database over our blocks, enabling us to build an initial 9-well inventory of conventional exploration opportunities. Our 2015 capital plan will leverage our geotechnical work completed to-date and includes the drilling of the first of the oil exploration prospects.

Proving the Commercial Viability of the Gomo Resource

Our early capital expenditures were dedicated towards drilling our 197(1) and 183(1) wells that have advanced our initial Gomo light oil play concepts while proving up a significant deep, tight, natural gas opportunity. In 2015, our capital plan builds on these investments. In 2015, for the Gomo resource, we plan to focus on relatively lower-cost activities including completing and testing the 183(1) well, defining deliverability through the use of fracture stimulations and reservoir modelling, to provide the basis for a large-scale commercial development.