Alvopetro Energy Ltd. (ALV) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Annual and Special Meeting of Alvopetro Energy Limited. Please note that the meeting will be recorded. I would like to introduce Mr. John D. Wright, Chairman of the Board of Directors of Alvopetro Energy Limited, who will also chair this meeting. Mr. Wright, the floor is yours.

Thank you, [ Sharada ], and good morning, ladies and gentlemen. I joined our Board and management today and welcoming all of you to Alvopetro's Annual Meeting. We sincerely appreciate your interest. We're pleased to host the meeting through TSX Trust Company's virtual meeting platform accessible to all our shareholders regardless of physical location to participate, submit questions and vote. I officially call the meeting to order and appoint Alison Howard to act as Secretary of the meeting and Sandy Hunter of TSX Trust Company to act as scrutineer of the meeting. Only registered shareholders who held shares in their name as of May 3, 2022, the record date of this meeting or their validly appointed proxy holders who signed into this online webcast are entitled to vote on the resolutions tabled at this meeting. Today's meeting will be divided into 2 parts. We'll begin with the formal business of the meeting. After completing the formal business requirements, members of Alvopetro's executive team will deliver a corporate presentation to provide an overview of our operations and outlook. Following this corporate presentation, we will offer a question-and-answer period. I'd like to first thank each member of our Board of Directors who are Firoz Talakshi, Geir Ytreland, Kenneth McKinnon, Roderick Fraser and Corey Ruttan, and Cory will be presenting the second portion of the meeting this afternoon. Thank you, gentlemen. I've received confirmation from the TSX Trust that all material in respect of the meeting were mailed to shareholders in compliance with the applicable security regulations and requirements. I direct to the affidavit, together with the copies of the documents mailed to the shareholders be kept by the Secretary with the minutes of this meeting. The reading of the notice of the meeting will be dispensed with. In order for this meeting to be properly constituted, there must be a quorum. Under Alvopetro's bylaws, the quorum is met to 2 or more people holding at least 10% of the shares entitled to vote at the meeting are present in person or represented by proxy. Based on the report of the scrutineers on attendance, I can confirm that a quorum is present. I direct that a copy of the scrutineers' report be kept by the Secretary with the minutes of this meeting. As notice has been duly given and a quorum is present, I declare this meeting properly called and regularly constituted for the transaction of business. I'll now commence with the formal business of the meeting. The business of the meeting is described in the management information circular dated May 6, 2022, which accompanied the notice of meeting. As this meeting is being held virtually via live webcast, I'd like to take a minute to explain the mechanics for voting and asking questions to facilitate the orderly conduct of the meeting. We'll conduct the votes on all matters before us by electronic ballot. Each registered shareholder or their duly appointed proxy holder virtually present at this meeting is entitled to vote on the matter and has 1 vote in respect of each share entitled to be voted on the matter and held by the shareholder. The polls will be open for all resolutions momentarily, at which point, registered shareholders and duly appointed proxy holders will be able to vote on each business item until polls are closed following presentations of the business items. Click the voting button on the left menu on your screen when I have announced the polls are open. This will allow you to choose to vote on each resolution immediately or wait until the conclusion of discussion on each resolution prior to casting your vote. You will only have a certain amount of time to register your votes once the polls are open. There will be an opportunity to ask questions on each resolution in turn. [Operator Instructions] Please note that only questions from registered shareholders and appointed proxy holders will be responded to during the formal portion of the meeting. However, all attendees can ask questions during the informal portion of the meeting. Once discussion on all items of business has concluded, I'll give you a minute to enter your votes and then declare voting close on all resolutions. We will run through each of the items on the agenda in turn, responding to questions on that item of business while it is before the meeting. I will now ask TSX Trust to open the polls for voting. The polls are now open on all resolutions. Registered shareholders and duly appointed proxy holders, please click on the voting button in order to cast your vote. Note, if you've already submitted your votes in advance and do not wish to change your vote, you do not need to take further action. As the first item of business, I'd like to place before the meeting the audited consolidated financial statements of Alvopetro for the year ended December 31, 2021, and the auditor's report thereon. A copy of these materials has been mailed to each registered shareholder who elected to receive such materials. It's not proposed to ask shareholders to approve the financial statements, which have been placed before the meeting. The next item of the business is the election of Directors of Alvopetro. The Board of Directors have fixed the number of directors to be elected at this meeting at 6. The Board of Directors of Alvopetro has adopted an advanced notice bylaw which provides a procedure to be followed for the nomination of directors at shareholder meetings and allows the corporations and the shareholders to evaluate the proposed nominees' qualifications and suitability as directors, helping shareholders cast an informed vote for the election of directors. There were no other nominations received within the requirements of the advance notice bylaw. Therefore, the only individuals entitled to be nominated as directors of this meeting are the persons named as nominees in the information circular as directed by the Board. Therefore, Corey Ruttan, Firoz Talakshi, Geir Ytreland, John Wright, Kenneth McKinnon and Roderick Fraser are hereby nominated to act as directors of Alvopetro until the next Annual Meeting of Shareholders or until their successors are earlier elected or appointed subject to the provisions of the Business Corporations Act Alberta and Alvopetro's bylaws. We'll conduct the election on an individual basis for each director. As a result, the decision of this meeting on the election of directors will be conducted by way of a ballot, allowing registered shareholders and proxy holders to register vote, votes for or to be withheld for each individual director. [Operator Instructions] Do we have any questions, Alison?

We do not have any questions at this time.

Thank you. If there are no further questions, I'll ask registered shareholders or duly appointed proxy holders who have not already done so to cast their votes through the online portal. [Voting]

Okay. The next item of the business is the appointment of auditors of Alvopetro. As Chair, I propose the following motion: I move that the firm of KPMG LLP chartered professional accountants be appointed as auditors of Alvopetro for the ensuing year and to authorize the Board of Directors to fix the remuneration If there are any questions on this matter, please submit these now. Do we have any questions, Alison?

There are no questions.

If there are no further questions, I'll ask registered shareholders or duly appointed proxy holders who have not already done so to cast their votes through the online portal. [Voting]

The next item of business is the approval of the new share-based compensation plan of Alvopetro being the Omnibus Incentive Plan. As Chair, I propose the following motion: I move to approve Alvopetro's Omnibus Incentive Plan and grants of awards under the plan pursuant to the original resolution described in further detail in the information circular. If there are any questions on this matter, please submit these now. Do we have any questions, Alison?

There are no questions.

Thank you. If there are no further questions, I'll ask registered shareholders or duly appointed proxy holders who have not already done so to cast their votes via online portal. [Voting]

Okay. We'll provide registered shareholders and duly appointed proxy holders a few more moments to complete the electronic ballots. Once the electronic balloting closes, the ability to submit votes will end and your votes will be automatically submitted. [Voting]

TSX Trust, I'll ask you now to please close the polls. I would now ask that the scrutineer compile the report regarding the results of voting on all business matters. I've been advised by the scrutineers that the ballots and proxies deposited for the meetings have been voted in favor of the resolutions. I therefore declare all resolutions carried. I direct that the results of the poll will be included with the minutes of this meeting. As there is no further business to be brought before the meeting, I declare the meeting terminated. This concludes the formal portion of the meeting. Once again, we'd like to thank all of you for your attendance at this Annual Shareholder Meeting and wish you all the best. And I'd now like to turn the meeting over to Corey Ruttan, President and Chief Executive Officer of Alvopetro Energy.

All right. Thank you, John. Thank you to everyone for joining us today. I'd like to recognize our Board of Directors and thank them for their invaluable contributions and insights. They certainly do an excellent job of representing all of our shareholders. And on behalf of all of our shareholders, I'd also like to thank our staff, both in Calgary and in Brazil. It's a very dedicated group of individuals, and it's really a pleasure to be working with such a small and highly motivated team. And with that, we'll move on to the presentation. [Operator Instructions] So at our annual meeting, I think it's always a good time to reflect on our performance last year. Obviously, 2021 was a great year for Alvopetro. It was the first year a full commercial production from our Caburé project. As a result, production increased over 150% to 2,358 barrels of oil equivalent per day. At the Caburé unit, along with our partner, we increased the gross production plateau by 1/3 to over 21 million cubic feet a day. Our funds flow from operations increased by almost 300% to $24.6 million. Our approved plus probable NPV10 before tax increased by over 50% to $297 million. We had no lost time incidents, no reportable spills and we initiated 2 voluntary social programs. We completed a share restructuring, which included a 3-for-1 consolidation. We repurchased 1.3% of our outstanding shares, while at the same time, reducing our number of shareholder accounts by over 60%. And that really help pave the way along with our strong results. Just starting our quarterly dividend program in the third quarter of last year, which is about 6 months ahead of plan at a level of USD 0.06 per share, that totaled over $4 million to shareholders last year. Our debt, we also reduced debt by about 60% to $6.5 million by year-end, and you'll see that's been further reduced subsequent to year-end. From a cash, we actually ended the year with a positive cash net of working capital and net of that debt balance, a positive $2.6 million. And from a total shareholder return perspective, Alvopetro delivered a little over 100% return versus the TSX Energy Index at 85%. And if you look at it on a 3-year basis, Alvopetro close to 20% versus the TSX Energy Index at positive 32%. So we're almost approaching our 2-year anniversary. So almost 2 years ago, Alvopetro became the very first independent company in Brazil to deliver sales specified natural gas into the local distribution network. And I think one of the really unique things for a company our size is that we control 100% of strategic midstream portion of our business. Our core project, Caburé, is currently accounting for 100% of our production, but we're now firmly focused on our next phase of growth. We've kicked off an exciting and organically funded capital program with a number of near-term high-impact catalysts. And I think because of the infrastructure position we have, we're uniquely positioned to quickly convert natural gas successes into production and cash flow. From a results perspective, we've been delivering well ahead of pre-commercialization expectations, and we're in a strong increase in gas price environment. We're delivering best-in-class operating profit margins, strong free cash flow. We've got a clean balance sheet. And all of that together helps support our more balanced and disciplined capital allocation model, where we're looking to take roughly half of our cash flows and reinvest it in organic growth and take the other half and turn that into returns to stakeholders. From an ESG perspective, we've always had a strong commitment that goes well beyond the local requirements, and we're delivering clean, locally produced and more affordable energy into the local market. From a team perspective, we've got a team with a very successful Latin American track record. Our local team has been operating successfully in our basin for over 15 years. And at our 2 prior companies along with John at Pacalta in Ecuador and then Petrominerales in Colombia, where the executive team all came from. We grew both these companies from nothing to over 40,000 barrels a day and managed exits on behalf of stakeholders, totaling about $2.8 billion. So just in summary, Alvopetro really does offer an attractive investment proposition on a value yield and growth basis. We're trading at just over half of our approved plus probable NPVs, about 3.5x our annualized funds flow from operations. At current share prices, we generate a yield quarterly or annualized of 6.8%. We've got significant growth potential, and we're looking to unlock a big portion of that with our 2022 organically funded capital program. Like I mentioned before, and we'll go more into this. We certainly are delivering strong results. We have a clean balance sheet. You can see our net cash net of debt position actually increased as of the end of the first quarter, up to over $7 million. Our outstanding debt is now down to just $2.5 million, so that's less than 1 month's cash flow. And the last point to make here is our insider ownership now sits at 11%, which is a number that's increased quite considerably over the past few years. So I can assure you, we're very focused on shareholder returns, and we're very much aligned with our shareholders. I think it's a good time to reflect on where we've come from. There's a lot of effort that went into making our project a reality, and I think a lot to be proud of. The beginning or left-hand side of this graph is the beginning of 2018. And if you look back to then, it really was like a starter's pistol for us when we completed our Caburé unitization process. Almost immediately thereafter, signed our gas sales agreement with Bahia Gas. And I think from that point forward, we've accomplished an awful lot over a very challenging time globally. It's a testament to our team, and there were certainly a lot of perseverance and determination put in by the team through this time. So we're really happy and really proud to have been delivering strong returns for shareholders, both in terms of share price, but now also through dividends. So one of the things we've always done is look for the best combinations of geological prospectivity and fiscal regime, and we certainly have this in Brazil. We're operating in the Northeast part of the country. We're operating in a proven hydrocarbon basin with a great fiscal regime and with a government that's implementing policies, targeting increased foreign direct investment and certainly increased oil and gas activity. So it's a great place to be. I think what's well understood is Brazil is a very large oil producer and exporter. But probably what's underappreciated is that Brazil is still importing roughly half their natural gas. So this creates really strong fundamentals for our onshore natural gas business model. If you look at the fiscal regime royalties in Brazil range between 5.5% and 11%. Our project just recently received the benefit of some incentives where we have a royalty rate of 8.5%, and our project qualifies for a 15% income tax. Last point to make here, this is a really unique moment in Brazil's oil and gas history with the state oil company, Petrobras, divesting of entire business lines and virtually all of its onshore oil and gas inventory. So we think that's going to create a lot of opportunities as the market continues to open up. So we're operating in the state of Bahia in the Recôncavo Basin. This is the oldest producing basin in Brazil. The first wells were drilled in the late '30s. It's a well-developed area. You can see on the map sheet on the left. There's an extensive network of oil and gas fields, highways that straddle both side per blocks, high-line power, pipelines, et cetera. So it's a really good place to operate. The Recôncavo Basin produces about 37,000 barrels of oil equivalent per day, about 1/3 of that is natural gas. The main city, the Capital City of Salvador, it's pictured on the bottom right there. It's Brazil third -- almost tied for third, I guess, the largest city at about 3 million people. And of note, as you drive further north out of the city of Salvador, you can see it on the map on the left-hand side, you drive through a major industrial complex called Camaçari. So this is where the majority of the natural gas in the state of Bahia actually gets consumed. And it's literally 15 to 20 kilometers just immediately south of our operating area. So kind of nice to be delivering natural gas locally this close to where it's all being consumed. All of our production right now is coming from the Caburé field, which you can see right here. And all of our growth acreage sits immediately north of that in the yellow lands, and I'll talk a little bit about those 2 projects as we come up. The infrastructure and the milestones that we achieved in Brazil, again, to reiterate, we're the first company in Brazil to deliver sales specified natural gas into the distribution network, first independently owned gas processing facility. You can see we're located in the heart of the basin close to industrial demand with a direct connection into the distribution network. So that helps really maximize our realized prices. So this is our core asset, our Caburé, project. Obviously, this was our primary focus of getting this project on stream. It's a unit development where we're just over 49% working interest here. The unit consists of all the surface production facilities and 7 wells. And you can see those wells, the black dots on the lower right image in the 3D seismic as well as all the wells on the cross section and the main image that you see here. The majority of the wells sit on the eastern side of this main bounding fault, and are producing from this [indiscernible] reservoir that you see in the light red or pink shading. I did mention that based on the unit's performance, we did increase the production plateau that we'd agreed to with our partner by 3rd October, 21 million cubic feet a day. And we've got some additional growth plans that we're targeting with 1 new well, the Unit C well. It's targeting some shallow development potential, but more significantly targeting the same [indiscernible] sands that we see on the eastern side of this main boundary fault in the down throne Western position here. So this is a well that will be -- we'll start drilling that here next month. And with success, could further expand our production plateau here. The last thing to note is just we do have a link. Hopefully, most of our shareholders have already seen this, but there is a virtual field tour link on the bottom part of this slide, and I'd encourage you to watch that. So moving on to our midstream and commercial solution. This is a 100% Alvopetro solution. As part of the project, what we did is we constructed an 11-kilometer pipeline from the Caburé unit directly to the West and built a UPGN, with our capacity currently being expanded up to over 18 million cubic feet a day. We signed a gas sales agreement with the Bahia Gas, which is the local distribution company in the state of Bahia. And as part of their project, what they did is they extended their distribution network from the pre-existing city gate in the industrial complex of Camacari, 15 kilometers to the north and build a brand new city gate right at our physical location. So you can see a picture of the facility on the bottom left here. The gas flows in from Caburé on the left hand side, flows along these pipe racks into the mechanical refrigeration unit. The processed gas gets delivered to the Bahia Gas city gate that you see on the right-hand side. And then gets delivered into the industrial market to the south. The way our gas price works is it gets reset every 6 months. So in February and August of each year. And the price formula is based on a combination of 3 international benchmark prices being Brent oil equivalent, U.S. Henry Hub Gas and U.K. NBP Gas prices. You average those over a reasonably long period of time. Then you also apply a price floor and a ceiling, both those get indexed to U.S. inflation. And the net result is our current price at over USD 11 per Mcf. And it also -- just the way the formula works, it creates much less commodity price volatility than what our peers would typically experience, which given our kind of yield model, I think is quite attractive for our shareholders. The last point I can make here is -- the nice thing is our Caburé project in its own right has underpinned all of these investments that we've made but we're really well positioned now. I'll talk about this, but our growth acreage to the north, we can add incremental capacity and production and bring that on stream much more quickly than our peers can and on a much more cost-effective basis. So it really provides the platform for us to unlock the rest of our natural gas weighted potential. So just back to the results that we've been generating, and we've certainly been delivering well ahead of our pre-commercialization expectations. I think that the expectations that we set were pretty consistent with our Q3 2022 -- or 2020 production levels. We grew production after that at pretty stable production close to the 2,500 barrels of oil equivalent per day mark, set a record in Q1. Similarly, a strong month in April. We did shut the plant down for 5 days on a planned basis in connection with our gas plant expansion in May. So we had a slight downtick in May, and we're back up again in June. And we'll have the extra capacity available to us starting in the month of July. So this is just a chart showing our operating netbacks in the green bars that you see on the chart, and operating netback is a measure of operating profitability per unit of production on a barrel of oil equivalent basis. So what you can see here is in Q1, we had over $17 per BOE increase, up to almost $54 per BOE operating netback. Most of the reason for that was an increase in our realized pricing. You can see a jump from just over $44 to over $62 per barrel of oil equivalent. Of note, that included 2 months of our new gas price in Q2, will actually include 3 full months of the gas pricing above USD 11 per Mcf. So you should see another little bit of an uptick here come in the second quarter. And the last point to make on this slide is just our operating netback margins, which is the top line on the graph. And the way you calculate that as you're operating net back or profit divided by your realized sales price. So for us, that is 87% in the first quarter of 2022. You can see that's absolutely best-in-class. We show a comparison here to 13 other peers. There's a few Brazilian peers, a number of other LatAm peers focused mostly in Colombia. And then we've shown a couple of local gas producers as well in Canada just by way of comparison. You can see we're at the very high end of this, and we're about 25% higher than the average. And it really highlights the strength of the fiscal regime in Brazil as well as our low-cost natural gas production. So like I said, this is best-in-class. So just talk a little bit about our capital allocation model now. Like I said, the Q1 was a record quarter for us. You can see the funds flow from operations on the line here. Our funds flow from operations increased 68% quarter-over-quarter, 129% year-over-year to almost USD 11 million in the first quarter alone. And then in each quarter, you can kind of see how we've allocated that -- our cash flow out to the different pieces of the pie that I talked about earlier. The yellow is the portion that we've allocated to capital expenditures or investing in our growth. The orange is interest and debt repayments and then in green is dividends. So what you can see is in the first year or -- frankly, the first 15 months of the project, we really aggressively repaid our project financing loan. We then -- based on the strength of our operations, implemented the dividend in Q3. We grew the dividend in Q1. And then also, you can see more in earnest, we started our organic growth plan more significantly starting in the first quarter of 2022. All at the same time, we've really strengthened our balance sheet through the same period of time as well. So if you sum it all up, this represents 21 months of operations, we've generated funds flow from operations of over USD 43 million. About 1/4 of that went to capital expenditures, 28% of it went to interest and debt repayments and about 16% to dividends at this stage. So moving on to ESG. Obviously, we're very focused on bringing our project on production, but we've done that with a strong commitment to ESG as well. We'll actually be publishing our first sustainability report in the coming weeks. But this slide does a good job of highlighting our approach and some of our accomplishments in 2021. Our commitment certainly goes well beyond what's required by Brazil's already stringent regulatory requirements. I would say our team pays particular attention to trying to minimize our impact, pay special attention to preserving biodiversity and preventing erosion. From a 2021 perspective, if we can talk a little bit about the completion of our America 22 pipeline extension just as an example, 90% of that route followed the existing pipeline right of ways or used directional borrowing to minimize our impact in -- the other thing we did is we ended up removing about 65% fewer trees than we were originally permitted to do, and we've replanted over 20x that number. From a Scope 1 and Scope 2 emissions intensity perspective at 4.7 kilograms of CO2 equivalent per BOE of energy produced, it's roughly 4x lower than what a typical or average U.S. producer would be -- would have from an intensity perspective. From a consumption perspective, if you compare it to burning fuel oil for the end consumers, our natural gas is also resulting in about a 53% reduction in greenhouse gas emissions there. On the safety side of things, we've always had a strong commitment to this. It's a very proactive approach, and the net result was no lost time incidents over our first nearly 2 years of gas operations. From a community perspective, we're now allocating USD 0.20 per BOE to voluntary social investments that will help contribute to the long-term sustainability of 7 communities within our direct and indirect areas of influence. From a governance perspective, we've always had a high standard of corporate governance. It was really carried over from our days at Petrominerales, a much larger company. And it's really built off of our Alvopetro value system that governs all of our interactions. So just talk a little bit about our voluntary social programs. This is the first of two. The Conservatory of music and arts of [ Saojao ]. It was our first partnership that we formalized in the municipality of [indiscernible]. It's the municipality closest to our gas plant. With funding from Alvopetro, our local partner there was able to refurbish a building where classes could be held, received 85 instruments and T-shirts and set up at [ PhilaRonica ], our marching band and rebegin or music lessons. The classes have been ongoing since February of 2021, twice a week after school and over 100 students are in regular attendance. The teachers and staff ensure the kids are in good standing at school, and the program also offers counseling as required. Our second program, we've now completed the first 3 months of our [ sow and grow ] program. This is implementing bio water systems for 10 families in Phase 1 in the rural area, again, around our gas plant. The program provides technical assistance in agro-ecological farming techniques, soil sampling conducted to assess soil conditions and to provide technical advice for enhancements. Recipients are trained to help other interested families implement the system, donation of seeds, materials for harvesting and the program also helps facilitate access to credit. And it ultimately culminates in the families, bringing their production to the local farmers market where we've secured a stand through the city hall. So with that, we'll now move into our next phase of our organic growth. We've established a pretty strong platform. And I think we're on track here. We've got our near-term goal of 18 million cubic feet a day and a longer-term vision to basically double that up to 35 million cubic feet a day. The growth is planned to come from a combination of areas. So first of all, is our core base of operations. Like I said, the gas plant will be capable of handling at least 18 million cubic feet a day in early July. We're looking to expand our Caburé unit production plateau along with our partner through the drilling of the Unit C well, which will happen starting in July. And then secondly, on the exploration side of things, we drilled the first of 2 high impact, 100% working interest exploration wells and the second well is drilling right now. Both of those prospects were independently evaluated by GLJ, our reserve evaluators. The first well, 182-C1, you can see it on the map immediately north of our gas plant here, encounter 25 meters of potential gas pay in the Agua Grande formation. Next month, we'll conduct a production test, and we've got plans to drill a follow-up delineation well immediately following that, that will not only help delineate the Agua Grande discovery but it will target the secondary target, the Sergi formation in a location further east from the main bounding fault. The second well, 183-B1 sits immediately to the northeast of that. We spud that on June 5, and are making good progress. Again, GLJ evaluated this on a best estimate perspective resource basis at 5.9 million barrels of oil equivalent with a 4 point -- sorry, a 44% chance of success. You'll see and we'll put that in perspective. But on a success case basis, that's actually more reserves than we have booked on our Caburé assets. So these are extremely meaningful and have the ability to add a lot of value for shareholders. The third piece is our Murucututu project. This is a deep basin gas projects. It sits immediately north of our Caburé asset. You can see it right here. Again, GLJ's has signed a combination of 2P reserves as well as contingent their prospective resource. We've completed the pipeline extension to the 183(1) location, and we're very close to being complete the field production facilities. So we look to have that well on production next month. And then it will set the stage for a broader multiyear development of this asset. Our capital program in 2022 is targeting the 2P reserve component of what GLJ has assigned here. It will involve tie-in in the 197(1) well as well as drilling our first 2 fit-for-purpose development wells. So this is obviously a catalyst-rich and busy 2022 capital program. It's all organically funded. The different bars here just show the timing of all the capital expenditures. The little flame show that with success when -- roughly when those projects would all come on production. You can see the first of the 2 exploration wells being drilled in April through to May. We plan to test that in July and immediately pull that with drilling the follow-up well. The second exploration location is drilling now. The Unit C well with a different drilling rate will start drilling in mid-July and expect to have results fairly quickly thereafter. You can see the 2 exploration wells because it involves building a new pipeline to the gas plant, the related production would come on next year. Whereas most of everything else that we've got in here could come on production very quickly, so including the Unit C well. On our Murucututu project, like I said, we expect to have our 183(1) well on production in July. We'll follow that with the 197(1) tie-in and then our first 2 fit-for-purpose development wells. And lastly, our gas processing capacity is on track to be increased to at least 18 million cubic feet a year -- I'm sorry, 18 million cubic feet per day in early July. So this slide attempts to put our growth potential in perspective. Obviously, at the beginning of the year, we did announce a positive reserve and resource update. Our 2P net present values increased by over 50%, up to $297 million, and that's at a somewhat outdated price deck at this stage. Our 2022 capital program is focused on growing production and reserves. From a value perspective, you can see our current enterprise value actually sits at roughly half of just our 2P net asset value. So never mind any of the upside associated with those projects that I talked about earlier. From a volume perspective, this is just putting in perspective our reserves and our risk resources by project. You can see our core Caburé project in green on a 2P basis has reserves of about 5 million barrels of oil equivalent per day. The orange is our Murucututu or Gomo project on a risk basis. And then the 2 gray wedges are the 2 exploration wells that we're drilling this year, again, on a risk basis, looks like we already have a nice success on the first one. But to put this in perspective, on a combined basis, we're targeting up to kind of 6x our core project 2P reserves with this capital program this year. So it's a really exciting time for us. This is just to show our longer-term vision. Our short-term objective is to get to the 3,000 barrels of oil equivalent per day mark and then ultimately grow to 6,000 barrels of oil a day equivalent, which would involve doubling the size of our gas plant and consuming or utilizing about half of the city gate that's right at our physical location. The growth wedge is expected to come from a combination of exploration and development upside. So in conclusion, again, I really think Alvopetro offers an attractive investment proposition no matter what your investing focus is. We're delivering results well ahead of expectations. Like I said, Q1 set a new record for production and cash flow for us. We've got attractive and increase in gas prices, leading operating profit margins, a strong balance sheet and really good free cash flow generation capacity that help underpin our more balanced stakeholder return and organic growth model. For value investors, just to reiterate, we're trading at just over half of our 2P net asset value, and that's before considering any exploration or development upside. It represents just 3.5x our annualized funds flow from operations. For yield investors at our current share price, it translates into a 6.8% dividend yield, with dividends paid quarterly in U.S. dollars. And for growth investors, hopefully, you can see, obviously, a very exciting 2022 capital program with a number of significant and near-term catalysts, especially when you compare that to our current market capitalization. So with that, I think we'll turn it over for questions and I'll ask Alison to read those out.

Sure. So the first questions are around production and the facility expansion. So it sounds like production recovered from the shutdown in May, but will there be another drop when the facility expansion -- when that facility is commissioned following the expansion?

Yes. So the reason we did the shutdown is that we could be prepared to do this without any material shutdowns in July. That being said, there is a commissioning phase. It's possible there's very short durations of downtime, but we expect that to be immaterial.

And do you expect to be operating at full capacity when the facility expansion is completed?

Yes. So to emphasize that's -- we have the ability to produce up to 3,000 BOE per day or 18 million cubic feet a day. The unit on a gross basis has the ability, as I noted, to produce up to 21 million cubic feet a day. So the answer to that in the short term it depends a little bit on how much gas our partners consuming to the extent that they're not, we would have the ability to utilize the full capacity in addition with our capital program this year and the production additions that we're looking at adding both this year and next year, we look to be able to be at that level regardless of what our partners dispatch.

And then moving on to the exploration prospects. Regarding your 182 C1 well where you had the recent discovery, you had said that it could be on production next year, but is there more detail on more exact timing? Or what does that depend on assuming a successful test?

Yes. So we're doing all the final work to be able to submit our permit for the pipeline. So we're pretty close to that. Our hope would be because this would be an alteration license, we could get an approval in as quick as 6 months, and then we've got a 4- to 6-month construction time line. So we're probably at least a year away from today to be able to bring that well on production.

And do you have just 1 follow-up well plan on Block 182?

Yes. For now, we're going to grow 1 follow-up well. Again, it's kind of multifaceted. It's partly to delineate the Agua Grande discovery that we've got, so meaning help determine how large it is. Secondly, because the existing well was drilled extremely close to the fault, what can happen sometimes as you get cementation effects we think, we can actually get even better porosity and better reservoir quality as we move further to the east. And then thirdly, the existing well actually crossed the fault right after we drilled the Agua Grande formation. So we ended up not drilling through the Sergi in that location. So the third objective will be to encounter the Sergi, which is encountered everywhere, to be clear and hopefully a tighter carbon charge as well and that we're dealing with a multi-zone discovery. So -- sorry, part 2 of that, that's why we're drilling that one. I think we'd then be in a position to kind of properly size the production facility and the pipeline. We probably do get focused on that work and then drill new wells into the timing of that coming on stream. So we could probably wait to drill the additional wells sometime early to mid next year.

And on the 182 discovery, does that derisk the 183-B1 location you are drilling now? Or are these totally independent?

Well, they're technically independent, but part of the reason why GLJ has signed a fairly high chance of success on both of these prospects. One was at 47% and one was at 44%, is that the faults in this area is depth tend to have very good ceiling capacity, which would be the main kind of geological risk. So as much as they're independent, I think it gives us 1 more data source with the fault ceiling on the fault block immediately adjacent to where we're drilling. So although they're technically independent, it certainly -- we feel good about having a good start to the program here.

And assuming you have success on your test of 182 and potentially success at 183, how quickly can the prospective resource on those exploration prospects be converted to reserves?

Yes. So technically, as soon as we test gas, we have the ability to migrate resource into reserves. It doesn't necessarily happen all at once. It can happen also as additional wells get drilled. But for the 182-C1 location, with the 2 wells and gas tests, we would be in a position to migrate that certainly by our next year-end reserve update and it's possible that we would look at doing that sooner.

And on a more general basis, are you solely focused on natural gas? Or would you consider pursuing any oil opportunities? Do you have any oil prospect?

Yes. So to be clear, we're -- so first of all, we've built some highly strategic infrastructure here that has additional capacity. So I think we've got an attractive gas sales agreement. We're connected right into the local market. So in that sense, it makes sense for us to focus on our natural gas weighted potential that we've got in the nearby area. But to be clear, our premise all along is to be focused on geological prospectivity and fiscal regime and returns to stakeholders. So if we have a go-to oil project, we will also focus on that, but we have been prioritizing natural gas. We do have some development opportunities on an asset called Bom Lugar that sits immediately north of us, but I would say the vast majority of our potential right now in the near term is natural gas focused.

Okay. And then switching to more corporate matters. You have significant volumes traded in the U.S. on the OTC. Would you consider a dual listing in the U.S. at some point?

Yes, this is something that we've evaluated. Obviously, we'd love to have more liquidity in our share price, but there is a cost associated with all those things. So we have to balance the cost benefit of that and some shareholders would have the opinion that, that would make sense and others would say, maybe take the added costs and increase the dividend for those amounts. So it's something our board will continue to evaluate.

And speaking of the dividend, will you consider share buybacks at all? Or are you still focused on dividends?

Yes. So if we go through in phases, our first focus was repaying the project financing loan. And I think we did an amazing job of doing that much quicker than anyone ever could have imagined. Very quickly then turn to the dividend program that we had been talking about for quite some time. This is a model that we've been talking about long before we came on production. I think now you see most E&P companies kind of copying some hybrid of this. Certainly, once the debt gets removed, that's a big portion of the stakeholder portion of the equation that's removed. So there is more capacity, I guess, for returns to shareholders. And the question is, is there then a balance between buybacks and dividends? And I think, again, that's something our forward is going to need to continue to evaluate. I think there's probably room for some balance. My personal opinion is, I like the fact that -- we've got a lot of long-term shareholders that have been in the story since the beginning or certainly since 2017. And every quarter, when we send those checks out, it makes me feel pretty good that we're delivering that return to shareholders that have been there for a long time and are continuing to want to be there. But it's certainly another tool that we can add to the toolkit.

And there are no further questions at this time.

All right. Well, I want to thank everyone again for attending. Thank you for your support, and we look forward to updating you as we continue with our 2022 capital program, and just a reminder, feel free to call either Alison or myself any time with any questions you might have. Thank you, Ian.

Ladies and gentlemen, thank you for attending today's meeting. You may now disconnect.