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

[Audio Gap] Alvopetro Energy. I joined our Board management today and welcoming all of you to Alvopetro's Annual Meeting. We sincerely appreciate your technical interest and attendance. We are pleased to host this meeting in person today. For shareholders not able to attend in person, we are also hosting the meeting via live webcast. However, shareholders are not able to vote any shares through the webcast format. Please be advised that we're recording the meeting, and it will be available for viewing on our website at a later time. I officially call the meeting to order and appoint Alison Howard to act as Secretary of the meeting; and Patricia Selby of TSX Trust Company to act as scrutineer of the meetings. Today's meeting will be divided into 2 parts. We'll begin with the formal business of the meeting. After completing our 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'll offer a question-and-answer period. I'd first like to thank each member of our Board of Directors, who are Firoz Talakshi, Geir Ytreland, Kenneth McKinnon, Roderick Fraser, and Corey Ruttan, who will be presenting in the second portion of the meeting this afternoon. Thank you, gentlemen. I received confirmation from the TSX Trust that all materials in respect of the meeting were mailed to shareholders in compliance with applicable securities requirements. I direct that the affidavit, together with 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 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 if 2 or more persons 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 the formal business of the meeting. Business of the meeting is described in the management information circular dated April 29, 2024, which accompanied the Notice of Meeting. Voting on the resolutions will be by ballot with the exception of the appointment of auditors. Those of you who are registered shareholders or a duly appointed proxy holder for a registered shareholder should have received and completed a ballot before you entered the room. If you are a registered shareholder or a proxy holder entitled to vote and you did not complete a ballot before you enter the room, please return to the registration table and a representative of TSX Trust Company will provide ballots to you. If you are a registered shareholder or proxy holder and have previously voted, or if you hold your shares in a brokerage firm, no further action is required. Please note, we will be not taking questions during the formal portion of the meeting other than questions from registered shareholders and appointed proxy holders in attendance here today and only to the extent such questions or comments relate to the motion before the meeting. However, all attendees may ask questions during the informal portion of the meeting, and these will be addressed at the conclusion of the presentation. 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, 2023, and the auditors report thereon. A copy of these materials has been mailed to each registered shareholder who elected to receive such materials. The next item of business is the election of directors of Alvopetro, each of whom will hold office until the next Annual Meeting of Shareholders or until their successors are earlier elected or appointed. The Board of Directors have fixed the number of directors to be elected at this meeting at 6. In the proxy materials, 6 nominees for election as directors of Alvopetro have been proposed. These 6 nominees are: John D. Wright, Roderick L. Fraser, Kenneth R. McKinnon, Corey C. Ruttan, Firoz Talakshi and Geir Ytreland. I ask for a motion to elect each of the nominees as directors of Alvopetro.

I nominate the following individuals to serve as directors of Alvopetro, and to hold office until the next Annual Meeting of Shareholders or until their successors are earlier elected or appointed; John D. Wright, Roderick L. Fraser, Kenneth R. McKinnon, Corey C. Ruttan, Firoz Talakshi and Geir Ytreland.

Thank you, Nanna. The Board of Directors of Alvopetro's adopted an advanced notice bylaw, which provides a procedure to be followed for the nomination of directors at shareholder meetings and allows the corporations -- corporation and the shareholders to evaluate the proposed nominees' qualifications and suitability as directors, helping shareholders cast an informed vote for the election of directors. As there were no other nominations received within the requirements of the advance notice bylaw, I declare the nominations closed. As indicated previously, the vote on the election of directors will be made by ballot. I'm advised by the scrutineer that the motion to appoint those nominees as directors of the corporation has received more votes in favor than those withheld. I declare the motion carried and each of the 6 nominees will be elected to the Board of Directors of Alvopetro. The next item of business is the appointment of the auditors of Alvopetro. I ask for a motion to appoint KPMG LLP Chartered Professional Accountants as auditors of Alvopetro for the ensuing year and to authorize the Board of Directors to fix their remuneration. May I have a motion?

Aye, sir.

Thank you, Heather.

I second the motion.

Thank you, Nanna. All those in favor, raise your hands. [Voting]

Contrary, if any? [Voting]

I declare the motion carried. The next item of business is the reapproval of the Alvopetro's share-based compensation plan being the Omnibus Incentive Plan and the approval of grants of awards under the plan pursuant to the ordinary resolution described in further detail in the information circular. May I have a motion?

Aye sir.

Thank you Heather.

I second the motion.

Thank you Nanna. Voting on this motion has been conducted by way of ballot, and I'm advised by the scrutineer that the motion has been approved by a majority of the votes cast. I declare the motion carried. As there is no further business to be brought before the meeting, I ask for a motion that this meeting be terminated.

I declare that this meeting be terminated.

Thank you Nanna.

I second the motion.

Thank you Heather. All those in favor, please signify by a show of hands? [Voting]

Contrary, if any? [Voting]

I declare the motion carried and declare the meeting terminated. This concludes the formal portion of the meeting. Thank you all for your attendance and your continued interest in Alvopetro, and we wish you all the best. I'd now like to turn the meeting over to Corey Ruttan, our President and Chief Executive Officer.

All right. Thank you, John. Thank you to everyone, especially those lots of people, it seems like who've joined virtually. So thank you for joining us. It's certainly a privilege to have this opportunity to address our shareholders annually at this meeting and I certainly appreciate everyone's ongoing support. I'd also like to thank our Board of Directors for their invaluable contributions and insights. They certainly do an excellent job of representing the interest of all shareholders. And then lastly, none of what we've accomplished to date, it would have been possible without the team, some of whom we see here, certainly a dedicated group, both in Brazil and in Canada whose efforts, dedication and commitment are certainly critical to our ongoing success. So on behalf of all of our shareholders and the Board of Directors, I want to thank the entire Alvopetro team, and it's really a pleasure to work with such a small group of highly motivated professionals. As indicated by John, there will be a question-and-answer period at the end of the presentation. Anyone attending the webcast, you can click on the Q&A button on your screen. You can ask questions at any time. We'll address them at the end of the meeting. And anyone who's joined by telephone or dial in, you can also submit your questions to [email protected]. So just to start off, a bit of a 2023 year in review. Our annual sales averaged 2,142 barrels of oil equivalent per day. This was down 16% year-over-year, and I'll review that in a little bit more detail on an upcoming slide. We did achieve record operating netbacks and operating netback margins in the year. They increased to nearly $69 per barrel of oil equivalent. That was up 16% year-over-year, and we achieved an operating netback margin of 90%. Our funds from operations totaled USD 48 million, and we exited the year debt-free again and with cash and working capital of over $13 million. We did declare USD 0.56 per share of dividends last year. That totaled $20.5 million and was up 56% year-over-year. Lastly, subsequent to year-end, we successfully completed the redetermination process under our Caburé unit operating agreements, and I'll talk about that as well. So I continue to strongly believe that Alvopetro offers an attractive investment proposition, whether you look at it on a value, yield or growth basis. I think you'll see we've been delivering some pretty strong results. We've got a clean balance sheet. At the end of the first quarter of 2024, we actually increased that cash and working capital position up to $15 million, and we continue to have no debt outstanding. The chart on the top right just highlights Alvopetro's reserve and resource values that have been assessed by GLJ, our independent reserve evaluator. You can see the 2P bar there is our 2P NPV 10% discount before tax and then following the unit redetermination process that I just spoke about. We did increase those values by 11% following the redetermination process. And what you can see in the black dash line there is that our current enterprise value at $102 million is less than 1/3 of that 2P NAV. So certainly, on a value basis, I think it's an attractive investment proposition. If you look at the green bars, that's the value associated with our core project Caburé. All of the stacking orange portions of these bars represents the reserve and resource value associated with our Murucututu assets. So there's a significant growth opportunity here. You can see that with success, we're targeting a total value exceeding over $800 million. And most excitingly, we're looking to unlock a big portion of that value over the next 12 to 24 months with our organically funded capital program. Lastly, on a yield basis on the bottom right-hand chart, you can see we did announce our second quarter 2024 dividend last night at USD 0.09 per share that represents a current yield of 11.2%. And in total, if you add all those bars up since starting the dividend in the third quarter of 2021, we've returned to USD 1.22 per share or nearly USD 48 million to shareholders. So, Caburé, this is our core asset that's been delivering most of our current production. It's in the middle part of the map sheet that you see here. It's a unit development that consists of 8 existing wells, all the production facilities are in place. The resource is pretty well defined with 3D seismic that you see on the bottom right here, and the 8 wells that we've drilled that you see on the cross-section on the left-hand side here. So the vast majority of the resource sits on the eastern side of this main bounding fault that runs roughly north-south in the Caruaçu formation, which is highlighted in the cross section in the light red color that you see here. So the unit's been performing quite well. We did increase the production plateau that we'd originally agreed to with our partner by 1/3 up to 21 million cubic feet a day. And in April, we did complete that redetermination process under our unit operating agreements with a very positive result that increased Alvopetro's working interest from 49.1% up to 56.2%. So we're working through the transitioning of operatorship to Alvopetro as we speak, and we look to start the next phase of unit development here later this year. So you can see that on the seismic on the bottom right here, all the solid black dots are the 5 wells that we plan to start drilling here later this year to extend and further improve the productive capacity in the field. So moving on to our midstream and commercial solution here. This is a 100% Alvopetro solution. So to commercialize the gas from the field, what we did is we built an 11-kilometer transfer pipeline from the unit hub area, Straight West and built this UPGN. UPGN is Portuguese acronym for a gas plant. You can see a picture of it on the bottom left-hand side. The gas flows into the facility on the left-hand side. It goes through a mechanical refrigeration process, the condensate and water from the process go into these tanks, the condensate gets trucked out and the gas gets delivered to this brand new city gate that was built by our offtaker, Bahiagás. So they're the distribution company in the state of Bahia. The gas gets shipped through a newly built pipeline that they built down into the industrial complex of Camacari, which is about 15 to 20 kilometers away, and that's where the vast majority of the natural gas in the state of Bahia gets consumed. So we're really well positioned here. The way our contract works is it's based on a blend of 3 international benchmark prices, which is Brent oil equivalent, U.S. Henry Hub gas and U.K. NBP gas prices. We average those over a period of time, and then we also apply a floor and a ceiling to that. So both the floor and the ceiling do escalate based on U.S. inflation. And the net effect of that is we have a very -- it's an effective hedge, basically, much less volatility than what we would see with our peers. The price does get reset semiannually. So on February 1st and August 1st of every year, so the latest reset on February 1, our gas price reset up to over USD 12/Mcf. And the last point to make here is the nice thing is that our Caburé initial project alone is basically underpinned or paid for all of these investments. But what's important is it now provides the platform for us to unlock the rest of the natural gas potential that sits immediately in our area, particularly this asset to the north, which is our America 22 asset that I'll talk about in a little bit here. So on the production front, this just tracks our production since we came on production from Caburé on July 5, 2020. We posted some pretty strong results here. To be clear, what we had set for pre-commercialization expectations was basically a volume of around 1,800 barrels of oil equivalent per day, and that coincided with the firm volumes within our Bahiagás sales contract and it also coincided with our working interest at the time multiplied by the unit production capacity. So you can see the first couple of quarters we came on production pretty much right in line with that. And then for a good period of time, we were able to actually significantly exceed those expectations, partly because our partner wasn't nominating for gas from the unit. And secondly, Bahiagás was able to buy all that gas on a flexible or interruptible basis from us. So in the second quarter of 2023, our partner actually started making more nominations for the gas and our production moved back down to those kind of pre-commercialization expectations. And you have seen several months in the last little bit here that have been impacted by some lower demand from Bahiagás. So that's expected to be temporary in nature. Our goal here is to basically not only through the unit redetermination, which increases our production entitlement within the unit up to 2,300 barrels of oil equivalent per day, but also through adding additional 100% working interest production on our America 22 project. Those things combined will expand our production base and also give us the ability to increase the firm volumes within our natural gas sales agreement with Bahiagás, which then increases our firm monthly cash flows. So moving on to our operating netbacks, which is the height of the green bar that you see there, operating netback measures, our operating profitability on a per unit of production basis. So this is represented on a barrel of oil equivalent basis. You can see -- so the height of the bars that represents our sales price, the oranges royalties, the gray it deducts off of our operating costs and then the height of the green bar is the operating profit margin or an operating netback. You can see in 2023, the netbacks were close to $69 per BOE, as I mentioned earlier, which was up 16% year-over-year. And then if you divide that by the total height of the bar, you get our operating margin. So that's the 90% that you see on the line above here. And that -- if you look at any other company operating in Latin America or pretty much any other natural gas company, this is best-in-class. In the first quarter of 2024, our operating netback margins were similarly high, just over $66 off of a realized price of close to $76. So we generated an 87% operating netback margin. And then the other thing to consider this not only highlights the strength of the fiscal regime in Brazil, but when you also consider the fact that our project qualifies for a 15% income tax rate and you compare that to what some of our peers are paying, it really highlights the strength of that fiscal regime again as well as the low-cost, high-margin nature of our production. So to talk a little bit about this disciplined capital allocation model that we came up with. We certainly think it's a much more balanced approach. This is something we developed years ago. And the model is basically to take half of our cash flows and reinvested in organic growth and take the other half and return that to stakeholders. So I think we've been pretty true to this since the beginning of time here or since we came on production. The green line that you see here with the black dots is all the quarterly cash flows. So all the cash inflows as a result of our production and cash flow. And then the height of the bars represents where that cash flow was deployed. So the first couple of quarters, this gap here just shows that we were building up balance sheet by cash and working capital. And then the -- the beginning part of the project was mostly focused on accelerated debt repayment, which is the green cross-hatching that you see here as well as some interest payments. We then introduced the dividend, which is in solid green in the third quarter of 2021. And then more recently, you can see the yellow bars represent the portion where we're reinvesting in capital expenditures. And in total, since coming on production in July of 2020, we've had funds flow from operations of almost $140 million now, 43% of it went to capital expenditures, 48% of it through the various forms as went to stakeholders and 9% of it has went to building that cash and working capital position that I talked about earlier that gives us a lot of financial flexibility moving forward. So next part of the presentation just talk about our next phase of growth, and we're going to be reinvesting going forward. To be clear, we've got a near-term goal of basically maximizing our gas plant capacity, getting up to 18 million cubic feet per day, which is 3,000 barrels of oil equivalent per day and a longer-term vision to basically double that. So a couple of areas where that's going to come from our existing assets. I mentioned this earlier, but with the increase in our working interest as a result of the redetermination, that expands our production entitlement, and we look to further expand the unit production capacity with the development drilling activities that are planned later this year. The next key piece for us is this Murucututu asset, which sits immediately north of Caburé. It's 100% working interest. And to start with what we're looking at doing is recompletion or completion and optimization projects on our existing wells. And then our plan is to take those results and the learnings from that activity and apply it to a broader multiyear development plan. So I mentioned this earlier, but GLJ has assigned a combination of 2P reserves, contingent and prospective resource to this opportunity, totaling 4.6 million, 5.4 million and 9.6 million barrels of oil equivalent, respectively. So this is quite significant relative to our existing reserve base. So our plan is to basically migrate those reserves into production and cash flow with this multiyear organic growth plan that we've got. So looking at this in a little bit more detail. Again, our Murucututu project sits immediately north of Caburé. It's 100% working interest. It's a multi-zone gas plays of both the Gomo and Caruaçu formations. On the bottom left is an example of the reprocessed 3D seismic that we have. This is one of the technologies that we brought to bear in Brazil, and it results in a much better image of the subsurface than what was previously available to us. What you can see here is the red stars is where we tested gas initially in our initial 2 wells. And if you look between the sequence 4 and sequence 5 boundaries that are -- highlighted in the green and red there, think that's red, we can map the Gomo portion of this resource over quite a wide area. So 5,500 acres or about 8.5 sections of land. And then sitting right on top of that in the next sequence is the Caruaçu formation. So to highlight this, we've got our most recently drilled well highlighted on the right-hand side of the slide. This is the 183-A3 well. So what you see here is some of that the seismic imaging as well as a well log here. And what we encountered with this well was nearly 128 meters of potential net pay in the GOMO and Caruaçu sands -- and almost 117 meters of that sits in multiple intervals in the Caruaçu formation here. So we break it down between 4 different sequences, 6.1 through 6.4 that you see on the well log. And what we've done is we've completed this well with another technology that's quite prevalent in North America right now using sliding sleeves. So you can see where each of the sleeves is located in the well with the black arrows on the well log here. And what that -- the advantage of these sleeves is it allows us to much more effectively stimulate the well, we can target the stimulation much better. It gives us flexibility we can stimulate out of sequence like different areas and come back and stimulate another zone. And then during the productive life of the field, it also allows us to open and close those sleeves as required. So our plan here is to start the final completion of this well in July, and we're looking to have the well on production in August. We're just waiting for one final piece of equipment to ship from Canada and we will be ready to start that operation. So following on that result that we had in 183-A3, we went back to our 183-1 well, which sits on the same well pad and our plan here is to recomplete that well also in the Caruaçu formation. So very similar to the other well focusing on sequence 6.2. So you can see that sequence on the well logs here. We're targeting close to 15 meters of net pay with average porosities of around 11.5%. So we're just waiting on a permit to do this work, and then we expect to do that on a similar time line. So -- just wanted to use this Google Earth image to reflect back on the whole Alvopetro journey here. So the very first 2 wells that we drilled in Brazil were the 197-1 well and the 183-1 well. And what we were targeting was a tight oil play in the Gomo formation. And lo and behold, we actually found natural gas, which in one respect at this depth and at these porosities, natural gas is a good thing -- is that it actually is much more feasible to recover that. The challenge is no one had ever done this before. So the only company in Brazil that had ever really monetized natural gas at that point was the state oil company, Petrobras. So this was a difficult challenge, obviously, it was also made difficult by the fact that we had two 48-hour or 72-hour production test from these wells. So it was pretty preliminary. What we decided to do is move down to get more critical mass, drill the Caburé discovery that you see. It's the blue outline that you see here and then that culminated in our whole Caburé project. The challenge with that was the discovery spread over 4 blocks. So we went through a mandatory unitization process. And in parallel, we worked on commercializing the gas. So we signed a gas sales agreement with Bahiagás. We built the gas plant. Long story short, we're now positioned [indiscernible] that resulted in us starting production from Caburé in July of 2020. And then after that, we built the pipeline to tie in our 183 well pad. We built the pipeline extension to tie in the 197-1 well and we built a fill production facility to manage this Gomo production. So I felt that was important to talk about that because -- we've always had this asset sitting there on our books, but we've had to kind of put all the pieces together to be able to really take advantage of that, and we're now primed to be able to do that, and I'll show you what that looks like here. So this is just a picture of our 183-1 location. This is the production facility. It's got an initial capacity of 11 million cubic feet a day. This is the 183-1 well, the 183-A3 well just sits immediately off the picture here. If you look at the pads, again, these 4 squares that you see here are the 3 well pads that we now have -- on the image on the bottom right -- on the right-hand side, the bottom lease is the 183-1 lease that I just showed you on the previous slide with the 183-1 location, the 183-A3 location. In the distance there, just to the south, you can see the 183-D pad that we've constructed and on the bottom left, the 197-1 well pad. So these are all pipeline connected. Once we finish this work on the existing wells, we're well positioned to start a development drilling campaign here. We can drill at least 6 locations from these existing pads. And then over -- on a multiyear basis, this is our plan for Murucututu. Again, we've got a goal to migrate all the reserves and resource to production and cash flow. The plan is to drill directional wells off centrally located pads so that we can minimize our impact and tie all that back into the 183-1 well and deliver the gas into the market through our plant located on the bottom left here. So you can see on an unrisked basis, this asset alone has the potential to deliver over 20 million cubic feet a day of production. And certainly, with success here, we can easily in our opinion, double the size of the company, both on a production and value basis. So I want to take a little bit of time just to talk about ESG. We will be publishing our third sustainability report here covering the 2023 period very soon. We continue to focus on trying to minimize our impact and having a lasting and positive influence on the communities where we operate. I wanted to use this as an opportunity to highlight some of the voluntary social programs that we've been investing in. They've all been very well received by the community. Our focus with these programs has been on sustainable development of these rural communities, on entrepreneurship, education, cultural and sporting activities as well as biodiversity preservation. So the first 2 pictures on the left-hand side that you see here relate to our [indiscernible] program. It initially started to promote sustainable farming practices in the region. We assisted 10 families to install bio water systems and then a bunch of additional families benefited through technical training, technical assistance and environmental education. And what this program basically did is it allowed these families to transform their backyards into mini farms effectively and not only feed their families, but also produce enough products that can actually go into the farmers' market and generate some additional income as well. So we did provide some support in helping establish cooperative so that they can monetize those projects -- or products and then the program expanded to also provide social assistance, focused on health and wellness as well as guidance to families to promote social well-being. And then the second picture that you see here is something we just introduced very recently, and it's a program focused on training to encourage and support youth and female entrepreneurship. The next program you see there was actually one of the very first things we invested in. It's music and arts program providing music and dance classes now to over 800 youth in the municipality of Mata de São João. The next one was a volleyball program, similar theme, I guess, but focused around sports and there's now over, I think, 80 students and young adults participating in those programs. And then our last pillar of focus is really on biodiversity and conservation, focused on conservation, awareness and reforestation of the Atlantic Forest. So in conclusion, I still firmly believe Alvopetro maybe more than ever offers a very attractive investment proposition, no matter what your investing focus is. I think you've seen we've been delivering some pretty strong results. We've got very attractive natural gas prices, industry-leading operating margins, a clean balance sheet and strong free cash flow generation capacity, and all that helps underpin this balanced reinvestment and stakeholder return model that we have for value investors trading under 1/3 of our 2P NAV right now. For yield investors, our dividend translates into 11.2% yield with dividends paid quarterly in U.S. dollars. And then lastly, for growth investors, we've got an organically funded capital program with certainly an awful lot of potential, especially when you compare it to our existing enterprise value. So with that, I think we're ready for questions.

[indiscernible].

So the question for those that are online was just -- it seems like we're doing lots of things well, but the market doesn't seem to be appreciating that and when is that going to happen. So that's a hard question. The when part of that is a hard one to answer. I think we've been doing everything we said we were going to do and then some I would say. I think some of the recent softness -- one of the things we did is we've been very diligent and responsible, I think, about our stakeholder return model. So we did see a production decrease as a result of external factors, I would say. It's more of a timing thing. It has nothing to do with the wells or the reserves, is it the timing of when that production comes out. And because of that, we adjusted the dividend and we think that's a responsible thing to do. So to be honest, in the face of a very positive redetermination result that we had, I'm a bit surprised by all this, like that obviously had a negative impact. But I think for a lot of shareholders, again, we're doing exactly what we said we were going to do. We're going to take half of the cash flow and return it to stakeholders, and it's a responsible thing to do. So I think with the result we had on the redetermination front and with the capital activity we've got going, this is an absolutely amazing opportunity to invest. It's quite possible some of the recent weakness that we've seen, it has something to do with the Canadian government's decision to increase the capital gains tax on everyone in Canada, but I'm speculating. So the most important thing we can do is deliver on the plan, keep telling the story, keep delivering returns, both in terms of dividends and then hopefully, see the share price rebound as well. So.

[indiscernible]How do you find those [indiscernible] ] investors to create incremental buyers that [indiscernible]?

Yes. So the question is just around our Investor Relations marketing efforts and how do we find kind of the next shareholder, if you will, to -- well, I think one of the things when you look at the value proposition right now, that creates an opportunity to attract new investors, first of all. I think one of our challenges is we still suffer from a lack of liquidity. Some of that is because we have a very large shareholder base that's been quite loyal, let's say, they've been very supportive of us. The good thing is that they're not really selling the stock. The bad thing is they're not really selling the stock to create some liquidity as well. So the reason I say that is the challenge is for -- given the production -- sorry, the amount of cash flow that we're generating, the fact that we're paying a dividend. In theory, that should attract to a new group of investors, institutional type investors, but the challenge is the liquidity. So this is the battle that we have. And the reality is, right now, I think the retail high net worth space is where we've been investing our time because it's more likely to create new shareholders. But I think, ultimately, we want to transition that. And if you have any ideas on how we could do that better, I'm open-minded. Alison Howard, our CFO, is going to join me because she's going to let me know what questions we have from the audience virtually.

Yes. We have a few questions. The first one. Could you provide some commentary on increasing production and production capacity, but decreasing sales? Is this a short-term issue? And when do you expect to be selling all of your production?

Yes. So I touched on this in response to an earlier question. We've been indicated -- we've been told by Bahiagás that this is a temporary issue related to some of their customers. The one reality that we've had is Bahiagás basically committed to a significant amount of firm supply for all of 2023 and all of 2024. They have had some permanent demand destruction, but then couple that with some more temporary reductions that we've seen that have impacted some of the months. So the reason I talked about that is for 2025, they haven't really committed to very much firm capacity at all. So I think, certainly for 2025, we have the ability to move our firm volumes up, and we're also working with Bahiagás as a result of -- especially because of the redetermination result to try to have more firm volumes in 2024 as well. We just need to recognize that they've got a bigger portfolio that they're trying to manage.

Can you provide some details on UPGN plant expansion, specifically the cost and timing to go to 35 million cubic feet a day?

Yes. So there's a couple of different ways that we can go about that there's additional smaller modifications that we can make to probably increase our capacity by roughly 20% to 25%. If we're talking about going all the way to 35 million cubic feet, which is basically doubling the capacity of the plant, you saw a picture of what we basically build an additional similar processing train to what we have there now. It's not that the whole plant would be rebuilt, but the main processing unit would be duplicated.

What does operatorship of Caburé entail from a work perspective and what are the benefits over and above the obvious 56% control?

Yes. Well some of the benefits are we have a drilling and completion team. And one of the nice things when you're operating is to have more of a continuous program with more critical mass. So I think collectively between our existing program and the program for the unit, I think we all benefit from that. I think we can accelerate that activity and then there's also a benefit to being able to manage the production directly and control the cost directly.

Any more questions from in the room?

When you talk about your firm offtake that was the 1,800 barrels per day?

Correct, yes. I'll let you finish the question.

And your agreement Bahiagás how far [indiscernible] exactly?

So the question was around just confirming what the firm volumes under our gas sales agreement are and how -- what the term of our contract is. So. Yes, it's 300,000 cubic meters a day, which is basically 18 million cubic -- sorry, 11 million cubic feet a day, and the contract goes for 15 years. All right. It looks like there's no more questions. If anyone has anything afterwards, you can always call Alison, myself or Adrian. And I just want to thank everyone again for all the support and for your attendance and look forward to an exciting year here. Thank you.