Alvopetro Energy Ltd. ($ALV)

For those attending online, we're just working out a few technical difficulties in the room here. So we'll be starting the webcast shortly. Thanks for your patience. You can't see the presentation anymore. All right. Thank you for your patience. With that, our Chairman.

1 Good morning, ladies and gentlemen. My name is John Wright. I'm the Chairman of the Board of Directors of Alvopetro Energy. I join our Board and our management team today in welcoming all of you to Alvopetro's Annual General Meeting. We sincerely appreciate your interest. We're pleased to host this meeting in person today. For shareholders who are not able to attend in person, we're also hosting the meeting via live webcast. Please be advised that shareholders are not able to vote any shares through the webcast format. 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 I appoint Alison Howard to act as Secretary of the meeting and Patricia Selby of TSX Trust Company to act as scrutineer of the meeting. Today's meeting will be divided into 2 parts. We'll begin with the formal business of the meeting. After completing those requirements, members of Alvopetro's executive team will deliver a corporate presentation to provide an overview of our operations and outlook. Following this presentation, we'll offer a question-and-answer period. I'd like to begin by thanking each member of our Board of Directors, Mr. Kenneth McKinnon, Mr. Corey Ruttan, Mr. Froze Talaxi, who are here in person; Mr. Gary Ederland and Mr. Roderick Fraser, who are joining us online from points far away. Core, of course, will also be presenting in the second portion of the meeting this morning. Thank you, gentlemen. I've received confirmation from TSX Trust that all material in respect of the meeting were mailed to shareholders in compliance with applicable security requirements. I direct that the affidavit, together with the copies of this document mailed to the shareholders be kept by the secretary with the minutes of the 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 scrutineer's 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 this meeting is described in the management information circular dated April 24, 2026, 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 a registered shareholder or a duly appointed shareholder for a registered -- 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 proxy holder entitled to vote and you did not complete a ballot before you entered 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. Does anyone need to register?

Okay.

Please note, we will not be 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 that such questions or comments relate to the motions 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, 2025, and the auditor's report thereon. A copy of these materials have been mailed to each registered shareholder who elected to receive such material. 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, Jose Tali and Ger Ederland. I ask for a motion to elect each of the nominees as directors of Alvopetro.

Shareholders or until their successors are earlier elected or appointed. John T. Wright, Roderick L. Fraser, Kenneth R. McKinnon, M, Rose.

Thank you, Heather. 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. As there were no other nominations received within the requirements of the advanced 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? Thank you, Nana. Thank you, Patricia. All those in favor, raise your hand. Opposed? I declare the motion carried. The next item of business is the reapproval of 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? Thank you, Patricia.

I second the motion.

Thank you, Nanna. Voting on this motion has been conducted by way of ballot, and I am 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 move that this meeting be terminated.

Thanks, Nana.

Second...

Thank you, Heather. All those in favor, please signify by a show of hands. Contrary, if any? Thank you. I declare the motion carried and declare the meeting terminated. And this concludes the formal portion of the meeting. We thank you all 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, our President and Chief Executive Officer. Thanks.

All right. Thank you, John. Good morning, everyone. First, I wanted to begin by thanking our shareholders who are here and online for participating today. I certainly value their continued support and appreciate the opportunity to present our results and our plans for our continued growth. I also want to thank our Board of Directors for their valuable guidance and ongoing commitment to representing the best interest of our shareholders. And then finally, I want to recognize our teams both in Canada and Brazil. Certainly, a lot of hard work, commitment and dedication that's really gone into achieving the results that you're going to see here today. So on behalf of the Board and the shareholders, I want to thank the entire Alvopetro team. It really is a privilege to work with this small group of professionals. So I'm going to proceed with the presentation. John did mention that we'll have a Q&A session at the end of the presentation. You can use the Zoom Q&A feature or if you are dialing in by phone, you can also e-mail your questions to [email protected]. So this will be a bit of a recap for a lot of our shareholders. But just to remind you, on July 5, 2020, Alvopetro became the very first independent company in Brazil to deliver sales specified natural gas into the local distribution network in the northeast part of Brazil in the state of Bahia. Since then, I think we've been generating some pretty strong results, certainly well ahead of our pre-commercialization expectations. We benefit from some very attractive natural gas pricing, very strong margins and free cash flows. And all that helps support our more balanced and disciplined capital allocation model, where we're looking to basically reinvest half of our cash flows into organic growth and take the other half and return it to stakeholders. I think you'll see our 2026 capital program looks to unlock a pretty significant amount of value for our shareholders. In Brazil, specifically, we're pretty uniquely positioned with some highly strategic infrastructure that allows us to very quickly convert natural gas successes into production and cash flow. And then this past year, we've also added a second platform to invest in high rate of return oil drilling opportunities in the Western Canadian Sedimentary Basin. And then the last point here, I thank the team, but just to recognize again, we've got a pretty motivated team, both in Brazil and Canada with some proven track records of delivering shareholder returns. So our investment thesis or proposition continues to be a value yield and growth story. I think, hopefully, you'll agree, we've been delivering some pretty strong results with some exceptional free cash flow generation capacity. We've got a strong balance sheet. And all that together really helps deliver kind of an organic growth and a return to stakeholder model. To put it in perspective, in the first quarter of 2026, we generated $12.5 million of funds flow from operations off of $17.5 million of revenue. And that really highlights the strong margins that we have and that exceptional free cash flow generation capacity that our assets deliver. From a value perspective, if you look at the chart on the left, it highlights the assessed reserve and resource values as assessed by GLJ, our independent reserve evaluator. The green wedges relate to our initial project that we developed Caburé and the orange stacking pieces relate to our 100% owned Murucututu asset. So what you can see there relative to the black dash line, we're trading at about 60% of our 2P NPVs. And then from a growth perspective, if you look at the stacking orange bars in particular, if you include the resource potential that we've got, we're targeting value approaching USD 900 million, and that's before looking at the expanded inventory of opportunities that we now have in Western Canada. So a lot of leverage on the growth, especially when you compare it to the underlying current enterprise value. And then from a yield perspective, I'll talk about this again later, but we just announced yesterday our Q2 dividend, which was consistent with Q1 at USD 0.12 per share, that translates into a yield of about 7.5%. So since we started that dividend in the third quarter of 2021, we've now paid out over USD 2 a share to shareholders in dividends. So just talk about our production here. Recall that at the beginning of 2025, we increased the firm volumes under our gas sales agreement with Bahia Gas by 1/3. And then combined with the strength of the results from our Murucututu drilling program last year, we were able to deliver a pretty strong year-over-year result, production averaging over 2,500 barrels of oil per day -- barrels of oil equivalent per day in 2025, which was up 41% year-over-year. And then you can see -- recall, we upgraded our gas sales agreement again at the beginning of this year. increasing the firm volumes again by another 25%. And what you can see is off to another pretty strong start for the year. We've got another record quarter of production in Q1 at over 3,100 barrels of oil equivalent per day, and that's continued into April and May. So for the first 5 months of 2026, we're basically up another 25% over a very strong 2025 already. And I think if you can consider this growth that we've been able to deliver in the context of taking half of our cash flows and returning it to stakeholders, this really is quite exceptional. And I don't think there's any of our peers that are delivering this type of growth and those returns to stakeholders. So this slide just measures our per unit of production profitability. So we measure it on a barrel of oil equivalent basis. It's our operating netback in green. If you look at the total height of those bars, that's our realized sales price. So in the first quarter, close to USD 62 per BOE based on a natural gas price of just over USD 10 per Mcf. The highlight -- sorry, in orange there, you can see our royalty rate in Brazil, just under 7% effective royalty rate, highlights the fiscal regime in Brazil, which is really strong. And then we've got very low-cost natural gas production. Our operating costs in gray under $6 per BOE. The net effect is an operating netback in green of over USD 52 per BOE. And then if you divide that netback divided by the total height of the bar there, you work out to an operating netback profit margin of 84%, which is really about as good as it gets in our industry. And then consider on top of that, our project in Brazil qualifies for an enhanced income tax regime called Sudene, which reduces our income tax rate down to 15%. So this really is about as good as it gets in our industry. this morning, I was kind of considering this. I mentioned earlier that we were able to generate $12.5 million of funds flow from operations off of $17.5 million of revenue, and this is why we can do that. I went out looking for some peers, both in Canada as well as one operating internationally, similar -- trying to find something similar size that's more natural gas weighted. I came up with 2 of them. I won't name names, but the Canadian one produces about 3x as much production as Alvopetro does. And the funds flow generation capacity is actually 25% lower than what we were able to achieve in the first quarter. The other one I looked at is operating internationally, again, more gas weighted, 50% higher production than what we have. and 86% lower funds flow from operations. So it really shows how we are quite unique with the free cash flow generation capacity that our assets deliver. So this slide just highlights that more disciplined capital allocation model that we've been following for some time, again, taking half of our cash flows, returning it to stakeholders, just shy of 50% here since we came on production, and we've reinvested 51% of that cash flow since inception of our Caburé project. So our -- we've had cumulative funds flow from operations of USD 217 million now. Like I said, we've returned USD 2.06 to shareholders. That's $75 million total back to shareholders. So -- just a little bit more detail on our assets in our operating area. Just to remind everyone, we're operating in the state of Bahia in the northeast part of the country. This is the oldest producing basin in Brazil. It's a pretty well-developed area. You can see on the map sheet, there are an extensive network of oil and gas fields in the green and the red that you see there. There's highways straddling both sides of our blocks. We've got pipelines, highline power. It's a pretty good place to be operating. What you see in the picture here is the city of Salvador. It sits actually just off the map sheet or at the very southern end of the map sheet that you see there. As you drive way off into the north in the distance, you go through a major industrial complex that you see on the map there called Camisuri. And that's where the vast majority of the natural gas in the state of Bahia gets consumed. And our operating area in yellow lands that you see there in the middle of the map sits just 15 to 20 kilometers north of that. So we're extremely well situated. And you can see all the pipeline infrastructure there. That's all the national pipeline infrastructure that moves gas throughout the country. Our project is quite unique, and I'll talk about this in a coming slide, but we're directly connected into the local distribution network in the state of Bahia. So that further increases our realized natural gas prices and profitability. And the last point I'll make is I think what's underappreciated is partly because Brazil produces so much oil and it's pretty well recognized as a big oil exporter. Most people don't realize Brazil is actually importing a lot of natural gas. Some of it comes right into the port in Bahia there at an LNG terminal. And then the other thing is the state of Bahia itself is consuming because of that industrial complex, consuming more natural gas than what's being produced in the state of Bahia. So it really sets the stage for some pretty strong fundamentals for an onshore natural gas business with strategic infrastructure right in the heart of the basin. So this was the midstream and commercial solution that we developed for our assets. This is a 100% Alvopetro solution. What we did is we constructed an 11-kilometer pipeline from Caburé straight West and built a gas plant that you can see on the image right there. Just a pretty simple process. The gas comes in on the left-hand side of the picture there, goes through a mechanical refrigeration process. The condensate goes into those tanks that you see there. There's actually a truck unloading condensate in that picture. It gets sold right at that point. And then the sales specified natural gas gets delivered to the city gate that was constructed right at our physical location by our offtaker, Bahia Gas. They built a 15-kilometer pipeline extension to tie that directly into the Camisuri industrial complex. And like I said, some pretty strategic infrastructure. And the nice thing is our Caburé project, the first project we delivered, basically underpinned all of these investments. So now we can add more production on a very accelerated and lower cost basis, I would say, than any of our peers. Our price formulas, we updated our contract this year to add more firm capacity. So there's 2 different price formulas that we have now. the 80% of our gas prices off that red line that you see on the top there. So it's basically a function of Brent oil and Henry Hub plus some fixed margins. And then 20% of our gas prices off of the orange line that you see there, which is a function of Brent oil prices. The weighted average of the 2 is the green line. Our price did just reset in May of this year to over USD 11 per Mcf. And based on the futures market at the beginning of this month, you can see we're expected to increase that to over USD 12 per Mcf on August 1. So to put that in perspective, I said we have attractive gas pricing. But if you look at that August reset, it's about 9x higher than what a Canadian producer would get, and it's about 4x higher than what U.S. producers are getting. And then layer on the fiscal regime we have in Brazil, it really helps drive that profitability. So the last point to make, obviously, you saw the production increases that we were experiencing from the earlier slide, combine that with some commodity price increases that are forecast based on the market right now, it should result in a nice uptick in our cash flows as we move through this year. So just to start by talking about Caburé. This is the initial asset that we developed and brought on stream on July 5, 2020. It's been a really good performing asset for us. It's pretty well delineated between the 3D seismic you see on the bottom right here and the 12 wells that you can see on the cross-section on the left there. The main producing sand is the Carosue formation. Like I said, the project has been performing better than what was closed signed. We actually increased... As indicated previously, the vote on the election of directors by ballot the original design capacity 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... Talk about our kind of growth prospects moving forward here. I think we've built a pretty strong platform off the strength of those Caburé results. Our main focus area for growth sits immediately north of that. So the Murucututu project, which is 100% Alvopetro project. [Technical Difficulty] Once again, I have to apologize, we've got some technical challenges in our room here. But I think where I left off was I was talking about the results from the 183-A3 and 183D4 wells that we've had over the last couple of years here, and that's really exceeded initial predrill expectation, and it's helped drive a lot of the growth that I talked about earlier. One of the challenges with having better-than-anticipated success is we're now faced with a big part of our capital program this year is actually going into facilities, and it's a couple fold. So the gas plant that I talked about earlier, -- we're upgrading that, expanding it and creating more flexibility to accommodate higher percentages of Murucututu gas, which is hotter, richer gas. In addition to that, the Murucututu field takeaway capacity and field processing capacity, we're basically increasing that fourfold. So up from about 150,000 cubic meters a day to a design plan of 600,000 cubic meters a day to help fuel our next phase of growth. So as those facilities projects get completed, we'll also layer in additional development drilling. Just last night, we announced the latest well -- initial results from the latest well based on open hole logs. And we've got close to 48 meters of net pay in that well, including close to 22 meters of net pay in what we call Sequence 6.1 of the Carosue formation. So this is a lower zone that hasn't in the past been incorporated into any of our reserve or resource assessments, those stacking bar charts that I showed you at the beginning of the presentation. So we're looking forward to getting that well completed here, expect to have that on production sometime next month, and we'll expect to complete it in about 7 different intervals, including that Sequence 6.1. So pretty excited about that. As we move forward into next year, we'll have the facilities projects done. We'll continue the development drilling at Murcututu, but we also have an exploration well sitting immediately to the west called 183C1 that is kind of a look-alike Carosue exploration prospect. So also not something that's included in those kind of stacking value charts that I talked about earlier. And then on a longer-term basis, just continue the full field multi-zone development of all those opportunities. So then moving on to Western Canada. I think it was on February 5 of last year, we announced a strategic entry into the Western Canadian Sedimentary Basin, and then we expanded that partnership that we had. We're 50% working interest here. in an area of mutual interest in the green dash line. So it basically covers the entire Saskatchewan side of the Mannville stack heavy oil play fairway. We did -- we've got 7 gross wells, 3.5 wells on production now. We've earned all of our interest in the partnership. We've now got over 100 gross sections of land in a pretty attractive play fairway here with strong economics that really can be unlocked through the application of new drilling technologies, including open hole multilateral drilling, which I'll show you what that looks like. GLJ, our independent reserve evaluator, did assess the resource or reserves at the end of last year based on that initial kind of limited amount of activity that we had, an NPV of about CAD 12 million, and they had assigned 8 undeveloped locations on a 2P basis, but we see a much bigger inventory of opportunities through our play fairway at over 100 Tier 1 drilling locations. So for those of you not familiar with it, the Mannville stack is a multi-zone series of heavy oil intervals. There's an awful lot of oil in place per section of land or per square mile in these individual 2- to 5-meter thick sands. On the right-hand side that you see here, it just shows the evolution of heavy oil development technology, starting with vertical wells, then the advent of horizontal wells. And now what's being done, one of the leading technologies is open-hole multilateral drilling. So what you can do now you drill 1 well, set intermediate casing, so the steel casing. And then at the bottom of that, you drill out in kind of a pitch fork orientation, either 6 to 8 legs, you drill them in an open hole basis over about a mile of length. So you just get an incredible amount of access to the reservoir that's really unlocked all this heavy oil resource potential that's there. So I always think it's a good thing to try to visualize what that looks like. So if you think 2 to 5-meter thick reservoir, so this room or maybe twice as high as this room kind of height-wise. And if you envision for those in the room, they can visualize it. For those online, you're going to have to look out the window and find something a mile away. But I looked on Google Earth this morning and the new settle dome that's going in over there is exactly a mile away from where we're sitting right now. So if you can visualize 6 or 8 of these mile long legs roughly staying within this room for that entire distance and doing it 6 to 8 times in a row, it's kind of amazing what can be achieved with directional drilling technology now. So longer term, ideally, this is something that we can then take and export and apply to opportunities internationally as well. So like I said, GLJ did do an independent assessment of the initial activity that we had last year. We feel like we've defined 3 initial core areas to start with. You can see the production curves that GLJ developed on a 2P or proved plus probable basis for each of those 3 core areas. So these are wells that come on production initially at between, say, 100 and 150 barrels of oil per day and will ultimately produce somewhere between 100,000 and close to 180,000 barrels of oil over its life. Like I said, they assigned 8 locations last year. We see over 100 Tier 1 locations on what we've delineated so far, and we have more areas to still delineate. But if you look at these type curves and you even just use a $70 WTI flat kind of price expectation, these are the types of investments that can generate between 50% and well over 100% rates of return. So pretty excited to have this additional growth platform on top of what I think is an already exciting inventory of opportunities in Brazil. So just to reiterate our why invest slide, again, it's a value yield growth story. But to start with, I hope it resonated with you. We've got some extremely high-quality assets, some very strategic infrastructure, obviously, very attractive gas prices that generate industry-leading margins and free cash flow generation capacity. And all that together helps support this more balanced and disciplined capital allocation model that we have. Again, for value investors, we're trading at less than 60% of our 2P NPVs. For yield investors, our quarterly U.S. dollar dividend represents about a 7.5% dividend yield. For growth investors, I think we've got exciting capital programs planned, both in Brazil and Canada that looks to unlock an awful lot of value, especially when you compare it to our current enterprise value. And then just to reiterate obviously, we had a pretty strong year last year. We're off to a good start this year with up another 25% on the production front. The facilities investments that we're talking about making this year in Brazil will help underpin growth potential upwards of another 20% after that. So if you think of that growth that we've been able to generate in the context of paying out half of our cash flows to stakeholders, we're pretty proud of that. And just because it's our AGM, I just wanted to conclude by summarizing some of the results that this team has been able to generate on behalf of shareholders. So to remind you, year-over-year, our sales last year were up 41% to over 2,500 barrels of oil equivalent per day. Our funds flow from operations was up 22% to over USD 40 million. Our operating netbacks that I went through in detail, close to USD 53 last year represented an 84% netback margin. We declared dividends last year of USD 0.42 per share. So that was up 17% year-over-year. And then even after nearly 1 million barrels of oil equivalent of production last year, we were able to grow our 2P reserves by 43%, and that represented a production replacement ratio. So we replaced that production that we produced by more than 5x. Our NPVs on a 2P basis discounted at 10% increased 20% to $394 million. We were able to secure a $20 million loan locally in Brazil on, I would say, very attractive terms that certainly helps provide additional financial flexibility as we move forward. I talked about our strategic entry into the Western Canadian Sedimentary Basin. And then lastly, we had the highest TSR, TSR's total shareholder return in our peer group with a total return of 47% last year. So it really was an exceptional year. And again, on behalf of our Board and our shareholders, I want to thank our teams in Canada and Brazil for helping achieve these exceptional results. So with that, I'm going to turn it over to the question-and-answer period. And again, apologies for the technical challenges.

[Indiscernible]

Yes. So for those online, the question was just about our gas plant and the enhancements that we're planning on making to that this year. Yes, we had an original capacity of about 18 million cubic feet a day, which is 3,000 BOEs a day. We're doing 2 things. It's mostly upgrading the condensate stabilization process within the plant, and we're targeting taking that number up to on an Mcf basis about just over 21 million cubic feet a day. So about a 20% increase in capacity. But we're also, as part of that expansion, able to significantly increase the percentage of gas that can come from Murucututu versus the dryer gas that comes from Caburé. So it gives us a lot of flexibility. And then we also can add as a future expansion as we increase Murcututu more and more, we can add another enhancement where we can basically take the propane out of the gas stream and create a separate product stream, but that would be a second phase. All right. Well, our shareholders will have another chance to ask questions in this form when we announce our Q2 results in August, and feel free to contact us any time. Again, thank you for the support and commitment. I appreciate it. Thank you.