Corporate Presentation Corporate Presentation September 2018
Cautionary Statements Forward Looking Statements. This presentation contains forward-looking statements including management s assessment of future plans, operations, expectations of future production and capital expenditures and sources and availability of capital. These statements are based on current expectations that involve numerous risks and uncertainties, which may cause actual results to differ from those anticipated. These risks include, but are not limited to: the risks inherent in the oil and gas industry, operational risks relating to exploration, development and production; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks; and fluctuation in foreign currency exchange rates and commodity price fluctuation. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. Certain of these risks are set out in more detail in our 2017 MD&A and in our 2017 Annual Information Form which has been filed on SEDAR and can be accessed at www.sedar.com. Test results. There is no representation by Alvopetro that the data relating to any well test results contained in this presentation is necessarily indicative of long-term performance or ultimate recovery. The reader is cautioned not to unduly rely on such data as such data may not be indicative of future performance of the well or of expected production or operational results for Alvopetro in the future. Non-GAAP Measures. This presentation contains financial terms that are not considered measures under International Financial Reporting Standards ( IFRS ), such as funds flow from operations, funds flow per share, operating netback, working capital and Earnings Before Interest, Depreciation, and Amortization ( EBIDA ). These measures are commonly utilized in the oil and gas industry and are considered informative for management and shareholders. We evaluate our performance based on funds flow from operations. Funds flow from operations is a non-ifrs term that represents cash generated from operating activities before changes in non-cash working capital. Management considers funds flow from operations and funds flow per share important as they help evaluate performance and demonstrate the Alvopetro s ability to have or generate sufficient cash to fund future growth opportunities. Working capital surplus includes current assets less current liabilities and is used to evaluate the Company's short-term financial leverage. Operating netback is determined by dividing oil sales less royalties, transportation and production expenses by sales volume of produced oil. Management considers operating netback important as it is a measure of profitability per barrel sold and reflects the quality of production. EBIDA is used to measure the Company s operating performance and the cash available for reinvestment and distribution to stakeholders. Funds flow from operations, funds flow per share, working capital and operating netbacks may not be comparable to those reported by other companies nor should they be viewed as an alternative to measures of financial performance calculated in accordance with IFRS. Net Present Value. The net present value of future net revenue attributable to Alvopetro s reserves is stated without provision for interest costs and general and administrative costs, but after providing for estimated royalties, production costs, development costs, other income, future capital expenditures, and well abandonment costs for only those wells assigned reserves by Sproule International Limited ( Sproule ) or GLJ Petroleum Consultants ( GLJ ) respectively. The GLJ evaluation was dated June 6, 2018 with an effective date of May 31, 2018 (the GLJ Report ) and included only an evaluation of the Company s gas reserves. Alvopetro s oil reserves associated with its Bom Lugar and Jiribatuba fields were not included in the GLJ Report and have not been updated from the March 5, 2018 prepared by Sproule with an effective date of December 31, 2017. It should not be assumed that the undiscounted or discounted net present value of future net revenue attributable to the Alvopetro s reserves estimated by Sproule and GLJ represent the fair market value of those reserves. Other assumptions and qualifications relating to costs, prices for future production and other matters are summarized herein. The recovery and reserve estimates of the Company's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates provided herein. 2
Alvopetro s Vision & Strategy Alvopetro Energy Ltd.'s vision is to become a leading independent upstream and midstream operator in Brazil. Our strategy is to unlock the on-shore natural gas potential in the state of Bahia in Brazil, building off the development of our Caburé and Gomo natural gas projects and the construction of strategic infrastructure assets. Upstream/midstream hybrid corporate vehicle to provide sustainable returns to our stakeholders 3
Brazil Opportunity Population 207 million World s 8 th largest economy GDP US$15,500 per capita World s 10 th oil producer, #1 in Latam Production 2.5 million bopd & 3.8 bcfpd Proven reserves 12.8 billion bbls & 13 TCF Policy reforms to increase direct foreign investment Labour reform Relaxed local content requirements Repetro importation regime extended Gas to grow initiatives Petrobras divestitures Recurring bid rounds with lower financial guarantees Reducing royalties Initiatives to encourage reserve based lending Attractive fiscal regime: international commodity pricing, 5.5-11% royalties & 15% income tax on eligible projects Resources: http://www.anp.gov.br/images/palestras/anp_britcham_23_05_2018.pdf http://www.anp.gov.br/images/palestras/state_art_pre-salt_brazil_aapg_2018.pdf http://www.anp.gov.br/images/palestras/ppt_anp_decio_oddone_brazilian_o&g_market_revival_02_05_2018.pdf 4
The Alvopetro Opportunity Base 2P Net Asset Value of C$2.22/share (1) Upstream: Natural Gas Focus: 2P gas reserves 5.7 mmboe (34.5 Bcfe) (2) 2P oil reserves 0.7 mmstb (3) Caburé natural gas field unitization complete Deep basin Gomo gas project 2 existing wells, with much broader development potential Conventional exploration upside - 14 prospects (65,714 gross acres, 55,701 net acres) 5% GORR on Blocks 107 & 108 Strategic Midstream Assets: Gas sales agreement Aug 2018 US$6.82/mmbtu Strategic natural gas midstream assets (1) Base net asset value includes; 2P NPV10 before tax of US$124.0 million of gas reserves as evaluated by GLJ as at May 31, 2018, 2P NPV10 before tax of US$11.6 million of oil reserves as evaluated by Sproule as at December 31, 2017, financial resources of US$5.5 million as at June 30, 2018, and equipment inventory for use on future operations of US$2.4 million as at June 30, 2018. (2) Based on May 31, 2018 evaluation by GLJ of gas reserves. (3) Based on December 31, 2017 evaluation by Sproule of oil reserves. 5
Corporate Snapshot Common shares (000 s) (1) 85,167 Market cap (Cdn000 s) (1) $36,196 Insider ownership % (1) 7.56% Cash (US000 s) (2) $5,839 Inventory (US000 s) (2) $2,355 Debt and long-term liabilities (US000 s) (1) $608 Production Q2 2018 (bopd) (2) 33 2P Natural Gas Reserves (mboe) (3) 5,746 2P Oil Reserves (mstb) (4) 697 2P NPV 10%BT (US000 s) Natural Gas (3) $123,969 2P NPV10% BT (US000 s) - Oil (4) $11,648 (1) As of September 7, 2018 TSXV: ALV (2) As of June 30, 2018 (3) Natural gas assets evaluated by GLJ effective 5/31/2018 (4) Oil assets evaluated by Sproule effective 12/31/2017 6
Reserves MBOE Company Interest NPV10% - Before Tax (US millions) 1P 2P 3P 1P 2P 3P Oil fields 1-697 869 - $11.6 $15.8 Caburé 2 3,227 4,614 6,198 $73.2 $108.2 $142.3 Gomo 3 349 1,132 2,467 $1.1 $15.8 $37.9 1 Sproule evaluation of oil reserves effective 12/31/17 2 GLJ effective 5/31/18 3 GLJ effective 5/31/18, assigned reserves to drainage areas around 183-1 & 197-1 wells 7
Caburé Natural Gas Project Upstream + Midstream 2020 Forecasted Sales Volumes*: 10.8 mmscfe/d (1,792 boepd) 2020 Forecasted Netback*: mscfe boe Sales Price $ 8.88 $ 53.30 Royalties (1.08) (6.46) Production expenses (0.59) (3.55) Operating Netback $ 7.22 $ 43.29 Upstream core asset is a joint development of a conventional natural gas discovery (ALV 49.1%) Unitized development area (light blue ) 4 existing wells & phase 1 facilities completed 3-4 additional development wells and remaining surface facilities to be completed by end of 2019 2020 gross production plateau 15.9 mmcf/d (450 e3m3/d) Midstream - 100% Alvopetro Precedent setting Gas Sales Agreement (GSA) with the State distribution company - Bahiagas 11-km transfer pipeline from the Unit (dark blue ) ALV Gas Plant (UPGN) Bahiagas building 15km pipeline & 35 mmcfpd citygate at our plant site Only non-petrobras plant in state of Bahia capable of delivering ANP sales spec natural gas Highly strategic legacy asset with excellent growth potential Platform to unlock Basin-wide natural gas potential *Caburé only, USD 8
Gas Sales Agreement - Bahiagas Alvopetro constructing 11-km transfer pipeline and gas processing plant (UPGN) Bahiagas to construct a 15-km distribution pipeline and a new Citygate with design capacity of 35 mmcf/d (1,000 e3m3/d) Firm sales volume 5.3 mmcf/d (150 e3m3/d), adjustable annually Interruptible sales volume up to 12.4 mmcf/d (350 e3m3/d) Minimum firm volume > 19.4 Bcf (550 e6m3) Start of supply by 12/31/2019 Price reset semi-annually based on rolling average basket of trailing benchmark equivalent prices (Brent, US Henry Hub, UK National Balancing Point) August 2018 price = US$6.82/mmbtu Floor US$5.00/mmbtu, cap US$8.50/mmbtu, both indexed to US inflation 9
Alvopetro/Bahiagas Price Forecast Aug 2018 $6.82/mmbtu (1) Based on 06/30/2018, GLJ escalated price forecasts (2) FX based on Q2 average 3.61BRL/USD (3) Floor and caps escalated based on 2% US CPI inflation (5-year historical average). 10
Midstream Infrastructure (ALV 100%) US$ millions Alvopetro 11-km transfer pipeline $3.5 Alvopetro/Enerflex gas treatment facility (UPGN) $0 (1) Total 2018/2019 midstream capital $3.5 Enerflex is a global leader in the natural gas industry providing integrated turnkey gas compression and processing solutions with an established Brazilian operating presence UPGN/City-gate location secured, required engineering and permitting work completed, and environmental permits submitted for approval end of April Only non-petrobras facility capable of processing to ANP sales spec (1)Reflects build/own/operate/maintain agreement with Enerflex agreed September 20, 2018 11
Core Assets Caburé Natural Gas Unit (ALV 49.1%) 4 Existing Wells IME-10 IME-3 ALV-197(2) ALV-198(A1) ALV share of 2P reserves 27.7 Bcfe (4.6 mmboe) ALV NPV10BT US$108.2 million Pojuca Marfim Maracangalha Leste Maracangalha Oeste 12
Caburé Unit Development Plan (ALV 49.1%) Early production plateau up to 5.3 mmcf/d (150 e3m3/d) from 2 of 4 existing wells through low pressure production facilities to initially supply partner s Thermal Power Project when dispatched (allocated against partner s share of 2P reserves) Partner to fund 100% of drilling of Block 212 well in 2018 2019: drill 3 additional development wells, install a high pressure production facility, and tie in all wells Alvopetro estimated share of 2018/2019 unit capital, ~US$7 million, to be funded by March 2020 (1) Alvopetro production to commence at end of 2019 Gross field production plateau of 15.9 mmcf/d (450 e3m3/d) (1) Payable on the earlier of the date Alvopetro commences production allocations or March 30, 2020, net of equipment inventory contributed to the unit. (2) Development plan is subject to ANP approval. 13
Gomo Deep Basin Natural Gas Project A A Jan2 183-1 197-1 Tested Gas Tested Gas 3275m Tested Gas 3550m Long-term production results will define the broader deep basin development opportunity across our acreage Tested natural gas on an unstimulated basis from Sequence 5 in 197-1 and 183-1 wells 2P reserves 6.8 Bcf assigned to drainage areas around existing 2 wells 183-1 stimulation planned for Q4 2018 8km tie-in 5,460 acre geobody 14
Conventional Exploration Inventory Highly under-explored prospective land base (65,714 gross acres, 55,701 net acres) 14 conventional exploration prospects identified, all supported by reprocessed seismic Two conventional discoveries Average shallow conventional well cost expected to be $2MM to $3MM Portfolio of conventional prospects in an area of developed oil and gas infrastructure 15
Key to Unlocking New Opportunities Key to success is reprocessing available data 1,400 km 2 of reprocessed 3D seismic Reprocessed 2D lines show similar improvement High quality processing is fundamental to proper seismic interpretation Critical to all core focus areas: Significantly derisks 14 conventional exploration prospects Defines deep basin Gomo potential Identifies development drilling potential on our lower risk Bom Lugar oil field 2001 Brazil Reprocessing ALV 2017 Reprocessing 16
Block 57-A1 Pre-Rift Oil Exploration Prospect Pre Rift Depth Converted Structure 3-way Closure Against Fault P10 P90 P50 1500 metres (ALV 65%) Pre-Rift multi-zone prospect (AG/Sergi/Boipeba) P90 one fault seal dependency, maximum column height 100m, 491 acres. P50 two faults sealing, maximum column height 170m, 1754 acres. P10 two faults sealing, maximum column height 310m, 4769 acres 17
Block 182(C1) Multi-Zone Natural Gas Prospect NW SE Pitanga 3FBL 0007 BA well projected 9km (closest well to penetrate below Sergi) Sergi Basement Sergi Basement 2900 meters TVD (100% WI) 780-acre pre-rift prospect, maximum column height 135m 8.5 km north of ALV UPGN Seal potential is excellent for Sergi juxtaposed against Afligidos and basement. Agua Grande juxtaposed against Boipeba Sands 18
Building a Strong Upstream/Midstream Business An upstream/midstream hybrid opportunity Building a sustainable base of distributable cash flow Finalized Unitization and Gas Sales Agreements Strategic infrastructure Provides platform to unlock remaining natural gas potential Gomo 2-well pilot Conventional exploration upside Third party processing upside nearby fields 0.3 Tcf of reserves, >20 mmcf/d 19
Upstream/Midstream Distributable Cash Model Cash flow available for additional upstream investments Significant cash generating capacity just from development of 2P reserves Funds returns to stakeholders (50%) and high impact upstream reinvestment (50%) Does not reflect any incremental upside from additional upstream investments Assumptions: Sproule + GLJ 2P free cash flow assumptions; issue $15 million of debt repaid equally over 4 years starting in 2021; EBIDA * 50% less interest, UPGN integrated service fee and debt repayments = dividends starting in 2021. 20
Milestones Caburé unitization completed April 20, 2018 ALV gas plant and pipeline construction permits filed April 30, 2018 Bahiagas gas sales agreement signed May 7, 2018 Independent reserve evaluation completed June 6, 2018 Gas treatment facility construction & operating agreement September 20, 2018 Gas treatment facility financed September 20, 2018 Award 11-km transfer pipeline turnkey contract Q4 2018 Remaining project financing Q4 2018 License to construct gas plant and pipeline Q4 2018 Stimulate 183(1) Gomo natural gas well Q4 2018/Q1 2019 Gas treatment facility & transfer pipeline construction 2019 First Alvopetro gas sales End 2019 21
M US$ M US$ M US$ Operational Performance - Continuous Improvement In-house functionality Hands-on approach Reduced drilling costs per meter 61% Optimized drilling location civil construction costs Well testing costs reduced by 77% Demonstrated we can receive drilling permits in less than 180 days 3 2 1 0 500 400 300 200 100 0 Drilling Costs (Per Meter) 197-1 183-1 197-2 182-2 170-B1 256-A1 198-A1 177-A1 Drilling Location Costs 197-1 183-1 197-2 182-2 170-B1 256-A1 198-A1 177-A1 1500 Testing Costs (Per Zone) 1000 500 0 197-1 197-2 182-1 198-A1 183-1
The Alvopetro Opportunity Precedent setting natural gas sales agreement Highly strategic natural gas infrastructure assets Upstream/midstream hybrid model Basin-wide growth potential Attractive valuation Base 2P Net Asset Value of C$2.22/share (1) Brazil investment climate improving Motivated & experienced team (1) Base net asset value includes; 2P NPV10 before tax of US$124.0 million of gas reserves as evaluated by GLJ as at May 31, 2018, 2P NPV10 before tax of US$11.6 million of oil reserves as evaluated by Sproule as at December 31, 2017, financial resources of US$5.5 million as at June 30, 2018, and equipment inventory for use on future operations of US$2.4 million as at June 30, 2018. 23
Contact us: Calgary, Canada: Alvopetro Energy Ltd. Suite 1700, 525 8 th Avenue SW Calgary, Alberta, Canada T2P 1G1 Tel: (587) 794-4224 Email: info@alvopetro.com Salvador, Brazil: Alvopetro S/A Extração de Petróleo e Gás Natural Rua Ewerton Visco, 290, Boulevard Side Empresarial, Sala 2004, Caminho das Árvores, Salvador-BA CEP 41.820-022 Tel: + 55 (71) 3432-0917 Email: info@alvopetro.com www.alvopetro.com TSX-V: ALV