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Ladies and gentlemen, welcome to the Annual Meeting Alvopetro Energy Limited. Please note, the meeting will be recorded. I would like to introduce Mr. John Wright, Chairman of the Board of Directors of Alvopetro. Mr. Wright, the floor is yours.
Good afternoon, 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 the TSX Trust Company's virtual meeting platform, which is accessible to all our shareholders regardless of physical location, allows you to participate, submit questions and to vote. I officially call the meeting to order and appoint Jennifer Baugh of Torys LLP to act as Secretary of the Meeting and Patricia Selby of TSX Trust Company to act as scrutineer of the meeting. .Only registered shareholders, who held shares in their names as of July 2 this year, the record date of this meeting or their validly appointed proxy holders who have 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 and after completing the formal business requirements, members of Alvopetro 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 in attendance today. This includes Firoz Talakshi, Geir Ytreland. Kenneth R. McKinnon, Roderick I. Fraser and Corey C. Ruttan, who will be presenting in the second portion of the meeting. Thank you. I received confirmation from TSX Trust that all materials in respect of the meeting were mailed to shareholders in compliance with the 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 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 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, and 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 with the formal business of the meeting. The business of the meeting is described in the management information circular dated July 6, 2021, which accompanied the notice of meeting. As this meeting will be 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 will conduct the votes on all matters before us by electronic ballot. Each registered shareholder or their duly appointed proxy holder virtually present at the meeting is entitled to vote on the matter and has one vote in respect of each share entitled to be voted on the matter and held by that shareholder. Please note, if you've already voted your shares via proxy and do not wish to change your vote, you do not need to vote again. 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 the presentation of each business item. 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'll only have a certain amount of time to register your vote once the polls are open. There will be an opportunity to ask questions on each resolution in turn. To submit a question, click the ask a question button on the left menu of your screen and type your question in the text box. Please note that only questions from registered shareholders and appointed proxy holders will be responded to during the formal portion of the meeting. However, and more importantly, all attendees may ask questions during the informal portion of the meeting that will follow the voting. I've asked Alison Howard, our CFO, to compile questions and submit them to the chair of this meeting if they're required to and revolve around the specific resolutions being voted upon. Once discussion on all items of business has been concluded, I'll give you a minute to enter your vote and then declare voting closed on all resolutions. We'll 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'll now ask TSX Trust to open the polls for voting. The polls are now open for all resolutions. Registered shareholders and duly appointed proxy holders, please click on the voting button in order to cast your vote. 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, 2020, 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 business is the election of the 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 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. There were no other nominations received within the requirements of the advance notice bylaw, therefore, the only individuals entitled to be nominated as directors at this meeting are the persons named as nominees in the information circular as directed by the Board. Therefore, Corey C. Ruttan, Firoz Talakshi, Geir Yterland, John D. Wright, Kenneth R. McKinnon and Roderick L. 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 will 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 votes for or to be withheld for each individual director. If there are any questions on this matter, please submit these through the Ask a Question button on your screen. Hearing nothing from Alison, I assume that there are no further questions, and I'll ask that registered shareholders or duly appointed proxy holders who have not already done so cast their vote through the online portal. The next item of business is the appointment of the 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 their remuneration. If there are any questions on this matter, please submit these now. Hearing no questions, I'll ask registered shareholders or duly appointed proxy holders who have not already done so to cast their vote through the online portal. The next item of business is the reapproval of Alvopetro's stock option plan. As Chair, I propose the following motion: I move to approve Alvopetro's stock option plan pursuant to the ordinary resolution described in further detail in the information circular. If there are any questions on this matter, please submit these now. Hearing no 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. The next item of business is to approve the share restructuring resolution set forth in Schedule F to the information circular. After consulting with our senior management and our legal tax and other advisers, and in light of the factors described in the information circular, the Board unanimously recommends shareholders vote in favor of the share restructuring resolution. In order for the share restructuring resolution to be passed, the resolution must be approved by at least [ 66 and 2/3 percent ] of all the votes cast. As Chair, I propose the following motion: I move that the share restructuring resolution set forth in the information circular be approved. If there are any questions on this matter, please submit them now. Hearing no further questions, I'll ask registered shareholders or duly appointed proxy holders who have not already done so to cast their votes to the online portal. The next item of business is to approve a reduction to the corporation's stated capital, the details of which are provided in the information circular under the heading Reduction of Stated Capital Account. In order for the capital reduction special resolution to be passed, the resolution must be approved by at least 66 and 2/3 percent of the votes cast. As Chair, I propose the following resolution -- following motion. I move that the capital reduction special resolution set forth in the information circular be approved. If there are any questions on this matter, please submit them now. Hearing no 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. We will 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. TSX Trust, please close the polls. I now ask that the scrutineer compile 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 meeting have been voted in favor of the resolutions. I declare all resolutions carried. I direct that the results of the poll 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. And again, I'd like to thank you all for your attendance at our shareholders' meeting, and I wish you all the best. And now I'd like to turn the meeting over to Corey Ruttan, our President and Chief Executive Officer. And Corey will take you through a presentation on the current state of affairs at Alvopetro.
All right. Thank you, John, and I'd like to reiterate, again, thank you to all our shareholders for joining today. It's really a pleasure to address our shareholders at the Annual General Meeting. Before we begin, I also wanted to express my thank you to the Board of Directors. They do a great job of representing the interest of all shareholders. And I really think this is a really excellent time to be addressing our shareholders just following our 1-year anniversary of commencing production from our Caburé project. I think by all measures, this was an absolutely precedent setting development onshore Brazil. And I also want to take this time, I'm very proud of our team, and I want to thank all of our team members for all their hard work and dedication in making this project a reality. I'll let you read the cautionary statements at your leisure. So yes, like I said at July 5 of last year, Alvopetro became the very first independent company in Brazil to deliver sales specified natural gas into the local distribution network. I'll spend a good portion of the presentation talking about our Caburé development, but I'll also try to focus on our next phase of growth as well. I think one of the really unique things for a company, especially Alvopetro's size, is that we control 100% of the strategic portion or the strategic midstream portion of our business, and it really helps us set the pace for our future growth and really opens the door to unlocking the rest of our natural gas potential in the near vicinity to our Caburé project. A lot of this really couldn't have been possible without our long-term gas sales agreement with our off-taker Bahia Gas. We're able to generate very high margins, and it really is the basis on which we can support our future organic growth plans as well as our plan to return a future dividend to our shareholders. We haven't talked about this probably nearly enough, but I do feel strongly that we've got a great commitment to ESG, and I'm looking forward to talking to you a bit more about that later in the presentation. Lastly, we do have a proven team. We've done this before in Latin America at our predecessor companies, both Petrominerales in Colombia and Pacalta Resources in Ecuador. We were successful in growing those businesses to over 40,000 barrels a day. And on a combined basis, we managed exits on behalf of stakeholders of about $2.8 billion in proceeds. So one of the things we've always done is try to look for the best combinations of geological prospectivity and fiscal regime. We certainly feel like we have this in Brazil. We're operating in a proven hydrocarbon basin in the Northeast portion of the country. And I think you'll see that we have a very good fiscal regime and policies that are targeting attracting direct foreign investment. As you may know, Brazil is South America's largest oil exporter, but what is probably underappreciated is that Brazil is a big importer of natural gas. And with the current rainfall shortages and very low hydroelectric supply levels, these things together really help create very good fundamentals for our onshore natural gas business model. Like I said, we have an excellent fiscal regime. Our project attracts an 11% royalty and qualifies for a 15% income tax rate. As I noted, both the Brazilian federal government as well as the hydrocarbon regulators have really embarked on a long process of really looking at policy enhancements to encourage additional investment, I think the quote at the bottom of the slide from the World Bank really encapsulates that. So we don't feel very fortunate that we're operating in Brazil, and we've got a government and a regulator that really wants us -- wants the activity that we're doing. The last point to make is we're really at a unique moment in Brazil's history. So as you may know, the state oil company, Petrobras, is in the process of selling virtually its entire onshore oil and gas inventory as well as other major business lines. So the whole market is opening up and we just happen to be in the midst of this. I think in 1 to 2 years, the industry is going to look completely different than it does today. So talk a little bit about the area where we're operating. We're in the state of Bahia, the Reconcavo Basin. This is the oldest producing basin in Brazil, produces about 37,000 barrels of oil equivalent, of which about 1/3 of that is natural gas.You can see from the map sheet on the bottom, there's an extensive network of oil and gas fields, oil refining, LNG import pipelines, overhead power, highways that straddle both of our blocks. So it's a very good place to be operating. The main city Salvador, Brazil's fourth largest city, just shy of 3 million people. You can see an image of it on the top right-hand side. Salvador's famous lighthouse is on the southern end there, which separates on the left. The body of water that you see there is the Bay of All Saints, and this is a really important industrial harbor. There's oil refining, oil export, LNG import all right in that port. And then on the right-hand side, you can see the Atlantic Ocean. As you go north of the city and you drive way off in the distance, you can see it on the map here. As you go north, you drive through a very large industrial complex called Camaçari. And this is actually where the vast majority of the natural gas in the state of Bahia gets consumed, and our operating base just happens to sit immediately north of that. So our existing production comes from this light blue area, which is our Caburé asset. And then our growth lands, our growth at focus area is 100% working interest acreage in yellow immediately north of that. So as I mentioned, we accomplished a number of first last year, the first independently owned UPGN or gas processing facility, and we were the first company to sign a gas sales agreement and deliver sales specified natural gas into the local communities. So as you may have seen last night, we announced our second quarter results. That completes the first complete fiscal year of production from Caburé. I think you can see steadily improving results since we came on production July 5. I certainly think we've exceeded our pre-start-up expectations that we set. We averaged production a little over 2,000 barrels of oil equivalent per day. Our Q2 average was 2,361 barrels of oil equivalent per day, which was up another 9% from the first quarter. And in July, we posted our highest month yet at 2,412 barrels of oil equivalent per day. As I mentioned, realized sales price, very attractive gas sales agreement. We realized USD 6.06 per Mcf, which translates into a -- on a BOE basis, a realized sales price of $38.08. And I think you can really see the strength of the fiscal regime and the nature of our low-cost natural gas production. We were able to generate operating netbacks of $31.58, which represents 83% of that revenue number. So I can assure you that's pretty much best-in-class relative to our peers. Based on all that, we were able to generate funds flow from operations in the quarter of $5.5 million. Our balance sheet is looking very good. We've really accelerated our debt repayment. As of the end of the quarter, we had net debt of $3 million, which represented net debt to last 12 months EBITDA of under 0.2x. And if you annualize the Q2 results, it's even better than that. Last year, we had a 21% increase in 2P reserves, up to 9.6 million barrels of oil equivalent with a reserve life index approaching 14 years. That translated into a net present value 10% of 192 million on a net asset value basis, translating into CAD 2.41 per share. So we're trading at 42% of our 2P value. And the last point to make here, insiders currently own about 9.4% of the stock. And that number has increased, I think there was about an addition of about 2.5 million shares over the last couple of years purchased by insiders. So next, just to talk about our Caburé asset. Again, it's the block in light blue here. This is a unitized area. We're just shy of 50% working interest. The nice thing about this is all the development work was done in advance. All the surface production facilities are in place, and there are 7 wells that have been drilled. You can see them all in the black dots on the 3D seismic image on the top left here. The vast majority of the resource sits on the Eastern side of this main bounding fault that runs roughly north south. So 6 of the wells into that side of the fault, you can see it in the cross-section here with the main reservoir noted in light red, which is the carousel formation. The well that's on the west side of the fault produces from the shallow Pojuca reservoir. So the vast majority of the resource sits here on the east. And one of the unique things about this asset, because we pre-invested in this, is that based on our 2P reserve evaluation production forecast, we can maintain a very flat production profile with virtually no maintenance capital. And the reason for that is that these wells have productive capacity in excess of the design production plateau. So in fact, I think over the last couple of months, we've actually been delivering with -- combined with our partner at levels well above the production plateau. The last point to make, we have a link on the bottom here for a virtual field tour. It's just a 3-minute video. But I think as shareholders, if you haven't seen it already, I really encourage you to look at that and see all the work that we've done over the last couple of years. So moving on to the midstream part of our business, the infrastructure and the marketing. This is all 100% Alvopetro solution. All of our gas flows down this 11-kilometer transfer pipeline that we constructed to the UPGN location or that's our gas plant that we constructed in -- with the help of Enerflex under a build, own, operate, maintain model. It's got an 18 million cubic foot a day capacity. And what that model means is that Enerflex actually funded the construction of the facility. They warranty the onstream construction schedule, and they continue to warranty the ongoing performance of the plant. And I can say we're very happy with our partnership with Enerflex. Our off-taker, Bahia Gas, their contribution to the project, they actually extended their distribution network to the north from their existing city gate in the industrial complex of Camaçari up to our UPGN or gas plant location and constructed a brand-new 70 million cubic foot a day city gate right at our plant site. The way our contract works, it's like a natural hedge. Basically, we're blending 3 different benchmark prices: Brent oil equivalent, Henry Hub Natural Gas and U.K. NBP natural gas, which is a bit of a proxy for LNG prices. So you blend those over a relatively long period of time. It reduces the amount of volatility we have in our contract. And then in addition, we have a gas price floor and a ceiling that gets applied, which are currently $5.52 per MMBtu and $9.38 per MMBtu respectively, and they both do get indexed to U.S. inflation. Our price gets reset every 6 months. Just 11 or 12 days ago, we had our latest price reset with about -- on a local currency basis, increased 24%. And that translates into a U.S. dollar per Mcf price of $7.72. So another big uplift from what we just reported in the second quarter. The last point to make here, the nice thing is our Caburé project alone has really underpinned all of these investments that we've made, and we're now in a very good position to unlock the rest of the gas potential right in our backyard that you see in these yellow lands, and I'll spend some time talking about those. But we can also really accelerate any success that we have there relative to our competition, and we can do it on a very low cost basis. So in lieu of showing the video, I just wanted to show a couple of pictures. This is the development that happened at the unit area. These are the surface production facilities. It's actually the location of that western north well. You can see it in the center of the lease here. Like I said, the vast majority of the reserves and production flow through a pipeline here from the east side of the fault and to the facility. They go through high-pressure separation. The condensate goes into these tanks here and gets trucked out. And then Alvopetro's gas flows over through this, you can just barely see it, but there's a blue fiscal meter there that measures our gas, and then it flows into our portion of the lease. You can see there's additional space here for future compression. And then the PIG launcher, the pipeline runs under the road and then go straight west towards our gas plant location. The gas enters the gas facility at the lower portion of the lease here. It runs up along these pipe racks and then you can see the compression skids on the left-hand side. And the mechanical refrigeration units on the right-hand side. The condensate again goes into these tanks, it gets trucked out roughly every 4 days. And then the process gas flows up and enters the Bahia Gas City Gate just on the top right portion of the lease. And then they ship the gas along the pipeline right away that roughly follows this tree line here down to the industrial complex of Camaçari. So as you can see, there's plenty of space for future expansion here, our medium-term goal our near-term goal now is to increase production up to the 18 million cubic foot a day mark. But ultimately, we'd like to be expanding this and maximizing our percentage of throughput through this city gate that's right at our physical location. So we've obviously been very focused on achieving our goal of first gas from our Caburé project. But I can say we've also accomplished this with a very good ESG commitment and record. Our commitment to social and environmental responsibility certainly goes well beyond the regulatory requirements in Brazil. And frankly, the Brazilian regulatory requirements are actually quite stringent. I would say our team works very hard to minimize the environmental impact of our activities to the greatest extent possible. And I think we pay particular attention to preventing soil erosion and to preserving biodiversity. And I just wanted to walk through an example of this. When constructing our 11-kilometer transfer pipeline, we actually ended up removing 61% fewer trees than what we were permitted to do. And in place of that, we replanted 22x that number of native Atlantic Forest seedlings on a 2-hectare area offsetting our UPGN. So that area offsetting the gas plant, the regulatory requirement would have been to reseed that with grass. And I think we've gone well beyond that in creating an Atlantic Forest reserve offsetting our plant site. On the emissions front, we are finalizing our Scope 1 and Scope 2 emissions. But I can assure you, we have best-in-class emissions intensity per barrel of oil equivalent or per unit of energy produced. And the reason for that is we're producing dry sweet gas. We're not running any compression, and we're producing virtually no water. On top of that, not only are we delivering affordable energy into the local community, but we're delivering clean natural gas that when you compare to fuel oil generates about 53% less greenhouse gas emissions. We've always had a strong commitment to safety. I think it's a very proactive approach. We manage it through safe work permits, preliminary risk analysis and weekly safety discussions. In our first year of operations, there were over 113,000 hours worked between Alvopetro and our contractors. And I'm proud to say we had 0 lost time safety incidents over that period of time. Now that we're on production and cash flowing, we can also focus on voluntary social programs. We've allocated a budget of $0.20 per barrel of oil equivalent produced to these programs. We've partnered with a local NGO, where we're targeting 7 different communities within our direct and indirect areas of influence. We completed a complete needs assessment. We visited 190 families, principals and teachers from 3 different schools, health clinics, government officials and community stakeholders in doing this. And the goal really is to maximize the impact of these investments and creating a lasting benefit. On the governance side of things, I think we've always had a high standard of corporate governance and it really hinges off the Alvopetro value system that governs all of our interactions. From a Board perspective, we've got a very strong qualified independent and globally diverse Board. Our staff -- 100% of our Brazilian staff are Brazilian, our team in Brazil, and about 1/3 of our staff are female and half of our executive team are female. So this has long been our opinion that the energy companies have over invest or sorry, overinvested and under delivered real returns to stakeholders and shareholders. And this graph demonstrates our longstanding model that we laid out to shareholders, whereby we're going to try and take a much more disciplined approach and take roughly half of our cash flows and dedicated to stakeholders and take the other half of our cash flows and reinvest it in growing our business. So what you see here is the light green bars is the cash flow that gets generated from our Caburé and Gomo 2P natural gas reserves. And if you focus on the 20 -- and sorry, we did update that based on GLJ's most recent price forecast. So that's using their June 30 price forecast. And if you look at the 2022 period, the idea is to take the first half of this cash flow and dedicate it to stakeholders. And what I mean by that is the yellow bar is the payments to Enerflex for our facility, the dark blue is interest payments to our capital provider, Cordiant Capital. The green wedge, the big wedge that you see here is what's reserved effectively for future debt repayments and dividends to shareholders. And keep in mind, we've already repaid half of our debt. So you can see that in the light blue wedge here half of the project financing we had has already been repaid. The red represents tax. And then the upper half of this is what's available for growing our business. And in gray, we've shown what's been allocated to either our exploration program for the rest of this year or for developing these 2P reserves. So that's the wedge that you see here in 2022. But the vast majority of this has been unallocated, and that's the white and gray crosshatched area. That adds up to about $111 million available for future investment, which is almost -- it's a very similar amount -- actually the amount available for debt repayment and dividends, which totals about USD 105 million or $1.30 per share. Both those are greater than our existing share price. So I think another noteworthy thing we did last year is we, as promised -- we renegotiated our debt agreement. We lowered the interest rate. We extended the maturity. That combined with the small buyback that we announced during the formal portion of the business, really helps set us up for a cost-effective dividend program that we've announced, we expect to commence no later than the first quarter of 2022. So we'll now move on to the second part of this, where are we going to invest these additional cash flows. And it's really a multipronged approach. As I mentioned, our goal is to -- in the short term to get to 18 million cubic feet a day or 3,000 barrels of oil equivalent per day. A reminder, these are all 100% working interest projects. And I'll talk about them in some detail in the coming slides, but it very simply is our Gomo project that sits immediately north of our Caburé project. And it's these two exploration wells that sit immediately north of our gas processing facility. In addition, like I said, Petrobras is selling basically all of this production onshore. And we think our strategic infrastructure position will position us well to take advantage of those opportunities and also to potentially generate some midstream revenues out of that investment. So hopefully, after I get through this, you'll be left with an impression that we have lots of opportunities to grow the height and extend the duration of all those green bars you saw on the earlier slide and really grow our 2P reserve value. So first, on the two exploration wells that we're drilling. This image that you see on the left-hand side here is some of our reprocessed seismic, Nanna Eliuk our Exploration Manager spent a considerable amount of time merging and reprocessing all of the available 3D seismic in the basin and reprocessing it to a much higher quality than had been done before. What you're seeing here, all the different black lines are all the different faults. So this main one that runs northwest to southeast separates the Camaçari low to the south from the Miranga low to the north. And this is the deeper part of the basin where the source rocks have generated most of the natural gas. What we're targeting here -- what you can see is most of these fault blocks in the area highlighted by the red outlines have all trapped hydrocarbons. So the faults at these depths especially have very good ceiling capacity. What we're targeting here with these 2 prospects, 182-C1 and 183-B1 and they're outlined in the yellow, is 2 multi-zone Pre-Rift prospects. And Pre-Rift is the sands that were laid down before the continent separated. They're the most prolific reservoirs in the basin. And we expect to have these drilled later this year. Two of the closest analogies would be the Sussuarana field just to the northwest and the Biriba field just to the north. And I can tell you the play setups we have along the faults here are very similar to those two fields. We did have these both independently assessed by GLJ. They assigned 4.6 million and 5.9 million barrels of oil equivalent, respectively, with 47% and 44% chances of success. So the locations are ready. Once the rig maintenance is complete and accepted, we're planning on spudding these locations later in September. Moving on to the Gomo. These were the first two wells we drilled in Brazil, the 197(1) well and the 183(1) well. Now that we have all the infrastructure in place and the ability to monetize gas, this is something we can get back to and really focus on. As a reminder, we tested gas from this lower sequence in each of these wells. These are the transposed well logs and again another example of our high-quality 3D seismic. And what Nanna can do is map this over about an 8.5 square mile area, so about 5,500 acres, and it's this black dashed outline. So that's what we're targeting developing. It's going to start with the tie-in of this 183(1) well, which you can see from the picture below. We've started to open up the ditches, the welding is all happening, all the pipe is in the field, and we expect to have this well on by the end of the year and then be in a position to execute a broader development plan starting in 2022. I'll talk about this a bit later, but GLJ has again assessed this and assigned a combination of reserves and resource to this opportunity. So we just wanted to use Google Earth to give you a sense for how this multiyear development plan could roll out. The first step, as I said, and we're working on this right now, is to tie the 183(1) well into our existing pipeline and then the gas will flow to our gas processing facility to the west. Our next step would be to conduct a much larger stimulation in the 197 well and tie that back into the 183 pad. And then we would embark on a multi-well fit-for-purpose designed drilling -- multiyear drilling program, and we would try to use centrally located pads, as you can see in the white squares, to minimize our surface impact to ultimately develop up that whole resource fairway. Like I said, GLJ assigned a combination of reserves, contingent resource and prospective resource. You can see them in the 3 different colors. You can see the capital phasing here that we've done in a way that can be funded organically. And then from a production perspective with success, this just gives you a sense, this asset alone has the ability to deliver up to 20 million cubic feet a day on a success case basis, and that doesn't take into account any of our existing production or any potential exploration success. So to put these opportunities in perspective, again, we had a 21% increase in our 2P reserves last year to 9.6 million barrels. Our Caburé asset on its own is about 6 million barrels of oil equivalent, and that asset alone has a value of about USD 147 million. So if you look at the 2 exploration wells on a success case basis at the best estimate of the resource, 5.9 million and 4.6 million barrels of oil equivalent. So with success at just one of those, we would come close to doubling the size of our core reserves. On the global side of things, we've got some 2P reserves recognized, but we also have risk contingent in perspective. So if you add those up, that's about 18 million barrels of oil equivalent or roughly 3x the size of Caburé. So I hope that puts in perspective of our growth potential. And another nice thing is that we can fund it from cash flows. So I think this is a really good time to reflect on the journey we've embarked on together. I think we've achieved an awful lot since the middle part of 2018 when we -- the key step or the kicking-off point was really the completion of our unitization agreement on the Caburé field. We almost immediately signed our gas sales agreement with Bahia Gas, and we virtually immediately submitted all the applications for the environmental permits to construct the project. In October of 2018, we completed a USD 4 million U.S. private placement in the United States focused in Denver, Colorado, and that really helped with our OTCQX listing as well. Through the middle part of 2019, we had awarded all of the construction contracts, both for the pipeline and that important agreement with Enerflex whereby not only an important financing but an important de-risking of the operational construction of the facility.The other thing of note and I think this highlights Brazil's desire to do business keeping in mind this was the first project of its kind ever done by anyone other than Petrobras. We received our environmental approvals in literally almost exactly a year from when we submitted them. The next key piece for us was our $15 million project financing, debt project financing that we did with Cordiant Capital out of Montreal. They've been a great partner to work with, and that was a really important final piece of the puzzle for us. The construction in all and the unit development all was undertook all the way through to May 2020, when we commissioned our UPGN. We did increase reserves during that period of time based on the development drilling by 30%. And then on July 5, when Bahia Gas finished their portion of the project, we began production immediately. Like I said, in the first year of production, we've averaged over 2,000 barrels of oil equivalent per day. And in July, we had a record month. To recap, we repaid half of our debt in the very first year, and we had funds flow from operations in year 1 of operations of over $18 million. And then lastly, I said it before, we did have another 21% increase in 2P reserves last year. So I hope everyone agrees this has been a very exciting time, and I'm very proud of the team. So in conclusion, why Alvopetro? Why invest? Why be a shareholder? I think in a world of high decline resource plays the fact that we have very little to no maintenance capital to maintain our production profile with a very strong reserve life is very unique, it really helps us dedicate large percentages of our cash flow to not only organic growth but also returns. I think it should not be under look the value of our strategic infrastructure right in the heart of the basin at a transformational time in Brazil. Our long-term gas sales agreement, obviously, is very attractive. And it really supports our high-margin production and our strong free cash flow generation capacity. I think everyone would agree, our leverage is extremely low at this stage. And all that together sets the stage for our disciplined and balanced stakeholder return and reinvestment model with our plan to start paying dividends by the first quarter of next year. I think not only do we have a -- we -- sorry, couple that all with our organic growth plan, we've got some exciting near-term catalysts, both with the two exploration wells as well as our Gomo development opportunity that we can really now get after. And then the last point, we're still trading at 42% of net asset value. I think if you look at it on an NAV perspective, on a cash flow basis or ultimately on a dividend yield basis, once that commences, I do think it's an attractive time to be investing in Alvopetro. And the last point I'll make before we go to Q&A, just to remind everyone again, is 3-minute video, the link again is on this slide, and I do encourage shareholders to see what we've been investing in. So with that, I'm going to turn it over to Q&A. And I'll start by first introducing Alison Howard, our Chief Financial Officer, and I think she'll remind you all how to submit your questions on the portal.
Good afternoon, everyone, and thanks, Corey. Yes, just a reminder, if you have a question, you can click the button on your screen entitled Ask a Question, and it will come through on our end. We do have a few questions to start with. So we'll just dive right in, if that works. So speaking of the dividend, as a growth company, wouldn't it make more sense to apply as much cash flow as possible to your organic and inorganic opportunities rather than paying a dividend at all? What do you hope to accomplish with this?
Yes. So first of all, we pre-invested a lot of money to get us to this point. So I think we're in a really unique position where we now actually have the ability to do both things, where we can still invest in a balanced way in our growth and start to return money to stakeholders and not just shareholders, but as you can see, we've really on an accelerated basis, I don't think there's many companies in the last year that can say they repaid half of their debt. And then I think the last thing is hopefully it really opens the stage for a whole new category of investors like Alvopetro's transformed. And I think we're a strong cash flow generation company now, and we'll transform once again once we start paying the dividend.
Great. And why have you chosen a dividend over a share buyback?
Yes. So we get this question a lot. Actually, just an hour ago or less than an hour ago, the shareholders just approved a buyback -- a small lot buyback, which I think was a very cost-effective way of cleaning up our share register and really paving the way for a cost-effective dividend program. So we've done a bit of that. But to be honest, we've debated this, and I think we'd like to return cash to people who want to be shareholders. And I think buying shares back is creating liquidity and providing cash to people, who no longer want to be shareholders. So our shareholders have been patient with us, and then we want to we want to create that return for them.
If you're successful with one on your exploration wells, when do you anticipate that they would be onstream?
Yes. So we've done all the early work for the permitting. You can see -- you could see on the map there, I maybe didn't point out well enough. But it's depending on which one we're successful or both, hopefully, it's anywhere between a 9 and 13-kilometer tie-in. So it's not that much different than what we've already done with our Caburé project. The only difference is we'd be doing it for a second time. So our target would be to try to get a success on by the end of next year.
Natural gas, oil and condensate sales in overall dollars have increased consistently at a rate of 17.9% from the fourth quarter to the first quarter and from the first quarter to the second quarter. Is this sequential quarterly growth a planned increase in production and the capacity utilization of the gas processing facility? Does management anticipate a continued double-digit sequential growth rate in natural gas, oil and condensate sales?
Yes. To be honest, I think we're really maximizing kind of our throughput through our existing assets. And I -- as shareholders, I think we're pretty happy with what we've been able to deliver. It's well above expectations. But to temper expectations, I'm not sure you should be expecting 17% quarter-over-quarter growth until we have another success. So being -- and quite frankly, with a success at the midpoint of our range on those exploration wells, that would be another huge step change. So frankly, at the best estimate of one of those, we would actually be looking at probably trying to expand our plan, but it would be coincident with being able to bring that type of opportunity on stream.
Since Gomo is tight gas play, do you expect the same low level of maintenance capital to maintain the production profile at Gomo and in the Caburé fields?
Yes. So it's more capital intensive from a development perspective once the production is on stream and has went through kind of an initial phase of decline. The nice thing about those wells, although they are lower productivity relative to our Caburé project, is that they'll have a very, very long reserve life. So it's a little bit different. But once the capital has been invested in the wells and once we went through kind of initial early phase of decline, it actually would take on relative to most producers, I think, a pre-flat production profile.
What is the anticipated frequency of paying dividends? Is it quarterly? Also, what are the metrics for determining the amount of dividends?
Yes. So I showed a slide -- so the first order, I guess, is it ultimately depends on our Board of Directors, and that's something they'll be considering at the upcoming meetings of the Board. We've messaged our intent to start it by the first quarter of next year. We still have some debt to repay as well. We want to make sure it's a sustainable dividend. The cash flow chart that we had in the presentation was intended to show roughly what kind of cash could be available for those dividends, but it will ultimately, the amount will be determined by the Board. And it's partly a function of the capital program that we set for next year as well. So part of the reason we did the small lot buyback was to clean up our share register so that we could do this when we started, it could be much more cost effective. Again, our Board needs to decide this. But I think from my perspective, I think something that looks like quarterly would make the most sense. But ultimately, our Board needs to decide that.
With oil prices rising, would you consider pursuing any oil opportunities over natural gas? Do you have any oil prospects?
Yes. So we've got some undeveloped reserves in the oil category at our Bom Lugar location, our assets, and there's actually some other opportunities that are even booked in our reserves that we're evaluating right now. Obviously, I think our target of filling the gas -- the first phase of the gas plant makes the most sense. But obviously, we're mindful that oil prices have increased quite considerably here. And I think that's something we're going to be evaluating for when we complete these -- after we finish these first two exploration wells, what's the next piece of capital.
Thanks, Corey. Brazil's power demand needs are high and hydro source of electricity is at a low. Is there an opportunity to accelerate your growth strategy to capitalize on this?
Yes. Certainly, that's a dynamic that's happening in Brazil right now. I think globally, the demand for natural gas is skyrocketing. I think if you look at the European gas markets, the prices are very, very high and LNG is very high. So that's -- longer term that's -- our competition is LNG, and I think our price is quite attractive. It's probably hard to accelerate it much more than what we're already doing. We're focused on accelerating it once we get this rig going. If we have a success, we're trying to make sure we've done all the advanced work so that we can get a pipeline installed as quickly possible, and I can ensure you it will be much quicker than the first time around.
Let's just give a minute here to see if there's any further questions. There are no further questions logged at this point. So thank you, Corey. That was very informative.
Thank you, Alison. So well, and if you didn't have the opportunity to answer your question or ask your question and have it answered, I certainly always encourage all of our shareholders to never hesitate calling either Alison or myself. We're here to answer your questions. So just some final concluding remarks. Again, I think this is a transformational time in Brazil. I think we're extremely well positioned. I think, like I said, Alvopetro has really transformed as a company over the past year. And I think we're very focused on our next phase of growth and implementing our model and starting up our dividends to our shareholders. I do want to thank all of our shareholders again for their commitment and dedication to Alvopetro, and I really look forward to updating you on our progress, as the year progresses and look forward again to this time next year. And I just want to once again thank our Board and thank our team for persevering through, I think what everyone can agree, was a very difficult time globally to really make this project a huge success. So thank you again.
Ladies and gentlemen, the meeting has now concluded. You may now disconnect.