Mr. Corey Ruttan reports

ALVOPETRO ANNOUNCES RESULTS OF CABURE UNIT REDETERMINATION

Alvopetro Energy Ltd. has released the results of the Cabure unit redetermination process wherein the appointed independent expert has found in favour of Alvopetro's final proposal, increasing Alvopetro's working interest to 56.2 per cent.

All amounts contained in this news release are in United States dollars, unless otherwise stated, and all tabular amounts are in thousands of United States dollars, except as otherwise noted.

Highlights:

• Alvopetro's working interest in the Cabure unit has been increased from 49.1 per cent to 56.2 per cent.
• The redetermined working interest is to become effective on June 1, 2024.
• Incorporating the increased working interest, Alvopetro's share of proved plus probable reserves (2P) (effective Dec. 31, 2023) in the Cabure unit increases to 4.6 MMboe (millions of barrels of oil equivalent) from 3.7 MMboe, a 25.4-per-cent increase.
• Alvopetro's total company 2P reserves (effective Dec. 31, 2023) increase to 9.6 MMboe from 8.7 MMboe, a 10.8-per-cent increase.
• Following the effective date, Alvopetro's entitlement to natural gas production from the unit will increase to 13.9 MMcfpd (million cubic feet per day) (before additional NGL (natural gas liquid) volumes), compared with average 2023 natural gas production from the unit of 11.7 MMcfpd.
• Alvopetro retains its right to nominate for additional gas volumes in excess of the company's entitlement when those volumes are available at the unit.
• Upon the effective date, Alvopetro will be pursuing its right to assume unit operatorship.

Background

As previously disclosed, Alvopetro's Cabure natural gas discovery extends across two blocks owned by Alvopetro (blocks 197 and 198) and two adjacent blocks owned by a third party (blocks 211 and 212). Under Brazilian legislation, petroleum accumulations straddling two or more licensed blocks must undergo unitization (pooling) in order to promote efficient and fair exploration and development. In April, 2018, Alvopetro and the adjacent resource owner finalized the terms of the unit operating agreement (UOA), the unit development plan and all related agreements, with Alvopetro's initial working interest share of the unitized area being 49.1 per cent and Alvopetro's 50.9-per-cent partner being named initial operator. Under the terms of the UOA, the working interest split is subject to redeterminations. The first redetermination was to occur 18 months after Alvopetro commenced production allocations, but the parties agreed to defer the redetermination to include data up to Oct. 31, 2023.

Under the provisions of the UOA, the parties agreed that the redetermination would be evaluated by the expert. Pursuant to the provisions of the UOA, where an expert is engaged, the expert's determination shall be made using what is commonly referred to as the pendulum method of dispute resolution. Under this method, the expert is not required or permitted to provide their own interpretation, but is required to select the single final proposal (between the two partners' respective final proposals), which, in the expert's opinion, provides the most technically justified result of the application of the relevant information, and data and material provided to the expert consistent with the UOA and all related agreements.

Basis of redetermination

The UOA and related agreements require that any redetermination of working interest to each party shall be based on the estimated ultimate recovery of all natural gas, natural gas liquids and crude oil that are projected to be recovered from the unit commencing from first production (unit recoverable volumes) on a best-estimate basis. For purposes of the redetermination, each party presented their proposal as to unit recoverable volumes for this purpose and the proposed redetermined working interest to each party following the redetermination. Unit recoverable volumes are not determined in accordance with the standards contained in the Canadian Oil and Gas Evaluation Handbook (COGE Handbook) or the standards of National Instrument 51-101, and Alvopetro's remaining share of such unit recoverable volumes will not agree to reserves as disclosed by Alvopetro for purposes of NI 51-101.

Expert decision

Alvopetro has received the expert's final decision indicating the acceptance of its final proposal, which results in Alvopetro's working interest in the unit being increased from 49.1 per cent to 56.2 per cent based on unit recoverable volumes as shown in the associated table.

Up until Dec. 31, 2023, Alvopetro had received 470.9 million cubic metres (16.6 Bcf (billion cubic feet)) of natural gas deliveries from the unit. Based on the above redetermined interest, Alvopetro's remaining entitlement to unit recoverable volumes effective Dec. 31, 2023, is 1,047.5 million cubic metres (37 Bcf or 6,165 Mboe (thousand barrels of oil equivalent)).

Alvopetro's remaining entitlement to unit recoverable volumes pursuant to this redetermination decision is 6,165 Mboe (effective Dec. 31, 2023) which contrasts with the company's previously disclosed Cabure unit reserves as of Dec. 31, 2023, announced on Feb. 26, 2024 (based on Alvopetro's original 49.1-per-cent interest), as reflected in the associated table. The reserves and resources data in the associated table (the original Dec. 31, 2023, reserves) are based on an independent reserves and resources assessment and evaluation prepared by GLJ Ltd., dated Feb. 26, 2024, with an effective date of Dec. 31, 2023 (the GLJ reserves and resources report).

Alvopetro's independent reserve evaluator, GLJ, has prepared an updated evaluation of reserves as of Dec. 31, 2023 (the pro forma Dec. 31, 2023, reserves), incorporating the redetermined working interest of 56.2 per cent, which is summarized as shown in the associated table (the GLJ pro forma report).

Alvopetro's remaining entitlement to unit recoverable volumes of 6.2 MMboe as of Dec. 31, 2023, exceeds Alvopetro's Dec. 31, 2023, pro forma Cabure 1P (proved) and 2P reserves of approximately 2.7 MMboe and 4.6 MMboe, respectively, but is relatively consistent with pro forma 3P (proved plus probable plus possible) reserves of approximately 6.0 MMboe. Unit recoverable volumes were not prepared nor determined in accordance with the COGE Handbook or NI 51-101, and Alvopetro's remaining entitlement to such volumes as of Dec. 31, 2023, is higher than the Dec. 31, 2023, pro forma reserves assigned at the new redetermined working interest. Such differences arise due to differing levels of certainty associated with the various classes of reserves, but also arise due to differing assumptions utilized in the determination of unit recoverable volumes, most notably with respect to the extent and estimated ultimate recovery of the reservoirs. Alvopetro's ultimate entitlement to natural gas volumes over the life of the field will be based on the results of future development and overall reservoir performance.

Effective date

Pursuant to the provisions of the UOA and related agreements, the redetermined working interest is expected to become effective on June 1, 2024.

Impact on future entitlements to natural gas production

Under the terms of the gas balancing agreement between Alvopetro and the third party partner, each party is entitled to their working interest share of natural gas produced from the unit (the lifting entitlement) plus any natural gas not nominated by the other party. The lifting entitlement is updated based on the redetermined working interests and, as a result, the share of natural gas production which Alvopetro may nominate from the unit is expected to increase. Once the redetermined working interest is effective, Alvopetro's lifting entitlement from the Cabure unit will be increased to approximately 393 e3m3/d (thousands of cubic metres per day) (13.9 MMcfpd or 2,315 boe/d (barrels of oil equivalent per day)) before natural gas liquids (condensate) production compared with Alvopetro average natural gas sales from the Cabure natural gas field in 2023 of 332 e3m3/d (11.7 MMcfpd or 1,957 boe/d). Alvopetro's ability to sell the incremental natural gas production following the increase in its lifting entitlement will be dependent on demand from Bahiagas, the company's offtaker.

Operatorship

Once the redetermined working interest becomes effective, Alvopetro has the right, as defined in the UOA, to assume operatorship of the unit.

Corporate presentation

Alvopetro's updated corporate presentation is available on its website.

About Alvopetro Energy Ltd.

Alvopetro's vision is to become a leading independent upstream and mid-stream operator in Brazil. Its strategy is to unlock the onshore natural gas potential in the state of Bahia in Brazil, building off the development of its Cabure and Murucututu natural gas fields and its strategic mid-stream infrastructure.

We seek Safe Harbor.