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Release – Alvopetro Announces Q2 2023 Financial Results and an Operational Update

Posted on August 10, 2023August 10, 2023 by [email protected]

Aug 09, 2023

CALGARY, AB, Aug. 9, 2023 /CNW/ – Alvopetro Energy Ltd. (TSXV: ALV) (OTCQX: ALVOF) is pleased to announce financial results for the three and six months ended June 30, 2023 and an operational update.

All references herein to $ refer to United States dollars, unless otherwise stated and all tabular amounts are in thousands of United States dollars, except as otherwise noted.

President & CEO, Corey C. Ruttan commented:

“We continue to post strong results, generating an operating netback of $69.61 per boe and $11 million in funds flow from operations, highlighting the strong profitability of our operations. Our 2023 capital program is focused on adding 100% interest production from our Murucututu natural gas project and our Bom Lugar oil field. We have had exciting early results with the stimulation of our 197(1) Murucututu well and drilling our first oil development well at Bom Lugar.”

Operational Update

Drilling operations continue on the 183-A3 well on our Murucututu natural gas field. The well was spud on July 11^th and is targeting shallower exploration potential in the Caruaçu Formation and the Gomo member of the Candeias Formation. We expect drilling to be completed later this quarter. We also expect to complete our recently drilled Bom Lugar well (BL-06) and have the well on production in the third quarter.

Our natural gas price under our long-term gas sales agreement with Bahiagás was adjusted effective August 1^st to BRL1.99/m³ or $13.25/Mcf, based on our average heat content to date, the July 31, 2023 BRL/USD foreign exchange rate of 4.74 and enhanced sales tax credits applicable in 2023. This new gas price is effective for all of our natural gas sales from both our Caburé and Murucututu fields as of August 1, 2023.

Financial and Operating Highlights – Second Quarter of 2023

Average daily sales decreased to 1,975 boepd (-29% from Q1 2023 and -16% from Q2 2022) due mainly to reduced production from our Caburé natural gas field as a result of higher nominated volumes from our partner.
Our average realized natural gas price increased to $12.86/Mcf, an 8% increase from Q2 2022 with the 3% increase in our contracted natural gas price and enhanced sales tax credits available in 2023. Compared to Q1 2023, our realized sales price increased 7% due mainly to the appreciation of the BRL to the USD in Q2. With the higher natural gas price, our overall realized price per boe increased to $77.41 (+6% from Q1 2023 and +5% from Q2 2022), despite lower Brent pricing on condensate sales.
Our natural gas, condensate and oil revenue was $13.9 million in Q2 2023, a decrease of $1.9 million compared to Q2 2022 (-12%) due to a 16% decrease in production partially offset by the increase in realized sales prices per boe.
Our operating netback improved to $69.61 per boe (+$3.00 per boe from Q1 2023 and +$5.65 per boe from Q2 2022) with a higher realized sales price and lower royalties, partially offset by the impact of fixed operating costs with lower sales volumes.
We generated funds flows from operations of $11.0 million ($0.30 per basic share and $0.29 per diluted share), a decrease of $1.4 million compared to Q2 2022 and $3.9 million compared to Q1 2023.
We reported net income of $9.9 million in Q2 2023, an increase of $3.2 million (+49%) compared to Q2 2022.
Capital expenditures totaled $8.5 million, including drilling cost for our BL-06 well on our Bom Lugar field, stimulation costs for our 197(1) well on our Murucututu field, and long-lead purchases for future capital projects.
Our working capital surplus was $18.1 million as of June 30, 2023, a decrease of $2.8 million from March 31, 2023, and an improvement of $3.4 million from December 31, 2022.

The following table provides a summary of Alvopetro’s financial and operating results for three and six months ended June 30, 2023 and June 30, 2022. The consolidated financial statements with the Management’s Discussion and Analysis (“MD&A”) are available on our website at www.alvopetro.com and will be available on the SEDAR+ website at www.sedarplus.ca.

	As at and Three Months Ended June 30,			As at and Six Months Ended June 30,
	2023	2022	Change	2023	2022	Change (%)
Financial
*($000s, except where noted)*
Natural gas, oil and condensate sales	13,914	15,787	(12)	32,074	29,759	8
Net income	9,852	6,631	49	22,054	17,746	24
Per share – basic ($)⁽¹⁾	0.27	0.20	35	0.60	0.52	15
Per share – diluted ($)⁽¹⁾	0.26	0.18	44	0.59	0.49	20
Cash flows from operating activities	13,473	12,997	4	27,329	21,330	28
Per share – basic ($)⁽¹⁾	0.37	0.38	(3)	0.75	0.63	19
Per share – diluted ($)⁽¹⁾	0.36	0.35	3	0.73	0.59	24
Funds flow from operations ⁽²⁾	11,047	12,434	(11)	26,019	23,338	11
Per share – basic ($)⁽¹⁾	0.30	0.37	(19)	0.71	0.69	3
Per share – diluted ($)⁽¹⁾	0.29	0.34	(15)	0.69	0.64	8
Dividends declared	5,109	2,728	87	10,213	5,444	88
Per share⁽¹⁾	0.14	0.08	75	0.28	0.16	75
Capital expenditures	8,521	6,338	34	11,812	10,138	17
Cash and cash equivalents	25,598	13,672	87	25,598	13,672	87
Net working capital surplus⁽²⁾	18,084	11,641	55	18,084	11,641	55
Working capital, net of debt⁽²⁾	18,084	9,096	99	18,084	9,096	99
Weighted average shares outstanding
Basic (000s)⁽¹⁾	36,697	33,973	8	36,627	33,941	8
Diluted (000s)⁽¹⁾	37,755	36,637	3	37,657	36,426	3
Operations
Natural gas, NGLs and crude oil sales:
Natural gas (Mcfpd)	11,269	13,546	(17)	13,520	13,940	(3)
NGLs – condensate (bopd)	92	97	(5)	111	98	13
Oil (bopd)	5	5	–	5	8	(38)
Total (boepd)	1,975	2,359	(16)	2,369	2,429	(2)

Average realized prices⁽²⁾:
Natural gas ($/Mcf)	12.86	11.90	8	12.40	10.94	13
NGLs – condensate ($/bbl)	83.35	121.93	(32)	83.79	114.11	(27)
Oil ($/bbl)	63.93	94.47	(32)	68.00	83.90	(19)
Total ($/boe)	77.41	73.54	5	74.80	67.68	11

Operating netback ($/boe)⁽²⁾
Realized sales price	77.41	73.54	5	74.80	67.68	11
Royalties	(1.97)	(5.35)	(63)	(2.18)	(4.84)	(55)
Production expenses	(5.83)	(4.23)	38	(4.75)	(4.00)	19
Operating netback	69.61	63.96	9	67.87	58.84	15
Operating netback margin⁽²⁾	90 %	87 %	3	91 %	87 %	5

Notes:

(1) Per share amounts are based on weighted average shares outstanding other than dividends per share, which is based on the number of common shares outstanding at each dividend record date. The weighted average number of diluted common shares outstanding in the computation of funds flow from operations and cash flows from operating activities per share is the same as for net income per share.

(2) See “Non-GAAP and Other Financial Measures” section within this news release.

Q2 2023 Results Webcast

Alvopetro will host a live webcast to discuss our Q2 2023 financial results at 9:00 am Mountain time on Thursday August 10, 2023. Details for joining the event are as follows:

Date: August 10, 2023 Time: 9:00 AM Mountain/11:00 AM EasternLink: https://us06web.zoom.us/j/83723796296 Dial-in numbers: https://us06web.zoom.us/u/kcmVqG8cd9 Webinar ID: 837 2379 6296

The webcast will include a question and answer period. Online participants will be able to ask questions through the Zoom portal. Dial-in participants can email questions directly to [email protected].

Corporate Presentation

Alvopetro’s updated corporate presentation is available on our website at: http://www.alvopetro.com/corporate-presentation.

Social Media

Follow Alvopetro on our social media channels at the following links:

Twitter – https://twitter.com/AlvopetroEnergy Instagram – https://www.instagram.com/alvopetro/ LinkedIn – https://www.linkedin.com/company/alvopetro-energy-ltd

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 Murucututu natural gas fields and our strategic midstream infrastructure.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.

Abbreviations:

$000s	=	thousands of U.S. dollars
bbls	=	barrels
boepd	=	barrels of oil equivalent (“boe”) per day
bopd	=	barrels of oil and/or natural gas liquids (condensate) per day
BRL	=	Brazilian Real
CAD	=	Canadian dollars
m³	=	cubic metre
Mcf	=	thousand cubic feet
Mcfpd	=	thousand cubic feet per day
MMcf	=	million cubic feet
MMcfpd	=	million cubic feet per day
NGLs	=	natural gas liquids
Q1 2023	=	three months ended March 31, 2023
Q2 2022	=	three months ended June 30, 2022
Q2 2023	=	three months ended June 30, 2023

Non-GAAP and Other Financial Measures

This news release contains references to various non-GAAP financial measures, non-GAAP ratios, capital management measures and supplementary financial measures as such terms are defined in National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure. Such measures are not recognized measures under GAAP and do not have a standardized meaning prescribed by IFRS and might not be comparable to similar financial measures disclosed by other issuers. While these measures may be common in the oil and gas industry, the Company’s use of these terms may not be comparable to similarly defined measures presented by other companies. The non-GAAP and other financial measures referred to in this report should not be considered an alternative to, or more meaningful than measures prescribed by IFRS and they are not meant to enhance the Company’s reported financial performance or position. These are complementary measures that are used by management in assessing the Company’s financial performance, efficiency and liquidity and they may be used by investors or other users of this document for the same purpose. Below is a description of the non-GAAP financial measures, non-GAAP ratios, capital management measures and supplementary financial measures used in this news release. For more information with respect to financial measures which have not been defined by GAAP, including reconciliations to the closest comparable GAAP measure, see the “Non-GAAP Measures and Other Financial Measures” section of the Company’s MD&A which may be accessed through the SEDAR+ website at www.sedarplus.ca.

Non-GAAP Financial Measures

Operating netback

Operating netback is calculated as natural gas, oil and condensate revenues less royalties and production expenses. This calculation is provided in the “Operating Netback” section of the Company’s MD&A using our IFRS measures. The Company’s MD&A may be accessed through the SEDAR+ website at www.sedarplus.ca. Operating netback is a common metric used in the oil and gas industry used to demonstrate profitability from operations.

Non-GAAP Financial Ratios

Operating netback per boe

Operating netback is calculated on a per unit basis, which is per barrel of oil equivalent (“boe”). It is a common non-GAAP measure used in the oil and gas industry and management believes this measurement assists in evaluating the operating performance of the Company. It is a measure of the economic quality of the Company’s producing assets and is useful for evaluating variable costs as it provides a reliable measure regardless of fluctuations in production. Alvopetro calculated operating netback per boe as operating netback divided by total sales volumes (barrels of oil equivalent). This calculation is provided in the “Operating Netback” section of the Company’s MD&A using our IFRS measures. The Company’s MD&A may be accessed through the SEDAR+ website at www.sedarplus.ca. Operating netback is a common metric used in the oil and gas industry used to demonstrate profitability from operations on a per unit basis (boe).

Operating netback margin

Operating netback margin is calculated as operating netback per boe divided by the realized sales price per boe. Operating netback margin is a measure of the profitability per boe relative to natural gas, oil and condensate sales revenues per boe and is calculated as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Operating netback – $ per boe	69.61	63.96	67.87	58.84
Average realized price – $ per boe	77.41	73.54	74.80	67.68
Operating netback margin	90 %	87 %	91 %	87 %

Funds Flow from Operations Per Share

Funds flow from operations per share is a non-GAAP ratio that includes all cash generated from operating activities and is calculated before changes in non-cash working capital, divided by the weighted the weighted average shares outstanding for the respective period. For the periods reported in this news release the cash flows from operating activities per share and funds flow from operations per share is as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
$ per share	2023	2022	2023	2022
Per basic share:
Cash flows from operating activities	0.37	0.38	0.75	0.63
Funds flow from operations	0.30	0.37	0.71	0.69

Per diluted share:
Cash flows from operating activities	0.36	0.35	0.73	0.59
Funds flow from operations	0.29	0.34	0.69	0.64

Capital Management Measures

Funds Flow from Operations

Funds flow from operations is a non-GAAP capital management measure that includes all cash generated from operating activities and is calculated before changes in non-cash working capital. The most comparable GAAP measure to funds flow from operations is cash flows from operating activities. Management considers funds flow from operations important as it helps evaluate financial performance and demonstrates the Company’s ability to generate sufficient cash to fund future growth opportunities. Funds flow from operations should not be considered an alternative to, or more meaningful than, cash flows from operating activities however management finds that the impact of working capital items on the cash flows reduces the comparability of the metric from period to period. A reconciliation of funds flow from operations to cash flows from operating activities is as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Cash flows from operating activities	13,473	12,997	27,329	21,330
(Deduct) add back changes in non-cash working capital	(2,426)	(563)	(1,310)	2,008
Funds flow from operations	11,047	12,434	26,019	23,338

Net Working Capital

Net working capital is computed as current assets less current liabilities. Net working capital is a measure of liquidity, is used to evaluate financial resources, and is calculated as follows:

	As at June 30,
	2023	2022
Total current assets	32,801	21,461
Total current liabilities	(14,717)	(9,820)
Net working capital surplus	18,084	11,641

Working Capital Net of Debt

Working capital net of debt is computed as net working capital surplus decreased by the carrying amount of the Credit Facility. Working capital net of debt is used by management to assess the Company’s overall financial position.

	As at June 30,
	2023	2022
Net working capital surplus	18,084	11,641
Credit Facility, balance outstanding	–	(2,545)
Working capital, net of debt	18,084	9,096

Supplementary Financial Measures

“Average realized natural gas price – $/Mcf” is comprised of natural gas sales as determined in accordance with IFRS, divided by the Company’s natural gas sales volumes.

“Average realized NGL – condensate price – $/bbl” is comprised of condensate sales as determined in accordance with IFRS, divided by the Company’s NGL sales volumes from condensate.

“Average realized oil price – $/bbl” is comprised of oil sales as determined in accordance with IFRS, divided by the Company’s oil sales volumes.

“Average realized price – $/boe” is comprised of natural gas, condensate and oil sales as determined in accordance with IFRS, divided by the Company’s total natural gas, condensate and oil sales volumes (barrels of oil equivalent).

“Dividends per share” is comprised of dividends declared, as determined in accordance with IFRS, divided by the number of shares outstanding at the dividend record date.

“Royalties per boe” is comprised of royalties, as determined in accordance with IFRS, divided by the total natural gas, condensate and oil sales volumes (barrels of oil equivalent).

“Production expenses per boe” is comprised of production expenses, as determined in accordance with IFRS, divided by the total natural gas, condensate and oil sales volumes (barrels of oil equivalent).

BOE Disclosure

The term barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet per barrel (6 Mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in this news release are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.

Forward-Looking Statements and Cautionary Language

This news release contains forward-looking information within the meaning of applicable securities laws. The use of any of the words “will”, “expect”, “intend” and other similar words or expressions are intended to identify forward-looking information. Forward‐looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to vary significantly from the expectations discussed in the forward-looking statements. These forward-looking statements reflect current assumptions and expectations regarding future events. Accordingly, when relying on forward-looking statements to make decisions, Alvopetro cautions readers not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties. More particularly and without limitation, this news release contains forward-looking statements concerning concerning plans relating to the Company’s operational activities, proposed exploration development activities and the timing for such activities, exploration and development prospects of Alvopetro, capital spending levels, future capital and operating costs, future production and sales volumes, production allocations from the Caburé natural gas field, the expected natural gas price, gas sales and gas deliveries under Alvopetro’s long-term gas sales agreement, the expected timing of testing the BL-06 well and production commencement from the BL-06 well, anticipated duration of drilling operations for the 183-A3 well, anticipated timing for upcoming drilling and testing of other wells, projected financial results, the expected timing and outcomes of certain of Alvopetro’s testing activities, and sources and availability of capital. Forward-looking statements are necessarily based upon assumptions and judgments with respect to the future including, but not limited to, expectations and assumptions concerning the timing of regulatory licenses and approvals, equipment availability, the success of future drilling, completion, testing, recompletion and development activities and the timing of such activities, the performance of producing wells and reservoirs, well development and operating performance, expectations regarding Alvopetro’s working interest and the outcome of any redeterminations, environmental regulation, including regulation relating to hydraulic fracturing and stimulation, the ability to monetize hydrocarbons discovered, the outlook for commodity markets and ability to access capital markets, foreign exchange rates, general economic and business conditions, forecasted demand for oil and natural gas, the impact of global pandemics, weather and access to drilling locations, the availability and cost of labour and services, the regulatory and legal environment and other risks associated with oil and gas operations. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors. In addition, the declaration, timing, amount and payment of future dividends remain at the discretion of the Board of Directors. Although we believe that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because we can give no assurance that they will prove to be correct. Since forward looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; 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, reliance on industry partners, availability of equipment and personnel, uncertainty surrounding timing for drilling and completion activities resulting from weather and other factors, changes in applicable regulatory regimes and health, safety and environmental risks), commodity price and foreign exchange rate fluctuations, market uncertainty associated with financial institution instability, and general economic conditions. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be incorrect. Although Alvopetro believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Alvopetro can give no assurance that it will prove to be correct. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on factors that could affect the operations or financial results of Alvopetro are included in our annual information form which may be accessed on Alvopetro’s SEDAR+ profile at www.sedarplus.ca. The forward-looking information contained in this news release is made as of the date hereof and Alvopetro undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

www.alvopetro.comTSX-V: ALV, OTCQX: ALVOF

SOURCE Alvopetro Energy Ltd.

Aug 09, 2023

All references herein to $ refer to United States dollars, unless otherwise stated and all tabular amounts are in thousands of United States dollars, except as otherwise noted.

President & CEO, Corey C. Ruttan commented:

Operational Update

Financial and Operating Highlights – Second Quarter of 2023

Average daily sales decreased to 1,975 boepd (-29% from Q1 2023 and -16% from Q2 2022) due mainly to reduced production from our Caburé natural gas field as a result of higher nominated volumes from our partner.
Our average realized natural gas price increased to $12.86/Mcf, an 8% increase from Q2 2022 with the 3% increase in our contracted natural gas price and enhanced sales tax credits available in 2023. Compared to Q1 2023, our realized sales price increased 7% due mainly to the appreciation of the BRL to the USD in Q2. With the higher natural gas price, our overall realized price per boe increased to $77.41 (+6% from Q1 2023 and +5% from Q2 2022), despite lower Brent pricing on condensate sales.
Our natural gas, condensate and oil revenue was $13.9 million in Q2 2023, a decrease of $1.9 million compared to Q2 2022 (-12%) due to a 16% decrease in production partially offset by the increase in realized sales prices per boe.
Our operating netback improved to $69.61 per boe (+$3.00 per boe from Q1 2023 and +$5.65 per boe from Q2 2022) with a higher realized sales price and lower royalties, partially offset by the impact of fixed operating costs with lower sales volumes.
We generated funds flows from operations of $11.0 million ($0.30 per basic share and $0.29 per diluted share), a decrease of $1.4 million compared to Q2 2022 and $3.9 million compared to Q1 2023.
We reported net income of $9.9 million in Q2 2023, an increase of $3.2 million (+49%) compared to Q2 2022.
Capital expenditures totaled $8.5 million, including drilling cost for our BL-06 well on our Bom Lugar field, stimulation costs for our 197(1) well on our Murucututu field, and long-lead purchases for future capital projects.
Our working capital surplus was $18.1 million as of June 30, 2023, a decrease of $2.8 million from March 31, 2023, and an improvement of $3.4 million from December 31, 2022.

	As at and Three Months Ended June 30,			As at and Six Months Ended June 30,
	2023	2022	Change	2023	2022	Change (%)
Financial
*($000s, except where noted)*
Natural gas, oil and condensate sales	13,914	15,787	(12)	32,074	29,759	8
Net income	9,852	6,631	49	22,054	17,746	24
Per share – basic ($)⁽¹⁾	0.27	0.20	35	0.60	0.52	15
Per share – diluted ($)⁽¹⁾	0.26	0.18	44	0.59	0.49	20
Cash flows from operating activities	13,473	12,997	4	27,329	21,330	28
Per share – basic ($)⁽¹⁾	0.37	0.38	(3)	0.75	0.63	19
Per share – diluted ($)⁽¹⁾	0.36	0.35	3	0.73	0.59	24
Funds flow from operations ⁽²⁾	11,047	12,434	(11)	26,019	23,338	11
Per share – basic ($)⁽¹⁾	0.30	0.37	(19)	0.71	0.69	3
Per share – diluted ($)⁽¹⁾	0.29	0.34	(15)	0.69	0.64	8
Dividends declared	5,109	2,728	87	10,213	5,444	88
Per share⁽¹⁾	0.14	0.08	75	0.28	0.16	75
Capital expenditures	8,521	6,338	34	11,812	10,138	17
Cash and cash equivalents	25,598	13,672	87	25,598	13,672	87
Net working capital surplus⁽²⁾	18,084	11,641	55	18,084	11,641	55
Working capital, net of debt⁽²⁾	18,084	9,096	99	18,084	9,096	99
Weighted average shares outstanding
Basic (000s)⁽¹⁾	36,697	33,973	8	36,627	33,941	8
Diluted (000s)⁽¹⁾	37,755	36,637	3	37,657	36,426	3
Operations
Natural gas, NGLs and crude oil sales:
Natural gas (Mcfpd)	11,269	13,546	(17)	13,520	13,940	(3)
NGLs – condensate (bopd)	92	97	(5)	111	98	13
Oil (bopd)	5	5	–	5	8	(38)
Total (boepd)	1,975	2,359	(16)	2,369	2,429	(2)

Average realized prices⁽²⁾:
Natural gas ($/Mcf)	12.86	11.90	8	12.40	10.94	13
NGLs – condensate ($/bbl)	83.35	121.93	(32)	83.79	114.11	(27)
Oil ($/bbl)	63.93	94.47	(32)	68.00	83.90	(19)
Total ($/boe)	77.41	73.54	5	74.80	67.68	11

Operating netback ($/boe)⁽²⁾
Realized sales price	77.41	73.54	5	74.80	67.68	11
Royalties	(1.97)	(5.35)	(63)	(2.18)	(4.84)	(55)
Production expenses	(5.83)	(4.23)	38	(4.75)	(4.00)	19
Operating netback	69.61	63.96	9	67.87	58.84	15
Operating netback margin⁽²⁾	90 %	87 %	3	91 %	87 %	5

Notes:

(2) See “Non-GAAP and Other Financial Measures” section within this news release.

Q2 2023 Results Webcast

Alvopetro will host a live webcast to discuss our Q2 2023 financial results at 9:00 am Mountain time on Thursday August 10, 2023. Details for joining the event are as follows:

Corporate Presentation

Alvopetro’s updated corporate presentation is available on our website at: http://www.alvopetro.com/corporate-presentation.

Social Media

Follow Alvopetro on our social media channels at the following links:

Twitter – https://twitter.com/AlvopetroEnergy Instagram – https://www.instagram.com/alvopetro/ LinkedIn – https://www.linkedin.com/company/alvopetro-energy-ltd

Abbreviations:

$000s	=	thousands of U.S. dollars
bbls	=	barrels
boepd	=	barrels of oil equivalent (“boe”) per day
bopd	=	barrels of oil and/or natural gas liquids (condensate) per day
BRL	=	Brazilian Real
CAD	=	Canadian dollars
m³	=	cubic metre
Mcf	=	thousand cubic feet
Mcfpd	=	thousand cubic feet per day
MMcf	=	million cubic feet
MMcfpd	=	million cubic feet per day
NGLs	=	natural gas liquids
Q1 2023	=	three months ended March 31, 2023
Q2 2022	=	three months ended June 30, 2022
Q2 2023	=	three months ended June 30, 2023

Non-GAAP and Other Financial Measures

Non-GAAP Financial Measures

Operating netback

Non-GAAP Financial Ratios

Operating netback per boe

Operating netback margin

	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Operating netback – $ per boe	69.61	63.96	67.87	58.84
Average realized price – $ per boe	77.41	73.54	74.80	67.68
Operating netback margin	90 %	87 %	91 %	87 %

Funds Flow from Operations Per Share

	Three Months Ended June 30,		Six Months Ended June 30,
$ per share	2023	2022	2023	2022
Per basic share:
Cash flows from operating activities	0.37	0.38	0.75	0.63
Funds flow from operations	0.30	0.37	0.71	0.69

Per diluted share:
Cash flows from operating activities	0.36	0.35	0.73	0.59
Funds flow from operations	0.29	0.34	0.69	0.64

Capital Management Measures

Funds Flow from Operations

	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Cash flows from operating activities	13,473	12,997	27,329	21,330
(Deduct) add back changes in non-cash working capital	(2,426)	(563)	(1,310)	2,008
Funds flow from operations	11,047	12,434	26,019	23,338

Net Working Capital

Net working capital is computed as current assets less current liabilities. Net working capital is a measure of liquidity, is used to evaluate financial resources, and is calculated as follows:

	As at June 30,
	2023	2022
Total current assets	32,801	21,461
Total current liabilities	(14,717)	(9,820)
Net working capital surplus	18,084	11,641

Working Capital Net of Debt

	As at June 30,
	2023	2022
Net working capital surplus	18,084	11,641
Credit Facility, balance outstanding	–	(2,545)
Working capital, net of debt	18,084	9,096

Supplementary Financial Measures

“Average realized natural gas price – $/Mcf” is comprised of natural gas sales as determined in accordance with IFRS, divided by the Company’s natural gas sales volumes.

“Average realized NGL – condensate price – $/bbl” is comprised of condensate sales as determined in accordance with IFRS, divided by the Company’s NGL sales volumes from condensate.

“Average realized oil price – $/bbl” is comprised of oil sales as determined in accordance with IFRS, divided by the Company’s oil sales volumes.

“Dividends per share” is comprised of dividends declared, as determined in accordance with IFRS, divided by the number of shares outstanding at the dividend record date.

“Royalties per boe” is comprised of royalties, as determined in accordance with IFRS, divided by the total natural gas, condensate and oil sales volumes (barrels of oil equivalent).

BOE Disclosure

Forward-Looking Statements and Cautionary Language

www.alvopetro.comTSX-V: ALV, OTCQX: ALVOF

SOURCE Alvopetro Energy Ltd.

Energy Fuels (UUUU) – Progress one quarter at a time

Posted on August 8, 2023August 8, 2023 by [email protected]

Tuesday, August 08, 2023

Energy Fuels is a leading U.S.-based uranium mining company, supplying U3O8 to major nuclear utilities. Energy Fuels also produces vanadium from certain of its projects, as market conditions warrant, and is ramping up commercial-scale production of REE carbonate. Its corporate offices are in Lakewood, Colorado, near Denver, and all its assets and employees are in the United States. Energy Fuels holds three of America’s key uranium production centers: the White Mesa Mill in Utah, the Nichols Ranch in-situ recovery (“ISR”) Project in Wyoming, and the Alta Mesa ISR Project in Texas. The White Mesa Mill is the only conventional uranium mill operating in the U.S. today, has a licensed capacity of over 8 million pounds of U3O8 per year, has the ability to produce vanadium when market conditions warrant, as well as REE carbonate from various uranium-bearing ores. The Nichols Ranch ISR Project is on standby and has a licensed capacity of 2 million pounds of U3O8 per year. The Alta Mesa ISR Project is also on standby and has a licensed capacity of 1.5 million pounds of U3O8 per year. In addition to the above production facilities, Energy Fuels also has one of the largest NI 43-101 compliant uranium resource portfolios in the U.S. and several uranium and uranium/vanadium mining projects on standby and in various stages of permitting and development. The primary trading market for Energy Fuels’ common shares is the NYSE American under the trading symbol “UUUU,” and the Company’s common shares are also listed on the Toronto Stock Exchange under the trading symbol “EFR.” Energy Fuels’ website is www.energyfuels.com.

Michael Heim, Senior Vice President, Equity Research Analyst, Energy & Transportation, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Energy Fuels reported 2023-2Q results in line with expectations as rare earth element carbonite sales expand. Uranium sales to a major nuclear utility kicked in and rare earth carbonate sales accelerated. Of note, uranium sales were done at an operating cost of $26.40/lb. below the price in our models. Also notable was an increase in REE sales after several quarters of sales being limited by monzanite supply issues.

With sales still in the early stages, operating line items were fairly predictable. Of course, the Energy Fuel story has never been about near-term results. Instead, the stock moves on corporate developments. And, while there have been some setbacks (REE supply issues, share dilution, foreign uranium supply competition), the company has made steady progress in recent quarters towards its goals.

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*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.

Different Impacts of Gasoline Price Volatility on Industries

Posted on August 7, 2023August 7, 2023 by [email protected]

Industries are Impacted in Multiple Ways by Rising Gas Prices

High gas prices have again become a consideration when planning a roadtrip. The rollercoaster ride of very highs, then lows, and back again to highs, since the beginning of the decade has been numbing. The uncertainty of changing costs from one season to another has made it difficult for both businesses to plan, and for any individual driver, it all impacts decisions well beyond your weekend getaway.

Over the years, the price at the pump was driven up from factors such as geopolitical tensions, storms including hurricanes, a flood in Mississippi, and normal heightened demand during the summer driving season. On an individual level, increased gasoline costs translate to less disposable income for other necessities and luxuries. But, from an investor standpoint, the ramifications of soaring gas prices reach far beyond the service station, it deeply affect the broader economy and industry segments.

Conversely, plummeting gas prices mean lighter expenditures for households and businesses alike, relieving financial strains on transport-centric sectors such as airlines and trucking. However, these price drops also cast a shadow on some industries, especially the oil sector.

Below we highlight the direct and indirect adverse repercussions of high gas prices.

The Economic Ripples of Gas Prices

Employment

Job growth serves as a pivotal indicator of an economy’s recovery, and economists warn that surging gas prices could undermine hiring practices. Gas prices might prompt businesses to rethink their hiring plans, leading to a temporary hold as uncertainty about the economy’s well-being unfolds. Decreased discretionary spending and sales can influence a company’s hiring capacity.

Retailers

An indirect effect of soaring gas prices is a reduction in consumer discretionary spending due to a larger share of income being budgeted toward gasoline. Higher prices also induce consumers to drive less, even to places like malls and shopping centers. This is substantiated by both academic and industry studies, showing a direct correlation between driving miles and gas prices.

While shoppers might cut back on driving, they tend to increase online shopping when gas prices climb. Searches for online shopping surge in tandem with escalating gas prices.

Nonetheless, all retailers face added pressure to pass on the increased expenses they incur, particularly in shipping costs to consumers. Anything requiring transportation, from lumber to electronics, could incur higher costs due to surging gas prices. This holds true for products manufactured overseas or components sourced internationally. Moreover, products containing petroleum-derived materials or plastics also experience price hikes.

Auto Industry

Historically, the automobile industry responds to surging gas prices by producing smaller, more fuel-efficient vehicles, such as hybrids and all-electric cars capable of traveling long distances on a single charge. Consumers have shown robust support for this shift, evident from the upward trajectory of hybrid and all-electric vehicle sales in the United States since 2010, while sales of gas-guzzling trucks and SUVs lag.

Airlines

Fuel expenses are the single largest operational costs for airlines, constituting a substantial proportion of their overhead. Hence, fluctuations in oil prices significantly impact their bottom line. With rising gas prices, airlines are compelled to hike ticket prices, potentially discouraging non-essential air travel and burdening consumers financially.

To hedge against volatile oil costs, airlines often engage in fuel hedging, buying or selling expected future oil prices through various investment products. This strategy safeguards airlines from surging prices and sometimes even capitalizes on them.

New Jobs and Freelancers

Prospective job candidates must factor in commuting costs when evaluating potential positions. Some workers have had to decline job offers due to the exorbitant costs of commuting, consuming a significant chunk of their salary. Freelancers, most directly Uber and Lyft drivers, also feel the impact of higher gas prices, limiting their geographical scope of business as commuting expenses render some gigs unprofitable.

Take Away

Rising gas prices usually parallel a growing pessimism about the economy. While economists and analysts may debate the precise degree to which gas prices affect the economy, there undeniably exists a connection between consumer confidence, spending behaviors, and gas prices. This mood and actual level of sales have an impact on stock market activity, depending on how long fuel prices are expected to stay high (or low).

Paul Hoffman

Managing Editor, Channelchek

Will Uranium Prices Continue Rising?

Posted on July 31, 2023July 31, 2023 by [email protected]

The Back Story on Why Uranium Investors Saw a Spike Up in Values

Nuclear energy now provides 10% of the world’s electricity. If a major supplier of uranium becomes unavailable, it could be very disruptive. For countries such as France that derives 68% of their electricity from nuclear power plants, it can become more than disruptive. This is why the coup in Niger, which provides 15% of of the uranium used in French power plants is generating so much concern.

Background

Over the past few days, a successful military coup in Niger has sparked concerns in the EU and especially in France regarding the potential ramifications on uranium imports crucial for powering the country’s nuclear plants. As a major supplier, Niger currently fulfills 15% of France’s uranium needs and holds a significant 20% share of the EU’s total uranium imports. French authorities, along with energy officials have been quick to address public concerns. While the short-term implications are minimal, long-term uranium requirements could become a challenge for France and other countries within the EU. The block of nations has already been engaged with efforts to reduce dependency on Russia, another prominent uranium supplier for European nuclear facilities.

France, is unusually reliant on nuclear power. Orano, the French state-controlled nuclear fuel producer, has maintained its operations in Niger despite the coup, with the company asserting its primary focus is on ensuring the safety of its employees in the region.

Existing uranium stocks are expected to sustain France’s uranium requirements for approximately two years. Therefore, the French government is confident that the current tensions in Niger will not immediately impact their uranium needs.

Long-Term Concerns for Europe’s Uranium Needs

While immediate disruptions seem improbable, Europe could face challenges in its uranium supply chain in the long run, particularly as the continent strives to diminish its reliance on Russian uranium. Niger, as the top uranium supplier to the EU in 2021, alongside Kazakhstan and Russia, play a critical role in sustaining Europe’s nuclear power sector.

Uranium Investment Reactions

While it may seem cold to think of one’s investment portfolio when trouble befalls others, it is the flow of money in the capital markets that often helps allow for corrective actions that lessen the problem. The plot lines on the chart above represent Cameco (CCJ) a Canadian company that is one of the largest providers of uranium fuel. Energy Fuels (UUUU) which is the leading U.S. producer of uranium, Sprott Uranium Miners (URNM) invests in an index designed to track the performance of companies that devote at least 50% of their assets to the uranium mining industry. The fourth plotline is the S&P 500.

The gap up after the news is unmistakable and suggests investors immediately expect reduced supply from the coup to cause current production to become more valuable as it meets unchanged demand.

Take Away

The military coup in Niger has raised concerns that the supply of uranium to France and the EU may be disrupted. Officials have assured that short-term there is little need for concern, however there are still uncertainties in Europe’s as it was already reducing dependency on Russian uranium production. The evolving situation in Niger may influence the EU’s stance on sanctions against Russian uranium, and its long-term effects on the nuclear energy sector are still uncertain.

Investors may wish to look closer at energy stocks, including uranium producers as they determine whether or not the blip in stock price is the beginning of a trend or a reaction that may, in part, or fully unwind.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://world-nuclear.org/information-library/current-and-future-generation/nuclear-power-in-the-world-today.aspx#:~:text=Nuclear%20energy%20now%20provides%20about,of%20the%20total%20in%202020).

https://www.eia.gov/todayinenergy/detail.php?id=55259#:~:text=France%20has%20one%20of%20the,generation%20share%20in%20the%20world.

https://www.politico.eu/article/niger-coup-spark-concerns-france-uranium-dependency/

https://www.reuters.com/world/africa/pro-coup-protests-niger-west-african-leaders-meet-2023-07-30/

Release – Largo Publishes 2022 Sustainability Report

Posted on July 27, 2023July 27, 2023 by [email protected]

Research News and Market Data on LGO

TORONTO–(BUSINESS WIRE)– Largo Inc. (“Largo” or the “Company”) (TSX: LGO) (NASDAQ: LGO) is pleased to announce it has published its Sustainability Report for the year ended December 31, 2022, outlining its activities across its mining operation in Brazil and clean energy business in the United States.

Largo Publishes 2022 Sustainability Report (Photo: Business Wire)

J. Alberto Arias, Chairman of Largo commented: “We are immensely proud of Largo’s accomplishments in 2022, which are guided by sustainable development best practices. In Brazil, this progress has specifically benefited local communities near our operational site and our clean energy business is expected to bring global positive impacts to the economy, people and the environment as it continues development.”

He continued: “We issued our first climate change report in 2022, aligned with the Taskforce on Climate-related Financial Disclosures (TCFD). We have also enshrined our respect for human rights and diversity in a new People and Human Rights Policy and Board and Executive Diversity Policy, and will continue to formalize our commitments on critical sustainable topics such as biodiversity and procurement as we continue our ongoing sustainability efforts.”

He concluded: “As we move forward in the year ahead, focus on transparency and accountability to the highest standards of safety and sustainability remain paramount. We look forward to continuing the development of our sustainability programs, creating local, regional and global sustainable development.”

Largo’s 2022 Sustainability Report has been compiled in accordance with the Global Reporting Initiative (“GRI”) Standards, as well as Sustainability Accounting Standards Board (“SASB”) Metals & Mining Industry Standard requirements.

Download Largo’s 2022 Sustainability Report:
www.largoinc.com/sustainability/overview

Download Largo’s 2022 Taskforce on Climate-related Financial Disclosures Report:
www.largoinc.com/sustainability/reports-data

About Largo

Largo has a long and successful history as one of the world’s preferred vanadium companies through the supply of its VPURE^TM and VPURE+^TM products, which are sourced from one of the world’s highest-grade vanadium deposits at the Company’s Maracás Menchen Mine in Brazil. Aiming to enhance value creation at Largo, the Company is in the process of implementing an ilmenite concentrate plant using feedstock sourced from its existing operations in addition to advancing its U.S.-based clean energy division with its VCHARGE vanadium batteries. Largo’s VCHARGE vanadium batteries contain a variety of innovations, enabling an efficient, safe and ESG-aligned long duration solution that is fully recyclable at the end of its 25+ year lifespan. Producing some of the world’s highest quality vanadium, Largo’s strategic business plan is based on two pillars: 1.) leading vanadium supplier with an outlined growth plan and 2.) U.S.-based energy storage business to support a low carbon future.

Largo’s common shares trade on the Nasdaq Stock Market and on the Toronto Stock Exchange under the symbol “LGO”. For more information on the Company, please visit www.largoinc.com.

Cautionary Statement on Forward-looking Information:

This press release contains forward-looking information under applicable securities legislation (“forward-looking information”). Forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information.

Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on www.sedar.com and www.sec.gov from time to time. Forward-looking information are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on Forward-looking information. Largo does not undertake to update any forward-looking information, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

Trademarks are owned by Largo Inc.

For further information, please contact:

Investor Relations
Alex Guthrie
Senior Manager, External Relations
+1.416.861.9778
[email protected]

Source: Largo Inc.

Multimedia Files:

Release – Largo to Release Second Quarter 2023 Financial Results on August 9, 2023

Posted on July 25, 2023July 25, 2023 by [email protected]

Research News and Market Data on LGO

TORONTO–(BUSINESS WIRE)– Largo Inc. (“Largo” or the “Company”) (TSX: LGO) (NASDAQ: LGO) will release its second quarter 2023 financial results on Wednesday, August 9, 2023 after the close of market trading. Additionally, the Company will host a webcast and conference call to discuss its second quarter 2023 results and other updates on Thursday, August 10 at 1:00 p.m. ET.

To join the conference call without operator assistance, you may register and enter your phone number at https://emportal.ink/3rk2Eqz to receive an instant automated call back.

You may also dial direct to be entered to the call by an operator using the dial-in details provided below.

Conference Call Details
Date:		Thursday, August 10, 2023
Time:		1:00 p.m. ET
Dial-in Number:		Local: +1 (416) 764-8650
Dial-in Number:		North American Toll Free: +1 (888) 664-6383
Conference ID:		72903885
Webcast Registration Link:		https://app.webinar.net/YkB4eW6Ey1v
RapidConnect Link		https://emportal.ink/3rk2Eqz
Replay Number:		Local / International: + 1 (416) 764-8677
		North American Toll Free: +1 (888) 390-0541
		Replay Passcode: 903885#
Website:		To view press releases or any additional financial information, please visit the Investor Resources section of the Company’s website at: https://www.largoinc.com/investors/Overview

About Largo

Largo has a long and successful history as one of the world’s preferred vanadium companies through the supply of its VPURE^TM and VPURE+^TM products, which are sourced from one of the world’s highest-grade vanadium deposits at the Company’s Maracás Menchen Mine in Brazil. Aiming to enhance value creation at Largo, the Company is in the process of implementing an ilmenite concentration plant using feedstock sourced from its existing operations in addition to advancing its U.S.-based clean energy division with its VCHARGE vanadium batteries. Largo’s VCHARGE vanadium batteries contain a variety of innovations, enabling an efficient, safe and ESG-aligned long duration solution that is fully recyclable at the end of its 25+ year lifespan. Producing some of the world’s highest quality vanadium, Largo’s strategic business plan is based on two pillars: 1.) leading vanadium supplier with an outlined growth plan and 2.) U.S.-based energy storage business to support a low carbon future.

Largo’s common shares trade on the Nasdaq Stock Market and on the Toronto Stock Exchange under the symbol “LGO”. For more information on the Company, please visit www.largoinc.com.

For further information:

Investor Relations
Alex Guthrie
Senior Manager, External Relations
+1.416.861.9778
[email protected]

Source: Largo Inc.

The Reasons for Warren Buffett’s Increased Oil and Gas Appetite

Posted on July 25, 2023July 25, 2023 by [email protected]

Berkshire Hathaway Finds ESG Concerns Are a Plus for Oil and Gas Investments

Warren Buffett’s Berkshire Hathaway is capitalizing on the current commodity price dip to expand its oil and gas sector stake. This year, Berkshire committed $3.3 billion to increase its ownership in a liquefied natural gas export terminal in Maryland. Additionally, it raised its stake in Occidental Petroleum Corp. by 15% and acquired more shares in five Japanese commodity traders. The company is also lobbying for increased financial support for natural gas power plants.

Warren Buffett, the Oracle of Omaha, demonstrated how he earned the “oracle” title during the most uncertain days of the pandemic, by investing heavily in oil and gas. The sector has had impressive returns as it posted record earnings in 2022. The 92-year-old Buffett is not booking the massive gains by selling; instead Buffett is selectively adding to positions.

Are Buffett’s investment moves classic bargain-hunting, with the energy sector possibly undervalued tied to environmental, social, and governance concerns, as well as an anticipation of declining demand for fossil fuels in the future? Based on standard metrics, the energy sector is undervalued. According to data from Bloomberg, energy now trades at the lowest price-to-earnings valuation among all sectors in the S&P 500 Index, at the same time it generates the most cash flow per share. And, as a help to the industry, Berkshire’s energy division is actively lobbying for a bill that would allocate at least $10 billion to natural gas-fired power plants in Texas to support the state’s grid.

His approach in the sector is obviously deliberate and narrowly targeted. Despite Buffett’s interest in energy, his fossil fuel investments aren’t without nuances. For example, Berkshire remains the third-largest shareholder in Chevron Corp., even after it reduced its stake by about 21% in the first quarter. Each investment in companies like Occidental and Cove Point LNG has unique aspects that position them as valuable assets in the global energy landscape, regardless of the path that any U.S. or global energy transition takes.

Buffett believes that shale, a substantial part of U.S. oil production, is different and even preferred over conventional sources of oil in the Middle East and Russia. One difference is taking shale from the ground and into production can be done more quickly and have a shorter production lifespan. This provides flexibility for operators to adapt to changes in oil demand and prices. At Berkshire’s annual meeting in May, Buffett emphasized making rational decisions about energy production and criticized both extremes in the climate debate.

One of Buffett’s nuanced and targeted energy investments is Cove Point LNG. It not only exports liquefied gas but also has the rare capability to import gas, making it more versatile than other facilities along the Gulf Coast. With rising global LNG demand driven by Europe’s shift away from Russian gas and Asia’s use of gas for power generation, Cove Point’s long-term contracts with buyers, including Tokyo Gas Co. and Sumitomo Corp., make it appealing. Berkshire is Sumitomo’s second-largest shareholder after the Japanese government’s pension fund.

Outside of its stock holdings, Berkshire Hathaway Energy, under the leadership of Buffett’s expected successor Greg Abel, has been performing well. Earnings for the division hit a record high of $3.9 billion in 2022, nearly doubling over five years.

Take Away

The world’s appetite for energy, whether from fossil fuels or renewables, seems insatiable; even amid a global penchant to reduce fossil fuel use, oil demand is expected to continue rising throughout the decade. While environmental concerns have caused some investors to shy away from the energy sector, Buffett’s investments demonstrate his belief that ESG considerations are keeping oil and gas stocks attractively priced. Market participants prioritizing ESG, therefore, presents an opportunity for Berkshire to profit further from its strategic investments in the oil and gas sector.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.barrons.com/livecoverage/berkshire-hathaway-warren-buffett-annual-shareholder-meeting

https://www.bloomberg.com/news/articles/2023-07-25/buffett-lifts-fossil-fuel-bets-as-global-esg-push-mints-bargains

Release – Largo Reports Improvements to Production in Q2 2023 and Begins Commissioning of its Ilmenite Concentration Plant; Francesco D’Alessio Appointed as President of Largo Clean Energy

Posted on July 20, 2023July 20, 2023 by [email protected]

Research News and Market Data on LGO

July 19, 2023

Q2 2023 and Other Highlights

V₂O₅ production of 2,639 tonnes (5.8 million lbs¹) in Q2 2023 vs. 3,084 tonnes produced in Q2 2022 and 25% above production in Q1 2023
V₂O₅ production of 676 tonnes in April, 945 tonnes in May and 1,018 tonnes in June
The Company achieved normalized production levels in June after completing the following actions in Q2 2023: the completion of its infill drilling campaign for 2023 resulting in a further refinement of the Company’s short-term mining model, the completion of upgrades to its crushing process as well as an improvement in its mining performance over levels seen in Q1 2023
The Company completed all planned upgrades to its crushing process in Q2 2023, including the installation of a new dry magnetic separator and updates to its crushing circuit, which is expected to reduce operational maintenance costs and provide more flexibility in the blending of different ores to stabilize V₂O₅ production going forward
Global V₂O₅ recovery rate³ of 81.0% in Q2 2023 vs. 81.8% in Q2 2022
The Company completed construction of its ilmenite concentration plant in June and subsequently began commissioning of the facility shortly thereafter; The Company expects to complete the commissioning phase in Q3 2023 and start a gradual ramp-up of ilmenite production in Q4 2023
V₂O₅ equivalent sales of 2,557 tonnes in Q2 2023 vs. 3,291 tonnes sold in Q2 2022 due to lower available inventory
During Q2 2023, the average benchmark price per lb of V₂O₅ in Europe was $8.46, a 24% decrease from the average of $11.08 seen in Q2 2022 following softer spot market demand during the quarter, primarily due to adverse conditions in the Chinese and European steel sectors
Francesco D’Alessio was appointed as President of Largo Clean Energy (“LCE”)
Cold commissioning of LCE’s Enel Green Power España (“EGPE”) vanadium redox flow battery (“VRFB”) was completed in Q2 2023; Hot commissioning and provisional acceptance by EGPE is expected in Q3 2023
2023 production, sales, cost and capital expenditures guidance remain unchanged

TORONTO–(BUSINESS WIRE)– Largo Inc. (“Largo” or the “Company“) (TSX: LGO) (NASDAQ: LGO) today announces quarterly production of 2,639 tonnes (5.8 million lbs¹) and sales of 2,557 tonnes of vanadium pentoxide (“V₂O₅”) equivalent, respectively, in Q2 2023.

Daniel Tellechea, Interim CEO and Director of Largo, stated: “We are pleased to report that key operational actions taken in Q2 2023 have resulted in improved production rates exiting the quarter, particularly in June with over 1,000 tonnes of V₂O₅ produced. He continued: “In Q2 2023, construction of the Company’s ilmenite concentration plant was completed, followed by the start of commissioning, marking a significant milestone for the Company. As we look forward to completing commissioning and ramp-up processes in the following quarters, we anticipate having sufficient stocks of produced ilmenite concentrate for sale by the start of 2024.”

Francesco D‘Alessio, President of LCE commented: “With this new role, I am fully committed to leading LCE with the immediate objective of evaluating all strategic options for this business in order to fully maximize its unique value proposition in the energy storage sector. This includes but is not limited to the potential strengthening and formalization of existing industry relationships, developing additional collaborative partnerships, evaluating alternative deployment strategies, and performing a comprehensive review of cost reduction measures. Going forward, I anticipate providing updates as this process continues to evolve.”

Maracás Menchen Mine Operational and Sales Results

	Q2 2023	Q1 2023	Q2 2022

Total Ore Mined (tonnes)	489,892	341,967	378,273
Ore Grade Mined – Effective Grade (%) ²	0.86	0.81	1.18
Total Mined – Dry Basis (tonnes)	3,671,842	3,523,656	2,503,696

Concentrate Produced (tonnes)	99,083	78,695	124,317
Grade of Concentrate (%)	3.34	2.99	3.28
Global Recovery (%) ³	81.0	83.0	81.8

V₂O₅ produced (Flake + Powder) (tonnes)	2,639	2,111	3,084
*High purity V₂O₅ equivalent produced (%)*	35.8	47.8	18.7
V₂O₅ *produced (equivalent pounds)* ¹	5,817,992	4,653,953	6,799,048
Total V₂O₅ equivalent sold (tonnes)	2,557	2,849	3,291
*Produced V₂O₅ equivalent sold (tonnes)*	2,268	2,604	2,783
*Purchased V₂O₅ equivalent sold (tonnes)*	289	245	508

Q2 2023 Additional Highlights

Normalized Production Levels in June: V₂O₅ production from the Maracás Menchen Mine was 676 tonnes in April, 945 tonnes in May and 1,018 tonnes in June for a total of 2,639 tonnes produced in Q2 2023. In addition to certain mining performance and crushing process improvements made during the quarter, the Company also completed its 2023 infill drilling campaign in Q2 2023, resulting in a further refinement of the Company’s short-term mining model. In Q2 2023, global recoveries³ averaged 81.0%, largely in line with 81.8% averaged in Q2 2022. The Company mined 489,892 tonnes of ore with an effective V₂O₅ grade² of 0.86% in Q2 2023 compared to 378,273 tonnes with an effective V₂O₅ grade² of 1.18% in Q2 2022 and 341,967 tonnes with an effective V₂O₅ grade² of 0.81% in Q1 2023, demonstrating a significant improvement in total ore mined over the prior quarter and prior comparative quarter. The increase in total ore mined as well as increased crushed and milled ore is a direct result of the Company’s strategy to successfully recover delays caused by the previously announced mine contractor transition in September 2022 and heavy rains experienced in December 2022.
Mine Site Cost Reduction Measures: The Company continues to focus on identifying and implementing various cost reduction measures at its Maracás Menchen Mine during the current period of sustained inflationary pressures. In addition to upgrading its crushing process to reduce operational maintenance costs, the Company has identified several other areas for cost reduction and is in the process of implementing the following initiatives: a reduction in sodium carbonate and other raw materials expenditures, a reduction of mining costs, with a primary focus on reducing rehandling activities and implementing an optimization of haulage distance and a reduction of equipment rental expenditures. The Company expects to begin realizing the benefits of these cost reduction measures in Q3 2023.
2023 and 2024 Infill Drilling Campaigns: The Company has completed its 2023 infill drilling campaign and has completed approximately 90% of its 2024 infill drilling campaign. Data generated from infill drilling is expected to create greater accuracy and reliability of the short-and mid-term mining plan for the Maracás Menchen Mine. Going forward, the Company plans to conduct infill drilling on a bi-annual basis to create greater certainty and efficiency in its planning process. Largo expects that a consistent infill drilling campaign should assist the Company in improving the reliability and accuracy of its production guidance on a go forward basis.
Q2 2023 Sales In Line with Quarterly Target – Focus on High Purity Vanadium Demand: In Q2 2023, V₂O₅ equivalent sales of 2,557 tonnes (which includes 289 tonnes of purchase material sold) were in line with expectations for the quarter but represented a 22% decrease in tonnes sold over Q2 2022. In Q2 2023, the Company continued to experience strong aerospace demand for its products and focused on selling its high purity vanadium units to this market. The Company produced approximately 36% of its quarterly production as high purity in Q2 2023.
Cold Commissioning of Enel Green Power España VRFB Completed: During Q2 2023, LCE finalized the pumping of electrolyte for EGPE’s VCHARGE VRFB deployment and completed cold commissioning of the system in June. The battery system was also successfully interconnected with the grid and the system inverter was successfully utilized to form the chemistry in Q2 2023. The battery is currently performing charge-discharge cycles as part of the ongoing hot commissioning phase, which is anticipated to be completed in Q3 2023, along with provisional acceptance of the system by EGPE.
Appointment of Francesco D’Alessio as President of LCE: Mr. D’Alessio has over 15 years of experience in metals sales and trading, including overseeing sales and shipment of vanadium, as well as more recent experience in clean energy storage sales. Over the last three years, he has been actively involved in the overall sales strategy at Largo, contributing to the Company’s ongoing initiatives in the energy storage sector. Mr. D’Alessio began his tenure at Largo in 2019 as Head of Sales, Americas, and was subsequently promoted to the position of Commercial Director in 2022.

About Largo

Largo has a long and successful history as one of the world’s preferred vanadium companies through the supply of its VPURE^TM and VPURE+^TM products, which are sourced from one of the world’s highest-grade vanadium deposits at the Company’s Maracás Menchen Mine in Brazil. Aiming to enhance value creation at Largo, the Company is in the process of implementing a ilmenite concentrate plant using feedstock sourced from its existing operations in addition to advancing its U.S.-based clean energy division with its VCHARGE vanadium batteries. Largo’s VCHARGE vanadium batteries contain a variety of innovations, enabling an efficient, safe and ESG-aligned long duration solution that is fully recyclable at the end of its 25+ year lifespan. Producing some of the world’s highest quality vanadium, Largo’s strategic business plan is based on two pillars: 1.) leading vanadium supplier with an outlined growth plan and 2.) U.S.-based energy storage business to support a low carbon future.

Largo’s common shares trade on the Nasdaq Stock Market and on the Toronto Stock Exchange under the symbol “LGO”. For more information on the Company, please visit www.largoinc.com.

Cautionary Statement Regarding Forward-looking Information:

This press release contains “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian and United States securities legislation. Forward‐looking information in this press release includes, but is not limited to, statements with respect to the timing and amount of estimated future production and sales; the future price of commodities, ; costs of future activities and operations, including, without limitation, the effect of inflation and exchange rates; the timing and success of the commissioning and ramp up of the ilmenite plant,; the ability to sell ilmenite on a profitable basis, the successful vertical integration of the Company; the effect of unforeseen equipment maintenance or repairs on production; the ability to sufficiently reduce the cost of production through cost reduction measures;; the extent to which infill drilling data will create greater accuracy and reliability in the short-term mining plan and production guidance, the extent of capital and operating expenditures; the impact of globalprice increases on the Company’s global supply chain and future sales of vanadium products. Forward‐looking information in this press release also includes, but is not limited to, statements with respect to our ability to build, finance and operate a VRFB business, our ability to protect and develop our technology, our ability to maintain our IP, the competitiveness of our product in an evolving market, our ability to market, sell and deliver our VCHARGE batteries on specification and at a competitive price, our ability to secure the required production resources to build and deploy our VCHARGE batteries, our ability to attract partners, collaborators and/or investors to build the VRFB business on terms attractive to the Company, and the adoption of VRFB technology generally in the market. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Largo or Largo Clean Energy to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on www.sedar.com and available on www.sec.gov from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

Trademarks are owned by Largo Inc.

¹ Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

² Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.

³ Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

For further information:
Investor Relations
Alex Guthrie
Senior Manager, External Relations
+1.416.861.9778
[email protected]

Source: Largo Inc.

Largo Inc. (LGO) – Finally some good news from Largo

Posted on July 20, 2023July 20, 2023 by [email protected]

Thursday, July 20, 2023

Largo has a long and successful history as one of the world’s preferred vanadium companies through the supply of its VPURE™ and VPURE+™ products, which are sourced from one of the world’s highest-grade vanadium deposits at the Company’s Maracás Menchen Mine in Brazil. Aiming to enhance value creation at Largo, the Company is in the process of implementing a titanium dioxide pigment plant using feedstock sourced from its existing operations in addition to advancing its U.S.-based clean energy division with its VCHARGE vanadium batteries. Largo’s VCHARGE vanadium batteries contain a variety of innovations, enabling an efficient, safe and ESG-aligned long duration solution that is fully recyclable at the end of its 25+ year lifespan. Producing some of the world’s highest quality vanadium, Largo’s strategic business plan is based on two pillars: 1.) leading vanadium supplier with an outlined growth plan and 2.) U.S.-based energy storage business support a low carbon future.

Michael Heim, Senior Vice President, Equity Research Analyst, Energy & Transportation, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Largo reported 2023-2Q V2O5 production of 2,639 tonnes, ahead of guidance. At the end of 2023-1Q, management gave production guidance for the second quarter of 2,200-2,400 tonnes. Improved production comes after low production in the December quarter due to wet conditions and in the first quarter due to blending issues requiring infill drilling. Improved production comes after completing drilling and upgrading the crushing process and gives credence to claims that decreased production was due to temporary events.

Not only is production up, sales are up. Largo reports equivalent V2O5 sales of 2,557 tonnes in 2023-2Q ahead of guidance of 1,900-2,300 tonnes. Sales are well above the amount assumed in our models which was the 2,100 tonne midpoint of guidance. Unfortunately, the average benchmark price per lb. of V2O5 in Europe was $8.46, below the price received last year and the $10.00 price assumed in our models. Annual production and sales remain unchanged at 9,000-10,000 tonnes and 8.700-10,700 tonnes, respectively. We now have increased confidence the Largo will meet its annual projections.

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This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

Thursday, July 20, 2023

Michael Heim, Senior Vice President, Equity Research Analyst, Energy & Transportation, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

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This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

Industry Groups that Could Prosper in a Recession

Posted on July 10, 2023July 17, 2023 by [email protected]

Why Diversify Your Portfolio Into Smaller Government Contractors

Will there be a recession, or will the Fed orchestrate a rare soft landing? Coming off a down year last year, with the stock market now up mid-year by 7%, which is the average expected return for a full year of the broader indexes, many investors find themselves straddling a fence. On one side of the fence is the fear of missing out (FOMO), and on the other is a money market rate that is higher than it has been in decades. In a weakening economy, investors don’t have to exit the stock market completely to find stocks that are not expected to be negatively impacted. Until there is more clarity, perhaps it is worth taking a portion of your holdings on a side trip, to look at government contractors.

When company earnings are dependent on the consumer, its stock price may be tied to the pace of the economy – it’s likely to at least be correlated to activity within its industry. While many investment options are available, one often overlooked but potentially rewarding segment is companies that generate revenue through government contracts, not consumer sales or business-to-business. Let’s explore the benefits of investing in such companies, particularly smaller ones where a new contract is most impactful to the bottom line. These company’s still have above average growth potential but can be quite resilient during economic downturns.

Stable Revenue Streams

Companies that secure government contracts often enjoy stable and predictable revenue streams, they also are billing an entity that can tax and is not reliant on stable earnings itself. Government contracts typically involve long-term agreements that provide a consistent flow of income for the duration of the contract. This stability can be particularly beneficial for investors seeking reliable returns on their investments. Aerospace companies, for instance, often receive substantial contracts for the production and maintenance of military aircraft, providing a steady stream of income.

Reduced Vulnerability to Recessions

One of the key advantages of investing in companies with government contracts is their potential indifference to economic downturns. During recessions or periods of economic uncertainty, government spending has even been known to increase as a means to stimulate a weak economy. This increased spending often benefits companies with government contracts, as governments prioritize projects related to defense, infrastructure development, and public services. This makes aerospace and dredging companies, which are heavily involved in such projects, relatively impervious to recessions.

Long-Term Growth Opportunities

Government contracts often involve large-scale projects that span several years or even decades. This long-term nature provides companies with ample opportunities for growth and expansion. For example, aerospace companies may secure contracts to develop advanced military aircraft, including drones, or provide satellite-based communication systems. Similarly, dredging companies might be contracted for extensive port development projects. These opportunities allow companies to invest in research, development, and innovation, positioning them for sustained growth and profitability.

Competitive Advantage of Being Established

Government contracts typically involve rigorous bidding processes and stringent eligibility criteria. Companies that successfully secure these contracts gain a competitive advantage over their peers. Once established, they often become preferred suppliers for subsequent projects, further solidifying their market position. This advantage can translate into increased market share, higher profitability, and enhanced investor confidence, making these companies attractive for long-term investments.

Great Lakes Dredge & Dock Corporation (GLDD) would seem to fit the above criteria. It is the largest provider of dredging services in the United States, and is engaged in expanding its core business into the rapidly developing offshore wind energy industry. Great Lakes also has a history of securing significant international projects. GLDD has a 132-year history, has a market-cap of $542 million, and is up 37% year-to-date.

The most recent research note from Noble Capital Markets on GLDD is available here.

Kratos Defense & Security Solutions, Inc. (KTOS), a military contractor that has admirable specialties compared to the large names that typically come to mind. Kratos is changing the way transformative breakthrough technology for the industry is rapidly brought to market through proven approaches, including proactive research and streamlined development processes. KTOS treats affordability as a technology that needs to be considered. It specializes in unmanned systems, satellite communications, cyber security/warfare, microwave electronics, missile defense, hypersonic systems, training, combat systems and next generation turbo jet and turbo fan engine development. KTOS has a $1.72 billion market-cap and is up 31% year-to-date.

The most recent research note from Noble Capital Markets on KTOS is available here.

Year-to Date Perfromance

Technological Advancements and Spin-Off Opportunities

Working on government contracts often requires companies to push the boundaries of technology and innovation. Aerospace companies, for example, are at the forefront of developing advanced defense systems, satellite technologies, and commercial aircraft. Similarly, dredging companies and those involved in wind energy may invest in state-of-the-art equipment and techniques to execute complex infrastructure projects. These advancements can lead to spin-off opportunities in commercial markets, expanding the company’s revenue streams beyond government contracts.

Take Away

Investing in companies that recieve revenue primarily through government contracts, particularly those that are small cap companies, may provide a recession-fearful investor with some comfort that the stock(s) they are investing in are less likely to suffer from consumers tightening their wallets, yet they have potential to grow.

As with all investing and forecasting the future, if it was easy, everyone would already be doing it. But, the two examples listed above may be a good start to help inspire discovering stocks that are situated differently than traditional consumer or business-to-business companies.

Paul Hoffman

Managing Editor, Channelchek

Release – Alvopetro Announces June 2023 Sales Volumes

Posted on July 6, 2023July 6, 2023 by [email protected]

Research News and Market Data on ALVOF

Jul 06, 2023

CALGARY, AB, July 6, 2023 /CNW/ – Alvopetro Energy Ltd. (TSXV: ALV) (OTCQX: ALVOF) announces June 2023 average sales volumes of 2,068 boepd, including natural gas sales of 11.8 MMcfpd, associated natural gas liquids sales from condensate of 99 bopd, and oil sales of 6 bopd, based on field estimates. Overall, our sales volumes averaged 1,975 boepd in the second quarter of 2023.

Corporate Presentation

Alvopetro’s updated corporate presentation is available on our website at:http://www.alvopetro.com/corporate-presentation.

Social Media

Follow Alvopetro on our social media channels at the following links:

Twitter – https://twitter.com/AlvopetroEnergyInstagram – https://www.instagram.com/alvopetro/LinkedIn – https://www.linkedin.com/company/alvopetro-energy-ltdYouTube – https://www.youtube.com/channel/UCgDn_igrQgdlj-maR6fWB0w

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 natural gas field and our strategic midstream infrastructure.

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

*Abbreviations:*
bbls	=	barrels
boepd	=	barrels of oil equivalent (“boe”) per day
bopd	=	barrels of oil and/or natural gas liquids (condensate) per day
MMcf	=	million cubic feet
MMcfpd	=	million cubic feet per day

BOE Disclosure. The term barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet per barrel (6Mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in this news release are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.

www.alvopetro.comTSX-V: ALV, OTCQX: ALVOF

SOURCE Alvopetro Energy Ltd.

Release – InPlay Oil Corp. Confirms Monthly Dividend for July 2023

Posted on July 5, 2023July 5, 2023 by [email protected]

Research News and Market Data on IPOOF

04 Jul, 2023, 19:16 ET

CALGARY, AB, July 4, 2023 /CNW/ – InPlay Oil Corp. (TSX: IPO) (OTCQX: IPOOF) (“InPlay” or the “Company”) is pleased to confirm that its Board of Directors has declared a monthly cash dividend of $0.015 per common share payable on July 31, 2023, to shareholders of record at the close of business on July 17, 2023. The monthly cash dividend is expected to be designated as an “eligible dividend” for Canadian federal and provincial income tax purposes.

About InPlay Oil Corp.

InPlay is a junior oil and gas exploration and production company with operations in Alberta focused on light oil production. The company operates long-lived, low-decline properties with drilling development and enhanced oil recovery potential as well as undeveloped lands with exploration possibilities. The common shares of InPlay trade on the Toronto Stock Exchange under the symbol IPO and the OTCQX Exchange under the symbol IPOOF.

www.inplayoil.com

SOURCE InPlay Oil Corp.

For further information: Doug Bartole, President and Chief Executive Officer, InPlay Oil Corp., Telephone: (587) 955-0632; Darren Dittmer, Chief Financial Officer, InPlay Oil Corp., Telephone: (587) 955-0634

Energy Industry Report – The Outlook for Energy Stocks Remains Positive

Posted on July 5, 2023July 5, 2023 by cpatches

Wednesday, July 05, 2023

Michael Heim, CFA, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the bottom of the report for important disclosures

Energy Stocks underperformed the market in the second quarter. Energy stocks declined 2.0% in the 2023 second quarter, underperforming the 8.3% rise in the S&P 500 Index. The decline comes after several years of strong performances for energy stocks and reflects a 6.6% decrease in oil prices. Oil drilling activity has begun to pick up but remains well below historical high levels. Interestingly, the recent increase in active drilling rigs has not led to increased production. This may be a sign that the improvement in drilling techniques has begun to slow. Or it may simply represent a reduction in prime drilling targets.

We expect oil prices to remain above our long-term forecast of $60/bbl. for the foreseeable future. The combination of limited drilling, rising demand associated with improving economic conditions, and OPEC production cuts bodes well for oil prices. We believe oil prices will remain above our long-term projections of $60 per barrel for the foreseeable future.

The story for natural gas is less positive but improving. Natural gas prices have been on a downward trend for the last twelve months. Some of the decline can be attributed to warm weather this winter. Drillers have been slow to respond to low gas prices but have cut back activity since April. New LNG export capacity is coming online soon and should boost natural gas demand.

We believe the outlook for energy companies remains favorable. Oil prices are high and do not show signs of falling due to sharp production decline rates, rising demand due to improving global economic conditions, and active OPEC production cuts. Natural gas prices are low but should improve with a return to more normal weather, a reduction in supply due to less drilling activity, and an increase in demand for LNG exports. We believe the case for smaller cap energy stocks is especially strong.

Energy Stocks

Energy stocks, as measured by the XLE Energy Index, declined 2.0% in the 2023 second quarter, underperforming the 8.3% rise in the S&P 500 Index. The decline comes after several years of strong performances for energy stocks and reflects a 6.6% decrease in oil prices. The decline in oil prices came despite two OPEC production cuts and signs of improving global economic conditions.

Oil Prices

Figure #1

Drilling activity has begun to pick up but remains well below historical high levels. Interestingly, the recent increase in active drilling rigs has not led to increased production. This may be a sign that the improvement in drilling techniques has begun to slow. Or it may simply represent a reduction in prime drilling targets. Either way, it seems that cyclical oil price patterns of the past have become more muted. Drillers are taking a longer-term view of prices. We believe improved energy company fiscal discipline will lead to a period of prolonged high oil prices.

Figure #2

Stated another way, production from recently drilled wells does not increase production levels but goes to replace production declines from existing wells. As drillers shift to horizontal wells with longer laterals and increased fracking activity, oil production shifts towards the earlier years of a well’s life. However, that means that the production decline after initial production is greater, and more wells must be drilled just to replace production. The chart below, while somewhat dated, shows Permian Basin oil production separated by the year wells came on-line. The chart shows that in 2022, more than half of all oil production came from wells drilled in 2021 or 2022.

Figure #3

Source: Novi Labs

The combination of limited drilling, rising demand associated with improving economic conditions, and OPEC production cuts bodes well for oil prices. We believe oil prices will remain above our long-term projections of $60 per barrel for the foreseeable future.

Natural Gas Prices

The story for natural gas is less positive. Natural gas prices have been on a downward trend for the last twelve months. With the decline, we are beginning to hear reports of production curtailment. Some of the decline can be attributed to warm weather this winter. Natural gas storage levels are running above historical levels for this time of year. Drillers have been slow to respond to low gas prices. Active rigs targeting gas formations in the United States remained between 150 and 160 through April. However, since then, the rig count has plunged to the current level of 124.

Figure #4

The decline in natural gas prices in recent years has come despite a dramatic increase in natural gas exports in recent years. This trend continues with an additional 1 TCF/year of U.S. export capacity scheduled to come online by 2025. Whether or not that has an impact on natural gas prices remains to be seen.

Figure #5

Outlook

We believe the outlook for energy companies remains favorable. Oil prices are high and do not show signs of falling due to sharp production decline rates, rising demand due to improving global economic conditions, and active OPEC production cuts. Natural gas prices are low but should improve with a return to more normal weather, a reduction in supply due to less drilling activity, and an increase in demand for LNG exports. We believe the case for smaller cap energy stocks is especially strong. Major oil companies are facing increasing pressure to focus on renewable energy instead of producing more carbon-based fuel. Smaller cap energy companies are less tethered and often able to acquire and exploit properties being ignored by the majors.

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ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE

Senior Equity Analyst focusing on Basic Materials & Mining. 20 years of experience in equity research. BA in Business Administration from Westminster College. MBA with a Finance concentration from the University of Missouri. MA in International Affairs from Washington University in St. Louis.
Named WSJ ‘Best on the Street’ Analyst and Forbes/StarMine’s “Best Brokerage Analyst.”
FINRA licenses 7, 24, 63, 87

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This report is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is appropriate for any recipient particular investment objectives, financial situation or particular needs. Prior to making any investment decision, recipients should assess, or seek advice from their advisors, on whether any relevant part of this report is appropriate to their individual circumstances. If a recipient was referred to Noble Capital Markets, Inc. by an investment advisor, that advisor may receive a benefit in respect of
transactions effected on the recipients behalf, details of which will be available on request in regard to a transaction that involves a personalized securities recommendation. Additional risks associated with the security mentioned in this report that might impede achievement of the target can be found in its initial report issued by Noble Capital Markets, Inc.. This report may not be reproduced, distributed or published for any purpose unless authorized by Noble Capital Markets, Inc..

RESEARCH ANALYST CERTIFICATION

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