Aiming to execute on its plan to unlock the potential of on-shore natural gas in the state of Bahia in northeastern Brazil, Alvopetro Energy Ltd. (TSX-V: ALV) on Monday said it has struck a long-term natural gas sales agreement with Bahiagás, the state-owned natural gas distribution company. Gas deliveries are expected to start at the end of 2019 or possibly sooner depending on mutual consent and all requisite infrastructure being completed.
Per the plan, Bahiagás will construct a 15-kilometre pipeline and a new gate delivery point with capacity set at 35 mmcfpd ((million cubic feet per day). For its part, Alvopetro must build a natural gas processing facility and an 11-kilometre pipeline from its Caburé unit to the facility/city gate. Alvopetro has already has boots on the ground working on the project, with upfront engineering and permitting work for the facility completed, as well as the field survey work for the pipeline right of way done. The application to begin construction is now awaiting approval.
Once done, the natural gas processing facility will be the only independently owned gas processing facility in the State of Bahia capable of delivering sales-spec natural gas to the market serving the more than 15 million citizens of Bahia.
Pricing for the natural gas will be determined semi-annually based upon trailing weighted average prices from a basket of benchmarks, including Henry Hub, National Balancing Point natural gas prices and Brent crude oil prices with a floor set at $5.00 U.S./mmbtu and a cap at $8.50 U.S./mmbtu with adjustments for inflation based on the U.S. Consumer Price Index.
From the outset, the agreement calls for the sale of 5.3 mmcfpd on a firm basis and up to 12.4 mmcfpd on an interruptible basis, adjustable annually.
Shares of ALV have been on a roll for the last month after printing a new 52-week low at 11.1 cents on April 10. With another 20.6% jump (+3.5 cents) on Monday, shares are trading at 20.5 cents with about 2-1/2 hours left in the trading day, representing the highest point for the stock since early November.
