Valued at a market capitalization of $224 million, Alvopetro energy (TSXV:ALV) is an energy stock that has returned 653% to shareholders over the past decade. If we adjust for dividend reinvestments, the cumulative return is closer to 991%.
Despite these market-beating returns, Alvopetro Energy shares are down 43% from their all-time highs, giving you a chance to buy the dip. Let’s take a look at why I’m bullish on this little energy stock right now.
Is this energy stock a good buy today?
Alvopetro Energy delivered strong third quarter results, demonstrating the company’s balanced growth strategy across its Brazilian and Canadian operations.
The Calgary-based oil and gas producer set a new production record in October, averaging 2,923 barrels of oil equivalent per day (BoE) on an operating basis. This milestone reflects the successful execution of drilling programs in both geographic regions and the benefits of an enhanced gas sales agreement with Brazilian off-taker Bahiagas, which increased firm volumes by a third.
The company’s Brazilian operations showed impressive performance, especially at the Murucututu project north of the Caburé core field. The recently completed 183-D4 well came online in August with an initial production rate of nearly 1,100 barrels of oil equivalent per day over 30 days, nearly double what independent reserve assessors forecast.
The well identified 61 meters net pay over three Caruacu ranges and produced 5.8 million standard cubic feet of gas plus 97 barrels of condensate per day from seven completed intervals.
In October, the Murucututu field produced 6.1 million standard cubic feet per day, effectively maximizing current field capacity with only two of the three wells online.
Alvopetro’s business economics remain attractive as it generated an operating netback of $55.90 per barrel of oil equivalent in the third quarter (Q3), indicating an 85% margin on realized prices.
This performance is due to Brazil’s favorable tax regime, which has an effective tax rate of just over 15% and royalty rates of less than 5%.
Realized natural gas prices reached $11.04 per thousand cubic feet, up 4% sequentially, while cash flow from operations remained stable at $10.4 million.
The Western Canadian expansion continues to gain momentum. Alvopetro recently expanded its partnership in the Mannville Stack Heavy Oil project to more than 74 tracts of land, resulting in a 50% working interest in nearly 24,000 net acres.
The energy company has drilled four gross wells to date using advanced open-hole multilateral drilling technology, with the Neilburg performing well above expectations. Additional drilling is planned to begin in late November or early December, with two to four wells expected before the end of the first quarter of 2026.
Capital allocation remains disciplined despite an active drilling period. It increased its quarterly dividend to $0.10 per share, which yields a yield of about 7% at current share prices. Since introducing the dividend in 2021, Alvopetro has returned more than $60 million to shareholders while maintaining a debt-free balance sheet. Management aims to reinvest roughly half of cash flow in organic growth, while returning the rest to stakeholders.
With capital expenditures set to moderate in the fourth quarter and production capacity increasing, the company is well positioned to rebuild working capital while increasing its multi-year drilling inventory in both Brazil and Canada.
Is the Alvopetro share undervalued?
Analysts who follow Alvopetro stock predict that revenue will increase from $65.7 million in 2024 to $131 million in 2029. During this period, free cash flow (FCF) is expected to grow from $28 million to $72 million.
If Canadian energy stocks command a forward price of 10 times FCF, returns for investors could nearly triple over the next three years. If we adjust the dividends, the cumulative return will be closer to 250%.
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