Valued at a market cap 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, cumulative returns are closer to 991%.
Despite these market-beating returns, Alvopetro Energy stock is down 43% from all-time highs, allowing you to buy the dip. Let’s see why I’m bullish on this small-cap energy stock right now.
Is this energy stock a good buy today?
Alvopetro Energy delivered strong third-quarter results, showcasing 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 a total company basis. This milestone reflects the successful execution of drilling programs in both geographic regions and the benefits of an upgraded gas sales agreement with Brazilian offtaker Bahiagas that increased firm volumes by a third.
The company’s Brazilian operations demonstrated impressive performance, particularly at the Murucututu project north of its core Caburé field. The recently completed 183-D4 well came online in August with an initial 30-day production rate of nearly 1,100 barrels of oil equivalent per day, almost double the forecast by independent reserve evaluators.
The well identified 61 metres of net pay across three Caruacu sequences and produced 5.8 million standard cubic feet of gas plus 97 barrels per day of condensate from seven completed intervals.
By October, the Murucututu field was producing at 6.1 million standard cubic feet per day, effectively maxing out current field capacity with only two of three wells online.
Alvopetro’s operating economics remain attractive, given 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 stems from Brazil’s favourable fiscal regime, which provides an effective tax rate just over 15% and royalty rates under 5%.
Realized natural gas prices reached $11.04 per thousand cubic feet, up 4% sequentially, while funds flow from operations remained steady at $10.4 million.
The Western Canadian expansion continues gaining momentum. Alvopetro recently expanded its partnership in the Mannville Stack Heavy Oil play to cover over 74 sections of land, resulting in a 50% working interest in nearly 24,000 net acres.
The energy operator has drilled four gross wells to date using advanced open-hole multilateral drilling technology, with the Neilburg well performing 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, yielding approximately 7% at current share prices. Since introducing the dividend in 2021, Alvopetro has returned over $60 million to shareholders while maintaining a debt-free balance sheet. Management targets reinvesting roughly half of its cash flow in organic growth, while returning the remainder to stakeholders.
With capital spending set to moderate in the fourth quarter and production capacity expanding, the company is well-positioned to rebuild working capital while advancing its multi-year drilling inventory in both Brazil and Canada.
Is Alvopetro stock undervalued?
Analysts tracking Alvopetro stock forecast revenue to 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 the Canadian energy stock is priced at 10 times forward FCF, it could almost triple investor returns over the next three years. If we adjust for dividends, cumulative returns will be closer to 250%.
