I think International Petroleum Corp. (TSX: IPCO) is one of the cheapest energy stocks in Canada right now.
Valued at a market cap of almost $4 billion, IPCO stock has returned close to 580% to shareholders since its initial public offering in 2017. However, the growth story for the mid-cap Canadian energy stock is far from over.
The company is about to start pumping oil from a project it spent two decades building. Yet most investors still value the stock as if that project barely exists, making IPCO an undervalued buy right now.
Source: Getty Images
Why Blackrod makes IPCO a coiled spring for free cash flow
Blackrod is a heavy-oil project in Alberta that IPC owns 100%. On the company’s first-quarter earnings call, CEO William Lundin called it a “true game-changing asset” and said first oil is still expected in the third quarter of 2026.
Big oil projects cost a lot of money to build before they start generating cash flow. IPC reported a free cash outflow of US$144.26 million in 2025. Bay Street expects it to report a free cash flow (FCF) of US$146 million this year. Moreover, it is projected to end 2029 with a FCF of US$407 million.
Once Blackrod produces, the spending stops and the cash flow turns positive. IPC estimates FCF to range between break-even and US$120 million this year, with a far bigger jump in 2027 as production ramps up. Over five years, management projects free cash flow of US$1 billion to US$2 billion at Brent oil prices of $65 to $85.
If the TSX energy stock is priced at 20 times forward FCF, it could more than double within the next three years.
Blackrod Phase 1 alone holds 311 million barrels of reserves and has a net present value of US$1.4 billion at a 10% discount rate. Its breakeven sits around US$47 West Texas Intermediate. With oil well above that, every barrel is highly profitable.
The market is giving away more than one billion barrels for free
IPC’s current market value is close to the conservative estimate based solely on its proven assets. At its February Capital Markets Day, IPC said it holds more than 1.2 billion barrels of contingent resources. None of that is reflected in the stock price today.
Blackrod has regulatory approval for up to 80,000 barrels per day, well above the 30,000 barrels per day targeted in Phase 1. At an oil price of US$75 per barrel, the free cash flow from existing reserves roughly covers the company’s entire enterprise value.
IPC produced 43,000 barrels of oil equivalent per day in the first quarter, at the top of its range. It expects to exit 2026 above 50,000 and average 62,000 over the next five years, and operating costs remain controlled at US$18 to US$20 per barrel.
A management team that treats shareholders like owners
I also like how this team runs the business. Since 2017, IPC has bought back 77 million shares, creating roughly US$1.4 billion in value in the process. There are now fewer shares outstanding than when IPC was formed. More production spread across fewer shares is a powerful combination.
The balance sheet is solid, too. Net debt stood at US$513 million in the first quarter, and IPC expanded its Canadian credit line to $250 million and extended its maturity to 2028. That is plenty of breathing room heading into the cash flow surge.
Wall Street also remains bullish on the energy stock, with a consensus price target of $42, above the current price of $35.31.
