Points before we begin. We will be recording today's webcast, and we will have a replay available on our website later on this afternoon. All participants are in listen-only mode for the duration of the webcast, but we will have a Q&A session at the end of the presentation. If you are watching online through Zoom, you can use the Q&A button on your Zoom screen there and start logging any questions, and we'll get to those at the end of the presentation.
If you've dialed in on your phone, you can send any questions by email to socialmedia@alvopetro.com. Then lastly, just a reminder: on these calls, we always go through some non-GAAP measures and also make some forward-looking statements.
So please review all of our disclosures on those items, both in our MD&A that was released yesterday and our press release, as well as the presentation that's on our website. There's additional disclosures on those. And with that, I'll turn it to Corey.
All right. Thank you, Alison, so to start with, just talk about our production results in the third quarter. We averaged a little over 2,100 barrels of oil equivalent per day in the third quarter that was previously announced. It was up 29% quarter- over- quarter and up 24% if you compare it to the third quarter of last year. We also did announce our October production, which was 1,912 barrels of oil equivalent per day.
That was impacted for at least portions of the month based on Bahiagás's demand through October. One of the other nice things to point out is that our new 183-A3 well accounted for about 17% of our production in the month of October, and that well continues quite strongly for us, and Adrian will review that later in the presentation.
Again, just focusing on our strategy going forward here, what we're looking to do is add more productive capacity from our near-term development drilling program at the unit with Caburé, and to also add more 100% working interest production from our Murucututu project through our organically funded capital program so that we can maximize the throughput through our gas plant and ultimately work towards our near-term goal of 3,000 barrels of oil equivalent per day.
An expanded productive capacity will also give us flexibility to look at increasing the firm volumes within our Bahiagás contract, which would then lead to increasing kind of the firm or base monthly cash flows that we have on a quarterly basis.
Okay. So just jumping into some highlights from our Q3 results that were released yesterday, just to start with our operating netback. That is one of those non-GAAP measures I was referring to earlier. This is our operating profitability, and we reflect that in per barrels of oil equivalent. So that's computed based on a realized price. If you start at the top of those stacked bar charts, we deduct off royalties, which is the orange bars, and then production expenses, which is the gray bars.
And then our operating netback or operating profit per BOE is the green bars. So you can see we did see a reduction of just over $5 per BOE from Q2. That was due to a reduction in our realized sales price from 7,197 last quarter to 6,646 this quarter.
That was mainly on the U.S. dollar equivalent of our realized gas price. Our realized price in Q2 was $1.183, and we dropped $0.91 - $1.092 per MCF in Q3. That was largely due to foreign currency fluctuations. If you recall, our gas price is set semi-annually based on U.S. dollar benchmark prices, but then it gets set every six months in local currency and local Brazilian reais.
The average reais relative to the U.S. dollar was lower in Q3, was about close to 7% lower in Q3 than Q2. That accounted for the majority of that reduction in our overall realized price. The royalties are relatively consistent with last quarter, $1.89 per BOE. That's about 2.8% effective royalty rate, which is quite low. On the production expenses side, we did see a reduction in our per BOE cost by $0.35 per BOE.
Actually, our production expenses, if you recall, last quarter, we benefited from some historical tax credits, so our production expenses were quite a bit lower last quarter overall in dollar terms. This quarter, they went up about $193,000 just due to the fact that we didn't have that one-time historical tax credit adjustment this quarter. But overall, with the 29% increase in sales volumes, our per BOE costs were down.
Overall, operating netback of just over $59 this quarter. And when you look at that relative to the $66 sales price, that's a profit margin of 89%. We talk about this every quarter, but that's really best in class when looking at other companies like Alvopetro operating in Brazil, in other countries in South America, and also in North America.
When you layer in the fact that our project in Brazil is eligible for a 15% tax rate, we're able to generate significant cash flows from operating activities on this base level of production. Just moving on to funds flow from operations, which is a non-GAAP measure most closely aligned with cash flow from operating activities, but for working capital. We did see a $2 million increase this quarter from $7.9 million to $9.9 million.
Overall, that was mainly due to that 29% increase in sales volumes, partially offset by the reduced realized sales prices, which I talked about earlier, and then also the higher production expenses. Similarly, net income, we saw a $4.8 million increase in net income compared to Q2. Again, that was mainly due to higher overall sales volumes, and our overall operating netback in dollar terms went up $1.9 million.
The other big driver there was foreign exchange. We had a gain of $0.6 million this quarter compared to a loss last quarter of $3.2 million. So we did see a big adjustment for that. And offsetting those increases were additional depletion and depreciation due to increased production levels and then also higher deferred tax. On that foreign exchange component there, just a reminder, that's mainly foreign exchange gains and losses recognized by our Brazilian subsidiary on U.S. dollar amounts.
So it's U.S. dollar intercompany loans between the Canadian parent company and the Brazilian subsidiary, and then also U.S. dollar capital lease in Brazil. So although overall, the average rates in Q3, the average reais had depreciated relative to the U.S. dollar compared to Q2.
The period end rate, which is used to determine the foreign exchange that goes through the income statement on those U.S. dollar amounts, there was an improvement as of September 30th compared to June 30th. So we did have a gain this period. And then just quickly on the balance sheet, we continue to have a very strong balance sheet.
We ended the period with working capital of $15.8 million, up about $1.2 million from last quarter. And we had cash of $24.5 million on our balance sheet at that time. And a reminder, we are debt-free and have been for over two years now. We repaid our credit facility and fully repaid it in September of 2022.
All right. Thank you, Alison. Just to walk through the dividends, we did introduce this back in the third quarter of 2021. We've paid $0.09 per quarter each of the quarters so far in 2024. That translates into a current yield of over 10% based on our share price. And in total, since inception, this represents over $47 million that's been paid out to shareholders or $1.31 per share.
So again, this graph that we show each quarter demonstrates our balanced and disciplined capital allocation and stakeholder return model that we've been following. As a reminder, that model looks to reinvest roughly half of our cash flows in organic growth and return the other half to stakeholders. So you can see the chart on the left.
Each quarter since we came on production from our Caburé project, the lines with the black dots are the funds flow from operations each quarter. Alison walked you through that, $9.9 million this quarter, which was up about 25% from the prior quarter. And then each of the stacking bars shows where that cash flow or basically the cash outflows. So the red represents the amounts reinvested in our business, which in the third quarter accounted for 48% of the funds flow.
And then the various shades of green are the returns to stakeholders, which in the third quarter amounted to 42%. And then because the height of the stacking bar is below the dot, that contributed to the increase in cash and working capital that Alison reviewed earlier.
The other thing that's new this quarter, you can see this little green wedge at the top of the stacking bar that does represent the share buyback program that we introduced late in August, and most of those purchases happened in September, totaled about $250,000 in the third quarter and has been continuing here into the fourth quarter. The pie chart that you see here just represents since coming on production.
In total, you can see that we've now had cumulative funds flow from operations totaling $156 million. Of that, 43% has been reinvested, and 48% of it's been returned to stakeholders, with the remaining 9% building that cash and working capital position to really help preserve financial flexibility for us as we move forward.
So just talking about our organic growth program moving forward, I think we've established a pretty strong platform to build on. To reiterate, our near-term goal is to get to 18 million cubic feet a day or 3,000 barrels of oil equivalent per day. And that would fill our, depending on the gas specification going through our plant, come close to filling our current capacity within the facility.
And most of this growth is planned to come from really our two core assets. Firstly, at the unit, we do have a five-well development program here. Our best guess on that would be that that would start sometime early next year. And then in addition to that, just sitting immediately north of Caburé, which sits here, as a reminder, is our Murucututu project. This is a 100% working interest project.
We did announce recently a very positive result at our 183-A3 well. And Adrian will walk you through our growth plans here, but we're really looking to migrate all of this, the reserves and contingent and prospective resource that we've got booked on this asset into production and cash flow over the coming months and years. And I think we're quite excited about the result that we have at 183-A3.
So our Murucututu gas resource, this is, as Corey pointed out, our 100% working interest asset. And this sits directly north of the Caburé unit. So this is connected to our midstream infrastructure and connected to our sales point. This represents 4.6 million BOE of 2P reserves. So this got a lot of opportunity for growth for Alvopetro. And we made some strong advances in the third quarter at Murucututu. We now have 183-A3 on production.
As Corey pointed out, we saw in our sales numbers we brought this online and we had 1.8 million standard cubic feet average in October for this well. Or in this completion, we did put five or, sorry, six of the zones you see on the log on the right. We brought those online. Those are all Caruaçu production. And we have those online. And we're quite excited about the initial results we see in the Caruaçu portion of this asset.
If you look at the plot in the middle, the contour plot, you can see the well bore that we brought online, which is 183-A3. And so we're currently planning a well bore directly to the south of that updip and structure. And we'll be looking forward to initiating that drilling program at the end of 2024 as a follow-up to our current results.
The picture on the bottom right shows an aerial photo of this asset. The well bore that we brought online is where the mouse is there on the bottom right. That's the processing facility or the, sorry, the field facility. And it's pipeline connected to the processing facility. The pad in that same picture in the top left is where we'll be drilling our follow-up well, which will be updip and structure. And you can see that there's some other locations and room for growth as follow-ups to our other reserves in that field. So we look forward to the development here.
All right. And just to conclude, I really still feel very strongly that Alvopetro offers a very attractive investment proposition no matter what your focus is. I hope everyone agrees. We've been delivering some pretty strong results off the back of industry-leading operating netback, very attractive natural gas pricing. We've got a very clean balance sheet and strong free cash flow generation capacity that really helps underpin that balanced and disciplined stakeholder return model that we implemented quite a long time ago.
For value investors, we're trading at about a third of our 2P NAV. For yield investors, that $0.09 per dividend paid quarterly translates into a yield of over 10%. And for growth investors, I think we've got a very exciting organically funded capital program that has the potential to unlock an awful lot of value here over the near term, especially when you compare it to our current enterprise value. And I think we've demonstrated some of that potential with the recent 183-A3 success that Adrian talked about.
And we certainly look forward to following that up with another well here starting later this year. And with that, I think we'll start the question and answer period. I'll stop sharing the presentation.
Great. So we have a couple of questions to start with on the NCIB. How many shares have you repurchased this year is the first question. I can answer that one. So in Q3, we repurchased 62,800 shares. And then in October, another 41,700 shares. So that's just over 103,000 to date. And then the next question is around this is, do you expect the repurchase plan to eventually reduce the shares outstanding after employee stock plan issuances, etc.?
Well, yeah. Again, we're allocating the portion of our shareholder return payments, I guess the 50% of cash flow to the extent that our capital lease and our current dividend or the dividend that we pay in the future is less than that, we're taking that money and allocating it to the NCIB. So the answer depends on the results and the pace at which we're repurchasing shares.
Okay, and then in follow-up to that, there's a question. In 2024, it appears you've been distributing less than 50% to shareholders despite the strong balance sheet. Is there a plan to get it back up to 50%? And is this through buybacks or higher dividends?
Yeah. I think from inception, we're still pretty close. And that's not written in stone, to be clear. But we're trying to use the 50% as a pretty close guideline. I think since inception, we've been almost at that. Q3 was a little bit lower than that, partly because the results were so strong. And the budget that we allocated to the issuer bid didn't necessarily.
We only had one month's worth of issuer bid timing, issuer bid meaning the share repurchase program. So that budget is effectively there for the share repurchases that will happen through the duration of that program, which lasts all the way through till August of next year. And we're hopefully off the back of some continued positive results be able to add to that bucket.
Perfect. Could you provide some details on the CapEx spend for the quarter along with guidance for Q4 and 2025, if possible? I can maybe comment on that. So in the quarter, we had $4.7 million of capital expenditures. The main projects this quarter were the completions at 183-A3 and 183-1 on our Murucututu field. So that was roughly $3.5 million of expenditures total overall on the Murucututu field, or I guess it's $3.8 million with capitalized G&A.
And then the other big project, we are doing that facilities upgrade for compression at our Caburé field. So there was approximately $0.6 million in spending on that. And then those were the main projects this quarter. Moving on to kind of upcoming projects, we're still working on our 2025 plan. But the main projects, which we've talked about, are the unit development wells at the unit.
Our cost for that is forecasted to be about $7 million, and then also, we will be finishing up this facilities upgrade at Caburé as well. That's another approximately $1 million, and then going forward, the next big plan, what Adrian was talking about, is our new well on Murucututu.
We are still finalizing the well design on that, so we haven't finalized the capital spending amount for that yet, but it will be similar to what was in our reserve report previously, and those are the main projects that are coming up from a CapEx perspective, unless I missed something.
No, that's great.
Let me just go through these. Any guidance on Bahiagás nominations for Q4?
We've got October already announced. We're currently producing around the firm volumes within our contract. It's hard to predict. They don't indicate far enough out to really comment on it for December. What's been happening is it's been being adjusted kind of on a daily or quarterly or weekly basis, sorry.
Any update on the arbitration surrounding the redetermination of the Caburé working interest?
No, just that it's in the full kind of arbitration process. So we're still in the finalization of the arbitrators. I think that should be completed here over the next month. But these processes tend to be quite slow in Brazil, well, not only Brazil, everywhere, so.
Just shifting to Brazil overall, given that Brazil's hydro output for power has been affected in the last month, it appears that Brazil is moving to fossil energy as seen in record coal imports. Do you see any increase in gas demand?
Yeah. Yeah. So this is a seasonal thing in Brazil, for sure. I think about 93% of Brazil's energy comes from either hydroelectric or renewable sources, wind and then solar mainly. But even with that, obviously, the hydro component is affected a little bit or a lot by how much it's raining.
So we went through a drier phase that did result in more dispatch of the thermal electrical generation capacity within the country. The rains have started. The demand or pressures on that have decreased. There's a system for kind of going red, yellow, green as it pertains to the water levels in the reservoirs. And I think we're now back down to a yellow level.
The other phenomenon, though, that's changed because there's so much of the base electrical supply coming from those renewable sources. The challenge with these things is it's not always windy and it's not always sunny when you've got the peak energy demand within the country. So the natural gas and the thermal power component is going to be, I think, continue to play a key role to meet that dispatchable energy demand requirement.
What would be the catalyst to ramp up drilling activity in Murucututu? Would you consider debt financing to implement a significant multi-well program?
Yeah. Obviously, a little bit of this depends on results. And also, we have to marry that with permitting and equipment and also with our capacity within our plant. So the one thing that we have with Murucututu is the gas is richer or hotter than our Caburé gas. So right now, we've been managing the mix of production between Murucututu and the unit such that roughly a quarter of our production is coming from Murucututu.
And the current design of the gas plant seems to be working quite well at that mix. If we add more Murucututu production, we will be looking at making some minor facility modifications to account for that. So there's some things that have to happen in parallel.
I think over the near term, or certainly as you look into next year with the amount of cash that we have on the balance sheet and the cash flow generation capacity we have and just the practical realities of executing the capital program, I think we're well positioned to execute that organically without any additional debt capital. But we certainly have a lot of flexibility to do that based on results if we want to ramp that up.
Just following up on a related matter with respect to the mix between Caburé and Murucututu, is the plan for 2025 to increase Murucututu production given it's 100% Alvopetro at the expense of Caburé?
Our plan, to be clear, is to increase both. We're adding compression at the unit. We're drilling five wells at the unit. The plan is to be able to grow the productive capacity and extend the productive capacity of that field. To complement that, obviously, we want to add more 100% working interest production at Caburé.
We'll manage the facilities to accommodate that new gas. Right now, I wouldn't characterize it necessarily at the expense. The reality is most of our sales has been driven more off the nominations that we're getting from Bahiagás.
And strategically, what we're trying to do is make sure we have sufficient productive capacity available over our whole portfolio of assets so that we can increase the firm volumes that we're committing to with Bahiagás so that even if there are demand adjustments, we've secured then a higher base level of production and cash flow. And we're just working through that process with Bahiagás as we speak.
Jumping back into the share repurchases in our Normal Course Issuer Bid, what is the limiting factor on the rate of share repurchases? Is it limited by factors in the market such as a requirement to be less than an average daily price or a certain percentage of total volumes?
Yeah. So right now, it's based on the general budget that we've allocated on a daily basis. But there are also regulations on the percentage limits on how the shares can be bought, limitations on how much can be bought in any individual day. But what we're trying to do is take the budget that we've allocated to it and spread it out over a period of time. And for now, that's the pace that we're operating at. And hopefully, we can add budget to that as the year progresses.
Just jumping back to Murucututu, when you announced the 183-A3 well, you noted that production was 2.1 million cubic feet a day. But it seems that October was below that. Is that due to well declines?
Yeah. The announced production at 2.1 was during our initial production testing. So we're doing that at steady choke settings and a steady period of time. In the October average of 1.8, that was, like I say, the average over the month. So it includes some facilities downtimes and adjustments to the choke settings during our initial ramp-up of production from that well. So there can naturally be difference, right? Right now, the well is at or above what we've announced previously. So we're looking forward to what November is going to be for that well.
Can you give us a timeline of when you expect to hit your goal of 3,000 BOE per day?
Yeah. So our objective there is to make sure as we go through our capital program next year is to have that level of productive capacity and then make sure we've got the plant tuned so that it can accommodate a flexible range of gas from Murucututu or Caburé and then marry that with our gas sales. So honestly, I think our ability to average that through the year is probably going to be driven more from the demand side from Bahiagás and probably less to do with our productive capacity based on our current plans.
Given the healthy cash position, would it make sense from a cost of financing to buy out the lease on the gas plant?
Yeah, it could. I do think that was a pretty reasonable bit of financial and operational engineering that we did at an important time for the company. I still think it's a good use of capital to have that capital lease there. And at the end of the term, the plant reverts back to us. So it's something we could do. But I think having that cash available for growth opportunities probably makes a bit more sense.
Great. And there are no more questions. So that is it from Q&A.
All right. Well, thank you, everyone, again for participating. If you've got any questions after the fact, feel free to give us a call. And we look forward to updating you on our progress through Q4 here.