Okay, we are moving on with our next presentation, so please welcome to the stage CEO and President of Alvopetro, Corey Ruttan.
All right. Good morning. Thank you to everyone who's joined. On July 5th of 2020, Alvopetro actually became the very first independent company in Brazil to deliver sales-specified natural gas into the local market. I think since then, we've been delivering some pretty exceptional results, certainly well ahead of the pre-commercialization expectations that we had set. We benefit from some very strong natural gas pricing, industry-leading operating netback margins, and very strong free cash flow generation capacity. All that together helps support this more balanced and disciplined capital allocation model that we developed even before we came on production. I'll show you what that looks like. I would say our 2026 capital program certainly is looking to unlock a significant amount of value for our shareholders. We're nicely positioned with very high rate of return growth opportunities, both in Brazil and now also in Western Canada.
From a track record perspective, my previous companies, Pacalta Resources in Ecuador in the late 1990s, Petrominerales in Colombia through the 2000s, grew both those companies to over 40,000 bp d, managed exits on behalf of stakeholders totaling about $2.8 billion. Our pitch really is a value yield and growth pitch. I think no matter how you look at it. Starting with our funds flow from operations in USD, generated just over $14 million in the second quarter of this year off of $19 million of revenue. That ratio is quite exceptional. Hopefully, everyone will agree, and I'll show you why that's the case. I certainly think given that high-quality cash flow engine that we've got, we're trading at a very attractive multiple to enterprise value on a cash flow basis.
If you look at the graph on the bottom left, you can see our enterprise value in the black dashed line there. We're actually trading at less than 2/3 of our 2P NPVs. These are the reserve and resource values that our independent reserve evaluator, GLJ, assigned at the end of last year. Obviously, a lot of things have changed since the end of last year, prices, and we've had a very busy year here as well. From a growth perspective, looking at that same chart, the green wedges are the first project that we developed in Brazil. The orange pieces are associated with our main growth asset called Murucututu. That's 100% owned asset. You can see on a combination of reserves and resources, we're looking to unlock a lot of value here. So approaching $900 million.
If you compare that to our enterprise value of less than $250 million, you get a lot of leverage to the continued growth of our business. A couple things I will say. The shaded wedges on the far right-hand side of that graph relate to the prospective resource area of our main Murucututu project. We've actually already drilled that. That was the risk assessment at the end of last year. We're just in the final phases of finishing that completion. We'll have that on production here literally this month, so an important catalyst for our shareholders. I think that's not extremely well understood because that value, even as assessed by GLJ last year, is about $3 a share for our shareholders, so pretty meaningful.
The other things that aren't on that graph that our shareholders get exposure to is we've got some interesting exploration in Brazil next year. You'll see we've built a pretty impressive inventory of heavy oil drilling opportunities in the Western Canadian Sedimentary Basin that all sit on top of that. Last point to make really is our yield. We do pay a U.S. dollar dividend quarterly, $0.12 . per share. That translates into a yield of over 7%. We do have a pretty strong balance sheet as well. We had over $35 million . of cash on hand at the end of the second quarter. From a growth perspective, we had a very strong year last year, up over 40%. Production's up about another 25% this year.
If you look at the capital program that we're deploying this year, particularly in Brazil, we're targeting about another 20% uplift as we move into 2027. Then we've got a very busy program in the Western Canadian Sedimentary Basin, so we're starting with a relatively small number in the orange wedges there, but we've got seven wells that we're drilling in the fourth quarter, so it's a pretty exciting time for us. This is at really the root of why we generate such strong free cash flows. It's our operating netback. This is our measure of per unit profitability. We express it on a dollar per barrel of oil equivalent basis or BOE. It really starts with our realized gas price.
Our gas pricing in Brazil in the second quarter was almost $11 an Mcf, so that's over four times what you would have producers in the U.S. getting. That translates into a realized price on a BOE basis of about $69 per BOE. We benefit a very attractive fiscal regime in Brazil, so our blended royalty rate is less than 6%. We've got very low-cost natural gas production, so $5.60 per BOE. The net effect is over a $59 netback. If you take that netback and divide it by the price at the top, it's an 86% margin, and that's about as good as it gets in our business. We also benefit from a special income tax regime in Brazil where we have a 15% tax rate. These are really the most profitable molecules you can get in our industry.
I talked about the more balanced and disciplined capital allocation model that we've been following. This is since we came on production from our key asset in the middle part of 2020. We've generated over $230 million . of funds flow. Almost exactly half of that's gone to organic growth and reinvestment, and pretty close to half of that has gone to the various forms of stakeholder returns, most notably the dividend. If you include the dividend we paid last week, it's up to almost $80 million . back to shareholders or $2.18 per share. If you consider that discipline in the context of the growth I just talked about, I do think it's pretty exceptional. This is where we're operating in Brazil. We're in the northeast part of the country in the Recôncavo Basin. This is the oldest producing basin in Brazil.
That's the City of Salvador that you see in the picture there. As you drive north out of the city and the southern part of the map sheet that you see on the bottom left there, you go through a major industrial complex called Camaçari, and that's where the vast majority of the natural gas in the State of Bahia is consumed. We're very fortunate our operating area in yellow sits just 20 km. Sorry for the kilometers, I'm from Canada. 20 km to the north of that, and we're directly connected into the distribution network. All the national pipeline infrastructure runs right beside us, but we benefit by not having to access that to monetize our gas, which really also helps strengthen those netbacks that I showed you earlier.
The one interesting thing about Brazil, I think everyone recognizes they're a big oil producer and exporter, but most people don't realize that Brazil's actually importing a lot of natural gas, so the incremental molecules coming in from LNG. Furthermore, in the State of Bahia, because of that major industrial demand, there's more gas being consumed in the State of Bahia than what's being produced. So it's an excellent place to have an onshore natural gas business model with some highly strategic infrastructure. On that point, to commercialize our first project, Caburé, what we did is we built an 11-km pipeline from the field straight west and built this gas plant that you see in the picture on the bottom left. The gas comes in on the left-hand side. It goes through a mechanical refrigeration process.
The sales-specified gas goes into a newly constructed city gate that you can see right here. Our offtaker, Bahiagás, we signed a long-term agreement with them, and as part of their contribution to the project, they built this city gate right at our location, and they extended their pipeline distribution network by 15 km so that our gas could be directly connected to this major industrial demand. It's been a pretty good relationship. We did just finish an enhancement, an upgrade to this plant that will allow for that 20% uptick in our production as we move into next year. It also allows us to increase the relative percentage of gas we can produce from our 100%-owned Murucututu asset, which is our main growth engine here. This is how our gas pricing works. 80% of our gas gets priced off this red line.
The formulas are in footnote five to the presentation. But very simply, about 1/3 of the price formula is fixed, and that escalates based on inflation. 2/3 of the formula fluctuates based on Henry Hub gas prices and Brent oil prices, and that's the net effect that you see there. The price does reset quarterly. On August 1st, you see our price increased to close to $12 an Mcf up from the 11 we realized in Q2, and that used the Q2 benchmarks. The November reset that we have here coming up will use the Q3 commodity prices. 20% of our gas does price on this orange line, which is 100% linked to Brent oil prices. The green is the weighted average, and then you can see the forward forecast is based on the futures market as of the end of last week.
You can see our prices through next year, at or above $12 an Mcf, pretty much. Real quickly, this was the first asset that we developed in Brazil, Caburé, 56% working interest here. The main message is that this field's been basically fully capitalized. We can take all the free cash flow from this and then reinvest it in the asset just to the north. Geologically, there's a main bounding fault that runs roughly north-south through the block, so this black line that you see here. Most of the hydrocarbons are trapped in what's called the Caruaçu formation on the eastern side of this main bounding fault. When we move to the north, this is our 100% asset just to the north here, Murucututu. That same fault extends to the north and traps the hydrocarbons on the downthrown side of the fault, so deeper down.
We're about 2,800 m here. In this cross-section, you can see all the different wells that we've drilled. One of the key things we did with the 183-A3 well is we completed the well where all these purple lines are. The yellow is all the prospective sand in the reservoir. We completed it using these sliding sleeves. This is a North American completion technology. You can go in with coil tubing, you can open up the sleeves, and very selectively stimulate the zone that you're targeting, using some more unique, I would say, stimulation fluids. We're the only ones doing this in Brazil, and we've had a lot of success with it. We moved up dip to the 183-D4 well, so about 106 m up structure here, and that well came on at about twice our pre-drill expectations. We've had a lot of success here.
We're currently drilling the 183-G2 well, and we would expect results from that sometime in the next 30 days. From a reserves perspective, our reserve evaluator, GLJ, constrained their proved plus probable reserve bookings to this pink outline here. The notable well that I talked about earlier in the presentation, the 183-H2 well, was drilled directionally from an existing well pad, so it's already tied back into our production facility, and we're just completing that now. We'll have results from that, should be this month. With success there, we've opened up a whole other play corridor outside of the reserve area to the southwest here, so pretty significant result for us. Our capital program this year is really to address the fact that we've had much better than anticipated success rates here.
The facilities part of this, part of it was done with the gas plant, but the rest of it expanding the field production facility and the pipeline capacity. That will increase our field takeaway capacity by 4x , and we should have that done right around the end of the year, probably in January. In parallel, we are drilling those wells, completing the H2 well, and then drilling the G2 well, which is the first well off of a newly constructed pad. A lot of catalysts here between now and the end of the year. Next year, in addition to the continued development at Murucututu, we have got a lookalike exploration prospect at 183-C1 that you see here. Then just last week, we announced the acquisition of over a 460 sq km exploration land position in the adjoining basin just to the north of this.
We have got a lot of potential multi-year plan here for our Brazilian assets. Then that takes us to Western Canada. I think in the last just over 12 months, through three different transactions, we have assembled a pretty impressive position in one of the hotter plays in the Western Canadian sedimentary basin right now, called the Mannville Stack Play Fairway. It straddles the Alberta-Saskatchewan border. It is a series of stacked, lower risk, heavy oil sands, 3 m-5 m thick, so the height of this room, individually, and they are stacked up. The key has really been the deployment of new technology to unlock this resource, and I will show you what that looks like on the next slide. We have done this through a series of farm-in transactions. Most recently in September, we announced another transaction with a company called Corsair Energy.
The deal is basically we are going to drill five wells to earn a 75% working interest before payout, after payout 50%, and we earn 50% of their entire undeveloped land base. With that transaction, it increases our overall land position to over 130 sq mi of land on a gross basis and over 175 of these tier one drilling locations to complement our high margin gas business with some nice oil exposure here and drilling into some attractive oil pricing environment. This is what is being done in these sands. The first technology, open hole multilateral drilling. You drill a single well, you get the well horizontal in the section. In this room, let us envision it.
You cement the casing into place, and then you drill out with directional drilling tools with an open hole lateral lengths, and they are up to a mile long each, and you can do 6-12 of them per well. Imagine it like a pitchfork and picture this in the height of this room, drilling out a mile long, staying in this room the whole time and doing that 6x-12x per well. You get a tremendous amount of reservoir access with a single well, like 10-15 km of reservoir contact per well, and that has been a huge game changer. T he one thing is that that does not work for all reservoirs. If you have a more unconsolidated sand where the sand just collapses or a heavier oil, it is not the ideal technology.
What's being done there is you drill one single horizontal leg. You complete the well with a slotted liner, so a steel tube, basically, with slots cut in it. The slots are designed to allow a little bit of the sand to be produced, all of the oil to be produced, and then you run a circulation string down to the end of the well, and you can recirculate the warm produced water from the production process and then produce that mixture, the water, sand, oil mixture, back at very high velocities and keep all that sand suspended. The cool thing is, as you produce more and more sand, you create all these wormholes out into the reservoir, creating more pathways for the heavy oil to flow into the well. This has been quite successful.
Because of that wormholing effect, you can actually get much flatter declines than you can get with a typical well, and much higher recovery of original oil in place. In the interest of time, I took some slides out, but the types of wells that we're talking about here are wells that come on production at about 150 bpd , will cumulatively produce about 120,000 bbls of oil. Even at $70 WTI, those are projects that generate close to 100% rates of return. If we can drill them into an even higher oil price environment, obviously that gets even more exciting. Between our two joint ventures that we have, we're going to drill seven wells, two of them with this technology, five of them with this technology here between now and the end of this year.
If you look at the catalysts we have in Brazil combined with this, it's a pretty exciting time at Alvopetro. In summary, I do think we have some exceptional quality assets. Strategic infrastructure, very attractive natural gas pricing, industry-leading operating netback margins, and that really helps generate that exceptional free cash flow and really supports our more disciplined capital allocation model that we've been following. For value investors, trading at about 2/3 of our 2P NPVs, and very attractively on a multiple to cash flow basis.
For yield investors, our $ 0.12 per share dividend quarterly, a little over 7% yield right now. For growth investors, I think both in Canada and Brazil, you get exposure to some tremendous amount of continued growth potential, especially when you compare it to our current enterprise value. Pretty excited about closing out this year and heading into next year. With that, I think we have some time for questions. Yes, sir.
In the Brazil region, is there oil there? Or do you get oil by product —
Yeah, the question is: Is there also oil opportunity in Brazil? Yeah, interestingly, when we first started this way back when, this wasn't an overnight success. There was a lot of patience and persistence that went into this. We were actually drilling for some tight oil, and we ended up finding natural gas. We had to figure out how to monetize gas, and that's where we are today. But yeah, there's actually probably as much or more oil potential in the basins that we're dealing with. If you think about from a strategic perspective, these technologies that we're deploying in Western Canada, the next piece obviously do a good job of developing that opportunity. But I think we're uniquely positioned to then export those types of technologies globally, particularly in Brazil and other places in Latin America. That's certainly on our radar screen. Yes, sir.
Yeah, based on our plans, where do we expect our output to go? Just on the numbers, and we don't have formal production guidance, but if you look at the facilities-based plan that we have in Brazil, that next step up for us, we've had some good results, obviously up 40%, up 25% this year. If we can be up 20% next year and paying out half of our cash flows in stakeholder returns, I think that's a pretty good result. So visualize that as the next step in Brazil, and then based on success, we can decide, do we do that for a long period of time, or do we create another step up? Okay. That takes us from 3,000 to 3,600, 3,700 in Brazil. The Canadian piece is only about 150 bpd today.
But with the seven gross wells that we're drilling in the fourth quarter, that could easily be 600 as we go into Q1, and then it's really dependent on the pace at which we Well, it's dependent on oil prices and the pace at which we drill up that inventory. But I think with the existing inventory we have in Canada, that could easily be a 2,000 bpd asset for us. So, and then that's on a combined basis, a doubling of the size of the company from today. Yes, sir.
Brazilian presidential election is Sunday. Do you have a favorite between Lula on the left and Flávio on the right? How much does the government sort of have a role in your operations?
Yeah, just a broad question about the Brazilian elections with the presidential runoff coming here in the next week. The main thing is we've been there for a while, and we've been through Bolsonaro to Lula to maybe now back to Bolsonaro. The important thing to know about how Brazil works is there's a whole bunch of parties. They go through a first phase of election to debate, and then there's two levels of government, and everything has to kind of get voted through those levels of government. That part of it's already been done in the first election. Even when Lula got elected, there was a mixture of the composition of that lower house, basically, which puts some pretty tight guardrails on what an individual can and cannot do. To be honest, partly because of that, I'm not expecting a bunch of change.
That's partly based on the fact we've been through all that and there hasn't been, I would say, a discernible impact from my perspective. The main thing is we're dealing with very professional regulators from an environmental perspective in the State of Bahia with an entity called the INEMA. Then from a state, federal, energy policy perspective, it's called the ANP. Also been very supportive and very good of the industry. If anything, our royalty rates have been They've been trying to encourage activity. At the end of the day to fund the social programs that need to be funded, this is a pretty critical industry, including their state oil company, so. I'm not going to pick favorites, but yeah. Next. Yes, sir.
How well does the dividend cover, whether it's cash flow or dividend payout ratio when it's green?
If we went back to that pie, in the green wedges, this is from inception, but we did do a little bit of a project financing loan at the beginning of the project. We had that repaid within 18 months of coming on production. Pretty close to when that was getting repaid, we introduced the dividend, I think, in the third quarter of 2021. What did I say that number was? $230 million. Just to get the same timing, this dividend number's up to $80 million now, but to cover the Q2 timeframe, we paid dividends of $75 milli on off of $230 million of funds flow from operations.
But some of these wedges are gone now, so we do have some additional flexibility. To be fair, right now, we've accelerated some of our capital from next year into the fourth quarter. That's why we have all those catalysts that I talked about earlier. We are spending a bit more than we kind of would normally here in the second half of this year. All right. Another question? Yes.
The technology that's the pitchfork model—
Yeah
—is that deployed or something that you are anticipating?
Yeah, to be clear, this is not something that we developed. Yeah, no, this is one of the leading technologies that is being deployed right now. We have already, with our partner, drilled, well, seven of them. We have got a couple that are just being brought on production today, as we speak. Yes.
Who owns the stock? What is the long-term vision?
Who owns the stock? We were actually created as a spin-out from that public company I talked about earlier, Petrominerales, so we are pretty widely held. We are traded in Canada as well as on OTCQX, and it is fairly broadly held. The management team owns over 8%. There is one shareholder that is disclosed over 10%, and then I would say it is characterized by retail high net worth and family office, and as the business has evolved, I think we have got an opportunity to—
Additional—
Over 8%. Where does the management team want to take their insider position? Oh, the company. Where we want to take the company? Well, one step at a time, but if we can get to doubling the company in the short to medium term, that's a good result. Yeah. Thank you.