In a July 7 research note, Mackie Research Capital Corp. analyst Bill Newman reported that Alvopetro Energy Ltd. (ALV:TSX.V; ALVOF:OTCQX) "achieved an important milestone" by connecting Brazil's Caburé to Bahiagás' distribution network and commencing its first physical sales production from the natural gas field.
"This is an important milestone as the company is now generating free cash flow that can be reinvested into other growth opportunities. We expect the stock to trade up on the news," Newman stated.
"Natural gas and revenue are flowing," Newman added. "With the production facilities in place, new discoveries can be quickly monetized."
The analyst noted that Alvopetro ramped up its natural gas production on July 6 to 10.6 million cubic feet per day (10.6 MMcf/d). For each million British thermal units of gas it sells, it will receive US$5.13 this month.
Revenue of US$5.9 million is expected in H2/20, Newman highlighted, with a near tripling to US$16.7 million in 2021. The Calgary-based firm is expected to use the cash flow for other growth opportunities its portfolio of assets presents.
Newman also pointed out that Alvopetro intends to expand production to 17.6 MMcf/d, the total capacity of its transfer pipeline and gas treatment facility. To do so, the company plans to start a drill program, perhaps in late 2020.
Mackie has a Speculative Buy rating and a CA$1.65 per share target price on Alvopetro. In comparison, the stock is now trading at CA$0.78 per share.
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Disclosures from Mackie Research, Alvopetro Energy Ltd., Update, July 6, 2020
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